2025 Year-End Tax Updates for Personal Tax Returns

As we approach the end of the year, it’s important to stay informed about the federal tax changes taking effect over the next filing season. This year’s legislation—the One Big Beautiful Bill Act (OBBBA)—introduces a wide range of updates impacting working taxpayers, families, retirees, and individuals who itemize deductions.

At Allworth Tax Solutions, our goal is to help you understand these changes and set yourself up for financial success in the year ahead.

New Senior Deduction

A new Senior Deduction of $6,000 per person ($12,000 for married couples if both qualify) is available for 2025–2028. The deduction begins to phase out at $75,000 (single) or $150,000 (joint).

New Temporary Deductions for Working Taxpayers

The OBBBA introduces several new above-the-line deductions from 2025 through 2028—meaning you can claim them even if you don’t itemize.

• No Tax on Tips: Deduct up to $25,000 of qualified tip income if you work in a customarily tipped occupation such as restaurants, salons, or hospitality. For the full list of approved occupations, visit the: IRS Tip Occupations Guidance
• No Tax on Overtime: Deduct up to $12,500 ($25,000 joint) of qualified overtime pay.
  
  • Applies only to non-exempt employees covered by the Fair Labor Standards Act (FLSA).
  • Exempt employees, including many professionals paid on a salary basis, are not eligible.
  • Most airline pilots and certain aviation professionals are covered under the Railway Labor Act (RLA) or separate union agreements, meaning they are unlikely to qualify under the FLSA definition of overtime.
• Car Loan Interest Deduction: Deduct up to $10,000 of interest on a loan used to buy a U.S.-assembled passenger vehicle. This applies to both new loans and refinances (2025–2028).
  
  

For additional details and official IRS guidance visit: IRS OBBBA Tax Deductions for Working Americans and Seniors

Itemized Deductions and Credits

• State and Local Tax (SALT) deduction: Increased to $40,000 (single/joint) or $20,000 (married filing separately) for 2025, with gradual increases through 2029 before reverting to $10,000 in 2030.
  • Phaseout begins at $500,000 of modified AGI (single/joint) or $250,000 (married filing separately) but cannot fall below $10,000 (single/joint) or $5,000 (married filing separately)

• Mortgage interest: The $750,000 limit on acquisition indebtedness is now permanent. Mortgage insurance premiums are deductible again, but within limits.
• Gambling losses: Starting in 2026, only up to 90% of total gambling winnings are deductible.

Family and Education Benefits

• Child tax credit: Increased to $2,200 per child, with up to $1,700 refundable. Phaseouts continue to apply for higher-income households.

• Adoption credit: Now partially refundable—up to $5,000 of the total adoption credit can generate a refund if it exceeds your tax liability.
• 529 plans: Expanded to include K–12 tuition (up to $20,000 per beneficiary), homeschool expenses, and certain post-secondary credentialing programs (such as CPA or trade licenses).
• 529 rollovers to ABLE accounts: Permanently allowed.
  • $1,000 federal seed deposit for eligible children born 2025–2028.
  • Families can contribute up to $5,000 per year; employers may add up to $2,500 tax-free.

Energy Tax Credits and Green Incentives 

Many federal energy credits, including those for new and used clean vehicles, solar panels and energy efficient home improvements, have expired or are set to expire soon.

Estate and Gift Tax Planning

The federal estate and gift exemption will increase to $15 million per person ($30 million per couple) for transfers after Dec. 31, 2025, with future inflation adjustments. The annual gift exclusion for 2025 and 2026 is $19,000 per recipient. These changes may present new planning opportunities for wealth transfer and estate planning.

Charitable Contributions

Beginning in 2026, taxpayers who itemize can only deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI) for the year. Contributions carried forward from years before 2026 won’t be affected by this new rule. This change encourages more substantial charitable giving and impacts timing strategies for future donations.

In addition, non-itemizers will be allowed to deduct up to $1,000 in cash contributions to qualified public charities ($2,000 for joint filers), creating new planning opportunities for taxpayers who do not typically itemize.

It will be important to review your charitable giving strategy to determine the most effective timing and structure under the new rules.

• Consider donating appreciated assets that have been held for more than one year, rather than cash. You benefit from a deduction for the fair market value (FMV) of your appreciated stock and avoid taxes on capital gains from the appreciation.

• Opening and funding a donor-advised fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and the ability to distribute those funds to charities over multiple years.
• Qualified charitable distributions (QCDs) are another beneficial choice for those over age 70 ½ who don’t typically itemize on their tax returns. A QCD counts toward your required minimum distribution (RMD) and is excluded from taxable income, especially valuable if you do not itemize deductions.
  • Important: QCDs cannot be contributed to donor-advised funds (DAFs).

It is essential to maintain proper documentation of all donations, including obtaining a letter from the charity confirming that no goods or services were provided in exchange for donations of $250 or more.

Digital Assets and Virtual Currency

Starting in 2025, the IRS will require brokers and qualifying platforms to report certain digital asset transactions, such as cryptocurrency, stablecoins, and NFTs. You may receive a new Form 1099-DA in early 2026 if you completed digital asset transactions in 2025. Even if you don’t receive this form, you are still responsible for reporting all taxable digital asset transactions on your tax return. Maintain detailed records of your purchases, sales, and exchanges to ensure accurate reporting.

Electronic Payments to and from the IRS

In March 2025, President Trump signed an executive order requiring all federal disbursements, including IRS tax refunds to be made electronically rather than by paper check, effective Sept. 30, 2025. According to the IRS, payments to Treasury can still be made using the current acceptable methods until guidance is released to provide a timeline for electronic payments. We recommend reviewing your current refund and payment methods to ensure compliance and avoid delays or complications in the future.

Consider Filing an Extension

The 2025 personal tax filing deadline is April 15, 2026, but you can request a six-month extension to October 15, 2026. An extension is helpful if you’re waiting for final documents or have had significant financial changes.

Important: An extension to file is not an extension to pay. It simply provides more time to file accurately and is a common, practical choice for many taxpayers.

Additional Considerations:

• Life events: Major milestones—such as marriage, divorce, births, deaths, job changes, starting a business, or large expenses like home purchases or tuition payments—can create new tax and planning opportunities.

• Investments and savings: Review your portfolio for capital gain or loss harvesting opportunities and evaluate whether you’re maximizing education savings through 529 plans, which now allow broader uses of funds.
• Retirement planning: Confirm any required minimum distributions (RMDs) have been taken and consider whether a Roth IRA conversion would be beneficial for your financial needs.
• Financial updates: Check your insurance policies, beneficiary designations, and estate documents to ensure everything reflects your current wishes.
• Tax payments: Review your withholding and estimated payments to avoid underpayment penalties and ensure adequate cash flow for upcoming obligations.
  
   

Year-End Preparation for the Upcoming Tax Season Means Fewer Surprises

As the year ends, staying informed about recent tax law changes can help ensure a smoother filing experience in the year ahead. Our team is committed to keeping you updated on new federal requirements, so you know what to expect in the upcoming tax filing season.

Please note that the updates outlined above reflect federal tax rules. State tax laws can vary significantly and may include additional requirements or differences that affect your situation, so it’s important to be aware of the rules that apply in your state. 

Thank you for trusting us as your advisor. We look forward to continuing to support you now and in the year ahead.

The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as direct tax or legal advice and should not be relied upon as such.