Hello wonderful Tax Clients!
So you might have heard that a large new Tax Bill was just passed (and if you didn't know, I really envy you!) The IRS will be working out details in the next couple of months and issuing guidelines, but I wanted to give you a heads up about a few things that might be relevant to tax year 2025 (ie right now!) and clear up any provisions you might have heard about but might not have gotten all the little details, which as you know, is where the Devil is.
Overall:
The tax brackets and the larger standard deduction (and no personal exemption) that was implemented in 2018 is now permanent. Also made permanent is no employee deductions at the federal level, that is now truly dead and gone.
Things that kick in right now for Tax Year 2025:
For people 65+ or on Social Security: You get an additional $6k deduction per person on top of your higher standard deduction, but only for lower/middle income seniors, the deduction starts phasing out at $75k income for a single person and $150k for married couples, though I do expect most of my clients will get most or all of that deduction. Social Security is STILL TAXABLE at the same formula as before, nothing changed there, it's just you get an extra $6k off. So if you get $30k from SS, and $25k is taxable, you are still gonna pay taxes on the remaining $19k. And if you are under 65 and getting Social Security early or from disability, nothing changes for you. The email that went out to all Social Security recipients was extremely misleading, so please tell people in your circle the correct facts.
Child Tax Credit: This year the credit increases to $2200 per child and will be indexed to inflation going forward, so it will increase each year or every couple of years going forward.
For Homeowners and High Income folks in NYC - Property Tax and State Tax Deduction: This is one of the BIGGEST things for my clients! The previous limitation, what we call the SALT cap, was the major thing stopping a LOT of you from itemizing your deductions, especially married couples with a mortgage. The cap has been raised from $10k to $40k, so if I've been telling you that you are close to itemizing on the Federal but not close enough, you might be able to now. Not only will that be a nice deduction for you, but it also means you might need to start keeping close track of charitable donations again, since you might itemize, so take that into account!
No Tax on Tips: Don't get too excited :) If you are a server, in hospitality, or in the beauty industry and on a W2, this most affects you. You don't need to do anything, tips will be noted on your W2 like normal, and they will be deducted on the return. I want it to be clear this will NOT affect anyone else – the law specifically excludes actors :) and also anyone else who is self-employed (so no, I can't decide part of my fee is a tip and avoid taxes). You have to get voluntary tips from customers through your employer for this to count. And the IRS will be coming out with a list of professions who can use this and any profession not on the list won't count – so if a theater or a gym offers to classify some of your income as tips, that's not going to work. Please beware of people trying to claim there are schemes you can use to take advantage of this law. If it wasn't meant for you, you cannot.
No Tax on Overtime: If you work for an employer that pays hourly and pays a higher hourly rate if you work overtime (more than 40 hours in a week), then the extra amount over your normal rate will be tax-free. For example, if you get $20 an hour normally, but $30 when you work overtime, then the extra $10 will be tax-free (NOT the whole $30) The max deduction is $12500 single/$25000 married joint. There is also an income limit as well, but its pretty high, $150k single $300k married. This will all be on your W2 or 1099, you won't need to document anything. Because your employer can't know how much you will be eligible for, its likely they will still withhold taxes at the same rate as before, and then you'll get a refund at tax time. Feel free to get in touch with me if you get a lot of overtime and want to adjust your withholding to take more advantage of this.
Car Loan Interest Deduction: This starts in 2025, and only applies to car loans for NEW cars taken out in 2025 or later, so if yours is from 2024 or earlier, it will not count. There are also a lot of rules about which vehicles this applies to, so this is one where I am still waiting on clarification – its only for new cars, not used, and there is something about the car having to be assembled in the US so foreign cars may not count (and really some American brands might not either, a lot of them assemble in Mexico). Also, no leases, only purchases. So again, don't take out a car loan unless you were already planning to, and don't let dealers tell you this is a great deal for you, they notoriously don't read the fine print on these things and then I wind up having to let people down and tell them they don't qualify. The deduction is limited to $10k and starts phasing out at $100k single $200k married.
Money for Babies: For any baby born between 2025 and 2028, you can open a, sigh, Trump account, and the government will deposit $1000 in there to grow tax deferred until your child is 18. You or family and friends can put up to $5k a year into the account and let that grow tax deferred as well. Its not clear if there will be any tax-free withdrawals later, or if you will just pay taxes like an IRA when the money is removed, but if you have a baby, definitely get an account and get your free $1000 for them. Until there is more clarity about taxes on withdrawals, I would keep doing 529s instead of putting more money in the Trump account since those are tax free for education.
Clean Vehicle Credit – its ending as of Sept 30, 2025.
Home Energy Credit – its available for 2025, but that's it, after that its gone. Get your work done before the end of the year.
