7 Ways Your Tax Bill Could Change Under the New Law

If you have substantial wealth, itemize deductions or own a business, you’ll find a lot to like in the legislation commonly referred to as the One Big Beautiful Bill Act (OBBBA), which was signed into law this past Independence Day. The law makes many provisions of the Tax Cuts and Jobs Act (TCJA) “permanent,” like today’s lower income tax rates that were set to expire at the end of the year. It also adds some new provisions and expands others, like the increased state and local tax (SALT) deduction cap, which means your effective rate could even decrease.

While the 870-page law is complex, the following are seven key areas where you may want to pay particular attention.

1. The SALT deduction cap

TCJA limited the federal tax deduction for money you spend paying state and local taxes—including property tax, state income tax and sales tax payments—to $10,000. That deduction cap, which had been scheduled to expire at the end of the year, increases to $40,000 for 2025. Beginning in 2026, the cap will grow by 1 percent each year through 2029. In 2030, it is scheduled to revert to $10,000. The temporarily expanded deduction will phase down for taxpayers with a modified adjusted gross income (MAGI) of $500,000 or more but will never be reduced below $10,000.

The deduction cap increase is good news for people who pay high taxes at the state level.

2. The standard deduction

Increases in the standard deduction, introduced in TCJA, simplified tax filing for most Americans. These higher deductions were set to automatically sunset at the end of the year. Under OBBBA, those increases are now permanent. Effective for the 2025 tax year, the standard deduction will be $15,750 for single or married filing separately, $23,625 for head of household, and $31,500 for married couples filing jointly. The higher standard deduction will be indexed for inflation going forward.

3. Deductions for charitable contributions

On a related note, starting in 2026, the law corrects what many saw as a disincentive for charitable giving, since taxpayers using the standard deduction received no tax benefit for charitable contributions. OBBBA allows taxpayers who use the standard deduction (most taxpayers) to also deduct certain charitable contributions—up to $1,000 for single filers or $2,000 for married couples filing jointly.

For those who do itemize, the new law provides a charitable contribution deduction only when total charitable contributions exceed 0.5 percent of the taxpayer’s adjusted gross income (AGI) starting in 2026.

4. Qualified business income deduction

The new law makes the qualified business income (QBI) deduction permanent, retaining the current 20 percent deduction for pass-through entities. The vast majority of small businesses in the U.S. are structured as pass-throughs. Pass-throughs include business set up as LLCs, LLPs and S-Corps. OBBBA sets the minimum active QBI deduction at $400, which is triggered by just $1,000 of qualified business income. Additionally, the law increases the phase-in income threshold from $50,000 to $75,000 (single taxpayers) and from $100,000 to $150,000 (married filing jointly). After 2026, the thresholds will be adjusted annually for inflation.

5. Bonus depreciation

TCJA allowed some business owners to deduct the entire purchase price of qualified business property in the year of acquisition. However, that provision of the law had a phase-down clause, so that by 2025 taxpayers could deduct only 40 percent of the purchase price.

OBBBA makes permanent the original 100 percent deduction for property bought after January 19, 2025. The change will help taxpayers quickly recover the cost of capital expenditures.

6. Qualified small business stock sales

To encourage investment in small enterprises, the federal government offers a capital-gains tax exclusion for individuals profiting from the sale of certain qualified small business stock (QSBS). Under OBBBA, those advantages are increased. Prior law permitted taxpayers to exclude gains on the sale of QSBS up to the greater of $10 million or 10 times adjusted basis value. The business generally must not have exceeded a $50 million valuation at any point, and you must have held the stock for at least five years.

OBBBA permanently expands access to this tax incentive by eliminating the so-called “five-year cliff,” allowing 50 percent of the maximum exclusion for stock held at least three years and 75 percent for stock held at least four years. QSBS held for at least five years is still eligible for 100 percent of the maximum exclusion. Additionally, the gross asset limitation is increased to $75 million and will be adjusted for inflation in future years. These new rules are effective for QSBS issued after the new law’s enactment on July 4, 2025.

Note that many business types are ineligible, and IRS guidelines are broad, so working closely with your tax professional can help ensure you get the details right.

7. The lifetime estate, gift and GST tax exemptions

The lifetime estate and gift tax exemption will increase to $15 million for individuals and $30 million for married couples filing jointly beginning in 2026. Under TCJA, these amounts would have been cut roughly in half from today’s exemption of $13.99 million per person and $27.98 million for married couples filing jointly. What’s more, the new exemption amount will be indexed to inflation beginning in 2027.

The law also increases the generation-skipping transfer (GST) tax lifetime exemption, but note that (as before) transferring wealth directly to grandchildren or the generations that come after them means you will be using your GST exemption alongside your estate and gift tax exemption. Meanwhile, the tax rate on wealth transfers above these exclusions holds steady at 40 percent.

While these rules are not set to expire, it’s important to note that this topic has been controversial in Congress and—like the other so-called “permanent” provisions—could be changed in the future. So even though OBBBA creates more certainty, if you have a large estate, now is a great time to engage in planning to possibly “lock in” these historically high exemptions.

Your financial advisor can help you navigate these changes

Passage of OBBBA brings more certainty for taxpayers, as many of the bill’s provisions extend or make permanent items that were scheduled to expire at the end of this year. With a clearer view of the future—at least from a tax perspective—you and your advisor can plan more effectively. Together, you can build a plan that helps you achieve your financial goals.

This publication is not intended as legal or tax advice. It is intended for information and educational purposes and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. This information was compiled by The Northwestern Mutual Life Insurance Company. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.