The tax year 2025 is poised to be a pivotal one, primarily because many provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire. On top of that, the Trump administration has its own ideas. A core component is making the individual and estate tax cuts from the TCJA permanent. With the high expectation of tax changes before year end, now is the time to think about 2025 strategic tax planning.
If history repeats itself, we won’t know what changes become official until Congress makes last-minute votes in December. What we do know is there will be changes with the TCJA expiration. Whether it is renewed with additional provisions or overhauled completely is unknown. Here we look at some proposed changes and potential opportunities to consider.
Tax Bracket Changes
Void of any new legislation, current income tax brackets and income thresholds will revert to pre-TCJA levels. This would significantly increase most people’s taxes. However, that is now unlikely with the current administration’s push to lower taxes.
It is unknown if the current tax brackets will remain intact with inflation adjustments, or if bigger changes will be implemented. Ideas have been floated regarding eliminating income taxes for those earning under a certain amount, such as $150,000. There has also been discussion about eliminating tips, overtime pay, and Social Security from taxable income.
The potential of lower tax brackets in 2026 could create an opportunity to either push income into 2025 or defer income to 2026 if lowered. We can’t dictate the year in which all of our income is taxable, but there are a number of opportunities such as:
- Making elective Roth IRA conversions.
- Changing your elections to make Traditional 401(k) vs. Roth 401(k) contributions.
- Increasing or decreasing Inherited IRA distributions if you are under the 10-year distribution requirement.
- Taking or deferring your first RMD (only possible in the year you turn age 73).
- Recognizing or deferring capital gains.
- Timing the sale of a property or business.
- Scheduling income payments and expenses if you are self-employed or own a business.
Deductions
Many taxpayers lost the opportunity to itemize deductions under TCJA because of a higher standard deduction and limits on deductions, such as the state and property tax cap of $10,000 (known as SALT). If that goes away, it could potentially allow more taxpayers to itemize deductions. This makes it important to consider your potential deductions to determine if it makes sense to delay paying any of the following into 2026:
- State, local, and real estate taxes.
- Elective medical expenses.
- Charitable contributions.
Estate Taxes
The increased estate tax exemption under the TCJA is also set to expire, which would affect estate planning for high-net-worth individuals. However, the current administration is supportive of lower or no estate tax. This could cause changes in estate planning strategies as individuals decide:
- Are sophisticated tax avoidance strategies needed?
- Do large lifetime gifts make sense to capture high estate tax exemption limits while they exist?
Business Taxes
Current proposals include lowering the corporate income tax rate. For smaller businesses, there is also talk of restoring some business tax provisions. Any changes are expected to be favorable for businesses, possibly making it wise to consider accelerating expenses in 2025.
There are no certainties about any future tax changes, other than an upcoming Congressional battle over tax cuts and the effect on the national debt. The outcome will be crucial in determining whether any proposals become law.
SageVest understands that taxes have a profound effect on your finances and planning. We are committed to identifying proactive planning strategies toward your current and future success. Such strategies are just one element of our broader services extended on your behalf. We invite you to contact us to learn more about how we can help you secure your financial future.
