Prepare for Upcoming Shifts
The upcoming expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025 signals significant shifts in the tax landscape, affecting individual rates, deductions, estate planning, and retirement withdrawals.
Although these changes officially take effect in 2026, 2025 provides an important window for making strategic moves that could help shield your wealth and reduce future tax liabilities. Here’s what you need to know to make the most of 2025.
What’s Changing in 2025?
Each year, the IRS adjusts tax brackets, the standard deduction, and other provisions to account for inflation. Although these adjustments are smaller for 2025 compared to recent years, they still offer taxpayers some relief:
- Standard Deduction: The standard deduction increases slightly to $15,000 for single filers, $30,000 for joint filers, and $22,500 for heads of households.
- Marginal Tax Brackets: Tax bracket thresholds will also rise, meaning more income will fall under lower tax rates, especially for those who received modest cost-of-living raises. For example, the 37% top tax rate will apply to incomes over $626,350 for single filers and $751,600 for married couples filing jointly.
- Alternative Minimum Tax (AMT): The AMT exemption will increase to $88,100 for single filers and $137,000 for joint filers in 2025, offering more income protection from the AMT before lower exemption levels return in 2026.
Provisions to Leverage in 2025
The higher deductions and adjusted income thresholds in 2025 present valuable planning opportunities before the more restrictive 2026 tax regime begins.
- Maximize the Standard Deduction and Itemized Deductions: With a slightly higher standard deduction, many taxpayers may benefit from not itemizing. However, those with substantial mortgage interest, charitable contributions, or state and local taxes may still see more benefits from itemizing, especially as these deductions will become more limited in 2026.
- Contribute to Health and Savings Accounts: The FSA contribution limit rises to $3,300, and you can carry over up to $660 in unused funds to the next year. Contribution limits for HSAs will be $4,300 for individual coverage and $8,550 for family coverage, offering tax-advantaged savings options for those with high-deductible health plans.
- Plan for Estate and Gift Taxes: In 2025, the federal estate tax exemption remains high at $13.99 million per individual, and the gift tax exclusion increases to $19,000 per recipient. These thresholds will drop in 2026, making 2025 an ideal time for high-net-worth individuals to consider gifting or transferring wealth to minimize future estate taxes.
Strategic Tax Moves for 2025
With the sunset of TCJA provisions in sight, taking steps in 2025 can help preserve wealth under the current favorable tax conditions. Consider these strategies:
- Roth Conversions: With current low tax rates, converting funds from a traditional IRA to a Roth IRA could be advantageous. Paying taxes on conversions at today’s rates allows you to withdraw funds tax-free in the future, shielding your retirement income from the higher rates expected in 2026 and beyond. Consider spreading conversions over multiple years to avoid jumping into higher tax brackets for the best results.
- Manage Capital Gains: The TCJA created separate thresholds for capital gains and ordinary income tax brackets, which will revert in 2026. High-income earners may benefit from realizing gains in 2025 to take advantage of today’s favorable capital gains structure, especially if they expect to be subject to higher rates.
- Qualified Charitable Distributions (QCDs): For taxpayers aged 70½ or older, QCDs allow you to meet your required minimum distributions (RMDs) by donating directly to a charity, reducing your taxable income and potentially lowering your overall tax burden. QCDs can also help reduce Medicare premiums by lowering your adjusted gross income.
Special Considerations for RMDs and Estate Planning
Higher tax rates in 2026 will increase the tax burden on RMDs from traditional IRAs and other tax-deferred accounts. To reduce future RMDs, consider Roth conversions or qualified charitable distributions.
Additionally, suppose you’re planning on passing wealth to heirs. In that case, the lower estate tax exemption starting in 2026 makes it wise to consider using 2025’s higher gifting and estate thresholds to make strategic transfers while minimizing future tax impacts.
Avoiding Common Tax Planning Difficulties
While tax-saving strategies are essential, avoid taking actions that may cause unintended consequences. For example, converting too much in a year could push you into a higher tax bracket, raise your total tax bill, or even impact Medicare premiums.
Similarly, gifting large amounts now should only be done if it doesn’t compromise your financial security. Working with a tax or financial advisor can help ensure your decisions are balanced and aligned with your long-term goals.
Why Work With A Tax Attorney
As a tax attorney, I know the expiration of the TCJA provisions at the end of 2025 creates a unique and critical window for strategic tax planning. This is the time to make proactive moves—such as Roth conversions, capital gains planning, charitable contributions, and estate planning—to help you fully leverage the current tax structure and prepare for potential tax increases in 2026.
By planning now, you can minimize future tax liabilities, preserve more of your wealth, and confidently navigate upcoming changes. Don’t wait—strategic planning in 2025 could make all the difference for your financial future. Contact me now for more information.
