August 2025 – UMMC Located in Leesburg and Warrenton, Virginia CPA

How the ‘One Big Beautiful Bill Act’ (OBBBA) Applies to You

Posted on August 14, 2025January 23, 2026 by UMMC

As we approach the closing chapters of the Tax Cuts and Jobs Act (TCJA), implemented during President Trump’s first term, taxpayers find themselves at a crossroads. With many of the TCJA’s provisions set to expire after 2025, the introduction of the One Big Beautiful Bill Act (OBBBA) offers timely extensions and nuanced modifications to these sunsetting policies. Acting as both a continuation and a re-envisioning of prior legislation, the OBBBA not only extends key tenets of the TCJA—such as individual tax rates and business deductions—but also introduces innovative changes that reflect the evolving economic landscape. By addressing emerging challenges while capitalizing on the TCJA’s foundational successes, the OBBBA aims to solidify a path toward a more sustainable and inclusive fiscal future, ensuring relief and opportunity across all levels of the American taxpayer spectrum.

On July 4th, President Trump signed OBBBA into law, introducing myriad changes to the tax landscape. Some of the changes will impact the current year, 2025, and other subsequent years.

This article focuses specifically on the provisions of the OBBBA that directly impact individual taxpayers, small businesses, and family-oriented tax benefits, deliberately omitting the changes and extensions that pertain solely to large corporations and big business. This approach ensures that the content remains highly relevant and applicable to the everyday decisions of individual taxpayers and small business owners, who often navigate their financial responsibilities without the same resources that large corporations possess.

By concentrating on these facets, this article provides a tailored snapshot of the OBBBA’s impact, ensuring that readers are equipped with information that is not only pertinent but also actionable within their tax planning and financial management strategies. This focus allows individual taxpayers to comprehend and leverage the changes that matter most to them, without being overwhelmed by the complexities inherent to provisions designed for big business.

These reforms are aimed at offering widespread relief and financial improvements to millions of taxpayers. Below, we provide an in-depth look at the various key elements of the Act, essential for understanding its impact and implications.

NOTE: MAGI (Modified Adjusted Gross Income) is referred to multiple times in this article. For most taxpayers it is the same as the AGI. MAGI is AGI with foreign and territory excluded income added to the AGI.

Individual Tax Rates – OBBBA prolongs and enhances reduced individual tax rates, which are now extended beyond January 1, 2026. The Act aims to continue the legacy of lower rates initially brought in with past resolutions, thereby mitigating tax burdens for middle-income families. Tax bracket adjustments linked to inflation will apply from taxable years after December 31, 2025. The extensions of the TCJA rates favors the wealthy by continuing the elimination of the 39.6% tax bracket.

Standard Deductions – OBBBA extends, increases and makes permanent the higher TCJA standard deductions. The 2025 standard deductions, the last year under TCJA, were originally scheduled to be $15,000 for single and married filing separate taxpayer, $22,500 for heads of household, and $30,000 for married taxpayers filing jointly. However, OBBBA also makes an inflation adjustment to the 2025 rate using a different prior-year base that will significantly increase in the standard deductions for 2025. We will have to wait for the IRS to make that calculation and release the updated amounts for 2025.

Senior Tax Deduction – A temporary additional deduction for seniors aged 65 and older has been introduced, allowing a $6,000 deduction per qualified individual. This is phased out with higher income levels, beginning for taxable years before January 1, 2029. However, it only applies to taxpayers with a MAGI less than $75,000 ($150,000 for married couples filing jointly) which limits applicability. This deduction is in place of Trump’s campaign promise to eliminate the tax on Social Security. This provision becomes effective in 2025.

Child Tax Credit – OBBBA enhances support for families by increasing Child Tax Credit from $2,000 to $2,200 per qualifying child, beginning in 2025 and inflation adjusting the credit in subsequent years. The modifications also include some strict Social Security number requirements for children and parents. The credit phases out for higher income taxpayers beginning at a MAGI of $400,000 married taxpayers jointly and surviving spouse and $200,000 for others.

