TLDR Transcript: Welcome back to Topic Tuesday with Allen Dembski and Juliana Janson of Buffalo First Wealth Management. Today, we’re reading the “one big, beautiful bill” to focus on tax changes to affect your filing for the 2025 federal tax year.
Disclosure: We’re not offering you tax advice. Everyone’s situation is different, so be sure to consult your personal tax advisor on how you may be affected by these changes.
Though the recent bill touches on a variety of issues, we’re concentrating here on changes you need to know right away for the filing season ahead.
1) The SALT Deduction Increase
In the same vein, the State and Local Tax (SALT) deduction was the subject of much discussion. The cap has been raised from $10,000 to $40,000. Good news: that’s a relief for residents of high-income tax states such as New York.
How it works:
The money that would have come from the income tax withheld from your paycheck, as well as your property taxes, is now capped at $40,000 if you are an individual filer.
Strategic Considerations:
Do you hit the cap? Those are the numbers you have to do. If your combined state and local taxes aren’t that high, then it’s possible the standard deduction for married couples filing jointly ($31,500) is still better.
Itemizing other deductions: If you’re eligible for the higher SALT limit, it could make it worthwhile to itemize other deductions that were previously unavailable to you, including charitable contributions, mortgage interest, and health care costs (up to certain thresholds).
Example:
If you paid $10,000 in state income taxes and $12,000 in property taxes: The total is $22,000.” But under the old rules, you were limited to $10,000. Now you can take the $22,000 fully as a deduction.
2) Deductions for Tips and Overtime
Rules for tips and who gets overtime pay have changed — and it can get confusing. Please note that not all income is disregarded.
Gross Receipts From Tips: $25,000 per return is the maximum for any reduction. This is especially the case with service industries’ qualified tips. It is a deduction, not a credit.
Overtime Pay: The new deduction is capped at $12,500 for singles and $25,000 for married couples.
The “Half” Rule: The overtime exclusion only applies to the premium pay (the “half” in “time and a half”), not base pay.
Example: If you usually make $20 an hour and are paid $30 an hour for overtime, only the extra $10 falls within the exclusion, not the full $30.
3) Senior Tax Deductions
Why the bill didn’t end taxes on Social Security . Despite what was rumored, talked, and written about, the Act did not stop taxes owed on Social Security. But it did institute a new tax break for seniors who are 65 and older.
The Benefit: A deduction of $6,000 per senior.
The Catch: There are income limits for this. The benefit becomes phased out once you rise above certain income levels.
Heads up: No, you shouldn’t assume your Social Security checks will be tax-free. Up to 50% of your benefits — or even 85%, depending on your total income — may still be added back into your Adjusted Gross Income (AGI).
4) The Auto Loan Deduction
There is an all-new deduction for interest on your car loan, but only if you used the money to buy the car.
The Cap: The deduction is limited to $10,000 in interest paid.
Reality Check: You probably would need an astronomically priced vehicle (say, $200,000) to pay $10,000 in interest on a 5% loan.
Requirements: Cars must be made or assembled in the US. Be sure to check your make and model’s eligibility by checking online.
A Quick Note on Income Limits and State Taxes
When we checked all of these out, we found that income limits are substantially different for every deduction. There are different rules for the senior deduction than the ones used for tips and overtime. You really have to get into the nitty-gritty to find out where you land with your income.
And keep in mind, federal changes won’t necessarily apply to state returns. Although a deduction could help you on your Federal 1040, it may not do much for your state income tax if you live in the right place. Be sure to consult your particular state tax department.
Looking forward to our next update! If you’d like to comment or suggest topics for future posts, contact us on our social pages.