Things to know about that start next year, as of 2026:
Child Care Credit: The credit has been increased a bit for lower/middle income families, I haven't yet seen a comparison chart, but the credit might be a bit higher for some of my clients. In the past the credit was limited to 20% of $6000, so $1200 for most people, and now for some people it can be higher, up to 35%, so $2100. Not happening til next year, so I'll have time to look at the details.
They have also increased the amount you can pay for through a work Dependent Care program to $7500 up from $5000.
Charitable Deduction is BACK!: They brought back allowing smaller charitable donations without itemizing, similar to what we had back in 2020 and 2021, so starting in 2026 I will be asking about charity again. The limit will be $1000 single, $2000 joint so its a lot higher too.
Charity Itemizers: Oddly enough if you itemize, they are reducing your deduction for Charity by 0.5% of your income. So if you itemize, and your income is $100k, then the first $500 of charity won't count and you'll need to be over that to make it count. Very weird, but ::shrug::
Teachers: There is a vague provision about allowing teacher expenses to be itemized starting in 2026, but we need more clarification. Also most of my teachers don't usually have enough from that to itemize anyway, but we'll see how it shakes out.
Gambling: deduction of gambling losses is now limited to 90% of losses or total winnings, whichever is lower. Honestly, gambling was already a horror-show for taxes and this just makes it worse, DON'T GAMBLE. Or at least not regularly, one fun Vegas trip, cool, constant online betting BAD.
Health Insurance Marketplace: All Bronze and Catastrophic plans will now qualify for an HSA account. Previously the requirements were a lot stricter, so if you wanted an HSA you will have more plan options to choose from.
All of the increased tax credits from the Biden era will expire – so your expected contribution will be higher and no one who makes over 400% of poverty level will be eligible for subsidies.
Mortgage Insurance: its deductible again if you itemize!
For 2027:
Health Insurance Marketplace: starting in 2027, there will be no repayment limit on excess health insurance subsidies. Previously if you were below 400% of poverty level and had to repay a lot, there was a limit on how much you would have to repay. That's gone now, you can have to repay the full amount so it will be more important than ever to correctly estimate your income and change your subsidy level right away if your income increases.
There will also be massive changes to Medicaid in 2027, and possibly also the Essential Plan in NY, but that's a little outside my scope right now, so we'll deal with that later.
Those are the major things, if you have specific questions that might be urgent, like you were about to take out a car loan, feel free to email me, otherwise we can talk about how all these things might affect you at our Dec/Jan check in, or when we do your taxes next season! Hang in there everyone, I appreciate you all!
So you might have heard that a large new Tax Bill was just passed (and if you didn't know, I really envy you!) The IRS will be working out details in the next couple of months and issuing guidelines, but I wanted to give you a heads up about a few things that might be relevant to tax year 2025 (ie right now!) and clear up any provisions you might have heard about but might not have gotten all the little details, which as you know, is where the Devil is.
Overall:
The tax brackets and the larger standard deduction (and no personal exemption) that was implemented in 2018 is now permanent. Also made permanent is no employee deductions at the federal level, that is now truly dead and gone.
Things that kick in right now for Tax Year 2025:
For people 65+ or on Social Security: You get an additional $6k deduction per person on top of your higher standard deduction, but only for lower/middle income seniors, the deduction starts phasing out at $75k income for a single person and $150k for married couples, though I do expect most of my clients will get most or all of that deduction. Social Security is STILL TAXABLE at the same formula as before, nothing changed there, it's just you get an extra $6k off. So if you get $30k from SS, and $25k is taxable, you are still gonna pay taxes on the remaining $19k. And if you are under 65 and getting Social Security early or from disability, nothing changes for you. The email that went out to all Social Security recipients was extremely misleading, so please tell people in your circle the correct facts.
Child Tax Credit: This year the credit increases to $2200 per child and will be indexed to inflation going forward, so it will increase each year or every couple of years going forward.
For Homeowners and High Income folks in NYC - Property Tax and State Tax Deduction: This is one of the BIGGEST things for my clients! The previous limitation, what we call the SALT cap, was the major thing stopping a LOT of you from itemizing your deductions, especially married couples with a mortgage. The cap has been raised from $10k to $40k, so if I've been telling you that you are close to itemizing on the Federal but not close enough, you might be able to now. Not only will that be a nice deduction for you, but it also means you might need to start keeping close track of charitable donations again, since you might itemize, so take that into account!
No Tax on Tips: Don't get too excited :) If you are a server, in hospitality, or in the beauty industry and on a W2, this most affects you. You don't need to do anything, tips will be noted on your W2 like normal, and they will be deducted on the return. I want it to be clear this will NOT affect anyone else – the law specifically excludes actors :) and also anyone else who is self-employed (so no, I can't decide part of my fee is a tip and avoid taxes). You have to get voluntary tips from customers through your employer for this to count. And the IRS will be coming out with a list of professions who can use this and any profession not on the list won't count – so if a theater or a gym offers to classify some of your income as tips, that's not going to work. Please beware of people trying to claim there are schemes you can use to take advantage of this law. If it wasn't meant for you, you cannot.
