As tax season approaches, many individuals and business owners are trying to keep up with the evolving tax landscape. The 2025 tax law changes bring several notable updates arriving at once, many tied to the One Big Beautiful Bill Act (OBBBA), a sweeping tax reform package that touches everything from deductions and credits to business investment rules.
These updates may affect how much you owe, what you can deduct, and which tax benefits you may qualify for—whether you’re filing as an individual, supporting a family, or running a growing business. Understanding these changes early can help you file accurately, plan ahead, and avoid missed opportunities.
At Meredith Vantage, our goal is to help clients turn 2025 tax law changes into clear, confident action. Below is a breakdown of key 2025 updates and what they may mean for your return.
Why AGI and MAGI Matter More Than Ever in 2025
Before diving into the new provisions, it’s important to understand two tax terms that will show up repeatedly in 2025 planning: Adjusted Gross Income (AGI) and Modified Adjusted Gross Income (MAGI).
AGI is essentially your total income for the year minus certain “above-the-line” deductions, such as retirement contributions, student loan interest, and other qualifying adjustments. AGI is the starting point for determining your taxable income and plays a major role in eligibility for many deductions and credits.
MAGI begins with AGI and then adds back certain items (depending on the specific tax rule), such as tax-exempt interest or excluded foreign income. Many tax benefits use MAGI rather than AGI to determine whether you qualify.
You’ll also see the term phaseout, which means a benefit gradually decreases once income passes a certain threshold and may disappear completely at higher income levels. In other words, your income level may directly determine whether a credit or deduction applies.
Key 2025 Tax Law Changes
Below are some of the most impactful provisions beginning in 2025. Some are temporary and others may extend longer depending on future legislation.
Senior Deduction (2025–2028)
Taxpayers age 65 and older may qualify for an additional $6,000 deduction per person from 2025 through 2028.
- Begins to phase out for:
- Single filers with MAGI above $75,000
- Married filing jointly with MAGI above $150,000
- The deduction is reduced by $100 for every $1,000 above the threshold
- Available to both standard deduction filers and itemizers
Deduction for Qualified Tips (2025–2028)
For individuals working in customary tip-based roles, a deduction of up to $25,000 per year may be available for qualified cash tips.
- The deduction phases out once AGI exceeds:
- $150,000 (single)
- $300,000 (joint)
- Reduction of $100 per $1,000 above the limit
- Applies per return
- Available whether you itemize or take the standard deduction
Employers report qualifying tips on Form W-2 in accordance with IRS guidance.
Deduction for Qualified Overtime Pay (2025–2028)
Taxpayers may be able to deduct up to:
- $12,500 (single)
- $25,000 (married filing jointly)
This deduction applies to overtime pay amounts that exceed the employee’s normal rate of pay.
Phaseout thresholds:
- MAGI over $150,000 (single)
- MAGI over $300,000 (joint)
Example concept:
If your normal hourly rate is under $20 and overtime is $30/hour, the “extra” $10/hour may be the portion considered eligible.
Because IRS reporting guidance is still developing, employers may use reasonable estimation methods in 2025. More standardized reporting is expected for 2026.
Vehicle Loan Interest Deduction (2025–2028)
Individuals may qualify to deduct up to $10,000 per year in interest paid on a loan secured by a new personal-use passenger vehicle, if it meets certain requirements:
- Vehicle must be assembled in the U.S.
- Must weigh under 14,000 pounds
- Excludes family loans and certain non-personal vehicles (such as campers)
Income phaseout ranges:
- $100,000–$150,000 (single)
- $200,000–$250,000 (married filing jointly)
Available whether you itemize or use the standard deduction.
Adoption Credit Updates
The adoption credit remains available, with an added refundable component.
- 2025: $17,280 credit, including a new $5,000 refundable amount
- 2026 (inflation-adjusted): $17,670 credit, with $5,120 refundable
Phaseout ranges:
- 2025: $259,190–$299,190
- 2026: $265,080–$305,080
Any unused portion may be carried forward for up to five years.
Environmental Tax Credits
Several environmental tax credits were phased out during 2025. Electric vehicle credits ended after September 30, 2025, and residential clean energy credits—including solar and home energy efficiency improvements—are no longer available for expenditures made after December 31, 2025.
Child Tax Credit Increase (2025–2028)
The Child Tax Credit has been expanded:
- $2,200 per qualifying child under 17
- Up to $1,700 refundable
Phaseout thresholds:
- $400,000 MAGI (married filing jointly)
- $200,000 MAGI (all other filers)
The credit is reduced by $50 for every $1,000 above the phaseout level.
A qualifying Social Security number is required for the child and at least one filer.
SALT Deduction Cap Increase (With Limits)
The state and local tax (SALT) itemized deduction cap increases in 2025:
- Raised to $40,000 (up from $10,000)
However, higher-income taxpayers will see a phase-down:
- Phase-down begins at $500,000 MAGI
- Reaches a floor of $10,000 at $600,000 MAGI
- The deduction never drops below $10,000
The cap increases slightly again in 2026 and continues rising through 2029 before reverting to $10,000 in 2030.
