What’s New in the 2025 Tax Law: Key Changes for Everyday Taxpayers

The tax code saw some important updates for 2025, with new deductions and credits designed to help working families, seniors, and service-industry employees. Below is a simple overview of what changed—and what it could mean for you when you file next year.

1. Standard Deduction Increases

The standard deduction—what most taxpayers use instead of itemizing—has gone up again for 2025:

• Single or Married Filing Separately: $15,750

• Head of Household: $23,625

• Married Filing Jointly: $31,500

  
  

This means many taxpayers will owe less simply because more of their income is automatically tax-free.

2. New Deduction for Seniors

If you’re 65 or older, you may now qualify for an additional deduction of up to $6,000 per person (on top of the usual senior increase to the standard deduction).This new deduction begins phasing out for higher-income taxpayers—roughly over $75,000 for single filers or $150,000 for couples.

3. Deduction for Car-Loan Interest

For the first time, certain taxpayers can deduct interest paid on qualified auto loans—up to $10,000 per year from 2025 through 2028.To qualify, the vehicle must be assembled in the U.S., and your income must be below certain limits ($100,000 single / $200,000 joint).

Example: If you bought a U.S.-made car in 2025 and are paying interest on the loan, you may be able to claim this new deduction next spring.

4. Breaks for Tipped and Overtime Workers

Two new deductions aim to help service-industry employees and hourly workers:

• Overtime Deduction: Up to $12,500 of qualified overtime pay may be deductible (through 2028).

• Tip Deduction: Up to $25,000 of qualified tip income may be deductible for eligible workers earning under $150,000.

If you work in hospitality, food service, or similar fields—keep good records of your tips and overtime pay.

5. Higher Limit for State and Local Tax (SALT) Deduction

Taxpayers who itemize can now deduct up to $40,000 in state and local taxes, up from the previous $10,000 cap.This change primarily benefits residents in high-tax states such as Connecticut, New York, New Jersey, and California. The increase is temporary, applying through 2029.

6. Child and Dependent Credits

The Child Tax Credit rises slightly to $2,200 per qualifying child, and the credit for other dependents (like elderly parents) is now permanent. These credits directly reduce the amount of tax you owe—and may increase your refund if you qualify.

7. What All This Means for You

For most taxpayers, these changes will bring modest but welcome savings. However, some benefits are temporary, expiring after 2028 or 2029. Planning ahead can help you take full advantage while they’re in place.

Here’s how to make the most of the new rules:

• Review your income level to see if you qualify for the new deductions.

• Keep good records of interest payments, tips, or overtime.

• Consider whether itemizing now makes sense with the higher SALT cap.

• If you’re over 65, make sure the senior deduction is claimed properly.

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8. We Can Help You Plan Ahead

Tax laws change constantly, and the 2025 updates are just the latest example. Whether you’re a retiree, a small-business owner, or a wage earner looking to reduce your tax bill, we can help you identify every deduction you’re entitled to—and avoid surprises when you file.

F. X. Conlon & Company, P.C. Certified Public AccountantsT rusted for tax, accounting, and advisory services across Connecticut.