We got a new tax law (2025 Reconciliation Legislation) this year, and many of its rules will affect your 2025 taxes.
They call it the OBBBA, the One Big Beautiful Bill Act, but I don’t. It’s not beautiful for most people. In fact, many people will see their taxes go up this year. It’s a huge win for the super-rich and big corporations. Less so for the rest of us.
But there are some provisions that could help lower your tax bill this year and moving forward. And also some that give you more financial flexibility. A bunch kick in for this tax year (2025), with more to come in 2026.
So let’s take a look at the changes that could impact your taxes and your finances.
1. The Standard Deduction Increased
The new law bumped up standard deductions a bit. The new amounts are:
$15,750 for single and married filing separately
$23,625 for head of household
$31,500 for married filing jointly
2. The SALT Deduction Increased
The maximum deduction for state and local taxes (SALT) increased from $10,000 to $40,000 starting in tax year 2025 and going through 2029. For married filing separately, the cap is $20,000 each. This is available as part of itemized deductions.
Phaseouts:
Once your income hits $500,000 (or $250,000 for married filing separately), this expanded SALT deduction starts to phase out.
When your income hits $600,000, the deduction cap drops back down to $10,000.
3. Senior Deduction
Taxpayers at least 65 years old will get an extra $6,000 deduction for 2025 through 2028. You can take advantage of this extra deduction whether you itemize or take the regular standard deduction.
Who can’t use this?
- People using the married filing separately tax status
- People with modified adjusted gross income (MAGI) more than $75,000 if you file as single, $150,000 if you use married filing jointly status
4. Tips Deduction
Taxpayers that get tipped as a routine part of their jobs will be able to deduct up to $25,000 of those tips from their gross income for 2025-2028. It’s not automatic – you have to claim the deduction. And in some cases it may require special reporting on an extra tax form.
Who can’t use this?
- People using the married filing separately tax status
- People with MAGI more than $150,000 if filing as single, $300,000 using married filing jointly status will see the deduction begin to phase out
5. Overtime Deduction
Taxpayers who work overtime in 2025-2028 may be able to deduct up to $12,500 ($25,000 if married filing jointly) of qualifying overtime pay from their gross income. Only the overtime portion of pay counts toward this. For example if you normally earn $10/hour and get time-and-a-half for overtime at $15/hour, only that extra $5 overtime premium would count toward the deduction. This overtime pay must be reported separately on your W-2 form from your employer in order for it to be deductible.
Who can’t use this?
- People using the married filing separately tax status
- People with MAGI more than $150,000 if filing as single, $300,000 using married filing jointly status will see the deduction begin to phase out
6. Car Loan Interest Deduction
People who borrow money to buy new cars assembled in the U.S. may be able to deduct up to $10,000 of qualified loan interest. This bonus deduction is available for tax years 2025 – 2028. The vehicle has to have its “final assembly” performed in the United States. And the VIN must be reported on their tax return in order to take the deduction.
Who can’t use this?
- People with MAGI more than $100,000 if filing as single, head of household, or married filing separately or $200,000 for people using married filing jointly status will see the deduction begin to phase out. It phases out fully when MAGI reaches $150,000/$250,000.
- People buying used vehicles or vehicles not assembled in the U.S.
- People buying vehicles for business purposes.
7. The Child Tax Credit Increased
The child tax credit increased to $2,200 per child for 2025 and will be adjusted for inflation annually up from that amount. The refundable portion of this credit will be $1,700 for 2025.
Who can’t use this?
- People who earn $200,000 or more ($400,000 or more for married filing jointly)
8. Expanded 529 Plan Withdrawal Options
The new tax law greatly increased the ways you can use money in a 529 plan. That gives you a lot more flexibility, making these tax-advantaged accounts an even better deal. New approved uses include:
- Allowing for $20,000 annual distribution for K-12 expenses, starting in 2026 (up from $10,000 in 2025)
- Expanding K-12 allowable expenses to include things like tutoring, standardized test costs, books and curriculum tools, special education therapies, and online educational programs
- More options for workforce training programs like apprenticeships and trade and vocational certifications and licenses
Even though 529 Plan contributions are not deductible for federal income tax purposes, many states do offer deductions or credits for them.
9. Charitable Donation Deduction without Itemizing
Starting in 2026, people who take the standard deduction will be able to also deduct up to $1,000 in charitable donations ($2,000 for married filing jointly.) This applies only to cash donations made directly to qualified organizations.
Wondering If Any of These Tax Changes Apply to You?
Chances are that at least one of these upcoming tax changes, probably more. And there are many others in that new giant tax act that might apply to your specific situation.
If you need help figuring out which ones apply to you and how to use them to minimize your tax bill, please contact me. I offer tax planning and tax preparation services and can help you avoid overpaying your 2025 taxes, and help you plan to minimize taxes for the future.
Click on the button below to contact me now.