A Quick Mid-Year Tax Update from Schaaf CPA Group

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Tax laws are changing faster than most people realize. The One Big Beautiful Bill — signed into law on July 4, 2025 (P.L. 119-21) — was the most significant overhaul of the tax code since 2017, and many of the changes retroactively affect your 2025 return. If you filed an extension, your individual return is due October 15, 2026 — that deadline is still ahead of you. We've compiled the most important mid-year updates below. As always, if any of these situations apply to you, give us a call so we can help you make the most of them. 

The One Big Beautiful Bill: The Short Version 

If you've been hearing about the "One Big Beautiful Bill Act" and aren't sure what it means for you, here's the plain-English summary. President Trump signed this sweeping tax package into law on July 4, 2025, making permanent many of the 2017 Tax Cuts and Jobs Act provisions that were set to expire — and adding several brand-new deductions. The result: higher standard deductions, lower effective tax rates for most people, and a handful of new deductions for specific groups like tipped workers, overtime earners, seniors, and new vehicle buyers. Many of these changes apply starting with your 2025 tax return, so they affect you right now. 

One important note on the new deductions. The tip, overtime, car loan interest, and senior deductions created by this law are all reported on new Schedule 1-A and flow to Line 13b of your Form 1040. This means they reduce your taxable income — not your Adjusted Gross Income (AGI). Both itemizers and non-itemizers can claim them. But because AGI is unchanged, these deductions do not help with AGI-sensitive items like IRA deduction phase-outs, ACA premium subsidies, Medicare IRMAA brackets, or the Social Security taxability worksheet. Keep that in mind when planning. 

FOR INDIVIDUALS 

Your Standard Deduction Just Went Up — Again 

For the 2025 tax year, the standard deduction increased to $15,750 for single filers and $31,500 for married couples filing jointly. For 2026 (the return you'll file next April), it rises again to $16,100 single and $32,200 joint, thanks to inflation adjustments. The practical effect: more of your income sits in the "zero-tax zone," meaning more money in your pocket. If you've been borderline on whether to itemize, now is a great time to run those numbers with us. 

No Tax on Tips — Up to $25,000 

If you work in a job where you receive tips — restaurant workers, bartenders, hair stylists, personal trainers, and many others — you may be eligible to deduct up to $25,000 of your tip income from your taxable income, provided your occupation appears on the IRS-published qualifying occupation list (Prop. Reg. §1.224-1, which covers roughly 70 occupations across food and beverage, hospitality, personal services, delivery, and transportation categories). You don't have to itemize to claim it, but remember: this deduction reduces taxable income, not AGI. The deduction phases out for income above $150,000 (single) or $300,000 (joint), and is fully gone at $400,000 (single) or $550,000 (joint). It applies to tax years 2025 through 2028. 

One important exclusion: Employees of — and self-employed individuals in — a Specified Service Trade or Business (SSTB) under IRC §199A are not eligible for the tip deduction. SSTBs include law firms, medical practices, accounting and financial-services firms, and similar professional service businesses. If you work in one of these fields and receive tips, call us before claiming this deduction. 

Bottom line: If you or a family member earns tips, call us before year-end. This deduction could mean thousands back in your pocket. 

No Tax on Overtime — Either 

The same law created a parallel deduction for overtime pay. Specifically, you can deduct the extra half of your time-and-a-half overtime — not the full OT pay, just the "bonus" portion above your regular rate (the FLSA-required premium). The maximum is $12,500 per person ($25,000 for married couples filing jointly). The phase-out starts at the same MAGI thresholds — $150,000 (single) / $300,000 (joint) — but the complete phase-out differs from tips: the overtime deduction is fully gone at $275,000 (single) or $550,000 (joint). 

Quick math: If your regular pay is $20/hour and your overtime rate is $30/hour, the deductible portion is $10/hour. A rough shortcut: about one-third of your total overtime pay is approximately the deductible amount — but only when your overtime rate is exactly 1.5× your regular rate. If you earn double-time, mandatory differentials, or contractual rates above 1.5×, the calculation is different. Bring your pay stubs and we'll work through it with you. 

New Car Loan Interest Deduction 

Bought a new vehicle after December 31, 2024, and financed it? You may be able to deduct up to $10,000 per year in car loan interest — but the income limits are narrower than many sources are reporting. Here's what's required: 

• Vehicle must be new (not used or leased) and assembled in the United States 

• Loan must originate after December 31, 2024, from an unrelated lender 

• Vehicle weight must be under 14,000 lbs (cars, SUVs, trucks, vans, motorcycles) 

• Personal use only (separate business rules apply) 

Income limits: The deduction phases out beginning at $100,000 MAGI (single) / $200,000 (joint) and is eliminated entirely at $150,000 (single) / $250,000 (joint). The reduction is $200 for every $1,000 over the threshold. Note: what must be new is the vehicle, not the loan. If you refinance a qualifying vehicle, the interest on the refinanced amount can still qualify. 

