You can’t change the tax code, but you can take advantage to the extent allowed.
Trump’s One Big Beautiful Bill Did 3 Things
- Made the tax code more complicated
- Made the tax code more unfair
- Increased the deficit
You cannot change any of that.
However, millions of mostly affluent Americans and some middle class would be wise to look at the tax code changes.
2025 Tax Breaks for SALT and Charity
Here’s a free link to the Wall Street Journal article How the Megabill Changes 2025 Tax Breaks for SALT and Charity
Last summer’s megabill made changes to many provisions, but the revisions to SALT and donations will matter most to a swath of affluent Americans. Reaping maximum benefits from them could be tricky, however, as the new law upends common strategies.
“The megabill changed the tax landscape significantly. People with state and local tax bills need to pay attention, especially if they also give to charity,” says JoAnn May, a CPA with Forest Asset Management near Chicago.
SALT deductions
To appease lawmakers from high-tax states, the megabill allowed deductions of state and local property taxes and income or sales taxes up to $40,000 for 2025-29, compared with just $10,000 per return for 2018-24.
The new deduction applies per return for most filers with adjusted gross income up to $500,000. So the $40,000 limit is for both single and joint filers. Above that, it phases down until it returns to $10,000 at $600,000 of income or above.
But there’s a ripple effect: To get this valuable break, filers must “itemize” (list) deductions for mortgage interest, charitable donations, medical expenses, SALT and others on Schedule A rather than opt for the lump sum known as the standard deduction. Largely because of the new SALT break, the number of itemizers will greatly expand as fewer people choose the standard deduction.
Itemizing deductions will be a no-brainer for many people with high SALT bills. Others who paid more than $10,000 but less than $40,000 will need to do some analysis—because the megabill expanded the standard deduction as well.
If you’ll be itemizing for 2025, be sure to check other items on Schedule A to maximize tax breaks.
This is especially important for charitable donations, which the megabill changed as discussed below. Schedule A deductions include allowable mortgage interest (and sometimes points), medical expenses, casualty and theft losses, disaster losses, gambling losses and others.
Should itemizers prepay 2026 property taxes to boost 2025 deductions? Maybe—but be careful, advises Eric Bronnenkant, who is head of tax at Edelman Financial Engines. To be deductible, these taxes must be formally assessed and due; they can’t just be an estimate or a deposit.
Workers age 50 or older who made more than $150,000 in 2025 should also check if they’ll be losing their deduction for the “catch-up” contribution to a 401(k) in 2026. Starting next year, such contributions by these savers must be in after-tax dollars to Roth accounts. This requirement is based on individual pay, not family income, and it doesn’t apply to self-employment income.
Catch-up contributions will be up to $8,000 for most workers next year, but they are $11,250 a worker ages 60 to 63. This means some dual-earner couples will lose up to $22,500 in deductions next year. Not prepaying property taxes might be one way to cushion the blow.
New Federal “No Tax on Tips” Deduction (2025-2028)
The “No Tax on Tips” deduction allows eligible workers to deduct up to $25,000 of qualified tips annually from their federal taxable income. Eligibility is limited to individuals in occupations that “customarily and regularly” received tips before 2025, as defined by the Treasury Department and IRS. Examples of eligible occupations include bartenders, servers, hotel staff, hair stylists, massage therapists, rideshare drivers, and delivery workers.
The deduction has income limits, phasing out for taxpayers with a modified adjusted gross income (MAGI) over $150,000 for single filers and $300,000 for married couples filing jointly. The deduction applies to voluntary tips (cash, credit card, or shared tips) but not mandatory service charges.
No Tax on Overtime
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
Maximum annual deduction is $12,500 ($25,000 for joint filers). Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). The deduction is available for both itemizing and non-itemizing taxpayers.
Certain employees are exempt from the rules on overtime. Generally, the FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half their regular rate of pay for all hours worked over 40 in a workweek. However, the law provides for certain exemptions.