No Tax on Overtime: If you work for an employer that pays hourly and pays a higher hourly rate if you work overtime (more than 40 hours in a week), then the extra amount over your normal rate will be tax-free. For example, if you get $20 an hour normally, but $30 when you work overtime, then the extra $10 will be tax-free (NOT the whole $30) The max deduction is $12500 single/$25000 married joint. There is also an income limit as well, but its pretty high, $150k single $300k married. This will all be on your W2 or 1099, you won't need to document anything. Because your employer can't know how much you will be eligible for, its likely they will still withhold taxes at the same rate as before, and then you'll get a refund at tax time. Feel free to get in touch with me if you get a lot of overtime and want to adjust your withholding to take more advantage of this.
Car Loan Interest Deduction: This starts in 2025, and only applies to car loans for NEW cars taken out in 2025 or later, so if yours is from 2024 or earlier, it will not count. There are also a lot of rules about which vehicles this applies to, so this is one where I am still waiting on clarification – its only for new cars, not used, and there is something about the car having to be assembled in the US so foreign cars may not count (and really some American brands might not either, a lot of them assemble in Mexico). Also, no leases, only purchases. So again, don't take out a car loan unless you were already planning to, and don't let dealers tell you this is a great deal for you, they notoriously don't read the fine print on these things and then I wind up having to let people down and tell them they don't qualify. The deduction is limited to $10k and starts phasing out at $100k single $200k married.
Money for Babies: For any baby born between 2025 and 2028, you can open a, sigh, Trump account, and the government will deposit $1000 in there to grow tax deferred until your child is 18. You or family and friends can put up to $5k a year into the account and let that grow tax deferred as well. Its not clear if there will be any tax-free withdrawals later, or if you will just pay taxes like an IRA when the money is removed, but if you have a baby, definitely get an account and get your free $1000 for them. Until there is more clarity about taxes on withdrawals, I would keep doing 529s instead of putting more money in the Trump account since those are tax free for education.
Clean Vehicle Credit – its ending as of Sept 30, 2025.
Home Energy Credit – its available for 2025, but that's it, after that its gone. Get your work done before the end of the year.
Things to know about that start next year, as of 2026:
Child Care Credit: The credit has been increased a bit for lower/middle income families, I haven't yet seen a comparison chart, but the credit might be a bit higher for some of my clients. In the past the credit was limited to 20% of $6000, so $1200 for most people, and now for some people it can be higher, up to 35%, so $2100. Not happening til next year, so I'll have time to look at the details.
They have also increased the amount you can pay for through a work Dependent Care program to $7500 up from $5000.
Charitable Deduction is BACK!: They brought back allowing smaller charitable donations without itemizing, similar to what we had back in 2020 and 2021, so starting in 2026 I will be asking about charity again. The limit will be $1000 single, $2000 joint so its a lot higher too.
Charity Itemizers: Oddly enough if you itemize, they are reducing your deduction for Charity by 0.5% of your income. So if you itemize, and your income is $100k, then the first $500 of charity won't count and you'll need to be over that to make it count. Very weird, but ::shrug::
Teachers: There is a vague provision about allowing teacher expenses to be itemized starting in 2026, but we need more clarification. Also most of my teachers don't usually have enough from that to itemize anyway, but we'll see how it shakes out.
Gambling: deduction of gambling losses is now limited to 90% of losses or total winnings, whichever is lower. Honestly, gambling was already a horror-show for taxes and this just makes it worse, DON'T GAMBLE. Or at least not regularly, one fun Vegas trip, cool, constant online betting BAD.
Health Insurance Marketplace: All Bronze and Catastrophic plans will now qualify for an HSA account. Previously the requirements were a lot stricter, so if you wanted an HSA you will have more plan options to choose from.
All of the increased tax credits from the Biden era will expire – so your expected contribution will be higher and no one who makes over 400% of poverty level will be eligible for subsidies.
Mortgage Insurance: its deductible again if you itemize!
For 2027:
Health Insurance Marketplace: starting in 2027, there will be no repayment limit on excess health insurance subsidies. Previously if you were below 400% of poverty level and had to repay a lot, there was a limit on how much you would have to repay. That's gone now, you can have to repay the full amount so it will be more important than ever to correctly estimate your income and change your subsidy level right away if your income increases.
There will also be massive changes to Medicaid in 2027, and possibly also the Essential Plan in NY, but that's a little outside my scope right now, so we'll deal with that later.
Those are the major things, if you have specific questions that might be urgent, like you were about to take out a car loan, feel free to email me, otherwise we can talk about how all these things might affect you at our Dec/Jan check in, or when we do your taxes next season! Hang in there everyone, I appreciate you all!
RSS Feed
