FAQs for the One Big Beautiful Bill
The new One Big Beautiful Bill (OBBB) is now law but it will still be months before the pundits decide who wins and loses with this bill. The IRS has prepared the related guidance and forms, so now tax professionals begin to understand and manage the 9 different effective dates and 7 new phase-outs.
As we learn more about the details of each new law, we will integrate it into our clients’ tax planning, but for now, here are some FAQs on the new tax bill:
What does the tax rate extension mean? Think of it like avoiding an oncoming car on the highway. It could have devasted the trip but now you just continue on the same path. There is no need to accelerate income into 2025 to take advantage of the low rates as those rates have been extended permanently (or until Congress changes them again).
Do I need to worry about new rules on non-taxable tips? Early guidance indicates that employees of service providers like dentists will not be eligible for non-taxable tips so don’t bother putting the tip jar out.
What about the non-taxable overtime rules? You will need to provide employees with a statement in January showing overtime wages. We are waiting on further guidance as the IRS may add a line to the W-2 or allow employees to use their last paystub. For now, just ensure that you are tracking overtime or better yet, managing your team to eliminate overtime.
Looking to buy a car, any changes I should be aware of? If you are interested in an EV or Hybrid, you have until September 30, 2025 to make that purchase and get the Federal credit. Check out this IRS page to see which cars qualify and check with your CPA to ensure your income does not disqualify you.
Should I finance my car purchase since I heard the interest is deductible? While car loan interest is now deductible, the income limits probably mean a dentist like yourself will get no benefit. The vehicle must be new, for personal use only, and weigh less that 14,000 pounds. In addition, your income can not be higher than $100,000 for single filers or $200,000 for married filers. If you are in that income bracket, you probably should not be buying a new car with a loan.
I like to tithe, how has charitable giving changed? Starting in 2026, there are multiple changes to charitable giving that encourage smaller charitable giving but may discourage larger gifts.
For non-itemizers (90% of taxpayers), those taxpayers will be able to deduct $1,000 for single filers and $2,000 for married filers against their income. Up until 2026, charitable donations were only available to itemizers.
For itemizers, an 0.5% income floor will be applied to all charitable giving in 2026 and beyond. For example, you give $100,000 to your church building project but only $99,500 will be deductible. The $500 limitation amount can be carried over for five years, but will be subject to the same limitations.
For taxpayers in the highest bracket (37%), the benefit of your itemized deductions is capped at the 35% bracket. So for every $1,000 you give to charity, the max deduction you will get is $350 rather than the $370 you have historically received. This dramatically limits the incentive for large gifts from high earners. There is pushback to create a fix for the unintended consequences of this new rule. But if you are in the top bracket, you should consider bunching charity into 2025 with the use of a donor advised fund.
I keep hearing about changes to SALT, QBID and PTET. What do those even mean and why should I care? Alright, these are important acronyms so let’s take them one at a time.
SALT stands for State and Local Tax. Prior to 2018, you could deduct all your state and local tax paid as an itemized deduction. The 2017 tax bill put a cap on SALT of $10,000, which dramatically reduced that deduction for those living in high tax states. Political pressure resulted in Congress increasing that cap to $40,000 between 2025 and 2030 but only for those tax payers earning less than $500,000. This temporary cap increase could result in a $10,000 tax savings if you can keep your income just under the half a million threshold.
QBID stands for Qualified Business Income Deduction. This deduction was also put in place by the 2017 tax bill to ensure small businesses like your practice were treated as fairly as the big corporations that saw lower corporate rates. The new 2025 tax bill made the QBID permanent and made some changes to the lower phase-in range. Unfortunately for the more profitable practices, no changes were made to the phase-out range, which still ends near $500,000. Therefore, high earning practices may want to re-examine the pluses and minuses of becoming a full C-Corp and its 21% tax rate.
PTET stands for Pass-Through Entity Tax. This tax was created by the high income states as a workaround for the SALT cap (see above). There was a lot of talk about creating Federal limits on this tax planning tool but ultimately no changes were made. So if you find yourself in a high-tax state and are an itemizing filer, you should continue to use your state’s PTET option.