The above snips are from Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025
Other OBBA Complexities
The One Big Beautiful Act increased Child Tax Credits to $2,200 per qualifying child for 2025 (indexed for inflation thereafter).
The OBBA created a new auto loan Interest deduction of up to $10,000 for interest paid on loans for new personal use vehicles assembled in the U.S., with income limits.
How Many Pages in the Tax Code?
- Federal Statutes (Internal Revenue Code): The actual laws passed by Congress (Title 26 of the U.S. Code) span about 2,600 to 4,000 pages across multiple volumes. The U.S. Government Publishing Office sells the statutes in several physical volumes.
- Statutes and Treasury Regulations: Including the detailed rules and regulations written by the IRS to implement the statutes brings the total to approximately 9,000 to 17,500 pages (or over 10 million words).
- Full Annotated Tax Reporter: Legal publishers like Commerce Clearing House (CCH) publish comprehensive resources that combine the statutes, regulations, IRS rulings, and extensive annotations of relevant court cases and editorial explanations. This massive compilation is generally cited as being around 70,000 to 75,000 pages and is the figure often referenced by politicians and media to illustrate the complexity of the entire body of tax law.
- The distinction is important because tax professionals need to consider not just the statutes, but also the regulations and case law to fully understand how the law is applied in various situations.
Mish Tax Proposal Discussion
I would end all deductions. SALT is especially galling. It’s a rebate to high tax states that encourages higher taxes.
The hypocrisy of tax the wealthy progressives is stunning. Trump not only went along with this, he demanded it to buy votes.
I suspect most charitable deductions, especially by the super-wealthy, are fraudulent donations based on inflated values. Regardless, there is no reason to allow such deductions.
Republicans expanded Child Tax Credits and Earned Income Tax Credits, again to buy votes.
The IRS cites EITC Fraud.
IRS estimates that around 33 percent of EITC claims are paid in error. Some of the errors are unintentional caused by the complexity of the law, but some of the claims are intentional disregard of the law.
Instead of EITC, I would have a much higher standard deduction. I would eliminate them to encourage actual work, not alleged work.
Also to encourage work, I would make changes to the Supplemental Nutrition Assistance Program (SNAP), better known as food stamps. Recommended changes: No candy, no snack crackers, no soda, no chips, etc. Instead, I would promote cleanliness by adding soap and cleaning supplies.
I like the idea of a VAT (value added tax).But I would exclude unprepared food (grocery stores), medicine, medical services, and clothing priced below a to-be-determined limit. Luxury items likes boats, fur coats, jewelry, etc, would have a high VAT.
I would have a very high standard deduction, paid for by the VAT. The income tax rate would be flat, with a single surcharge percent on income above a set limit say $500,000 per couple.
And finally, I would lower the corporate income tax rate to 10 percent on income earned in the US, with 20 percent on income earned outside the US. Watch jobs return to the US from that.
Mish Tax Proposal Synopsis
- High standard deduction.
- Flat income tax with a single jump above some specified amount, say $500,000
- VAT: No VAT on essentials, High VAT on luxury items
- No itemized deductions. Phase out mortgage deduction over 5 years.
- Reduced corporate tax rate (10 percent on US income, 20 percent elsewhere)
- Immediate writeoff of corporate expenses.
- SNAP changes
- No EITC
- No Child Tax Credits
We would scarcely need an IRS with those changes. Corporations could get rid of entire tax departments.
The US tax code’s complexity is well-documented, costing Americans ~7.1 billion hours in compliance for 2025 alone, per Tax Foundation data.
But my opinions don’t matter. You may as well take advantage of the tax code as it exists.
Related Posts
May 12, 2025: The “One Big Beautiful Bill” Will Continue Spending at Biden’s Level
The bill is certainly big, but it’s damn ugly.
May 28, 2025: Musk Slams Trump’s “Big Beautiful Bill” for Undoing the Work of DOGE
“I think a bill can be big or it could be beautiful. But I don’t know if it could be both.”
