2025 Tax Changes
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brought major updates to U.S. federal tax rules. It made many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent—preventing them from expiring at the end of 2025—while adding new temporary deductions and adjustments. These changes apply to tax year 2025 (filed in 2026) and can help everyday people reduce taxable income, lower tax bills, or boost refunds.
For the average person—think working families, seniors, tipped workers, or those with overtime—these updates offer real opportunities. Here's a breakdown of the key recent changes and practical ways to maximize your refund.
Key Tax Law Changes for 2025
- Higher Standard Deduction (now permanent and increased): For tax year 2025:
- Married filing jointly: $31,500
- Single or married filing separately: $15,750
- Head of household: $23,625
- This reduces your taxable income right off the top, often making it better than itemizing for many people.
- New Bonus Deduction for Seniors: If you're 65 or older, you can claim an extra $6,000 deduction (through 2028). This stacks with the regular senior addition and applies whether you take the standard deduction or itemize—great for retirees on fixed incomes.
- Child Tax Credit Expansion: Increased to $2,200 per qualifying child under 17 (up from $2,000), with the refundable portion up to $1,700 depending on income. It phases out at higher incomes ($400,000 joint, $200,000 others), but it's now inflation-adjusted starting in 2026.
- State and Local Tax (SALT) Deduction Cap Raised: The cap jumped from $10,000 to $40,000 (through 2029, with limits for higher earners around $500,000). If you live in a high-tax state like Ohio or have significant property taxes, this could make itemizing worthwhile.
- Deductions for Tips and Overtime: New above-the-line deductions for qualified tip income and overtime pay (up to certain limits, like $12,500 for overtime in some cases, temporary through 2028). These help service workers, gig economy folks, or anyone with extra hours.
- Auto Loan Interest Deduction: A new deduction for interest on certain vehicle loans (details vary by vehicle type and income).
- Other Notes: Some clean energy credits (e.g., for EVs or home improvements) were repealed or scaled back starting in 2025. Tax brackets and rates (top at 37%) are now permanent with inflation adjustments.
These changes generally mean lower taxes for most middle-income households, with estimates suggesting average tax cuts around $600+ and potentially larger refunds (up to $300–$1,000 more in some cases due to the new provisions).
How Everyday People Can Maximize Their 2025 Tax Refund
- Choose the Best Deduction Path Compare the higher standard deduction vs. itemizing. With the SALT cap at $40,000, add up your state/local taxes, mortgage interest, charity, and medical expenses—if they exceed the standard amount, itemize for bigger savings. Tools like tax software can run both scenarios quickly.
- Claim the New Senior Bonus if Eligible If you're 65+, don't miss the extra $6,000 deduction. It directly lowers taxable income and could push your refund higher—especially combined with Social Security considerations.
- Maximize Credits for Kids and Dependents Ensure you claim every qualifying child for the boosted $2,200 Child Tax Credit. Gather records for dependent care if applicable. Families with kids often see the biggest refund boosts here.
- Deduct Tips, Overtime, or Auto Loan Interest If your job involves tips (waitstaff, delivery drivers) or significant overtime, track and report qualifying amounts for the new deductions. For recent car buyers, check if your loan interest qualifies.
- Adjust Withholding or Make Last-Minute Moves If over-withheld (common for bigger refunds), that's fine—but if under-withheld, update your W-4 now for 2026. For 2025, max retirement contributions (IRA, 401(k)) if you haven't already—the deadline is your filing date (April 15, 2026, usually).
- Gather All Documentation Early Track everything: W-2s, 1099s, receipts for charity/medical, property tax bills, and any tip/overtime records. Use free IRS tools or software to estimate your refund.
- Consider Professional Help if Complex If you have gig income, high SALT, or multiple income sources, a tax pro can spot overlooked deductions/credits under the new rules.
Final Thoughts
The 2025 tax changes—via the One Big Beautiful Bill Act—generally favor everyday taxpayers by locking in lower rates, bigger deductions, and targeted relief for workers, families, and seniors. Many will see smaller tax bills or fatter refunds when filing in 2026. Start organizing your documents now, run the numbers, and take advantage of these updates. For personalized advice, consult a tax professional or use IRS resources. Small steps today can mean more money back in your pocket tomorrow!
Entity Formation
Entity Formation to Point You in the Right Direction
Entity formation can be a huge concept for any small business. There are numerous decisions to be made and details to be examined. One of those is the decision to either incorporate your business or form a limited liability company (LLC). So pointing your business in the right direction is one of the first steps.
But there’s a huge problem: there’s a blizzard of information, from the media, entertainment sources, and advertisements, out there. They’ll praise the virtues of formal incorporation or other similar entity formation ideas that limits the personal liability of an owner and provides tax advantages. But since every business is different, how do you know if it’s the right choice for you? That’s where we come in.
