The 2025 tax year represents a significant transition for taxpayers across the United States. Driven by the One Big Beautiful Bill Act (OBBBA) and the activation of various deferred legislative provisions, the tax landscape has shifted. For the clients we serve at Sullivan & Company CPA Inc.—ranging from high-net-worth families to complex business entities in the Burlingame area—staying ahead of these changes is less about simple compliance and more about protecting a financial legacy. This overhaul introduces a series of adjustments to tax rate tables, credit expansions, and employer incentives that require careful analysis to ensure your tax planning remains both defensible and optimized.

Refining the Foundation: Standard and Senior Deductions

For those who do not itemize, the standard deduction amounts have been adjusted for inflation. In 2025, single filers and those married filing separately will see a standard deduction of $15,750. Heads of household move to $23,625, and those married filing jointly reach $31,500. Looking further ahead to 2026, these figures are projected to climb to $16,100, $24,150, and $32,200, respectively. These adjustments provide a baseline, but the real nuance lies in the specific deductions newly available under the OBBBA.

A notable addition is the New Senior Deduction. From 2025 through 2028, taxpayers aged 65 or older may claim a $6,000 deduction. This benefit is designed to support seniors as they manage fixed incomes, though it is subject to phase-outs. For unmarried individuals, the phase-out begins at a Modified Adjusted Gross Income (MAGI) of $75,000; for married couples filing jointly, the threshold is $150,000. The deduction reduces by $100 for every $1,000 over these limits. Crucially, this is a below-the-line deduction reported on the new 1040 Schedule 1-A, meaning it does not reduce your AGI but is available regardless of whether you itemize or take the standard deduction.

Investment and Retirement: RMDs and Special Credits

Retirement planning remains a cornerstone of wealth preservation. Under the current rules, taxpayers must begin their Required Minimum Distributions (RMDs) from traditional IRAs at age 73. The calculation involves dividing the account’s year-end value by the life expectancy factor found in the IRS Uniform Lifetime Table. While the first RMD can be delayed until April 1 of the year following the 73rd birthday, this can often lead to a double-distribution year, which may spike your tax bracket. Our team often compares tax planning to the “Super Bowl for your books”—precision timing is everything.

For those managing inherited retirement accounts, the rules remain rigorous for deaths occurring after 2019. While surviving spouses and chronically ill beneficiaries have specific protections, other beneficiaries generally must exhaust the account within 10 years. Additionally, investors in the arts should note that qualified sound recording production expenses incurred after July 4, 2025, and before 2029 now qualify for bonus depreciation—a niche but valuable provision for those in the creative industries.

Incentives for the Workforce: Tips, Overtime, and Vehicles

The OBBBA introduces several specific deductions aimed at the modern workforce. From 2025 through 2028, a new deduction allows for up to $25,000 in qualified cash tips to be excluded from taxable income for those in customary tip-receiving occupations. This deduction phases out for single filers with an AGI over $150,000 ($300,000 for joint filers). Similarly, the “No Tax on Qualified Overtime” provision offers a deduction for overtime pay that exceeds the regular rate. Employees can deduct up to $12,500 ($25,000 for joint filers) of this excess pay. Employers are expected to use code “TT” in Box 12 of the W-2 starting in 2026 to facilitate this, though reasonable estimation methods are permitted for 2025.

For the personal side of the ledger, a new vehicle loan interest deduction has arrived. Taxpayers may deduct up to $10,000 in interest on loans for new, personal-use passenger vehicles assembled in the U.S. that weigh under 14,000 pounds. This excludes recreational campers or vehicles purchased via family loans. This deduction is available to both itemizers and standard deduction filers, provided they file the new 1040 Schedule 1-A and include the vehicle’s VIN. Phase-outs begin at $100,000 for single filers and $200,000 for married couples.

Family-Centric Tax Updates

The OBBBA has also modified credits focused on family growth and support. The Adoption Credit has become partially refundable, with the total credit reaching $17,280 in 2025 ($5,000 refundable). The Child Tax Credit has also seen an increase to $2,200 per dependent under 17, with $1,700 being refundable. These credits are vital for many of the families we advise, though the phase-out thresholds—$400,000 for joint filers and $200,000 for others—require proactive monitoring to ensure eligibility is not lost to a year of high income.

