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2025 Tax Season Update: Beyond the One, Big, Beautiful Bill

Larry Pon delivered an in-depth 2025 tax-season briefing focused on the sweeping tax legislation informally known as the One Big, Beautiful Bill (OBBBA), signed into law on July 4, 2025. The session emphasized practical planning implications for advisors working with individuals, business owners, and estates, with particular attention to digital assets, QSBS planning, depreciation, retirement limits, charitable strategies, and estate portability pitfalls.

Individual Income Tax Changes

The legislation extends the Tax Cuts and Jobs Act (TCJA) individual income tax brackets and rates, preventing the scheduled reversion to a 39.6% top marginal rate. Capital gains and qualified dividend rates are also extended without increase.

A major estate-planning change is the increase in the federal estate and gift tax exemption to $15 million per person ($30 million for married couples) beginning in 2026, indexed for inflation going forward.

The law introduces four new deductions:

1. No federal income tax on tips
2. No federal income tax on overtime pay
3. A new enhanced senior deduction
4. A deduction for car loan interest

In addition, the state and local tax (SALT) deduction cap may increase from $10,000 to $40,000 annually, significantly altering itemization decisions and reviving prepayment strategies for state taxes and property taxes.

Digital Assets: New Reporting and Compliance Rules

Digital assets—including cryptocurrency, NFTs, staking rewards, mining income, and assets received through hard forks—remain classified as property, not currency or securities.

Key compliance updates for 2025 returns:

• Taxpayers must answer an affirmative digital asset question on Form 1040 if they received, sold, exchanged, mined, staked, or otherwise disposed of digital assets.
• Form 1099-DA is introduced for digital asset reporting.
  • 2025: Brokers must report gross proceeds; basis reporting is optional
  • 2026 onward: Brokers must report both gross proceeds and basis for covered digital assets
• Brokers must furnish Form 1099-DA by February 17, 2026

Digital asset transactions are reported on Form 8949, which now includes new reporting boxes (G–L) specifically for digital assets. Wash-sale rules generally do not apply because digital assets are not securities, except in limited cases involving tokenized securities.

Covered digital assets are those acquired after 2025, purchased through a broker that provides custodial services, and held until disposition through that broker.

The law exempts decentralized finance (DeFi) platforms and certain foreign brokers from Form 1099-DA reporting requirements.

Larry emphasized that holding digital assets on reputable U.S. exchanges and using exchange-provided 8949 reporting services dramatically reduces compliance risk and audit exposure.

Qualified Small Business Stock (QSBS) Enhancements

QSBS benefits under Internal Revenue Code Section 1202 were materially expanded.

Updated rules include:

• QSBS applies only to C corporations
• Gross asset limit increased to $75 million (from $50 million) for stock acquired after July 4, 2025, indexed for inflation
• Per-taxpayer gain exclusion increased to $15 million (from $10 million), or 10× adjusted basis, whichever is greater
• Tiered holding-period exclusion for post-July 4, 2025 stock:
  • 3 years: 50% exclusion
  • 4 years: 25% exclusion
  • 5 years: 0% taxable gain (100% exclusion)

QSBS remains unavailable to businesses in excluded service fields such as law, accounting, consulting, financial services, healthcare, engineering, and brokerage services.

Larry also highlighted Section 1045 rollovers, allowing taxpayers to defer QSBS gains by reinvesting into new QSBS within 60 days, preserving future exclusion eligibility.

Retirement, Mileage, and Inflation Adjustments

Inflation-adjusted contribution limits for 2026 include:

• IRA: $7,500 contribution; $1,100 catch-up
• 401(k), 403(b), 457: $24,000 contribution; $8,000 catch-up
• SIMPLE IRA:
  • Over 25 employees: $17,000 contribution
  • Under 25 employees: $18,100 contribution
• Qualified Charitable Distribution (QCD) limit increased to $111,000 per person
• Once-per-lifetime IRA-to-Charitable Gift Annuity rollover increased to $55,000

Mileage rates for 2026:

• Business: 72.5¢ per mile
• Medical: 20.5¢ per mile
• Charitable: 14¢ per mile (unchanged; set by Congress)

Business Depreciation and Expensing

• 100% bonus depreciation restored for qualifying assets placed in service after January 19, 2025
• Section 179 expensing limit increased to $2.5 million, with a $4 million phase-out threshold
• Qualified Production Property is fully expensed but subject to 10-year recapture if use changes

Estate Planning: Portability and Gift Pitfalls

The session concluded with critical estate-planning cautions.

Portability rules allow a surviving spouse to use a deceased spouse’s unused estate exemption—but only if a complete and timely Form 706 is filed, even when no estate tax is due.

Larry discussed the Estate of Rowland v. Commissioner (2025), where the IRS disallowed portability due to incomplete asset valuations and late filing, resulting in approximately $1.5 million in additional estate tax.

Additionally, the Estate of Demuth case confirmed that uncashed checks are incomplete gifts. Gifts intended to qualify for the annual exclusion must be completed (cashed or irrevocably transferred) before year-end or before death to avoid estate inclusion.

External Fact-Check Sources (Written-Out URLs)

• IRS – Digital Assets Overview
  https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets
• IRS – Form 1099-DA Draft & Instructions
  https://www.irs.gov/forms-pubs/about-form-1099-da
• IRS – Frequently Asked Questions on Virtual Currency
  https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions
• Internal Revenue Code Section 1202 (QSBS)
  https://www.law.cornell.edu/uscode/text/26/1202
• IRS – Section 1045 Rollover Guidance
  https://www.irs.gov/pub/irs-drop/rr-2012-14.pdf
• IRS – Retirement Plan Contribution Limits
  https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contribution-limits
• IRS – Qualified Charitable Distributions
  https://www.irs.gov/retirement-plans/plan-participant-employee/qualified-charitable-distributions-qcds
• IRS – Bonus Depreciation and Section 179
  https://www.irs.gov/businesses/small-businesses-self-employed/section-179-deduction
• Estate of Rowland v. Commissioner, T.C. Memo 2025-76
  https://www.ustaxcourt.gov/resources/opinions/2025/Rowland.TC.pdf
• Estate of Demuth v. Commissioner (Third Circuit)
  https://law.justia.com/cases/federal/appellate-courts/ca3/21-3031/21-3031-2022-08-05.html