Qualified Business Income (QBI) Deduction – The QBI deduction receives a boost, with increased phase-in amounts from $50,000 to $75,000 for individuals and $100,000 to $150,000 for joint filings ensuing after December 31, 2025.

Qualified Small Business Stock (QSBS) – C Corporation shareholders can exclude gains from the sale of QSBS, and for QSBS acquired after July 4, 2025, the exclusion rates are 50% after three years, 75% after four years, and 100% after five years of holding the stock. The exclusion cap is raised to $15 million, and the corporation’s asset limit is increased to $75 million, both of which will be adjusted for inflation after 2026. More restrictive exclusions apply to QSBS acquired before July 5, 2025, the most recent being for the period September 28, 2010, through July 4, 2025, providing 100% exclusion for stock held for more than 5 years.

Minimum QBI Deduction – OBBBA creates a new, inflation-adjusted, minimum deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trades or businesses in which the taxpayer materially participates. This ensures small business owners with a certain QBI level are entitled to an enhanced baseline deduction. Both the $400 and $1,000 are inflation adjusted to the nearest $5.

Sec 529 Plans Qualified Funds Usage – Effective for distributions after July 4, 2025, OBBBA expands the use of Section 529 plans, allowing funds to cover expenses associated with elementary and secondary school and postsecondary credentialing programs. This includes costs related to tuition, fees, books, and other educational expenses for both school levels, as well as expenses for obtaining professional certificates and licenses at the postsecondary level. By broadening the scope of qualified expenses, the OBBBA enhances the flexibility and utility of 529 plans, making them a more versatile tool for families planning educational investments across various stages of learning.

Estate and Gift Tax Exemption – OBBBA permanently extends the estate and lifetime gift tax exemption, increases the exemption amount to $15 million for single ﬁlers ($30 million for married ﬁling jointly) effective in 2026, and indexes the exemption amount for inﬂation going forward. That is up from $13.99 million in 2025. This change serves to preserve more wealth within families.

Alternative Minimum Tax (AMT) – Enhancements in AMT exemptions and phaseout thresholds continue, preventing middle-income taxpayers from undue burdens under the AMT system starting January 1, 2026.

Gambling Losses – The new law permanently continues the current provision that limits gambling loss to gambling income. In addition, beginning in 2026, the deduction for gambling losses is limited to 90% of the actual losses.

Mortgage Interest -OBBBA makes permanent the $750,000 ($375,000 in for married taxpayers filing separate). However, OBBBA also restores the deduction for certain mortgage insurance premiums that sunset back in 2021 on home acquisition indebtedness and treats the premiums as qualiﬁed residence interest but also included as part of the $750,000/$375,000 limits.

No Tax on Tips – OBBBA permits a deduction up $25,000 for tips received by an individual in an occupation, other than a “specified trade or business”, which customarily and regularly receives tips including tip sharing. The tips must be voluntary, not subject to any consequence for non-payment, not negotiable, and the amount determined by the payer.

No Tax on Overtime – There also is a new deduction for overtime. However, for this provision overtime pay is the difference between the workers regular pay rate and the overtime pay rate not the entire amount for working overtime. The maximum amount that can be deducted is $12,500 ($25,000 for a married couple).

The Following Applies to Both the Tips and Overtime Deductions
• The deduction begins to phase out for when the taxpayers MAGI exceed $150,000 ($300,000 for married couples filing jointly).
• The deduction is temporary and only allowed 2025 through 2028.
• Married Couples must file joint to claim the deduction.

Car Loan Interest – The new tax bill includes a temporary interest deduction, 2025 through 2028, for qualified passenger vehicles including cars, minivans, vans, SUV, pickup trucks, or motorcycles. Does not include campers or recreational vehicles. The $10,000 maximum deduction begins to phase out for when the taxpayer’s MAGI exceed $100,000 ($200,000 for married couples filing jointly) and is fully phased out at $150,000 ($250,000 for married couples filing jointly. The loan cannot be with a related party; the vehicle must be assembled in the U.S. and must weigh 14,000 pounds or less.

