Tax Law Changes for 2025 Returns
Most of the changes for this year are a result of the One, Big, Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025. Some of the more notable changes for 2025 are as follows:
- “No Tax on Tips”: This refers to a new deduction which allows eligible workers to deduct up to $25,000 of tip income on their federal return. This deduction will be phased out beginning at Modified Adjusted Gross Income (MAGI) of $150,000 (single) or $300,000 married filing jointly (MFJ) and will be available regardless of whether you claim a standard or itemized deduction.
- “No Tax on Overtime”: This refers to a new deduction for qualified overtime pay (“time-and-a-half”). Single taxpayers can deduct up to $12,500 ($25,000 MFJ) from their taxable income. It is important to note that the deduction only applies to the overtime premium, which refers to the half portion of time-and-a-half. Since this legislation did not come out until halfway through the year, the IRS is not requiring employers to report the qualified overtime separately on 2025 W2s. Therefore, it is important to keep detailed records of your pay and ask your employer if you need assistance calculating this amount. This deduction will be phased out beginning at MAGI of $150,000 (single) or $300,000 (MFJ) and will be available regardless of whether you claim a standard or itemized deduction.
- Car Loan Interest up to $10,000 will be deductible in 2025 for new vehicles that were assembled in the United States. Lenders will be required to provide borrowers with a statement showing the qualified interest paid. This deduction will be phased out at MAGI of $100,000 (single) or $200,000 (MFJ) and will be available regardless of whether you claim a standard or itemized deduction.
- The State and Local Tax (SALT) Deduction has been increased to $40,000 from the previous cap of $10,000. The deduction will be phased out once MAGI exceeds $500,000 ($250,000 married filing separately) but will not fall below $10,000 ($5,000 married filing separately). This increased limit could significantly increase the number of taxpayers that itemize their deductions.
- Enhanced Senior Deduction: While this new deduction has been falsely advertised as “no tax on Social Security,” it refers to an additional $6,000 deduction for taxpayers 65 and older. This deduction will be phased out beginning at Modified Adjusted Gross Income (MAGI) of $75,000 (single) or $150,000 (MFJ) and will be available regardless of whether you claim a standard or itemized deduction.
- Trump Accounts will now be available for children under 18 that have a Social Security Number. The federal government will make a contribution of $1,000 for each child that was born between 2025 and 2028. Trump accounts can be opened by submitting IRS Form 4547 at any time, but it is recommended to submit it with your tax return for faster processing. Contributions to these accounts are capped at $5,000 annually and do not require the child to have earned income.
The new deductions listed above will be claimed on Schedule 1-A of the 1040, which is a new form for 2025.
Filing Tools & Program Updates
For anyone that prepares their own tax return, you may be affected by the following changes:
- IRS Direct File has been discontinued for 2026.
- IRS Free File is still available for taxpayers with an AGI less than $89,000.
- If you are over the age of 50 and have low to moderate income, you can also take advantage of the Tax-Aide assistance offered by the AARP Foundation.
- If you use TurboTax to file and have a Fidelity account, they are currently offering 25% off your federal filing through their website: Fidelity Marketplace.
- The IRS will be phasing out paper checks for refunds. Taxpayers are encouraged to put their direct deposit information on file.
In summary, the 2026 tax filing season brings a mix of expanded tax benefits, new reporting requirements, and important procedural changes that taxpayers should be aware of before filing their 2025 returns. With the introduction of new forms, new or enhanced credits and deductions for seniors, families, tipped workers, and overtime earners, many taxpayers may see meaningful savings—but only if they understand and properly claim these updates. Reviewing these changes early, gathering accurate documentation, and choosing the right filing method could help ensure a smoother filing process and maximize potential tax benefits.
Disclosures: This material is provided for informational and educational purposes only and is not intended as tax, legal, or accounting advice. The information contained herein is general in nature and may not be applicable to all taxpayers. Individuals should consult with their tax advisor, CPA, or other qualified professional regarding their specific circumstances before taking any action. Howe & Rusling, Inc. is an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. The tax law provisions described herein, including those associated with the One, Big, Beautiful Bill Act (OBBBA), are based on publicly available information as of the date of publication and are subject to interpretation, regulatory guidance, and potential future legislative changes. Implementation details, IRS forms, reporting requirements, and administrative procedures may evolve. Contribution limits, income thresholds, deduction phaseouts, and other tax provisions referenced are subject to change. State tax treatment may differ from federal law. Taxpayers should verify current IRS guidance and applicable state rules before filing. References to third-party programs or services (including IRS Free File, AARP Tax-Aide, TurboTax, Fidelity Marketplace, or other providers) are for informational purposes only. Howe & Rusling does not endorse or receive compensation from these providers unless otherwise disclosed. This communication does not constitute a recommendation to pursue any specific tax strategy or filing method. Advisory services are provided only pursuant to a written agreement with Howe & Rusling.
