By Jeff Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
What a difference a year can make! Last year, as we kicked off our annual Tax Tip Tuesdays blog series, we were discussing the fact that tax laws could “sunset” to pre-2017 rates and brackets, which would have generally meant an increase in taxes for most Americans. Now, with the passage of the One Big Beautiful Bill Act on July 4, 2025, tax law is now permanently set. Generally speaking, the new law continues the existing tax rules, but there are some important changes. While this blog series focuses on tax planning for 2025 tax returns, we will address possible planning issues for 2026 with the nuances of the updated tax laws.
As you work on your 2025 tax return, the indexed standard deduction rates have increased to $15,750 for single tax filers, and $31,500 for married taxpayers. Tax rates, however, remain unchanged, with the top income tax bracket holding at 37% for individuals with more than $626,350 in income, $751,600 for married taxpayers. For those “in the middle,” the middle tax bracket holds at 24%. That rate begins at $103,350 single/$206,700 married. You will need more than $197,300 single/$394,600 married to climb into the next bracket. For 2026, the rates remain the same and the brackets will index for inflation.
One change for 2025 is that the state and local tax (SALT) deductions for those who itemize have been increased to $40,000 for 2025. Going forward, the SALT deductions will increase 1% per year until 2029. In tax year 2030, the SALT cap will revert to $10,000. While this increase is helpful, it starts to phase out for all taxpayers with modified adjusted gross income (MAGI) over $500,000. The deduction is reduced by 30% of MAGI that exceeds $500,000, but the SALT deduction cannot go below $10,000.
Another notable change for the 2025 tax year is that the new law allows a deduction of up to $25,000 for qualified tips for a taxpayer in an occupation that customarily and regularly receives tips. Moreover, there is a deduction of $12,500 single/$25,000 married for qualified overtime compensation. These deductions are allowed whether you itemize or not.
Each of these deductions are available from 2025 through 2028, and are subject to phaseout. They both begin phasing out when MAGI exceeds $150,000 single/$300,000 married. Both require specific documentation to identify the compensation for tax reporting purposes, and those looking to take these deductions should collaborate with their employer and their tax advisor to meet these documentation requirements.
Expect new blog topics every Tuesday until April 14 this year. Recall as well that your financial advisor is happy to collaborate with you and your tax advisor to make filing your taxes as easy as possible. Happy Tax Season!
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.