The recently enacted One Big Beautiful Bill Act (OBBBA) brings sweeping tax changes that will affect individuals, families, educators, investors, and business owners starting in 2025. While some provisions deliver generous new opportunities, others impose surprising restrictions. Below, we break down the most significant updates and what they mean for you.
1. Educator Expense Deductions Get an Upgrade
For 2025, educators—including teachers, counselors, and principals—can still claim an above-the-line deduction of up to $300 for classroom expenses. However, starting in 2026, the OBBBA expands this benefit:
- Retains the $300 above-the-line deduction.
- Allows additional itemized deductions for expenses above $300.
- Expands the definition of “eligible educator” to include coaches and sports administrators.
- Broadens eligible expenses to cover athletic supplies for PE courses and instructional activities beyond the classroom.
Planning tip: Itemizing will be more beneficial starting in 2026, especially with the expansion of the state and local tax (SALT) deduction.
2. Trump Accounts: A New Wealth-Building Tool for Children
Perhaps the most headline-grabbing change is the introduction of Trump Accounts, a new tax-deferred savings vehicle for minors. Key features include:
- $1,000 government seed money for newborns (2025–2028).
- Annual contributions up to $5,000 from family, plus $2,500 from employers.
- Investments limited to low-cost index funds and ETFs.
- At age 18, the account converts into a traditional IRA.
Over time, these accounts could grow into substantial wealth—potentially over $1.2 million by age 60 with consistent contributions and modest returns.
3. Expanded Uses for Section 529 Plans
OBBBA broadens the scope of 529 education savings accounts, making them more versatile:
- Funds may cover licenses, certifications, and career training (not just college).
- K-12 withdrawals can now include books, online materials, tutoring, standardized test fees, and therapy for disabilities.
- Starting in 2026, the K-12 annual limit doubles to $20,000.
- Up to $35,000 can be rolled into a Roth IRA.
This turns 529 plans into a lifelong learning tool, not just a college fund.
4. Bigger Breaks for Qualified Small Business Stock (QSBS)
For entrepreneurs and investors, the OBBBA strengthens the already powerful QSBS rules:
- Increases the eligibility cap from $50M to $75M in assets.
- Introduces partial gain exclusions for stock held 3–4 years.
- Raises the lifetime exclusion from $10M to $15M (or 10x basis).
Example: An investment of $100,000 in 2026 that grows to $1.1M by 2031 could yield a $1M tax-free gain, saving $238,000 in federal taxes.
5. Itemized Deductions: Gains and Losses
The OBBBA permanently repeals miscellaneous itemized deductions—including unreimbursed employee expenses and investment fees. But other deductions remain:
- Mortgage interest
- SALT
- Charitable contributions
- Medical expenses
- Casualty and theft losses
However, starting in 2026, taxpayers in the 37% bracket face a haircut—capped at a 35% benefit for itemized deductions.
6. New Overtime Deduction
Good news for hourly workers: OBBBA introduces a temporary deduction for overtime pay (2025–2028):
- Up to $12,500 per year (single filers).
- Up to $25,000 per year (married filing jointly).
The deduction phases out for incomes above $150K (single) and $300K (joint), but most overtime earners will qualify.
7. Bonus Depreciation: 100% Deduction Is Back
For business owners, OBBBA makes 100% bonus depreciation permanent for personal property like equipment, computers, and furniture.
- Applies to property acquired after January 20, 2025.
- Section 179 limits rise to $2.5M, though bonus depreciation will dominate.
- Special 100% deduction for manufacturing real estate (factories, assembly lines) through 2028.
This change allows businesses to fully expense investments immediately, boosting cash flow.
8. Gambling Loss Deductions Shrink
Starting in 2026, gamblers may deduct only 90% of their losses against winnings. The remaining 10% is permanently disallowed.
Example: Win $10,000 and lose $10,000—you’ll still report $1,000 in taxable income. Lawmakers may challenge this unpopular rule, but for now, meticulous record-keeping is essential.
9. Paper Checks Are Going Away
The U.S. Department of the Treasury recently announced that paper checks for federal payments are being phased out. This move is designed to improve efficiency, reduce fraud, and cut costs. Going forward, most federal disbursements—including Social Security, veterans’ benefits, and tax refunds—will be issued electronically via direct deposit or prepaid debit cards.
What this means for you:
- If you still receive paper checks from the federal government, you will need to switch to direct deposit.
- Electronic payments are faster, more secure, and less likely to be lost or stolen.
- The Treasury encourages beneficiaries to update their banking information as soon as possible to avoid disruptions.
You can learn more on the Treasury’s official site: Paper Checks Are Going Away.
10. Meet Our Free Client Chatbot
We’re excited to announce that Allied Tax Advisors now offers a free chatbot on our website! This tool is designed to help clients:
- Get quick answers to common tax questions.
- Access key resources 24/7.
- Learn more about recent tax law changes, like those in the OBBBA.
The chatbot is completely free to use and available anytime through our website. It’s a fast and easy way to get the information you need without waiting for office hours.
Final Takeaway
The One Big Beautiful Bill Act reshapes the tax landscape with both opportunities and pitfalls. From expanded savings tools (Trump Accounts, 529s) to business-friendly depreciation rules and new income deductions, the law offers significant benefits. But at the same time, gamblers, high-income itemizers, and unreimbursed employees may find themselves paying more.
With additional changes like the elimination of paper checks for federal payments and new digital tools like our free chatbot, it’s clear that both the tax and financial systems are evolving rapidly.
As always, the key to maximizing these changes lies in careful planning and documentation.
Brought to you by Allied Tax Advisors – helping you stay informed and prepared for the tax changes ahead.
By Michael Alramo, CPA