07/15/2025
Here is my take on the tax provisions inside the Big Beautiful Bill. You will be surprised!!! It is a lot, but hopefully worth the read.
The Big Beautiful Bill
This is my overview of key provisions of the new Bill that pertain to income taxes. Many of these provisions will surprise taxpayers. This overview is only my comments, does not include all provisions of the Bill and should not be construed as tax advice. You should discuss with your CPA how each provision may affect your tax situation.
Now that the IRS has the Bill in hand, it will be interesting to see how all of these changes will be implemented on the tax return for 2025. Potential changes and more clarity can be expected.
Lesley R. Lewis, CPA, MT
No tax on overtime: Not what we expected!
The Good: Yes, less tax on overtime and retroactive to January 1, 2025.
The Bad: Do not expect a change in your payroll as overtime is still subject to income tax withholding, social security, and Medicare. This is an above-the-line deduction taken on your annual tax return and limited to $12,500 per person. Overtime must be reported on your W-2 in order to claim this deduction. It also phases out for taxpayers making over $100,000 for single filers and $200,000 for joint filers.
The Ugly: Overtime is ONLY the portion of pay that you receive over your normal pay, so the premium that you are paid, not your base pay. Exempt (salary) employees are not included. This deduction is only available from 2025 through 2028.
No tax on tips: Like the overtime rules, so some relief for certain industries.
The Good: Savings for tip employees and retroactive to January 1, 2025.
The Bad: Again, not what we expected. Tips are still subject to income tax withholding, social security, and Medicare. This is an above-the-line deduction taken on your annual tax return and limited to $25,000. Tips must be reported on your W-2 to be able to claim this deduction. This deduction also phases out for taxpayers making over $150,000 for single filers and $300,000 joint filers.
The Ugly: This deduction applies to voluntary tips only, so a mandatory or flat tip cannot be included in the calculation. The deduction is only available from 2025 through 2028. Married taxpayers MUST file jointly to get the deduction.
Raised Limits on 1099s:
Good: Instead of $600, the new amount to receive a 1099 is $2,000. For 1099-K it is $20,000 or 200 transactions.
No tax on Social Security income: Not even part of the Bill. Congress was unable to change this under budget reconciliation, which the Bill is based on.
The Good: Most lower-income taxpayers receiving Social Security may pay less tax.
The Bad: Social Security is still taxed! Seniors now get an additional deduction of $6,000, but it phases out for taxpayers making $75,000 for single filers and $150,000 for joint filers.
The Ugly: Again, only available between 2025 and 2028.
Higher Standard Deductions: To $15,750 for single filers, $23,625 for Head of Household and $31,500 for joint filers
The Good: Most taxpayers will not have to itemize their taxes.
The Bad: Several provisions within this Bill require itemizing in order to optimize the deduction.
Exempt Estate and Gift Limits:
The Good: For 2026, the exemption rate is $15 million for single filers and $30 million for joint filers. This exemption has also been made permanent.
State and Local Tax Deduction Limit:
The Good: This limit has been increased to $40,000 (from $10,000).
The Bad: You have to itemize to be able to take advantage of this increased deduction.
Bonus Depreciation back to 100%:
The Good: For most business assets purchased after 1/19/2025, 100% bonus depreciation is reinstated. This means that a business can deduct the cost of most tangible property purchased in the first year regardless of the income of the business. Code Sec. 179 expensing has also been expanded for those assets that are not eligible for 100% bonus depreciation.
Child Tax Credit:
The Good: Starting in 2025, the Child Tax Credit increases to $2,200 from $1,000.
Unreimbursed Employee Expenses:
The Ugly: The ability to deduct unreimbursed employee expenses was permanently repealed. I was really hoping that Congress would reconsider.
Repeal of Clean Energy Credits:
The Bad: Clean Vehicle Credits are all terminated after 9/30/2025. Energy-efficient Home Improvement and Residential Clean Energy Credits are terminated after 10/31/2025 (this includes Solar.) Several others are repealed after 6/30/2026.
NEW! Car Loan Interest Deduction:
The Good: This will give taxpayers the opportunity to deduct car loan interest up to $10,000 per year. It also is above-the-line, so no need for itemizing to get the deduction.
The Bad: The vehicle must be assembled in the U.S.
The Ugly: Only available from 2025 to 2028. Proof of assembly will be required, but we are unsure of the requirements at this time.
NEW! Trump Accounts:
The Good: These can be set up for minors from birth to age 18. A $1,000 tax credit is available for anyone who sets up a Trump Account for a minor. You can put $5,000 per year into these accounts.
The Bad: You cannot withdraw the funds until the minor reaches age 18. Rules relating to taxation of these accounts are similar to IRAs, so earnings may potentially be taxable to the minor.
NEW! Above-The-Line Contribution Deduction
The Good: Taxpayers who make contributions do not have to itemize to deduct up to $1,000 for single filers or $2,000 for joint filers.
The Bad: A new 0.5% floor is set for charitable contributions when you itemize. This means that contributions up to the 0.5% of your AGI cannot be deducted.
NEW! Additional educator expenses
The Good: Educators who itemize can deduct more unreimbursed educator expenses, including coaches, as an itemized deduction.
The Bad: You have to itemize to take advantage of this additional deduction.
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