2025 Tax Changes That Directly Affect Your Wallet and Your Business
Several significant tax changes took effect in 2025 and are now permanent. Here is what you need to know about how they affect your taxes as an individual and a business owner.
2025 was not an ordinary tax year. The One Big Beautiful Bill Act, signed into law on July 4, 2025, made a number of major changes to the tax code. Some provisions were new. Others extended or made permanent rules that were set to expire.
If you have not reviewed what changed, here is what you need to know.
The Standard Deduction Increased
The standard deduction went up for 2025. Under the One Big Beautiful Bill Act, the amounts are now:
- $15,750 for single filers
- $31,500 for married filing jointly
- $23,625 for heads of household
These are higher than the initial inflation-adjusted amounts the IRS announced before the legislation passed. For most people, this means a lower taxable income and a lower tax bill without having to itemize.
A larger standard deduction also means that fewer people will benefit from itemizing. If your deductible expenses do not exceed these thresholds, the standard deduction is almost certainly the better option.
New Senior Deduction
If you are 65 or older, you can claim an additional standard deduction. In 2025, single filers 65 and older can add $2,000 to their standard deduction. Joint filers can add $1,600 per eligible spouse.
The One Big Beautiful Bill Act also introduced a new temporary bonus standard deduction of $6,000 for taxpayers 65 and older. This bonus phases out for higher income taxpayers. It is available from 2025 through 2028.
For a single filer over 65 in 2025, the combined deductions could add up to $23,750 before any itemization. That is a significant change from prior years.
Tax Brackets Were Made Permanent
The TCJA tax brackets that were originally set to expire after 2025 have now been made permanent. The seven federal income tax rates remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
For 2025, the top rate of 37% applies to single filers with taxable income above $626,350, and to married couples filing jointly with taxable income above $751,600.
The income thresholds were also adjusted for inflation. That means more income is taxed at lower rates compared to prior years. For most middle-income earners, the change is modest but real.
The QBI Deduction Was Made Permanent
If you own a pass-through business, the 20% qualified business income deduction, also known as the QBI deduction or Section 199A, is now permanent.
Before the 2025 legislation, this deduction was scheduled to disappear after 2025. It has now been made a permanent part of the tax code.
This deduction allows eligible self-employed individuals, S-Corp owners, and partners to deduct up to 20% of their qualified business income from their taxable income. For a business owner netting $100,000, that is a potential $20,000 reduction in taxable income.
Phase-in limitations apply for certain service businesses above income thresholds, so the deduction is not available in full to everyone. But for most small business owners below those thresholds, this is one of the most valuable deductions available, and it is now here to stay.
No Tax on Tips and Overtime
For 2025 through 2028, workers who receive qualified tips can deduct those tips from their taxable income. Similarly, workers who receive overtime pay can deduct the overtime portion of that pay, up to $12,500 per year ($25,000 for joint filers).
Both deductions phase out for higher-income taxpayers.
This is new territory for the tax code and the rules are still being finalized by the IRS. If you work in a tip-based occupation or receive regular overtime, this could meaningfully reduce your taxable income for the next several years.
Vehicle Loan Interest
For 2025 through 2028, individuals can deduct interest paid on a loan used to purchase a new vehicle for personal use, as long as the vehicle was assembled in the United States. The deduction phases out for taxpayers with income above $100,000 ($200,000 for joint filers).
This is a targeted benefit for people who financed a qualifying vehicle purchase. Lease payments do not qualify.
A Simple Example a 10-Year-Old Could Follow
Imagine you get a bigger allowance this year than last year. But your parents also expect you to buy more of your own things now.
The 2025 tax changes work a bit like that. The standard deduction went up, so you keep more of what you earn before taxes kick in. But with more permanent rules and new deductions, there are also more decisions to get right.
A higher standard deduction means many people will owe less tax without doing anything different. But for business owners, knowing which new deductions apply to them and how to claim them correctly is where the real savings come from.
What This Means for California Residents
California does not always conform to federal tax law changes. The state has its own tax rates, brackets, and rules. The One Big Beautiful Bill Act changes apply at the federal level, but California taxpayers also owe state income tax under California Franchise Tax Board rules, which can be significantly different.
California’s top state income tax rate remains among the highest in the country. State-level planning is a separate conversation from federal planning, and both matter.
What You Should Do Now
If you have not reviewed your tax withholding or estimated tax payments since these changes took effect, now is the time. The increased standard deduction may change your withholding needs. The QBI deduction being permanent may change your business structure decisions. New deductions for tips, overtime, and vehicle loan interest may reduce what you owe.
These changes do not automatically benefit you. You have to know they exist and apply them correctly.
Want to understand how the 2025 tax changes affect your specific situation? Contact Accountle and we will walk through it with you.