Latest U.S. Tax Law Updates

The tax deductions for no tax on tips & overtime, the new car loan interest paid tax deduction, as well as the additional $6,000 tax deduction per senior applies to both itemized & non-itemized tax filers.

New tax deduction on tips: Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on Form W2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.

• “Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing

• Maximum annual deduction is $25,000; for self-employed, deduction may not exceed individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.

• Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)

New tax deduction on overtime pay: Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (such as the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

• Maximum annual deduction is $12,500 ($25,000 for joint filers).

• Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

New tax deduction for seniors: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.

• The $6,000 senior deduction is per eligible individual (or $12,000 total for a married couple where both spouses qualify).

• Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).

New tax deduction on car loan interest paid: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)

• Maximum annual deduction is $10,000.

• Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:

• Originated after December 31, 2024

• Used to purchase a vehicle originally used by the taxpayer (used vehicles do not qualify)

• For a personal use vehicle (not for business or commercial use)

• Secured by a lien on the vehicle

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.

For extra tax-tips & empowering information visit my blog at www.SolidTaxServices.com 

In Trust,

               Ashley Thomas, EA