Tax Brief for You
Essential Tax Changes for 2025 You Should Know
Simplified Updates to Help You Save Big on Your Taxes
The One Big Beautiful Bill (OBBB) introduces sweeping changes to tax laws that could mean significant savings for you. Below is everything you need, explained in a straightforward, client-friendly way. Let’s get you prepared!
1. New Tip Income Deduction
If you rely on tips for income, here’s great news! You can now deduct up to $25,000 from taxable tip income between 2025 and 2028.
- Covered tips:
- Those documented on your W-2 or reported via Form 4137.
- Cash and card-based tips (excludes mandatory service charges or regular salaries).
- Eligible workers: The IRS will release an official list, likely covering roles like servers, bartenders, and hotel staff.
Example: Maria waits tables and reports $30,000 in tips on her W-2, along with $40,000 in wages. Thanks to this deduction, her taxable income drops from $70,000 to $45,000.
Note: This benefit phases out if your income exceeds $150,000 as an individual ($300,000 for couples filing jointly).
2. Extra Deductions for Overtime Pay
If you put in overtime hours, your hard work just paid off. From 2025 to 2028, you can deduct up to $12,500 of overtime pay ($25,000 for married couples).
- What you need to know:
- Deduction applies to federally taxable income only—Social Security and Medicare taxes still apply.
- Your W-2 will have a separate section for reporting overtime pay.
Example: Jane earns $60,000 in wages and $10,000 in overtime. She deducts the $10,000, reducing her taxable income to $60,000.
3. Additional Tax Relief for Seniors
A temporary deduction of $6,000 per individual aged 65+ (or $12,000 for joint filers) is available from 2025 to 2028.
- Your adjusted gross income (AGI) must not exceed $75,000 for singles or $150,000 for couples to claim the full amount.
- You’ll need to include your Social Security number when filing.
Example: John (68) and Mary (66) file jointly with an AGI of $140,000. They qualify for a $12,000 deduction, saving significantly on their taxes.
4. Higher Child Tax Credit
Families with children under 18 can now claim $2,200 for each eligible child, up from $2,000.
- To qualify, all listed family members need valid Social Security numbers.
5. Car Loan Interest Help
You can now deduct interest on brand-new car loans!
- Key limits: Up to $10,000 annually for loans taken after Dec. 31, 2024, and for cars assembled in the U.S.
- The vehicle must be brand-new and purchased personally (commercial and leased vehicles don’t qualify).
Example: Katie buys a fresh-off-the-lot SUV in 2025 with a $40,000 loan, paying $2,300 in interest that year. Her income qualifies her to deduct the entire $2,300.
6. Trump Accounts for Children
This unique savings account helps kids under 18 grow wealth for the future with tax perks.
- Parents or guardians can contribute up to $5,000 annually per child, beginning July 2026.
- Government starter contribution for children born from 2025 to 2028 includes $1,000.
- Accounts grow tax-free until the child withdraws after turning 18 or rolled over to certain eligible accounts.
Note: Funds must be invested in low-cost U.S. stock index funds with no leverage.
7. Expanded Deductions for Educators
Starting in 2026, more educational professionals—including sports coaches—can deduct classroom expenses.
What’s gone? Miscellaneous itemized deductions like tax prep fees and unreimbursed employee expenses are now permanently removed.
Take Action Today
The new tax laws are full of opportunities to reduce your liability. We’re happy to help you make the most of them!
Email us: angelita@newleafea.com
Plan now, save later, and stay ahead!