As part of the “One Big Beautiful Bill”, there is a new tax deduction for Americans over age 65. There will be a new $6,000 “Bonus” tax deduction which will be on top of your standard deduction or itemized deductions on your tax return. This will be per person, so a married couple who are both at least 65, will receive $12,000 in additional tax deductions.
Here are the new tax deduction amounts for 2025:
| TAX YEAR 2025 | Single | Married Filing Jointly |
| Standard Deduction | $15,750 | $31,500 |
| Over 65 Deduction | $2,000 | $3,200 |
| New “Bonus Deduction” | $6,000 | $12,000 |
| TOTAL | $23,750 | $46,700 |
While the White House posted that “No Tax on Social Security is a Reality” under the OBBB, that is an exaggeration. Social Security will still be taxable, although more seniors will end up owing less taxes under the expanded tax deduction. Many retirees will owe no federal income taxes. The Bonus Deduction is not linked to Social Security and you do not have to claim SS to receive the deduction.
The Fine Print
If you itemize deductions, rather than taking the standard deduction, you are still eligible for the Bonus Deduction of $6,000 per person. So your deduction could be even higher than the deductions listed above. There are two other tax savings in the One Big Beautiful Bill:
- A new deduction for interest on car loans, up to $10,000, for new vehicles made in the USA and purchased in 2025-2028. (I still hate the idea of borrowing money for a depreciating asset.)
- The cap on deducting state and local taxes (SALT) has been increased from $10,000 to $40,000. This is great news for people in high tax states who itemize.
There is, however, a catch: there will be income restrictions on the $6,000 Bonus Deduction. The Deduction will be phased out if your MAGI (Modified Adjusted Gross Income) is above $75,000 single or $150,000 married. This will create planning opportunities for those over 65 to keep their taxable income under these income thresholds. Some ways we might do this include:
- Avoid, reduce, or smooth IRA/401(k) distributions if you are under age 73. That’s the age RMDs start.
- Withdraw from your Roth IRA if necessary, instead of your Traditional IRA.
- If you are over age 73, Qualified Charitable Distributions (QCDs) from your IRA will reduce your MAGI while fulfilling your RMDs.
- Avoid selling taxable stocks or funds which create capital gains. Capital Gains are included in MAGI.
- Defer interest income with a fixed annuity (MYGA).
- Defer your Social Security benefits until age 70.
Tax efficiency remains a core focus of our financial planning work for clients. As tax regulations change, we will find new ways to help manage your tax liabilities.
The Bad News
The new Bonus Deduction of $6,000 is not permanent – it will expire after 2028. It is not an accident that the expiration will be in the election year. The Republicans will take credit for the tax savings and promise to extend the deduction if they stay in control. And if they lose and the deduction goes away, they can claim Democrats took away your tax deductions. It is a brilliant move politically, although also manipulative and a way to bribe voters. Both sides do this, but this feels quite slimy to me.
The tax cuts in this tax bill will increase the deficit by an estimated $3 trillion over the next decade. We are giving a tax cut to grandparents which will have to be paid for by their grandchildren. Just because this is popular doesn’t mean it is a smart policy for the country, long-term. Our growing debt will have many side effects:
- Interest on the debt is now the largest item in the US budget, surpassing defense spending in 2024.
- Debt will crowd out investment in growth, leading to higher inflation, a weaker economy, and eventually undermining market confidence.
- We will be worse prepared to address the failure of Social Security payments in 2033.
- Deficit spending will rise to 7% of GDP by 2026. If we have to borrow 7% to achieve a GDP growth rate of 3%, we do not have a healthy economy.
Final Thoughts
I am in favor of lower taxes and anything which helps my clients keep more of their money. My job is to help investors grow and preserve their wealth which includes using every possible tax advantage we can find. I am passionate about this work and it makes a direct impact on people’s lives.
I am pleased to see the Child Tax Credit continued under the bill and increased from $2,000 to $2,200. Other than that, however, the Bill serves to transfer wealth from the young to the old, which will further widen the income and wealth disparities in our country.
It is disappointing that neither party wants to address the long-term issues of our debt and underfunded entitlement programs. I’d like to see tax cuts linked to corresponding savings in government spending. At some point, we have to figure out how to reduce deficits, manage the debt, and fix our broken Social Security and Medicare systems. Unfortunately, the Big Bill doesn’t look very beautiful for tackling any of those problems. Washington today cannot look any further out than the next election and that’s why we keep making short-sighted choices.
In 1957, John F Kennedy won the Pulitzer Prize for his book, Profiles in Courage. He wrote about eight Senators who had the political courage to make unpopular choices in the long-term interests of the country. Kennedy noted that politicians face the challenge of three pressures: to be liked (to do what is popular), to get re-elected, and the pressure of special interest groups. That remains true today. I wish more of our current politicians would give the American people the same credit as Kennedy did: “the people will not condemn those whose devotion to principle leads them to unpopular courses, but will reward courage, respect honor and ultimately recognize right.”
