2025 Tax Law Updates Explained
As we close out the year and prepare for the upcoming filing season, understanding the latest tax law changes is more important than ever. In this final Connor’s Corner episode of 2025, we break down the most impactful updates coming from new legislation and explain how these changes may affect individuals, families, seniors, and working professionals.
With filing season just around the corner, staying informed now can help you stay organized, avoid surprises, and potentially keep more money in your pocket.
Overview of the Big Beautiful Bill Act
The One Big Beautiful Bill Act was signed into law by Donald Trump on July 4, 2025. While the bill has been discussed for quite some time, official guidance continues to roll out gradually, adding layers of complexity for taxpayers and professionals alike.
At a high level, the legislation extends many provisions from prior tax reforms, including tax brackets and standard deductions, while sunsetting certain energy related credits. The bill also introduces new benefits aimed at seniors and the working class, particularly through expanded deductions related to income, tips, and overtime.
Senior Deduction Bonus and Social Security Relief
One of the most talked about changes involves tax relief for seniors aged 65 and older. Rather than eliminating taxes on Social Security entirely, the law introduces a senior deduction bonus that increases the standard deduction.
Eligible seniors can receive an additional $6,000 per person, or $12,000 for married couples filing jointly, provided income thresholds are met. Full eligibility applies for single filers under $75,000 and married couples under $150,000. Above these amounts, the deduction phases out gradually until it is fully eliminated at higher income levels.
This deduction applies retroactively to January 1, 2025, but is currently set to expire after 2028. It is not indexed for inflation. For many seniors, this change helps keep taxable income within the lowest tax brackets, potentially resulting in meaningful savings.
Child Tax Credit Increases for Families
Families will see improvements to the Child Tax Credit beginning in 2025. The credit increases from $2,000 to $2,200 per qualifying child and will now be indexed for inflation moving forward.
The refundable portion remains $1,700, with the remaining amount applied as a nonrefundable credit. Once a child turns 18, the credit is reduced to $500 and will no longer adjust for inflation. For lower and middle income families, these increases can provide valuable annual relief.
Tax Changes for Tips and Overtime Income
Tips Income Deduction
Workers who earn tips may qualify for a new deduction of up to $25,000 per return. This applies to both single filers and married couples filing jointly, with income phaseouts beginning at $150,000 for individuals and $300,000 for joint filers.
Taxpayers must maintain accurate records. W2 workers can typically rely on reported tips in Box 7, while independent contractors must provide documented proof. The IRS will expect consistency between reported income and claimed deductions.
Overtime Deduction Rules
Overtime income deductions are capped at $12,500 per person, with a combined maximum of $25,000. This deduction is available only to nonexempt employees under Fair Labor Standards Act rules and does not apply to voluntary overtime.
To claim this deduction, taxpayers should retain their final 2025 pay stubs clearly showing overtime wages. Employers may not always separate overtime clearly on W2 forms, making documentation essential.
Expanded Itemized Deductions in 2025
Itemized deductions are expected to become more common due to several expanded provisions:
• State and local tax deduction cap increased from $10,000 to $40,000
• New car loan interest deductions for qualifying new vehicle purchases
• Continued deductions for mortgage interest, charitable giving, and medical expenses above threshold levels
With higher mortgage rates and increased deduction caps, many taxpayers who previously used the standard deduction may now benefit from itemizing.
Trump Accounts for Children Under 18
A new savings option known as Trump Accounts is available for children born between January 1, 2025 and December 31, 2028. Eligible children can receive a one time $1,000 government contribution when Form 4547 is filed with the tax return.
These accounts allow up to $5,000 per year in after tax contributions and function as a hybrid education and retirement style account. Funds can be used for education, first time home purchases, or long term savings. Parents should note that ownership transfers to the child at age 18, which may impact control over the funds.
Key Filing Deadlines and Retirement Contribution Updates
Tax Day remains April 15, with IRA funding deadlines aligned accordingly. Retirement contribution limits have increased:
• 401k contributions up to $24,500
• Catch up contributions increased to $8,000 for those over 50
• IRA contributions increased to $7,500 with standard catch up limits
Employers are also expected to offer Roth 401k options moving forward, providing additional planning opportunities.
Why Tax Planning Is Becoming More Important Than Ever
According to the National Taxpayers Union Foundation, the average taxpayer now spends over 13 hours and nearly $300 preparing a federal return. As tax rules grow more complex, staying organized and working with a professional can help ensure nothing is missed.
Final Thoughts and What’s Coming Next
As we head into 2026, these tax law changes aim to provide relief while adding new layers of complexity. Staying proactive and informed will help you make the most of available deductions and credits.
In the next Connor’s Corner episode, we will return to the fundamentals, covering budgeting, savings goals, and financial planning basics to help start the year strong.