Strategic Business Provisions: Expensing and QSBS

For our business clients in Burlingame and the broader Silicon Valley area, the changes to Qualified Small Business Stock (QSBS) and business interest deductions are paramount. For QSBS acquired after July 4, 2025, the exclusion rates have been tiered: 50% after three years, 75% after four years, and a full 100% exclusion after a five-year holding period. The exclusion cap has risen to $15 million, with corporation asset limits increased to $75 million. This remains one of the most powerful tools for founders and early-stage investors to preserve wealth during an exit.

The business interest deduction limit (Section 163(j)) has also shifted from an EBIT-based calculation to an EBITDA-based calculation for tax years after 2024. This change generally allows for higher interest deductions by including depreciation and amortization in the base. However, be aware that multinational companies may face new restrictions regarding the exclusion of foreign income from their Adjusted Taxable Income (ATI) calculations. Small businesses with average gross receipts under $31 million in 2025 remain exempt from these limitations.

Accelerated Depreciation and Manufacturing Incentives

The OBBBA has reinstated 100% bonus depreciation permanently for qualifying assets placed in service after January 19, 2025. This allows for the immediate write-off of machinery, equipment, and certain improvements with a recovery period of 20 years or less. Furthermore, Section 179 expensing limits have jumped to $2.5 million for 2025, with a phase-out beginning once total annual equipment purchases exceed $4 million. For those involved in domestic manufacturing or production (specifically agricultural or chemical), the new Qualified Production Property Expensing provision allows for the immediate expensing of nonresidential real property, provided construction begins between 2025 and 2029.

The SALT Cap and Education Planning

One of the most discussed changes is the SALT (State and Local Tax) deduction limit increase. For 2025, the OBBBA raises the cap to $40,000, a significant jump from the previous $10,000 limit. However, for high-income earners, this benefit phases back down to a $10,000 floor starting at $500,000 MAGI. This is a critical area for our Bay Area clients, where state income and property taxes frequently exceed these thresholds. We approach these calculations with the same rigor we use in forensic accounting investigations—ensuring every dollar is accounted for within the legal framework.

Finally, education funding through 529 plans has become more versatile. Funds can now be used for elementary and secondary school expenses, as well as postsecondary credentialing programs such as professional certificates and licenses. This expansion makes the 529 plan an even more effective tool for generational wealth transfer and long-term family legacy planning.

Moving Forward with Confidence

The One Big Beautiful Bill Act brings complexity, but it also brings opportunity for those who are prepared. At Sullivan & Company CPA Inc., we specialize in turning these complex legislative changes into actionable strategies for fiduciaries, family offices, and business owners. Whether you are dealing with the nuances of QSBS exclusions, navigating the new SALT phase-downs, or managing an estate with complex RMD requirements, we are here to provide clarity. We invite you to contact our Burlingame office for a consultation to review how these 2025 changes impact your specific financial objectives and legacy goals.

Understanding the 1099-K Reporting Reversion

One of the more administrative but impactful changes involves the reporting requirements for third-party network transactions. For several years, taxpayers and small business owners have braced for a significantly lower reporting threshold on Form 1099-K. However, the One Big Beautiful Bill Act (OBBBA) has retroactively repealed the lower thresholds originally introduced by the American Rescue Plan Act. This change effectively restores the reporting floor to its original level: $20,000 in gross payments and a minimum of 200 transactions. This restoration is effective for tax years beginning in 2022, effectively nullifying the phased-in lower thresholds that were anticipated for 2024 and 2025. For the small business owner or the casual online seller, this move reduces the administrative burden of receiving forms for relatively minor transaction volumes, though it remains imperative to track all business income regardless of whether a Form 1099-K is issued.

The Strategic Advantage of Super Retirement Catch-Up Contributions

For individuals in their peak earning years—specifically those aged 60 through 63—the 2025 tax year introduces the “Super Catch-Up.” This provision significantly expands the ability to shield income from taxation while bolstering retirement savings. Eligible participants can now contribute the greater of $10,000 or 50% more than the standard catch-up amount to qualified plans, including 401(k), 403(b), and governmental 457(b) plans. For 2025, this enhanced catch-up limit is set at $11,250 for most major plans and $5,250 for SIMPLE plans. Unlike standard contributions, these figures will be adjusted for inflation starting in 2026. This window of opportunity for taxpayers in their early sixties is particularly narrow, making it a critical component of late-stage retirement planning for our clients who are looking to maximize their tax-advantaged savings before transitioning into retirement.

