As 2024 closes, taxpayers are looking to the next year—only, the 2025 tax year is likely to be anything but typical. There’s a new administration, a new Congress—and some of Trump’s 2017 tax cuts are set to expire. Here’s a guide.
By Kelly Phillips Erb, Forbes Staff
It happens every year. As December 31 creeps closer, taxpayers scramble for tax savings and wonder what they could have done differently to save during the year. One answer is an easy one—start well in advance. Engaging in a bit of tax planning at the start of the year means that you won’t find yourself trying to cram in everything next December. To help start 2025 off right, here’s a look at what to expect.
Tax Cuts and Jobs Act (TCJA)
There’s one acronym you should familiarize yourself with in 2025: TCJA. The TCJA, considered President-elect Trump’s signature tax legislation of his first term, took effect in 2017. The law made sweeping changes to deductions, depreciation, expensing, tax credits, and other tax items that affect businesses and individuals. While many—but not all—of the changes for businesses were made permanent, a significant number of changes affecting individuals were temporary.
Thanks to the Byrd rule, any bill passed under reconciliation cannot increase the deficit beyond the fiscal years covered—that’s usually limited to 10 years (and why tax cuts rarely last forever). As a result, some provisions under the TCJA are set to expire at the end of 2025. Re-upping those feels like an easy legislative win, but that depends on what other cuts Republicans will want to see in a tax package—massive, permanent tax cuts won’t be possible under reconciliation if they contribute to the deficit.
(For a closer look at some TCJA changes, check out this previous article.)
What that means is that 2025 is a bit of a wild card year. We don’t expect retroactive changes during the year—but those could be on the way. That’s why it’s important to consider what is in place now for 2025 and what could be just around the corner.
Individual Tax Rates and Brackets
The IRS has already announced the annual inflation adjustments for 2025, including tax rate schedules, tax tables, and cost-of-living adjustments. These are the numbers for the tax year beginning January 1, 2025, that you’ll use to prepare your 2025 tax return 2026. These are not the numbers that you’ll use to prepare your 2024 tax return in 2025 (you’ll find those official 2024 tax numbers here).
The brackets haven’t changed—there are still seven (7) tax rates in 2025: 10%, 12%, 22%, 24%, 32%, 35% and 37% (there is also a zero rate). What has changed are the income levels at which those brackets kick in—they’ve edged up a bit thanks to inflation.
If you aren’t expecting any significant changes in 2025, you can use the updated numbers to estimate your liability. If you plan to make more (or less) money or change your circumstances—including getting married, starting a business, or having a baby—consider adjusting your withholding or tweaking your estimated tax payments.
If the TCJA sunsets, marginal rates will revert to the earlier rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% in 2026, and the rates will kick in at significantly different dollar amounts. During the year, it might make sense to consider accelerating ordinary income—like exercising some stock options—in 2025 to take advantage of the still lower tax rates. It’s best to check with an advisor before making any big moves since capital gains rates aren’t expected to change (and some options are capital gains-friendly). You’ll also want to consider state taxes and how the current state and local tax (SALT) deduction limits might impact your overall tax picture.
State Taxes
We tend to focus on federal income taxes but don’t forget about state taxes. Thirty-nine states will make changes beginning in 2025—some of which are pretty significant. That includes nine states (Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, and West Virginia) that will see tax cuts for individuals, and South Carolina will transition from a temporary cut to a permanent one. Two states, Iowa and Louisiana, are moving to a flat tax. Some corporate tax cuts are also on the way at the state level. Before making any big changes on the federal level, check your state changes to see how you might also benefit.
The SALT deduction is still in play for 2025, as well. The TCJA capped the deduction for SALT, which means that the deductions for state and local property taxes and income taxes were limited to $10,000 per return. If the provision sunsets (Congress appears mixed on this one), more taxpayers would be able to itemize their deductions. That presents some planning opportunities, including possibly pushing some SALT payments into 2026. But step lightly since packing your SALT deductions into 2026 could impact your alternative minimum tax.
Alternative Minimum Tax
The AMT is a secondary tax put in place to prevent taxpayers—specifically, those with high incomes—from reducing their tax bill through the use of tax preference items like deductions. The idea was that people with very high incomes should not be able to use certain deductions, like mortgages, to lower their tax bill below what should be reasonably expected for taxpayers at their income level.
The AMT exemption amount for tax year 2025 for single filers is $88,100 and begins to phase out at $626,350, while the AMT exemption amount for married couples filing jointly is $137,000 and begins to phase out at $1,252,700. These numbers are higher than what we’ll see in 2026 if there’s a sunset—and some common tax adjustments will find their way back into those AMT calculations. That means that 2025 could present opportunities for taxpayers who can control the timing of ordinary income (such as exercising incentive stock options) or certain deductions.
Estate Taxes
The federal estate tax exclusion for decedents dying in 2025 will increase to $13,990,000 per person, or $27,980,000 per married couple. However, the exclusion could take a dip in 2026 if Congress allows it to sunset to pre-TCJA values. Without any action, that means that as of January 1, 2026, the federal estate tax exemption amount will revert to a base value of $5.6 million—adjusted for inflation, that works out to about $7 million per person or $14 million for a married couple.
