New Tax Law Passed in July Raises SALT Deduction Cap to $40,000 for 2025

WASHINGTON — A new tax law passed in July 2025 has significantly altered the landscape for American taxpayers, most notably by raising the cap on state and local tax (SALT) deductions to $40,000 for the 2025 tax year. The change, which quadruples the previous $10,000 limit established by the 2017 Tax Cuts and Jobs Act (TCJA), provides substantial relief for residents and business owners in high-tax states, though it comes with income-based limitations and a sunset provision. This legislative action is one of several key adjustments affecting family and business finances as policymakers debate the future of the TCJA, large portions of which are set to expire at the end of 2025. The new law temporarily raises the SALT deduction cap for single and joint filers to $40,000, and to $20,000 for married individuals filing separately. However, according to an analysis from Fidelity, the full benefit begins to phase out for filers with a modified adjusted gross income (MAGI) above $500,000, disappearing entirely for those with incomes of $600,000 or more. The new cap is scheduled to increase by 1% annually through 2029 before reverting to the original $10,000 level in 2030. Alongside the SALT deduction changes, the Child Tax Credit (CTC) has also been updated for the 2025 tax year. According to tax preparation firm Jackson Hewitt, the credit is worth up to $2,200 per qualifying child under the age of 17. This marks a departure from the temporary, larger monthly payments distributed during the pandemic era, returning the CTC to a partially refundable credit claimed on annual tax returns. The credit begins to phase out for individuals with a MAGI over $200,000 and for married couples filing jointly with a MAGI over $400,000. A key feature for lower-income families is the refundable portion of the credit, known as the Additional Child Tax Credit (ACTC). For 2025, up to $1,700 of the credit is refundable, meaning families can receive this amount as a refund even if they owe no federal income tax. This provision is designed to benefit taxpayers who earn at least $2,500 during the year but have limited tax liability. These enacted changes are occurring against a backdrop of broader tax reform proposals. The Bipartisan Policy Center (BPC) has put forward a framework for what it calls “pro-family, fiscally responsible tax reform” aimed at prioritizing low- and middle-income working families. The BPC’s package, estimated to cost approximately $810 billion over ten years if the TCJA expires, focuses on bolstering policies that help families afford child care, which it identifies as the third-largest household expenditure after housing and food. Their proposals seek to incentivize workforce participation and encourage businesses to offer more family-friendly benefits. Meanwhile, a House Republican tax bill proposes its own set of changes, including raising the standard deduction for 2025 to $16,000 for single filers and $32,000 for married couples. It also addresses the estate tax exemption, proposing to set it at $15 million for individuals and $30 million for married couples in 2026, significantly higher than the $7.14 million and $14.28 million it would revert to under current law. Other existing tax-saving mechanisms for families remain in place for 2025. Contributions to Health Savings Accounts (HSAs) for those with high-deductible health plans can reduce taxable income. Contribution limits for 2025 are set at $4,300 for self-only coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution allowed for individuals aged 55 and older, as reported by Experian. The flurry of tax code adjustments for 2025, particularly the partial restoration of the SALT deduction, creates both opportunities and complexities for business owners. While a higher deduction cap is welcome news for many in high-tax states, it's a temporary fix with income phase-outs that can catch the unwary. In our experience, relying on last year's tax strategy is a recipe for overpayment or, worse, non-compliance. These piecemeal changes, combined with the looming expiration of major TCJA provisions, make proactive planning essential. It’s no longer enough to just file taxes; businesses must actively manage their tax position throughout the year. Our firm specializes in tax preparation and compliance, helping clients navigate precisely these kinds of shifting regulations to optimize their financial outcomes. For business owners looking to understand how these 2025 changes specifically impact their bottom line, contact C&S Finance Group LLC at csfinancegroup.com to develop a forward-looking strategy. As the 2025 tax year unfolds, small and mid-sized business owners must remain vigilant. The changes to deductions and credits directly impact their personal tax liability and, for pass-through entities, their business's bottom line. All eyes will be on Congress as the end-of-year deadline for extending or overhauling the TCJA approaches, with the future of individual tax rates, the pass-through deduction, and other critical provisions hanging in the balance.