Trump Accounts – The legislation introduces “Trump accounts,” tax-advantaged savings accounts for children born between 2025 and 2028, with a $1,000 initial federal deposit. U.S. citizen children can receive up to $5,000 annually from parents and $2,500 from employers, invested in a diversified U.S. stock index fund. Earnings grow tax-deferred, with qualified withdrawals taxed as long-term capital gains. Some experts prefer 529 college plans due to their higher contribution limits and tax benefits. The individual must not have reached the age of 18 by the end of the calendar to establish a Trump account.

State and Local Tax (SALT) Deduction – OBBBA imposes new limits on the SALT deduction, initially capping it at $40,000 starting in 2025. The cap is increased a small amount for each subsequent year until it reaches $41,624 in 2029. Then in 2030 reverts to the $10,000. One-half of those amounts for married taxpayers filing separate. The deduction is also subject to a MAGI inflation adjusted phaseout threshold of $500,000 for 2025, at which point the annual SALT limit is reduced by 30% of the difference between the threshold and the actual AGI but not less than $10,000.

Casualty Loss Deduction – Under TCJA casualty loss deductions were suspended except for those encountered in federally declared disaster area. OBBBA continues and makes permanent that limitation with one exception. The scope of the casualty loss deduction is expanded to include both state-declared and federally declared disasters.

Pease Limitation – Prior to 2018 there was limitation on itemized deductions that impacted higher income taxpayers. TCJA suspended that limitation through 2025. Effective for tax years after 2025, OBBBA permanently repeals the Pease limitation and replaces it with a new overall limitation on itemized deductions that impacts taxpayers in the 37% (the highest) tax bracket.

Adoption Credit – OBBBA makes $5,000 of the adoption credit refundable effective for taxable years after 2025.

Dependent Care Assistance – OBBBA amends the existing limit for dependent care assistance, increasing it from $5,000 to $7,500. For taxpayers filing separately, it increases from $2,500 to $3,750.

Bonus Depreciation – Primarily applies to tangible property with a recovery period of 20 years or less. OBBBA restores 100% bonus depreciation after January 19, 2025.

Energy Credit Terminations – Under prior law, clean vehicle and associated tax credits didn’t sunset (terminate) until after 2032. OBBBA accelerates the sunsets.
• Previously Owned Clean Vehicle Credit: September 30, 2025
• Clean Vehicle Credit: September 30, 2025
• Qualified Commercial Clean Vehicle Credit: September 30, 2025
• Alternative Fuel Vehicle Refueling Property Credit: June 30, 2026
• Energy Efficient Home Improvement Credit: After December 31, 2025
• Residential Clean Energy (includes solar): After December 31, 2025

Contributions To Scholarship Granting Organizations – OBBBA creates a tax credit (dollar for dollar) up to a maximum $1,700 for contributions to qualified organizations granting scholarships to eligible students. Unused credit can be carried forward 5 years. Includes qualifications for scholarship recipients and organizations granting scholarships. Effective for tax years beginning after 2025.

Charitable Contribution Non-itemizers – The new law allows non-itemizers to claim cash contributions to qualifying charities of up to $1,000 ($2,000 for joint filers). Effective tax years beginning after 2025.

The One Big Beautiful Bill Act introduces a range of important provisions that can significantly impact individuals and small businesses. Understanding these changes is crucial to optimizing your tax strategy and ensuring compliance. As these provisions unfold, it’s important to stay informed about how they may specifically affect your financial situation.

We encourage you to contact our Leesburg or Warrenton office should you have any questions or wish to schedule a planning appointment, 703-771-1818 or 540-347-5681. Our team is here to guide you through this evolving landscape, helping you navigate the complexities of tax regulations with confidence and clarity.

