August 15, 2025

The “One Big Beautiful Bill” (OBBB) was signed into law on July 4, 2025, and contains over 800 pages.  Many of these tax provisions are effective in 2025, some provisions effective in 2026 and beyond, while other provisions are permanently extended. Pay close attention to the various effective dates due to this legislation. A limited summary of some provisions enacted are:

1. The OBBB law temporarily offers four (4) new tax deductions. These deductions are available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of Form 1040. These four tax write-offs first take effect on 2025 tax returns filed next year and expire after 2028. They are:

1. A new senior $6,000 deduction per filer age 65 or older. Married couples with both spouses 65 and older are eligible to deduct $12,000. The deduction phases out for taxpayers with MAGI over $150,000 on joint returns and $75,000 on single and head of household returns. If married, a joint return must be filed. Please note, taxability of Social Security benefits remains unchanged.  If the taxpayer(s) is over age 65 and under the MAGI limitation, they will be eligible for the $6,000/$12,000 deduction even if they are not collecting social security.

• Up to $25,000 of qualified tips are deductible. The write-off phases out at MAGI over $300,000 on joint returns and $150,000 for all others. Please note, this deduction only applies to occupations that customarily receive tips. The legislation includes several safeguards to prevent abuse of this deduction. A list of qualifying occupations will be published by the Treasury Secretary by October 2 (the day before the release of Taylor Swift’s new album). There will be a “box” on the W-2 indicating the tip amount received.

• Up to $12,500 in overtime pay is deductible for single files and $25,000 for joint filers. The write-off begins to phase out at MAGI over $300,000 on joint returns and $150,000 for all other filers.  Please note, this only applies to the extra “half” of the time and a half for overtime pay. There will be a “box” on the W-2 indicating the overtime amount earned; and

• Individuals with auto loan interest can deduct up to $10,000 of interest paid on loans buying a QUALIFYING NEW car, minivan, SUV, pickup truck or motorcycle. One qualification is that final assembly of the vehicle must be in the United States. The write-off phases out at MAGI over $200,000 for joint filers and $100,000 for all other filers.  It is unclear at this time whether both spouses filing a joint return would be entitled to the $10,000 deduction which would need clarified by the IRS before the tax filing season.

• For 2025, the child tax credit rises to $2,200 per qualifying child (up from $2,000) and indexed for inflation.

• Beginning in 2026, the child and dependent care credit will increase. The maximum credit increases to $1,500 for one dependent and $3,000 for two or more dependents (up from $1,050 for one dependent and $2,100 for two or more dependents);

• For 2025 through 2029, the cap on deducting state and local taxes (SALT) on Schedule A increases to $40,000 (adjusted for inflation). It reverts to $10,000 beginning in 2030. For 2025, the SALT deduction phases out for filers with Modified Adjusted Gross Income (MAGI) over $500,000 for joint filers and $250,000 for all other filers, but not below $10,000.

• Income tax rates for individuals are unchanged 10%, 12%, 22%, 24%, 32%, 35% and 37%.

• Effective 2025, the standard deduction increases to $31,500 for joint filers, $15,750 for singles, and $23,625 for head of household. Filers 65 and older will receive an additional $1,600 per spouse on joint returns and $2,000 on single and head of household returns.

• Beginning in 2026, non-itemizers can deduct up to $2,000 for charitable cash contributions for joint taxpayers and $1,000 for all other filers. Itemizers who make charitable gifts do not fare as well. Beginning in 2026, charitable donations by taxpayers who itemize on Schedule A are subject to a deductible limitation to the extent they exceed 0.5% of adjusted gross income.

• Beginning in 2026, the lifetime estate and gift tax exemption increases to $15 million (up from $13.99 million). The top federal estate tax rate is unchanged at 40%.

• Beginning in 2027, a new income tax credit for donating to scholarship organizations. The OBBB enacted a non-refundable federal tax credit up to $1,700 to individuals (less any credit taken on the Ohio return) who donate cash to qualifying scholarship organizations for K-12 students. Any unused credit is carried over five (5) years and applied on a first-in, first-out basis. Additionally, scholarship recipients will not be taxed on the funds. This credit is similar to Ohio’s scholarship program enacted a few years ago.

1. Effective after July 4, 2025, 529 college savings accounts are expanded in three (3) ways. First, a taxpayer can withdraw tax-free up to $20,000 a year (up from $10,000) for K-12 schooling beginning in 2026. Second, additional K-12 expenses now cover costs of tuition, materials for curricula and online studying, books, tutoring, fees for taking an advanced placement test or any exam related to college admission, and educational therapies provided by a licensed provider to students with disabilities. Third, certain post-high-school credentialing program costs are 529 eligible.

1. Beginning in 2026, the OBBB creates a new tax-advantaged savings account for young children. The taxpayer can contribute up to $5,000 to the account each year.  The federal government would automatically add $1,000 for each child born beginning in 2025 and before 2029. The contributions are not deductible. Income tax on the earnings is deferred until the account owner withdraws the funds.

1. Many clean-energy tax breaks in the 2022 Inflation Reduction Act will expire. The expiration dates vary by credit. The up-to-$7,500 tax credit for buying an electric vehicle and qualified commercial clean-vehicle credit expires after September 30, 2025.

1. Two energy-efficient home improvement credits end after 2025.

 (a.) The residential clean-energy credit relates to individuals who install an alternative energy system in their homes that relies on a renewable energy source, such as solar, wind, or geothermal. The credit equals 30% of the cost of materials and installation of such systems added to the residence.

(b.) The energy-efficient home improvement credit is for homeowners who make smaller energy-saving upgrades, such as central air conditioning systems, exterior doors and windows, heat pumps, water heaters, boilers, insulation and more. These credits are repealed for property placed in service after 2025 and the upgrades must be completed before the end of 2025.

1. For 2025, businesses received some larger tax breaks with most made permanent. They are:

1. The 20% qualified business income deduction for self-employeds, independent contractors, farmers, some landlords, and owners of pass-through entities, such as partnerships, S corporations and LLCs.

• Section 179 expensing increased to $2.5 million of qualified assets purchased (up from $1.25 million) can be expensed and phases out at $4 million (up from $3.13 million) of qualified assets placed in use.

• Firms can deduct 100% in first-year bonus depreciation the full cost of new and used eligible assets with a life of twenty (20) years or less, placed in use after January 19, 2025.

• Businesses can fully deduct the cost of manufacturing or production facilities, including real property that would otherwise be depreciable over 39.6 years. This new 100% depreciation deduction for qualified production property is temporary, and the statute has lots of caveats, exceptions, and guardrails to help prevent abuse.

1. Effective for 2025, third-party networks have been revised.  Now, payors must send 1099-Ks to payees who were paid $20,000 a year and have over 200 transactions.  The amounts will be indexed for inflation.

1. Beginning with 2026, Forms 1099-MISC and 1099-NEC mailed in 2027, the filing threshold increases to $2,000 (up from $600).