The 2025 tax year brings significant updates that may impact your financial plans. Whether you’re an individual taxpayer or a business owner, understanding these changes is crucial to maximizing your savings and minimizing your liabilities. Here’s a comprehensive overview of what’s changing and how you can prepare.
For Individuals
1. Increased Standard Deduction:
- Single filers: $15,000
- Married filing jointly: $30,000
- Heads of household: $22,500
2. Alternative Minimum Tax (AMT) Exemptions:
- Single filers: $88,100
- Married filing jointly: $137,000
3. Estate and Gift Tax Adjustments:
- Estate Tax Exclusion: Increases to $13,990,000.
- Annual Gift Tax Exclusion: Rises to $19,000 per recipient.
4.Health Flexible Spending Arrangements (FSAs):
- Annual contribution limit increases to $3,300, with a maximum carryover of $660.
5.Retirement Contribution Limits (if we choose to highlight this section)
- 401(k), 403(b), and 457 Plans:
- Employee contribution limit: $23,500
- Catch-up contribution (for individuals 50+): $7,500
- SECURE 2.0 Enhancement: Individuals aged 60-63 can contribute an increased catch-up amount of $11,250
- ROTH IRA Contribution Limits & Phase-Out Ranges:
- Single Filers: $150,000 – $165,000
- Heads of Household: $146,000 – $161,000
- Married Filing Jointly: $236,000 – $246,000
For Business Owners
1.Pass-Through Business Deduction:
The 20% deduction under Section 199A is set to expire after 2025 unless Congress extends it.
2.Corporate Tax Rate:
The flat 21% rate remains unchanged.
3.Qualified Transportation Fringe Benefit:
Monthly limits for qualified transportation and parking benefits increase to $325.
4.Bonus Depreciation Phase-Out
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- 2025: Bonus depreciation decreases to 40%
- 2026: Further reduction to 20%
- 2027: Bonus depreciation is fully phased out as of January 1, 2027
What’s on the Horizon?
Several key provisions from the Tax Cuts and Jobs Act (TCJA) are set to expire after 2025, potentially leading to higher taxes in 2026 unless Congress intervenes. Key changes include:
- Reinstatement of Pre-2018 Tax Brackets – The top marginal rate is expected to return to 39.6%.
- State and Local Tax (SALT) Deduction – The $10,000 cap may be removed.
- Child Tax Credit Reduction – The credit is set to drop to $1,000 per child unless extended by Congress.
- Lifetime Gift & Estate Tax Exemption – Currently at $13.99M, it is scheduled to decrease to $7M in 2026, significantly reducing estate planning opportunities.
Potential Policy Changes to Watch
- Trump’s Tax Proposals:
- Individual Income Tax Replacement – Proposal to replace individual income tax with increased tariffs (not yet confirmed).
- Bonus Depreciation – Proposal to reinstate and make permanent the 100% bonus depreciation rules.
- Corporate Tax Rate Reduction – Proposal to reduce the corporate tax rate to 20% and offer a 15% tax rate for U.S.-based manufacturers.
These proposed and scheduled changes could have major implications for both individuals and businesses, making tax planning for 2025 and beyond more crucial than ever. Let us know if you’d like to discuss potential strategies to prepare for these shifts.
What Does This Mean for You?
With these changes on the horizon, now is the time to take a proactive approach to tax planning. For individuals, this could mean adjusting your withholdings, maximizing deductions, or exploring estate planning strategies. For business owners, reevaluating your entity structure and leveraging expiring provisions may help you optimize your tax outcomes.
Plan Ahead with Tavola Group
Navigating the complexities of tax changes can be challenging, but you don’t have to do it alone. At Tavola Group, our experienced tax professionals are here to help you understand these updates and create strategies tailored to your unique financial situation.
Schedule a consultation today to ensure you’re prepared for 2025 and beyond. Let’s work together to optimize your tax strategy and achieve your financial goals.
