2025 Tax Update: Your Complete Guide to The "One Big Beautiful Bill"

Social Security Tax Changes

Dear Valued Client,


Hello! We have seen many different explanations of The One Big Beautiful Bill and realized that you would need a trusted source that provided you with the most accurate, and most concise breakdown on what this bill means for you. Because of the size of the bill, we will be discussing it in pieces so that we can achieve our goal: providing you with accurate information without overwhelming you regarding the coming changes for the 2025 Tax Year.

Today’s email tackles Social Security tax changes.

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Question:  Was tax on Social Security eliminated?             Answer:  No.


The Breakdown:

-       The One Big Beautiful Bill is simply adding another deduction available only to seniors 65+ of up to $6,000 per tax payer based on your income.

-       If you are 65+, single filing individually, and your Modified Adjusted Gross Income (MAGI) is calculated to be within the range of: $75,000 – $175,000. Then you are eligible for the new deduction. The amount of the deduction varies based on your MAGI, with the highest deduction available ($6,000) only available to those earning within the low end of this range ($75,000). As your income goes up, the deduction amount goes down.

-       If you are both 65+, married filing jointly, and your MAGI is calculated to be within the range of: $150,000 – $250,000. Then you are eligible for the new deduction. The amount of the deduction varies based on your MAGI, with the most deduction available ($12,000) only available to those earning within the low end of this range ($150,000). As your income goes up, the deduction amount goes down.

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Thank you for taking the time to read this email and stay tuned for another breakdown of the One Big Beautiful Bill in the coming weeks.


Sincerely yours,

Cotton Mather Accounting Group

Energy Credits Changes

Credit Type Items Covered Action Required & Deadlines
The Clean Vehicle Credit Vehicle must be purchased from a qualified manufacturer. (Check with your dealership).
  • Deadline: Purchase and receive before September 30, 2025.
  • Note: Previous income and vehicle limits still apply.
Used Clean Vehicle Credit Pre-owned, all-electric, plug-in hybrid, and fuel cell electric vehicles purchased after 2023.
  • Deadline: Purchase and receive before September 30, 2025.
  • Note: Previous income and vehicle limits still apply.
Commercial Clean Vehicle Credit
(Sole Proprietor, Businesses, Tax-Exempt Orgs) 		Any new or pre-owned, all-electric, plug-in hybrid, and fuel cell electric vehicles.
  • Deadline: Purchase and receive before September 30, 2025.
Energy Efficient Home Improvement Credit
(For Individuals) 		Exterior doors, windows, skylights, insulation materials, central A/C, water heaters, furnaces, boilers, heat pumps, biomass stoves, and home energy audits.
  • Deadline: Must be installed and in service before December 31, 2025.
Residential Clean Energy Property Credit
(For Individuals) 		Solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, battery storage technology (post-2023).
  • Deadline: Must be installed and in service before December 31, 2025.
  • Note: Used or previously owned clean energy property is not eligible.
Energy Efficient Home Credit
(For Contractors) 		New home builds meeting all required specifications under IRC Section 45L (including energy savings) before the home is acquired.
  • Deadline: Home must be sold or leased before June 30, 2026.
Energy Efficient Commercial Buildings Deduction Installation of interior lighting, heating, cooling, ventilation, and hot water systems certified by ASHRAE.
  • No specific deadline action required at this time (can be done anytime).

Overtime Tax Changes

Dear Valued Client,

Hello there, we have another portion of the Big Beautiful Bill to breakdown for you.

In today’s email, we will be informing you on the changes to tax on overtime.

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Question: Has all tax on overtime been eliminated? Answer: No.

Question: Should employers report overtime on my paycheck? Answer: Yes.

Question: Do I need to report overtime on my tax return? Answer: Yes.

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The Breakdown:

Individuals who work overtime are being provided with a new deduction of up to $12,500 per person.

This deduction is for federal tax only. It does not eliminate state, local, social security, and Medicare tax.

It applies to wages paid in excess of normal pay.

For example: an employee who earns $20 an hour normally, but $30 an hour with overtime, is able to deduct $10 per hour in overtime pay.

Similar to the new deduction for tax on tips, there are specific qualifications you must meet to become eligible for this deduction.

