I hope your summer is off to a great start! As I’m sure you’ve heard by now, the “One Big Beautiful Bill” was signed into law on July 4. We are sure there are a lot of questions about how this will impact you and we will be working hard over the upcoming weeks and months to learn the ins and outs of each section, subsection and clauses to be better prepared to answer your questions.
While we are doing our research, we wanted to start to send over some initial key areas of the bill which may be important to you. If you want help understanding how the law will impact you personally, please contact us for a tax planning meeting. We are scheduling meetings starting at the end of August and throughout the fall to give us time to prepare.
Please keep in mind, the information provided below is based on an initial understanding of the new laws. Each regulation potentially comes with limitations, qualifications and additional details which are not fully included for simplicity’s sake of this email. If there is something of interest to you that you would like to learn more about, please let us know.
Tax Rates:
- The reduced tax brackets originally enacted by the 2017 Tax Cuts and Jobs Act (TCJA) have been made permanent. This means that the brackets, which range from 10% – 37%, will remain in place, rather than increasing back to the previous high of 39.6%.
Standard Deductions:
- The standard deduction, which was just about doubled by the TCJA, has been made permanent. For 2025, the standard deduction for a single filer will be $15,750, and for married filing jointly filers $31,500. These will continue to be adjusted annually for inflation.
- In addition, qualifying taxpayers who have reached age 65 will be eligible for an additional $6,000 deduction. There are income limitations to this deduction, and it is only available for 2025 – 2028.
Itemized Deductions:
- The State and Local Tax (SALT) deduction has been limited to $10,000 since tax laws changed in 2017. With the passing of the new bill, this now increased to $40,000 in 2025, $40,400 in 2026, and an additional 1% each year starting in 2027. The deduction will revert back to $10,000 in 2030.
- Mortgage insurance premiums, previously not allowed to be added onto mortgage interest, are allowed to be deducted again.
- Additional miscellaneous itemized deductions (investment fees, unreimbursed job expenses, etc.) have been completely terminated, consistent with the treatment under the TCJA, with the exception of unreimbursed job expenses for qualified educators which now get special treatment as an itemized deduction.
Children:
- The $2,000 Child Tax Credit has been increased to $2,200 per child and the other dependent credit of $500 was made permanent.
- Dependent Care FSA contribution limits were increased from $5,000 to $7,500.
- New Trump Accounts are available to children under the age of 18 years old. For babies born between 2025 and 2028, $1,000 will be deposited into eligible accounts by Treasury. Additional contributions can be made annually to the accounts, up to $5,000 starting in 2026, and increasing in the future. Distributions will not be allowed until the child reaches the age of 18.
Tips and Overtime:
- Employees of qualifying companies, who are receiving qualified tips (most likely those reported on W2s), can deduct up to $25,000 of tips from income. The treasury will be publishing a list of occupations which traditionally receive tips and qualify for the deduction.
- Deductions will also be allowed for “qualified overtime compensation” under the Fair Labor Standards Act, of up to $12,500 per individual. Further guidance is still needed on how the overtime will be reported (i.e., on a W2).
- Both deductions will be phased out starting at a modified adjusted gross income of $150,000 for single filers and $300,000 if married filing jointly. They are set to expire after 2028.
Energy Efficiency Credits:
- Many of these credits – clean vehicle credits, energy efficient home improvement credits, residential clean energy credits, etc. – are going to be expiring in the upcoming years. Expiration dates range from September 2025 through the end of 2027, depending on the credit.
- If you are considering making a purchase which previously qualified for an energy efficiency credit, please consider its expiration date first.
Other:
- Deductions will be allowed for charity contributions made by individuals who do not itemize, up to $2,000 for joint filers and $1,000 for other filing statuses, starting in 2026.
- New provisions will allow up to $10,000 of car loan interest to be deducted from your income. The car must be newly owned (not used or leased), have final assembly in the United States, and the VIN of the car will need to be reported. There will most likely be a new tax form generated related to this and there are income limitations for claiming the deduction.
- For business owners, 100% bonus depreciation will be allowed for property acquired and placed in service after January 19, 2025.
As mentioned, these are just a few of the changes that were made, and there is still much that needs to be learned. We are just starting to learn the qualifiers to each regulation, which provisions need to be expanded on, and how this will be implemented in our tax software.
Thank you, as always, for your patience as we continue to prepare and learn so we can serve our clients in the best possible manner.
