New Tax Law One Big Beautiful Bill Act OBBBA of 2025: All You Need to Know

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This is what I sent to clients below. This was just meant as a short update featuring the main changes in OBBBA. There is a lot to unpack here and I’ll be digging into how it affects each client of course while answering their questions. So, here we go:

 

Hi,

We have a new tax law that was signed on July 4th, 2025. Its name is: One Big Beautiful Bill Act OBBBA. Well, not sure how beautiful it is but I can assure you it is big. I am going to try to hold off making political comments and just stick to the facts.

First, many in my industry are relieved that after many years we have certainty ahead as many of the tax cuts enacted back in 2017 are now permanent (instead of ending December 31, 2025). And again after a very long time we don’t do this in late December, it is only July and this allows us to plan better without rushing anything.

Again, there is a lot to cover. And I wanted to make this short enough to get to you the main points of the legislation. So, I am going to first list the main points below, follow that with a few words and then leave it up to you to email me with specific questions. While waiting for my tax software company to change and update the coding to see how your tax situation is going to be impacted.

Finally, there are also numerous business tax changes and many of them revolve around allowing businesses to buy equipment and build facilities and deduct these costs this year (or in an accelerated manner). The point is to juice the economy and help pay for these tax cuts. I think we tried this before…

So, hang with me. Changes below are effective starting in 2025, unless noted.

Standard deduction: Up from $15,000 to $15,750 for singles and $30,000 to $31,500 for married filing jointly. Indexed for inflation.

State and local tax deduction (SALT) limit: Up from $10,000 to $40,000 maximum, with 1% increases through 2029. Reverts to $10,000 in 2030. Starts phasing out for taxpayers with more than $500,000 of income.

Senior bonus deduction: New deduction. $6,000 per eligible person, age dependent. A single filer age 65 or older can get a full $6,000 deduction if income is less than $75,000. Two spouses age 65 or older can get a full $12,000 deduction if their combined income is less than $150,000. It phases out completely when income is $175,000 for singles and $250,000 for joint filers. Lasts through 2028. This is in addition to the regular standard deduction.

Estate and gift tax exemption: Up from $13.99 to $15 Million (single) and $27.98 to $30 Million (married filing jointly) in 2026. Indexed for inflation.

Child tax credit: Up from $2,000 to $2,200 per qualifying child under age 17. Indexed for inflation.

Electric Vehicle EV tax credits: The $7,500 EV tax credit ends September 30, 2025.

Clean energy tax credits: A bunch of fairly small tax credits for buying numerous things like solar installations, electric heat pumps, or efficient windows and doors all end December 31, 2025.

No tax on tips: New deduction. Single filers making less than $75,000 and joint filers making less than $150,000 can get a deduction up to $25,000. This is for people who receive cash tips and the Treasury is supposed to come out with a list of occupations that this deduction applies to within 90 days.

Overtime pay deduction: New deduction. It offers a maximum $12,500 deduction for overtime pay to singles and $25,000 to joint filers making less than $150,000 and $300,000 respectively.

Car loan interest deduction:  New deduction. Up to $10,000 deduction for interest paid on eligible new car loans assembled in the US. Starts phasing out at $100,000 income for singles and $200,000 for joint filers. Available to both itemizers and non-itemizers.

Charitable donations: New deduction for non-itemizers. Starting in 2026, donors will be allowed to deduct $1,000 (single filers) and $2,000 (joint filers) if they do not itemize deductions. For taxpayers who do itemize, a portion of their charitable donation deductions will be disallowed at a rate of 0.5% of income. For example, a single taxpayer with $100,000 of income can not deduct the first $500 of charitable donations. To get the full $1,000 deduction, the taxpayer must donate at least $1,500.

529 Education Savings Plans: Tax-free withdrawals are expanded to include more K-12 expenses, plus expenses for certifications and licenses such as HVAC work. Starts in 2026.

Health Savings Accounts: HSAs become easier to qualify for. Starts in 2026.

Trump Accounts: New savings account for children with a one time deposit of $1,000 from the federal government for babies born 2025 through 2028. Family members can contribute $5,000 a year and earnings grow tax-deferred. There are limitations on withdrawals before age 30, with a mandatory withdrawal at age 31.

With the increased standard deduction amounts in the past several years, 9 out of 10 taxpayers did not itemize deductions anymore. And it was a slam dunk with state income taxes and local property taxes capped at only $10,000. For almost all of you without a home mortgage, just taking the standard deduction may no longer apply and you will need to keep track of your charitable donations and of course property taxes throughout the year. Because the number to “beat” is now $15,750 for Singles and $31,500 for joint filers. And starting in the 2026 tax year, even taxpayers who take the standard deduction should now keep track of charitable donations because a small amount can still be deducted going forward. Of course taxpayers in high tax states (California, New York, New Jersey) celebrate this tax change because they will benefit the most.

The senior bonus deduction will help the most devoted and growing tax base. This came to pass as a replacement of the “no more taxation of Social Security Benefits” pledge. There has been no change at all how Social Security Benefits are taxed.

If you have been looking to buy an electric car, you only have until September 30, 2025 to get a tax credit for it. Also, if you were planning to do some energy efficient additions/modifications to your home, you have until the end of the year. Because we are going back to coal apparently.

The deduction on tips will definitely help those who qualify. The IRS is supposed to come up with a list of occupations that qualify for this deduction. Employers and payroll software companies are scrambling right now to find ways to comply with this tax law change.

Same with overtime pay. Again, reporting this type of income will be challenging and I see so much potential for abuse and fraud. Hopefully they get it right and it all goes smoothly.

If you buy a new car and finance it, please save the monthly statements so we can accurately report and deduct the interest on your 1040 tax returns. Or just pay cash, you’ll be further ahead.

529 Educations Savings Plans are more flexible in what expenses qualify as tax-free withdrawals. And there is now a push for higher amounts allowed for K-12 expenses (up to $20,000 from $10,000 per year) and finally for non-college education such as training programs, credentials or license exams and continuing education to maintain credentials.

As far as the Trump accounts go, I just don’t have a good feeling about this new type of account. It’s because these accounts are to be administered by the Treasury Department and they have their hands so full right now, especially with reduced staffing and other priorities.  Anyway, if you are going to save money for the kids please do it in a 529 Plan account instead.

I think I covered the most important individual tax changes in the new tax law. I am still learning about it and have at least a few more classes scheduled. There is some crazy stuff in it it, for example: The moving deduction has been eliminated but this law allows it specifically for intelligence employees. And if you happen to be deployed in the Sinai Peninsula you will qualify for combat zone tax benefits. And there are numerous instances in the tax law text where it is mentioned that all these goodies are only allowed if the taxpayer has a Social Security Number. I mean, if you try to file without a Social Security Number the IRS does not even accept the tax return and kicks it back.

Anyway, so much for tax simplification. Again.

Enjoy your summer, make it beautiful 🙂