Circulated biweekly to business clients since 1925
Reported from Washington, D.C. • kiplinger.com • Vol. 00, No. 15
View The Kiplinger Tax Letter Archive
Washington, July 17, 2025
| Highlights |
SALT $40,000 deduction cap Four New Breaks Tips, etc. Education 529 accounts Green Energy Expiring tax credits Business Taxes Bonus depreciation 1099s Form 1099-K reporting |
Dear Client:
Tax changes take effect this year and next…
Thanks to the massive new federal legislation commonly referred to as the “One Big Beautiful Bill,” which President Trump signed as promised on July 4.
There are over 100 tax sections in the OBBB. The changes permanently extend most tax provisions in the 2017 Tax Cuts and Jobs Act that were slated to expire on Dec. 31 and enhance some of them, provide new tax breaks, repeal clean-energy credits in the 2022 Inflation Reduction Act, and much more.
Many changes begin in 2025. Others in 2026.
Most are permanent. Some are temporary.
This Letter is devoted to the key tax changes enacted in the OBBB.
Income tax rates for C corps, individuals, trusts and estates stay the same. C corps are taxed at a 21% rate, and individuals have a top rate of 37%. The individual alternative minimum tax easings are permanent, with a few changes.
Standard deductions increase by $1,500 for joint filers, $750 for singles and $1,125 for household heads, beginning with 2025 returns filed next year. For 2025 returns, the basic standard deduction is $31,500 for joint filers, $15,750 for singles and $23,625 for heads of household. Filers 65 and older get $1,600 more per spouse on joint returns and $2,000 more on single and head-of-household returns.
The child tax credit rises to $2,200 per qualifying child…up from $2,000… beginning with 2025 returns, and will be annually adjusted for inflation. The refundable part for lower-incomers is $1,700. Filers need Social Security numbers to claim the child credit. On joint returns, at least one spouse must have an SSN. And, as before, each child for whom the credit is claimed must have an SSN.
Three breaks for child and dependent care are bigger, beginning in 2026:
The child and dependent care credit is more generous. The maximum credit for 2025 is $1,050 for one dependent and $2,100 for two or more dependents. The OBBB increases the top credit to $1,500…$3,000 for two or more dependents.
Working parents can contribute up to $7,500 to a dependent care FSA, beginning in 2026. The 2025 cap for this type of flexible spending account is $5,000.
Employers that provide child care for their workers also get more relief. The $150,000 maximum credit is rising to $500,000…$600,000 for small businesses.
Lots of the tax breaks require filers to have Social Security numbers: The $6,000 bonus deduction for seniors. The deductions for tip income and overtime. The American Opportunity and Lifetime Learning credits. Plus more.
The higher lifetime estate and gift tax exemption is now permanent…
And bigger…$15 million starting with 2026 deaths. The exemption for 2025 deaths is $13,990,000. The top federal estate tax rate stays at 40%.
The cap on deducting state and local taxes on Schedule A rises to $40,000 for 2025 through 2029. It goes back down to $10,000 beginning in 2030. There is also an income limit. For 2025, the SALT deduction begins to phase out… but not below $10,000…for filers with modified AGIs over $500,000…$250,000 for separate filers. The cap and income limit increase 1% each year through 2029.
The 2025 OBBB law temporarily offers four brand new tax deductions. These deductions are available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. These four tax write-offs first take effect on 2025 tax returns filed next year, and they end after 2028.
First, there is a new senior deduction of $6,000 per filer age 65 or older. Married couples with both spouses 65 and older can deduct $12,000. Not every senior will qualify. The deduction begins to phase out for taxpayers with modified AGI over $150,000 on joint returns and $75,000 on single and head-of-household returns.
Second, up to $25,000 of qualified tips is deductible. The write-off begins to phase out at modified AGIs over $300,000 on joint returns…$150,000 on others. There are lots of rules and complexities, and IRS guidance will be needed.
Third, up to $12,500 of overtime pay is deductible…$25,000 for joint filers. This write-off begins to phase out at modified AGIs over $300,000 on joint returns… $150,000 on others. And there are many rules, guardrails and knotty technicalities.
