Just before the July 4th holiday, Congress passed the “One Big Beautiful Bill Act,” bringing a host of new tax laws that will impact individuals, families, and businesses starting as soon as this year. Investors and taxpayers have largely welcomed the bill, as it aims to ease tax burdens and stimulate the economy—potentially leading to reduced estimated tax payments in 2025 and larger refunds in 2026. That being said, increased economic stimulus means the Federal Reserve will be keeping a close eye on inflation trends to prevent any resurgence.
Given this backdrop, markets may remain volatile as investors react to shifting economic data and policy decisions. As you look at your financial strategy for the coming years, this is a great time to consult with a tax professional and your financial advisor to ensure you’re taking advantage of new opportunities and are prepared for potential changes.
Here’s a straightforward summary of what’s changing, when it takes effect, and what you can do about it:
Key Tax Changes for Individuals
1. Updated Tax Rates and Deductions
- Tax Rates: The current lower tax rates (12%, 22%, 24%, 32%, and 37%) are extended. Without this bill, rates would have reverted to higher pre-2017 levels.
- Standard Deduction: For 2025, single filers can claim $15,750; joint filers can claim $31,500. Both will adjust for inflation going forward.
- SALT Deduction: The State and Local Tax deduction rises to $40,000 in 2025, increasing 1% per year until 2030, before returning to $10,000.
2. New Deductions for Seniors
- Bonus Deduction: Filers 65+ get a $6,000 bonus deduction on top of the standard deduction (until 2028). This benefit phases out for higher incomes.
- Phase-Out: The deduction starts reducing for incomes above $75,000 (single) or $150,000 (joint) and disappears for incomes over $175,000/$250,000.
Tax Changes for Families
- Child Tax Credit: Increases to $2,200 per child in 2025, with cost-of-living adjustments.
- Dependent Care: The flexible spending account limit rises to $7,500 in 2026, with more qualified expenses covered.
- American Family Account: Babies born 2025–2028 get a one-time $1,000 government contribution; parents can add up to $5,000/year (funds can’t be withdrawn until age 18).
- 529 Plans: Now cover more K–12 expenses, with the cap on K-12 tuition-related withdrawals increasing to $20,000 (from $10,000) starting in 2026.
Vehicle Deductions and Credits
- New Car Loans: A $10,000 deduction for new car loan interest (2025–2028) for cars with final assembly in the U.S. Income limits apply.
- EV Subsidies: Electric vehicle credits phase out after September 30, 2025; some residential energy credits end December 31, 2025.
Business Tax Changes
- Small Business Deduction: The 20% qualified business income deduction (for sole props, partnerships, S-Corps) is now permanent.
- 100% Expensing: Full expensing of capital investments returns for qualifying purchases after January 19, 2025 (some limits apply).
- 1099-K Thresholds: Reporting now required for cash app transactions over $20,000 or 200 transactions—rolling back the $600 threshold set under the American Rescue Plan.
Lower Taxes for Tipped & Overtime Workers
- No Tax on Tips: Up to $25,000 in tips (2025–2028) can be deducted in certain industries, even if you use the standard deduction. Phased out at higher incomes.
- No Tax on Overtime: Overtime deduction up to $12,500 (single) or $25,000 (married filing jointly), with similar income phase-outs.
Estate Planning & Charitable Giving
- Charitable Gifts: You can deduct up to $1,000 ($2,000 for joint filers) in charitable contributions without itemizing.
- Estate and Gift Exemption: The exemption rises to $15 million (single) and $30 million (married) in 2026, with future inflation adjustments.
What Should You Do Now?
With these wide-ranging changes, it’s wise to review your financial and tax planning strategies. These new rules could present opportunities for tax savings, but they may also require you to adjust your approach—especially if you own a business, have children, or are nearing retirement.
Take Action:
- Consult your advisor: A well-informed financial strategy is more important than ever in a shifting market environment. Reach out to your advisor to discuss how these developments may affect your plans.
- Talk to your tax professional: If you have questions about how these changes might impact your 2025 tax return, now is the time to ask.
Staying proactive can help you make the most of new opportunities and safeguard against any surprises.
Sources:
CNBC.com, FoxBusiness.com, TaxFoundation.org
This material is for informational purposes only. Consult your tax and financial professionals for advice specific to your situation.