Some significant tax changes are coming that could influence your earnings for 2025 and your overall financial planning. With the One Big Beautiful Bill Act (OBBBA) rolling out new provisions and important deadlines approaching, understanding these changes is crucial for making the most of available opportunities.
Key tax changes to be aware of
Signed into law on July 4, 2025, the OBBBA provides a permanent extension of elements from the 2017 Tax Cuts and Jobs Act, along with new temporary measures that might greatly affect your tax obligations. Here are the main points:
New deduction for 2025 (retroactive to this year’s filing)
Senior deduction: If you’re over 65, you could qualify for an extra deduction of up to $6,000 ($12,000 for married couples filing jointly). This starts phasing out based on modified adjusted gross income (MAGI) beginning at $75,000 for individuals and $150,000 for joint filers. For every dollar above those thresholds, your deduction decreases by 6 cents.
Enhanced child tax credit: In 2025, families will see a slight increase in child tax credit eligibility, rising from $2,000 to $2,200 per child.
Auto loan interest deduction: Planning to buy a new car made in America next year? You could deduct up to $10,000 in interest from your loan. The vehicle must weigh under 14,000 pounds, be assembled in the U.S., and intended for personal use. This deduction is limited for those whose MAGI exceeds $100,000 ($200,000 for joint filers).
Tips and overtime pay are tax-free: Workers in the service industry can now deduct up to $25,000 in tips, and those earning overtime can deduct up to $12,500 ($25,000 for joint filers), with income-based phase-outs starting at MAGI of $150,000 ($300,000 for joint filers).
Energy credit expiration: If you’re thinking about switching to clean energy or buying an electric vehicle, now’s the time. Clean Vehicle Credits will end for vehicles acquired after September 30, 2025, while Home Energy Credits for solar panels and similar upgrades will cease for properties in service after December 31, 2025.
Strengthening of the SALT cap
For a long time, the $10,000 cap on state and local tax (SALT) deductions has frustrated taxpayers in higher-tax states. Starting with the 2025 tax return, that limit will increase to $40,000 for single filers and married couples filing jointly. This cap will rise by 1% each year until 2029, returning to $10,000 in 2030.
However, there are conditions. For those with MAGI above $500,000 (or $250,000 for those married filing separately), the cap will phase out, decreasing by 30 cents for every dollar earned over that threshold.
Standard deduction increase
The standard deduction will go up by an additional 5% in 2025 beyond the inflation adjustment. For married couples filing jointly, this means an extra $1,500. Seniors and visually impaired individuals will see even greater benefits. Single filers and heads of households will receive an additional $2,000, while joint filers will get an extra $1,600 for each eligible spouse.
By 2026, these figures are set to further increase to $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of households.
Implications for your tax strategy
These changes bring both opportunities and challenges. For many, the higher standard deduction could make itemizing less appealing unless changes to the SALT cap occur. New deductions available for seniors, tips, overtime, and auto loans might lead to substantial savings if you meet the necessary criteria.
Financial advisors and tax professionals are gearing up for a more complicated Form 1040 for the 2026 tax season. New reporting rules, updated eligibility criteria, and the need to keep track of previously untaxed income—like tips and overtime—will add more paperwork and increase the chance for errors.
Time to take action
With the end of the 2025 tax year approaching, evaluating your financial situation is important. Are you close to the income level that might disqualify you from any of these new deductions? It might be worth considering whether to accelerate or defer your income, based on your circumstances. Planning to buy a car? Being aware of interest deductions related to auto loans can influence when and what car you choose. A financial advisor can assist in determining the best approach for your specific situation.
The broader implications of these changes extend beyond 2025. While some measures are temporary (expiring in 2028), others, like permanent extensions of lower tax brackets and increased standard deductions, will have lasting effects on tax planning.
This overview primarily discusses tax adjustments for individuals, but numerous other changes will affect business owners. If you own a business, collaborating closely with your financial or tax advisor is crucial to understand the implications of these updates.
Professional support is especially beneficial for those with complex financial situations, including multiple income sources, stock compensation, and real estate investments. The difference between fully utilizing these new provisions and missing out on potential savings can be significant.
Being informed about these changes allows you time to adapt your strategy, gather essential documentation, and make informed decisions that could save you a considerable amount of money.
Disclaimer: This content is intended purely for educational purposes and isn’t personalized financial advice. Every financial situation varies, and your approach should reflect your unique circumstances, goals, and risk tolerance. Consulting a certified financial planner before making significant financial choices is advised.
