The “Big Beautiful Bill”: What the 2025 Tax Law Means for Individuals and Businesses

Important Disclaimer

CMP is not endorsing any political viewpoint. We’re explaining the tax consequences of the recently passed law—nothing more.

Agenda

1. Individual tax changes
2. Business tax changes

Prefer a video? Watch our recent webinar where Quinn Johnson discusses the changes in this legislation.

Individual Tax Changes With One Big Beautiful Bill

1.  No Tax on Tips (Deduction up to $25,000)

• Who qualifies: Employees and self-employed individuals receiving qualified tips (voluntary cash/charged tips from customers or via tip sharing).
• Amount: Deduct up to $25,000/year (above-the-line).
• Timing: Applies to tax years 2025–2028.
• Phase-out: Begins at $150,000 AGI (single), $300,000 (married).
• Reporting: Employers/other payers must file information returns and provide statements showing tip amounts and the recipient’s occupation. The IRS will list occupations that customarily receive tips.

Note: This does not convert non-tipped services into tips. It applies to roles that customarily and regularly receive tips per IRS guidance.

2.  No Tax on Overtime (Half-Rate Portion Only)

• What’s deductible: The extra “half” portion of time-and-a-half overtime pay (the amount above the regular hourly rate).
  
  • Example: Regular rate $20/hr → OT rate $30/hr → $10/hr (the “half” portion) is deductible.
• Annual limits: Up to $12,500 (single) or $25,000 (married).
• Timing: 2025–2028.
• Phase-out: $150,000 AGI (single), $300,000 (married).

Practical tip: W-2s for 2025 won’t show a dedicated overtime deduction line. Employees can use pay stubs to calculate. A simple proxy: one-third of the total overtime pay ≈ deductible amount (since the “half” portion is 1/3 of the total time-and-a-half OT pay).

3.  No Tax on Car Loan Interest (Personal Vehicles)

• What’s allowed: Above-the-line deduction for interest on a new personal-use vehicle loan.
• Key conditions:
  
  • Loan originated after 12/31/2024.
  • New vehicle, first used by the taxpayer (used vehicles do not qualify).
  • Personal use only (business vehicles already deduct interest on business returns).
  • The loan must be secured by the vehicle.
  • GVWR < 14,000 lbs and final assembly in the U.S.
• Not eligible: Leases.
• Annual cap: Up to $10,000 of interest.
• Phase-out: $100,000 AGI (single), $200,000 (married).
• Timing: 2025–2028.

4. New Deduction for Seniors (65+)

• Amount: Additional $6,000 per person (on top of the existing senior add-on to the standard deduction).
• Example (2025, married seniors, both 65+):
  
  • Base standard deduction: $31,500
    
  • Existing senior add-on: $3,200
  • New senior deduction: $12,000 ($6,000 × 2)
  • Total: $46,700
• Phase-out: $75,000 AGI (single), $150,000 (married).
• Timing: 2025–2028.

This reduces taxable income and may lower or eliminate tax on Social Security, depending on your overall situation.

 5. Other Individual Adjustments

• Child Tax Credit: Increased to $2,200 per child, with $1,700 refundable, and now inflation-indexed.
• $500 “Other Dependent” Credit: Made permanent (for dependents like older children over 17 or supported parents).
• Estate & Gift Exemption: Permanently increased; in 2026, up to $15 million can be transferred tax-free (planning recommended for high-net-worth families).
• “Trump Account”: New tax-deferred account; $1,000 federal contribution for qualifying children born 2025–2028; parents can contribute; designed for long-term growth.

6. Itemized/Above-the-Line Deduction Changes

• SALT Cap: Temporarily increased to $40,000 for 2025–2029; phases down as income exceeds $500,000; reverts to $10,000 in 2030.
• Charitable (Above-the-Line) for Non-Itemizers: Starting 2026, up to $1,000 (single) / $2,000 (married) without itemizing.
• Mortgage Interest: The $750,000 principal cap is made permanent.
• PMI/MIP:  Mortgage insurance premiums are again deductible like mortgage interest.

7.  Energy Credits Ending / Reduced

• Energy-Efficient Home Improvement Credit: No credit for expenditures after 12/31/2025.
• Residential Clean Energy (Solar) Credit: No credit for expenditures after 12/31/2025; “expenditures made” effectively means work completed by that date.
• EV Credits (30D new / 25E used): No credit allowed after Sept. 30, 2025 (tight window to purchase).

Business Tax Changes

1.  Bonus Depreciation (Permanent)

• What it does: Allows immediate expensing of qualifying assets (e.g., vehicles, computers, software, furniture, equipment).
• Real estate: Generally excluded, except for a new elective for the portion of a manufacturing facility (built starting in 2025) used for qualified manufacturing activities (tangible goods, agriculture, chemical production/refining).

2.  Section 179 Expensing (Higher Limits)

• Limit doubled to $2.5 million for 2025.
• Useful in states that don’t allow bonus depreciation (e.g., Idaho), to better align federal and state treatment.

3.  R&D (Section 174) – Immediate Expensing Restored

• Now: Qualifying R&D costs (wages, contractor costs, supplies, certain computing) can be expensed as incurred.
• Catch-up options: You may amend 2022–2024 returns to remove capitalization or take the full catch-up on 2025.

Note: Determining eligibility can be complex; consider professional guidance and coordination with the R&D credit.

4. Information Reporting Thresholds

• Form 1099-NEC/MISC: Threshold increases to $2,000 starting in 2026 (2025 still $600).
• Form 1099-K (third-party platforms like PayPal/Venmo): Threshold set to $20,000 beginning with 2025, reducing noise for casual sales.

5. Section 1202 (QSBS) Gain Exclusion

• Exclusion cap: Increased to $15 million.
• Corporate asset limit at issuance: Increased to $75 million.
• Tiered exclusion by holding period: Partial exclusions available at 3 and 4 years; full at 5 years.
• For C-corp stock issued by a qualified small business and held for the required period, a significant gain may be excluded—powerful for founders and investors.

Closing & Next Steps

For chat questions not covered during the session, please follow up with your CMP advisor.