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The Qualifications:

You must have a valid social security number (not an ITIN number).

If you are married, you cannot file separately. All other filing status qualify.

You must be a qualified employee to receive this deduction.

Qualified employees are those who do not work in executive, administrative, or professional roles.

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The Phaseout:

Phaseout limit for single begins at a Modified Adjusted Gross Income (MAGI) of $150,000. Phaseout limit for married filing jointly begins at a MAGI of $300,000. As the MAGI increases beyond the phaseout limit, the deduction amount decreases by $100 for every $1,000 over.

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We thank you for your time today and encourage you to return next week for another breakdown of the One Big Beautiful Bill.

Sincerely yours,

Cotton Mather Accounting Group


Car Loan Tax Changes

Tax Changes to Car Loan Interest

Question: Can I deduct car loan interest on my taxes? Answer: Yes.

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The Breakdown:

The OBBB is providing qualified taxpayers with a new deduction of up to $10,000 of interest paid towards a new car loan.

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The Qualifications:

If you answer YES to ALL of the questions below you CAN claim the deduction.

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The Phaseout:

The deduction phaseout begins at a MAGI of $100,000 for single filers, and $200,000 for joint filers. As your income goes up (beyond the corresponding income cap) the deduction amount goes down.


Tax On Tips Changes

Dear Valued Client,

Hello once again! It is that time of the week where we breakdown another piece of the One Big Beautiful Bill for you.

In today’s email, we will be informing you on the federal changes to tax on tips.

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Question: Should Employers report my tips on my paycheck? Answer: Yes

Question: Do I have to report tips on my tax return? Answer: Yes.

Question: Has all tax on tips been eliminated? Answer: No.

The Breakdown:

Individuals who normally receive tips are being provided with a new tip deduction of up to $25,000 per return (not per person) from their federal income tax under specific qualifications.

The Qualifications:

Qualification Question Required Answer Additional Information
Do you work in an industry that normally receives tips? YES Includes servers, bartenders, hairdressers, etc. The IRS will release a comprehensive list in October 2025 [2].
Is the business a "Specified Service Trade or Business" (SSTB)? NO If the business is an SSTB, you cannot claim the deduction [2].
Are the tips considered "qualified"? YES Qualified tips are voluntary from client to server. Pre-determined service charges do not qualify [2].
Do you have a Social Security Number? YES Required for eligibility [2].
If married, are you filing jointly? YES If you answer NO (Married Filing Separately), you cannot claim this deduction [2].
If self-employed: Is your income below the $25,000 allowance? YES Self-employed income that exceeds the maximum tip allowance ($25,000) eliminates eligibility [2].

The Phaseout:

Phaseout limit for single begins at a Modified Adjusted Gross Income (MAGI) of $150,000. Phaseout limit for married filing jointly begins at MAGI of $300,000. As the MAGI increases beyond the phaseout limit, the deduction amount decreases.

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We thank you for your time today and encourage you to return next week for another breakdown of the One Big Beautiful Bill.

Sincerely yours,

Cotton Mather Accounting Group


Tax documents clipped together with colorful sticky notes, gold paper clip, on marble surface.

IRS Get Ready 2026: New Tax Deductions, SALT Cap Increase, and Paper Check Phaseout

