On July 4, 2025, President Trump signed Public Law 119-21 (also known as the “One Big Beautiful Bill Act of 2025”) a wide-ranging domestic policy bill approved on a mostly party-line vote, with all congressional Democrats voting no and Sen. Susan Collins of Maine, Sen. Thom Tillis of North Carolina, Sen. Rand Paul of Kentucky, Rep. Thomas Massie of Kentucky, and Rep. Brian Fitzpatrick of Pennsylvania as the only Republicans opposed to the final bill.
Among other actions, the bill extended the tax cuts from Public Law 115–97 (also known as the “Tax Cuts and Jobs Act of 2017”) that were set to expire in the 2025 tax year, while making some of those 2017 cuts permanent and addressing some tax issues for businesses. The bill also created several new tax laws for individuals.
Here’s the scorecard for the new law. These are just some of the new individual tax law changes. Tax policy is dynamic and subject to change. Because there is complexity involved in filing taxes, we expect the IRS to issue some guidance later this year. Please be sure to talk with your tax professional about questions on how the new law will affect your specific tax returns.
Tax rates and retirement accounts: For the 2025 tax year, the seven federal tax rates are now permanent: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Also, the 2025 legislative package did not impact retirement account contribution limits.
Increased Standard Deduction: Beginning this year, the standard deduction rises to $15,750 (from $15,000) for individuals and $31,500 (from $30,000) for married couples filing jointly with inflation adjustments. A new “bonus” deduction of $6000 for older adults was added as part of the new tax package, beginning with the 2025 tax year and remaining in effect through 2028.
Thus, for 2025, the total standard plus bonus deduction for those age 65 and older is $21,750 for a single person and $43,500 for a married couple filing a joint return. However, income thresholds apply. Only single filers with modified adjusted gross income of $75,000 or below, or married couples with modified adjusted gross income of $150,000 or below, can claim the full deduction. It gradually phases out for those with incomes above those thresholds. The child tax credit is increased to $2,200 per child beginning in 2025 and indexed for inflation.
Temporary Increase in State and Local Tax Deduction Limit: The bill increases the cap on deductions for state and local taxes from $10,000 to $40,000 for 2025, with 1% annual increases for 2026-2029 for those making less than $500,000. In 2030 the deduction cap reverts to $10,000. For those making more than $500,000, the added $30,000 deduction is phased out.
2025 gift tax exclusion and lifetime estate tax exemption amounts: The 2025 gift tax exclusion allows the first $19,000 of monetary gifts to any person to be excluded from tax. Married couples can combine their exclusions, allowing them to give a total of $38,000 to each recipient without any gift tax implications.
In addition, the lifetime exclusion amount on estates of decedents who die during 2025 is $13.99 million per individual and $27.98 million for married couples. In 2026, the new legislation increases the lifetime exclusion amount permanently to $15 million per individual and $30 million for married couples and will be adjusted annually to reflect inflation with no scheduled sunset.
New Deductions: The bill contains several new deductions that are limited to years 2025-2028 and phase out for higher incomes.
- Deductions for qualified tips and qualified overtime income from adjusted gross income. The deduction amount for tips is capped at $25,000. The deduction for overtime applies to overtime that exceeds the employee’s regular rate and is capped at $12,500 for dingle filers and $25,000 for married filing jointly.
Certain items that were indexed for inflation in the past are currently not adjusted, despite other 2025 tax changes. Among those tax issues that remain unchanged:
- Personal exemptions. First eliminated in the 2017 bill, they are now permanently eliminated.
- Itemized deductions. For taxpayers in the top tax bracket (37%), itemized deductions are limited to 35 cents on the dollar. These limits are not applicable to taxpayers in all other tax brackets. A deduction of up to $10,000 in interest on loans to purchase domestic vehicles.
Charitable Contributions: For taxpayers who do not itemize their deductions, the new law allows single taxpayers and married filing jointly taxpayers to deduct up to $1,000 and $2,000, respectively, as an above-the-line deduction for cash contributions made during the year.
A new 0.5% floor on charitable contributions for taxpayers who elect to itemize for taxable years after December 31, 2025. The amount of an individual’s charitable contributions for a taxable year is reduced by 0.5% of the taxpayer’s contribution base for the taxable year.
529 plan distributions: The new law updates qualified expenses, allowing for tax-exempt distributions from 529 plans used for education expenses with attendance or enrollment at elementary or secondary school and homeschool expenses. Additionally, the amount of tuition and related expenses at an elementary or secondary public, private, or religious school that is treated as a qualified higher education expense is now increased from $10,000 to $20,000, starting in 2026. The budget act also allows for tax-exempt distributions used for “qualified postsecondary credentialing expenses” such as study and testing fees for the CPA, bar and medical exams, as well as financial industry and vocational/technical credentials.
Child Savings Accounts: A new tax-advantaged child savings account can be opened for any child under the age of 18 starting in 2026. A pilot program is also created that enables the federal government to contribute $1000 per eligible child (U.S. citizen) born between 2025 and 2028. For newborns, the account may be opened by either a parent or guardian. Notable provisions include: No withdrawals are allowed before the child reaches 18 when the account is essentially converted into a traditional IRA. Individual contributions to this account are not tax-deductible. No contributions will be allowed until 12 months after the date of enactment.
As always, check with a financial professional or an accountant for specific questions.
As always, if you have any questions about this report or any other questions, please reach out to Bowen Asset at info@bowenasset.com or (610) 793-1001.
Disclaimer
While this article may concern an area of investing or investment strategy in which we supply advice to clients, this document is not intended to constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and/or our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.
Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. As with any investment strategy or portion thereof, there is potential for profit as well as the possibility of loss. The price, value of and income from investments mentioned in this report (if any) can fall as well as rise. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future events, which cannot be predicted or assumed; therefore, the actual results achieved during the projection period, if applicable, may vary materially from the projections.