M & M Tax Service, LLC

Professional Tax Preparation



More Knowledge = Less Taxes





 

1. Tax Cuts & Jobs Act didn’t die in 2025
   • The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made most of the 2017 Tax Cuts and Jobs Act individual and small-business rules permanent (7 brackets, doubled standard deduction, no personal exemptions, 20% QBI deduction, etc.). 
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2. Standard deduction jumped again
   • Base standard deduction for 2025 is now:
     • $31,500 MFJ
     • $15,750 Single/MFS
     • $23,625 HOH 
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3. New deductions for seniors, tips, overtime, and car loan interest
   • Extra $6,000 senior deduction per person 65+ (up to $12,000 MFJ) with income phase-outs. 
   • New above-the-line deductions for tips and overtime pay (2025–2028
   • New above-the-line deduction for car loan interest on qualifying vehicles (2025–2028). 
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4. Child Tax Credit (CTC) bumped and made more permanent
   • CTC increased from $2,000 to $2,200 per qualifying child starting 2025, indexed for inflation from 2026 on; refundable portion also increased. 
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5. SALT (State and local tax) cap temporarily raised
   • SALT deduction cap jumps from $10,000 to $40,000 per return (with income-based phase-outs), for 2025–2029. 
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6. Big capital cost goodies for businesses
   • 100% bonus depreciation is restored and made permanent; Section 179 limits jump; new 100% write-off for certain U.S. “qualified production property.” 

     7. New “Trump Accounts” / 530A child accounts

• New tax-favored accounts for children, with tax-deferred growth and automatic account creation for many newborns, starting 2025–2026.

II. 2025  Standard Deduction, Brackets & Retirement Limits

A. Standard Deduction – 2025 (after OBBB)

For tax year 2025:

• Single / MFS: $15,750
• Married Filing Joint / Surviving Spouse: $31,500
• Head of Household: $23,625

Additional amounts (stacked on top):

• Existing age/blind add-ons (unchanged structure, indexed):
  • About $2,000 per 65+ or blind single/HOH taxpayer; slightly lower per MFJ spouse. 
• New senior bonus deduction (2025–2028, OBBB):
  • Extra $6,000 per person 65+ (so up to $12,000 MFJ if both spouses ≥ 65).
  • Phases out for MAGI over $75,000 single / $150,000 MFJ, fully gone by roughly $175k / $250k.

Example:
A married couple, both 67, with $120,000 AGI and no itemized deductions:

• Base standard deduction: $31,500
• Regular age-65 add-ons (approx.): $3,200 total
• New senior bonus: $12,000
  Total deduction ≈ $46,700 – meaning only about $73,300 of their $120k is taxed.

B. 2025 Federal Income-Tax Brackets

• Still 7 brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%.
• OBBB makes these rates and the TCJA-style thresholds permanent, instead of expiring after 2025. 
• All thresholds are inflation-adjusted annually via Rev. Proc. 2024-40 for 2025; details are in tables but not changed structurally. 

C. Retirement Plan Contribution Limits (2025)

From IRS inflation releases: 

• 401(k), 403(b), most 457:
  • Employee elective deferral: $23,500
  • Catch-up (50+): unchanged at $7,500 (so max $31,000 if 50+).
  • Special catch-up age 60-63: $11,250
• Traditional & Roth IRAs:
  • Contribution limit: $7,000; catch-up $1,000 (unchanged).
• FSAs / HSAs / HDHPs (2025 inflation):
  • Health FSA salary reduction max: $3,300, carryover cap $660. 
  • HDHP and HSA thresholds are modestly higher; exact figures matter in plan documents, but concept is unchanged.

III. Major OBBB Individual Provisions Effective in 2025

A. Child Tax Credit (CTC) and Family-Focused Changes

1. CTC increase & indexing
   • Maximum CTC = $2,200 per qualifying child under 17 for 2025 (up from $2,000). 
   • Credit is indexed to inflation starting 2026.
   • Income phase-outs still start at $200,000 single / $400,000 MFJ. 
   • Refundable portion (Additional CTC) increases up to $1,700 per child depending on earned income; minimum earned-income threshold remains $2,500. 

Example:
MFJ with 2 kids under 17 and $60,000 AGI:

• Old max: $4,000
• New max: $4,400
  That extra $400 directly cuts their tax bill.

1. Other dependent & adoption credits
   • $500 “Other Dependent Credit” (ODC) for older kids, elderly parents, etc., made permanent; previously scheduled to sunset with other TCJA items. 
   • Adoption credit:
     • 2025 base limit around $17,280–$17,670 per child (inflation-adjusted). 
     • OBBB makes up to $5,000 of the adoption credit refundable, subject to income limits
     • Recognizes tribal governments when determining “special needs” status. 