At Midwest Business & Accounting Services, we help our clients sift through all of the complicated forms of partnerships, incorporation and LLC’s. We’ll go over the pros and cons of each, and determine which option is best for you. For many start-ups and existing companies, the sole proprietorship or general partnership might be the superior business entity. Whatever the case is for you, we’ll provide you with enough information to allow you to make an informed decision for your business’ entity formation.
Retention
Storing Tax Records: How Long Is Long Enough?
April 15 has come and gone and another year of tax forms and shoeboxes full of receipts is behind us. But what should be done with those documents after your check or refund request is in the mail?
Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.
However, if the IRS believes you have significantly underreported your income (by 25 percent or more), it may go back six years in an audit. If there is any indication of fraud, or you do not file a return, no period of limitation exists. To be safe, use the following guidelines.
Business Documents To Keep For One Year
- Correspondence with Customers and Vendors
- Duplicate Deposit Slips
- Purchase Orders (other than Purchasing Department copy)
- Receiving Sheets
- Requisitions
- Stenographer’s Notebooks
- Stockroom Withdrawal Forms
Business Documents To Keep For Three Years
- Employee Personnel Records (after termination)
- Employment Applications
- Expired Insurance Policies
- General Correspondence
- Internal Audit Reports
- Internal Reports
- Petty Cash Vouchers
- Physical Inventory Tags
- Savings Bond Registration Records of Employees
- Time Cards For Hourly Employees
Business Documents To Keep For Six Years
- Accident Reports, Claims
- Accounts Payable Ledgers and Schedules
- Accounts Receivable Ledgers and Schedules
- Bank Statements and Reconciliations
- Cancelled Checks
- Cancelled Stock and Bond Certificates
- Employment Tax Records
- Expense Analysis and Expense Distribution Schedules
- Expired Contracts, Leases
- Expired Option Records
- Inventories of Products, Materials, Supplies
- Invoices to Customers
- Notes Receivable Ledgers, Schedules
- Payroll Records and Summaries, including payment to pensioners
- Plant Cost Ledgers
- Purchasing Department Copies of Purchase Orders
- Sales Records
- Subsidiary Ledgers
- Time Books
- Travel and Entertainment Records
- Vouchers for Payments to Vendors, Employees, etc.
- Voucher Register, Schedules
Business Records To Keep Forever
While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you’ll want to retain these documents indefinitely.
- Audit Reports from CPAs/Accountants
- Cancelled Checks for Important Payments (especially tax payments)
- Cash Books, Charts of Accounts
- Contracts, Leases Currently in Effect
- Corporate Documents (incorporation, charter, by-laws, etc.)
- Documents substantiating fixed asset additions
- Deeds
- Depreciation Schedules
- Financial Statements (Year End)
- General and Private Ledgers, Year End Trial Balances
- Insurance Records, Current Accident Reports, Claims, Policies
- Investment Trade Confirmations
- IRS Revenue Agent Reports
- Journals
- Legal Records, Correspondence and Other Important Matters
- Minutes Books of Directors and Stockholders
- Mortgages, Bills of Sale
- Property Appraisals by Outside Appraisers
- Property Records
- Retirement and Pension Records
- Tax Returns and Worksheets
- Trademark and Patent Registrations
Personal Documents To Keep For One Year
While it’s important to keep year-end mutual fund and IRA contribution statements forever, you don’t have to save monthly and quarterly statements once the year-end statement has arrived.
Personal Documents To Keep For Three Years
- Credit Card Statements
- Medical Bills (in case of insurance disputes)
- Utility Records
- Expired Insurance Policies
- Personal Documents To Keep For Six Years
Supporting Documents For Tax Returns
- Accident Reports and Claims
- Medical Bills (if tax-related)
- Sales Receipts
- Wage Garnishments
- Other Tax-Related Bills
- Personal Records To Keep Forever
CPA Audit Reports
- Legal Records
- Important Correspondence
- Income Tax Returns
- Income Tax Payment Checks
- Property Records / Improvement Receipts (or six years after property sold)
- Investment Trade Confirmations
- Retirement and Pension Records (Forms 5448, 1099-R and 8606 until all distributions are made from your IRA or other qualified plan)
- Special Circumstances
Car Records (keep until the car is sold)
- Credit Card Receipts (keep until verified on your statement)
- Insurance Policies (keep for the life of the policy)
- Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
- Pay Stubs (keep until reconciled with your W-2)
- Sales Receipts (keep for life of the warranty)
- Stock and Bond Records (keep for 6 years beyond selling)
- Warranties and Instructions (keep for the life of the product)
- Other Bills (keep until payment is verified on the next bill)
- Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)