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Tax Planning Strategies Under the One, Big, Beautiful Bill: What Everyone Should Know

The One, Big, Beautiful Bill (OBBB) Act brings permanent deductions, new benefits, and inflation-adjusted thresholds—now’s the time to adjust your tax planning strategy.

By NomadicTax Research Team · 5-8 min read

What’s new under the One, Big, Beautiful Bill (OBBB)

The OBBB Act, signed into law on July 4, 2025, brought sweeping changes that affect individual tax planning.* Key changes include:

  • “No tax on tips” deduction: Eligible taxpayers can deduct qualified tips up to $25,000 per year (single or joint) for tax years 2025-2028. Qualified tips include those captured on W-2, 1099-NEC, MISC, K, or reported via Form 4137. (irs.gov)
  • No tax on overtime pay deduction: Overtime or premium pay (i.e., amounts over an employee’s regular rate, usually the "half time" portion) can be deducted, subject to income phase-outs (related to MAGI levels: over $150,000 single, $300,000 joint). Available 2025-2028. (irs.gov)
  • Bonus depreciation (100%): Eligible depreciable property acquired after January 19, 2025 can be fully depreciated in the first year under OBBB. Includes qualified sound recording productions, etc. (irs.gov)
  • Inflation adjustments for 2026 thresholds: Standard deduction, marginal tax brackets, AMT exemptions, and more have all increased for tax year 2026. (irs.gov)

Planning strategies for maximizing benefits

Here are actionable tactics:

  1. Track tip income carefully:

    • Keep daily or event-based logs if tips aren’t separately reported. Self-employed tip earners must ensure documentation (e.g. customer, date, amount) to support deductions. (irs.gov)
    • Identify whether your occupation is among the ~70 code occupations “customarily and regularly receiving tips”. If so, you may qualify. (irs.gov)

  2. Monitor overtime classification:

    • Ensure your employer’s pay statements show the overtime premium separately or allow you to compute the “half time” portion. Without it, the deduction may be limited. (irs.gov)
    • Keep records if you’re exempt or non-exempt under the Fair Labor Standards Act; classification matters. (irs.gov)

  3. Leverage bonus depreciation wisely:

    • If you’ve bought property like vehicles, computers or equipment, and you use them more than 50% for business, you might deduct 100% of cost in year of service. (irs.gov)
    • Assess purchases coming up—if timed after Jan. 19, 2025, eligible. Older assets do not qualify. Plan your capital investments accordingly.

  4. Adjust withholding to avoid surprises:

    • IRS updated its Tax Withholding Estimator to reflect OBBB changes like no tax on tips, no tax on overtime, car loan interest, and enhanced deduction for seniors. Use it to estimate current withholding and file a new W-4 if needed. (irs.gov)
    • Publication 15-T and 2026 W-4 and W-4P forms were updated to align with these new deductions. (irs.gov)

Example scenarios

  • Restaurant server (“Sally”): Sally earned $30,000 in cash and charged tips in 2025, with $20,000 reported on W-2 and $5,000 unreported but documented. She may deduct up to $25,000 in qualified tips, reducing her taxable income by $25,000 if MAGI below phase-out threshold. She should also adjust withholding using the estimator to avoid overpayment.

  • Overtime worker (“Mike”): Mike works as a warehouse worker, earned $20,000 overtime premium in 2025 over his base. He qualifies for the overtime deduction (half-time equivalent). If his MAGI is $140,000 (single), he can deduct up to the maximum before phase-out. This reduces taxable income and could shift him to a lower bracket.

Key considerations & pitfalls

  • Phase-outs: Above certain modified AGI, the deductions begin to phase out—watch your income carefully.
  • Occupation list and qualified tip rules still under regulation or proposed guidance for tip-receiving occupations. If uncertain, keep records meticulously.
  • For businesses: these changes persist only through 2028 for tip and overtime deductions. Plan large purchases or business cost structuring with that in mind.
  • Correct classification: WG, 1099, Form K, etc. Misreporting may disqualify.

Steps to take now

  • Gather and organize documentation for tips and overtime premiums in 2025.
  • Use the IRS Tax Withholding Estimator to estimate your tax liability and adjust W-4 if needed.
  • Review whether any planned business purchases qualify for 100% bonus depreciation.
  • If nearing the phase-out MAGI thresholds, consider income-shifting or deferring income where possible.

Author: NomadicTax Research Team
Category: Tax Planning
TaxHome: US
ReadTime: 5-8 min
Published: true

Sources

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