With every new tax year, adjustments to tax laws and regulations can impact individuals, small business owners, and corporations. As we move into 2025, it’s essential to understand the latest tax changes and how they may affect your tax planning strategy.
From updated income tax brackets to potential adjustments in deductions and credits, here’s what you need to know to stay ahead.
1. Changes to Federal Income Tax Brackets
Each year, the IRS adjusts federal tax brackets for inflation. In 2025, the standard deduction and income tax thresholds have increased, which may affect how much tax you owe or how much you can deduct.
New 2025 Standard Deduction Amounts:
- Single Filers: $15,000 (up from $14,600 in 2024)
- Married Filing Jointly: $30,000 (up from $29,200 in 2024)
- Head of Household: $22,500 (up from $21,900 in 2024)
With the increased standard deduction, fewer taxpayers may find itemizing deductions beneficial.
2. Possible Expiration of Key Tax Cuts in 2025
Many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025 unless Congress acts to extend them. This could lead to significant changes in:
- Income tax rates, which may revert to pre-TCJA levels
- The $24,000+ standard deduction for married couples
- The Qualified Business Income (QBI) deduction, which allows pass-through businesses to deduct up to 20% of their business income
If no extensions are made, many taxpayers may see an increase in their tax liability starting in 2026. Business owners and high-income earners should plan accordingly.
3. Retirement Contribution Limits Are Increasing
Retirement account contribution limits have been adjusted for 2025, allowing individuals to save more on a tax-advantaged basis.
2025 Contribution Limits for Retirement Accounts
- 401(k) and 403(b) Plans: $23,000 (up from $22,500 in 2024)
- IRA Contribution Limit: $7,000 (up from $6,500 in 2024)
- Catch-up Contributions (Age 50+): Additional $7,500 for 401(k)s and $1,000 for IRAs
Maximizing contributions to retirement accounts can reduce taxable income while helping secure long-term financial stability.
4. Business Tax Updates for 2025
For business owners, tax planning remains critical as certain deductions and tax breaks continue to evolve.
Key Business Tax Considerations:
- Section 179 Deduction: Business owners can continue to immediately expense certain qualifying assets instead of depreciating them over time. The limit is now $1.22 million for 2025.
- Bonus Depreciation Phase-Out: The 100% bonus depreciation deduction is gradually decreasing. In 2025, it drops to 20% (from 40% in 2024). Businesses should plan accordingly when purchasing equipment and assets.
- Corporate Tax Rate Changes? The current 21% corporate tax rate could be subject to adjustments depending on legislative changes.
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5. Expanded Tax Credits for Families and Homeowners
Some tax credits have been expanded for 2025, benefiting families and homeowners looking for tax savings.
Key Tax Credit Changes
- Child Tax Credit: If extended by Congress, the child tax credit could see an increase from $2,000 per child to $3,000 or more for some taxpayers.
- Residential Energy Credits: Tax incentives for solar panels, energy-efficient home improvements, and electric vehicles continue into 2025. Homeowners looking to make energy-efficient upgrades may qualify for extended credits.
What You Should Do Now
With tax laws constantly evolving, proactive tax planning is more important than ever. Here’s what individuals and business owners should do to prepare:
- Review tax withholdings to ensure you’re not underpaying or overpaying throughout the year.
- Maximize tax-advantaged accounts such as 401(k)s, IRAs, and HSAs before year-end deadlines.
- Work with a CPA to evaluate whether itemizing deductions still makes sense or if taking the standard deduction is more beneficial.
- Consider tax-efficient investment strategies, especially if tax rates increase after 2025.
- For business owners, strategize major purchases before the full phase-out of bonus depreciation in 2026.
At Whittaker CPAs, we stay ahead of tax law changes to help individuals and business owners make informed financial decisions. If you want to optimize your 2025 tax strategy or need guidance on upcoming changes, our team is here to help.
