Start the Year Right: Key Tax Changes for 2025 You Should Know About

Happy New Year! As we say goodbye to 2024 and step into 2025, we want to help you
understand how tax laws are changing and how these changes could impact you. Whether you’re an individual taxpayer, a business owner, or planning for retirement, staying informed about tax changes can help you make better planning decisions. Let’s dive into the most important tax changes for 2025 that you should keep on your radar.


1. Contribution Limits for Retirement Accounts
IRA contribution limits remain unchanged from last year, remaining at $7,000, plus a
$1,000 catchup contribution for those who will be 50+ at the end of the year. However, there are some changes of note with your employer plan. The contribution limit had a modest increase from $23,000 to $23,500. The big change, however, is a new, additional catchup contribution for those turning age 60-63 this year. If you fall into this category, you can defer an additional $3,750 this year, on top of the catchup contribution of $7,500 you are used to. If you are someone who maxes out your employer retirement plan, you may want to update your contribution amounts to take advantage of this change.


2. A Slow Farewell to Bonus Depreciation
If you are a business owner or a farmer, you may already be familiar with bonus
depreciation and have likely benefited from it. If this is new to you, bonus depreciation simply allows businesses to immediately deduct a significant percentage of the cost of qualifying property in the year it is placed in service, rather than depreciating it over several years. This used to be 100% of the cost but has slowly been phased out over the last few years. Just know that if you are used to utilizing bonus depreciation, it is capped at 40% for 2025.


3. Increase to Gift and Estate Tax Exclusions
In 2025, you can give $19,000 away to any individual without having to worry about
being adversely affected by gift tax. If you and your spouse have 2 adult children who both have spouses, then that means 4 people you each can make a gift to. This means that as a couple, you can give $152,000 total to your children with no gift tax ($19,000 x 2 x 4).

Most of us will never run into these limits, especially on a recurring basis, so why does
this matter? Well, the estate tax exemption for 2025 has increased $13,990,000, but this is set to decrease drastically at the end of 2025. For higher net worth individuals, this could create an estate planning issue where previously none existed. In this case, it may not be a bad idea to begin gifting to those who would ultimately receive it anyway, to reduce your taxable estate (though you want to be careful when gifting appreciated assets).

You are also able to pay college tuition and medical bills for loved ones, with no limits. The only catch is payments must be made to the college or medical service provider directly. If you give to the loved one for them to pay, then it constitutes a taxable gift. These could be good ways to ensure your estate is below the reduced exemption amount. If this applies to you, feel free to consult us on the most efficient ways to do this type of gifting.

4. Standard Deduction
The Standard Deduction saw a slight increase for the 2025 tax year, to $30,000 for
married individuals filing jointly. This is one of the provisions that will expire at year end (more on this below) and is scheduled to be substantially lower in 2026. If you have been unable to itemize the last several years, prepare for this to be the final year of that. So, if there is a big gift you plan to give to a charity toward the end of the year, maybe consider waiting until January to be able to get the deduction in 2026.

If the administration manages to keep the increased standard deduction beyond this year, there may still be some strategy to implement to maximize deductions. For those who fall just short of itemizing, and are right on the cusp of doing so, “bunching” could be an effective strategy. Bunching deductions is a tax strategy where a taxpayer consolidates multiple years-worth of deductible expenses into one year (like prepaying property tax or contributing to a donor advised fund) to exceed the standard deduction threshold and itemize deductions for a greater tax benefit. Then the following year, they would take the standard deduction. If you think this may apply to you and have further questions, feel free to reach out to us.

5. Be Aware of Next Year’s Outlook
Many of the provisions of the Tax Cuts and Jobs Act that we’ve come to know and love
are set to expire at the end of this year. With the change in the White House that just occurred, it seems likely that there will be a push to extend these provisions or make them altogether permanent. This is far from a guarantee. As of now, things like tax rates and the child tax credit will revert to pre-2017 levels. As the old adage goes, plan for the worst, but hope for the best. When planning, it is safest to assume that 2025 will be the final year of these favorable provisions, as discussed above.