Self-Employed? Tips Individuals Should Know About Self-Employment Tax

Posted on August 14, 2025November 10, 2025 by UMMC

Self-employment tax plays a crucial role in the life of every entrepreneur, freelancer, and business owner. Understanding this tax is essential for anyone who makes their living other than as an employee. In this article, we will delve into the components of self-employment tax, how it compares with payroll taxes, who is exempt, and other related issues.

What is Self-Employment Tax?

Self-employment tax is the Social Security and Medicare taxes for individuals working for themselves. The portion of the individual’s SE earnings subject to this tax is 92.35% of their net business profit. It encompasses two parts determined as a percentage of the adjusted business net profit: a 12.4% Social Security tax and a 2.9% Medicare tax, with the 12.4% rate applying to net earnings up to $168,000 for 2024 ($176,100 in 2025), and no cap on the amount of net SE earnings subject to the 2.9% Medicare tax. This SE tax is analogous to the Federal Insurance Contributions Act (FICA) taxes that employees, through withholding, and their employers pay, but the self-employed individual must cover both the employer and employee portions.

Net Earnings Subject to Self-Employment Tax

As mentioned previously, self-employment tax is a percentage of 92.35% of the net earnings from self-employment. Unlike employees, self-employed individuals can deduct their business expenses from their gross income to determine their net income. Although there are others, here are some key deductions commonly available to self-employed individuals:

Home Office Deduction: If you use a part of your home exclusively and regularly for business purposes, you can deduct related expenses. This can include a portion of your rent or mortgage interest, utilities, and home maintenance.

Cost of Goods Sold: The cost of goods sold (COGS) is an accounting term that refers to the direct costs incurred in the production of goods that a company sells. It includes expenses such as the cost of materials and direct labor involved in manufacturing the product. COGS is typically one of the largest expenses of a self-employed individual in a retail business. and is deducted from revenue to determine the gross profit.

Mileage and Vehicle Expenses: Self-employed individuals can deduct the cost of using a vehicle for business purposes. This can be calculated either using the standard mileage rate, which varies from year to year, or the actual expenses incurred, prorated based on the percentage the vehicle is used for business.

Office Supplies and Expenses: The cost of supplies and materials used for running the business, such as paper, printer ink, and office furniture, can be deducted.

Professional and Legal Fees: Fees paid to accountants, lawyers, or other professionals for services related to the business operations are deductible.

Advertising and Marketing: Expenses related to marketing and advertising the business, such as website costs, business cards, and ads, are deductible.

Travel and Meals: Business travel expenses and 50% of the cost of business meals can be deductible if they are necessary for conducting business.

Business Insurance: Premiums paid for business insurance can be claimed as a deductible expense.

Education and Training: Expenses for courses, seminars, or workshops related to maintaining or enhancing your business skills can be deductible.

It’s important to keep accurate records and receipts for all expenses claimed as deductions, and it can be beneficial to consult with a tax professional to ensure compliance and maximize deductions.

Comparison: Employee vs. Self-Employment

Self-employment is primarily based on the concept of individuals earning income through independent activities rather than as employees within a company. This form of employment is characterized by autonomy, flexibility, and direct engagement in business activities. Here are some core aspects upon which self-employment is based:

Independent Business Operation: Self-employed individuals run their own businesses, offering goods or services on their terms. They are responsible for business decisions, marketing, client interactions, and managing operational aspects.

Income Generation Without Employer: Unlike employees who receive wages or salaries, self-employed individuals earn income directly from their business activities. This could include revenue from selling products, consulting fees, freelance work, or any professional service.

Tax Obligations: Self-employed persons are responsible for handling their taxes, which includes calculating and paying self-employment tax, which covers Social Security and Medicare taxes. They must estimate their taxes quarterly and report them annually using IRS schedules and forms.