1. 529 plans & Trump Accounts
   • OBBB expands some eligible expenses for 529 plans (more career and technical programs; details in IRS guidance). 
   • Trump Accounts / Section 530A / “530A accounts”:
     • New tax-favored custodial accounts, tax-deferred growth similar to IRAs. 
     • Created under IRC §530A; targeted to children (generally U.S. citizen newborns in 2025–2029) with accounts often auto-opened when a Social Security number is issued. 
     • Contributions can come from parents, employers, and philanthropies, within annual caps; withdrawals are restricted and subject to tax if used for non-qualified purposes (similar to retirement accounts).

 If you’ve got or are expecting a baby in the next few years, there’s now a government-blessed investment account that starts for them at birth.

B. New Deductions for Work Income – Tips, Overtime, and Seniors

1. No Tax on Tips (2025–2028)

Structurally it’s not truly “no tax”—it’s an above-the-line deduction for “qualified tips”:

• Up to $25,000 of qualified tip income per year can be deducted from federal taxable income (2025–2028). 
• Available whether a taxpayer itemizes or takes the standard deduction.
• Applies to occupations where tipping is “customary,” as defined by IRS guidance (restaurant servers, bartenders, hairstylists, etc.). 
• Phases out as income rises (roughly MAGI over $150k single / $300k MFJ, with higher hard caps in some analyses). 
• Still subject to Social Security, Medicare, and state taxes.

Example (server):

• W-2 wages: $40,000 (incl. $15,000 in reported tips)
• They can deduct $15,000 of tips above the line.
• Their taxable income drops by $15,000, potentially saving 12–24% of that amount in federal tax.

1. No Tax on Overtime (2025–2028)
   • Deduction covers only the overtime “premium” (the extra 0.5× over base rate under FLSA). 
   • Cap: typically, $12,500 per person / $25,000 MFJ of qualifying overtime premium per year. 
   • Income limit: generally, no deduction if MAGI > $150k single / $300k MFJ. 
   • Applies for tax years 2025–2028, retroactive to overtime earned starting Jan. 1, 2025.

Example (hourly worker):

• Base rate $20/hr, worked 200 overtime hours:
  • Normal pay: 200 × $20 = $4,000
  • Overtime premium (extra 0.5×): 200 × $10 = $2,000
• That $2,000 premium may be deductible above the line, lowering taxable income.

1. Extra Senior Deduction (recap)
   • New $6,000 deduction per 65+ taxpayer (2025–2028) on top of:
     • Base standard deduction
     • Existing age/blind add-ons
     • Or on top of itemized deductions instead of the base standard deduction. 

Planning angle: “If you’re 65+ and in the phase-out band, you may want to manage income (Roth conversions, capital gains harvesting, etc.) around those thresholds.”

C. Car Loan Interest Deduction (2025–2028)

1. New above-the-line deduction for car loan interest
   • Up to $10,000 per year of interest on a qualified passenger vehicle loan (car, SUV, light truck, motorcycle under 14,000 lbs GVWR) with final assembly in the U.S. 
   • Applies to loans starting after Dec. 31, 2024 and before Jan. 1, 2029.
   • You don’t have to itemize to claim it; it reduces AGI directly. 

Example:

• You finance a new U.S.-assembled SUV in 2025; annual interest is $4,000.
• You can deduct that $4,000 above the line (subject to detailed rules), even if you use the standard deduction.

1. Reporting & lender issues
   • New 2025 reporting rules for lenders; IRS granted penalty relief for 2025 while systems catch up. 

D. SALT Cap Increase (2025–2029)

1. Higher cap
   • SALT deduction cap increased from $10,000 to $40,000 (or $20,000 MFS) for 2025–2029. 
   • For incomes above roughly $500,000 (single/MFJ thresholds differ), the cap phases down but never below $10,000.

1. Practical impact
   • Many upper-middle-income homeowners in high-tax states will itemize again, instead of using the standard deduction.
   • Classic “bunching” strategies come back into play: prepay property taxes, accelerate state estimates, etc., in years where you’ll benefit from the higher cap.

E. 1099-K Threshold & ERC Clamp-Down

1. 1099-K threshold reset
   • OBBB restores the old $20,000 / 200-transactions threshold for Form 1099-K, undoing the ARPA $600 rule. 
   • Effective retroactively, with FAQs and transition relief.
2. Employee Retention Credit (ERC) limitation
   • OBBB limits credits and refunds for ERC claims for Q3 & Q4 2021 filed after Jan. 31, 2024.
   • IRS released FAQs and is aggressively auditing questionable ERC claims. 

If you’ve been pitched a late ERC claim, the window is effectively closed, and IRS scrutiny is high.

