I don’t think I’ve ever seen a comparison between tax season and Christmas, but there can be similarities. Just like Santa’s proverbial “naughty” and “nice” lists, tax season might include some “coal” as well as some presents from the government. And I’m not just talking about a tax refund that you may or may not get.
By the way, I agree with the sentiment that tax refunds aren’t really gifts, although they may seem like it at the time. When you receive a large tax refund, it’s often a sign that you miscalculated and paid too much tax to the government during the year. That’s a no-interest loan from you to the government – not usually the best way to manage your money.
Now, back to our “naughty and nice” theme. Every year, there are some changes to our tax laws. Sometimes they seem like a gift – and actually are, at least in the short term – and sometimes they involve some pain – tax hikes or tax breaks that expire. Let’s take a look under the tree.
This tax year’s gifts
Less SALT, please! The state and local tax (SALT) deduction cap has increased to $40,000 for 2025 from $10,000. As a result, many taxpayers will owe less SALT to the government. This deduction phases out for taxpayers with incomes of more than $500,000.
This affects people in certain states much more than others. According to the Bipartison Policy Center, Colorado is one of the states with the highest percentage of taxpayers who claim the SALT deduction – 11.2% of Coloradans.
New gifts courtesy of the “One Big Beautiful Bill” tax act (which I recently saw referred to as “Operation Build Back Better Again”) passed by the U.S. Congress last summer:
Senior Deduction: For tax years 2025 – 2028, taxpayers who are 65 and older receive a deduction of up to $6,000. This phases out for individuals with modified adjusted gross income (MAGI) above $75,000 and for joint filers with MAGI higher than $150,000. This is in addition to the existing standard deduction for seniors, which is $2,000 above the normal standard deduction ($1,600 above for married individuals).
Deductions for tips and overtime pay: Employees and self-employed taxpayers may be able to deduct up to $12,500 for individuals ($25,000 for married joint filers) on overtime pay and tips they receive from customers. The deduction phases out for individuals with AGI over $150,000 (joint filers above $300,000 in AGI) and it’s available whether you itemize or take the standard deduction.
Car loan interest: You can now deduct up to $10,000 on interest paid annually on loans for new vehicles assembled in the United States. Like certain other new tax provisions, they are designed to expire in 2028. This deduction phases out at $100,000 in AGI for individuals and $200,000 for joint filers.
Trump Accounts: Also passed as part of the OBBBA, these are tax-advantaged custodial investment accounts for children under 18. Parents or guardians can open the accounts and contribute up to $5,000 per year. Withdrawals aren’t allowed until the child reaches age 18. For children born between January 1, 2025 and December 31, 2028, the government will make a one-time $1,000 contribution. To be eligible for that seed deposit, a child must be under 18, a U.S. citizen, and have a Social Security number.
Also new, but not in the OBBBA:
Greater scrutiny of cryptocurrency: Beginning in 2025, the IRS requires brokers to report crypto transactions on Form 1099-DA, a step up on compliance. Because cryptocurrency is treated as property rather than currency, every sale or exchange for goods or services is a taxable event.
Child Tax Credit rises to $2,200 from $2,000, with permanent annual inflation-adjusted updates to the credit. The credit phases out at AGI of $200,000 for single filers and $400,000 for married filing jointly.
The standard deduction increases to $15,750 for individuals, $23,625 for heads of households, and $31,500 for married filing jointly.
Energy credits repealed: It’s ironic that electric vehicle credits become a lump of coal this year, to circle back to our naughty/nice theme. The lump of coal in this case is no more credits available for consumers when purchasing electric vehicles, hybrids, and charging equipment.
Lifetime estate and gift tax exemption increased: In 2025, this unified credit was $13.99 million per person ($27.98 million per couple). It has increased to $15 million/$30 million for 2026 and will be indexed for inflation going forward, beginning in 2027.
It’s important to consult with your tax professional to see if/how any of the aforementioned provisions might affect your specific tax situation. No one wants to receive coal no matter how naughty you might have been last year.