Published Aug. 08, 2025 01:24AM EDT
The Key Changes by the New Tax Law
Congress and President Trump enacted a new tax law, generally called the OBBBA (One Big Beautiful Bill Act), that has made several changes to the tax code. This post summarizes some of the key changes it made. Much of how the law will be applies remains to be decided, so if you have questions on specific issues, please reach out to us at 202-978-2888 or on our website (link) so we can review and discuss the question.
Individual Taxes
The most important change made, which effects all taxpayers, is making permanent the tax rates put into place in 2017. These otherwise would have expired, reverting to the pre-2017 rates, at the end of 2025.
The law, however, made several other important changes. Some of the key changes are summarized below. It is not an exhaustive list but are the ones we expect will have the most impact for our clients.
State and Local Tax Deduction Limitation (SALT Cap)
This has been increased from $10,000 to $40,000 for persons whose income is below $500,000. Above $500,000 the cap gradually drops to $10,000, which is the cap once income is $600,000 or above
Increased Standard Deductions
The law increases the standard deduction for all taxpayers:
- Married Filing Jointly: $2,300 increase, to $31,500
- Single and Married Filing Separately: $1,150 increase, to $15,750
- Heads of Household: $1,7250 increase, to $23,625
Persons older than 65 are eligible to receive an additional $6,000 deduction. The full deduction is available for single filers making less than $75,000 and joint filers making less than $150,000. It then phases out.
These increases to the deductions mean you pay taxes on less of your income. A married couple filing jointly will not pay taxes on an additional $2,300 of their income as a result of the law.
Increased Child Tax Credit
The new tax law increases the tax credit available per qualifying child from $2,000 to $2,200. This additional $200 directly offsets a taxpayer’s tax liability. This credit is partially refundable, meaning that if your tax liability is less than the credit, a portion of the credit becomes a tax refund that you receive.
Deduction of Car Loan Interest
Taxpayers can now deduct up to $10,000 of interest per year on car bought in 2025 or later. The tax law provides this benefit only to personal-use vehicles that are assembled in the United States. The IRS likely will publish guidance on this. The benefit phases out once income exceeds $100,000 for single filers / $200,000 for joint filers. It is completely eliminated at $150,000 (single) / $250,000 (joint).
Charitable Deductions
Persons that use the standard deduction can now deduct up to $1,000 if a single filers / $2,000 if a joint filer. Previously, you could only deduct these contributions if you itemized deductions.
For persons that itemized, charitable deductions are deductible only if they exceed 0.5 percent of your adjusted gross income.
No Tax on Tips and Overtime
For tips, the new tax law allows taxpayers to deduct up to $25,000 of income received as tips.
For overtime, taxpayers can deduct up to $12,500 of overtime income if a single filer, or $25,000 of overtime income if a joint filer. It is worth noting that only the overtime pay is not taxed, meaning the base pay is still taxed even for overtime hours. In other words, of the 1.5x required for overtime pay, the .5 is not taxed but the 1 remains taxed.
Both benefits phase out once total income exceeds $150,000 for single filers and $300,000 for joint filers. They also both expire in 2028 and are subject to a variety of fact-specific limitations designed to prevent gamesmanship. In short, if the job traditionally is paid through tips and qualifies for overtime pay, it qualifies for this benefit.
Business Taxes
As for the individual taxes, a key change made by the new tax law is making permanent the tax rates from the 2017 legislation. This benefits c-corps through lower rates and pass-through entities through the extension of the qualified business income deduction.
Qualified Business Income
This deduction allows owners of business owners to deduct up to 20 percent of income from a pass-through entity if they meet certain qualifications. The deduction phased out at $50,000 for single filers and $100,000 for joint filers. The new tax law increases these limitations to $75,000 and $150,000, respectively.
Bonus Depreciation
The law reinstates 100 percent bonus depreciation for tangible personal property if put in service after Jan. 19, 2025.
SALT Cap Workaround
Although it was considered, the law did not make any changes or limitations on the ways that some pass-through entities work around the SALT cap for their owners. So if you are an owner of a partnership or s-corp that has been paying state income taxes at the entity level, this is still permitted and you obtain the same benefit as before.
The new legislation has many provisions. If there is something you are specifically interested in, please let contact us at 202-978-2888 or here (link) so we can find a time to consult with you. Many aspects of the bill are also subject to further regulation, so it may evolve as the year goes on. We’ll keep up to date so that everything is ready for next tax season.
