Month: September 2025

Do you regularly earn overtime pay? If so, the One Big Beautiful Bill Act (OBBBA) may help lower your federal income tax bill.

New Overtime Deduction

Before 2025, the IRS taxed every dollar of your overtime pay as ordinary income. Beginning this year (2025) and continuing through 2028, the OBBBA allows a new temporary deduction for qualified overtime income:

• Up to $12,500 each year for single filers
• Up to $25,000 each year for married joint-filers

This deduction applies whether or not you itemize deductions.

What Counts as Qualified Overtime Income

Qualified overtime income includes only the extra pay you earn for overtime hours—generally, the portion above your regular hourly rate under the Fair Labor Standards Act. For example, if your regular rate is $25 per hour and you receive $37.50 for overtime, the extra $12.50 per hour counts as qualified overtime income.

Important: This deduction does not reduce your adjusted gross income (AGI). It also does not exempt your overtime pay from payroll taxes or, in many cases, state and local taxes.

Income Phase-outs

The deduction begins to phase out when your modified adjusted gross income (MAGI) exceeds

• $150,000 for single filers, or
• $300,000 for married joint-filers.

The deduction decreases by $100 for every $1,000 of income above these thresholds. Phase-out ends at $275,000 for single filers and $550,000 for joint filers.

Because these thresholds are high, most overtime earners will qualify for the full deduction.

Key Restrictions and Requirements

• You must file jointly to claim the $25,000 married joint-filer deduction.
• You must include your valid Social Security number on your tax return.
• Your employer must report your qualified overtime income on your W-2 or another IRS-specified statement.
• Business owners cannot pay themselves “overtime” to claim the deduction, since overtime law excludes owners who actively manage their corporations.

If you would like to discuss the new overtime rules, please call me directly at 408-778-9651 

• By Leon Clinton
• September 19, 2025

If you plan to buy equipment, furniture, computers, or other personal property for your business, the One Big Beautiful Bill Act (OBBBA) delivers great news. You can now deduct the full cost of such property in a single year—without limit.

For manufacturers, the OBBBA goes even further by creating a new 100 percent deduction for factories and other production-related real estate.

100 Percent Bonus Depreciation Returns

Bonus depreciation lets you deduct a property’s cost in the year you place it in service, instead of spreading the deduction over several years. You can apply it to most personal business property, off-the-shelf software, and land improvements such as landscaping.

The OBBBA increases bonus depreciation to 100 percent for property acquired and placed in service on or after January 20, 2025. Previously, bonus depreciation had dropped to 60 percent in 2024 and fell to 40 percent from January 1 through January 19. The new law makes the 100 percent deduction permanent.

This change makes bonus depreciation the primary method for deducting personal property. You may deduct the entire cost of a qualifying property in one year if you use it exclusively for business. The only exception is listed property, primarily passenger automobiles, which remain subject to an annual cap of $8,000.

There is no overall limit on bonus depreciation deductions, even if they create a loss. You can carry unused deductions forward to future years. If you prefer not to use bonus depreciation, you must opt out for the entire class of assets.

Enhanced Section 179 Deduction

Section 179 expensing overlaps with bonus depreciation but comes with annual limits. The OBBBA raised the Section 179 limit to $2.5 million for 2025, with a phase-out beginning at $4 million of property placed in service.

Because of the new, permanent 100 percent bonus depreciation, most businesses will rely less on Section 179. Unlike bonus depreciation, Section 179 

• requires business use of at least 51 percent, 
• cannot create a loss, and 
• carries annual caps. 

However, Section 179 allows you to pick and choose specific assets to expense, which can be beneficial for planning purposes.

New Deduction for Qualified Production Property

The OBBBA also created a temporary 100 percent deduction for real property used in manufacturing tangible goods, such as factories, refining halls, and assembly lines. 

Typically, businesses depreciate such property over a period of 39 years. 

Now, you may deduct the entire cost in one year if you build the property between January 20, 2025, and December 31, 2028, and place it in service by January 1, 2031. Specific existing property may also qualify if it was not in service as qualified production property between January 1, 2021, and May 12, 2025.

If you would like to discuss the OBBBA depreciation rules, please call me directly at (408) 778-9651.

• By Leon Clinton
• September 16, 2025

Starting in 2025, the One Big Beautiful Bill Act (OBBBA) increases and makes permanent the larger standard deductions introduced by the Tax Cuts and Jobs Act. The new standard deductions for this year (2025) are

• $15,750 for single filers,
• $31,500 for married couples filing jointly, and
• $23,625 for heads of household.

The IRS will adjust the amounts annually for inflation beginning in 2026. Additional deductions remain for those who are age 65 or older or blind.

If you would like to discuss standard deductions, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 9, 2025