Monica Heizenrader runs a family-owned diner and is looking forward to the new tax deduction for tipped workers.
"From my point of view, I'm very excited for my employees. They work very, very hard for what they do," Heizenrader said.
The "no tax on tips" in effect through 2028 is one of several new provisions in effect for tax year 2025 under the One, Big, Beautiful Bill signed by President Donald Trump.
"Up to $25,000 of your tip income can be tax-exempt, meaning you won't have to pay income taxes on that money," explained Karla Dennis, CEO and founder of KDA Inc.
Dennis notes one caveat about the new rule: the IRS is looking at 2025 as a transition year.
"This is not a year where they're giving real hard guidance on how it's supposed to be reported on W-2s," Dennis said.
A similar change applies to overtime pay.
"That overtime portion is not going to get hit with income taxes," Dennis said.
Tax professionals urge workers to keep records of tips and overtime, so they don't miss out on deductions.
Another change is a new $6,000 deduction for seniors, which could cause some confusion come tax season, according to Mark Steber with Jackson Hewitt.
"There was already a senior additional deduction to the standard deduction. This is not that. This is a new, new deduction if you otherwise qualify for, so don't overlook it," Steber said.
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Other notable changes include:
- No tax on car loan interest for qualified vehicles
- Expiring clean vehicle credits
- Expiring home energy credits
The IRS is also phasing out paper refund checks. Anyone getting a refund will do so electronically.
"That's a smarter, faster, safer way to get your tax money direct deposited into your bank account," Steber said. "If you're unbanked, there are other ways to get a temporary account."
Steber urges all taxpayers to squeeze in some tax planning by the end of the year, especially if big changes apply to you.
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To boost your deductions come filing season:
- Consider retirement contributions to a 401(k) or traditional IRA
- Max out contributions to your health savings account
- Check out education and child care tax breaks in your state
- Keep a record of charitable donations, business expenses, and medical costs
