Tax season brings with it a mix of routine and opportunity. While filing a tax return may feel like you’re simply wrapping up the last year, savvy taxpayers know that looking ahead is just as important—if not more. With potential adjustments to federal tax brackets, retirement contribution limits, and other key tax rules on the horizon, preparing for 2025 taxes as you finalize your 2024 return could give you a head start on savings and smart financial planning.
This blog will guide you through the changes expected for 2025 and how to proactively leverage them while completing your 2024 return.
Why 2025 Matters for Taxpayers
2025 is shaping up to be a pivotal year for taxes. Under the Tax Cuts and Jobs Act (TCJA), several measures that have been in place since 2018 are set to expire at the end of 2025. This could result in higher tax rates for many taxpayers, shifts in deductions, and possible updates to key tax-credit programs.
By staying informed now, you can:
- Limit unexpected tax liability.
- Adjust your financial strategies accordingly.
- Maximize any remaining benefits under current laws.
The good news? Being aware of upcoming changes in 2025 taxes now may help you plan with confidence, reducing stress down the line.
A Glimpse at Expected Changes in 2025 Taxes
While official numbers for 2025 tax limits are not finalized yet, here are some significant areas that taxpayers should keep in mind as they plan for the future.
1. Income Tax Brackets and Rates
Under the TCJA, individual tax brackets were lowered. However, unless Congress acts to extend these changes, the lower rates will expire at the end of 2025. Here’s what that could mean:
- Current structure (2024): Seven brackets ranging from 10% to 37%.
- Potential 2025 structure: Rates could revert to their pre-2018 levels, with the top bracket increasing to 39.6%.
What to Do Now:
If you anticipate a significant increase in your taxable income over the next few years, consider strategies like accelerating income or spreading it out over multiple years to optimize your tax liability under the current rate structure.
2. Standard Deduction and Personal Exemptions
Since the TCJA effectively doubled the standard deduction and suspended personal exemptions, most taxpayers have relied on the higher deduction. Without legislative action, the following changes could occur:
- Standard deduction (2024): $13,850 for single filers; $27,700 for married couples filing jointly.
- Post-2025: The standard deduction may decrease, impacting total taxable income for many households.
What to Do Now:
Review whether itemizing deductions for 2024 could work in your favor. For example, if you have significant medical expenses or charitable contributions, bunching these deductions into the current tax year may make sense.
3. Retirement Contribution Limits
Every year, contribution limits for retirement accounts such as 401(k)s and IRAs are adjusted for inflation. This trend is expected to continue into 2025, and here are some key figures to monitor:
- 401(k) Contributions: For 2024, the contribution limit stands at $23,000 (including catch-up contributions for those over 50). This is likely to increase for 2025.
- IRA Contributions: The $7,500 limit (including catch-up contributions) may also see a bump.
What to Do Now:
Max out your retirement contributions for 2024 and monitor announcements about 2025 limits so you can make adjustments early. Contributing as much as you can afford not only saves for the future but also reduces your taxable income today.
4. Child Tax Credit and Family Benefits
The Child Tax Credit (CTC) was temporarily increased under pandemic-era relief measures, reverting to $2,000 per eligible child starting in 2022. However, the TCJA changes to income thresholds and refundable portions are set to expire post-2025.
- Current cap for refundability (2024): The refundable amount is up to $1,600 per child, phasing out for higher earners.
- Potential 2025 changes: The credit or eligibility requirements may significantly shift depending on legislative action.
What to Do Now:
Track any updates to the CTC, especially if you have dependent children. Filing your 2024 return with accurate information will lay the groundwork for seamless adjustments in 2025.
5. Estate and Gift Tax Exclusion
Under the TCJA, the estate and gift tax exemption amount was doubled. For 2024, the exemption is over $13 million for individuals, but this number is expected to drop by more than 50% post-2025, potentially affecting estate planning strategies.
What to Do Now:
This is an opportune moment to engage with a trusted advisor about gifting strategies or other planning tools to take full advantage of the higher exemption before it reverts.
Proactive Steps to Prepare for 2025 Taxes in 2024
Taking action now will ensure you’re well-positioned for 2025 tax changes. Here’s how to get started:
1. Work with a Tax Professional
Navigating tax law updates and legislative changes can be overwhelming. A tax consultant or CPA has the expertise to help you customize strategies to minimize liabilities under shifting rules.
2. Keep Track of Legislative News
Many aspects of the TCJA changes may depend on whether Congress acts—so staying informed is essential. Subscribe to email updates, follow reliable news sources, and regularly consult your trusted advisors.
3. Review Your Financial Plan
Tax planning is one part of your overall financial health. Use this opportunity to align your goals, like saving for retirement, buying a home, or funding education, with the potential changes 2025 may bring.
4. Stay Ahead of Record-Keeping
Document all relevant financial transactions, including charitable donations, retirement contributions, and healthcare expenses, as you finalize your 2024 return. Accurate records ensure you take advantage of every available deduction and credit.
What This Means for You
Planning for future tax changes doesn’t have to be daunting. Whether it’s capitalizing on the current tax environment or adjusting to what’s ahead, understanding shifts in 2025 taxes now can save you time, stress, and money in the years to come.
At SD Mayer & Associates, we specialize in helping taxpayers like you prepare for what’s next. Reach out to our team today to discuss strategies tailored to your unique situation—because staying ahead is the key to lasting financial success.
Schedule a consultation now and turn your tax plans into savings opportunities.
SECURITIES AND ADVISORY DISCLOSURE:
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Fee based planning offered through SDM Advisors, LLC. Third party money management offered through Valmark Advisers, Inc a SEC registered investment advisor. 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431. 1-800-765-5201. SDM Advisors, LLC is a separate entity from Valmark Securities Inc. and Valmark Advisers, Inc. Form CRS Link
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
HYPOTHETICAL DISCLOSURE:
The examples given are hypothetical and for illustrative purposes only.
