12/29/2025
Howdy, Friends of LambdaTax!
Just before 2025 closes, I wanted to give you a quick run-down on some of the things that you should be aware of regarding changes in the tax laws this year, and some reminders of things you can do to make your 2025 tax returns easier to prepare for.
Regarding "no tax on tips": If you receive tips as part of your compensation, you can now deduct up to $25,000 for tax years 2025 through 2028. In order to take advantage of this deduction, you must work in a field where tipping is customary (e.g., restaurant work, salon work), and the deduction starts getting phased out if your modified adjusted gross income (MAGI) is above $150,000 ($300,000 for married-filing-jointly). But you'll have to determine how much of your compensation was from tip income included on the tax documents that you receive (like your W-2).
Regarding "no tax on overtime," that's a bit more complicated. Yes, you may be able to deduct up to $12,500 ($25,000 for married-filing-jointly) on overtime received; but there's a catch: it's only if you've received "time-and-a-half" or "double time" wages; and it's only that part that is above your normal wage. You also have had to work more than 40 hours per week to get the deduction (for example, if you had to make up time for a week with a holiday and you get overtime from your employer, it's only for that time that goes over 40 hours per week). As this can be confusing, I'll be happy to help you determine which hours are eligible.
If you itemize, the state-and-local taxes (SALT) cap has been raised to $40,000 from $10,000. This is great news for those who have paid more than $10,000 in state, local, and property tax in 2025.
If you purchased a new vehicle in 2025, you may be able to deduct up to $10,000 on your car loan interest. To take advantage of this deduction, a) you must have purchased a new—not used—vehicle since December 31, 2024, and b) final assembly of the vehicle must have occurred in the US. This can be determined by the VIN; I can help with that if you are affected by this.
If you were 65 or older at any point in 2025, you will automatically get an additional $6,000 deduction, on top of the additional $2,500 that you have been getting. This additional deduction will be available through the 2028 tax year unless extended. (As I turn 65 in 2026, I'll be looking forward to taking advantage of this next year).
The Child Tax Credit has increased to $2,200 (up from $2,000 last year and before) and will be tagged to inflation for future years. However, in order to take advantage of this, I will need to have proof of your child's Social Security Number; so I will be asking anyone who qualifies to send me a copy of your child's Social Security card—so be prepared.
So, a couple of reminders as 2025 closes:
There's still time to lower your tax bill by contributing to a traditional IRA. You can contribute up to $7,000 ($8,000 if you're 50 or older). You can do this until April 2026 and have it count toward your 2025 tax return.
If you claim mileage for your business, don't forget to take a note of your odometer reading on January 1st. This will set as the end of your mileage for 2025 and the beginning marker for 2026. As the IRS asks for the number of miles for business, commuting, and other; you'll need to know how many overall miles you drove during the year.
The IRS has set the standard mileage rate at 72.5 cents per mile for 2026, which is 2.5 cents higher than it was for 2025. It’s a great deduction.
Feel free to ask me any questions you have regarding your 2025 tax situation, and if I don't know the answer I will find out for you.
I'm looking forward to working with you on your 2025 tax returns. Have a great 2026!
--Aaron
LambdaTax
