Cut your 2025 tax bill with these 4 smart moves
The One Big Beautiful Bill Act (OBBBA) made some long-awaited permanent changes to the tax code. It also introduced short-term tax breaks that come with strict limits and phaseouts, and many of them are only available through 2028 or 2029. Here are four ways to get the most out of the OBBBA’s temporary provisions as you file your 2025 taxes and plan ahead.
Don’t dismiss itemizing your deductions
The OBBBA temporarily boosts the state and local tax deduction cap, or SALT, from $10,000 to $40,000 (for married couples filing jointly and single filers). This higher cap applies from 2025 through 2029.
Run the numbers: For 2025, the standard deduction is $31,500 for married couples and $15,750 for singles. If your total itemized deductions — including mortgage interest, charitable giving, and state and local taxes (up to the new $40,000 cap) — add up to more than your standard deduction, you should itemize.
Watch your income: The new $40,000 SALT cap isn’t for everyone. It begins to phase out if your modified adjusted gross income is over $500,000 (for all filers). If your MAGI reaches $600,000, your SALT deduction reverts to the original $10,000 limit.
Maximize the new targeted deductions—if you qualify
The OBBBA introduced several temporary above-the-line deductions (available whether you itemize or not) to help middle-income workers. But they have very strict income and benefit limits.
The qualified overtime pay deduction: Capped at $25,000 for married couples filing jointly and $12,500 for singles. Only the extra “half-time” portion of your time-and-a-half pay qualifies for the deduction. For a married couple, this benefit begins to disappear if your MAGI hits $300,000 and is entirely gone once your MAGI reaches $550,000.
The qualified tips income deduction: Allows you to write off qualified tip income up to $25,000 per tax return, whether you file as married or single. The deduction is only available for tips that are formally reported on a Form W-2 or Form 1099. It phases out sharply for higher earners, starting at a MAGI of $300,000 for married couples and $150,000 for singles, and is fully eliminated at $550,000 and $400,000, respectively.
The auto loan interest deduction: This temporary deduction allows you to write off up to $10,000 of interest paid on a loan for a new, personal-use vehicle with final assembly in the US. (Leases are excluded.) It starts to phase out at $200,000 for married couples and $100,000 for singles and is completely gone by $250,000 and $150,000.
Seniors, time your 2026 Roth conversions carefully
If you are 65 or older, the OBBBA offers a new, temporary deduction for seniors of up to $12,000 for married couples ($6,000 per eligible spouse) and $6,000 for single filers. This is a welcome tax break, but it’s fragile.
Beware the MAGI trap: This deduction begins to disappear for married couples with a MAGI over $150,000 and for singles over $75,000.
Model Roth conversions for 2026: If you are a senior who is close to the $150,000 MAGI limit, a Roth conversion done in 2026 could push your income over the threshold, causing you to lose this entire $12,000 deduction. Work with your adviser to model any planned 2026 conversions.
Optimize income to qualify for the best breaks
Many of the OBBBA’s most valuable temporary provisions are income-sensitive, particularly those new targeted deductions and the elevated SALT cap. Keep these rules in mind for 2025 filing and 2026 tax planning.
For your 2025 return: You can still influence your 2025 MAGI by:
- Making 2025 HSA contributions (before the April 2026 tax deadline).
- Making 2025 deductible IRA contributions, if you’re eligible.
Plan for 2026 income: If your 2026 income is likely to approach any phaseout thresholds (such as the $300,000 limit for tips/overtime or the $500,000 limit for the elevated SALT cap), consider strategies that help keep it within the qualifying range.
- Postponing the sale of highly appreciated stock to avoid realizing large capital gains in 2026.
- Delaying the exercise of nonqualified stock options if doing so would push you over a phaseout threshold.
- Maximizing 401(k) and health savings account contributions to reduce your 2026 MAGI.
- Holding off on large Roth conversions if they would increase your income above key limits.
Don’t let the technical limitations and phaseouts catch you by surprise. With a little smart planning, you can lock in significant tax savings.
This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance.
Sheryl Rowling, CPA, is an editorial director, financial adviser for Morningstar.
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