I've long had a policy of not commenting on proposed tax law changes since what is proposed rarely becomes the reality. But from campaign promises, through the House and the Senate and down to the final bill that was signed, let's unpaid the new reality.
The original Trump tax cuts from 2017 were set to expire at the end of 2025.
How would that have affected you in 2026?
1. Your tax rate would have jumped A LOT (particularly on middle income taxpayers in the 12-24% brackets).
2. The standard deduction would have been cut approximately in half. Losing a deduction of about $7,500 for a single taxpayer and $15,000 for a married return. Multiply that by your higher tax rate and that would be a $1,000 to $4,200 swing against you.
3. The Child Tax Credit would have dropped from $2,000 to $1,000. That's a $1,000 loss for any child under 16.
While every taxpayer's income is different and so is the impact, it is safe to assume that virtually nobody's tax would likely have gone down. I would project a tax increase of 15-20% for most of my clients had this not passed.
Some are only extended (usually through 2028 for most issues) and others were made permanent.
Some Permanent Changes:
1. The Trump tax rates from 2017 were made permanent and the brackets will be adjusted for inflation. That is fantastic news otherwise we'd face this political and tax nightmare again in a few years!
2. The standard deduction increase (doubled from pre-2017 years) was also made permanent and will be adjusted for inflation.
3. The Child Tax Credit was also made permanent, increased to $2,200 and will also be adjusted for inflation.
SALT Deduction Made Permanent and Temporarily Enhanced:
Permanent - State and Local Taxes (SALT) which consists of state income tax or sales tax (but not both) plus property taxes and some DMV costs. This was limited to $10,000 in 2024 and has been made permanent but also given a temporary bump.
Enhanced Temporarily - It has been raised to $40,000 for 2025 and increases 1% per year through 2029 and then reverts back to $10,000 in 2030. This is mostly relevant to taxpayers from states with state income tax and/or if you have large purchases. It is only relevant if you itemize deductions and forego the free standard deduction.
Extra Standard Deduction if Over 65 - While not making Social Security "tax free" like the campaign promises, it may actually benefit more senior taxpayers (over 65) than the original promise. The extra deduction is $6,000 for each taxpayer over 65 (whether or not you collect Social Security). It starts to phase out at $75,000 of income and is fully phased out at $175,000. This is good for 2025 through 2028.
Tax Deduction for Tips - Up to $25,000 of tip income per individual (not yet sure if this is doubled if both spouses make tips) is a deduction. This phases out once income exceeds $150,000 if single and $300,000 if married. Also good from 2025 through 2028.
Tax Deduction for Overtime Pay (Sort Of) - Up to $12,500 ($25,000 for married returns) of "overtime" is deductible. But what is "overtime"? Traditionally it is "time and a half," This change makes the "half" deductible, but not the full "time and a half." If your wage is $30 per regular hour and $45 for overtime hours, then only the $15 "overtime premium" is deductible (not the full $45). This phases out once income exceeds $150,000 if single and $300,000 if married. Also good from 2025 through 2028.
Deductible Domestic Auto Loan Interest - New car and motorcycle loans from 2025 through 2028 will allow up to $10,000 in interest to be deductible for low to mid-income taxpayers. However, the car must be NEW and ASSEMBLED in the US. Most foreign cars won't qualify. This is an obvious effort to bring/keep jobs for the US auto industry. It does NOT apply to Campers, Trailers, RVs, Boats, or ATVs. This phases out once income exceeds $100,000 if single and $200,000 if married. Also good from 2025 through 2028 only.
Don't let me confuse what anyone believes with the facts, but I can't leave this issue alone. I've seen way too many ads and commentary on TV about how only the uber-wealthy are getting these tax cuts and it does nothing for low and middle income people.
Bull Pucky!
Let's take a quick look at the main items of the bill covered in this email and put them into the category of who they benefit: low to middle income folks, the uber-wealthy or everybody.
