At Lake Stevens Tax Service, we’re committed to keeping you informed about significant tax legislation that impacts your financial planning. The One Big Beautiful Bill Act (OBBBA), signed into law by President Donald Trump on July 4, 2025, represents a major overhaul of tax and spending policies as part of the 119th United States Congress’s budget reconciliation process. This sweeping legislation, often referred to as the “Big Beautiful Bill,” includes several tax provisions that could affect your 2025 tax filings and beyond. Below, we outline key aspects of the bill that are most relevant to our clients, focusing on practical implications for individuals, families, and small businesses in our community.

Key Tax Provisions of the One Big Beautiful Bill Act

1. Permanent Extension of 2017 Tax Cuts

The OBBBA makes permanent the individual tax rates established by the 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of 2025. These rates—10%, 12%, 22%, 24%, 32%, 35%, and 37%—will continue to apply, preventing a potential tax increase for many households. Additionally, the standard deduction, which was doubled under the TCJA, remains in place with an additional temporary increase of $1,000 for single filers, $2,000 for joint filers, and $1,500 for heads of household through 2028. This could mean more take-home pay for our clients, with estimates suggesting an average family of four could see up to $13,300 in additional annual take-home pay. However, the personal exemption, eliminated in 2017, remains permanently repealed, which may impact larger families.

What This Means for You: If you’ve benefited from lower tax rates or the higher standard deduction since 2017, these provisions will continue without interruption. Our team can help you optimize your deductions and ensure you’re taking full advantage of the increased standard deduction.

2. Expanded Child Tax Credit

The OBBBA permanently increases the Child Tax Credit from $2,000 to $2,200 per qualifying child, with inflation adjustments starting in 2025. A new requirement mandates that taxpayers provide a Social Security number for themselves (or one spouse on a joint return) and for each qualifying child to claim the credit. Additionally, the bill introduces “Trump Accounts,” allowing parents to create tax-deferred savings accounts for children born between January 1, 2025, and December 31, 2028, with a $1,000 annual contribution treated as a tax payment.

What This Means for You: Families with qualifying children can expect a slight boost in tax credits, potentially increasing your refund or reducing your tax liability. If you’re a new parent, setting up a Trump Account could provide a tax-advantaged way to save for your child’s future. Contact us to review eligibility and plan for these benefits.

3. No Tax on Tips and Overtime Pay (Temporary)

The bill introduces temporary tax deductions for tips and overtime pay, effective from 2025 through 2028, for workers earning less than $150,000 annually. Tipped workers can deduct up to $25,000 in tips from their taxable income, while overtime pay (the premium portion) is also deductible for both itemizers and non-itemizers, excluding highly compensated employees. These provisions aim to benefit service industry workers and hourly employees, potentially saving tipped workers up to $1,300 annually and overtime workers up to $1,750.

What This Means for You: If you work in a tipped profession (e.g., hospitality) or earn overtime pay, these deductions could significantly lower your taxable income. Keep detailed records of your tips and overtime hours, as we’ll need this information to maximize your deductions during tax season.

4. Auto Loan Interest Deduction

For tax years 2025 through 2028, the OBBBA allows taxpayers to deduct up to $10,000 in auto loan interest for vehicles assembled in the United States, regardless of whether you itemize deductions. This deduction phases out by $200 for every $1,000 of income above $100,000 for single filers or $200,000 for joint filers.

What This Means for You: If you’ve recently purchased or plan to buy a U.S.-assembled vehicle, this deduction could reduce your tax bill. Verify the vehicle’s assembly location (e.g., check the VIN or manufacturer details) and keep loan documents handy for your 2025 tax filing.

5. Increased State and Local Tax (SALT) Deduction Cap

The SALT deduction cap, which limits the amount of state and local taxes you can deduct on your federal return, is raised from $10,000 to $40,000 for taxpayers earning less than $500,000 annually. This increase is temporary and reverts to $10,000 after five years (2030). This change is particularly relevant for residents of high-tax states like Washington, where property taxes can be significant.

What This Means for You: If you itemize deductions and live in a high-tax area, the increased SALT cap could allow you to deduct more of your property or state income taxes (from other states, as Washington has no state income tax). We can help you determine whether itemizing or taking the standard deduction is more beneficial under the new rules.

6. Small Business Deduction Enhancements

For small business owners, the OBBBA permanently extends the Section 199A deduction for pass-through businesses (e.g., sole proprietorships, partnerships, S corporations) at 20% in the Senate version, with the House version increasing it to 23%. This reduces the effective tax rate on qualified business income, potentially saving small business owners thousands annually. The bill also restores 100% immediate expensing for equipment and research costs, encouraging investment and growth.

What This Means for You: If you own a small business, these provisions could lower your tax liability and free up capital for reinvestment. Ensure your business expenses are well-documented, especially for equipment purchases, to take full advantage of immediate expensing.

7. Tax Relief for Seniors

Seniors aged 65 and older benefit from a temporary additional $6,000 deduction for tax years 2025 through 2028, applicable to both itemizers and non-itemizers. This deduction phases out for modified adjusted gross income above $75,000 for single filers or $150,000 for joint filers. This additional deduction is intended to eliminate taxes on Social Security benefits for the average beneficiary.

What This Means for You: If you’re a senior, these changes could reduce your tax burden, particularly if you rely on Social Security income. We can help you calculate the phase-out thresholds and optimize your deductions.

Potential Impacts and Considerations

While the OBBBA offers significant tax relief, it’s not without controversy. The Congressional Budget Office (CBO) estimates the bill will increase the federal deficit by $2.8–$3.4 trillion over the next decade and could result in 10.9–11.8 million Americans losing Medicaid coverage due to new work requirements and funding cuts. Rural hospitals may face financial strain, despite a $50 billion stabilization fund. Additionally, the bill phases out certain clean energy tax credits and imposes new taxes on university endowments, which may indirectly affect local economies.

For our clients, the immediate focus should be on leveraging the new deductions and credits while preparing for the temporary nature of some provisions (e.g., tips, overtime, and auto loan deductions expire in 2028).

We recommend:

• Updating Your Records: Ensure you have documentation for tips, overtime, auto loans, and business expenses to maximize deductions.
• Reviewing Your Tax Strategy: Assess how these changes affect your 2025 tax plan, especially if you’re a small business owner or senior.
• Monitoring Future Changes: Some provisions are temporary, and Congress may revisit them before 2028. We’ll keep you updated on any extensions or modifications.

For more information on the OBBBA, visit Congress.gov. Let’s make the most of these tax opportunities together!