It’s that time of year again where we should consider meeting to discuss any year-end strategies that might reduce your 2025 taxes.
For a short time this past summer, tax news became national news when the President signed the One Big Beautiful Bill Act (OBBBA). The OBBBA is a budget bill that makes the 2017 tax cuts permanent, introduces a bunch of new tax breaks, and repeals all but a few of the clean energy tax credits.
Because most of the changes apply to the 2025 tax year, we’ll want to factor them into our year-end planning. So, let’s start with what’s new and then move on to other year-end considerations.
A Word about Acronyms
We try not to use too many acronyms, but you’ll see “AGI” a lot. AGI stands for “adjusted gross income,” which is your total income minus a handful of key deductions such as IRA contributions, HSA contributions, and self-employed health insurance. The tax rules use AGI everywhere for limitations and phaseout thresholds, so there’s no escaping the concept or the acronym.
New Tax Breaks
Most of the new tax breaks enacted by the OBBBA are available regardless of whether you itemize or take the standard deduction. However, most of them phase out for income above specified thresholds. These deductions are potentially quite valuable, so it might be worth your time to see if any apply to you.
Increased SALT Limit
The biggest break for individuals in the OBBBA isn’t new, but it’s greatly expanded. The limit on the state and local tax deduction has been increased from $10,000 to $40,000. You must itemize your deductions to take advantage of the SALT deduction. If you haven’t itemized in recent years, the increased SALT limit may make it attractive to do so. The $30,000 increase in the deduction limit starts phasing out for AGI above $500,000. A less favorable limit and phaseout threshold apply to married individuals filing separate returns.
Deduction for Car Loan Interest
There’s a new deduction of up to $10,000 for interest on car loans taken out after 2024 for the purchase of a new personal use vehicle assembled in the U.S. The deduction is allowed through 2028 and begins to phase out for AGI above $100,000 ($200,000 for joint returns). The deduction is available regardless of whether you itemize or take the standard deduction. Pro Tip: To find out if your vehicle was assembled in the U.S., go to vpic.nhtsa.dot.gov/decoder and put in the vehicle’s VIN and model year. The last item under “Other Information” is the final assembly plant’s location.
Deduction for Tip Income
There’s a new deduction of up to $25,000 for tips received by an individual in an occupation which customarily and regularly receives tips. (We have a list available of qualifying occupations.) The deduction is allowed for both employees and independent contractors. The deduction begins to phase out for AGI above $150,000 ($300,000 for joint returns). The deduction is allowed through 2028, and is available regardless of whether you itemize or take the standard deduction.
Deduction for Overtime Pay
This is another new tax break available through 2028. This one allows you to deduct up to $12,500 ($25,000 on joint returns) for overtime pay that’s required to be paid at time and a half by federal law. The deduction begins to phase out for AGI above $150,000 ($300,000 for joint returns). The deduction is allowed through 2028, and is available regardless of whether you itemize or take the standard deduction.
Deduction for Seniors
The OBBBA added a new $6,000 per person deduction for all individuals who have reached age 65 before the end of the tax year. This one works like personal exemptions used to before they were repealed: it doesn’t matter whether you itemize your deductions, and you don’t have to do anything to claim it other than have a Social Security number (and file a joint return, if married). The senior deduction begins to phase out for AGI above $75,000 ($150,000 for joint returns).
Charitable Contribution Deduction for Non-Itemizers
This one isn’t available until 2026, but it’s one you’ll want to be aware of as you plan any year-end charitable contributions. The maximum deduction is $1,000 ($2,000 for joint returns). Eligible contributions must be made in cash (checks and credit/debit cards are also fine) to a public charity. There is no phase out for this deduction. Planning Opportunity: If you don’t plan to itemize in 2025, you may get a tax benefit from delaying year-end charitable contributions until January when the new tax break takes effect.
Itemized Deduction for Educator Expenses
One more tax break that will be available in 2026 is a new itemized deduction for educator expenses. This deduction for K-12 teachers is a complement to the longstanding $300 ($350 in 2026) above-the-line deduction for classroom expenses. There are two key differences between the above-the-line deduction and the new itemized deduction: (1) there is no limit on the amount of the itemized deduction; and (2) educator expenses of interscholastic sports administrators and coaches are allowed, and “nonathletic supplies for courses of instruction in health or physical education” are allowed as eligible expenses. There is no phase out for this deduction, but you do have to itemize your deductions to take advantage.