The Latest on Washington’s “Beautiful” Tax Bills

Written by Todd Martin, IV, Senior Manager and Jan Lewis, Member

On May 22, Americans got their first look at a proposed tax legislation package under the new administration with the House passing the “One Big Beautiful Bill Act.” Not to be outdone, the Senate Finance Committee responded on June 16 with its own version―bigger, arguably even more “beautiful,” and carrying a $5 trillion price tag.

While the House and Senate versions of the bill share a common framework and largely aim to extend or refine provisions from the 2017 Tax Cuts and Jobs Act (TCJA), the details can get dense, and fast. To spare you the task of reading through every technical nuance, this article focuses on the most notable tax provisions, any known differences between the House and Senate versions as of June 17 and, most importantly, attempts to let you know what to expect next.

TCJA Extensions and Modifications

The One Big Beautiful Bill Act (OBBBA), passed in the House, builds on the TCJA, locking in and expanding several key provisions that directly impact individuals and business owners:

Permanent Extensions:

Individual Tax Rates: The lower TCJA-era brackets (10%–37%) are made permanent, avoiding a reversion to pre-2018 rates.
Standard Deduction: The doubled standard deduction is retained and temporarily increased through 2028.
Qualified Business Income (QBI) Deduction: The 20% deduction for pass-through income is made permanent and increased to 23% in the House Bill (deduction remains at 20% of pass-through income in the Senate’s version).
Estate and Gift Tax: The exemption in both the House and Senate versions is permanently increased to $15 million per individual, indexed for inflation.

Modified Provisions:

SALT (State and Local Tax) Deduction: The cap increases to $40,000 in 2025, with a phase-out for taxpayers earning over $500,000 (a $10,000 “placeholder” is in the Senate’s version, acknowledging negotiations are expected to continue).
Bonus Depreciation: 100% expensing extended through 2029 for qualifying property, including new “Qualified Production Property” used in manufacturing and agriculture (100% expensing is permanent in the Senate’s version).
Section 179 Expensing: Limit is increased to $2.5 million, with phase-out beginning at $4 million.
Interest Deduction (163(j)): This returns to a more favorable EBITDA-based calculation for 2025–2029 (calculation is permanent in the Senate’s version).
R&D Expensing (Section 174): Domestic research expenses can be fully deducted through 2029 (deduction is permanent in the Senate’s version).

Phased Out or Removed:

Clean Energy Credits: Most credits for electric vehicles, solar, hydrogen, and energy-efficient homes are eliminated or will sunset early.
Employee Retention Credit (ERC): Retroactively terminated to only accept claims filed before January 31, 2024, with enhanced enforcement and penalties for promoters.

New Provisions and Business Incentives

The bill introduces several new tax strategies and incentives, some of which are temporary and others structural:

Temporary Relief (2025–2028):

No Tax on Tips and Overtime: Individuals in tipped or hourly roles can deduct these earnings, excluding “highly compensated employees,” those making generally over $140,000 (Deductions are limited and the income cap is higher in the Senate’s version).
Senior Deduction: A new $4,000 deduction for taxpayers aged 65+ (deduction is $6,000 in the Senate’s version).

Interesting Provisions for Pass-Through Businesses

The SALT deduction provisions are especially important for businesses structured as partnerships or S corporations (pass-through entities), as the House bill imposes significant restrictions on the ability of service businesses to deduct state income taxes for federal tax purposes. The Pass-Through Entity Tax (PTET) regime—widely used by business taxpayers since the SALT cap was reduced to $10,000—has allowed these entities to treat state income taxes on business income as deductible business expenses at the federal level. Under the House bill, while the individual SALT deduction would increase to $40,000 for those earning under $500,000, it would prohibit partners and shareholders in service businesses from deducting state income tax at the entity level. As a result, many business owners, particularly those with incomes exceeding $500,000, could be in a worse position under the House proposal.

In contrast, the Senate’s version is somewhat more favorable for pass-through entities. It does not target service businesses specifically and continues to allow the PTET deduction for those entities. While it generally retains the $10,000 cap for itemized SALT deductions, the Senate bill introduces a separate cap of $40,000 on the amount of state income tax that pass-through entity owners may deduct for federal tax purposes.

This evolving issue warrants close attention, given the divergent approaches between the House and Senate and the potentially significant impact on business taxpayers. It is also important to note that both the $10,000 and $40,000 thresholds remain subject to ongoing negotiations and are likely to change.

So, What Happens Next…

Republicans have set an ambitious goal of delivering the OBBBA to President Trump by July 4. However, given the bill’s scope―one of the most comprehensive tax and budget overhauls in recent memory―key provisions remain in flux as negotiations continue. The Senate has not yet voted on the bill that is proposed by the Senate Finance Committee, so that is the first hurdle.

Additionally, there are many other provisions in the bill that the Senate and House will still have to negotiate. Key differences remain, not only for SALT, but also in the Medicaid cuts that are in the proposed legislation as well as many other provisions. The impact on the national debt is also an important issue to many in Congress. Therefore, there are difficult tax and nontax items that need to be reconciled before any final package is voted on by the Senate and the House, and finally sent to the President’s desk for signature. So, hold on for a bumpy ride!

If you have any questions about how these proposed changes could affect your business or personal tax situation, we encourage you to contact your BMSS tax professional or call (833) CPA-BMSS for personalized guidance and strategic planning.