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Updated as of March 6, 2025:
Tax laws continue to evolve under the current administration, making it more important than ever to stay informed for effective financial and tax planning. Here are the latest developments you should be aware of to ensure your plans remain on track.
- The Tax Cuts and Jobs Act (TCJA) has not yet been extended, and as of now, it is still set to expire in 2026.
- The SALT deduction cap and the increase in the Child Tax Credit (CTC) continue to be debated.
- Proposals to eliminate taxes on Social Security benefits, tips, and overtime pay have been introduced, although it is currently unclear if these will proceed.
- Tariffs targeting Canada and Mexico were temporarily paused as of March 6, 2025, but they are currently set to return. These measures could also extend to other countries in the future, which may impact U.S. businesses and consumers.
- Proposals to potentially end clean energy tax incentives, including federal solar panel and EV tax credits, are currently under discussion. For taxpayers considering these benefits, acting now could be a pivotal step in securing your savings.
Staying on top of these changes can feel overwhelming, but you don’t have to handle it alone. Reach out to your CPA today to get personalized guidance and ensure your financial and tax strategies remain on track amidst these ongoing developments.
Year after year, tax laws undergo changes, and 2025 is shaping up to be no exception. A lot is set to change in 2025, and whether you’re budgeting for next year or planning for retirement, knowing what’s coming can save you time, stress, and potentially a few dollars. If you tuned in for our earlier overview of general tax planning and insights for 2025, you might already have a sense of what’s coming. Today, though, we’re digging deeper into some of the standout changes to help you make the most of the opportunities—and prepare for potential challenges.
Here’s a breakdown of the biggest tax updates you should know about heading into 2025.
IRS Inflation Adjustments for 2025
Every year, the IRS adjusts certain tax provisions to account for inflation. These updates make sure tax thresholds keep pace with rising costs.
For individual filers, the Alternative Minimum Tax (AMT) exemption is going up to $88,100, and for married couples filing jointly, it’s increasing to $137,000. With these higher limits, fewer people will need to deal with the AMT.
The IRS has officially announced higher standard deductions for 2025. This means more of your income could be tax-free, potentially lowering tax bills for a lot of Americans. Here’s a quick breakdown of what’s changing:
- Single filers and married individuals filing separately: $15,000 (up $400 from 2024)
- Married couples filing jointly: $30,000 (up $800 from 2024)
- Heads of households: $22,500 (up $600 from 2024)
401(k) Contribution Limits on the Rise
Good news for retirement savers—2025 is bringing higher contribution limits for 401(k) plans, so you can save even more for your future. If you’re under 50, you’ll now be able to contribute up to $23,500, a small but helpful bump up from the 2024 limit.
The annual contribution limit has climbed to $23,500 for employees under 50. For those 50 and older, you can still take advantage of the additional $7,500 catch-up contribution, bringing your total annual limit to $31,000.
There’s also an exciting new provision starting this year under SECURE 2.0. If you’re between the ages of 60 and 63, your catch-up contribution increases to $11,250. That means you can contribute a total of $34,750 to your 401(k) in 2025. This adjustment is designed to help those nearing retirement make up for lost time and strengthen their savings.
Whether you’re years away from retirement or approaching it soon, these higher limits give you the opportunity to set aside more for the future while reducing your taxable income today.
The Future of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) has been shaping tax laws since 2017, but many of its provisions are set to expire at the end of 2025. With President Trump’s re-election and a Republican-led Congress, we’re likely to see debates about extending, modifying, or even expanding these rules.
Here’s what to watch for in the coming months:
Corporate Tax Rate
Under the TCJA, the corporate tax rate dropped from 35% to 21%, which was a significant change for businesses across the country. There’s talk about reducing it even further to 15%, which could encourage more domestic production. However, some critics worry about how this would affect the growing national deficit.
SALT Deduction Cap
Another hot topic is the $10,000 cap on state and local tax (SALT) deductions, introduced as part of the TCJA. This cap has been controversial, particularly in high-tax states like California and New York, where residents often pay much more than the cap allows them to deduct. While Trump has expressed interest in removing this limit, not all lawmakers are on board. The debate continues, as removing the cap would deliver tax cuts for roughly 3 percent of households.
Doubling the Standard Deduction
The TCJA nearly doubled the standard deduction back in 2018, simplifying the tax filing process for many Americans. If no action is taken, however, this extension is set to expire in 2026, potentially leading to higher taxes for many filers.
Child Tax Credit
The TCJA bumped up the Child Tax Credit (CTC) to $2,000 for each qualifying child under 17. Now, there’s talk of increasing the credit even more—possibly up to $5,000 per child, a proposal backed by Vice President JD Vance. However, whether this happens will depend on bipartisan support, which could mean some compromises on other issues.
Estate and Gift Tax Exemptions
Big changes are coming to estate and gift tax exemptions. Currently, under the TCJA, the federal exemption is about $14 million per person or $28 million per married couple, allowing families to transfer significant wealth tax-free.
But if Congress doesn’t extend the TCJA, these exemptions will drop sharply in 2026 to around $7 million per person and $14 million per couple.
Qualified Business Income Deduction
If you’re a business owner, don’t forget about the 20% qualified business income (QBI) deduction (also known as the Section 199A deduction). It’s an important tax benefit that’s set to expire at the end of the year. This deduction has been a big help for pass-through entities like S corporations, partnerships, and sole proprietorships. Now might be a good time to check if your business qualifies or consider restructuring to make the most of it before 2025.
Other Tax Policies to Watch
Outside of the TCJA, other tax-related policies could come into play this year. On the international stage, there’s ongoing discussion about aligning the U.S. tax system with global standards like the OECD’s 15% minimum tax for multinational companies. If passed, this could affect how international businesses report and pay taxes, which might trickle down to investors and employees.
How to Prepare Now for 2025 Tax Changes
With so much in motion for 2025, now is a great time to evaluate your financial strategies and make any necessary adjustments. Here are a few steps to help you get started:
- Max Out Retirement Contributions: If you’re in the 60–63 age range, it’s worth looking into how the new catch-up contribution rules could impact your savings. Take advantage of higher 401(k) limits and explore other options like IRAs or HSAs to boost your savings even more.
- Take Advantage of Gift Tax Exemptions: If your estate exceeds $7 million (or $14 million per couple), consider working with a financial planner or estate attorney now. Strategies like gifting or setting up trusts could help you take advantage of the current higher exemptions and preserve more for your loved ones.
- Monitor Changes to the TCJA: If you rely on deductions like the SALT cap or credits like the Child Tax Credit, keep updated on any legislative actions. Planning ahead can help you avoid surprises when these provisions expire or are extended.
- Consult a Tax Professional: Tax laws can get complicated, especially with all the potential updates. Working with a CPA can help you tailor strategies to reduce your liability and optimize your finances.
- Plan for Inflation Adjustments: Higher thresholds for deductions and exemptions could mean you owe less in taxes. Double-check your payroll withholding (or estimated tax payments if you’re self-employed or otherwise have an income not subject to withholding) to make sure you’re on track—no one likes an unexpected bill come tax time.
Step into 2025 with Confidence with SME CPAs
The 2025 tax changes bring a lot to keep an eye on, from new options for retirement savings to updates in the TCJA’s provisions. Staying informed and planning ahead can help you make the most of these changes—whether you’re saving for retirement, growing your business, or navigating big life events.
At SME CPAs, we’re here to help you make sense of it all. Get in touch with us today to talk about how these updates could impact you and your plans. We’re here to support your financial goals now and in the future.