By Heemer-Klein & Company, PLLC

At Heemer-Klein & Company, we know that keeping up with tax laws is difficult. New rules are often written. Old rules are changed frequently. It can be hard to understand how it all affects your bank account. Recently, a significant piece of legislation, the One Big Beautiful Bill Act (OBBBA), was introduced. This Act proposes considerable changes to the tax code.

These changes are designed to impact individuals and families across the country. Some of the changes might lower your taxes. Other changes alter how you report your income. We want to make sure you understand exactly what this bill contains. We have broken down the key parts of the Act into simple terms. Our goal is to help you plan for the future with confidence.

Here is a look at the individual key provisions of the OBBBA. We will explain how they might affect you and your family.

A New Standard Deduction

The first significant change in the OBBBA concerns the standard deduction. The standard deduction is a fixed amount that reduces the income you are taxed on. Many Americans choose to take the standard deduction rather than itemize their expenses.

Under the new Act, the standard deduction will increase permanently. This change is effective starting January 1, 2025. This means you can earn more money before you start paying federal income taxes.

For single filers and those filing Head of Household (HOH), the new standard deduction will be $15,750 and $23,625, respectively. These are solid baselines for individuals who are not married and provide a larger shield against income tax than in previous years.

For married couples filing jointly (MFJ), the deduction also increases. The new amount will be $31,500. This is a significant benefit for couples. It simplifies the filing process for many families.

The End of Personal Exemptions

While the standard deduction is increasing, another tax break is being eliminated. The OBBBA permanently terminates the deduction for personal exemptions, which were initially suspended in 2018.

Prior to 2018, you could claim an exemption for yourself. You could also claim one for your spouse. You could even claim one for your dependents.

This used to reduce your taxable income by a specific amount for each person in your household. It was a way to lower taxes for larger families.

However, the new law removes this specific deduction entirely. The idea is that the higher standard deduction mentioned above will replace the need for personal exemptions.

For families with many children, this is a very important change to note. You will no longer subtract a fixed amount per person. Instead, you will rely more on the larger standard deduction.

Keeping Your Tips Tax-Free

For many service workers, tips are a huge part of their income. The OBBBA introduces a new provision called “No tax on tips.” This is great news for waiters, bartenders, and other personal service professionals.

The new law allows you to deduct up to $25,000 of qualified tips when determining taxable income. This means the first $25,000 in tips you earn might not be taxed at the federal level.

However, not every job qualifies for this rule. The Treasury has published a comprehensive list of the occupations eligible for this benefit.

This deduction is available whether you claim the standard deduction or if you itemize. You do not have to fill out complex forms to choose one or the other to get this benefit.

This benefit is set to last through the tax year 2028. It is a temporary boost to help service workers keep more of their cash earnings.

There is a limit based on your total income. If your modified adjusted gross income (MAGI) is too high, you lose this benefit. The benefit starts to phase out if you make over $150,000 if you file single, head of household, or married filing separately. The deduction fully phases out when MAGI reaches $400,000.

For married couples filing jointly, the phaseout starts at $300,000 of MAGI and fully phases out at $550,000.

Tax Breaks for Overtime Pay

Similar to the rule on tips, the OBBBA wants to help people who work extra hours. The “No tax on overtime” provision is designed to reward hard work.

Under this new law, you can deduct up to $12,500 of qualified overtime compensation. This applies to single, head of household, and married filing separate taxpayers. It lets you keep more of the money you earn when you work long hours.

For married couples filing jointly, this amount doubles. You can deduct up to $25,000 for qualified overtime compensation. This could result in significant tax savings for a two-income household.

Like the tip deduction, this is available to everyone. It does not matter whether you take the standard deduction or itemize your deductions.

This provision is also available through the year 2028. It is designed to encourage work and help people maximize their take-home pay during these years.

This deduction also has an income limit. It phases out when your modified adjusted gross income exceeds $150,000. For married couples, the limit is $300,000. High earners will not be able to claim this specific deduction.

Bonus Deduction for Seniors

The OBBBA includes specific help for older Americans. The Act creates an “Enhanced deduction for seniors.” This is an extra amount of money that seniors age 65 and over can subtract from their taxable income.

This bonus deduction is $6,000 per eligible taxpayer. It is intended to help seniors manage the rising costs of living. This extra deduction is available for the years 2025 through 2028.

However, this benefit is not for everyone. It is phased out at higher income levels. This means wealthier seniors may not qualify for the full $6,000.

If you are a senior citizen, this is a key area to review. We can help you calculate if your income level allows you to take this full bonus deduction.

Deducting Car Loan Interest

For years, interest paid on personal car loans was not tax-deductible. The OBBBA amends this rule for a specific period of time. The “No tax on car loan interest” provision is a new addition.

You can now deduct interest paid on new car loans. The limit for this deduction is up to $10,000 of interest. This applies to loans taken out between 2025 and 2028.

There are strict rules on which cars qualify. The vehicle must be a passenger personal use vehicle(s). More importantly, it must be assembled in the United States. You will need to check where the vehicle was built before you buy it.

Additionally, the vehicle must serve as security for the loan. This generally means the car is collateral, which is standard for most auto loans.

This provision encourages people to buy American-made cars. It also helps offset the cost of borrowing money when interest rates are high.

