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Potential Tax Changes in 2025: What You Need to Know
For 2025, several significant tax changes are on the horizon that could impact individuals, businesses, and tax professionals alike. From the expiration of key provisions in the Tax Cuts and Jobs Act (TCJA) to inflation adjustments and potential legislative developments, staying informed is crucial for proactive planning. Here’s an overview of what’s coming and how to prepare.
Expiration of Key TCJA Provisions
The TCJA, enacted in 2017, introduced sweeping changes to the U.S. tax code, but many provisions were temporary and are set to expire at the end of 2025. Key changes include:
Individual Tax Rates: The current tax brackets and rates are scheduled to revert to pre-TCJA levels, potentially increasing tax liabilities for many households. For example, the top individual rate would rise from 37% back to 39.6%.
Standard Deduction: The enhanced standard deduction—currently $13,850 for single filers and $27,700 for married couples filing jointly—will decrease significantly, while personal exemptions, which were eliminated under the TCJA, are set to return.
Child Tax Credit: The credit amount is expected to drop from $2,000 per child to $1,000, with stricter income thresholds, reducing its accessibility for middle-income families.
SALT Limitation: Currently the itemized deduction for state and local income tax is limited to an annual $10,000. That limit will expire after 2025. There has already been talk about raising it to $20,000 while others favor allowing it to expire.
Changes 1 through 3 on the above list could result in higher tax bills for many Americans unless Congress acts to extend or amend the provisions. Change number 4, on the other hand, would reduce taxes for higher-income taxpayers.
IRS Inflation Adjustments
Each year, the IRS adjusts various tax provisions to account for inflation, and 2025 will be no exception. Key updates include:
Tax Brackets: Income thresholds for each tax bracket will increase, offering some relief against inflation-driven income growth.
Standard Deduction: Set to rise slightly, with single filers expected to see a deduction of $15,000, and joint filers $30,000.
Earned Income Tax Credit (EITC): Income limits for eligibility and maximum credit amounts will also increase, benefiting low- to moderate-income workers. The maximum EITC will increase from $7,830 in 2024 to $8,046 in 2025.
These adjustments aim to prevent “bracket creep,” where inflation pushes taxpayers into higher brackets, increasing their liability despite no real increase in purchasing power.
Retirement Contributions
Good news for savers: Contribution limits for certain retirement accounts, including 401(k)s and Self Employed Retirement (SEP) plans, are increasing in 2025, while IRA contribution limits remain unchanged.
401(k) Plans: The elective deferral limit increases from $23,000 in 2024 to $23,500 in 2025, enabling employees to save more for retirement on a tax-deferred basis. But the big news is the increase in the makeup contributions for taxpayers aged 60 through 63.
Catch-Up Contributions: For taxpayers aged 50 and older, catch-up contribution limits remain unchanged at $7,500 for 2024 and 2025. However, for 2025 those aged 60 through 63 the catch up contribution will be $11,250. Giving those aged 60 through 63 additional opportunities to bolster retirement savings.
These increases reflect the IRS’s effort to align savings opportunities with inflation, ensuring Americans can adequately prepare for their golden years.
Legislative Developments on the Horizon
With the upcoming presidential election and shifting priorities in Congress, there is growing debate over whether certain TCJA provisions, like the hot-button federal Child Tax Credit, should be extended or allowed to expire. Key topics under discussion include:
Extending Individual Tax Cuts: Some policymakers argue for making the current lower tax rates permanent to avoid a tax hike for millions of Americans.
Child Tax Credit Expansion: Proposals to maintain the current $2,000 credit, or even increase it further, are gaining traction as policymakers recognize its importance for families.
Additionally, the possibility of introducing new tax incentives for clean energy investments or small businesses could shape the legislative agenda in the coming year.
If you have questions about how these updates might impact your financial situation or would like personalized guidance, contact this office today for expert advice to help you prepare for the year ahead.
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Get to Know Prestige Accounting Services Group (previously Prestige Wealth Accounting Group)
Offices in Flemington, NJ and Califon, NJ
Our Mission: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we are on a mission to redefine the tax experience for individuals and small businesses. With a focus on personalized service, strategic planning, and expert guidance, we aim to empower our clients to succeed financially with confidence and ease.
Expertise in Action: With a wealth of experience and a team of dedicated professionals, we specialize in individual and small business tax preparation. While we excel in all areas of taxation, our passion lies in serving the unique needs of small business owners in New Jersey. We understand that small business taxation requires specialized knowledge and attention to detail, which is why we go above and beyond to ensure our clients receive the guidance and support they deserve.
Tailored Solutions for Every Client: Whether you're a high-net-worth individual seeking comprehensive tax planning or a small business owner in need of accounting and bookkeeping assistance, we have the expertise to meet your needs. Our team takes the time to understand your specific situation and develop customized solutions that align with your goals and objectives.
Why Choose Us?: What sets us apart from other New Jersey tax firms is our commitment to excellence and innovation in the field of taxation. We don't just prepare tax returns; we provide strategic insights, proactive planning, and actionable advice to help our clients achieve their financial goals. With a team of two CPAs, an EA, and an ERO, we have the expertise and resources to deliver exceptional service and results.
Your Success is Our Priority: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we measure our success by the success of our clients. We are dedicated to building long-lasting relationships, providing unparalleled service, and helping our clients thrive in today's ever-changing tax landscape.
We can't wait for you to experience the Prestige Accounting Services Group (previously Prestige Wealth Accounting Group) difference.
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