ONE BIG BEAUTIFUL BILL ACT: NEW TAX CHANGES FOR INDIVIDUALS
The One Big Beautiful Bill Act was signed into law on Friday, July 4, 2025. The law brings with it new tax provisions and extends and makes permanent many of the expiring provisions from the Tax Cuts and Jobs Act of 2017 (TCJA).
Tax professionals are still studying and digesting this new tax law. Here I’ll highlight some of the key provisions affecting our individuals clients this year.
SPECIAL PROVISIONS
The new tax law creates some special deductions for workers who receive tips and overtime as well as an enhanced standard deduction for seniors. These special provisions are subject to income limits and only apply to tax years 2025 through 2028.
First, the new tax law provides a deduction of up to $25,000 for qualified tips received by an individual in a job that customarily and regularly receives tips. The deduction begins to phase out when the taxpayer’s modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers.
Next, it provides a similar deduction for overtime compensation received by an individual up to $12,500 for single filers and up to $25,000 for joint filers. Similar to the tip deduction, the overtime deduction begins to phase out when the taxpayer’s modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers.
Finally, the enhanced deduction for seniors provides an additional $6,000 deduction for seniors age 65 or older on top of their standard deduction. The deduction begins to phase out when the taxpayer’s modified adjusted gross income exceeds $75,000 for single filers and $150,000 for joint filers.
ITEMIZERS
For folks who itemize their deductions, there are a few key changes. First, the TCJA capped the amount of state and local tax deduction to $10,000 (known as the SALT cap). The new tax law increases the SALT cap to $40,000 for 2025, with a 1% increase each year through 2029 (for example, the 2026 cap will be $40,400). After 2029, the cap is set to lower back down to $10,000.
Next, the TCJA limited the mortgage interest deduction for taxpayers whose home acquisition indebtedness (in other words, debt taken out to acquire your home) exceeded $750,000 and was set to expire after 2025. The new tax law makes the $750,000 home acquisition indebtedness limit permanent.
Finally, the new tax law limits charitable deductions for itemizers by only allowing a deduction for contributions to the extent that they exceed 0.5% of the taxpayer’s contribution base (essentially creating a contribution base floor that the taxpayer must exceed in order to get the deduction). It’s unclear currently what makes up a taxpayer’s contribution base for this calculation.
EXTENSIONS AND OTHER UPDATES
The TCJA lowered individual income tax rates, increased the standard deduction, and it suspended personal exemptions. All of these provisions were set to expire after 2025. The new tax law makes permanent the lowered tax rates, the increased standard deduction, and the personal exemption suspension.
The TCJA temporarily increased the child tax credit from $1,000 to $2,000 with that increase set to expire after 2025. The new tax law permanently increases the child tax credit to $2,200.
The TCJA also created a credit for other dependents, providing a $500 non-refundable credit for qualifying dependents that don’t qualify for the child tax credit and was set to expire after 2025. The new tax law makes that $500 credit permanent.
Think any of the new provisions will affect your 2025 return? If so, you may consider working with a tax professional to create or update your tax plan for 2025.
I’m accepting new tax planning and prep clients for 2025. Reach out today to learn more.