Changes to Adoption Credits

Adopting a child is a wonderful but expensive process. The OBBBA makes changes to the adoption credit to help families. The credit helps offset the fees and costs associated with adoption.

The Act makes $5,000 of the adoption credit refundable. A “refundable” tax credit is the best kind. It means that if the credit brings your tax bill to zero, the government will send you a check for the remaining amount.

Previously, many credits were non-refundable. If you didn’t owe taxes, you lost the value of the credit. Making $5,000 of it refundable puts actual cash back into adoptive parents’ pockets.

This amount is also inflation-adjusted. This means the $5,000 figure may increase in future years as the cost of living rises. This ensures the help stays valuable over time.

Expanding 529 Education Plans

529 plans are popular accounts for saving for college. The OBBBA expands the range of what you can pay for with these funds. This gives parents and students more flexibility.

The new law expands the definition of qualified expenses to include additional K-12 education costs. This is helpful for parents who pay for private school or other educational needs before college.

It also explicitly includes homeschool expenses. Families who educate their children at home can now use tax-advantaged 529 funds for their materials and curriculum.

Furthermore, the Act includes postsecondary credentialing expenses. This covers trade schools and professional certifications, not just four-year university degrees.

In particular, the Act mentions CPA credentialing. This includes the expenses for taking the CPA exam. As an accounting firm, we think this is a fantastic addition for future accountants!

Introducing Trump Accounts

The OBBBA introduces an entirely new type of savings vehicle. These are called Trump Accounts. These accounts are designed to help young people build wealth early in life.

Trump Accounts will function like IRAs (Individual Retirement Arrangements) under Section 408(a). However, the law specifies that they cannot be Roth IRAs. They are traditional tax-deferred accounts.

These accounts are for the exclusive benefit of individuals under the age of 18. They are meant to be set up for children and teenagers.

Contributions can be made in any calendar year before the beneficiary turns 18. You can also make contributions in the specific calendar year that the child turns 18.

When you set up one of these accounts, it must be explicitly designated as a Trump Account. You cannot just use a regular bank account and call it by this name.

There is a waiting period before you can use them. No contributions are allowed until 12 months after the date the Act is enacted. This gives banks and the government time to get the systems ready.

Interestingly, the Treasury can automatically set up these accounts. The Act allows the Treasury to open Trump Accounts for eligible individuals if one has not already been created for them.

Major Changes to the SALT Cap

One of the most debated topics in taxes is the State and Local Tax (SALT) deduction. This is the deduction you take for taxes you pay to your state and local government, like property tax and state income tax.

For the last few years, this deduction was capped at $10,000. The OBBBA makes a massive change to this limit. It retroactively increases the individual limit.

For the 2025 tax year, the limit increases to $40,000. This is four times the previous amount. It allows people in high-tax states to deduct much more of their property and income taxes.

For 2026, the limit goes up slightly to $40,400. The law then includes 1% increases for the years 2027, 2028, and 2029. This slow growth helps the deduction keep pace with the economy.

However, this increase is not permanent. Beginning in 2030, the cap is scheduled to revert back to $10,000. This is a temporary relief measure for the next five years.

There is a catch for high earners. The deduction is subject to a phaseout. If your Modified Adjusted Gross Income is greater than $500,000 in 2025, your limit goes down. The phaseout limit will increase 1% per year from 2026 through 2029.

Even if you make a lot of money, the deduction will not disappear completely. The law states the deduction would not be reduced to below $10,000, regardless of income.

To take advantage of the new SALT cap, you must itemize your deductions. We will determine if you benefit more from itemizing or claiming the standard deduction when we prepare your 2025 tax return.

Charitable Deductions for Non-Itemizers

Usually, you only get a tax break for giving to charity if you itemize your deductions. Since the standard deduction is so high, many people do not itemize.

The OBBBA solves this by creating a special deduction. This is called the Charitable deduction for non-itemizers. It applies only to cash donations.

It does not apply to donations of goods, such as clothes or furniture. You must have a receipt for a cash gift.

Single filers can deduct up to $1,000 for charitable contributions. This is a direct reduction of your taxable income, even if you take the standard deduction.

For married couples filing jointly, the deduction is $2,000. This encourages families to give to their favorite causes, churches, or nonprofits.

This deduction is permanent. You do not have to worry about it expiring in a few years. It becomes a lasting part of the tax code.

However, you cannot use it immediately. The deduction starts after 2025. You will have to wait a little while before claiming this benefit on your tax return.

New Rules for Wagering Losses

Finally, the OBBBA changes how gamblers handle their losses. If you gamble, you likely know that if you itemize deductions, you can only deduct losses up to the amount of your winnings.

The new law tightens this rule. It limits losses from wagering transactions. You can only deduct 90% of the amount of such losses to the extent of gambling winnings.

This change adds a layer of complexity to reporting gambling activity. If you frequent casinos or bet on sports, you will need to keep meticulous records.

Summary

The One Big Beautiful Bill Act brings sweeping changes to the American tax landscape. From increased standard deductions to new savings accounts for children, there are many opportunities to save money. However, there are also phaseouts and expirations that require careful planning.

At Heemer-Klein & Company, PLLC, we are here to help you navigate the OBBBA. We want to ensure you get every deduction you are entitled to under this new law.