As the year 2024 comes to a close, taxpayers are bracing themselves for the uncertainties and changes that the upcoming tax year of 2025 is likely to bring. With a new administration and Congress in place, coupled with the expiration of some of Trump’s 2017 tax cuts, it is essential for taxpayers to be prepared. To start 2025 off on the right foot, it is crucial to engage in tax planning early on to avoid scrambling for last-minute tax savings.
One of the key factors to be aware of in 2025 is the Tax Cuts and Jobs Act (TCJA), which made significant changes to deductions, tax credits, and other tax items affecting both businesses and individuals. While many changes for businesses were made permanent, a number of provisions affecting individuals are set to expire at the end of 2025. This could lead to a potentially turbulent year ahead, with the possibility of retroactive changes and uncertainty about the future of tax cuts.
Individual tax rates and brackets have already been announced by the IRS for 2025, with slight adjustments due to inflation. Taxpayers should take into account any changes in their income levels or circumstances and adjust their withholdings or estimated tax payments accordingly. It is also important to consider state taxes, as several states will be implementing changes in 2025, including tax cuts for individuals and some corporate tax cuts. The SALT deduction, which was capped under the TCJA, is still in play for 2025, presenting planning opportunities for taxpayers.
For those subject to the Alternative Minimum Tax (AMT), the exemption amounts for 2025 are set to be higher than what is expected in 2026 if the TCJA sunsets. This presents opportunities for taxpayers to control the timing of their income and deductions. Estate taxes are also a consideration, with the federal estate tax exclusion set to increase in 2025. Taxpayers with assets around the expected 2026 exemption amount should consider strategies to reduce their taxable estate, such as taking advantage of the federal gift tax exclusion.
Retirement planning is another area that taxpayers should focus on in 2025, with options such as withdrawing more than the required minimum distribution or converting traditional IRA or 401(k) assets to a Roth IRA. The Section 199A deduction for qualified business income may also be on the chopping block in 2026, so business owners should carefully consider their tax planning strategies. With potential changes on the horizon, it is important for taxpayers to engage in careful planning to avoid any surprises in the upcoming tax year.
Lastly, taxpayers should stay on top of their estimated payments throughout the year to avoid penalties for underpayment. With a shortage of accountants and tax professionals in the industry, finding a trusted preparer can also be a challenge. Tax Day for the year 2025 is set for April 15, so taxpayers should mark their calendars and prepare early to ensure a smooth tax season. With so many changes and uncertainties on the horizon, being proactive and informed is key to navigating the tax landscape in 2025.
