Key items covered in this article:

  • The SALT cap increases to $40,000 in 2025, offering new opportunities for taxpayers to itemize and maximize deductions before phaseout thresholds.
  • OBBBA introduces deductions for tip income, overtime pay, car loan interest, and enhanced senior deductions, creating additional tax-saving opportunities.
  • Taxpayers may benefit from accelerating charitable contributions in 2025 to leverage current rules before new AGI floors and limitations take effect in 2026.

It’s a busy time of year for everyone. It’s also a natural checkpoint for taxpayers, especially with so many updates taking effect in 2025. The One Big Beautiful Bill Act (OBBBA) changed several long-standing rules and introduced new deductions mid-year. This opened the door to new tax planning opportunities and probably raised a few questions for individuals and families. With many new rules in effect, the decisions made now can have a major impact on the final tax bill for this year.

Key Tax Planning Considerations for 2025

Income Brackets and the 2025 Standard Deduction

OBBBA made the current income tax brackets permanent, and the 2025 thresholds reflect inflation adjustments since 2024. The standard deduction for 2025 is $15,750 for single filers, $31,500 for married couples filing jointly, and $23,625 for heads of household.

These amounts set the baseline for year-end planning. Taxpayers will want to measure the standard deduction against their expected itemized deductions (state and local taxes, mortgage interest, medical expenses, and charitable contributions) to see which approach lowers taxable income.

Expanded SALT Deduction for 2025

The SALT cap increases to $40,000 beginning in 2025, replacing the $10,000 limit. The full deduction applies to joint filers with modified adjusted gross income (MAGI) below $500,000 and phases out as income rises. Once MAGI reaches $600,000, the allowable amount drops back to $10,000. These thresholds adjust for inflation through 2029.

The new SALT cap has two immediate implications for taxpayers: 1) taxpayers who typically take the standard deduction may decide to itemize this year, and 2) taxpayers who are close to the SALT cap phaseout levels may want to take a closer look at MAGI to protect more of the deduction.

Taxpayers who are well below the phaseout thresholds and already itemize, or are close to doing so, may also want to consider prepaying eligible state and local income taxes or property taxes before year-end. This can increase their 2025 SALT deduction and make full use of the expanded $40,000 cap.

Charitable Giving in 2025 and New Rules for 2026

Charitable contributions remain deductible in 2025 for taxpayers who itemize, subject to the usual AGI limits. For the 2025 tax year, individuals who itemize can generally deduct cash contributions to public charities up to 60% of AGI, while most non-cash contributions are limited to 30% of AGI. Those who claim the standard deduction cannot deduct their gifts this year. Just as in past years, the decision to itemize determines whether contributions reduce taxable income.

However, there are changes in store for 2026. Standard deduction filers may claim a new above-the-line charitable deduction, up to $1,000 for single filers and $2,000 for joint filers. Itemizers face a new 0.5% AGI floor before any charitable deduction is allowed. High-income taxpayers will also see a new limitation that reduces itemized deductions once income exceeds the 35% bracket threshold. The calculation uses a 2/37 reduction formula, which effectively caps the tax benefit of itemizing at the 35% rate, even for taxpayers in the 37% bracket.

As a result, some individuals may choose to accelerate their planned giving in 2025 or consider donor-advised funds (DAFs) to maximize their deductible charitable contributions. For 2026, taxpayers ages 70 1⁄2 or older may look into Qualified Charitable Distributions (QCDs), which send funds directly from an IRA to a charity. These QCDs count toward required minimum distributions (RMDs), and this portion of RMDs is not included as taxable income on personal return. QCDs are also not affected by the new AGI floor.

All of this means that charitable giving now plays an even bigger role in a taxpayer’s year-end results. Knowing the rules can help individuals decide when a gift will have the greatest impact on their total tax liability.

New Deductions Available in 2025

OBBBA also introduced several new deductions for 2025:

Tip Income — Individuals in qualifying tipped occupations may deduct up to $25,000 (or $50,000 MFJ) in tips annually. The deduction begins to phase out for single filers with MAGI over $150,000 (or over $300,000 for joint filers).

Overtime Pay — Individuals with qualifying overtime compensation may deduct up to $12,500 (or $25,000 MFJ). This deduction has the same MAGI-based phaseout thresholds as the tip deduction.

Car Loan Interest — Interest paid on a loan used to purchase a qualifying new vehicle may be deductible, up to a maximum of $10,000 in interest per year, subject to eligibility criteria and income phaseouts.

Enhanced Deduction for Seniors — Taxpayers age 65 or older may claim an additional $6,000 deduction per eligible individual, with phaseouts applied at higher income levels.

Additional Year-End Tax Planning Areas

Taxpayers may want to consider several other personal planning opportunities before December 31st:

Retirement Contributions — For 2025, individuals can contribute up to $23,500 to a 401(k) or 403(b), with an additional $7,500 catch-up for those age 50 or older. These contributions must be made through payroll by December 31, 2025, and will be reported on the 2025 Form W-2. Traditional and Roth IRA contribution limits are $7,000, plus a $1,000 catch-up, and taxpayers have until April 15, 2026, to make IRA contributions for the 2025 tax year. The limits have been increased slightly for 2026. Reviewing Roth conversions may also be useful for taxpayers in lower-income years.

Health Savings Accounts (HSA) — Taxpayers enrolled in a high-deductible health plan may contribute up to $4,300 for self-only coverage or $8,550 for family coverage in 2025, with individuals 55 and over being able to make catch-up contributions of up to $1,000. The HSA contribution deadline for 2025 is April 15, 2026.

Capital Gains and Losses — Investment gains/losses can be looked at before the end of the year; up to $3,000 of net capital losses can be used to offset income each year. Taxpayers who are charitably inclined may also want to consider donating appreciated stock directly instead of selling it and then making a cash gift; this avoids capital gains tax while still providing a charitable deduction for itemizers.

Estate and Gift Planning — The gift tax exemption is $19,000 per individual for 2025. The estate tax exemption is $13.99 million per individual in 2025 and increases to $15 million in 2026.

529 Plans — Contributions may qualify for state tax benefits, and unused balances (up to $35,000 lifetime) may be rolled into a Roth IRA for the beneficiary under the new rollover rules.

Child Tax Credit — The Child Tax Credit is now $2,200 per qualifying child, up from $2,000.

How These Factors Affect 2025 Strategy

What can taxpayers do now to affect their 2025 tax bill? Key strategies include:

  • Compare the standard deduction amounts with itemizing to determine which approach lowers tax liability.
  • Accelerate or defer income or deductions depending on income bracket, SALT phaseout exposure, and new 2026 rules.
  • Bunch charitable contributions into 2025 to take advantage of the current rules before the AGI floor applies, if planning itemized deductions.
  • Review investment activity for opportunities to manage capital gains or harvest losses.
  • Maximize retirement plan contributions and HSA contributions; these can reduce taxable income.

Heading Into 2026

With several key provisions updated for the 2025 tax year and more changes scheduled for 2026, individuals will want to confirm year-end strategies now. They may also want to revisit plans early next year as new thresholds and guidance are released. For questions about how these updates may affect your tax position, contact Charles Dean Smith, Jr. and Jennifer French, Partners on PBMares’ Tax team.