While the newly passed tax bill is definitely big, we doubt if our accountant colleagues would classify it as beautiful. There are so many changes that we made a selection we hope is interesting to you. Some changes are permanent, but many have expiration dates. Some take effect in 2025 and others take effect in 2026. Let’s start with what you need to know for 2025.
Rates and Deductions
-Personal Tax Rates Made Permanent – The lower tax rates introduced in 2017 (ranging from 10% to 37%) are now permanent.
-Larger Standard Deduction – Starting in 2025, the standard deduction permanently increases to:
$31,500 for married couples filing jointly
$23,625 for heads of household
$15,750 for single filers
-Seniors 65+ can claim an additional $6,000 per person, helping many avoid paying federal tax on Social Security benefits. However, this additional deduction phases out at $75,000 income for individual filers or for joint filers over $150,000, fully phasing out at $175,000/$250,000 respectively.
-State and Local Tax (SALT) Deduction Increase. The cap on SALT deductions rises to $40,000 (from $10,000) for single filers and joint filers making under $500,000. This benefit will last until 2030, especially helping residents who itemize in high-tax states.
-Mortgage Insurance Premiums Includable in Deductible Mortgage Interest Taxpayers can deduct their interest payments on their first $750,000 of mortgage indebtedness. The deduction is restricted to interest paid on “acquisition indebtedness” – that is, loans that were used to buy, build, or improve the taxpayer’s residence (and not home equity loans or lines of credit used to draw cash from home equity for other purposes).
-Auto Loan Interest Deduction You can deduct interest on car loans (up to $10,000/year) for U.S.-assembled vehicles through 2028. This benefit phases out for higher-income households.
-Permanent Increase to the Lifetime Gift & Estate Tax Exclusion Beginning in 2026, individuals can transfer up to $15 million (or $30 million per couple) without paying federal estate or gift tax. The lower tax rates, introduced in 2017 (ranging from 10% to 37%) on the excess of this amount are now permanent.
-Expanded Child Tax Credit The credit increases from $2,000 to $2,200 per child and will rise with inflation in future years. Income limits still apply; it begins to phase out at $200,000 for single filers and $400,000 for joint
filers.
-Temporary Deductions for Workers on Tips from now through 2028:
If workers have a job where tipping is customary — think servers, bartenders, hair stylists, and nail techs – and they are earning under $150,000, they may deduct up to $25,000 in tips. However, the U.S. Treasury Department and IRS will have to specify in later guidance which specific jobs will be eligible.
-Workers can also deduct overtime pay (up to $12,500 for individuals or $25,000 for couples).
Most of these deductions will only be useful if you have a total deduction over the standard deduction. That will be a low percentage of tax filers.
For Parents with Children
-New “Trump Accounts” for Kids
Children born from 2025–2028 are eligible for special savings accounts:
- $1,000 deposited at birth by the federal government
- Family and Friends: Parents, relatives, and friends can contribute up to $5,000 per year to the account. These contributions are made with after-tax dollars and are not tax-deductible.
- Employers: The legislation also allows employers to contribute to their employees’ children’s accounts, with a limit of $2,500 per year. This contribution counts toward the overall $5,000 annual cap
Funds can be used for college tuition/credentialing, small business expenditures, first-time home purchases. Withdrawals are taxed favorably if used for qualified expenses. Contributions stop at age 18; accounts close (and become taxable) by age 31.
The new rules officially take effect in 2026, but the Department of the Treasury will automatically open and fund accounts for all eligible children born in 2025 without any action required from their parents. For those born after that year, the account will be created automatically when a parent includes the child on their tax return.
-529 Plan expansion Effective 2025 for those who are taking a withdrawal from a 529 Plan or considering starting a plan, you now have more options for what qualifies as an eligible expense. Specifically, the new bill allows tax-exempt distributions for:
-Up to $20,000 to pay for K-12 expenses (up from the previous $10,000). Plus the plan qualifies for additional non-tuition qualified expenses for K-12 costs, such as books, online learning materials, and tutoring fees.
-More post-secondary programs now also qualify for tax-exempt distributions such as tuition, fees, books, supplies, and equipment for credentialed programs (e.g., testing fees in pursuit of a post-secondary credential or fees for continuing education requirements).
Tax Breaks for Small Businesses
The 20% deduction on qualified business income is now permanent. More generous rules apply to calculate how much income qualifies. Further there are possible tax savings on Investments and Equipment.
Changes to Government Programs and Credits
-End of Clean Energy Credits Several energy-related federal tax credits will end: credits for solar panels and energy-efficient home improvements some after December 31, 2025 and Home EV charger credits end after June 30, 2026.
-Medicaid Cuts Significant changes to Medicaid may reduce access for some Americans:
New work and eligibility verification rules
Some enrollees could face co-pays up to $35 per visit, capped at 5% of family income
Certain clinics (such as Planned Parenthood) may lose funding (CBO estimates at least 10.5 million people may lose coverage by 2034).
And starting in 2026:
-Permanent Charitable Giving Incentives: Starting in 2026, non-itemizers can deduct up to $1,000 (single) or$2,000 (joint) for charitable donations. Itemizers can now only deduct the amount that exceeds 0.5% of their income.
-Tax on Money Transfers Abroad A new 1% tax applies to money sent from the U.S. to another country (and vice versa) after December 31, 2025. Transfers directly from your US bank account are exempt.
These are just the highlights; the devil is in the details. So be sure to check in with your accountant before the end of the year to see if you can take advantage of any of the tax law changes.