May 20, 2025: Trump’s “One Big Beautiful Bill” Would Increase the Deficit by $4.8 Trillion
Penn Wharton updated their budget analysis of the House bill as it now stands.
June 21, 2025: Record Deficits as Far as the Eye Can See and Trump Begs for More
Let’s investigate CBO deficit projections vs what actually happened.
May 14, 2025: Almost Half of New York City Is on Medicaid, So Is 40 Percent of California
Bill Clinton promised to “end welfare as we know it.” What happened?
In addition to making the tax code more complicated and more unfair, Republicans did not do a damn thing about entitlements.
Nearly half of NYC is on Medicaid and 40 percent of the entire state of California.
California expects to receive some $120 billion in Medicaid matching funds this year, more than Florida’s entire state budget.
For the icing on this Trump cake, please note Trump Says It ‘May Be Necessary’ to Extend Obamacare Subsidies
Accepting a one-year extension that Democrats proposed would have cost $35 billion.
[Trump’s alternate Proposal] Sending money directly to the people is the start of Universal Basic Income (UBI). Once UBI starts neither party will be able to stop it.
We may easily get UBI (that trump wants along with Elizabeth Warren, AOC and others) plus an Obamacare extension.
Twisted Logic Addendum
Trump says the “unaffordable care act has been a disaster ” but it “may be necessary” to extend it.
Thanks! I made a note to add that to my book of twisted government logic if and when I get to writing it.
Great proposals, but your odds of getting anything through this dysfunctional congress is close to zero. Politics is not about economics, but staying in power. So until you’re ready to address reality, it won’t matter what you post here…or at least until we go bankrupt…
A flat tax is fair because it has one bracket for everybody, and a flat tax is simple because it has no deductions and no credits. Which is why a flat tax is completely stupid and can only be fixed by turning it into a progressive income tax. So sorry, the commies are right on this one. One percentage times total income from all sources. According to AI, total income is ~29 trillion and total spending is around 10 trillion, which would require a flat tax rate of ~35%. On everybody. Including you.
You point out why we cannot tax our way out if the deficit mess. when looking at the percentage of GDP raised by taxes, it averages around 17% and never exceeds 20% according to FRED data. Plus, if 35% were confiscated in taxes the economy would collapse, just look at economic health of high tax states.
I’d go with a 25% national property tax (to include all assets) exempting the first $150,000 worth. Can’t get a 25% return on your assets to pay the tax? Sell it to someone who can. Get rid of income taxes, VATs, sales taxes, tariffs, government fees, etc…
Well I am glad you are not setting tax policy.
Sure. Asset speculators, PE firms, Hedge funds would all be crushed.
I keep reading AI will do my taxes, but I still end up at a prominent nationwide firm and spend hours with the manager going over figures. She admits that the tax code is difficult to understand and I am sure she cuts corners just to get the return finished and collect the $900+ fee. I give a lot to animal charities, but don’t even dare to send that information to the IRS data base, as I have been told it increases my chances of an audit. Why doesn’t the government just figure out what a flat sales tax would be to replace the tax code monstrosity and waste our time? I would gladly pay 20% tax on everything I buy just to avoid the January fight in the boxing ring with the tax code. Either that, or a 1789 French event to clear the entire mafia organization out of our lives.
it will never happen. See my comment elsewhere on Al Ullman.
By far, and it is not even a contest, the easiest part of doing a tax return is the tax brackets. The obsession with one bracket is just plain weird. The income tax is a percentage of a number. Like 10% of 100. That calculation is simple as pie. Calculating the 100: the 10% of “what” number is where the mess takes place. Having say 5 percentages does not complicate it one bit. With every session of congress lobbyists are buying changes to the “of what” number to benefit whomever has hired them. My parents’s 1952 return was easy as it gets to complete. They owned multiple small businesses: buildings, vehicles, employees, inventory, etc. In 1952 there were a large number of brackets. I think 20 in all. The top bracket was over 90%. Around 10,000 Americans paid 90% of a “what”. They didn’t seem to mind. In 1959, when JFK was running in the primary, JFK proposed stimulating the economy by cutting the top bracket to around 75%. The Republicans exploded in anger; they insisted that reckless proposal would cause inflation. It did.
