By admin 
On July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was enacted, introducing significant new deductions that can benefit freelance and self-employed individuals. Below are some key quick tips based on the most relevant provisions, along with some initial guidance for maximizing potential tax benefits. As always, it is best to consult a tax professional if you have questions and to consider adjusting your tax plan when warranted:
Tip 1: Deduction for Qualified Tips May Ease Tax Burden for Gig Workers
Effective from 2025 through 2028, taxpayers in occupations recognized by the IRS as regularly receiving tips may deduct up to $25,000 annually in qualified tips. Eligible tips include those voluntarily received in cash, by charge, or through tip sharing and must be properly reported via W-2, 1099, Form 4137, or other authorized statements.
Eligibility Criteria:
- You must be employed or self-employed in a tipping occupation, as designated by the IRS (Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.)
- Deduction is limited to the net income from the business in which tips were earned (for self-employed individuals).
- Phaseout begins at $150,000 modified adjusted gross income ($300,000 for joint filers).
- SSTBs under Section 199A and individuals employed by SSTBs do not qualify.
- Taxpayers must file jointly if married and include their Social Security Number.
Action Items:
- Maintain thorough records of all tipped income.
- Verify occupational classification when IRS guidance is published.
- Ensure proper reporting of tips across all required forms.
Tip 2: Freelancers May Be Eligible for Overtime Compensation Deduction
From 2025 to 2028, individuals may deduct the portion of overtime pay exceeding their regular rate of compensation, such as the “half” in “time-and-a-half,” provided that the overtime is mandated by the Fair Labor Standards Act (FLSA) and is reported on Form W-2, 1099, or an equivalent statement.
Eligibility Criteria:
- Applicable to all qualifying workers, including gig and freelance professionals.
- Deduction limited to $12,500 annually ($25,000 for joint filers).
- Phaseout starts at $150,000 ($300,000 for joint filers).
- Taxpayers must file jointly if married and include their Social Security Number.
Action Items:
- Confirm overtime payments meet FLSA definitions.
- Retain documentation from payors detailing total overtime compensation.
- Monitor IRS announcements on implementation and transitional relief.
Tip 3: Optimizing the Deduction for Car Loan Interest
For tax years 2025 through 2028, individuals may deduct up to $10,000 annually in interest paid on loans used to purchase qualifying personal-use vehicles. Leases do not qualify, and the vehicle must be newly purchased, U.S.-assembled, and not used commercially.
Eligibility Criteria:
- Loan must originate after December 31, 2024
- Deduction is only available for the original owner of a new vehicle under 14,000 lbs.
- Phaseout begins at $100,000 ($200,000 for joint filers).
- Taxpayers must include the vehicle’s VIN on the tax return.
Action Items:
- Retain all loan and interest documentation.
- Verify vehicle eligibility and ensure purchase meets statutory requirements.
- Include correct VIN when filing.
Tip 4: For Second Career Freelancers, Consider the Senior Deduction Enhancement
Individuals aged 65 or older may claim an additional deduction of $6,000 annually—on top of the existing senior standard deduction—for tax years 2025 through 2028. Joint filers where both spouses are eligible may claim up to $12,000.
Eligibility Criteria:
- Taxpayers must attain age 65 by the end of the taxable year.
- Phaseout begins at $75,000 ($150,000 for joint filers).
- Taxpayers must include the qualifying SSN and file jointly if applicable.
Action Items:
- Confirm age eligibility prior to filing.
- Include all required taxpayer information.
- Leverage both deductions to optimize standard deduction strategy.
Stay Tuned…More to Come on the Impact of the BBB on Freelance Taxes
The IRS has committed to issuing further guidance and transition relief for 2025. As the details are released in regard to these and other key provisions of the bill be sure to consult with a tax professional and maintain comprehensive records to ensure compliance and maximize eligible deductions under this new tax law.