By Christopher Migliaccio, JD, Partner, Elisha M. Brestovansky, CPA, MBA, Director, and Thomas Kinder, JD, Director
On May 14, 2025, the U.S. House Ways and Means Committee advanced its tax bill, “The One, Big, Beautiful Bill.” The House Budget Committee must now assemble all the various sections of the package for a floor vote, with House Republicans hoping to vote on the final package before Memorial Day. It’s important to keep in mind that even if the House does pass the bill, it would need to go to the Senate. In other words – we’re still a long way from final legislation. However, reviewing what has made it into the bill can be instructive as to what a final bill could include. A summary of the bill’s key tax items is below.
Key Provisions
- Extension of Tax Rates – The current income tax rates would continue for individuals, estates and trusts and be indexed for inflation. No change to the corporate tax rate.
- For Pass-Through Businesses (Partnerships and S Corporations) – Makes permanent the Qualified Business Income Deduction (IRC Section 199A) and increases it from 20% to 23% deduction beginning in 2026.
- Changes to the State and Local Tax (SALT) Deduction – To $15,000 for married filing separate taxpayers and $30,000 for other taxpayers, including phase-downs for high income earners. Potential limitations on the use of pass-through entity tax workaround for service businesses (i.e., medical practices, attorneys, accountants, architects and engineers and similar).
PKFOD Observation: The treatment of the SALT deduction is being hotly debated – this will be one to watch. There are factions within the Republican caucus that would like to see a much larger increase.
- Extension of Increased Estate and Gift Tax Exemptions and Permanent Enhancement – Gift and estate tax exemptions would be $15 million beginning in 2026.
- Extension of Bonus Depreciation of 100% – For property placed in service from January 19, 2025 through December 31, 2029.
- Restoration of Full Expensing for Research and Development Costs – In 2025 through 2029.
- Restoration of Business Interest Deduction Computation under IRC 163(j) – To include an add-back for depreciation and amortization expense.
Other Key Items to Watch for Businesses (in General)
- Increase of IRC Section 179 Expense Limit – To $2,500,000 beginning in 2025.
- Increased Gross Receipts Threshold – To $80 million (from $25 million) for small manufacturers for simpler accounting methods.
- Enhancement of Employer-provided Childcare Credits – Increase of credit from 25% to 40% to a maximum credit of $500,000 and 50% for small businesses up to a maximum of $600,000.
- Extension and Enhancement of Paid Family Leave Tax Credit.
- Increase in Form 1099 Reporting Threshold – From $600 to $2,000 and annual increases indexed for inflation.
Provisions for Specific Industries
- Extension of Tip Credits to Beauty Services Businesses – Including barbering and hair care, nail care, esthetics, and body and spa treatment businesses.
- Renewal and Enhancement of Opportunity Zones – Including a new round of opportunity zone designations.
- Termination of Commercial Clean Vehicle Tax Credit and Other Energy Tax Credits.
- Updates to the Employee Retention Credits (ERC) – Including an extension of time for the IRS to challenge a claim to six years from the date the claim is filed and a halt of ERC refund processing for claims filed after January 31, 2024.
International Tax
- Extension (indefinitely) of Deduction Rate at Current Levels for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) – Deduction rate currently set to decrease at end of 2025.
- New Section 899 – Would increase the tax on U.S. Income of foreign individuals and foreign-owned corporations, if the parent country imposed unfair taxes on U.S. businesses (i.e., enacted Pillar 2 legislation). The 5% additional tax would be on the withholding tax provisions currently existing under U.S. tax law.
- Modifies the Base Erosion and Anti-Abuse Tax (BEAT) – By increasing the BEAT tax base from 10% of modified taxable income to 12.5%, among other alterations.
Other Key Items to Watch for Individuals
- No Tax on Tipped Income – Tipped income would be separately shown on W-2s and allowed as a deduction on income tax returns beginning in 2025 through 2028. Language would limit this to industries where tips are currently customary.
- No Tax on Overtime Wages – Overtime wages would be separately shown on W-2s and allowed as a deduction on income tax returns beginning in 2025 through 2028.
- Increase and Temporary Enhancement – Of standard deduction and permanent removal of personal exemptions.
- Temporary Enhancement of the Child Tax Credit – To $2,500 for 2025-2028 and $2,000 thereafter.
- Extension of Alternative Minimum Tax (AMT) Exemption and Phase-out Thresholds.
- Extension of Limitation on Deduction – For qualified residential interest and casualty loss deductions.
- Permanent Termination of Miscellaneous Itemized Deductions.
- Limitations of Tax Benefits of Itemized Deductions – For high-income earners.
- Tax Credits for Individual Contributions to Scholarship Granting Organizations – Limited to the greater of $5,000 or 10% of adjusted gross income.
- 529 Plan Updates – Additional elementary, secondary, and home school expenses treated as eligible education expenses, and creation of a federal program similar to 529 state plans.
- Termination of Clean Vehicle Tax Credit and Other Energy Tax Credits.
Standby
The above list is just a sampling of the potential tax changes. The final tax legislation is likely to change after the final vote from the House and then the Senate. However, it is imperative that both individuals and businesses alike be aware of the potential changes.
Contact Us
If you have questions about the proposed tax changes, contact your Client Service Partner or:
Christopher Migliaccio, JD
Partner
cmigliaccio@pkfod.com
Elisha M Brestovansky, CPA, MBA
Director
ebrestovansky@pkfod.com