The tax law has recently been updated with the passage of the One Big Beautiful Bill Act, which permanently extends many provisions that were scheduled to expire from the Tax Cuts and Jobs Act of 2017 (TCJA) and introduces several new rules. Here’s a summary of the updates most relevant to my clients:
Tax Brackets
No changes. The brackets remain the same as under the Tax Cuts and Jobs Act (TCJA) and will stay until Congress changes them in the future.
Standard Deductions
The higher standard deductions under TCJA are now permanent:
Single: $15,750
Joint: $31,500
Head of Household: $23,625
These adjust for inflation each year. California’s standard deductions are about ⅓ of these amounts, so many of you will continue taking the Standard Deduction federally, and itemizing for CA.
New Additional Deduction for Seniors (2025–2028)
If you are 65 or older by 12/31/25, you can claim an additional $6,000 deduction on top of your Standard or Itemized Deductions. If you file jointly and your spouse is also 65+, you each get $6,000. This phases out if your income is between $75k–$175k (Single) or $150k–$250k (Joint).
State and Local Tax (SALT) Deduction
For itemizers, the SALT deduction increases to $40,000 for 2025, with small increases annually. This limit expires at the end of 2030 and reverts back to $10,000. Available for incomes up to $500k, phasing out fully at $600k.
New Temporary Deductions (2025–2028)
No Tax on Overtime Pay:
Deduct the “half” portion of time-and-a-half overtime pay. Max deduction: $12,500 (Single) / $25,000 (Joint). Phases out over $150k (Single) / $300k (Joint). W2s will need to be updated to report how much overtime you have earned for the year.
No Tax on Tips:
Tips from “customarily tipped industries” where the tip was given voluntarily can be deducted. Max deduction: $25,000. Phases out over $150k (Single) / $300k (Joint). W2s already have a spot for tips, and more guidance is needed for those earning tips as a sole proprietor or as a side hustle.
No Tax on Car Loan Interest:
Deduct interest on loans for new vehicles assembled in the US, purchased 1/1/25 or later. Max deduction: $10,000. Phases out over $100k (Single) / $200k (Joint).
Child Tax Credit
Increases to $2,200 per child under 17, reverting to $2,000 in 2030. Dependents 17 and older remain at $500. Phases out over $200k (Single) / $400k (Joint).
Expiring Energy Credits
Clean Vehicle Credits (new and used electric vehicles) end on 9/30/25.
Energy Efficient Home Improvement (insulation, windows, doors) and Residential Clean Energy (solar) Credits end on 12/31/25.
Charitable Deductions
Charitable Deductions – Beginning in tax year 2026, there will be a new 0.5% “floor” on charitable contribution deductions. Essentially, taxpayers who itemize their deductions will only be able to deduct charitable gifts if they exceed 0.5% of their adjusted gross income. Taxpayers who do not itemize will be allowed to deduct up to $1,000 (if single) or $2,000 (if filing jointly) in charitable contributions.
100% bonus depreciation has been reinstated and applies to property acquired and placed in service after January 19, 2025. In addition, the Section 179 deduction limitation has been increased to $2.5 million with phase-out beginning at $4 million of property placed in service.
Research and experimental expenditures paid or incurred after December 31, 2024 are now deductible. Taxpayers can also make an election to capitalize and amortize these expenditures.
Business Interest Deduction – In general, businesses are allowed to deduct business interest to the extent it does not exceed 30% of income. The One Big Beautiful Bill modifies the calculation of business income to remove deductions for depreciation, amortization, and depletion.
For corporate charitable deductions, a 1% floor has also been put into place.
The excess business loss limitation, which limits the aggregate amount of loss that a noncorporate taxpayer can deduct in a year, has been made permanent.
Please note that California tax law has not conformed to many of the provisions of the TCJA or the One Big Beautiful Bill.
On June 27, 2025, Governor Newsom signed SB 132 into law. This law extended the passthrough entity elective tax in California for an additional five years. It also relaxed the rules related to the required June 15th prepayment. Instead of disallowing the election if payment is not properly made by the June 15th deadline, taxpayers will be allowed to make the CA PTE election, but their California credit will be reduced by 12.5%.
If you have any questions about the current tax law changes or how they might impact your tax liability, please feel free to reach out. We’re here to help and would be happy to discuss any questions you may have.