If you're car shopping this summer: Talk to us first. The U.S.-assembly requirement eliminates many popular foreign-assembled vehicles. And if your income is in or near the phase-out range, we can calculate your exact deduction before you sign. 

SALT Deduction Is Now $40,000 

Before this law change, the State and Local Tax (SALT) deduction was capped at $10,000 regardless of what you actually paid in property taxes, state income taxes, and local taxes. That limit has now been raised to $40,000 for filers with income below $500,000. For most Hoosiers, this unlocks a real deduction that was previously inaccessible. The new cap applies for 2025 through 2029, then reverts to $10,000 in 2030. 

One clarification: if your income is above $500,000, the cap doesn't disappear entirely — it phases down at a rate of 30% of the excess but cannot drop below the old $10,000 floor. Also note: for 2026, the SALT cap rises to $40,400 after inflation adjustment, and the phase-out threshold rises to $505,000 ($252,500 if Married Filing Separately). The 2025 threshold is $500,000 ($250,000 MFS). 

Are You 65 or Older? There's a New $6,000 Deduction for You 

Seniors received some of the most meaningful relief in the new law. Taxpayers aged 65 or older can claim an additional $6,000 deduction on top of both the regular standard deduction and the existing senior standard deduction add-on — that's $12,000 extra if you and your spouse are both 65 or older. This is sometimes referred to as the "No Tax on Social Security" deduction, but it's technically an enhanced deduction that reduces taxable income, not an exemption on Social Security income. Because it's a below-the-line deduction, it does not change the rules that determine what portion of your Social Security is taxable — though in practice, the lower taxable income often means fewer benefits get taxed. 

Phase-out details (important if both spouses are 65+): 

Situation	Deduction Amount	Phase-out Starts	Fully Gone At
Single, age 65+	$6,000	$75,000 MAGI	$175,000
MFJ, one spouse 65+	$6,000	$150,000 MAGI	$250,000

Don't Forget Estimated Tax Deadlines This Summer 

If you pay quarterly estimated taxes, mark these dates on your calendar right now: 

• June 15, 2026 — Q2 2026 estimated taxes due 

• September 15, 2026 — Q3 2026 estimated taxes due 

• January 15, 2027 — Q4 2026 estimated taxes due 

Missing a quarterly payment triggers an underpayment penalty — an extension on your return does not extend estimated payment due dates. With the new deductions available this year, your effective rate may have shifted.  

Roth IRA Limits Increased in 2026 

Good news for retirement savers: the Roth IRA contribution limit increased for 2026 to $7,500 for those under 50 and $8,600 for those age 50 or older. The MFJ phase-out begins at $242,000 (up from $236,000 in 2025). If your income exceeds the Roth limit, the Backdoor Roth strategy remains available: make a non-deductible Traditional IRA contribution and immediately convert to Roth. This works cleanly as long as you don't have a pre-tax IRA balance. Call us before year-end to confirm it works for your situation. 

Watch Out: IRS Dirty Dozen Scams for 2026 

The IRS released its annual "Dirty Dozen" scam list, and the threats are more sophisticated than ever. The top threats to watch for right now: 

• Fake IRS emails and texts (phishing/smishing): Scammers send alarming messages with QR codes or links to fake IRS websites asking you to "verify" your account or claim a refund. 

• AI phone impersonation: Scammers now use AI-generated voice technology to mimic official-sounding callers with spoofed IRS phone numbers. 

The rule is simple: The IRS will always contact you by mail first. The IRS will never call to demand immediate payment, threaten arrest, or request payment by gift card, wire transfer, or cryptocurrency. If you receive any of these communications, hang up or delete and verify directly at IRS.gov. 

