If you are filing your 2025 tax return this season, you are navigating the first year where the One, Big, Beautiful Bill Act (OBBBA) provisions are fully in effect. Several changes directly impact how you report income, claim deductions, and calculate your liability. Here is what you need to know before the April deadline.
The Big Changes on Your 2025 Return
Tips and Overtime Deductions. If you or your employees earned tip income or overtime pay during 2025, there is now an above-the-line deduction available. Qualifying tip income from service occupations and overtime compensation beyond 40 hours per week can be deducted from gross income. This is not a credit; it directly reduces your taxable income. Make sure your W-2 forms accurately categorize these amounts, because the IRS will be matching returns against employer filings.
SALT Deduction Cap Raised to $40,000. The state and local tax deduction cap increased from $10,000 to $40,000 for taxpayers with adjusted gross income under $500,000. If you are a business owner in a high-tax state who has been limited by the $10,000 cap since 2018, this is a meaningful change. Review whether itemizing now produces a better result than the standard deduction for your situation.
100% Bonus Depreciation is Back. Any qualifying business assets you placed in service after January 20, 2025 are eligible for full first-year expensing. The rate had dropped to 40% under the prior phasedown schedule. If you made equipment purchases, vehicle acquisitions, or technology investments during 2025, you can write off the entire cost in year one. Coordinate this with your Section 179 election to optimize your deduction strategy.
R&D Expenses Are Immediately Deductible Again. The five-year amortization requirement for research and development costs that took effect in 2022 has been reversed. If your business incurred R&D expenses during 2025, you can deduct them in full on this year’s return rather than spreading them over five years. Businesses that filed 2022, 2023, or 2024 returns under the amortization rule should discuss amended return options with their tax advisor.
What Business Owners Should Do Now
First, verify that your bookkeeping correctly separates qualifying categories: tips, overtime, equipment purchases, and R&D expenses need clean documentation. Second, run a comparison between your standard deduction and itemized deductions with the new $40,000 SALT cap to determine which produces the lower tax liability. Third, if you placed assets in service during 2025, confirm the placed-in-service dates fall after January 20 to qualify for restored 100% bonus depreciation.
The OBBBA created real tax savings opportunities, but only if your return is prepared to capture them. If you have not yet filed, take the time to ensure your return reflects all available deductions before submitting.