Early Tax Planning Is The Key
Big changes are coming to the world of taxes this year. As a result of the new legislation, new provisions will have an impact on just about every taxpayer. Early tax-planning is advised in order to be prepared. Keep in mind that some of the changes will be temporary and some from the Tax Cuts and Jobs Act of 2017, are now permanent.
Can You Claim These Deductions?
- No Tax on Tips:
The maximum annual deduction will be $25,000 and this deduction will be effective tax years 2025 thru 2028. To be eligible, taxpayer must have received tips from an occupation that regularly and customarily receives tip income.
Additionally, there is a phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) of $150K for single filers and $300K for joint filers.
Now, if you are married, you must file a joint return in order to claim this deduction and you must also have a social security number. Now if you work for a Specified Service Trade or Business employer (SSTB) or you are self-employed in an SSTB, you will not qualify for this deduction.
2. No Tax on Car Loan Interest
To qualify for this deduction, which is effective for vehicles purchased after December 31, 2024, there are eligibility guidelines. The maximum annual deduction is $10K, with a phase out for single filers with a MAGI of $100K and $200K for married filers who file a joint return.
Additionally, the vehicle must be a personal (nonbusiness) use vehicle, by the taxpayer and the final assembly must have been in the United States. If the vehicle was leased it will not qualify for this deduction.
3. Deductions For Seniors
An additional $6K deduction will be available for seniors, effective for tax years 2025 through 2028. This is on top of the additional amounts under the existing tax law for standard deductions for seniors. Whether the taxpayer(s) itemize or not, they can still claim the deduction. Just as important, they must be age 65 on or before the last day of the tax year.
As with most of these new provisions, there is a MAGI phase out at $75K and over for single taxpayers and $150K for joint filers. In order to claim, if married, a joint return must be filed.
4. No Tax on Overtime
Portions of qualified overtime pay can be deducted, effective 2025 through 2028. This will be the amounts that exceeds regular pay, such as the “half” portion in time-and-a-half earnings. For single filers, the maximum that can be deducted annually is $12,500 and $25,000 for joint filers. Keep in mind that married couples must file a joint return in order to claim this deduction.
The MAGI phase out for this deduction is earnings over $150K for single filers and $300K for joint filers. (couples must file jointly in order to claim) Social Security numbers are needed.
Some Credits Are Expiring!
5. Expirations of Home Energy & Clean Vehicle Credits
The Energy Efficient Home Improvement Credit (25C) will no longer be allowed for any property placed in service after December 31, 2025. As for the Residential Clean Energy Credit (25D), there will no longer be an allowance for expenditures made after December 2025.
The following Clean Vehicle Credits will also expire and no credits will be allowed for vehicles acquired after September 30, 2025:
- New Clean Vehicle Credit (30D)
- Used Clean Vehicle Credit (25E)
- Qualified Commercial Clean Vehicle Credit (45W)
These are just a few of the new provisions that will impact individuals for the 2025 tax year. Note that a Social Security number will be required going forward to claim eligible tax credits. Married couples must consider filing joint returns for most of these deductions as they will not be eligible on the married filings separate option.
Subscribe by filling out the form on my website to get frequent updates directly in your mailbox. If you need a new tax service, consider booking a complementary consultation to get started.
SLS Accounting & Business Consulting Services offers year-round, virtual tax services. Clients are accepted from anywhere in the United States. Your return will be prepared and filed by an Enrolled Agent and trusted tax professional.