The passage of the "One Big Beautiful Bill Act", or Public Law 119-21, on July 4, 2025, brought significant changes to the federal tax code for both individuals and businesses. While the bill permanently extended many provisions from the 2017 Tax Cuts and Jobs Act, it also added new, temporary deductions and modified existing rules that will directly affect 2025 tax returns filed next year.
Here are four key ways the bill will change tax returns for Northern California filers next year:
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Increased State and Local Tax (SALT) Deduction Cap: A highly relevant change for high-tax states like California is the temporary increase in the Federal SALT deduction cap. The previous limit of $10,000 is raised to $40,000 for tax years 2025 through 2029. This means many Northern California taxpayers who itemize deductions may be able to deduct substantially more in property, real estate, and state income taxes on their federal returns, potentially leading to significant tax savings. The deduction is phased out for taxpayers with a Modified Adjusted Gross Income (MAGI) exceeding $500,000, with the cap reverting to $10,000 in 2030 unless further action is taken.
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New Deductions for Tipped and Overtime Workers: The new bill provides temporary new federal income tax deductions for qualified tips (up to $25,000 per taxpayer) and qualified overtime pay (up to $12,500 for single filers, $25,000 for joint filers). These provisions, effective from 2025 through 2028, offer targeted relief to workers in eligible occupations such as waitstaff or certain hourly positions. It's important to note, however, that these amounts are still subject to federal payroll taxes and potentially state income taxes, as California may not conform to this new federal deduction.
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Permanent, Higher Standard Deduction and Tax Brackets: The bill made permanent the lower individual tax rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) and increased standard deduction amounts that were set to expire at the end of 2025. For 2025 returns, the standard deduction increases to $15,750 for single filers and $31,500 for married couples filing jointly. This provides clarity and stability for long-term financial and estate planning, ensuring that taxpayers do not face a sudden "tax cliff" in the coming years.
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Changes to Business Provisions and Depreciation Rules: For business owners in Northern California, the ‘Big Beautiful Bill’ restores 100% bonus depreciation for qualifying assets and allows for immediate expensing of certain domestic research and development (R&D) costs. This provides enhanced incentives for capital investments and R&D activities. However, a crucial point for California businesses is that the state does not conform to the federal bonus depreciation rules, limiting state-level deductions and creating differences between federal and state taxable income calculations.
These are just a few of the estimates 70 changes to the tax code this year alone. Contact us to learn how one of our tax advisors can help you navigate the ever-changing worlds of state and federal tax.
