How the One Big Beautiful Bill Impacts Your 2025 Taxes

As we head into 2025, taxpayers are preparing for some of the most significant updates to the tax code in recent years. The One Big Beautiful Bill (OBBB) introduces several changes that could directly impact your tax return, from higher deduction limits and new senior tax breaks to deductions for tips, overtime, and even auto loan interest. Whether you’re an individual filer or a small business owner, understanding these updates now can help you make smarter financial decisions before tax season arrives.

State and Local Taxes

The allowable deductible limit of State and Local Taxes was increased from $10,000 to $40,000. This likely will force many individuals to itemize deductions vs taking the standard deduction, especially if you live in a high tax state.

Additional Senior Deduction

An additional $6,000 deduction for each qualifying individual whether you itemize or take the standard deduction. This deduction does phase out based on your MAGI (Single, phase out starts at $75,000 MAGI and completely phases out at $175,000. MFJ, phase out starts at $150,000 MAGI and completely phases out at $250,000.)

No Taxes on Tips

Make up to $25,000 of tip income deductible for individuals in traditionally and customarily tipped industries for tax years 2025 through 2028; deduction phases out at a 10 percent rate when adjusted gross income exceeds $150,000 ($300,000 for joint filers).

No Taxes on Overtime

Make up to $12,500 ($25,000 for joint filers) of the premium portion of overtime compensation deductible for itemizers and non-itemizers for tax year 2025; the deduction phases out at a 10 percent rate when adjusted gross income exceeds $150,000 ($300,000 for joint filers).

Auto Loan Interest

Under the One Big Beautiful Bill Act (OBBB), taxpayers can now deduct up to $10,000 per year in auto loan interest. Vehicle must be new, final assembly of vehicle must have occurred in the US, purchased in 2025, Loan must be secured by the vehicle, VIN must be reported on your tax return. Available whether you itemize or take the standard deduction. Deduction starts to phase out when your Modified Adjusted Gross Income (MAGI) exceeds $100,000 single, $200,000 Married Filing Jointly.

Section 179 Depreciation on Property– OBBB makes permanent an immediate deduction of qualifying personal property for a business (e.g. equipment, software, vehicles). Max deduction is $1,250,000 but phases out and cannot create a NOL (Net Operating Loss).

Bonus Depreciation – Allows immediate deduction of up to 100% of qualifying cost of an asset, can create an NOL (Net Operating Loss), and applies to new or used property purchased by a business.

As with all things related to the IRS, there are a number of exceptions and restrictions, so please reach out to us to see how this will impact your unique financial situation.

Qualified Business Income Deduction (QBI)

Allows eligible taxpayers to deduct up to 20% of qualified business income for pass through entities (Sole Proprietorship, Partnership, S Corp, Certain trusts & estates).

• Limited to 20% of taxable income less any net capital gains.
• Deduction starts to phase out if total income is $191,950 (single), $383,900 (MFJ).
• Deduction limit is lesser of 20% of QBI, 20% of taxable income (minus net capital gains).
• Wage/Property limitation (if above threshold).
• Reach out to us to see how we can help you optimize this strategy.

SALT (State and Local Tax) Tax Workaround

Instead of paying state income tax personally (which will be capped at $40K for 2025 return filed in 2026 federally under the OBBB), you elect to have your business pay the tax at the entity level. This shifts the tax deduction onto the business return, where it’s fully deductible federally—and then credited back to you on your state return (most states, but not all allow for the Pass Through Entity Tax workaround). The business must be organized as a pass-through entity (S Corp, Partnership, or LLC taxed as such. Sole proprietorships do not qualify).

Navigating the upcoming tax changes under the One Big Beautiful Bill can feel overwhelming, but you don’t have to do it alone. At Gray & Forester LLC, our team is here to help you make sense of the new deductions, credits, and opportunities available for 2025.

Whether you’re an individual taxpayer, a retiree, or a small business owner, we’ll work with you to build a personalized tax strategy that helps you save more, stay compliant, and plan ahead with confidence. Contact us today at 708-942-1837 or email us at andrew@grayforester.com.