How do you think Ai helper will help navigate this web of tax rules?
Make yourself Billionaires.
Tax reduction for Rich and Tariff for Poor.
“Anyone can be a billionaire”
the tax code, aka the rules for the game of life. smart men learn the rules when young and set up their lives to take advantage of the rules. the tax code has been a game for me and many others. not sure why smart people don’t all figure this out. no need to pay taxes if one sets up work life to profit from the rules of the game, we call life. i also call it the free shit army. lots of goodies.
This sounds like a progressive income tax.
This sounds like a progressive income tax.
CH: High standard deduction.
Flat income tax with a single jump above some specified amount, say $500,000
This sounds like a progressive income tax.
Mish: Then you are nuts.
It is a flat tax for over 99 percent of people
Flat tax?
Person A makes less than the standard deduction and pays 0%
Person B makes the ‘normal’ range and pays X%
Person C makes more than $500,000 and pays Y% (Y>X)
That’s certainly a progressive tax. Less progressive than what we currently have for sure, but definitely progressive. Why is that an issue?
>> made a note to add that to my book of twisted
>> government logic if and when I get to writing it.
They sure burn our village to save us, don’t they?
Biggest problem of a VAT is whether or not it applies just to the end product (final sale to consumers) or whether it applies at all stages (businesses pay it too).
If it’s just an end product VAT then every business owner is going to buy a corporate car, corporate boat, corporate jet etc. In other words they will buy everything in the companies name to avoid VAT. I ran a business many moons ago and that’s exactly what I did to avoid paying all kinds of taxes. The odds of being audited for any given purchase are low so if you don’t go crazy you can easily save a lot of money buying everything in the business name even if it’s for personal use.
If the VAT is passed through at all stages to avoid the above issues (which would require a lot of accountants and auditors which Mish wants to get rid of) then prices would probably double or triple due to the compounding tax problem at each stage (imagine how many parts and stages every component of a car goes through from time it’s mined/cut etc to the time it finally gets into the car).
Modern VAT systems have developed very effective mechanisms to prevent what you describe. There is a reason why EVERY significant country in this world has adopted a VAT, irrespective of whether countries have high or low overall taxation. The US is a strange outlier.
And yet countries like Greece and Italy etc specialize in avoiding paying VAT and other taxes.
At 24% (what many have speculated you’d need for a VAT to replace income taxes) the amount of barter /cash transactions in the economy will skyrocket. Simple example would be needing a plumber and going to a plumbing company they charge 100 hr + 24 VAT or 124 hr. If you pay cash to that same plumber you can pay him 110 hr and he makes +10, you save +14 and the government gets nothing.
You can already do that now though.
dead on. small business folks put lots of their personal items in business name and expenses. hell DJT deducted his high priced stormy daniels afternoon.
Ask anyone, “Should the Federal Government simplify the tax code?” Almost everybody, regardless of party affiliation, except accountants, will say yes. Then why doesn’t congress do this? Could it be that they are beholden to the beneficiaries of the existing taxation system? Like congressional term limits and congressional insider trading, our government is led by self-serving followers rather than leaders who will take a stand for the long-term greater good.
I’m looking forward to the increased SALT limit because I’m going to get a whole lot of money back thanks to high state taxes in Florida along with mortgage interest. Prior to this I could never itemize because the basic deduction was more than the 10K cap.
In my opinion this tax change really helps the middle class (what I consider myself) and a lot of people I know are going to benefit from this.
There is a reason that I have paid the same family-owned tax prep firm to do my taxes since 1981. $400/yr well spent for piece of mind. Never been audited.
Suggest you watch the Spielberg movie “Lincoln.”
Less giveaways, in all forms, is a step towards a sound and lasting economy/society. The more government legislation you add to the list to get rid of, the better.