IV. Key Small-Business & Investor Changes for 2025

A. Depreciation & Expensing

1. 100% bonus depreciation restored and made permanent
   • OBBB permanently restores 100% bonus depreciation under §168(k) for qualifying property placed in service after enactment; ends the scheduled phase-down. 
2. New §168(n) – 100% for “qualified production property” (QPP)
   • Extra 100% deduction for U.S. manufacturing / production property (think domestic factories and certain equipment), with special rules and elections. 
3. Expanded Section 179 expensing
   • For tax years beginning in 2025:
     • Max §179 deduction = $2,500,000
     • Phase-out starts around $4,000,000 of qualifying purchases (fully phased out by about $6.5M). 

If you’re a small or mid-size business, you can often write off most or all equipment purchases in year one; I just need to pick the best combination of §179 vs bonus vs regular MACRS for your situation.

B. QBI, Excess Business Losses & Other Pass-Through Rules

1. QBI minimums (start 2026, enacted 2025)
   • OBBB adds a new §199A(i):
     • Requires at least $1,000 of qualified business income to claim the 20% QBI deduction.
     • Has a minimum deduction of $400; both numbers indexed after 2026. 
   • These apply to tax years beginning after 12/31/2025, but they’re 2025 law changes—worth flagging now.
2. Excess business loss (EBL) limitation made permanent
   • The §461(l) EBL limitation (about $626,000 MFJ for 2025) is no longer scheduled to sunset; disallowed losses convert to NOLs in the next year. 

C. Clean Energy & Other Sector-Specific Items (High-Level Only)

For most individual clients, you just need to know:

• Some home energy credits (25C, 25D, 25E, 30C, 45L, 45W, 179D) are scaled back or changed starting late 2025/2026. 
• Several IRA-era green incentives are repealed or narrowed, especially for large projects; details matter mainly to developers and higher-dollar installations.

Message to homeowners: “If you’re doing energy upgrades, 2025 is still generally favorable, but the rules are shifting—bring your receipts; I’ll run the numbers under the new guidance.”

V. Other Notable 2025 Changes & Clarifications

A. AMT, EITC & Miscellaneous Indexed Items

• AMT exemption amounts for 2025 are higher again (roughly $137,000 MFJ; $88,100 single/HOH; $68,500 MFS). 
• EITC, Saver’s Credit, education credits, and numerous thresholds (e.g., education-loan interest phaseouts) all got the usual inflation tweaks—no major structural overhaul for 2025. 

B. Opportunity Zones in Rural Areas

• OBBB reduces the “substantial improvement” threshold from 100% to 50% of basis for property in qualified rural Opportunity Zones—important for rural development projects. 

C. IRS Guidance & Transitional Relief

• 2025 sees penalty relief for:
  • New information reporting on tips and overtime. 
  • New reporting of car loan interest by lenders. 
• IRS updated withholding guidance and Publication 505 for 2025 to reflect the new standard deduction, CTC, and tip/overtime rules. 

VI. Planning Angles for 2025

1. If you’re 65+
   • Make sure we claim all three layers:
     • Base standard deduction
     • Existing age/blind add-on
     • New $6,000 senior deduction (if under income limits)
   • Consider managing Roth conversions, RMD timing, and gains to stay under the senior deduction phase-out thresholds.
2. If you earn tips or a lot of overtime (service, hospitality, trades)
   • Track tips and overtime separately:
     • We can often deduct up to $25k of tips and up to $12.5k/$25k of overtime premium (subject to income limits) above the line.
   • Keep good records; W-2s and payroll systems won’t fully separate this yet.
3. If you have kids
   • Expect a slightly bigger Child Tax Credit ($2,200 per child) and potentially higher refunds via the Additional CTC.
   • For new or expected children, consider:
     • Trump Accounts as a long-term savings vehicle.
     • Coordination with 529s and updated adoption credit rules where applicable.
4. If you’re a homeowner in a high-tax state
   • With the SALT cap at $40,000, many clients should re-evaluate itemizing vs standard.
   • Consider:
     • Prepaying 2026 property taxes in late 2025 if within the higher cap and you’ll itemize this year.
     • Bundling charitable giving in 2025 versus 2026 depending on itemizing expectations and upcoming new non-itemizer charitable deduction rules (those kick in 2026). 

1. If you run a business or own rentals
   • Plan purchases of equipment, vehicles, and production assets to maximize 100% bonus and §179—but be smart about AMT and state rules.
   • For losses:
     • Understand that excess business loss limits are permanent; huge losses may not fully offset other income in a single year and will roll as NOLs.
   • For 2026 and later:
     • Check whether your QBI will meet the new $1,000 minimum and how the new rules impact your pass-through structure.

VII. What This Outline Does Not Cover

This summary focuses on federal individual and small-business income-tax changes for 2025 that are most likely to affect households, small businesses, and real-estate investors. It does not comprehensively cover:

• Large-corporate, international, or sector-specific provisions
• Non-tax spending cuts (Medicaid, SNAP, etc.)
• State and local tax law changes

All rules are current as of December 1, 2025, and may be modified by later IRS guidance or additional legislation.