Join Karen Snodgrass, one of CK’s tax partner’s, as she breaks down the One Big Beautiful Bill Act and its impact on individual taxpayers. From changes to tax rates, deductions and charitable giving to new rules around tips, overtime and auto loan interest, Karen explains what’s changing, when it takes effect and how it could affect your 2025 tax return and beyond. Whether you’re a wage earner, retiree or planning on giving to a charity, this audio blog helps you make sense of the bill and plan smarter.

Transcript:

Hi, my name is Karen Snodgrass. I’m a tax partner with Cray Kaiser Limited. As you know, the president signed the one big beautiful bill over the July 4th weekend. You’ve probably heard about some of these provisions, things like no tax on tips or no tax on overtime. But there’s a lot more change than that. Today, we’ll focus on the individual tax provisions that will affect your taxes in both 2025 and over the next several years. I also want to mention, in terms of actionable items, for most people, there’s not a lot here. However, I do think it’s important to focus on what has changed and just think about how this may or may not affect your situation.

I think the first thing to do is to look backwards. In 2017, we had the Tax Cuts and Jobs Act that changed a number of tax provisions. And mainly, these were taxpayer friendly. But due to budget constraints, a number of these provisions were due to expire in ’25 or in ’26. Without action, most of our taxes were going up. This new bill extends many of these cuts, some of them permanently. And that’s some of the difficulty of this new bill, is determining when does this rule kick in, when does this other rule get eliminated. So that’s the thing to keep in mind is some of these will kick in in ‘25, some of these not until ‘26.

But let’s start with a change that will affect everyone in 2025. Under the pre-2017 law, the highest tax rate, as you may recall, was 39.6%. However, the 2017 Act reduced the highest rate to 37%. And in ’26, we’re due to go back up to the 39.6%. Under the new law, the highest rate is now 37%, and that’s been made permanent. And if you look at the brackets in the middle, you’ll see that some tax rates are also reduced for middle-income taxpayers. Notably, they have not changed the capital gains tax rates. So what this means in 2025 is, you really won’t see a change in the tax rates that you’re used to.

But what garnered the most headlines with no tax on tips or overtime. There are limits on who can claim these benefits and how much can be deducted. Higher-income taxpayers think a married couple filing jointly with income in excess of $300,000. They’ll generally miss this advantage. We’ll wait to see the final regulations on this, but it seems the service will limit who exactly can benefit beyond income limitations. So don’t run to your employer just yet and get asked to change your comp to, hey, can you pay me in tips and overtime and that way I don’t have to pay tax? It’s only those that are usually getting tips that will get the tip exemption. Also, it’s generally going to be only exempt employees who get the overtime benefit. Believe it or not, we have to look at who is covered under the Fair Labor Standards Act to see who this applies to.

Another provision that’s going to affect everyone is the higher standard deduction, but keep in mind this is a 2026 change. You may recall before 2017 itemized deductions were generally more beneficial than claiming a standard deduction. This was during the time you could claim an unlimited state and local tax deduction, which we’ll call SALT from here on out. The 2017 Act limited the SALT deduction to $10,000, which hurt those of us in a high income tax state, and those of us who also pay real estate taxes. To balance the scale, so to speak, the standard deduction was enhanced. In 2025, the standard deduction for a married couple filing jointly is $24,000. In ’26, this was set to revert, think closer to $6,000, So basically an $18,000 reduction in the standard deduction. Under the new law, it goes the opposite way. The standard deduction for a married couple instead of $24,000 or $6,000 is now $31,500. If it weren’t for the SALT changes, it would seem most folks are still going to benefit from claiming the standard deduction. And to make things incredibly confusing, the SALT limits actually change in ‘25, not in ‘26. What used to be a $10,000 limit is now up to $40,000. Keep in mind this benefit will get phased out for higher income taxpayers, like married couples making more than $500,000.

Another change we’ve already been asked about is the new auto loan interest deduction. And this is one that kicks in during 2025. Assuming you meet the income threshold, you can take a deduction for up to $10,000 of interest expense from loans on autos that you own, as long as the final assembly occurred in the US. This only applies to vehicles weighing less than 14,000 pounds, which covers most of the cars you see on the road. If you claim this deduction, keep in mind you’ll have to certify it by showing the vehicle identification number on your tax return.

We’ve also been asked about the new charitable provisions. Starting in 2026, it’s a mixed bag of news. If you claim the standard deduction, which again is going up to the $31,500 for a married couple, you can benefit from a charitable write-off even if you don’t claim that itemized deduction. You may recall this from a few years ago, so keep track of your charitable giving even if you don’t formally itemize your deduction. For higher income folks, it’s not great news. There’s a new limitation on how much you can write off to charity in any given year based on your income. With the possible reduced benefits of charitable giving, we’ve already started to talk to clients about accelerating their planned charitable giving to 2025, instead of maybe waiting until ’26.

And finally, if you’re of a certain age group, perhaps you’ve got an email from the Social Security Administration suggesting you don’t have to pay tax on Social Security. Well, that’s not entirely true. While seniors will see a standard deduction, that’s actually higher than most, meaning if you’re over a certain age, you get an extra standard deduction. All this means is that less seniors are going to owe income tax on their social security benefits. Those benefits are still taxable.

But let’s recap. There’s still historically low tax rates. There are more deductions available to some. But how do you figure out what to do with all this information? Our suggestion is to see what provisions may apply to you and be sure to be aware of the different timing of these changes. Ask your CPA to run the numbers. Perhaps you can reduce your next quarterly estimated payment. Or is there an opportunity to accelerate a deduction in 2025 to take advantage of the additional benefits. As we’ve always done at Cray Kaiser, we’re looking at all the angles, considering not just the current year, but the effect on future tax years. There’s really not a one size fits all strategy, but being proactive with your tax advisor is the best course of action given all the changes.