What You Should Know About the New Tax Law—“One Big Beautiful Bill”
On July 4th, a sweeping piece of legislation—formally known as the “One Big Beautiful Bill”—was signed into law. It brings with it some significant changes to the tax code, impacting everything from state and local tax deductions to how tips and overtime are taxed.
Here’s what you need to know as you begin thinking ahead to 2025 and beyond.
Most Changes Start in 2025—but a Few Are Retroactive
The bulk of the new tax provisions won’t take effect until tax year 2025 (meaning they’ll impact the returns we file in 2026). A few lesser-known provisions apply retroactively to 2024, but for most people, the real shifts start next year.
—
Key Changes to Be Aware Of:
Here’s a high-level breakdown of the major provisions included in the bill:
SALT Cap Raised: The state and local tax (SALT) deduction cap increases from $10,000 to $40,000 for those earning up to $500,000.
Tip Income Deduction: A new deduction of up to $25,000 for tip income (available 2025–2028).
Overtime Deduction: Up to $12,500 of qualified overtime pay can now be deducted for eligible workers.
Auto Loan Interest Deduction: Deduct up to $10,000 in interest on qualifying car loans.
Child Tax Credit: Increased to $2,200 per child under 17, adjusted annually for inflation.
Senior Deduction: A new deduction up to $6,000 for those age 65 and older.
Energy Credits Repealed: Credits for EVs, charging stations, and energy-efficient home improvements end after 2025.
Qualified Business Income (QBI): The 20% QBI deduction is now permanent.
Student Loan and Medicaid Reforms: Updates aimed at restructuring existing programs.
—
What’s Staying from the 2017 TCJA?
A big part of this new law is that it makes some key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent, including:
Lower tax rates across brackets.
Nearly doubled standard deduction.
Expanded Child Tax Credit.
Elimination of personal and dependent exemptions.
Continued suspension of miscellaneous itemized deductions (e.g. unreimbursed employee expenses).
—
Are Tips Really Tax-Free Now?
Not quite—but there is now a deduction available for up to $25,000 in tip income (from 2025–2028), as long as your income is below $150,000. The deduction reduces your taxable income, so the savings depend on your tax rate. For instance, someone in the 12% bracket with $5,000 in tips would save $600 in taxes.
—
What About Overtime?
There’s also a new deduction of up to $12,500 for certain types of overtime income (also 2025–2028), targeted at workers in professions like healthcare, law enforcement, and retail. As with the tip deduction, this phases out above $150,000 in income.
—
Extra Help for Seniors
Seniors 65+ can claim an additional deduction up to $6,000, starting in 2025. This benefit begins to phase out at $75,000 (single) or $150,000 (married filing jointly).
—
Paying a Car Note? There Might Be a Deduction
If you have a car loan for a personal-use vehicle assembled in the U.S., you may be able to deduct up to $10,000 in interest. The deduction phases out at $100,000 for single filers or $200,000 for married filers.
—
Parents: Child Tax Credit Expands
Starting in 2025, the Child Tax Credit increases to $2,200 per child under 17 and will be adjusted each year for inflation. Both the parent and the child will need valid Social Security numbers to claim it.
—
Good News for Homeowners in High-Tax States
The SALT cap increase—from $10,000 to $40,000—applies from tax year 2025 through 2029 and may provide a major deduction boost for those who pay high state and property taxes. The deduction starts to phase out once household income exceeds $500,000.
—
Still Time for Energy Credits—But Not Much
Credits for energy-efficient home upgrades and EV purchases are winding down. You can still claim them on your 2025 return, but purchases and installations must be made before the end of 2025 (or September 30, 2025, for EVs). After that, they’re gone.
—
Other Changes to Know:
No Return of Miscellaneous Itemized Deductions: These remain permanently eliminated for employees (e.g., unreimbursed job expenses). Self-employed individuals can still deduct business-related expenses.
No More Personal/Dependent Exemptions: The elimination of these exemptions is now permanent.
Business Owners: The 20% QBI deduction is here to stay—and phase-in thresholds have increased to $75,000 (single) and $150,000 (MFJ).
Bonus Depreciation: Businesses can continue writing off 100% of qualified equipment in the year of purchase.
—
Final Thoughts
While most of these changes won’t show up until we file 2025 returns, now is the time to start planning—especially if you earn tip income, work overtime, own a business, or live in a high-tax state. As always, the best strategy is proactive planning.
If you have questions about how these updates might affect your personal tax situation, let’s talk.
