Tax laws are shifting once again, and this time, both federal and state updates are on the table. With the passage of the One Big Beautiful Bill Act (OBBBA) in Congress and new state-level changes in Washington, individuals and businesses alike are assessing what these updates mean for their financial future.
While these reforms introduce added complexity, they also create strategic planning opportunities. The key is understanding how the changes apply to your situation and identifying steps to reduce risk and maximize available benefits.
Federal Highlights: Key Implications of the OBBBA
The OBBBA represents one of the most comprehensive updates to the federal tax code in recent years. While the legislation spans dozens of provisions, the most impactful changes for individuals and businesses fall into a few core areas.
For Individuals
1. Permanent Extension of TCJA Tax Rates and Brackets
The OBBBA makes permanent the lower individual income tax rates and wider tax brackets introduced under the TCJA. The top individual income tax rate remains 37%, avoiding a return to 39.6%.
2. Increased Standard Deduction
The higher standard deduction is now permanent and will continue to be indexed for inflation.
- Single filers & married filing separately: $15,000
- Married filing jointly (including surviving spouses): $30,000
- Head of household: $22,500
3. Senior Deduction
Taxpayers aged 65+ can claim a $6,000 deduction (2025–2028) with a phase-out starting at $75,000 MAGI ($150,000 for joint filers), reduced by 6% for each $1,000 above the threshold.
4. State and Local Tax (SALT) Deduction Cap
For 2025-2029, the SALT deduction limit rises from $10,000 to $40,000, phasing out starting at $500,000 MAGI. The cap and threshold increase 1% annually, with a minimum deduction of $10,000.
5. Expanded Family Tax Credits
Child Tax Credit increases from $2,000 to $2,200 per qualifying child (2025), indexed for inflation.
6. No Tax on Overtime and Tips
Above-the-line deductions for tip income (up to $25,000) and qualified overtime pay (up to $12,500 individual/$25,000 joint) apply for 2025–2028. Phase-outs start at $150,000 MAGI ($300,000 joint).
7. Interest Deduction on Principal Residence
Permanent $750,000 loan limit for acquisition debt; home equity interest continues to be excluded; mortgage insurance premiums treated as qualified residence interest starting 2026.
8. Interest Deduction on Domestic Auto Purchases
For 2025–2028, above-the-line deduction for interest on loans for U.S.-made passenger vehicles, up to $10,000 annually. Phase-out begins at $100,000 MAGI ($200,000 joint).
9. Section 1202 Small Business Stock
Tiered gain exclusion: 50% (≥3 years), 75% (≥4 years), 100% (≥5 years) for stock issued after July 4, 2025. Per-issuer cumulative exclusion rises to $15 million; aggregate gross asset limit to $75 million; both indexed.
10. Above-the-Line Charitable Contribution Deduction
Starting in 2026, non-itemizing taxpayers can deduct up to $1,000 ($2,000 joint) for charitable contributions.
11. Estate and Gift Tax Exemption
The lifetime exemption increases to $15 million per person, indexed for inflation starting in 2026.
For Businesses
1. 100% Bonus Depreciation Restored
The OBBBA reinstates 100% bonus depreciation for qualified property placed in service from January 19, 2025.
2. Qualified Business Income (QBI) Deduction Made Permanent
20% deduction for many pass-through entities, providing long-term planning certainty.
3. Research & Development Expensing
Domestic R&D expenses can now be immediately expensed (2025 onward). Qualifying small businesses (<$31M gross receipts) can amend prior returns. Software development included.
4. Pass-Through Entity SALT Deduction Workaround
Maintains federal deduction for state taxes paid by pass-through entities on behalf of partners/shareholders.
5. Business Interest Limitation
IRC §163(j) modified: interest limitation now excludes depreciation, amortization, and depletion, reverting closer to original TCJA calculation.
6. Excess Business Loss Limitation
Permanent limits: $313,000 (single) / $626,000 (joint) for 2025; excess losses carried forward as NOLs with 80% taxable income cap.
7. Qualified Opportunity Zone (QOZ) Program
Tax incentives for investing deferred capital gains: deferred gains recognized by Dec 31, 2026, if invested before Jan 1, 2027. Post-2026 investments enjoy deferral, 10% basis increase after 5 years, 30% for rural funds, and no tax after 10 years.
In light of these changes, individuals should revisit estate and family tax planning strategies, while businesses may want to model capital spending, payroll, and R&D investments.
Washington State Tax Changes: What to Expect in 2025
In addition to federal reforms, Washington has enacted state-level tax changes that will affect both businesses and individuals.
1. Capital Gains Tax Rate Increase
Beginning January 1, 2025, long-term capital gains are taxed at 7% up to $1 million and 9.9% on amounts above $1 million. This reflects the prior 7% base rate plus a new 2.9% surcharge on high-value gains.
2. Estate Tax Threshold Raised
For decedents dying on or after July 1, 2025, the state estate tax exclusion increases from $2.193 million to $3 million. The exemption will now be indexed annually for inflation, a change from prior law.
3. Tiered B&O Tax for Services
Effective October 1, 2025, the “Service and Other Activities” B&O tax classification shifts to a tiered structure:
- 1.5% for revenues under $1 million
- 1.75% for revenues between $1 million and $5 million
- 2.1% for revenues over $5 million
4. B&O Increase for Retailing, Wholesaling, and Manufacturing
Starting January 1, 2027, the B&O tax rate for retailing, wholesaling, and manufacturing classifications will increase from 0.471% to 0.5%.
5. B&O Surcharge Increases
Financial institutions will see their surcharge rise from 1.2% to 1.5% starting October 1, 2025. For advanced computing businesses, the surcharge will jump from 1.22% to 7.5% beginning January 1, 2026, with the annual cap increasing from $9 million to $75 million.
6. Sales Tax Expansion
Starting October 1, 2025, sales tax and Retailing B&O tax apply to new service categories such as IT consulting, staffing services, advertising, live presentations, and custom software development.
Together, these state-level updates heighten the need for accurate compliance systems and forward-looking tax planning. Businesses should adjust pricing and compliance processes to account for new B&O and sales tax obligations, while individuals should reevaluate estate plans and investment strategies.
Practical Next Steps for Individuals and Businesses
With both federal and state provisions in play, adopting a proactive approach can help prevent unexpected tax liabilities while positioning you to capture available relief.
For Individuals
- Review year-end planning opportunities, including charitable giving, retirement contributions, and education-related savings.
- Update estate plans if assets are approaching or exceeding Washington’s threshold.
- Monitor how expanded federal credits and deductions apply to your household.
For Businesses
- Reassess capital investment schedules to benefit from restored bonus depreciation.
- Model labor costs under new federal wage reporting and deduction rules.
- Update compliance systems to reflect Washington’s revised B&O and sales tax rules.
- Revisit R&D budgets given the reinstated expensing provisions.
Tax reform at the federal and state levels is reshaping the landscape for 2025 and beyond. Now is the time to review your financial and tax strategies to ensure they remain aligned with your goals. At Opsahl Dawson, our team can help you evaluate how these updates affect your unique situation and develop a plan that positions you for success in the years ahead.
Contact us today to schedule a tax planning session tailored to your specific needs.