Tax tip: if you’re single, get married to someone with no income. You’ll save money on taxes!
Penny wise, pound foolish
Then, you can pay their bills for life. Every guy I know with a housewife is working past 70. Give me equality.
I think your proposals are a giant step in the right direction, but I still favor Steve Forbe’s proposed flat tax if we are to have an income tax. I would like to see a national sales tax to replace the income tax, but fear congress would combine the two making things even worse.
No one ever thinks about us, everyone focuses on the little guys and it’s truly a wonder why so many still struggle. I haven’t qualified for any tax breaks for decades, and the only tax “break” I get to use are the 401k income reduction trick.
And because of that, it’s time to go to better tax havens where my money and I are treated best.
The Pirates Of The Caribbean LLC
The only income tax system that can rival the US system in terms of costly complexity is Italy’s system. The sad thing is that all that mind boggling complexity doesn’t buy anything in terms of improved fairness or efficiency. If a commission of tax experts would be tasked to come up with a really bad income tax system, simply copying the US system would do the job.
Good point. I added this note.
The US tax code’s complexity is well-documented, costing Americans ~7.1 billion hours in compliance for 2025 alone, per Tax Foundation data.
Thanks. The US has the highest per capita tax compliance cost in the world. Estimates I saw put the total cost of tax compliance around $400 billion. That’s real money for doing something that should be pretty simple.
We are experts at the overspend, after all. American Exceptionalism on full public display
italians like greeks……hide approximately 1/3 of economy under the table. per the economist and per real life knowledge. i have dual citizenship with italia.
The more tax system is complex the easier to evade the tax by the rich and corporations.
They have an army of accountants ( now more sophisticated AI ) to evade the system.
Have you considered China’s tax policies?
If you’re going to have a VAT with higher rates for luxury items, why have an income tax at all? Simplify the whole system and eliminate the disincentive on productive activities by dropping the income tax entirely.
Good question.
I don’t think you want tax on luxuries so high that no one buys them
There is also a case of wanting to spread things out. Luxuries are pro-cyclical to stock market gains.
I don’t know the best mix, or the best flat tax rate. But zero income tax just seems wrong.
I think you can make an argument for a corporate income tax easier than a personal income tax. Corporations receive limited liability protection which is a “good” which arguably should be paid for. The argument for a personal income tax is then based on “equity” (whatever that means) rather than economics. The country survived for 150 years without an income tax with less income inequality. If the goal is to reduce income inequality, eliminating the Fed and the “financialization” of the U.S. economy would likely reduce income inequality more than an income tax with the added benefits of stable prices and fiscal restraint.
Going with flat income tax for individuals and VAT for companies will simplify the taxes for individuals but it will make it little bit more complicated for the companies. And usually there is a lot of fraud with the VAT as the government collects only the difference between what the company paid for VAT and what it owes. There is a lot of initiative for fake invoices to increase what was paid for VAT. Anyway, I would love to have such system as my old country is like that – 20% VAT (not on medications and financial transactions) and 10% flat income tax for individuals and companies. The funny thing is that the socialist government introduced it it some 25+ years ago and immediately they started collecting more money compared with the old system that used progressive tax brackets similar to the one here. It benefits people with high income who can save – if you are spending your whole income the effective tax rate is 30% flat 🙂
Hardly any VAT fraud. It is hard to hide and collected at every stage.
Except people buy jewelry all the time. Unless you mean to put a floor on it of say 10K cost per item before it’s considered ‘luxury’. Otherwise young men who want to get married having to pay an extra high VAT on the engagement and wedding ring is going to be ripped off. Same with buying mothers day gifts for your mom/wife.
The same goes for boat. Presumably there will be a minimum boat level (1 million?) that would just pay normal VAT. Recreational boaters are not buying luxury items any more than people who buy an RV or a 4 wheeler or snowmobile are.
want a diamond ring – pay a vat or buy a fake. No one would know anyway
The person who knows is your wife and that’s the person that matters and you be divorced in a heartbeat when she finds out.
