As 2024 comes to a close, taxpayers are starting to look ahead to the next tax year, with a new administration and Congress in place. One major issue on the horizon is the expiration of some of the tax cuts implemented under President Trump’s Tax Cuts and Jobs Act (TCJA) in 2017. Many provisions affecting individuals are set to expire at the end of 2025, creating uncertainty for taxpayers. With the potential for retroactive changes during the year, it’s important for taxpayers to consider the current tax landscape and plan accordingly.
One key area to focus on in 2025 is individual tax rates and brackets. The IRS has already announced the annual inflation adjustments for the year, which will impact tax rate schedules and brackets. While the brackets themselves haven’t changed, the income levels at which they kick in have been adjusted slightly due to inflation. Taxpayers should use these updated numbers to estimate their tax liability and consider making changes to their withholding or estimated tax payments based on their personal circumstances.
State taxes are another important factor to consider in 2025, as many states are making significant changes to their tax laws. Some states are implementing tax cuts for individuals and businesses, while others are transitioning to flat taxes. Taxpayers should be aware of how these state changes could impact their overall tax picture and plan accordingly. The state and local tax (SALT) deduction is also still in play for 2025, with the potential for changes that could affect taxpayers who itemize their deductions.
The Alternative Minimum Tax (AMT) is another consideration for taxpayers in 2025, with exemption amounts set to change for the year. Taxpayers who can control the timing of ordinary income or deductions may be able to take advantage of opportunities presented by the AMT. Estate taxes are also a concern, with changes to the federal estate tax exclusion expected in 2026. Taxpayers with assets near the expected exemption amount should consider estate planning strategies in 2025 to reduce their taxable estate and take advantage of the federal gift tax exclusion.
Retirement planning is an important aspect of tax planning in 2025, with options for withdrawing funds from retirement accounts or converting traditional assets to Roth IRAs to take advantage of potentially lower tax rates. Business owners should also be aware of the Section 199A deduction, which may disappear in 2026, and consider the impact of changes to tax rates on their business. Careful planning and consultation with a tax advisor are key to making informed decisions in 2025.
Finally, taxpayers should pay attention to estimated tax payments in 2025 to avoid penalties for underpayment. With potential changes to the tax code and uncertainty surrounding expiring provisions, it’s important to consult with a tax advisor to ensure that you’re paying the right amount throughout the year. Additionally, the accounting shortage in the industry may impact taxpayers looking for preparers, so it’s important to start looking for a trusted advisor early. And don’t forget, Tax Day is April 15, 2025, so mark your calendars and plan ahead for a timely filing.
