Congress Passes Sweeping Tax and Spending Law with Broad Implications for Individuals and Businesses

Congress has passed a sweeping new law that permanently extends and expands key tax provisions, reshapes health and social program eligibility, and revises spending across defense, energy, and federal benefits programs. While many provisions take effect immediately, others will phase in or expire over time. AAFCPAs is analyzing the full scope of the law to help clients assess near- and long-term planning opportunities.

The legislation, passed by both chambers and signed into law, emerged from the budget reconciliation process. Though the law reflects extensive negotiations between House and Senate versions, its final form includes several notable tax and programmatic changes with direct relevance to individuals, businesses, and tax-exempt entities.

Planning Considerations for Businesses

• Qualified Small Business Stock (QSBS). The law enhances Section 1202 benefits by increasing the per-taxpayer gain exclusion cap from $10 million to $15 million, indexed for inflation, for QSBS issued after the effective date. A new tiered holding period exclusion allows partial gain exclusions at three and four years, encouraging earlier investment liquidity while maintaining full benefits at five years. The law also raises the asset test threshold from $50 million to $75 million, creating more room for qualifying small businesses. These changes expand planning opportunities for founders, early-stage investors, and those structuring equity in high-growth businesses.

• SALT Workaround for Pass-Throughs. The law preserves the ability for pass-through entities to pay state taxes on behalf of owners, who then receive a credit at the state level, maintaining a widely used practice that helps mitigate the federal cap for business owners operating in high-tax states.

• Full Expensing. Businesses may fully expense qualified capital investments and domestic Research and Development costs. This provision is intended to support long-term innovation and growth through accelerated tax benefits.

• Interest Deductibility. Interest deductions are restored to a globally competitive standard. The change may enhance capital access for businesses financing domestic expansion.

• 1099 Thresholds. The IRS reporting threshold for Form 1099-K is rolled back, and the threshold for Form 1099-MISC is increased. These changes reduce compliance burdens for businesses and gig economy platforms.

• Opportunity Zones. The law permanently renews and expands the Opportunity Zone program. Investors may benefit from continued tax incentives tied to long-term investments in designated areas.

• College Endowments. A tiered excise tax now applies to private colleges with large endowments, ranging from 1.4 to 8 percent based on per-student value. Institutions with per-student endowments over $500,000 will be subject to these rates.

• Charitable Deduction Floors. Corporations now face a one percent floor on charitable contribution deductions. This provision may influence corporate giving strategies and timing.

• QBI Deduction. The Section 199A qualified business income deduction is made permanent, with an expanded phase-in range for certain service businesses.

• Loss Limitations. The current limitation on excess business losses for noncorporate taxpayers is maintained, potentially affecting planning for pass-through owners.

Key Provisions for Individuals

• Estate and Gift Tax Exemption. The federal estate and lifetime gift tax exemption is permanently extended and increased to $15 million beginning in 2026, indexed for inflation.

• SALT Deduction. The cap on state and local tax (SALT) deductions increases to $40,000 from $10,000 through 2029, indexed for inflation, with a phase-down beginning at $500,000 in income. It reverts to $10,000 in 2030.

• Tax Rates and Brackets. The individual tax cuts introduced in 2017 are now permanent, preventing scheduled expirations at the end of this year.
  
  
• Senior Deduction. A new $6,000 deduction for seniors phases out at $75,000 modified adjusted gross income ($150,000 for joint filers).
  
  
• Charitable Contributions. The law introduces a charitable deduction of up to $1,000 for taxpayers who do not itemize ($2,000 for joint filers). Itemized deductions face new floors: 0.5 percent for individuals and one percent for corporations.
  
  
• Tips, Overtime, and Loan Interest. Tips and overtime pay are no longer subject to federal income tax. Taxpayers may deduct up to $10,000 of interest on U.S.-made vehicle loans.
  
  
• Child and Dependent Care Credit. The credit is increased from $2,000 to $2,200.
  
  
• Paid Leave Credit. The law extends and enhances the Paid Family and Medical Leave Tax Credit, supporting employers that offer wage replacement benefits.

Clean Energy and Industry-Specific Changes

The law ends or phases out several tax credits related to clean energy, including those for electric vehicles, energy-efficient homes, and wind and solar projects. In some cases, expiration dates were adjusted during Senate negotiations to allow a longer transition. New incentives were introduced for metallurgical coal and U.S.-based materials critical to certain industries.

AAFCPAs is helping clients assess how this law may affect tax strategies, entity structure, charitable giving, business investments, and compliance obligations. For some, early action may optimize eligibility for benefits or deductions that phase out over time. For others, the law may require adjustments to long-term planning assumptions, particularly in industries affected by the rollback of clean energy credits.

We continue to monitor IRS implementation guidance and state-level responses. Please contact your AAFCPAs advisor to discuss how the new law may affect your individual or business tax position.

How We Help

Navigating tax legislation with confidence starts with the right advisor. AAFCPAs’ Tax practice works closely with individuals, families, businesses, and nonprofits to bring clarity to complex tax matters and deliver meaningful results. Our integrated team of CPAs and specialists offers year-round, forward-looking guidance tailored to your financial priorities—whether you are responding to new federal legislation, expanding across state lines, or planning for long-term growth and preservation. We help you assess implications across entity structure, compensation, charitable giving, SALT exposure, and evolving credit opportunities. With a clear understanding of your goals, AAFCPAs designs strategies that go beyond compliance to help reduce liabilities, strengthen your financial position, and support informed decision-making across your enterprise.

These insights were contributed by Erica Nadeau, CPA, MST, Tax Partner. Questions? Reach out to our authors directly or your AAFCPAs partner. AAFCPAs offers a wealth of resources on tax planning and compliance. Subscribe to get alerts and insights in your inbox.