The new 2025 tax bill, an update and extension of the 2017 Trump-era tax cuts, brings a mix of tax breaks and hidden trade-offs. If you’re a family trying to budget or a small business trying to grow, it’s important to understand how this bill might affect your wallet—not just today, but in the years ahead.
Let’s break it down in plain English.
What’s Changing for Everyday Americans?
Lower Tax Rates Continue
Your federal income tax rates stay lower than they were before 2017. The top rate stays at 37%, not 39.6%. That means many families and business owners will still pay less in taxes overall—at least for now.
Bigger Standard Deduction
Everyone gets a larger standard deduction (the amount you can subtract from your income before tax is calculated). For 2025 through 2028, there’s an extra boost too. This makes filing taxes simpler for most families who don’t itemize.
Higher Child Tax Credit
Parents get a bigger break: the Child Tax Credit increases temporarily to $2,500 per child. This helps families with kids keep more of their income.
Temporary New Deductions
From 2025 to 2028, you can deduct more:
- Tips you report at work
- Overtime pay
- Interest on car loans (if it’s for a U.S.-built car)
- A “Senior Bonus” deduction if you’re over 65
These are new and designed to help everyday workers and retirees, but they disappear after a few years.
Small Business Boosts
If you’re self-employed or run a business:
- The 20% pass-through deduction jumps to 23%, meaning you can deduct nearly a quarter of your business income.
- Businesses can fully deduct equipment purchases right away (called “bonus depreciation”).
These help businesses grow and reduce their tax bills—at least while these provisions last.
But Here’s the Catch…
New Limits on State Tax Deductions
Yes, the $10,000 cap on deducting state and local taxes is gone—but a new cap takes its place. Most people will be limited to deducting up to $30,000 in state/local taxes. If you make more than $400,000, the amount you can deduct shrinks even more. And small business owners can’t use certain workarounds anymore.
Popular Deductions Gone for Good
Some deductions that used to help people are now permanently eliminated:
- Work expenses you weren’t reimbursed for (like mileage or tools)
- Personal losses (unless a major disaster is declared)
- A sneaky rule that reduced deductions for high earners is replaced with a simpler—but still costly—alternative
If you usually itemize deductions, these losses could hurt.
Most of the New Perks Are Temporary
Deductions for tips, overtime, and the senior bonus all vanish after 2028. So don’t expect them to be around for long. Meanwhile, the parts of the bill that save the government money? Those stick around permanently.
Middle-Income Families May Miss Out
Many of the new deductions phase out once your income hits around $75,000 (single) or $150,000 (married). That means:
- You might not qualify for the full Senior Bonus
- You might only get part of the new deductions—or none at all
This can be especially frustrating for middle-class families who earn just a little too much.
Small Business Owners Face Mixed Bag
Some good news for business deductions—but also some headaches:
- Deductions for research and interest expenses return, but only for a few years
- Reporting rules for online income (like PayPal, Venmo) and contractor payments (1099s) are stricter
- Some clean energy credits and business incentives are being cut
So while tax cuts help in the short term, the rules are getting more complex.
Bottom Line
The 2025 tax bill gives families and small business owners some helpful breaks—especially over the next few years. But many of these perks are temporary, while the limits and rule changes are here to stay.
If you’re not paying attention, you might feel like taxes are going down—when in reality, your deductions could quietly shrink.
Need help understanding how this bill affects you or your business? Book a consultation with our tax team to create a plan that fits your future.
This article was created with the assistance of AI and reviewed by a licensed tax professional for accuracy. It is intended for informational purposes only and does not constitute tax, legal, or financial advice. Please consult a qualified advisor for guidance specific to your situation.
