By: Davette Lynne Hrabak, CPA, CFE, CBM, ATA, ATP, ABA, ECS, CGMA
“When it comes to taxes, save the lion’s share; enter between the lions to get this special care.”
https://www.DavetteLynneHrabak.com
What is referred to by many as the “One Big Beautiful Bill,” (P. L. 119-21), which was signed into law by President Donald J. Trump on July 4, 2025, has created many tax law changes, some that took effect immediately, and some that are being phased in on various dates. This law made sweeping changes to our tax code. The act is vast and touches on almost all of our tax code in some way.
While the popular understanding by many is that the act has made it so that there is “no tax on overtime, no tax on tips, and no tax on Social Security,” among a ton of other items, this understanding is only somewhat correct. It does, indeed, do that and much more for many people. But, of course, in the world of taxes, it is a bit more complex than that. There are requirements that have to be met and limits involved, some of which are discussed below.
When it comes to no tax on tips, there is a variety of criteria, and it is capped at $25,000. It has some safeguards within the law which describes which occupations are allowed to take the deduction; the occupations are divided into eight categories. If a person gets a tip and they do not fit those categories, then the tip is still taxable. Most normally-tipped occupations should fit into the categories described.
No tax on overtime, as well, has its set of criteria that need to be followed. What it amounts to is that for 2025 through 2028, individuals who have qualified overtime compensation can deduct the part of the pay that exceeds their regular pay rate. The maximum deduction, which can be taken annually, is $12,500 or $25,000 for joint filers, which phases out depending on a taxpayer’s modified adjusted gross income.
The no tax on Social Security is really a deduction for seniors. It is a deduction of $6,000 being allowed for a qualified taxpayer who is 65 years or older and is subject to modified adjusted gross income limitations of $150,000 for married filing joint returns and $75,000 for all other tax-filing statuses. Once those thresholds are hit, it is reduced by six percent of the modified adjusted gross income in excess of those amounts.
You have probably heard that the act made most of the 2017 Tax Cuts and Jobs Act tax cuts permanent, which was very important to our tax code. If that had not happened, many people, in all brackets, would have experienced a tax increase, but the bill did that and so much more.
The One Big Beautiful Bill has 870 to over 1,200 pages, depending on the font size of the file that you view it in and is bound to effect almost everyone’s tax return this year and in future years in some way.
In addition to the changes on taxability of tips, overtime, and special senior deduction, as discussed above, it also lowered individual tax rates, increased the standard deduction, increased the child tax credit, raised the estate tax exclusion, made bonus depreciation permanent for businesses, allowed farms that meet the criteria to defer the payment of tax on certain sales of farmland, extended rules for certain disaster-related personal casualty losses, made changes to 529 accounts to allow more qualified expenses, put criteria in place for excluding the gain from sale of qualified small business stock, put in a special deduction for deducting loan interest on qualified passenger vehicles, changed the way floor plan financing is handled, made changes to 1099-K and other information reporting, expanded exemptions from the use of percentage of completion methods for residential construction contracts, increased the amounts of various credits, set up some items to have inflation adjustments for years to come, and so much more.
Many of the changes were of great assistance to taxpayers; however, there were also some aspects of the act that did reduce credits/deductions for some taxpayers, plus repeal, modify, and/or limit various clean energy type credits.
An interesting aspect of the One Big Beautiful Bill is “Trump accounts.” It is one of the provisions of the act that starts for tax years beginning after December 31, 2025. These accounts are a new set of accounts that have tax advantages for people under the age of 18. Annual contribution limits are $5,000, which is indexed to inflation, and there are also some employer contribution options and rollover rules, but what they do is establish that the accounts can be distributed once a person reaches the age of 18. There is a special government-funded contribution pilot program that provided for a government contribution for children that are born in 2025 to 2028. These accounts, if used properly, even just by the starter amounts that the government is putting in, will use the magic of compounding and time value of money to make the people with these accounts have a very good investment for them in their future.
Many of the items discussed herein, and the ones not listed, as well, have a lot of criteria involved in them. This year and the next few years will have many changes. If you have any questions or concerns, please discuss your tax situation with your CPA so that you can obtain the best possible tax return, either via a nice refund or owing the least tax possible.
For a free, no obligation quote on tax and accounting services, call Davette at 715-339-6638. Her office is located between the lion statues at 164 South Lake Avenue in Phillips.
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Davette Lynne Hrabak, CPA, located at 164 South Lake Avenue in Phillips, specializes in tax return preparation, business start-up services, consulting, bookkeeping, payroll, and all your accounting needs. Call 715-339-6638 or visit Davette's website. Follow her Facebook page.