By Anita K Mize, CPA PLLC
Part One, we discussed the new deductions for social security, tips, and overtime. Now, let’s look at a few more provisions in this big beautiful bill!!
Standard Deduction – (Made Permanent) – the standard deduction is a specified amount of income that is tax-free. Depending on your filing status, this amount is deducted from your income before tax is calculated. For 2025 – Single taxpayers and those claiming Married Filing Separately may deduct $15,750, Married Filing Joint deducts $31,500, and Head of Household will deduct $23,625. These amounts will be adjusted each year for inflation.
Itemized Deductions – this is a group of items that are deductible from taxable income. Your tax preparer either uses the standard deduction mentioned above OR the itemized deductions, whichever is greater. You can’t take both, but you should review your itemized deductions each year just in case they are greater than the standard deduction allowed.
The Big Beautiful Bill has introduced several new deductions that are called “above the line” deductions. This means you can deduct these items from your taxable income AND still take the full standard deduction.
The deduction for tips, overtime and the social security deduction are all “above the line” so you don’t have to itemize to take advantage of those deductions!!
Car Loan Interest – (Effective for tax years 2025-2028) This is another new deduction that doesn’t require itemizing on your tax return. There are some requirements:
1. Your vehicle loan must be secured by a lien on the vehicle, and it must have been originated
after December 31, 2024.
2. The vehicle must be a new vehicle – it doesn’t apply to used vehicle purchases.
3. Personal vehicles only – no business or commercial vehicle qualify.
4. The vehicles can be a car, van, minivan, SUV, pickup, or motorcycle with a gross weight of less than 14,000 pounds.
5. Lenders must file annual information returns with the IRS and the taxpayer.
6. VIN numbers must be included on the tax return.
7. Maximum annual deduction is $10,000.00.
8. VEHICLE MUST BE ASSEMBLED IN THE US – this will be verified by the VIN number.
Federal Savings Accounts for Children – (Children born between 2025 and 2028)
This is a tax-advantaged (no tax until it’s withdrawn) savings account that is meant to be a retirement account for your child. Starting early offers them the opportunity for the account to grow over their lifetime. This is a very controversial item in the BBB and there is definitely more to come! A few current details include:
1. $1,000 one-time deposit from the federal government.
2. ONLY children born in 2025 – 2028 qualify.
3. Can’t be withdrawn until the child turns 18, and then with a potential penalty.
4. Some withdrawals can avoid the penalty if funds are used for specific purposes like education, new home, or a new baby.
5. Parents/Grandparents can contribute up to $5,000 annually – after tax dollars, no tax deduction.
6. Employers can contribute up to $2,500 annually (reduces the $5,000 above).
7. Child must be a US citizen and have a valid social security number.
8. At least one parent must have a valid social security number. Some sources state that both parents must have a social security number valid for work in the US.
9. Parents may open the account for their newborn, or the government may open the account.
There are certain to be more developments on this one. I will watch out for latest information and be prepared to help guide you through this at tax time to be sure you get the best benefit!
Have a wonderful week!