Fourth, individuals with auto loans can deduct up to $10,000 of interest that they pay on loans to buy a new car, minivan, SUV, pickup truck or motorcycle after 2024. Final assembly of the vehicle must take place in the U.S. And the write-off begins to phase out at modified AGI over $200,000 for joint filers…$100,000 for others.
There’s mixed news for taxpayers who make charitable donations.
Nonitemizers can deduct up to $1,000 of charitable cash contributions, starting with 2026 returns filed in 2027. The amount is $2,000 for joint filers.
But itemizers who make charitable gifts don’t fare as well, beginning in 2026.
Charitable donations claimed on Schedule A are subject to a haircut. They are deductible only to the extent they exceed 0.5% of adjusted gross income.
Charitable gifts made by C corps also get a haircut. Beginning in 2026, they’re deductible only to the extent that they exceed 1% of taxable income. Excess donations made by itemizers and C corps can be carried forward five years.
Note that the 60%-of-AGI limit on cash gifts by itemizers is made permanent.
GOP lawmakers get their wish to expand school choice for K-12 students.
There’s a new income tax credit for donating to scholarship organizations. The OBBB gives a nonrefundable federal tax credit of up to $1,700 to individuals who donate cash to qualifying organizations created to provide scholarships to K-12 students. Additionally, scholarship recipients won’t be taxed on the funds. Note that the credit is allowed only for donations to eligible scholarship organizations in states that opt in to the program. This new break is scheduled to begin in 2027.
Upper-incomers will again see their total itemized deductions phased out, beginning in 2026. That’s because the OBBB reinstates a revised version of the sneaky tax hike that applied to pre-2018 returns of wealthy individuals. Essentially, it caps the value of itemized deductions at the 35% income tax rate.
Bad news for gamblers: Starting in 2026, they can deduct only 90% of losses against their taxable winnings. Now, gamblers report winnings on Schedule 1 of the 1040 and deduct losses on Schedule A to the extent of their reported winnings.
There’s a helpful easing to the adoption credit. Beginning with 2025 returns, up to $5,000 of the credit…adjusted annually for inflation…is refundable.
529 college savings accounts are expanded in three important ways.
First, you can withdraw up to $20,000 per year tax-free for K-12 schooling beginning in 2026, an increase of $10,000 from the current annual cap. As always, there is no limit on the amount of tax-free withdrawals used to pay for college.
Second, more K-12 expenses are covered. It used to be that distributions for K-12 education were tax-free only if used to cover tuition. Now covered are costs of tuition, materials for curricula and online studying, books, educational tutoring, fees for taking an advanced placement test or any exam related to college admission, and educational therapies provided by a licensed provider to students with disabilities. This easing begins with distributions from 529 accounts made after July 4, 2025.
Third, certain post-high-school credentialing program costs are 529-eligible.
The OBBB creates a new tax-advantaged savings account, beginning in 2026:
The Trump account for young children. Up to $5,000 can be contributed to the account each year. The federal government would automatically put in $1,000 for each child born after 2024 and before 2029. Contributions aren’t deductible. Income tax on the earnings is deferred until the account owner takes distributions.
The income tax break for qualified small-business stock is greatly enhanced. Under current rules, individuals who acquire QSBS after Sept. 27, 2010, and sell over five years later can exclude 100% of their capital gain from the sale. The amount of excludable gain is capped at the greater of 10 times your stock basis or $10 million. You get a smaller break if you bought QSBS before Sept. 28, 2010.
The OBBB makes three significant changes for QSBS acquired after July 4. First, you can get a partial gain exclusion if you hold the QSBS for three or four years before selling it. Second, the $10 million gain exclusion cap goes up to $15 million. Third, it’s now a bit easier for a business to meet the qualified-small-business rules.
Many clean-energy tax breaks in the 2022 Inflation Reduction Act will end.
