For Individuals: Key Provisions and Impacts
1. Permanent Individual Tax Rate Reductions
The bill makes permanent the individual tax rate cuts originally enacted under the 2017 Tax Cuts and Jobs Act (TCJA). All tax brackets continue to be indexed for inflation.
2. Standard Deduction Increases
Effective as of January 1, 2025, the following standard deduction amounts will apply (all are indexed for inflation):
- $15,750 for single filers
- $23,625 for heads of household
- $31,500 for married couples filing jointly
3. Child Tax Credit and Dependent Care Assistance
- Maximum Child Tax Credit increased to $2,200 per child (up from $2,000) for 2025 and idexed for inflation in later years. The credit phases out for incomes above $200,000 (single) or $400,000 (joint).
- The refundable portion is indexed for inflation and rises to $1,700 for 2025.
- For tax years beginning after December 31, 2025, the dependent care exclusion rises to $7,500 per year (up from $5,000) for married couples filing jointly.
4. QBI Deduction Made Permanent
The 20% deduction for qualified business income (Sec. 199A) is now permanent, with increased phase-out threshold starting at:
- $75,000 for single filers
- $150,000 for joint filers
5. Estate and Gift Tax Changes
The estate tax exemption will permanently increase to $15 million per individual starting in 2026, with future inflation adjustments.
6. Retirement and Savings Reforms
A new “Trump account” is introduced, providing tax-deferred earnings for minors, with an annual contribution limit of $5,000. Qualifying children (U.S. citizens born in 2025 – 2028) are eligible to receive a one-time $1,000 credit, paid to the account by the federal government. States and local governments may also contribute to these accounts.
7. SALT cap:
The bill temporarily increases the limit on the federal itemized deduction for state and local taxes (the SALT cap) to $40,000 (from the current $10,000) and adjusts for inflation. In 2026, the cap will be $40,400, and then it will increase by 1 % annually through 2029. Starting in 2030, it will revert to the current $10,000. The amount of the deduction available to the taxpayer phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000(in 2025). The MAGI threshold will be adjusted for inflation through 2029.
8. Charitable Contributions
• Individuals who Itemize Deductions: 0.5% AGI Floor: effective for tax years after December 31, 2025, individuals who itemize their deductions can only deduct the portion of their charitable contributions that exceeds 0.5% of their adjusted gross income.
• Individuals who do not Itemize Deductions: A new above-the-line deduction for charitable contributions, up to $1,000 for individuals and $2,000 for married couples, starting after December 31, 2025. However, donations to Donor-Advised Funds (DAFs) are not eligible for this deduction.
9. Other Changes
• Deduction for car loan interest (up to $10,000/year) will be allowed for certain new vehicles. Deduction phases out for single filers with MAGI over $100,000 and joint filers over $200,000.
• Personal exemptions remain at zero, but a temporary senior deduction of $6,000 is allowed through 2028 for most people 65+.
• Various itemized deduction rules were adjusted or repealed, including those related to the overall cap and specific deductions.
• Gambling winnings can only be offset 90% to the extent of losses.
• No tax on qualified tips (up to $25,000 per taxpayer).
• No tax on qualified overtime (up to $12,500 per taxpayer).
• 529 Plan Qualified Expenses -Expanded to include more K-12 and homeschool expenses and certain postsecondary credentialing expenses.
For Businesses: Key Provisions and Opportunities
1. Bonus Depreciation and Expensing
- 100% bonus depreciation is now permanent for qualifying property placed in service after Jan. 19, 2025.
- Section 179 expensing limits increased to $2.5 million.
2. Research & Development (R&D)
Domestic R&D expenditures are once again eligible for immediate deduction starting in 2025. Small businesses have the option to apply this change retroactively to tax years beginning after December 31, 2021. Costs outside the U.S. must still be capitalized and amortized over 15 years.
3. Business Interest Deduction Limits
Starting in 2025 the limitation on the business interest you can deduct is limited to 30% of a business’s adjusted taxable income, with depreciation and amortization added back. – effectively using an EBITDA based calculation instead of the previously required EBIT calculation.
4. Paid Family and Medical Leave
The employer tax credit for paid leave is expanded and extended.
5. Employer-Provided Child Care
Tax credit increases from 25% to 40% (50% for eligible small businesses) of qualified expenses, with a new cap of $500,000 ($600,000 for small businesses).
Other Provisions Affecting Organizations and Communities
1. Clean Energy Incentives Repealed
The bill terminates most clean energy tax credits, including those for:
- Electric vehicles
- Energy-efficient homes and commercial property
- Alternative fuels and solar/wind projects
These terminations take effect between 2025 and 2028.
2. International Tax Changes
- Deemed paid credit increased from 80% to 90%
- GILTI and FDII taxes set at a 14% effective rate
3. Administrative Changes
- The 1099-K reporting threshold reverts to $20,000 and 200 transactions
- The 1099-NEC threshold for service payments increases to $2,000/year
- Stricter rules and penalties related to improper claims for employee retention credits (ERC) take effect, along with social security number requirements for education credits.
Final Thoughts
This new Tax Bill introduces sweeping and lasting changes with broad implications. We recognize that these reforms bring both opportunities and complexities. As always, our team at Burke CPAs & Advisors is here to support you through personalized guidance, tax planning strategies, and compliance review.
Please contact your tax advisor or our office to schedule a consultation and ensure your readiness for these changes.