January 20, 2026
The 2026 filing season (Tax Year 2025) marks a historic turning point for American taxpayers. Defined by the proposed "One Big Beautiful Bill" (OBBB), the current landscape introduces major changes that move beyond standard deductions to provide targeted relief for homeowners, workers, and families. If you are an individual or a small business owner, here is what you need to know to stay ahead. 1. The End of the $10,000 SALT Ceiling For years, the State and Local Tax (SALT) deduction was capped at $10,000, forcing many middle-class families to take the standard deduction. The new OBBB proposal quadruples this cap to $40,000 . The Strategy: For residents in high-tax districts, the math has changed. It is time to re-evaluate whether itemizing your property and income taxes will yield a higher return than the standard deduction ($31,500 for joint filers). 2. The "Drive American" Interest Deduction In a boost for domestic manufacturing, a new "above-the-line" deduction allows you to deduct up to $10,000 in interest on a loan for a new, personal-use vehicle. The Catch: To qualify, the vehicle must be assembled in the U.S. (verified by a VIN starting with 1, 4, or 5) and weigh under 14,000 lbs. This benefit is available even to those who do not itemize, making it a powerful tool for new car buyers. 3. Relief for the Service and Industrial Workforce Through the new Schedule 1-A, specific income streams are seeing unprecedented relief: Tax-Free Tips: Qualified professionals may exclude up to $25,000 in tips from their gross income. Overtime Protection: Up to $12,500 ($25,000 for joint filers) of the "half-time" premium for qualified overtime is now deductible. These benefits begin to phase out at $150,000 MAGI ($300,000 for joint filers), so timing and income tracking are critical. 4. Legacy Wealth: The "Trump Account" For families who welcomed a child in 2025, a new pilot program offers a $1,000 government seed contribution . These tax-deferred accounts are designed to grow until the child reaches age 18, with annual funding limits up to $5,000. Enrollment is made via the new IRS Form 4547. 5. The Fully Digital IRS Under Executive Order 14247, the IRS is officially transitioning away from paper checks. All refunds are now mandated to be electronic. Whether you prefer direct deposit or a digital wallet, ensuring your IRS Online Account is verified and updated is no longer optional—it is a requirement for a timely refund. Looking Ahead While these provisions offer significant opportunities for wealth preservation, they are technically complex. Eligibility often hinges on Modified Adjusted Gross Income (MAGI) thresholds and specific documentation requirements (like VINs and FLSA-qualified pay stubs). As these legislative drafts move toward finalization, we recommend a personalized consultation to ensure your 2026 filing strategy is both compliant and optimized. _________________________________________ Disclaimer: The information provided in this document is for general educational purposes only and does not constitute professional tax, legal, or investment advice. Tax laws are subject to change. The specific application of these provisions depends on the individual facts and circumstances of each taxpayer. We strongly recommend a personalized consultation with a Qualified Tax Professional (CPA or Enrolled Agent) before making any financial decisions.
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Some Tax Basics for Setting Up a New Business

September 26, 2024
Don’t let the process of starting a new business deter you from your future success! While it may seem overwhelming, the IRS has provided a number of great resources to help brand-new business owners understand their tax responsibilities. Below are some tax basics for setting up a new business: Choose a business structure The type/form of a business determines which income tax return a business will need to file. The most common business structures are: Sole proprietorship : An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business. Partnership : An unincorporated business with ownership shared between two or more members. Corporation : Also known as a C corporation. It’s a separate entity owned by shareholders. S Corporation : A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders. Limited Liability Company : A business structure allowed by state statute. If a single-member LLC does not elect to be treated as a corporation, the LLC is a “disregarded entity,” and the LLC’s activities should be reflected on its owner’s federal tax return as a sole proprietorship. Choose a tax year A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either: Calendar year : 12 consecutive months beginning January 1 and ending December 31. Fiscal year : 12 consecutive months ending on the last day of any month except December. If an individual files their first tax return using the calendar tax year and later begins business as a sole proprietor, becomes a partner in a partnership, or becomes a shareholder in an S corporation, they must continue to use a calendar tax year unless they get IRS approval to change it. Apply for an Employer Identification Number An EIN is also called a Federal Tax Identification Number and it is used to identify a business, much like a person’s social security number. Most businesses need one of these numbers, but some don’t. For example, a sole proprietor without employees who doesn’t file any excise or pension plan tax returns doesn’t need an EIN. The EIN checklist on IRS.gov can help business owners know if they need an EIN. Make sure all employees complete these forms when hired: I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services W-4, Employee’s Withholding Certificate Pay yearly business taxes The form of business you chose above determines what taxes should be paid and how to pay them. Check with your business accountant to find out what tax liabilities you are responsible for. Visit the state’s website Prospective business owners should also visit their state’s website for info about state tax requirements, as those may be different than federal tax obligations. Talk to a tax professional Before you fill out any paperwork or online forms to set up a new business, speak with a tax professional to make sure your forms are filled out correctly! Give us a call at 412-931-1617 or shoot us an email at info@cottonmather.com.