The expiration dates vary by credit, as you can see from several examples. The up-to-$7,500 tax credit for buying an electric vehicle expires after Sept. 30, 2025. The qualified commercial clean-vehicle credit expires after Sept. 30, 2025. Ending after June 30, 2026, are credits for alternative-fuel-vehicle refueling property and new energy-efficient homes. The energy-efficient commercial building deduction will continue to apply to property in which construction begins before July 1, 2026. Wind and solar projects that begin construction after July 4, 2026, must be placed in service before 2028 to qualify for the clean-electricity production credits. The White House has instructed the Treasury Dept. to move quickly to enforce this date for wind and solar projects. The credits for clean-hydrogen production end after 2027.
Two tax credits for energy-efficient home improvements end after 2025.
The residential clean-energy credit is for people who install in their homes an alternative energy system that relies on a renewable energy source, such as solar, wind or geothermal. Think solar panels and the like. The credit equals 30% of the cost of materials and installation of such systems that you add to your residence.
The energy-efficient home improvement credit is for homeowners who make smaller energy-saving upgrades, such as central air-conditioning systems, exterior doors and windows, heat pumps, water heaters, boilers, insulation and more.
Both these credits are repealed for property placed in service after 2025. So if you’re thinking of making home energy-saving upgrades and want a tax break, you will need to pay for them and get them completed before the end of this year.
Private colleges with large endowments will pay a higher excise tax rate on their investment income, beginning in 2026. The rate is 1.4%, 4% or 8%, depending on the value of non-education-related assets per full-time student.
Businesses get lots of tax breaks, and most of them are made permanent.
They include the 20% qualified business income deduction for self-employeds, independent contractors, farmers, some landlords, and owners of pass-through entities, such as partnerships, S corporations and LLCs. The write-off is also enhanced a bit.
The Section 179 expensing amounts soar. For 2025, $2.5 million of assets can now be expensed, and this limit begins to phase out once more than $4 million of assets are placed in use. The prior amounts were $1.25 million and $3,130,000.
100% first-year bonus depreciation is revived. Firms can deduct the full cost of new and used eligible assets with lives of 20 years or less, put in use after Jan. 19.
Full expensing of domestic R&D costs is restored. But businesses can elect to amortize R&D costs over five years. Foreign R&D costs are amortized over 15 years.
Interest deductions on business debt of larger companies is tweaked. After 2024, adjusted taxable income is figured without regard to the deductions for depletion, depreciation and amortization, thus allowing higher interest deductions.
The Qualified Opportunity Zone regime is permanent and enhanced. Taxpayers can defer capital gains from the sale of business or personal assets by investing in Qualified Opportunity Funds, which help the development of struggling communities.
Among other business tax breaks made permanent: The credit for employers that provide paid family and medical leave to employees. The new-markets tax credit for companies investing in local development groups that lend money to businesses in low-income areas. Plus the low-income housing tax credit, which is also increased.
Firms can fully deduct the cost of manufacturing or production facilities, including real property that would otherwise have to be depreciable over 39.6 years. This new 100% depreciation deduction for qualified production property is temporary, and the statute has lots of caveats, exceptions and guardrails to help prevent abuse.
Some filers awaiting refunds on ERC refund claims won’t see the money. Also, abusive promoters of employee retention credits could owe large penalties.
The $600 Form 1099-K reporting threshold is repealed. A 2021 law required third-party settlement networks to send 1099-Ks to payees who were paid more than $600 for goods and services. The OBBB repeals this change and restores the prior reporting rule, so third-party networks are now required to send 1099-Ks to payees with over 200 transactions, who were paid over $20,000.
The 1099-MISC and 1099-NEC filing threshold rises from $600 to $2,000, beginning with 2026 forms sent out in 2027. This figure will be indexed for inflation.
A new tax aims to deter noncitizens in the U.S. from sending money abroad.
The OBBB levies a 1% excise tax on remittance transfers made after Dec. 31. Transfers by U.S. citizens and permanent residents would generally be exempt, as would cash transfers from most U.S. bank accounts, credit cards and debit cards. The tax would be paid by the sender and collected by the money transfer provider.
We trust you will find our broad-brush summary of the new law helpful. The legislation is over 800 pages, and we just scratched the surface here. We’ll cover various aspects in more detail in future Letters. We work entirely for you. So send an e-mail to askkiplinger@futurenet.com if you have questions on the OBBB.
Yours very truly,
Joy Taylor, Editor
July 17, 2025
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