On July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was signed into law, introducing valuable new tax deductions that could help many taxpayers save more on their taxes from 2025 through 2028. Here’s a clear breakdown of what these new provisions mean and how you could benefit.
No Tax on Tips
Starting in tax year 2025, employees and self-employed workers in tip-based occupations may be able to deduct tips they receive, up to $25,000 per year.
Key details:
- Who qualifies: You must work in an occupation that the IRS identifies as customarily and regularly receiving tips as of December 31, 2024.
- Tips must be reported on Form W-2, Form 1099, or directly on Form 4137.
- Self-employed individuals can claim this tax deduction only up to their net business income (before this deduction).
- Those working in a Specified Service Trade or Business (SSTB) like law, accounting, consulting are not eligible.
- You must include your Social Security Number on your return and file jointly if married.
- This deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $150,000 (or $300,000 for joint filers).
- The IRS will publish an official list of qualifying occupations by October 2, 2025, and employers must report qualifying tips to the IRS and the recipient.
Read also: IRS Announces Extended Tax Deadlines for Texas Taxpayers Impacted by July 2025 Storms
No Tax on Overtime
If you work overtime, you could now get tax relief on the extra pay. From 2025 to 2028, individuals may deduct certain overtime wages that exceed their regular pay rate — like the “half” portion of “time-and-a-half.”
Highlights:
- Maximum tax deductions: $12,500 per year (or $25,000 for joint filers).
- Your overtime pay must be required under the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or other approved statement.
- Income phase-out: Tax deduction phases out for MAGI over $150,000 ($300,000 for joint returns).
- Taxpayers must include their SSN and file jointly if married.
- Employers must report total qualified overtime compensation paid during the year.
No Tax on Car Loan Interest
Buying a new car, an SUV, or motorcycle for personal use? You may deduct up to $10,000 in interest paid on your auto loan — but there are a few important rules.
Key requirements:
- The loan must start after December 31, 2024, and must be for personal use only (not for business).
- The vehicle must be new, used vehicles don’t qualify.
- The loan must be secured by a lien on the vehicle.
- The vehicle must have undergone final assembly in the United States.
You can check this on the vehicle information label or through the VIN on the NHTSA VIN Decoder. - If you refinance, the interest on the refinanced loan generally remains eligible.
- The deduction phases out for MAGI over $100,000 ($200,000 for joint filers).
- You must include the VIN on your tax return.
- Lenders must report total interest received to the IRS and the taxpayer.
New Tax Deductions for Seniors
If you’re age 65 or older, there’s better news. From 2025 to 2028, qualifying seniors can claim an extra $6,000 deduction in addition to the existing extra standard deduction for seniors.
How it works:
- Married couples can claim up to $12,000 if both spouses qualify.
- This tax deduction phases out at MAGI over $75,000 ($150,000 for joint filers).
- You must include the SSN of each qualifying individual and file jointly if married.
Need Help Claiming These New Tax Deductions?
At JAF CPA, we help taxpayers make the most of new tax breaks and stay compliant with changing IRS rules. If you have questions about these new deductions or want to plan for 2025, our team is here to guide you.
Contact us today to ensure you get every dollar you deserve!
Disclaimer: This article is for informational purposes only and does not constitute tax advice. Always consult your tax professional regarding your specific situation.
Source: IRS Newsroom
