8 TAX CHANGES AVAILABLE FOR TAX YEAR 2025
By Brian McGeough, CFP® & Relationship Manager
First, some housekeeping. Schwab is expected to have all the initial 1099 tax forms sent out by February 27th. Every two weeks after that Schwab will send out 1099s that have some type of correction. These corrections could be caused by late arriving data like a K1, or possibly that a mutual fund or REIT reclassifies how they report income.
For tax year 2025 it is expected that a majority or US filers will receive a larger refund than tax year 2024. The average refund paid last year was about $3,170. The Treasury is predicting that refunds will increase by an average of $1,000 this year.
Most of the changes that congress made to the tax law recently take effect in 2026. However, there are a handful that are retroactive to January 1, 2025. The main drivers of a potentially higher tax refund are a larger standard deduction, an expanded SALT tax deduction and a new senior deduction. Below is an explanation of some of the new tax laws that are available for tax year 2025:
Standard Deduction Increase
The standard deduction for 2025 will increase by $750 to $15,750 for singles and by $1,500 to $31,500 for joint filers. This change affects the largest number of filers.
Increased State And Local Tax (SALT) Deduction
The amount of SALT deduction that can be itemized will increase from $10,000 to $40,000 for joint filers and $20,000 for single filers. The phaseout starts with modified adjusted gross income (MAGI) over $500,000 for joint filers and $250,000 for single filers. This deduction is set to return to $10,000 in 2030.
Additional Senior Tax Credit
Taxpayers over 65 years old can deduct an additional $6,000 ($12,000 for married joint filers) with phaseouts for MAGI starting at $150,000 for joint filers and $75,000 for single filers. This additional credit applies for tax years 2025 – 2028.
Increase Child Tax Credit
Increased from $2,000 to $2,200 for qualified children under 17 years old.
Savings Accounts for Kids
These are IRA-style accounts for US citizens under the age of 18. A government funded initial deposit of $1,000 will be put into the account for children born between January 1, 2025 and December 31, 2028. Form 4547 should be filed with your 2025 tax return. Also, any adult can contribute, up to a combined $5,000 per year. Employers are also able to contribute to the accounts as well.
Deductions of Interest Payments on certain vehicles
Eligible taxpayers can deduct up to $10,000 of car loan interest on their federal tax return for new car purchased between 2025 – 2028. The vehicle must be new and assembled in the United States. The deduction begins to phase out for MAGI at $200,000 for joint filers and $100,000 for single filers.
No Tax On Tips
If you qualify, you can deduct up to $25,000 of tips received during the year with phaseouts for (MAGI) over $150,000 for a single filer and $300,000 for joint filers. This tax deduction is available for tax years 2025 - 2028. You could deduct tips on your federal income tax return if you received tips from jobs that “customarily and regularly” received tips before 2025.
No Tax on Overtime
A deduction of up to$12,500 per taxpayer with phaseout for MAGI starting at $150,000 for single filers and $300,000 for joint filers.This deduction does not apply to all overtime pay. The deduction applies to the amount that exceeds the normal rate of pay. So, it you get “time and a half” for overtime, only the “half” is eligible for the deduction. This deduction is available for tax years 2025-2028.
We are always here to help with answering your financial planning and investment management questions. Always consult with your tax professional when preparing tax documents to make sure you are taking advantage of everything that is available to you.
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Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be profitable for a client's portfolio.