Author- Sonia Dhillon, CPA, MBA
The passage of the “One, Big, Beautiful Bill” (OBBB) significantly affects federal taxes, credits and deductions. It was signed into law on July 4, 2025, as Public Law 119-21, and takes effect in 2025. Below analysis sheds light on how to take advantage of these new savings opportunities.
The key to a successful filing season (and maximizing your return) is proactive organization, especially for new deductions. Start now, and you’ll thank yourself come April 2026!
Phase 1: New Deductions You Must Prepare For
The OBBB introduces new, temporary tax deductions (reducing your Adjusted Gross Income, or AGI) for 2025 through 2028. These are generally available even if you claim the Standard Deduction.
1. Deduction for Seniors (Age 65+; Section 70103)
- What It Is: An additional deduction of up to $6,000 per eligible individual. Effective 2025 through 2028.
- Key Filing Note: This is per person, meaning a qualifying couple could claim up to $12,000 in additional deductions. This deduction begins to phase out for taxpayers with Modified AGI over $75,000 (Single) or $150,000 (Married Filing Jointly).
- Action Item: Ensure we have the Social Security Numbers for all qualifying individuals.
2. “No Tax on Tips” (Section 70201)
- What It Is: A deduction for qualified tip income up to $25,000 annually. Effective 2025 through 2028.
- Key Filing Note: This applies to employees and self-employed individuals in customarily tipped occupations. The deduction is available, but the tips are still subject to Social Security and Medicare (FICA) taxes. This deduction phases out for Modified AGI over $150,000 (Single) or $300,000 (Married Filing Jointly).
- Action Item: Gather ALL pay stubs and Form 4137 records. Due to IRS transition relief, your 2025 W-2 may not clearly separate this income, so we need detailed records to calculate the deduction properly.
3. “No Tax on Overtime” (Section 70202)
- What It Is: A deduction for the premium portion (the “half” in time-and-a-half) of qualified overtime pay, up to $12,500 annually (up to $25,000 for Married Filing Jointly). Effective 2025 through 2028.
- Key Filing Note: This is intended for the additional pay received above your regular rate. Like tips, it reduces taxable income but is still subject to FICA taxes. This deduction phases out for Modified AGI over $150,000 (Single) or $300,000 (Married Filing Jointly).
- Action Item: Gather ALL pay stubs and annual payroll summaries. We will need to analyze these to accurately calculate the deductible premium portion, as the 2025 W-2 may not report it separately.
4. “No Tax on car loan interest”(Section 70203)
- What It Is: A new deduction for personal use vehicle loan interest paid, up to $10,000 annually.
- Key Filing Note: The loan must have originated after December 31, 2024, and the vehicle must be for personal use and meet IRS criteria (such as being assembled in the U.S.). This deduction phases out for Modified AGI over $100,000 (Single) or $200,000 (Married Filing Jointly).
- Action Item: Keep your 2025 annual interest statement (look for a Form 1098 or similar from your lender) and the Vehicle Identification Number (VIN) of the qualified vehicle.
5. Adoption credit enhancement (Section 70402)
- What It Is: Beginning tax years after December 31, 2024, up to $5,000 (indexed for inflation) of the adoption credit may be refundable.
- Key Filing Note: Any credit amount carried forward from prior years cannot be used to calculate the refundable portion.
6. Major Business Tax Changes
Businesses must adjust their planning immediately for several significant changes:
R&E (Research & Experimentation) Deduction Section 174: Immediate Expensing is Back
- Domestic R&E: Expenditures paid or incurred on or after January 20, 2025, are immediately deductible (reversing the prior requirement to capitalize and amortize). Companies can elect to capitalize and amortize if desired.
- Retroactive Relief: Taxpayers can elect to deduct unamortized domestic R&E expenses from 2022-2024 either all at once in 2025 or ratably over 2025-2026.
- Foreign R&E: Must still be capitalized and amortized over 15 years.
Bonus Depreciation & Section 179 Expensing
- 100% Bonus Depreciation: The 100% deduction for qualified business property, which began phasing out, is now permanently reinstated.
- New Qualified Production Property (QPP): A new incentive allows a 100% deduction for qualified real property integral to the manufacturing of tangible personal property, boosting domestic production.
- Section 179 Expensing: The annual limit is significantly increased from $1 million to $2.5 million, with the phaseout threshold growing from $2.5 million to $4 million (effective for property placed in service on or after January 20, 2025).
7. Estate & Gift Tax Planning
The Estate Tax is a tax on your right to transfer property at your death. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. A filing is required if the gross estate of the decedent, increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death. Filing threshold for year of death in 2025 is $13,990,000 per decedent, providing stability and planning opportunities for high-net-worth clients.
