Tax Law Changes with Expert Gina Fresquez, E.A.
Guest author Gina Fresquez, E.A. on how the Big Beautiful Bill could affect you
Last month, Congress passed the One Big Beautiful Bill which includes several changes that may affect your taxes. Here’s a summary of the most relevant updates:
Tax Brackets
No changes. The brackets remain the same as under the Tax Cuts and Jobs Act (TCJA) and will stay until Congress changes them in the future.
Standard Deductions
The higher standard deductions under TCJA are now permanent:
Single: $15,750
Joint: $31,500
Head of Household: $23,625
Additional standard deduction for elderly or blind
These adjust for inflation each year. California’s standard deductions are about one-third of these amounts, so many of you will continue taking the Standard Deduction federally and itemizing for CA.
New Additional Deduction for Seniors (2025–2028)
If you are 65 or older by 12/31/25, you can claim an additional $6,000 deduction on top of your Standard or Itemized Deductions. If you file jointly and your spouse is also 65+, you each get $6,000. This phases out if your income is between $75k-$175k (Single) or $150k-$250k (Joint - one spouse age 65 plus) and $150k-$350k (if both spouses age 65 plus).
State and Local Tax (SALT) Deduction
For itemizers, the SALT deduction increases to $40,000 for 2025, with small increases annually. This limit expires at the end of 2030 and reverts back to $10,000. Available for income up to $500k, phasing out fully at $600k.
Charitable contribution deductions (available beginning with 2026 taxable year)
Non-itemizers can claim a $1,000 charitable deduction ($2,000 for married taxpayers filing jointly).
Charitable contribution itemized deductions are now subject to one-half of 1% of the AGI floor, providing another limitation to claiming the deduction.
Two strategies to consider to minimize the impact of the 0.5% floor:
Make larger charitable contributions in 2025 to avoid the floor when it goes into effect in 2026.
Taxpayers age 70.5 and over who have an IRA account can make qualified charitable distributions directly from their IRA and exclude the distribution from their income. This is known as the QCD strategy and QCDs will not be subject to the 0.5% floor.
New Temporary Deductions (2025–2028)
No Tax on Overtime Pay:
Deduct the “half” portion of time-and-a-half overtime pay. Max deduction: $12,500 (Single) / $25,000 (Joint). Phases out over $150k (Single) / $300k (Joint). W2s will need to be updated to report how much overtime you have earned for the year. Still subject to Social Security and Medicare tax.No Tax on Tips:
Tips from “customarily tipped industries” where the tip was given voluntarily can be deducted. Max deduction: $25,000. Phases out over $150k (Single) / $300k (Joint). W2s already have a spot for tips, and more guidance is needed for those earning tips as a sole proprietor. Still subject to Social Security and Medicare tax.No Tax on Car Loan Interest:
Deduct interest on loans for new vehicles assembled in the US, purchased 1/1/25 or later. Max deduction: $10,000. Phases out over $100k (Single) / $200k (Joint).
Child Tax Credit
Increases to $2,200 per child under 17, reverting to $2,000 in 2030. Dependents 17 and older remain at $500. Phases out over $200k (Single) / $400k (Joint).
Expiring Energy Credits
Clean Vehicle Credits (new and used electric vehicles) end on 9/30/25.
Energy Efficient Home Improvement (insulation, windows, doors) and Residential Clean Energy (solar) Credits end on 12/31/25.
If you plan to claim these, ensure purchases are made and items placed in service before these dates.
For Sole Proprietors
Form 1099-K: Reporting threshold returns to $20,000 / 200 transactions for 2025. As always, you still need to report all income, even without receiving a 1099-K.
1099-NEC / 1099-MISC: The threshold for issuing these forms increases from $600 to $2,000 for 2025.