Major Tax Law Changes for the 2025 Tax Season

What businesses and individuals should know now.

As your CPA firm, we’re keeping close watch on key legislative changes that will impact your tax planning and filing for the 2025 tax year. Below are the most important updates and how they may affect you — let’s plan ahead so you’re positioned to benefit and avoid surprises.

1. Tax Rates & Key Deductions Made Permanent

• The law enacted under the One Big Beautiful Bill Act (OBBBA) has permanently locked in the marginal income tax rates introduced under the Tax Cuts and Jobs Act (TCJA) — i.e., the brackets at 10%, 12%, 22%, 24%, 32%, 35% and 37% remain in effect. 

• The increased standard deduction (from TCJA) has likewise been extended permanently under the new law. 

• These changes provide stability: you can plan knowing the rate structure and deduction baseline are not set to expire soon.

2. Changes to the State & Local Tax (SALT) Deduction

• For many taxpayers, the cap on deducting state and local taxes has been increased to $40,000 for tax year 2025 (married filing jointly) and $20,000 for married filing separately. 

• That said, this higher cap phases out for taxpayers whose modified adjusted gross income (MAGI) exceeds certain thresholds (e.g., around $500,000 for singles) and will revert to the old cap ($10,000) beginning in 2030 absent further changes. 

• Practical takeaway: if you live in a high‑tax state or pay significant property/state taxes, now is a good time to review whether your itemizing strategy makes sense.

3. Itemized Deduction Limits for High Earners Changed

• The so‑called “Pease limitation,” which once reduced itemized deductions for higher‑income taxpayers, is repealed permanently. 

• In its place, starting in 2026, for taxpayers in the 37% bracket, each dollar of itemized deduction will be worth only $0.35 of tax benefit rather than $0.37. 

• What this means: High income filers should evaluate the timing and nature of deductions, and consider strategies (such as bunching deductions) to optimize tax benefit.

4. New & Expanded Credits/Deductions – Seniors, Children, Tips, and Overtime

• Seniors (65 +) receive a new temporary deduction: up to $6,000 per qualified senior for tax years 2025 − 2028. This phases out for higher incomes.

• The Child Tax Credit is permanently increased to $2,200 per qualifying child and will be indexed for inflation. 

• For taxpayers who receive tipped income or overtime pay: effective 2025 through 2028, there are deductions available — for example: a deduction up to $25,000 for eligible tip income and up to $12,500 for overtime pay for single filers. 

• Important: These newer provisions may require employers and payroll systems to track certain income differently, so business owners and individuals alike should confirm eligibility and documentation.

5. Estate & Gift Tax Exemptions

• The federal estate and lifetime gift tax exemption has been permanently increased starting in 2026 to $15 million per individual (and double for married couples) and will be indexed for inflation. 

• If you have significant assets or estate‑planning goals, this provides added planning flexibility — but you should review your plans in light of the updated thresholds.

6. Alternative Minimum Tax (AMT) & Capital Gains Adjustments

• AMT exemption amounts for 2025 have been increased. For singles, the exemption rises (e.g., to around $88,100 for unmarried filers). 

• Capital gains long‑term thresholds have also been adjusted for inflation for assets sold in 2025 (returns filed 2026). 

• Business owners and investors: consider the timing of asset sales, option exercises, and other taxable events in light of these changes.

7. Business Owners, Pass‑Through Entities & Real Estate Investors

• While many of the changes above pertain to individuals, businesses and investors should not overlook the impact: permanently extending TCJA features means the environment for pass‑through entities and real‑estate investment remains favorable — but timing, structure, and planning remain critical. 

• For example, if you’re an LLC‑owner, real‑estate investor, or consultant, reviewing your entity structure, qualified business income deduction eligibility, depreciation strategy and income timing is more important than ever.

What You Should Do Now – Action Steps

1. Schedule a tax‑planning review: We can walk through your personal and business situation and apply these changes to you.

2. Review entity and income structure: For business owners, consider whether your current entity type, income timing and expense strategy are optimized in light of the new law.

3. Itemize vs standard deduction: Especially for 2025, model both options with the higher standard deduction & changed SALT cap in mind.

4. Plan major transactions: Consider asset sales, business expansions, real‑estate investments, or large expenses. Timing could move tax benefit.

5. Locate deductions & credits: Are you eligible for the senior deduction? Have children? Get tips or overtime? Live in a high‑tax state? These changes could apply.

6. Update documentation and payroll systems: If you pay tipped or overtime income, or if your business requires new tracking, ensure you’re ready for compliance when required.

7. Estate‑planning check‑up: With new exemption amounts, review your trust, gift‑giving strategy, and estate plan with your advisor.

Final Thoughts

The tax landscape for the 2025 season has undergone meaningful change — not just tweaks, but structural updates that will impact individuals, business owners and investors alike. While the headlines highlight “big changes”, the real value comes from applying them smartly in your situation.

As your CPA firm, we’re committed to guiding you through these changes, unlocking potential savings and helping you build a stronger financial future. Let’s talk soon about how these updates affect you and what strategic steps we should take next.