2025 Year End Tax Considerations - What does OBBBA mean for you this year?

Written By Allison Duffy

Individual Taxes – Key 2025 Updates

2025 brings some of the most meaningful tax changes we’ve seen in years. In addition to routine inflation adjustments, the One Big Beautiful Bill Act (OBBBA) introduces new deductions and planning opportunities for individuals, retirees, and higher-income households. This is your reminder to take a moment before December 31st to see where you stand — a few strategic steps now can make next spring much easier.

Below are the most important updates to keep in mind for 2025.

Higher Standard Deduction (Plus a New Senior Deduction)

For 2025, the standard deduction increases to:

  • Single / MFS: $15,750

  • Married Filing Jointly: $31,500

  • Head of Household: $23,625

    New for 2025–2028:
     Taxpayers age 65+ can now claim an additional $6,000, or $12,000 for a married couple where both spouses are 65 or older. This benefit phases out for higher-income taxpayers - fully phased out at $175k for Single filing status and $250k for Married Filing Joint. 

    What this means:
     Many households — especially retirees — will see a meaningful reduction in taxable income while still taking the standard deduction.

SALT Deduction Increases to $40,000

One of the biggest changes for 2025 is the expansion of the state and local tax (SALT) deduction:

  • New cap: $40,000 per return

  • $20,000 for Married Filing Separately

  • Applies 2025–2029, then reverts to the old $10,000 limit in 2030

  • High-income phaseouts apply, but the deduction cannot fall below $10,000 - fully phases out at $500k of modified adjusted gross income

What this means:
 If you live in a high-tax state like California, itemizing may make sense again — especially if you also have mortgage interest or charitable giving. For higher-income households, timing income (bonuses, RSUs, business income) may help preserve more of the deduction.

Updated Contribution Limits for 2025 (401(k), IRA, HSA, FSA)

The IRS increased several savings limits for 2025, giving taxpayers more room to reduce taxable income.

Workplace Retirement Plans (401(k), 403(b), 457)

  • Employee contribution: $23,500

  • Age 50+ catch-up: $7,500

IRAs

  • Traditional & Roth IRA contribution: $7,000

  • Age 50+ catch-up: $1,000

HSAs

  • Individual coverage: $4,300

  • Family coverage: $8,550

  • Age 55+ catch-up: $1,000

Health FSAs

  • Contribution limit: $3,300

  • Carryover (if plan allows): $660

What this means:
 These accounts remain among the most effective ways to lower taxable income while building long-term financial security.

New Above-the-Line Deductions for Tips and Overtime (2025–2028)

OBBBA introduces new deductions for hourly and tipped workers — even for those who take the standard deduction.

  • Tips deduction: Up to $25,000

  • Overtime deduction: Up to $12,500 (single) or $25,000 (married)

  • Both deductions phase out at higher income levels

What this means:
 If you or a family member works in hospitality, service industries, or a role with regular overtime, these deductions may reduce taxable income. Taxpayers will need to track qualifying tips and overtime separately, as they won’t be listed separately on W-2 forms.

Capital Gains Bracket Adjustments

Capital gains rates remain the same, but the income thresholds increase:

  • 0% rate: Up to $47,025 (single) / $94,050 (joint) (Next time your nondependent children ask for money consider giving them appreciated stock - they will take your basis in the stock, just stay under the annual gift limit)

  • 15% rate: Up to $291,875 (single) / $583,750 (joint)

  • 20%: Above those amounts

What this means:
 There may be opportunities to recognize gains at lower rates or pair gains with tax-loss harvesting.

Gift & Estate Tax Planning Opportunities

For higher-income households, 2025 presents strong estate planning opportunities.

  • Annual gift exclusion: $19,000 per recipient

  • Lifetime exemption: $13.99 million per person ($27.98 million per couple)

Beginning in 2026, OBBBA establishes a new permanent base exemption of $15 million, indexed for inflation — preventing the steep drop that was previously expected.

What this means:
 2025 remains an excellent year to revisit gifting strategies, trusts, family wealth transfers, and long-term planning with your estate attorney.

Energy-Efficient Home & Clean Energy Credits

The 30% home energy efficiency credit continues for 2025, with annual limits for items like windows, doors, heat pumps, and water heaters. Some clean-energy and EV credits are scheduled to sunset after 2025 unless renewed.

What this means:
 If you have planned upgrades, completing them in 2025 may maximize available credits.

How We Can Help

We’re here to help you:

  • Compare your 2025 picture to 2024

  • Determine whether itemizing makes sense with the new SALT cap

  • Maximize retirement and HSA/FSA contributions

  • Evaluate eligibility for the new tips/overtime deductions

If you’d like help reviewing your 2025 year-end opportunities, we’re here to guide you.


Contribution from:

Sophia Fore, Staff Tax Accountant

Allison Duffy
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