When the One Big Beautiful Bill Act became law on July 4, 2025, it changed many aspects of the federal tax code. The most important revisions include extending the Tax Cuts and Jobs Act of 2017 and changing some tax credits and deductions. With the rapid pace of significant change, you might be wondering, "What is Trump's tax plan?" In this article, we'll detail everything you need to know about current federal tax laws and how they'll affect your 2025 tax return.
Tax Cuts and Jobs Act Extension
Had the One Big Beautiful Bill Act not been passed, the Tax Cuts and Jobs Act reforms would have expired at the end of the year. With the new law, all seven tax brackets will remain the same, and the standard deduction will permanently increase. Single taxpayers and those who are married but filing separately have a deduction of $15,750. Heads of households receive a standard deduction of $23,625. If you are married and file jointly, the deduction is $31,500.
In addition, the new bill temporarily increases the state and local tax deduction to $40,000. This is an increase of $30,000 from last year. Another benefit includes an extension and increase of the child tax credit, which allows you to claim up to $2,200 per child.
New Tax Cuts for 2025
The updated tax laws introduced four new deductions. These changes will be in effect from 2025 through 2028.
First, if your work involves payment in tips, you can deduct up to $25,000 in tip income. There's also no tax on overtime pay, with a maximum annual deduction of $12,500 for individuals or $25,000 for joint filers. The new laws also allow you to deduct $10,000 of taxes on car loan interest. Finally, if you're age 65 or older, you can deduct an additional $6,000 from your tax return or up to $12,000 for qualifying married couples.
Revenue Generation and Expiring Tax Cuts
There's debate about how the new tax cuts will be paid for. One part of the federal government's strategy is to cut tax credits related to clean energy and reduce spending on health care. For example, the federal clean vehicle tax credits will no longer be available beginning on Sept. 30, 2025. Additionally, federal health care spending will decrease by about $1 trillion over the next nine years.
Another part of the payment strategy is increasing tariffs. However, there's still uncertainty about what the final tariff policy will look like and how much it'll help pay for the tax cuts. Depending on your situation, your tax benefits may be outweighed by higher prices as businesses and other countries respond to the new tariffs.
Who Benefits and Who Pays More?
Since there are major changes to how the tax laws work, there isn't a single clear answer to whether you'll end up paying more or less. However, there are some general takeaways based on your income bracket.
If you're a top earner, you'll have the largest benefit. Analysis from the Congressional Budget Office (CBO) suggests that the top 10% of earners could see an increase in available resources of up to 4%. The CBO also reported that the bottom 10% of earners may see a decrease of 4% in total available resources. In their analysis, CBO defined resources as cash plus the cash value of any federal government assistance, including health care and food aid. In general, the new laws act as an overall tax cut for wealthy Americans.
Economic Impact Analysis
With such a large change to the tax laws, there'll likely be impacts on the country's economy. Most independent analysis suggests that the One Big Beautiful Bill Act and its tax changes may slightly benefit short-term gross domestic product (GDP) but slow long-term GDP growth. Under the new law, GDP is expected to grow about 1% or less over the next few years.
It's important to consider reliable information when making decisions about your personal or business finances. Our team could help you understand your risks and potential for growth given the current economic climate.
Navigate Your Taxes and Finances With Pasquesi Sheppard
With changes this significant and complex, working with experienced tax professionals is essential. Whether you're trying to plan for your business or personal life, we could help you manage your uncertainty regarding your financial decisions. Our team in Lake Forest, Illinois, is committed to helping you grow and achieve your goals. Contact us today for personal advice on your financial situation and taxes.
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