Talking new tax rules with University of Minnesota

Some changes are going into effect this tax season due to the passage of the One Big Beautiful Bill Act (OBBBA) last year. David Horn, the director of the Master of Business Taxation program at Minnesota Carlson, shares his insights on some of the biggest differences for filers this year and best practices to keep in mind.

Q: “No Tax on Tips” and “No Tax on Overtime” are among the new deductions this year. What should taxpayers know?
Horn: While “no tax on tips and overtime” is a bit of a misnomer, these provisions provide a real federal tax benefit for people in industries that traditionally rely on tips and overtime pay.

For 2025, taxpayers in qualified fields — like hospitality, food service and transportation — can deduct up to $25,000 of their tipped income from their federal taxable income. For overtime, the deduction is capped at $12,500 (or $25,000 for joint filers). One detail that often gets overlooked is that only the income above your normal pay rate is deductible for the overtime deduction. So, if your overtime pay rate is “time-and-a-half,” it’s specifically that extra “half” premium that is tax-deductible, not the base hourly rate.

Q: Are there any changes for senior citizens?
Horn: Yes. Taxpayers aged 65 or older now receive a $6,000 deduction ($12,000 for joint filers) in addition to their standard deduction. Note that this benefit begins to phase out once income exceeds $75,000 for single taxpayers or $150,000 for those married filing jointly.

Q: Is car loan interest tax-deductible now?
Horn: As with most things in tax, it depends. A new car loan interest deduction was introduced with the OBBBA, but it only applies to loans on new vehicles purchased in 2025. Furthermore, the vehicle must be for personal use and assembled in the U.S. The deduction is capped at $10,000 and phases out once income exceeds $100,000 (or $200,000 for joint filers). Since this deduction remains in place until 2028, it may influence taxpayers' purchasing decisions over the next few years.

Q: The state and local taxes (SALT) cap increased from $10,000 to $40,000. What does that mean for Minnesotans?
Horn: Expanding the SALT deduction will provide additional federal income tax relief to many Minnesotans, particularly considering Minnesota’s relatively high state income tax rate and the large increases to property taxes we are seeing around the state. However, the expansion of the SALT deduction doesn’t impact everyone. In general, homeowners and middle- to high-income taxpayers are going to see the biggest impact. It is worth noting that only taxpayers who itemize their deductions benefit from this expansion.

Q: What are your recommendations for a smooth filing process?
Horn: As our Master of Business Taxation students quickly learn, organization is key. The better organized you are with your tax documents, the smoother the process. It is critical to understand your various income sources and the specific records required to claim these new benefits. Starting sooner rather than later ensures you have all your "ducks in a row." And, as always, if the prospect of tackling your taxes is daunting, seek help from a trusted professional, such as a CPA.

David Horn joined Minnesota Carlson n 2024 and currently serves as the Director of the MBT program. David began his career in the tax department at Ernst & Young, where he specialized in corporate and partnership taxation, and then served as the head of the tax department at Proto Labs, Inc., managing the company’s global income tax function. Prior to Minnesota Carlson, he was an associate professor at Metropolitan State University.