Expanded Retirement Catch-Up Contributions (Ages 60–63)
Beginning in 2025, taxpayers ages 60 through 63 may make larger catch-up contributions to qualified retirement plans.
The limit becomes the greater of:
- $10,000, or
- 50% more than the standard catch-up amount
For 2025:
- Enhanced catch-up is $11,250
- For SIMPLE plans, it’s $5,250
These limits will be inflation-adjusted starting in 2026.
1099-K Reporting Threshold Restored
OBBBA retroactively removes the lower 1099-K threshold introduced under prior law and restores the original standard:
- $20,000 in gross payments AND 200 transactions
This applies for tax years beginning in 2022, undoing the planned phased-in thresholds for 2024 and 2025.
Expanded Uses for 529 Plan Funds
For distributions after July 4, 2025, Section 529 plans become more flexible.
Funds can now be used for qualified expenses tied to:
- Elementary and secondary education costs
- Postsecondary credentialing programs
- Professional certificates and licensing expenses
This expansion may make 529 plans more useful for families planning beyond traditional college pathways.
Business-Focused Changes for 2025
While many provisions affect individual returns, several updates have meaningful planning implications for business owners and investors.
Qualified Small Business Stock (QSBS) Updates
For QSBS acquired after July 4, 2025, shareholders may qualify for a phased-in gain exclusion:
- 50% exclusion after 3 years
- 75% exclusion after 4 years
- 100% exclusion after 5 years
Other improvements include:
- Exclusion cap increased to $15 million
- Corporate asset limit increased to $75 million
- Both amounts become inflation-adjusted after 2026
Different (more restrictive) rules apply to QSBS acquired before July 5, 2025.
Research & Experimental Expenditures (R&E)
Beginning in 2025:
- Domestic R&E costs can be immediately deducted
- Foreign R&E costs must still be amortized over 15 years
This change may provide faster tax benefits for companies investing in innovation within the U.S.
Business Interest Deduction (Section 163(j))
For tax years after 2024, the business interest limitation is calculated using EBITDA rather than EBIT—allowing many businesses to deduct more interest.
However, less favorable adjustments begin after December 31, 2025, including:
- Removing certain foreign income items from ATI calculations
- Reducing the ability to capitalize interest to avoid the limitation
Small businesses may be exempt in 2025 if average gross receipts over the last three years do not exceed $31 million (inflation-adjusted to $32 million for 2026).
Minimum QBI Deduction
For 2025 and later tax years, taxpayers with at least $1,000 of qualified business income from actively managed businesses may qualify for a minimum deduction of $400.
Qualified Production Property Expensing (Temporary Incentive)
To encourage U.S.-based production, OBBBA introduces a temporary expensing provision for certain nonresidential real property placed in service after January 19, 2025.
Key requirements include:
- Property must be located in the U.S. (or possessions)
- Original use must begin with the taxpayer
- Construction must begin after Jan. 19, 2025 and before Jan. 1, 2029
- Must be placed in service before Jan. 1, 2031
This benefit is intended for manufacturing, production (limited categories), and refining. Space used for offices, lodging, parking, sales, R&D, software engineering, and similar functions generally does not qualify.
While often associated with larger operations, this may also apply to smaller manufacturers depending on the facts.
Section 179 Expensing Expanded
Section 179 allows immediate expensing of qualifying business assets such as equipment, machinery, and certain vehicles (SUVs have caps).
OBBBA significantly increases the limits:
- 2025: Up to $2.5 million
- 2026: Inflation-adjusted to $2.56 million
Phaseout begins when annual purchases exceed:
- $4 million (2025)
- $4.09 million (2026)
One important consideration: if business use later falls to 50% or less, some of the deduction may be subject to recapture.
Bonus Depreciation Made Permanent (100%)
OBBBA makes 100% bonus depreciation permanent for qualifying property placed in service after January 19, 2025.
This allows businesses to immediately deduct 100% of the cost of qualifying assets, including:
- New or used tangible property
- Recovery period of 20 years or less
- Certain improvements
For qualifying property placed in service between January 1, 2025 and January 19, 2025, the bonus depreciation rate was 40%.
Navigating 2025 Tax Law Changes: Turning Rules into Strategy
With the 2025 tax law changes now in effect, tax planning in 2026 is no longer just about filing accurately—it’s about understanding how these provisions impact your current and future financial decisions.
At Meredith Vantage, we help clients make sense of complex tax law changes and apply them in a way that supports long-term planning—not just short-term compliance. Whether you’re trying to maximize deductions, evaluate business investment options, or plan for life changes like retirement, adoption, or expansion, our team is here to guide you through each step with clarity and confidence.