Christmas in July

Tax legislation is usually enacted in late December at the earliest. This year we actually have a few months to plan since the One Big Beautiful Bill Act was signed into law on July 4! But keep in mind we are still waiting for much guidance. Below is a broad overview of just a few of the Act’s tax laws that may interest you this year.

Terms to know:

• Above-the-line deduction: do not need to itemize to benefit from this deduction.

• Phase out of the deduction: once you reach a certain modified adjusted gross income, the deduction will decrease until it is no longer allowed.

Retroactive to the beginning of 2025:

• Taxpayers will be allowed an above-the-line deduction for car loan interest, up to $10,000 per year for 2025 through 2028 for personal use passenger vehicles secured by a first lien on a new vehicle with a final assembly (see dealer for this information) within the United States. It begins to phase-out for single filers at $100,000 and $200,000 for joint returns.

• The temporary senior deduction is an above-the-line $6,000 deduction for taxpayers aged 65 (before the end of the year) and older to “make up” for the tax on Social Security. You do not need to be drawing Social Security to benefit from this deduction! The deduction begins to phase out at $75,000 for single filers and $150,000 for joint returns.

• The state and local tax itemized deduction is increased to $40,000. It is reduced by 30% of income that exceeds $500,000 in 2025 but cannot be reduced below the current $10,000 cap.

• Taxpayers receiving tips in occupations that traditionally receive tips benefit with no federal tax on the tips. The limit per tax return is $25,000 and they are still subject to FICA taxes. This begins to phase out at $150,000 for single filers and $300,000 for joint returns.

• Non-exempt employees (non-professional, non-salary) will benefit from an above-the-line deduction on qualified overtime compensation. Only the overtime premium is included. The limit for single filers is $12,500; $25,000 for joint filers. They are still subject to FICA taxes and are subject to phase out at $150,000 for single filers and $300,000 for joint returns.

Watch our email blasts and Tax Tidbits to find out more!

- Pam Smitson, CPA, CGMA®, Smitson Erhart-Graves Financial Advisors

This article was included in the Worley Erhart-Graves Quarterly Newsletter.