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President Trump reacts to the passage of his spending bill<\/p>\n
“It was very easy to get a yes.” President Donald Trump reacted to the passing of his tax and spending bill.<\/p>\n
Tax season isn\u2019t close to opening yet, but now is the time to start planning to take advantage of new provisions in the massive tax and spending bill that became law earlier in July, experts say.<\/p>\n
No tax on tips<\/a> and overtime<\/a> and the $6,000 bonus deduction for seniors<\/a> have been well publicized, but there\u2019s much more that can change your taxes. Other highlights include charitable contributions deductions<\/a>, auto loan interest deduction<\/a> for certain new vehicles and increased deductions and credits for families.<\/p>\n \u201cEveryday taxpayers who received the standard deduction had no tax planning opportunities under the 2017 TCJA (Tax Cuts and Jobs Act),\u201d said Brian\u00a0Gray, certified public accountant and tax partner at\u00a0Gursey\u00a0Schneider. Now, there are many.<\/p>\n Charitable contributions are no longer just for itemizers<\/p>\n OBBB permanently brings back a charitable contributions deduction for those who take the standard deduction beginning in 2026.<\/p>\n During the pandemic in 2020, the CARES Act allowed a temporary deduction of up to $300 for cash donations for individuals taking the standard deduction. The temporary deduction was extended and expanded<\/a> to $600 for married couples filing jointly for 2021 and then expired<\/a>.<\/p>\n Under OBBB, \u201cyear-end charitable deduction planning could be beneficial,\u201d Gray said. \u201cYou can deduct $1,000 per person, or $2,000 per couple, in above-the-line charitable contribution deductions if you cannot itemize.\u201d<\/p>\n An above-the-line deduction can be taken without itemizing. It\u2019s valuable because it lowers your adjusted gross income, which lowers your tax liability and may help you qualify for other deductions or tax credits.<\/p>\n Interest deduction on personal auto loans\u00a0<\/p>\n OBBB has made new personal auto loan interest deductible<\/a> for non-itemizers for the first time ever, said Brian Schultz, certified public accountant in Plante Moran Wealth Management\u2019s tax practice.<\/p>\n Personal auto loan interest used to be deductible but only as an itemized deduction until the Tax Reform Act of 1986 eliminated it.\u00a0<\/p>\n Under OBBB, Americans can deduct up to $10,000 of interest on their taxes, beginning in 2025 through 2028.<\/p>\n There are specific requirements to qualify for the deduction that could make it harder to take advantage of, some warn. \u00a0For example, the purchase must be a new, U.S.-assembled vehicle for personal use, and income limitations apply.<\/p>\n However, if you can find a qualified car and are eligible for the deduction, the calculus could change when deciding whether to buy or lease a car and how much each cost, Schultz said.<\/p>\n More benefits for families<\/p>\n There are two benefits families should be aware of even if they take the standard deduction, Schultz said.<\/p>\n The OBBB permanently increases the annual maximum contribution to $7,500 (or $3,750 for married couples filing separately) from $5,000. Though the increase begins next year, enrollment in these plans starts soon in 2025, Schultz said.<\/p>\n Other than a temporary increase during COVID<\/a> to $10,500, (or $5,250 for married individuals filing separately) in 2021 from the American Rescue Plan Act, the contribution level had been stuck at $5,000 for 40 years, according to insurance brokerage Newfront<\/a>.<\/p>\n First, the credit rate increased to 50% from 35% of qualifying expenses, up to $3,000 for one child and up to $6,000 for two or more children, for families with the lowest incomes. The percentage gradually decreases as income rises.<\/p>\n Second, the way the new credit rate phases down for taxpayers, the income threshold to receive the lowest 20% credit has jumped to $206,000 for a married couple filing jointly and $103,000 for individuals from pre-OBBB income levels of $86,000 and $43,000, respectively.<\/p>\n These changes will result in nearly 4 million families seeing an increased tax credit, according to First Five Years Fund, a nonprofit focused on ensuring families have affordable access to quality child care and early learning programs.<\/p>\n \u201cUnder current law, a family with two young children making less than $150,000 typically receives around\u00a0$1,200,\u201d said Sarah Rittling, the organization\u2019s executive director, in a statement after Congress passed the OBBB. With the \u201cenhancements, that benefit would see a $900 boost that can make a meaningful difference for parents managing tight budgets.\u201d<\/p>\n With some planning, Americans may also be able to score a larger credit, Schultz said. For example, boosting a 401(k)<\/a> contribution could reduce your taxable income enough to pick up a larger CDCC in 2026.<\/p>\n \u201cA lot of new changes with income phaseouts,\u201d he said. \u201cBe mindful of income levels.\u201d<\/p>\n (Republished to fix a typo.)<\/p>\n\n
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