Tax Tips for More Profit, Less Tax

As the 2025 tax year starts, it brings the biggest wave of tax updates we’ve seen in years. Both business owners and employees can take advantage of these changes!

Here are the highlights of the biggest changes:

1. Overtime Deduction– Employees can deduct a portion of their overtime compensation up to a maximum of $12,500 for single and $25,000 for joint filers. The deduction applies only to the premium portion of overtime, typically the “half” and “time-and-a-half” pay. The deduction starts phasing out for single filers with a Modified Adjusted Gross Income (MAGI) over $150,000 and for joint filers over $300,000. This deduction is available to everyone even if you don’t itemize. Still, don’t overwork yourself!

2. Tips Deduction– Employees can deduct up to $25,000 in tips regardless of filing status. Employees must have a qualified occupation that customarily and regularly receive tips per IRS list (I was about to start asking for tips, too!”). The deduction begins to phase out if your Modified Adjusted Gross Income (MAGI) exceeds $150,000 or $300,000 for joint filer.  This deduction is available to everyone even if you don’t itemize.

3. Car Loan Deduction– A personal-use vehicle can now get you some deductions! Individuals may deduct interest paid on a loan used to purchase a personal-used vehicle. The vehicle must be NEW, purchased in tax year 2025-2028 and also have undergone final assembly in the United States (this is listed on vehicle information label on dealer’s premises or can be looked up with the VIN number at www.nhtsa.gov/vin-decoder). Time for a new ride!

4. 100% Bonus Depreciation is back and here to stay! For tax year 2017- 2022 bonus depreciation was 100% but then it lowered to 80% for 2023, 60% for 2024, and was set to be 40% for 2025. It now has been reinstated to 100% permanently. Bonus depreciation helps business owners deduct equipment and qualifying purchases in the same year that items are bought (regardless if paid outright or financed!). This can help business owners get a big deduction, even if they didn’t pay in full for the equipment or qualifying purchase. Now is the time to get the tools your company needs to generate more revenue!

5. Solar Panel and other Energy Credits are going away, for now. You can still claim Energy Credits for Tax year 2025 but it will be the last year. This is one of our favorite credits because most homeowner do not know about this! 30% credit is available for solar panels, central A/C units, water heater or boilers, heat pumps, windows, exterior doors, insulation, energy audits. Some limits apply.

6. Deduction for Seniors– Individuals who are 65 and older may claim an additional deduction of $6,000 for single or up to $12,000 if both taxpayer and spouse are 65 and older. Your grandparents shouldn’t be working anyways! Hope you found this helpful. Our offices are always open if you have any questions.