Big Beautiful Bill Part 1! The "Kitchen Table" Update

1. "No Tax" on Tips and Overtime

In a move to support service workers and hourly employees, the new bill introduces two significant deductions for tax years 2025 through 2028:

• No Tax on Tips: You can now deduct 100% of qualified cash tips (reported on your W-2), up to $25,000. This applies to service industries like dining, hospitality, and even beauty services.

• No Tax on Overtime: If you work extra hours, you can deduct "qualified overtime compensation" up to $12,500 ($25,000 for joint filers).

Note: These benefits phase out for high earners (AGI over $150k single / $300k joint).

2. New Deduction for Car Loan Interest

For the first time in decades, personal interest on a vehicle may be deductible. The bill allows a deduction for interest paid on a car loan for a vehicle assembled in the U.S., up to $10,000 of interest per year.

3. Permanent Tax Relief

The bill cements several provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire:

• Lower Rates: The reduced individual income tax rates (10%, 12%, 22%, etc.) are now permanent.

• Standard Deduction: The increased standard deduction is permanent and indexed for inflation (projected at $15,750 for singles and $31,500 for joint filers in 2025).

• Child Tax Credit: The credit remains at $2,000 per child (indexed for inflation) with a permanent refundable portion, ensuring families keep more of their hard-earned money.

4. Introduction of "Trump Accounts"

A new savings vehicle called a "Trump Account" has been created for children.

• How it works: You can contribute up to $5,000 annually for a beneficiary under age 18.

• The Benefit: Funds grow tax-free if invested in qualified US-based index funds. Distributions are allowed after age 18.

Conclusion

This bill represents a shift toward incentivizing work (via tip and overtime relief) and stabilizing tax rates for families. With these new deductions come new documentation requirements. Contact our office today to ensure you are tracking the right data to maximize your refund.