Everybody Wins:
Low to Middle Income Wins: (all of these get phased out for higher income taxpayers):
Wealthy Wins:
The bottom line for me is this:
Any tax cut is a good tax cut regardless of who gets it. Why? The more money we can keep out of government hands, the better. Ask yourself who spends your money more wisely (because it IS your money), Washington or you?
None of the idiots in Washington (red and blue alike) can figure out how to stop insane spending. The only difference between the left and the right is what they overspend on. Now if they could only balance the budget!
Just My Opinion - PERIOD!
The word deduction in tax law has dozens of different meanings and synonyms in tax law. Sometimes the word "deductible" is used, other times excludable, exemption and other terms are used. When things are "deductions" they can be standard, itemized, always, partially, maybe, really, alternatively, phased out, threshold or floor, limited, not below zero, and delayed. Not to mention other things that we think of as deductions like losses, suspended losses. exclusions, additions to basis and selling expenses. And, of course, there are combinations of these.
However for our purposes in discussing the One Big Beautiful Bill (OBBB), we're going to start with only two of these categories - Standard and Itemized
STANDARD v. ITEMIZED deductions - The IRS gives everyone a free standard deduction regardless of whether you actually have any real deductions. Currently (2025) that amount is $15,750 for single and married filing separate filers, $31,500 for married filing jointly couples and $23,625 for heads of household. There is a small additional amount if you're over 65. This is called the standard deduction. If you have more than that in actual deductions (mortgage interest, investment interest, property taxes, DMV, state income (or sales) taxes, donations, high medical expenses and gambling losses, then you can "itemize" those and claim that total as your itemized deductions. While not all-encompassing, notice that this is a fairly short list of deductions.
BUT YOU CAN'T TAKE BOTH STANDARD AND ITEMIZED DEDUCTIONS - You take the greater of the two.
So are the new deductions in the OBBB part of the itemized list above or are they deductions you can take in addition to the standard deduction? This answer is - Maybe. We'll go over the major OBBB deductions in the next section.
So given the distinction between the Standard and Itemized Deductions what category(ies) do the new deductions of the OBBB fall into.
1. SALT (State and Local Taxes) deduction increased - You only get this if you itemize. There is no help for those claiming the standard deduction, but this increase might make itemizing more likely. Temporary for 2025-2029. Phased out for higher income taxpayers.
2. Extra Standard Deduction if Over 65 - You get this PLUS the standard deduction; you don't get it if you itemize. Temporary for 2025-2028. Phased out for middle and higher income taxpayers.
3. Deduction for Tip Earners - You get this PLUS the standard deduction or itemized deductions. Temporary for 2025-2028. Phased out for higher income taxpayers.
4. Deduction for Overtime Pay - You get this PLUS the standard deduction or itemized deductions. Temporary for 2025-2028. Phased out for higher income taxpayers.
5. Deduction for New Domestic Auto Loan Interest - You get this PLUS the standard deduction or itemized deductions. Temporary for 2025-2028. Phased out for middle and higher income taxpayers.
The OBBB thankfully has eased the 1099 thresholds for filing for 2025.
Receiving a 1099-K - Originally geared toward folks who use third party credit card processors, but many of you last year got 1099-Ks for things like selling on eBay, selling sporting event or concert tickets, and even simple Venmo payments. The 2024 threshold for getting stuck with one of these was $2,000 (and scheduled to drop to $600 this year). The bill raises that back to the original levels ($20,000 in revenue AND 200 transactions with the platform). So we'll see a lot fewer of those forms this year.
Sending a 1099-NEC or 1099-MISC - For decades the threshold for issuing these was $600 and was never adjusted for inflation. The bill raises that threshold to $2,000 in 2026 and is adjusted for inflation after that. It remains at $600 for 2025. So before you pay someone for business related work, rent paid or other expenses paid, get a Form W-9 from them so that you can issue a 1099 in January.