Key Changes to Individual Tax Deductions and Credits You Need to Know for 2025
- YVE
- Jan 10
- 3 min read
Filing Season Dates
The IRS has declared that the 2026 tax filing season will commence on January 26, 2026. To stay informed or access forms, visit the Official IRS Website.
Tax season always brings changes, but the updates for the 2025 tax year introduce several significant shifts that could affect your filing in early 2026 and beyond. Understanding these changes now can help you plan your finances better and maximize your tax benefits. This post breaks down the most important individual tax changes, from increased deductions to new credits and reporting rules.
Increased Standard Deduction
One of the most straightforward changes is the rise in the standard deduction. For 2025, the standard deduction amounts are:
$15,750 for single filers
$31,500 for married couples filing jointly
These amounts will increase again in 2026 to $16,100 for singles and $32,200 for joint filers. This increase means more income is shielded from taxation without the need to itemize deductions, which benefits many taxpayers.
Example:
If you are a single filer with a taxable income of $50,000, your taxable income after the standard deduction will be $34,250 in 2025, compared to $33,550 in 2024. This change slightly reduces your tax burden.
No Tax on Tips and Overtime Income
A new deduction allows workers to exclude some of their tip and overtime income from taxable income:
Up to $25,000 in tip income
Up to $12,500 in qualified overtime pay for single filers
Up to $25,000 in qualified overtime pay for joint filers
This change recognizes the extra effort many workers put in and reduces their tax liability on these earnings.
Example:
A server earning $20,000 in tips can now exclude this entire amount from taxable income, lowering their overall tax bill.
Enhanced Senior Deduction
Taxpayers aged 65 and older can claim an additional $6,000 deduction on top of the standard deduction. This increase helps seniors manage their tax burden as they often face fixed incomes.
Example:
A married couple both over 65 filing jointly can claim the $31,500 standard deduction plus an extra $12,000 ($6,000 each), totaling $43,500 in deductions.
Expanded Child Tax Credit
The child tax credit rises to $2,200 per qualifying child and is now permanently indexed for inflation. This means the credit will adjust each year to keep pace with rising costs.
Example:
A family with two qualifying children can claim $4,400 in child tax credits for 2025, which directly reduces their tax owed.
State and Local Tax (SALT) Cap Increase
The SALT deduction cap has increased from $10,000 to $40,000 for taxpayers with incomes under $500,000. This change allows many middle-income taxpayers to deduct more of their state and local taxes, including property and income taxes.
Example:
A homeowner paying $30,000 in combined state and local taxes can now deduct the full amount if their income is below $500,000, instead of being limited to $10,000.
Car Loan Interest Deduction
Interest paid on loans for new, American-made vehicles for personal use is now deductible up to $10,000. This deduction encourages buying domestic cars and helps reduce the cost of financing.
Example:
If you finance a new American-made car and pay $8,000 in interest over the year, you can deduct the full amount from your taxable income.
Trump Accounts for Children’s Retirement Savings
A new retirement savings account type, called Trump Accounts, is available for children under 18. The federal government will contribute a one-time $1,000 for eligible children born between 2025 and 2028. This initiative aims to encourage early savings habits.
Charitable Deduction for Non-Itemizers
Taxpayers who take the standard deduction can now claim a cash charitable deduction up to:
$1,000 for single filers
$2,000 for joint filers
This change rewards generosity even if you don’t itemize deductions.
Business and Investment Updates
While this post focuses on individual tax changes, a few business and investment updates may indirectly affect individuals:
100% Bonus Depreciation is now permanent, allowing immediate full deduction of qualifying equipment costs.
Domestic R&D Expensing lets companies deduct research costs immediately, potentially boosting innovation.
Crypto Reporting requires brokers to issue Form 1099-DA for digital asset transactions, increasing transparency for cryptocurrency and NFT trades.
Clean Energy Credits for electric vehicles and residential energy improvements are set to expire or change, so plan accordingly if you expect to claim these.
These updates highlight the evolving tax landscape and the importance of staying informed.
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