As we approach 2025, significant tax changes are on the horizon with President Trump entering office and Republicans securing control of both the House and Senate. The scheduled expiration of the Tax Cuts & Jobs Act (TCJA) at the end of 2025 is a key focus, and while much of TCJA is likely to be extended, there will be notable changes and new tax cuts proposed. Here’s an overview of the changes that have a high probability of happening and how they could impact you.
Overview of Expected Changes
Tax Brackets and Standard Deduction:The current 7 tax brackets and increased standard deduction are expected to remain unchanged. This stability provides a predictable framework for planning your taxes. For our clients who are engaged in bracket bumping Roth conversion strategies, the extension of the lower brackets allows us to continue to convert from pre-tax to tax-free for a longer period of time.
State And Local Tax (SALT) Deductions:The $10,000 SALT deduction cap is a contentious issue. It may be kept, raised, or eliminated entirely. This change could significantly impact taxpayers in high-tax states.
Child Tax Credit:Currently capped at $2,000 per child, there is bipartisan support to raise it to at least the pandemic-era $3,600 maximum. This increase could provide substantial relief for families with young children.
Alternative Minimum Tax (AMT):The AMT could be amended to affect more taxpayers, especially those with high SALT deductions. This change could reintroduce complexity for many households. This could greatly impact our client's with incentive stock options and how we execute an exercise strategy.
Section 199A Deduction for Qualified Business Income (QBI):This deduction for pass-through owners could be increased if corporate tax rates are cut from 21% to 15%. This adjustment could benefit small business owners significantly.
Gift and Estate Tax Exemption:The exemption is likely to remain at its current elevated level, reducing the urgency for high-net-worth households to gift assets before 2026. This stability allows for more strategic estate planning.
How These Changes Could Impact You
The potential tax changes in 2025 could have wide-ranging implications for your financial planning. For instance, the stability in tax brackets and standard deductions means you can continue to plan with confidence. However, changes to the SALT deduction cap could affect your overall tax liability, especially if you reside in a high-tax state.
The increase in the Child Tax Credit could provide significant financial relief for families, making it easier to manage expenses related to raising children. On the other hand, changes to the AMT could reintroduce complexity and potentially increase your tax burden if you have high SALT deductions.
For business owners, an increase in the Section 199A deduction could mean more substantial tax savings, allowing you to reinvest in your business. Meanwhile, the stability in the gift and estate tax exemption provides an opportunity to plan your estate more strategically, without the immediate pressure to gift assets before the exemption decreases.
The Importance of Working with an Advisor
Navigating these potential tax changes can be complex, but you don’t have to do it alone. At Alison Wealth Management, we specialize in helping clients understand and navigate the tax code to reduce their lifetime taxes. Our expertise in tax policy changes ensures that you are well-prepared to make informed decisions that align with your financial goals.
Working with an advisor can provide you with personalized strategies to optimize your tax situation, whether it’s through maximizing deductions, planning for estate taxes, or managing business income. Our goal is to help you achieve financial success while minimizing your tax burden.
Conclusion
As we look ahead to 2025, staying informed about potential tax changes is crucial. By understanding the likely changes and working with a knowledgeable advisor, you can navigate these changes effectively and make the most of the opportunities they present. At Alison Wealth Management, we are here to guide you every step of the way.
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