Self-Employed Health Insurance Deduction: As a self-employed individual, you may deduct premiums paid for your health insurance as an “above-the-line” deduction, which reduces your adjusted gross income, but isn’t an expense when figuring the business’ net profit for SE tax purposes. Premiums paid for the spouse and children of the SE individual also generally are deductible.

Retirement Contributions: Contributions to the business owner’s retirement plan such as a SEP IRA, SIMPLE IRA, Solo 401(k), or traditional IRA can be deducted, allowing self-employed individuals to save for retirement while reducing taxable income. Again, these are above-the-line deductions, but not an expense for calculating the profit on which SE tax is paid. However, if the SE individual has employees, and makes contributions to the employees’ retirement plans, this would be a business expense deductible when computing the business’s net profit, and the SE tax of the business owner.

Financial Risk and Reward: Self-employment involves taking financial risks, relying on personal skills, industry demand, and market conditions to generate revenue. Conversely, it offers the potential for greater financial reward if the business thrives.

Regulatory Compliance: Independent workers must comply with local, state, and federal regulations, which might include licensing, zoning laws, or specific industry standards.

Customer Base Development: Building and maintaining a client base is crucial for sustaining a self-employed business, often requiring significant marketing and networking efforts.

Professional Growth: Self-employment allows for personal and professional growth as individuals navigate challenges, innovate, and develop skills across various business facets.

Ultimately, self-employment is grounded in the principles of entrepreneurship and personal responsibility.

Prepayment and Estimation of Federal and State Taxes

Self-employed persons must estimate and remit taxes quarterly, using IRS Form 1040-ES, often adding complexity and risk of penalties. This contrasts with being an employee where payroll taxes are automatically withdrawn from each paycheck.

Exemptions from Self-Employment Tax

Certain groups and income types are exempt from self-employment tax:

Shareholders of an S Corporation’s taxable income
Fees from notary public services
Non-resident aliens
Rental income from real estate, unless specified as business property
Statutory employees (e.g., some delivery drivers)
Clergy under vows of poverty
Crop-share rental income
Certain insurance company payments
Fiduciary of an estate on an isolated basis
Commissions allowed by the probate court
Limited partners
Miscellaneous income from an occasional act or transaction

Understanding these exemptions can offer significant tax relief and strategic planning opportunities.

Issues and Challenges

Quarterly Payments: Regular payment schedules can strain cash flow. Many new self-employed individuals face difficulty adjusting to this system, especially if they were previously salaried employees.

Deductions and Safe Harbors: Self-employed people can deduct half of their SE tax from their taxable income, offering some relief. Using “safe harbor” methods based on previous year’s tax liabilities also helps manage quarterly tax payments but requires careful planning.

Record Keeping and Reporting: Maintaining precise records is essential, as income fluctuations might require adjustments to avoid penalties. Mishandling this aspect can lead to stressful audits or financial issues.

Legal and Regulatory Changes: Tax laws can change, impacting rates and thresholds. Staying informed and potentially hiring a tax professional can be crucial strategies for managing tax liability.

Influence on Business Operations: Business structure decisions, like choosing an LLC (limited liability company) or S Corporation, can directly affect tax obligations. Understanding these implications helps business owners decide the most advantageous form to adopt, aligning tax strategy with business growth and personal finance goals.

Additional Medicare Tax: For individuals with higher income levels ($200,000 for singles/$250,000 for married couples), an additional 0.9% Medicare tax further complicates calculations.

Self-employment comes with many freedoms and opportunities but also substantial responsibilities, especially concerning taxes. Understanding the intricacies of self-employment tax, comparing it with payroll taxes, knowing potential exemptions, and addressing related issues forms the backbone of sustainable self-managed work.

New and seasoned entrepreneurs alike stand to benefit from keeping abreast of regulatory changes and might consider consulting tax professionals to navigate the complexities of self-employment tax. Long-term success in self-employment often hinges on the adept management of financial obligations, balancing the excitement and creative freedom being your own boss entails.

Contact our Leesburg or Warrenton office with questions or assistance, 703-771-1818 or 540-347-5681.