It’s one thing to pay one VAT price on everything. Its another to randomly call some things ‘luxury’ and charge higher VAT. Who gets to decide that? If I said cameras were a luxury item and needed to pay a higher VAT since everyone has a ‘good enough one’ on their phone you’d probably disagree. Same if I said your off road vehicle was a luxury item and needed to pay higher VAT. Better to have one VAT price for everything.
By luxury I meant non-necessities
Food, Shelter, Medical Expense, Clothes up to a certain amount.
Jewelry does not fit.
As for a diamond ring, might I suggest discussing it. Would you rather have a ring that looks as good and X Thousand in the bank for a down payment OR a diamond ring virtually indistinguishable and X thousand in the bank.
It’s a simple discussion and an unwise answer might be telling.
Sec 110103 Enhanced deduction for seniors from the ‘Big Beautiful Bill”
Could someone explain this section of the bill and how it might benefit seniors?
Thank You
This seems complicated so I will just repeat what the WSJ said.
The megabill also added a new deduction of $6,000 (single filers) and $12,000 (joint filers) for seniors age 65 and older for 2025. It begins to phase out at $75,000 of adjusted gross income for most singles and $150,000 for joint filers. Eligible seniors get this deduction whether or not they itemize.
Workers age 50 or older who made more than $150,000 in 2025 should also check if they’ll be losing their deduction for the “catch-up” contribution to a 401(k) in 2026. Starting next year, such contributions by these savers must be in after-tax dollars to Roth accounts. This requirement is based on individual pay, not family income, and it doesn’t apply to self-employment income.
Catch-up contributions will be up to $8,000 for most workers next year, but they are $11,250 a worker ages 60 to 63. This means some dual-earner couples will lose up to $22,500 in deductions next year. Not prepaying property taxes might be one way to cushion the blow.
Mish Comment: If only one spouse is 65 or older by the end of 2025 and the other spouse is under 65, the couple gets only the single-person amount of the new bonus deduction: $6,000 (not the full $12,000).
Thank you I will print that out for my cpa to look at
The deduction is reduced by 6% of adjusted gross income (AGI) that exceeds the $75,000 or $150,000 thresholds. Therefore, you’ll lose the entire deduction if AGI is $175,000 (single) or $250,000 (joint) or more.
If you need to show that to your cpa, prolly oughta find a new cpa.
He knows about it I meant to write I am keeping the above info on hand to remind myself
40% on Medicaid in California–had to read it twice and look it on elsewhere.
SALT deductions that high is enraging–if your state can’t manage a budget and requires massive taxation why would those citizens get a benefit vs those who life in a more responsible or thrifty state? Ridiculous yet true, no incentive or pressure applied by citizens to those states to make a course correction.
One thing Mish does is propose specific changes to simplify the tax code aimed at fiscal soundness and common sense. Ergo the lobbyists would never allow it.
California will claw back the cost of the Medicaid benefits (after death) if the person was 55+ when s/he got the benefits. These people will never get to leave anything to their kids. They can’t afford health coverage, so they take Medicaid and are grateful for it, but if they are older it is a permanent financial hole that they can never dig out of.
There is NO asset test for Medicaid in California. You can own a 20 million dollar house outright and still qualify, if your income is low. But when you die the value of the care you got (post age 55) will be clawed back from the sale of the house.
I have a friend here in CA who is pretty much unemployable. He was on Medicaid for years, including past the age of 55. He then inherited 500k. If any of it remains when he dies the state will take it back. He doesn’t care since he doesn’t have kids, so it has worked for him.
So basically Medicaid in California is a loan, if you are over 55. It is not a benefit. If you have money when you die the state can get some or all of the loan money back.
Great analysis, Mish!
“Nearly half of NYC is on Medicaid and 40 percent of the entire state of California.”
Now that’s a jaw dropping stat.
in both states it’s great care, too. i was shocked at how great.
California expects to receive some $120 billion in Medicaid matching funds this year, more than Florida’s entire state budget.