Energy Efficiency Credits: Know the Exact Expiration Dates 

Two important credits ended recently — but they had different expiration dates, and conflating them could cause you to miss a credit you earned: 

Credit	IRC Section	What It Covers	Expired
Energy Efficient Home Improvement	§25C	HVAC, windows, doors, water heaters, insulation, audits	December 31, 2025
Residential Clean Energy	§25D	Solar panels, battery storage, geothermal	December 31, 2025
New Clean Vehicle (EV)	§30D	New electric vehicles	September 30, 2025
Used Clean Vehicle	§25E	Used EVs	September 30, 2025

If you made qualifying home energy improvements (HVAC, new windows, insulation, etc.) during the fourth quarter of 2025 — those improvements are still eligible for the §25C credit on your 2025 return, as long as they were placed in service by December 31, 2025. Don't overlook that if you filed on extension and haven't finalized your return yet. 

FOR SMALL BUSINESSES 

100% Bonus Depreciation Is Back — Permanently 

This is big news for business owners. The One Big Beautiful Bill permanently restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. That means if you buy equipment, machinery, computers, vehicles, furniture, or other qualifying business assets this year and beyond, you can write off the full cost in Year 1, even if you finance the purchase. 

	Bonus Depreciation	Section 179
2026 max deduction	100% of cost	Up to $2,560,000
Dollar cap	None	$2,560,000
Can create a tax loss?	Yes	No
Used property eligible?	Yes	Yes

What this means for you: If you've been putting off buying a truck, trailer, piece of equipment, or office furniture, now is the time. Talk to us before the purchase — the way you title and structure it still matters. 

The 20% Small Business Deduction Is Now Permanent 

If you own a pass-through business — an S Corporation, partnership, LLC, or sole proprietorship — you've benefited from the 20% Qualified Business Income (QBI) deduction. That deduction was set to expire at the end of 2025. The new law made it permanent. For 2025, the income threshold for married filing jointly is $394,600, above which limitations may apply depending on whether your business pays wages and the nature of your business. For 2026, the MFJ threshold rises to $403,500 (phase-in ceiling $553,500; single threshold $201,775, ceiling $276,775) — and the OBBBA widened the phase-in range to $75,000 for single filers and $150,000 for joint filers beginning in 2026. There are still strategies to preserve some or all of the deduction above those thresholds — reach out to us. 

HSA Expansion for 2026 — Big News for Self-Employed Clients 

Effective January 1, 2026, P.L. 119-21 (IRC §223(c)(2)(H)) confirms that all ACA Bronze and Catastrophic plans are now treated as HDHPs for HSA-eligibility purposes. Previously, only specific High Deductible Health Plans qualified. Now, if you or your employees are enrolled in a Bronze marketplace plan, you can contribute to a Health Savings Account regardless of the plan's technical deductible structure. 

This is especially valuable for self-employed individuals and small business owners who purchase marketplace coverage. HSAs offer a triple tax benefit: contributions are deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. The 2026 HSA contribution limits per Rev. Proc. 2025-19 are $4,400 for self-only and $8,750 for family coverage. 

Action item: If you're currently on a Bronze marketplace plan and not contributing to an HSA, you're leaving a significant triple tax benefit on the table. Call us. 

Key Numbers at a Glance 

Item	2025	2026
Standard Deduction (Single)	$15,750	$16,100
Standard Deduction (MFJ)	$31,500	$32,200
SALT Cap (phase-down above threshold)¹	$40,000	$40,400
Child Tax Credit	$2,200/child	$2,200/child
Senior Deduction (age 65+, per person)	$6,000	$6,000
Roth IRA Limit (under 50)	$7,000	$7,500
Roth IRA Limit (50+)	$8,000	$8,600
No Tax on Tips (max deduction)	$25,000	$25,000
No Tax on Overtime — Single max	$12,500	$12,500
No Tax on Overtime — MFJ max	$25,000	$25,000
Car Loan Interest (max deduction)	$10,000/yr	$10,000/yr
Bonus Depreciation	100% (permanent)	100% (permanent)
HSA Self-Only	$4,300	$4,400
HSA Family	$8,550	$8,750

¹ SALT phase-down begins above $500,000 MAGI (2025) / $505,000 MAGI (2026); $250,000 / $252,500 for Married Filing Separately. Above the threshold the cap phases down 30% of excess but cannot fall below $10,000. 

Upcoming Deadlines 

Date	What's Due
June 15, 2026	Q2 2026 estimated tax payment
September 15, 2026	Q3 2026 estimated tax payment; extended partnership/S-Corp returns
October 15, 2026	Extended individual 2025 income tax returns due
January 15, 2027	Q4 2026 estimated tax payment

We're here all year, not just at tax time. If any of the items above apply to your situation — or if you have questions about how the new law affects your specific picture — call us at 317.867.5427 or visit www.schaafcpa.com. 

IRS CIRCULAR 230 DISCLOSURE: Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing, or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on these matters.