If your assets are around that expected 2026 exemption amount, it’s a good idea to consider some strategies in 2025 to reduce your taxable estate. One way to plan? Take advantage of the federal gift tax exclusion, which will be $19,000 in 2025. You can gift $19,000 per person to as many people as you want with no federal gift tax consequences in 2025—if you split gifts with your spouse, that total is $38,000. Making gifts lets you whittle your gross estate down without paying a penny in federal estate or gift tax.
(You can gift any amount of money to your U.S. citizen spouse without gift tax consequences. If your spouse is not a U.S. citizen, tax-free gifts are limited to $190,000 in 2025).
Retirement Planning
By law, you must withdraw funds from your retirement account each year after you reach age 73 (climbing to 75 in 2033). That amount is referred to as a required minimum distribution, or RMD. Typically, the amount you’re required to withdraw is figured each year by dividing your previous end-of-year account balance by your life expectancy.
One way to take advantage of potentially lower rates is to withdraw more than your RMD in 2025. This amount is taxable, so you’d want to plan carefully before raiding your account—but if the math works (and you could use or invest the money otherwise), it could be a tax saver. And, of course, since a penalty for early withdrawal would apply otherwise, this is only something to consider for those over age 59½.
Another option is to convert some or all of your traditional IRA or 401(k) assets to a Roth IRA. When you convert, you’ll have to pay the resulting income taxes—this is especially beneficial if you can pay the tax from other sources. With a Roth IRA, assets grow income tax-free, and there are no income tax consequences when you make a withdrawal (bonus: there are also no RMDs for owners and their spouses).
(Of course, be mindful that this won’t be a great idea if rates go down.)
Section 199A (Qualified Business Income) Deduction
Currently, sole proprietors and owners of pass-through businesses like LLCs, S corporations, and partnerships may be eligible for a deduction of up to 20% to lower the tax rate for their qualified business income. The deduction is subject to threshold and phased-in amounts. For 2025, the threshold amounts begin at $394,600 for married taxpayers filing jointly.
But, like many other tax provisions, that may disappear in 2026 as part of the TCJA sunset.
Tony Nitti, a principal in the national tax department at Ernst & Young LLP in Denver (and former Forbes contributor) says that it’s important for business owners to focus not only on whether the deduction is extended, but also to look at tax rates. Under the TJCA, individual income tax rates top out at 37%, but corporate rates are a flat 21%. The Section 199A deduction allowed qualifying business owners to enjoy a rate closer to the more favorable corporate rate. If either of those pieces changes—the deduction is allowed to sunset, or the rates go up or down—it could change the tax picture for business owners.
Key in 2025? Careful planning—what Nitti calls “no regrets” planning. In other words, don’t rush into anything. For example, some business owners have discussed flipping their S corporations to a C corporation to take advantage of potentially lower corporate rates and avoid potentially higher individual rates. But if those things don’t materialize, you could be stuck with a less favorable tax picture for some time. That’s because some swaps, like an S to a C corporation, come with a price tag—in addition to the immediate tax consequences, after a termination, a company is not eligible to elect S status for five years.
To avoid a surprise result, Nitti advises companies to gather as much information as possible and sit down with a good tax advisor to discuss options and timing in 2025.
Estimated Payments
If you receive payments or other money without having any federal income taxes withheld, you should consider making estimated payments throughout the year to avoid any penalties. This applies not only to the self-employed or occasional freelancers but also to those taxpayers who may receive income from other sources not subject to withholding—these tend to be landlords, S corporation shareholders, partners in a partnership, or taxpayers with significant investments. It can also apply to those who are making withdrawals from retirement accounts.
A quick cheat: If you are filing as an individual taxpayer, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your federal income tax return. Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed. And, in some cases, you may have to pay estimated tax if your tax was more than zero in the prior year.
It’s a good idea to pay attention to estimated payments every year, but especially in 2025 if you engage in any planning that might accelerate your income or otherwise change your tax return. Penalties apply if you underpay, so check with your tax advisor to make sure that you’re paying the right amount.
Accounting Shortage
Speaking of advisors, not all changes we expect to see are related to the tax code. Some are the result of shifts in demographics and other life changes—including a shortage of accountants.
The pool of available CPAs has been shrinking as Baby Boomers and some Gen Xers retire. Add training and testing—in many states, students have to take 150 credit hours (about 30 more than a typical bachelor’s degree)—and the result is fewer licensed CPAs. According to the American Institute of Certified Public Accountants’ 2023 Trends Report, 65,305 bachelor’s and master’s degrees were awarded in accounting in the 2021-2022 school year, down 18% from six years before. During the same period, the number of candidates passing the four test sections needed to be licensed as a CPA fell even more dramatically—just 18,847 successfully completed the test in 2022, down 32% from 2016. Firms are scrambling to add tax professionals, but with a relatively spares talent pool, that means heavier workloads for existing CPAs.
How does that impact taxpayers? Plenty. Many firms are no longer accepting new clients. If you don’t have a trusted preparer, don’t wait until Tax Day to start looking. Finding an available preparer who is a great fit can be a challenge, so start looking as soon as possible.
Tax Day
With so many things in flux, there’s one thing we can say with certainty: Tax Day is April 15, 2025. That’s the deadline for filing your federal income tax return—or applying for an automatic extension—to be considered timely. Mark your calendar now—it falls on a Tuesday.
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