Just before Independence Day 2025, Congress passed a measure called “One Big Beautiful Bill” that extended the Tax Cuts and Jobs Act 2017 tax cuts that were set to expire this year, making some of those rules permanent. Had the 2017 tax bill not been renewed before year’s end, it would have expired, reverting back to the 2016 law.
Here’s a summary of five individual tax law changes that are likely to impact many tax filers in 2025.
Standard Deduction Increase
It is estimated that less than 10 percent of Americans itemize their deductions, due to the high standard deduction afforded by the TCJA. At the beginning of 2025, standard deductions were set at $15,000 (single) and $30,000 (married filing jointly), and the OBBB added $750 per spouse to that, making it $15,750 and $31,500 respectively, which will lower your taxable income a bit more and, with some planning, could put you in a lower tax bracket.
State and Local Tax
One of the complaints of the TCJA was that the State and Local Tax (SALT) deduction—the amount of state tax you can deduct—was limited to $10,000. Most higher property tax states were annoyed, because their deduction was limited. The OBBB temporarily increases this deduction to $40,000. This means someone who pays $40,000 per year can now deduct their full state tax on their federal return. This is only available between 2025—29. In 2030 it will revert back to $10,000. Keep in mind that this is not in addition to the standard deduction. Your itemized deductions would be increased by the SALT deduction and you can then choose the higher of the two. Furthermore, this deduction is limited to taxpayers who earn under $500,000.
Age 65-plus
A new temporary deduction for seniors over 65 allows for an additional $6,000 deduction. The initial proposal was for elimination on the Social Security tax, but that did not pass. This deduction is to help minimize (or in some cases eliminate) that tax for those under a certain income threshold. It phases out at an income of $75K (single), $150K (joint), so it’s meant to help the average American and not the proverbial “rich.”
Charitable Deduction
Because donations to charity are an itemized deduction, most people haven’t been able to deduct their contributions under the TCJA. Under the OBBB there is some relief; taxpayers taking the standard deduction may now also deduct cash charitable contributions up to $1,000 (single) or $2,000 (joint filers), subject to income limitations.
Expanded Child Tax Credit
At the beginning of 2025 the child tax credit was expected to be $2,000 per child, and under the OBBB that increased to $2,200. There are income limits here, and if your tax liability is less than the full credit you may get some portion of the credit as a refund.
Other Notable Provisions
Here are a few other provisions you may be interested in:
Tax on tips – for those who earn $25K or less in tips and fall under the income requirements, they get a deduction to offset that tip income.
Tax on overtime pay – this one is temporary and subject to income limits. It would allow you to deduct the premium portion up to a maximum amount per year. So, if you made $20/hour and overtime was $30, you can deduct out the extra $10 and only pay taxes on the $20 rather than the full overtime pay.
Auto loan interest – if you purchased a new vehicle that was assembled in the U.S. after Dec. 31, 2024 you may be able to deduct the interest you pay on your loan if it’s for personal use.
Now is a great idea to start planning with your tax and financial advisor so you can be sure to implement these and other tax benefits into your 2025 plan.
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Disclaimer: This article is for informational purposes only and is not tax, legal or financial advice. Everyone’s situation is different, so consult a financial advisor. If you would like to connect with me, please call 615-619-6919 or email me at smoran@redbarnfinancial.com You can learn more at redbarnfinancial.com.
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