Senate votes to advance tax and spending bill
President Trump’s bill passed a key procedural vote in the Senate. Lawmakers voted 51-49.
No one wants to think about taxes at the end of the year, but advisors say they should be the first thing you think about.
President Donald Trump’s flagship tax and spending package introduces significant tax cuts, many of which are retroactive to January 1st. Americans should take advantage of these in addition to the usual strategies of income deferral and expanded deductions, advisers say.
Acting now, they say, could reduce your tax burden in 2025 and lead to more prosperity in 2026.
“Tax planning is always important,” says Richard Pong, a certified public accountant in San Francisco. “The new tax law makes 2025 a particularly important year for tax planning.”
Four new deductions to be applied in 2025
These new deductions are available to everyone who qualifies, whether or not they itemize.
◾$6,000 bonus deduction For seniors: If you’re 65 or older and have an income of less than $75,000, you can claim an additional $6,000 deduction.
◾Auto loan interest deduction: Up to $10,000 in auto loan interest can be deducted if you purchase a qualifying vehicle. The tax breaks phase out once income reaches $100,000 for single filers and $200,000 for joint filers.
◾Tips are not taxed and over time: Workers can deduct up to $25,000 in qualified tips for single filers, up to $12,500 in overtime pay, and up to $25,000 for joint filers. Both deductions are phased out for single filers with modified adjusted gross income (MAGI) above $150,000, and for joint filers above $300,000. Employees must track their 2025 deductible amount.
more salt
Bong said the most beneficial itemized measure is the increase in state and local tax credits (SALT) starting this year from $10,000 to $40,000. This deduction will begin to phase out for taxpayers with modified adjusted gross income of more than $500,000.
This “will change the breakdown and calculation of the standard deduction for many taxpayers,” he said.
Bong said taxpayers should track potential deductions such as mortgage interest, property taxes, medical expenses and charitable contributions to see if they can beat the standard deduction. Renters in high-tax states may be eligible to itemize based solely on the amount of state income tax.
Tax reduction for 2 days only
If you are under age 59 1/2, you can take up to $2,500 from your retirement plan to pay for qualified long-term care insurance premiums without the 10% early withdrawal penalty.
However, this distribution is still taxed as income and must be made after December 29th. That means there are only two days left to do so before the new year begins: Dec. 30 and 31, Pong said.
Final request for these tax cuts
The Residential Clean Energy Credit and Energy Efficient Home Improvement Credit are only available through December 31st.
◾Residential clean energy credits: If completed by the end of the year, it will cover 30% of the installation cost of certain energy items such as solar cells, small wind turbines and battery storage.
◾Energy Efficient Home Improvement Credit: Homeowners can pay 30% of the cost of energy-efficient improvements such as windows, doors, insulation, and HVAC systems if they are up and running by Dec. 31.
When to donate depends on the type of taxpayer
Non-itemizers must wait to donate until after the new year, when they can claim a cash contribution deduction of up to $1,000 for single filers and $2,000 for joint filers. All payments made in 2025 are non-deductible.
In contrast, item creators must donate generously by December 31st to make the most of their gift. Next year, only charitable contributions exceeding 0.5% of a taxpayer’s adjusted gross income will qualify for the deduction. So let’s say your AGI is $200,000. The first $1,000 of your donation is not tax deductible.
Next year, people in the top 37% tax bracket will only get a 35% tax break on all itemized deductions, not just charitable donations. This means a $10,000 donation will receive a $3,500 tax benefit this year instead of $3,700.
change the way you think about taxes
Kevin Knull, CEO of TaxStatus, which provides IRS data to financial advisors, said Americans should think about taxes every day, not just around the end of the year or tax season.
“Tax filing is backwards,” Knull said. “Accountants and CPAs are historians. Very few of us are looking ahead to reducing our taxes next year.”
Taxes are everyday occurrences that show up as sales taxes on purchases, withholdings on weekly paychecks, and sales and use taxes on monthly bills like phone and electricity bills. Knull said forgotten taxes could cause people to overspend and shortfall their savings.
For example, a shopper gets excited when an item’s price drops from $100 to $70 by 30% off. “But on top of that, there’s sales tax, so it actually costs more,” Knull said. “No one remembers the final amount they paid, but it could be much more. Sales tax varies by state, but can be between 5% and 10% in some states.”
People also forget about the taxes associated with paychecks, whether it’s bonuses or salaries, he said.
For example, a $10,000 bonus for air traffic controllers who earn perfect attendance awards during a government shutdown is not actually a $10,000 bonus. The IRS taxes the bonus at a flat rate of 22%, plus 6.2% Social Security tax and 1.45% Medicare tax. These reduce the bonus to just over $7,000, plus the potential for state income taxes. “It all gets deducted right away and goes to Uncle Sam,” Knull said.
Keeping taxes in mind also helps when negotiating a new salary, he said. Calculate your net salary, or the amount you take home after taxes and other deductions, and compare it to the amount you need to live on each month. “If that’s not enough, keep looking,” he said. “Always know where to start. This is the core of personal finance.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