Restoring the Immediate Deduction for Research and Experimental Costs

The treatment of Research and Experimental (R&E) expenditures has been a point of significant friction for innovative businesses in recent years. Beginning in 2025, the OBBBA restores the ability for companies to immediately deduct domestic R&E expenditures under Section 174. This is a vital reversal of the previous requirement to amortize these costs over five years, which had created unexpected tax liabilities for many technology and manufacturing firms. It is important to note that this favorable treatment is restricted to domestic expenditures. Expenses incurred for research conducted outside the United States must still be amortized over a 15-year period. For our clients in the forensic and valuation space, this distinction between domestic and international R&E spend will be a key factor in calculating business valuations and assessing tax-related cash flows.

The Sunset of Environmental and Green Energy Credits

While the OBBBA introduced many new deductions, it also accelerated the expiration of several popular environmental tax incentives. Taxpayers planning for energy-efficient home improvements or vehicle upgrades must be mindful of the 2025 deadlines. Most electric vehicle credits are set to terminate after September 30, 2025. Furthermore, residential clean energy credits—which cover solar installations, wind energy, and geothermal heat pumps—along with home energy efficiency improvement credits, will no longer be available after December 31, 2025. For families considering these investments, the 2025 tax year represents the final window to capitalize on these subsidies before they are removed from the code, making the timing of these projects a high priority for year-end tax planning.

The Minimum QBI Deduction: Support for the Micro-Entrepreneur

Section 199A, often referred to as the Qualified Business Income (QBI) deduction, continues to be a staple for pass-through entities. A new provision starting in 2025 introduces a “floor” for this deduction to assist smaller operations. Taxpayers with at least $1,000 of QBI from an actively managed business are now entitled to a minimum deduction of $400. While this may seem modest compared to the 20% deduction utilized by larger enterprises, it ensures that even the smallest entrepreneurial ventures receive a tangible tax benefit. This minimum deduction is particularly relevant for those balancing a primary profession with a growing consulting practice or small-scale manufacturing business, providing a simplified benefit that does not require the same complex wage and property calculations as larger QBI claims.

Nuances in Inherited IRA Management

The rules surrounding inherited retirement accounts remain a complex area of tax controversy and compliance. For accounts inherited from individuals who passed away after 2019, the 10-year distribution rule is the primary governing factor. Most non-spouse beneficiaries—such as adult children or grandchildren—must fully distribute the account balance by the end of the tenth year following the original owner’s death. However, the intersection of these rules with the annual RMD requirements for accounts where the decedent had already reached their required beginning date can be a trap for the unwary. Ensuring that these distributions are taken correctly is a significant focus of our estate and trust advisory work, as the penalties for missed RMDs remain substantial despite recent legislative attempts to soften their impact.

The Section 179 SUV Limitation and Heavy Vehicle Logic

While the Section 179 expensing limit has increased to $2.5 million for 2025, it is critical to understand the specific limitations regarding vehicles. Passenger automobiles are subject to strict annual depreciation limits, but sport utility vehicles (SUVs) with a gross vehicle weight rating (GVWR) between 6,000 and 14,000 pounds have their own specific deduction cap. For businesses looking to invest in new fleets or heavy machinery, the immediate 100% bonus depreciation reinstated by the OBBBA often provides a more robust path to tax savings than Section 179 alone, especially when the total investment approaches the $4 million phase-out threshold. We carefully analyze the mix of Section 179 and bonus depreciation for each client to maximize the upfront deduction while being mindful of the recapture rules that apply if the business use of the asset drops below 50% in future years.

Strategic Documentation and the New 1040 Schedule 1-A

A recurring theme throughout the OBBBA is the introduction of the 1040 Schedule 1-A. This new form will be the primary vehicle for claiming several of the “below-the-line” deductions discussed, including the senior deduction, the vehicle loan interest deduction, and the deductions for tips and overtime. Because these deductions do not reduce Adjusted Gross Income (AGI), they do not impact the threshold for other AGI-dependent credits or the taxation of Social Security benefits. However, they provide a direct reduction in taxable income. Proper documentation—ranging from the VIN for the vehicle interest deduction to the careful tracking of overtime hours and rates—is essential. As a firm that specializes in defensible tax positions, we emphasize that these new benefits will likely be areas of increased IRS scrutiny, making clear, contemporary records the best defense against future controversy.