"One Big, Beautiful Bill" Act recently introduced important updates to tax credits and deductions for the tax year 2025 and beyond. These changes might retroactively affect the 2025 taxes or might come into force in 2026. Despite the effective date, tax specialists insist that individuals must act immediately to fully benefit from these new tax modifications.
The Act significantly changed tax laws, in most cases leading to reduced tax bills. However, taxpayers can make certain decisions before the year ends to further lever the alterations to tax credits and deductions. This Act increased the state and local tax deduction threshold from $10,000 to $40,000 for the 2025 tax year.
The SALT deduction operation allows taxpayers to subtract the amount they paid in taxes to state and local government from their federal taxable income, thereby lessening their tax bill. This increased cap is especially advantageous for high-income earners and residents of high-tax states.
Taxpayers with an income lesser than $633,333, the income point at which the deduction gradually phases out, may want to "double-pay" their real estate taxes before this year ends, advised Jonathan Jack, a senior tax consultant at Wealth Enhancement.
This mechanism enables a taxpayer to pay state and local taxes on their real estate for 2025 and 2026 together, and they can avail the full deduction, granted their 2025 state and local taxes do not surpass the increased SALT deduction cap.
"The strategy has its pros and cons," Jack elucidated. "It's favorable if you have other itemized deductions and are planning to itemize only this year, primarily because if you double pay this year, you can't leverage it next year."
Those taxpayers who receive income through interest, self-employment, capital gains, etc., usually pay an estimated tax amount four times a year. The IRS and several state and local governments generally expect estimated taxes for the fourth quarter by Jan 15.
However, paying these quarterly state and local taxes before the year concludes can count towards the new SALT deduction limit.
"One Big, Beautiful Bill" also enhanced several charitable contribution deductions, beginning with taxpayers who avoid itemizing their taxes in 2026. Therefore, it might be beneficial for non-itemizing individuals to delay any yearend charity gifts until after 2025 concludes.
The legislation reestablished a charity deduction for taxpayers who do not itemize their taxes, allowing deduction of up to $1,000 of their charitable contributions. Interestingly, this bill also curbs charitable deductions for itemizers commencing in 2026.
In 2026, itemizers will be introduced to new thresholds and limits on the amount of their charitable contributions that can be deducted. These modifications will reduce the amount many taxpayers can deduct from their taxable income.
A number of clean energy vehicle credits closed at the end of September, but some clean home credits are set to lapse on the 31st of December. Taxpayers will need to make the clean energy alterations to their house before the year concludes to avail of these credits.