Tax laws change every year, but recent federal tax updates affecting the 2025 tax year introduce several notable provisions that could impact individuals, families, and business owners when they file in 2026. Some of these changes expand deductions or credits, while others introduce new reporting requirements that taxpayers should be aware of well before filing season.

Understanding these updates early allows for better planning and fewer surprises.

Expanded Deductions and Income Adjustments

• Overtime and Tip Income – Certain taxpayers may be eligible for new or expanded deductions related to overtime pay or tip income, subject to income limits and eligibility rules. These provisions are intended to reduce taxable income, not eliminate reporting requirements.
• State and Local Tax (SALT) Deduction – The SALT deduction cap has increased from prior limits, potentially making itemizing more advantageous for some taxpayers—particularly homeowners and those in higher-tax states. Whether this change is beneficial depends on the full tax picture.
• Senior Deduction – Taxpayers aged 65 and older may qualify for an additional deduction, which could reduce taxable income from multiple sources, including Social Security. This is not a Social Security–specific exclusion, but it may still provide meaningful relief.
• Vehicle Loan Interest – Interest paid on qualifying loans for certain new U.S.-assembled vehicles may be deductible, up to a limit. Eligibility depends on vehicle requirements and loan details.

Updates Affecting Families

• The Child Tax Credit has increased to $2,200 per child
• A portion of the Child and Dependent Care Credit may be refundable
• The Credit for Other Dependents has been made permanent
• New savings options are available for families with children under 18
  These benefits vary based on income, filing status, and household composition.

Business Owner Considerations

• 100% Bonus Depreciation – Business owners who placed qualifying property into service during 2025 may be eligible for 100% bonus depreciation, allowing immediate expensing of certain equipment, technology, and machinery. Timing, asset classification, and business structure all matter here.
• Qualified Business Income (QBI) Deduction – Owners of pass-through entities may continue to benefit from the 20% QBI deduction. Eligibility and the amount of the deduction depend on income levels, business type, and how compensation is structured.
• Research & Development (R&D) Expenses – Certain domestic research and development costs may now be immediately deductible rather than amortized. This can significantly impact cash flow for businesses investing in innovation or technology.
• Multi-State Tax Exposure – Businesses with remote employees or clients in multiple states may trigger additional state filing obligations. Identifying nexus early helps avoid compliance issues.
• Payroll and Owner Compensation – Updates affecting overtime rules may influence payroll planning and owner compensation, particularly for S corporations.
• Capital Investment Planning – Expanded expensing rules create opportunities to align capital investments with tax strategy and long-term growth.

Thoughtful Guidance for a Changing Tax Landscape

Thoughtful Guidance for a Changing Tax Landscape

At The Holt Tax Group, we work with individuals and business owners to navigate evolving tax rules with clarity and intention. Our approach combines proactive tax planning, accurate tax preparation, and year-round advisory support—so clients aren’t left reacting at filing time.

If you’d like to understand how recent tax law changes may affect your specific situation, we’re happy to help you evaluate your options thoughtfully.