As we prepare for the 2026 tax filing season, significant tax law changes enacted in 2025 will impact both individual and business taxpayers. This summary highlights the key provisions you should be aware of when preparing your 2025 tax returns. Due to the increased complexity from this legislation, our tax preparation rates have increased. Click here for an estimate.

Major Legislation Overview

Several important pieces of legislation became law in 2025:

  • The One Big Beautiful Bill Act (OBBBA) – signed July 4, 2025, introducing broad tax reforms
  • Social Security Fairness Act – signed January 2025, repealing the Windfall Elimination Provision
  • Filing Relief for Natural Disasters Act – signed July 24, 2025, expanding disaster relief provisions
  • SECURE 2.0 provisions – continuing to phase in retirement plan changes

Individual Tax Updates

Standard Deduction Enhancement

The TCJA’s enhanced standard deduction has been made permanent and further increased for 2025:

  • Married Filing Jointly: $31,500 (up from approximately $30,000)
  • Single Filers: $15,750 (up from approximately $15,000)
  • Head of Household: $23,625 (up from approximately $22,500)

These amounts will continue to be adjusted for inflation using the chained CPI-U methodology.

New Senior Deduction (2025-2028)

A temporary deduction is now available for taxpayers age 65 or older:

  • Deduction Amount: $6,000 per qualifying senior ($12,000 if both spouses qualify)
  • Income Phase-Out: Begins at $75,000 MAGI for single filers, $150,000 for joint filers
  • Phase-Out Rate: 6% per dollar over threshold
  • Requirements: Valid SSN required; married taxpayers must file jointly

Note: The personal exemption has been permanently eliminated, but this senior deduction provides targeted relief for older taxpayers.

Child Tax Credit Enhancement

The Child Tax Credit has been enhanced beginning in 2025:

  • Credit Amount: Increased to $2,200 per child (indexed for inflation starting in 2026)
  • Refundable Portion: Remains at $1,400 per child (also indexed starting in 2025)
  • Requirements: Valid SSN required for qualifying child and at least one parent on joint returns
  • Phase-Out Threshold: $200,000 single, $400,000 joint (unchanged)

SALT Deduction Changes

The state and local tax deduction cap has been temporarily increased:

  • 2025 Limit: $40,000 ($20,000 for married filing separately)
  • 2026 Limit: $40,400
  • 2027-2029: Annual 1% increases
  • 2030 and Beyond: Reverts to $10,000/$5,000
  • Income Limitation: For 2025, phases out starting at $500,000 MAGI ($250,000 MFS) at 30% of excess

No Tax on Tips (2025-2028)

A new temporary deduction allows tip income earners to deduct up to $25,000 in qualified tips annually:

  • Eligible Occupations: Must be in an occupation that customarily received tips as of December 31, 2024
  • Phase-Out: Begins at $150,000 MAGI for single filers, $300,000 for joint filers
  • Requirements: Tips must be properly reported; valid SSN required; married taxpayers must file jointly

No Tax on Overtime (2025-2028)

Overtime compensation is temporarily deductible:

  • Maximum Deduction: $12,500 for single filers, $25,000 for joint filers
  • Eligible Overtime: Only premium pay (time-and-a-half) qualifying under the Fair Labor Standards Act
  • Phase-Out: Same thresholds as tip deduction ($150,000/$300,000)

Deductible Car Loan Interest (2025-2028)

Interest paid on qualified car loans is temporarily deductible:

  • Maximum Deduction: $10,000 annually
  • Requirements: Must be for purchase or refinance of a car used for personal purposes

Other Notable Individual Changes

  • Adoption Credit: Enhanced for tax years beginning after December 31, 2024
  • Green Energy Credits: Most individual clean energy credits (residential clean energy, energy-efficient home improvement, clean vehicle credits) expire after September 30, 2025 or December 31, 2025
  • Unemployment Benefits: High-income earners (over $1 million) are now ineligible

Healthcare and Premium Tax Credit Changes

Premium Tax Credit (Applicable After 2025)

Starting in 2026, several changes affect health insurance subsidies:

  • 8.5% Income Cap Ends: The provision capping premium contributions at 8.5% of household income expires December 31, 2025
  • Stricter Eligibility Verification: Exchanges must verify income, family size, lawful presence, and coverage eligibility
  • Special Enrollment Restrictions: Credits may be disallowed for certain special enrollment period coverage
  • Recapture Limits Eliminated: The cap on premium tax credit repayment is removed

Health Savings Accounts (Starting 2026)

  • Bronze and Catastrophic Plans: Now qualify as high-deductible health plans for HSA eligibility
  • Telehealth Exception: Permanently preserved for coverage before meeting deductibles
  • Direct Primary Care: DPC membership fees are now qualified medical expenses (capped at $150/month individual, $300/month family)

Business Tax Updates

Qualified Business Income (QBI) Deduction Enhancement (After 2025)

  • Phase-In Ranges Increased: $75,000/$150,000 (single/joint) up from $50,000/$100,000
  • Minimum QBI Deduction: New $400 minimum deduction for active businesses with at least $1,000 in QBI
  • Inflation Adjustments: Begin in 2027 for minimum deduction and QBI floor

Research and Experimentation Expensing

Full immediate expensing of domestic R&E expenditures has been restored, replacing the amortization requirement.

Bonus Depreciation and Section 179

  • Special Depreciation Allowance: Enhanced for qualified production property
  • Section 179 Expensing: Continues with existing limits and phase-outs

Business Interest Limitation

The Section 163(j) limitation now applies before capitalization rules, with the allowed interest used first for amounts requiring capitalization.

Small Business Stock Gains

Enhanced exclusions for qualified small business stock:

  • Holding Period: Reduced from 5 years to 3 years for partial exclusion
  • Tiered Exclusions: 50% (3 years), 75% (4 years), 100% (5+ years)
  • Eligibility Threshold: Increased from $50 million to $75 million in gross assets

Clean Energy Credits

Most business clean energy incentives are being phased out or have expired, including clean electricity production and investment credits (expired December 31, 2025).

SECURE 2.0 Retirement Plan Changes

2025 Changes

  • Higher Catch-Up Contributions: Enhanced limits for individuals ages 60-63
  • Automatic Enrollment: Required for new retirement plans
  • Part-Time Worker Coverage: Expanded eligibility
  • Lost and Found Database: New retirement savings recovery tool

2026 Changes

  • Mandatory Roth Catch-Up: High earners must make catch-up contributions to Roth accounts
  • Paper Statement Requirements: New distribution documentation rules
  • Long-Term Care Distributions: Retirement funds can be used for LTC insurance premiums

Disaster Relief Updates

The Filing Relief for Natural Disasters Act gives the Treasury Secretary authority to postpone tax filing deadlines for state-declared emergencies (even without federal disaster declarations) and extends mandatory extensions from 60 to 120 days.

Action Items for Taxpayers

As you prepare for the 2025 tax year, consider:

  1. Review your withholding to account for new deductions (tips, overtime, senior deduction)
  2. Maximize retirement contributions with enhanced catch-up provisions if eligible
  3. Evaluate SALT planning strategies with the increased but still limited deduction
  4. Consider timing of business investments and research expenditures
  5. Review clean energy credits before they expire
  6. Verify SSN requirements for all credit claims
  7. Plan for healthcare coverage changes if you receive premium tax credits

Many of these provisions are temporary (expiring 2028 or 2029), so multi-year tax planning will be especially important. Please contact our office to discuss how these changes specifically impact your situation.

This summary is based on tax law as enacted through 2025. Tax planning should be individualized to your specific circumstances. Please consult with our office for personalized advice.