Tax Planning and Insights for 2025

As we approach 2025, there’s an important date to keep in mind for both individuals and business owners. The Tax Cuts and Jobs Act of 2017 (TCJA) is set to expire on December 31, 2025, bringing several changes that could impact your tax planning. While these changes might seem far off in the future, there are steps you should be taking now to make the most of your tax-saving strategy. With a good plan and proper support, you can make informed decisions to secure your financial future.

Key Changes on the Horizon

Estate and Gift Tax Exemptions

A major looming change is the reduction in federal estate and gift tax exemptions. Currently, under the TCJA, the exemption is about $14 million per person and $28 million per married couple. This means, for example, that a married couple can gift up to $28 million to their heirs without paying federal estate taxes.

However, if Congress doesn’t act to extend the TCJA, this will drop to around $7 million per person (or $14 million per couple) in 2026. If your assets exceed these limits, you may want to think about leveraging the current higher exemptions through gifts or trusts if the assets you intend to gift exceed $14 million (or $28 million, if married.) This strategy can help ensure that your wealth is preserved for your loved ones in the years to come.

Personal Income Tax Rates

The TCJA also lowered individual tax rates, which are set to revert to pre-2017 levels after the sunset. This means higher tax rates for most brackets unless new legislation is passed. To prepare, you might want to think about strategies like accelerating income or deferring deductions while the rates are still lower.

Qualified Business Income Deduction

For business owners, the 20% qualified business income (QBI) deduction is another important provision set to expire. This deduction has provided significant tax relief for pass-through entities like S corporations, partnerships, and sole proprietorships. It may be worth assessing your business’s eligibility and possibly restructuring to maximize benefits before 2025.

Changes to Tax Brackets in 2025

The IRS has announced new tax brackets for 2025 (for taxes due April 2026). Brackets remain largely the same as in 2024 with slight increases to account for inflation. However, it’s essential to consider how these changes could impact your tax liability and make any necessary adjustments accordingly.

Potential Extension of the TCJA

With the recent Republican win in the election, there’s a possibility that the TCJA could be extended beyond 2025. However, it’s important to note that an extension is not guaranteed. Even if lawmakers decide to pass an extension, there could be complications, such as debates over fiscal policies and federal debt. Regardless of potential outcomes, staying informed and proactive about upcoming changes is crucial, and it’s best to act with caution rather than relying on future legislation.

Strategies for Minimizing Tax Burdens

While the expiration of the TCJA and other upcoming changes may require you to rethink your tax and personal wealth strategy, there are steps you can take to minimize your tax burden. Here are a few tactics to consider:

• Coordinate with your financial advisor: It’s essential to have a comprehensive plan that addresses both your current and future financial goals.
• Maximize retirement contributions: Contributing to retirement accounts like 401(k)s or IRAs can help reduce taxable income while saving for the future.
• Leverage deductions and credits: Take advantage of all available deductions and credits, such as charitable donations or education expenses.
• Consider Roth conversions: Converting traditional IRAs or 401(k)s to a Roth account can provide long-term tax benefits.
• Review your business structure: If you are a business owner, it may be worth assessing your current structure for potential tax savings and considering restructuring if necessary.

Overall, staying proactive and working with experienced professionals can help ensure that you make the most of tax-saving opportunities in the ever-changing landscape of tax laws.

The Role of SME CPAs

At SME CPAs, we get it—tax planning can be daunting, especially with changes on the horizon. Our team is ready to help you navigate the complexities with expert advice and a personal touch. We offer services tailored to your needs, making sure you’re ready for the changes of 2025 and beyond.

Why Choose SME CPAs?

• Unparalleled Expertise: With 70 years of experience, our team of certified public accountants has a deep understanding of tax laws and regulations, providing you with reliable guidance.
• Personalized Service: We take the time to understand your unique financial situation and goals, creating individualized strategies that best suit your needs.
• Proactive Approach: By staying informed and proactive, we help you stay ahead of legislative changes, so you’re never caught off guard.

Preparing for 2025 and Beyond with SME CPAs

With the upcoming changes in tax laws, there’s never been a better time to reassess your tax strategy. Don’t wait until 2025 to start planning. Get in contact with SME CPAs today to schedule a consultation and learn how we can support you in achieving your financial goals. Our commitment is to support you every step of the way, ensuring financial stability for today and generations to come.