8. Accelerated Clean Energy Credit Expirations
The OBBB Act significantly curtails certain clean energy incentives earlier than planned. This is a critical factor for year-end planning:
| Credit | Accelerated Expiration Date |
| New Clean Vehicle Credit (30D) | September 30, 2025 |
| Used Clean Vehicle Credit (25E) | September 30, 2025 |
| Qualified Commercial Clean Vehicle Credit (45W) | September 30, 2025 |
| Energy Efficient Home Improvement Credit (25C) | December 31, 2025 |
| Residential Clean Energy Credit (25D) | December 31, 2025 |
Action Item: If you were planning to purchase a new clean vehicle or undertake a major home energy project, the timing was critical to claim the expiring credits.
Phase 2: Organize Your Standard Documents
While the new law is important, gathering your traditional documents remains essential.
1. Personal & Preparer Information
- Previous Year’s Return: A copy of your 2024 return (filed in 2025) for reference on carryovers, investment details, and deductions.
- Identification: Social Security Numbers (SSNs) or Individual Taxpayer Identification Numbers (ITINs) for everyone on the return (you, your spouse, and dependents).
- Bank Information: Routing and account numbers for direct deposit of any refund or payment of taxes due.
2. Income Documents (Forms you’ll receive by late January 2026)
- Wages: Forms W-2 from all employers (even if for a short period).
- Interest & Dividends: Forms 1099-INT (Interest) and 1099-DIV (Dividends).
- Retirement & Pensions: Forms 1099-R (Distributions from IRAs, 401(k)s, pensions).
- Contractor Income (Gig Economy/Self-Employed): Forms 1099-NEC (Non-Employee Compensation) or 1099-K (Payment Card and Third Party Network Transactions). Note: The 1099-K reporting threshold was retroactively changed under the OBBB, so fewer people may receive this form. Third party settlement organizations are not required to file Forms 1099-K unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200
- Stocks & Investments: Forms 1099-INT, 1099-DIV, 1099-B (for stocks sold. Proceeds from Broker and Barter Exchange Transactions). Be sure to track the cost basis of assets sold!
- Retirement: Forms 1099-R (Distributions from IRAs, 401(k)s, pensions).
- Digital Assets: Records of transactions involving digital assets like cryptocurrency.
3. Deductions, Credits, and Payments Made
- Homeowners: Form 1098 (Mortgage Interest Statement), property tax payment receipts.
- Education: Form 1098-T (Tuition Statement) and 1098-E (Student Loan Interest Statement).
- Health: Form 1095-A (Health Insurance Marketplace Statement) and receipts for significant unreimbursed medical expenses (if itemizing).
- Taxes Paid: Records of any quarterly estimated tax payments (Federal and State) made during 2025.
- Charitable Donations: Detailed records (receipts/statements) for all cash and non-cash donations.
4. Business & Investment Activity (For our Business Clients)
- Business Structure Changes: Did you switch entity types (e.g., Sole Proprietor to S-Corp)?
- New Equipment/Assets: Detailed purchase information for any assets placed in service for depreciation (especially with changes to Bonus Depreciation rules).
- Vehicle Usage Logs: Accurate mileage logs for business-related driving.
- Profit & Loss/Balance Sheet: Final reconciled reports for the entire 2025 fiscal year.
- Permanent Business Tax Cuts: Provisions like 100% Bonus Depreciation and the 20% Section 199A deduction were made permanent and retroactively modified. We will apply these to your business tax filings.
- Asset Purchases: Detailed purchase information for any assets placed in service (vehicles, equipment).
5. Other Key OBBB Changes
- SALT Cap deduction Increased: Cap increased from $10,000 to $40,000 through 2029 (phases with inflation), then reverts to $10,000 in 2030. Phase-out begins at $500,000 MAGI (single) and $600,000 upper cap.
- Standard Deduction: The Standard Deduction amounts were made permanent and slightly increased. For example, Married Filing Jointly is now $31,500 and Single is $15,750.
6. Personal Life Changes
- Marital Status: Marriage, divorce, or new dependents.
- Relocation: Moving to a new state or country.
- Retirement: Starting or changing retirement distributions.
- Significant Purchases: Buying, selling, or refinancing a home.
- Large Gifts or Inheritances: While often not taxable to the recipient, these events still impact your financial picture and require documentation.
Phase 3: Actionable Steps You Can Take Now
- Start a “2025 OBBB” Folder: Create a physical or digital folder specifically for the new deductions (pay stubs, car loan interest statements, etc.) and begin collecting items immediately.
- Reconcile Your Books (Businesses): Don’t wait until January! Close your books for 2025, categorize all transactions, and check that your bank and credit card statements reconcile with your accounting software (QuickBooks, Xero, etc.).
- Max Out Retirement Contributions: You may have until the filing deadline (April 2026) for IRA contributions, but maximizing your contributions for employer plans by December 31, 2025, is often required.
- Use a Secure Portal: If we utilize a secure client portal for document exchange, please begin uploading your tax forms and supporting records as they arrive.
- Schedule Your Meeting: Contact our office now to schedule a dedicated time to review your documents. Booking early guarantees you a slot before the peak of tax season!
The earlier you organize and submit your documentation, the faster and more accurately we can complete your 2025 tax return and claim all the new deductions available under the OBBB Act.