By Christian Hudspeth, CFP®
Congress’ Summer 2025 passage of President Trump’s “One Big Beautiful Bill Act” (OBBBA) keeps most of the familiar tax rules we’ve known since 2018. Importantly, all of the same income tax brackets have returned and have been made permanent, so no one’s tax rates have gone up as they would have in 2026 without congressional action.
But the 2025 tax law didn’t stop with just a renewal of the 2017 Tax Cuts and Jobs Act. The OBBBA has built upon the last tax law change since Trump’s first term, adding new tax relief designed to help families, seniors, tip-earners, overtime workers, business owners, homeowners, and even new owners of American-assembled cars.
Here we’ve highlighted more than five of the most important major tax changes that could impact your tax bill starting in 2025, plus some tax-saving ideas to plan around.
Enhanced, Tax-Saving Standard Deductions for All
Joint married filers’ (under age 65) standard deduction has been bumped up to $31,500 for 2025 while single filers’ standard deduction is $15,750 for the year. That means taxpayers can earn up to those standard deduction amounts annually without paying any federal income tax (and any income earned above that is taxable).
In a nod to “no tax on Social Security”, legislators dramatically added a new deduction for taxpayers over age 65. Married couples filing jointly who are both over age 65 and making less than $150,000 for the tax year will now get an extra-large standard deduction of $46,700 (versus $31,500 for married taxpayers under age 65), even if they’re not collecting Social Security. A reduced but still mighty standard deduction is still available for seniors with higher incomes of up to $250,000 for married joint filers and $175,000 for individual filers.
Note: The $6,000 per person added deduction for senior filers is for tax years 2025 through 2028. Taxpayers who itemize and are within income limits may also receive the deduction.
Planning opportunity: Senior couples in this category have an opportunity to pay 0% tax on income up to $46,700, then 10% to 12% on the next $96,950 of income. For those willing to delay claiming Social Security benefits for a few more years, that can make for great Roth IRA conversion opportunities to take advantage of low tax brackets.
Just imagine the opportunity to convert up to $143,650 into a Roth IRA – where that money can grow tax-free for your lifetime and be withdrawn tax free – and only paying roughly $11,000 in taxes (a tax rate of less than 8%) on the conversion.
Further reading: Is Now the Best Time for a Roth IRA Conversion? – FMP Wealth Advisers
No Tax on Tips or Overtime (with limits)
The “no tax on tips” and “no tax on overtime” fans received a tax break too. While the law doesn’t get rid of taxes on tips or overtime entirely, and is temporarily available until 2028, married joint filers making less than $300,000 ($150,000 for individual filers) can fully deduct $25,000 of tip or $25,000 in overtime income ($12,500 for individual filers). The deduction is reduced for filers making over those limits.
Tax Reductions for Families
The 2025 tax law permanently boosts child tax credit to $2,200 per child under age 17 (up from $2,000 per child previously) beginning this year, and the credit is now indexed to inflation to help parents keep up with rising costs.
529 plans have received some notable upgrades. Families may now withdrawal up to $20,000 from 529 plans for K-12 education costs (up from $10,000 previously). They also may now withdraw 529 funds without penalty for online educational materials, curriculum materials, standardized test fees, books/instructional materials, dual-enrollment fees for college courses taken in high school, tutoring, and costs related to support for students with disabilities.
New “Trump Accounts” have been introduced, giving newborns an opportunity to let their wealth compound during their childhood. The tax-advantaged accounts are created by the government (if not opened by an individual) and seeded with $1,000 for every newborn this year and beyond. Parents and relatives can contribute up to $5,000 per year in after-tax dollars (limits to rise with inflation) and the funds can grow tax-deferred in diversified investment funds until the child turns age 18 (after which the adult child gets increased access until they receive full access at age 30).
Business Owner Tax Deductions
The Qualified Business Income Deduction (QBI Deduction) – which I like to think of as a standard deduction for small businesses equal to approximately 20% of annual profits — has been reinstated permanently and expanded to allow more business owners to claim the deduction.
Also for business owners, the 2025 tax law keeps the 100% bonus depreciation permanent on first-year property purchases. That means a business can deduct the full cost of eligible assets in the year they’re purchased and placed into service effective after January 19, 2025.
Business owners can now purchase up to $2.5 million in Section 179 depreciable business equipment – double that of previous tax law – allowing them to deduct a full expense in one tax year rather than depreciating the asset over time. This tax break phases out when the total cost of qualifying property placed in service exceeds $4 million.
There are also more flexible changes for research and experimental expenses, allowing businesses to either amortize or deduct the exploratory expenses during the tax year.
Quadrupled Itemized Deduction on State and Local Tax (SALT)
Under the 2017 tax law, itemizing taxpayers could only deduct up to $10,000 in state and local taxes (SALT taxes) per year, which left those with high property taxes or state income taxes unable to deduct much of their SALT taxes.
The new tax law now temporarily allows taxpayers to itemize up to $40,000 per year in SALT taxes, and that amount will increase 1% per year until 2030 (when it reverts to the $10,000 per year limit). To qualify for this tax break, the taxpayer must have a modified adjusted gross income of $600,000 or less.
Planning opportunity: Work with your financial planner to create a “bundling strategy” where you could pay two years of property taxes in one tax year to take advantage of the new SALT limit. You could then magnify your itemized deduction savings in the same year by also bundling two (or more) years of charitable donations instead of one using a Gifting Appreciated Securities or Donor Advised Fund strategy.
Read more: 4 Tax-Smart Ways to Donate More and Pay Less – FMP Wealth Advisers
Other 2025 Tax Law Changes
- A new car loan interest deduction, which allows borrowers (up to certain income limits) to deduct up to $10,000 in car loan interest payments on American-assembled cars.
- The estate tax basic exclusion amount has been increased to $15 million, protecting more assets for those dying in 2026 and beyond from estate tax.
- Classroom expenses can expand beyond the $300 per educator above-the-line deduction and can be itemized as well.
- Mortgage insurance premiums count as qualified residence interest for taxpayers who itemize. Meaning you can now get some tax-savings from paying those historically high hazard insurance premiums.
What’s Next?
These fresh tax-law changes will provide many tax-saving and wealth-building opportunities to plan for in the years ahead.
Working with a trusted financial advisor and planning team could make this opportunity-finding much easier. For example, our financial planning team works with clients to:
- Spot missed potential tax deductions,
- Map out your taxable income (and tax brackets) years into the future,
- Execute well-timed Roth IRA conversions,
- Plan for tax-optimized withdrawals,
- Identify tax-smart donation strategies that don’t always require itemizing,
- All to potentially save you thousands of dollars in taxes over your lifetime.
Have a question about how the OBBBA or other money topics may impact you? You can reach the author at chudspeth@fmpwa.com.
Further Reading:
AARP: How ‘One Big Beautiful Bill’ Could Change Your Tax Bill
CNBC: ‘Trump accounts’ come with a ‘free’ $1,000—how they work
Kreisher Miller: One Big Beautiful Bill Signed Into Law – What It Means for You and Your Business
Kiplinger: New ‘Trump Account’ for Child Savings: What You Need to Know Now
*The information presented here is not specific to any individual’s personal circumstances. FMP Wealth Advisers is not providing investment, tax, legal, or retirement advice or recommendations in this article.
**To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
***These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
