As year-end approaches, it’s a good idea for taxpayers to get a sense of their projected income for the year. This can drive important decisions on whether it might make sense to reduce or increase income (if possible) based on current circumstances. For example, a partial Roth conversion may make sense for those in lower tax brackets, while maximizing or accelerating deductions for those in higher tax brackets may make sense.
With new deductions introduced by the One Big Beautiful Bill Act taking effect for tax year 2025, there’s a sense of urgency to explore potential opportunities now.
New tax deductions
Planning for these deductions provides an opportunity to benefit from potential tax savings on one’s 2025 tax return. However, one of the challenges to claim these deductions is that they are phased out depending on certain income levels. Trying to keep track of these income phase-outs is confusing and adds complexity to the planning process. This chart highlights the varying income phase-out levels.
How income phase-outs apply
Source: H.R.1 – 119th Congress (2025–2026): One Big Beautiful Bill Act. July 4, 2025.Income phase-outs are based on modified adjusted gross income (MAGI). The MFJ in the table above is for married couples filing a joint tax return.
Planning considerations between now and year-end
- Itemizing or claiming the standard deduction? Planning for deductions typically starts with an analysis of whether a taxpayer is more likely to claim the standard deduction or itemize deductions on their tax return. However, most of these new deductions highlighted here can be utilized regardless of whether the taxpayer itemizes deductions or not. The only one noted that requires itemizing is the SALT deduction. Note that while the other deductions can be used in addition to the standard deduction, they will not reduce adjusted gross income (AGI).
- Is there an opportunity to manage income? Taxpayers that can take advantage of these new deductions may also be seeking planning strategies to avoid the income phase-outs. For example, a taxpayer with high state and local taxes and income close or near the phase-out threshold ($500,000 in modified adjusted gross income [MAGI]), may be well-served to avoid additional income before the end of the year to avoid a reduction in how much they can deduct. In the case of the SALT deduction, once MAGI reaches $600,000 the cap on deducting those taxes reverts to $10,000. Note that only strategies that reduce MAGI will apply here. For example, donating more to charities can help reduce taxable income, but will not impact MAGI. Contributions to retirement accounts, IRAs, or Health Savings Accounts (HSAs) can reduce MAGI and may be an effective way to avoid a potential phase-out. Additionally, business owners or self-employed individuals may have other options, such as accelerating expenses, delaying invoices, or taking a home office deduction for example.
Seek expert advice before acting on deductions
Individual taxpayers and business owners should consult with a qualified tax professional to understand how these new deductions may affect their specific circumstances. They may be able to optimize certain deductions by timing or realizing income. Working with a qualified financial professional may help guide next steps.
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