From Paychecks to Paying: Smart Mid-Year Tax Planning
The updates outlined here are just a snapshot of the many tax changes that could impact our return this year and influence your financial picture for years to come. While we’ve focused on some of the more noteworthy provisions, numerous other adjustments remain beyond the scope of this article. Because tax laws evolve, it’s wise to stay informed and seek guidance from a qualified tax professional to ensure you’re making the most of the rules as they apply to your situation.
Before we dive in, let’s get familiar with a few key tax terms. Knowing which tax bracket your income places you in is essential for smart financial planning and ensuring compliance with both new and existing tax laws. Your tax bracket determines the rate at which your last dollar of income is taxed and can impact deductions, credits, and overall strategy. The current Individual Marginal Income Tax rate brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
In the world of tax deductions, there are two main categories you need to know: above-the-line deductions and below-the-line deductions.
When filing your return, you or your tax professional will choose to claim either the standard deduction or itemized deductions—but never both.
• Above-the-line deductions are taken before calculating your adjusted gross income (AGI). By reducing your AGI, they can lower the amount of income that’s subject to tax. These deductions are available whether you take the standard deduction or decide to itemize.
• Below-the-line deductions—often called itemized deductions—are subtracted after you’ve calculated your AGI. They directly reduce your taxable income. Taxpayers typically itemize only if the total of their itemized deductions is greater than the standard deduction.
It’s also worth noting that some of the tax changes discussed here are temporary and set to expire after a certain date, while others are permanent—at least until Congress enacts new legislation that changes them!
Let’s talk about 2025 tax changes.
The upcoming tax year brings several temporary deductions aimed at putting more money back in taxpayers’ pockets. These new provisions cover everything from tip income to overtime pay, senior benefits, and even car loan interest. While each offers meaningful savings for qualifying taxpayers, all are subject to income limits and are set to expire at the end of 2028 unless extended by future legislation. Here’s a closer look at what’s changing.
No Tax on Tips
• Overview: The $25,000 above-the-line deduction for qualified tips is subject to income limits, and the deduction decreases for taxpayers with modified adjusted gross income more than $150,000 ($300,000 for joint filers).
• Expires on December 31, 2028
No Tax on Overtime
• The $12,500 ($25,000 for jointly filing) above-the-line deduction for overtime pay.
It is subject to income limits, and the deduction decreases for taxpayers with modified adjusted gross income of more than $150,000 ($300,000 for jointly filing).
• Expires on December 31, 2028
Enhanced Senior Deduction
• Overview: There is an additional $6,000 deduction for seniors over age 65, but it is subject to income limits, and the deduction decreases for taxpayers with modified adjusted gross income more than $75,000 ($150,000 for jointly filing).
• Expires on December 31, 2028. No Tax on Car Loan Interest
• Overview: Up to $10,000 above-the-line deduction for interest paid on qualifying auto loans is subject to income limits, and the deduction decreases for taxpayers with modified adjusted gross income more than $100,000 ($200,000 for jointly filing). It is an above-the-line deduction that reduces adjusted gross income, so claiming the deduction is not dependent on whether the taxpayer files an itemized return or claims the standard deduction. The deduction is only for loans originating after December 31, 2024, for vehicles that meet the requirements. The Department of the Treasury and the IRS will issue guidance on which vehicles qualify.
• Expires on December 31, 2028
Thinking about how to give your child or grandchild a strong financial start? There’s promising news on the horizon. From recent enhancements to 529 education savings plans to the upcoming debut of Trump Accounts in 2026, new options are emerging—each with unique advantages and a few important differences you’ll want to understand before making a move.
529 Plan Savings Account Expansion
• Overview: Increases the K-12 qualified expenses limit from $10,000 to $20,000 per child. Significantly, it allows for additional non-tuition qualified expenses for K-12 and additional post-secondary school credentialing program costs. Take note that homeschooling costs are not explicitly included as qualified 529 Plan expenses. Currently, K-12 expenses are specified for “elementary or secondary, public, private, or religious school.”
IRS guidance provides that an eligible educational institution for 529 Plans “is generally any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education.”
See IRS Guidance 529 Plans: Questions and Answers
• Under the current changes, 529 Plans can be used for post-secondary credentialing programs, such as programs and tuition for certificate programs, trade schools, and specific other credentialing programs.
The 529 education savings plan expansion took effect for distributions made on or after July 4, 2025, the date the new law was enacted.
It’s important to note that these changes to 529 Plans relate to federal tax changes. 529
Plans may have different rules within states.
• Expiration: None; currently, it’s permanent Trump Accounts.
• Overview: While 529 plans remain focused on education-related savings and withdrawals, by contrast, Trump Accounts are expected to operate more like traditional Individual Retirement Accounts (IRAs) and are not tied to education expenses. Under the new law, once the child turns 18, Trump Accounts will be treated the same as traditional IRAs, meaning withdrawals will be taxed accordingly. It wouldn’t make much sense, however, to have them subject to a 10% penalty if taken before age 59½. Many operational details remain unclear, and we will need to wait for additional guidance from the Treasury Department and the IRS on how these accounts will be opened and administered.
It is anticipated that employers will be able to deduct contributions to Trump Accounts as a business expense, providing an added benefit to employees, particularly those with children or planning to start a family. However, the mechanics of making contributions, whether through brokerages or via a government-managed system, have yet to be determined, and we will have to wait for additional guidance from the Treasury and IRS.
Are you a business owner wondering which of the many new tax changes could work in your favor? This one just might.
Section 199A – Qualified Business Income Deduction
• Overview: Also known as the qualified business income (QBI) deduction, the OBBBA makes targeted adjustments.
Changes include:
- Higher phase-in thresholds: The income phase-in range for the deduction has been widened. Previously, the thresholds were $50,000 above the income limit for single filers and $100,000 for joint filers. These have now been increased to $75,000 and $150,000, respectively, with adjustments for inflation beginning in 2027.
- New minimum deduction: Taxpayers with at least $1,000 in aggregated QBI from active qualified trades or businesses in which they materially participate will now receive a minimum deduction of $400. This amount will also be indexed for inflation starting in 2027.
- The deduction rate remains at 20% and continues to apply only to non-corporate taxpayers with pass-through business income. The calculation remains the lesser of 20% of QBI (plus certain other qualifying income) or 20% of taxable income (minus net capital gains).
• Permanent: This removes the sunset clause that would have ended the QBI deduction after 2025, but also increases access through higher phase-in thresholds and the introduction of a guaranteed minimum deduction for eligible active businesses.
The tax provisions covered here represent only a portion of the changes that may impact your tax strategy. While we’ve highlighted some significant updates, there are many more details and nuances beyond the scope of this article. As always, consult with a qualified tax professional to understand how these rules apply to your specific situation—and keep in mind that tax laws can and do change.
“Awareness is power. The right tax focus—whether from you or a pro—can protect both your wallet and your well-being.” – Carroll Golden
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