I had a Research & Experimental (R&E) study done in the past so I could get the related Sec. 174 credit, any changes? Fortunately, the drafting error in the 2017 tax bill related to the amortization of related R&E costs has been fixed. Moving forward, you will be able expense those costs immediately and receive the credit. For the prior years’ R&E costs, you will have the option to take all the remaining costs in 2025, split those costs between 2025 and 2026, or continue the current amortization.
We provide food in the breakroom and order pizzas for team meetings, any changes I need to know? This one seems ridiculous, but starting in 2026, the costs of meals provided to employees for the employer’s convenience or on the employer’s business premise are not deductible. The rule comes as a reaction to large employers like Google providing complimentary dining facilities as perk and the IRS wanting those benefits taxed. Unfortunately, these rules apply to your dental practice as well. We will wait on final guidance before addressing options in full, but you will likely just stop providing in-office meals or start adding them to employee wages.
The dental equipment rep is always telling me that I can save taxes when I buy a new PrimeScan or CBCT, are they right? Yes, you can save taxes by buying a large piece of equipment and using either the Bonus depreciation or Sec 179 depreciation rules to expense that entire purchase now rather than over the next 5 years. The new tax bill reinstated Bonus Deprecation back up to 100% and made it permanent. Never let the tax tail wag your spending, but if you are in need of some new (or used) equipment, this is a great tax saving tool.
I am looking to sell my practice in 5 to 10 years and heard about some tax deferral options from a buddy, what should I know? Tax deferral options let you hold off on recognizing a taxable gain until a future year when your income is lower. There are two tax deferral methods that are now permanent.
For the sale of your practice, you should consider investing in an Opportunity Zone project. To encourage investment in “economically distressed areas”, Congress created incentives for investment back in 2017 and just made those rules permanent with the passage of the new law. The rules are complicated so ensure you have an attorney and CPA review all documentation, but here is a quick example of the benefits: You sell your practice for $2mil and have a $1.5mil capital gain. You invest that $1.5mil into an Opportunity Zone project. You have a five year window to recognize the $1.5mil gain and be taxed on that gain. The big advantage is that if you hold that Opportunity Zone investment for ten years, you never recognize that appreciation gain. So your $1.5mil investment could grow to a $3mil value in 10 years and you would NEVER pay tax on that additional $1.5mil.
For the sale of your building, the 1031 exchange might be your best choice. Prior to 2018, a 1031 exchange could be used to “exchange” almost any business asset or real estate for another and defer paying tax on the gain until the final exchanged property was sold. You would commonly see your plumber or electrician driving a new truck every year as they used a 1031 exchange to “upgrade”. The 2017 tax bill limited 1031 exchanges to real estate only and the new tax bill made no changes to the rules. So if you are selling your building and practice in the same year and want to avoid the big tax hit, you should look into purchasing another property with a 1031 exchange. The rules and timing are complicated so ensure you get professional assistance.
I still have student loans related to dental school, did this bill change anything? Congress wants out of the student loan game and has dramatically limited the borrowing caps on future student loans. For the current loans on the books, they are looking to get that money back sooner than later and will be phasing out most income-based repayment plans by 2028. If you have a Federally backed loan, you should work with a professional to understand these new options. If you have a private loan, none of this applies and you should work with an advisor to determine how quickly to pay off your student loan debt.
Does death tax still exist and should I be worried? More properly referred to as the estate tax, it is still around, but the new law increased the exemption to $15Mil per individual and $30Mil for married couples. This means most of you can ignore complicated estate tax planning like ILITs, GRATs and CRTs. But you should still work with an estate attorney every few years to ensure you are still set up to avoid any state estate tax and that your estate will be managed as you wish upon your passing.
We are expecting our second child, does the new tax law change any credits? First off, congratulations! Unfortunately, the $200 increase (to $2,200) in the Child Tax Credit will not cover your annual diaper costs. The credit is available for any child under 17, so it looks like your credit will be $4,400 if you keep your income under $400,000. As your child will be born between 1/1/2025 and 12/31/2028, your child will also receive a $1,000 deposit into their Trump account. These accounts are designed to promote a financial head start and parents can contribute $5,000 per year until the child turns 18. At 18, the child can start making withdrawals and gets full access at 30. While a good idea in theory, the Trump accounts are only tax deferred with no deduction for parental contributions. As such, we would advise using 529 plans over a Trump account to assist your children in getting a solid financial start to their lives.