Tax Season Is Coming: What You Need to Know About Itemized Deductions Under the One Big Beautiful Bill
The 2025 tax season is just around the corner, and with it comes major updates from the newly signed One Big Beautiful Bill Act (OBBBA). If you're a small business owner or individual taxpayer, understanding the changes to itemized deductions now can help you plan smarter and avoid surprises when filing.
What’s New with Itemized Deductions?
OBBBA introduces a fresh approach to itemized deductions, replacing the old Pease limitation with a broader, income-sensitive model. Here are the key highlights:
Higher Standard Deduction Thresholds
For 2025:
$15,750 – Single / Married Filing Separately
$23,625 – Head of Household
$31,500 – Married Filing Jointly
Only taxpayers with itemizable expenses above these thresholds will benefit from itemizing.
SALT Deduction Cap Raised
The State and Local Tax (SALT) deduction cap is now $40,000 per household, but phases out for incomes over $500,000 MAGI. By 2030, it reverts to the previous $10,000 cap.
New Above-the-Line Deductions
Even if you don’t itemize, you may qualify for these deductions:
Charitable Contributions: Up to $1,000 (single) / $2,000 (joint) for cash donations starting in 2026
Tips & Overtime: Deductible from 2025–2028 for qualifying occupations
Car Loan Interest: Up to $10,000 for U.S.-assembled vehicles, with phaseouts starting at $100,000 MAGI
Senior Deduction: $6,000 ($12,000 MFJ) for taxpayers age 65+ with income below $75,000/$150,000
Mortgage Interest Deduction Made Permanent
The mortgage interest deduction is now permanently capped at $750,000 of acquisition debt. Home equity interest is deductible only if used for home improvement or acquisition.
Planning Tips for Tax Season
Compare Itemizing vs. Standard Deduction: With higher thresholds and new above-the-line options, many may benefit more from not itemizing.
Watch Income Phaseouts: Many deductions phase out at specific income levels—plan ahead to stay eligible.
Model PTET Elections Carefully: For S Corps, electing the Pass-Through Entity Tax (PTET) may reduce AGI but could also lower itemized deductions below the standard deduction.
Final Thoughts
The One Big Beautiful Bill Act brings both opportunities and complexities. Whether you're a small business owner, retiree, or working professional, now is the time to review your financials and adjust your tax strategy.
At FXBG Accounting Advisory, we’re here to help you navigate these changes and make the most of your deductions.