2025 Tax Update: What Do You Need to Know?

Navigating tax laws in 2025 feels a bit like waiting for the next season of your favorite TV show — you know big changes are coming, but you’re not quite sure what the writers (or lawmakers in this instance) have in store. With potential twists like the sunset of the Tax Cuts and Jobs Act (TCJA) and new retirement rules, staying ahead of the game is more important than ever.

Here’s a breakdown of what we know so far and what to keep an eye on.

What We Do Know

1. Individual Tax Brackets and Standard Deduction

• The existing tax brackets are likely to stay the same.
• For the 2025 tax year, married couples filing jointly will see their standard deduction increase by $800 to $30,000, up from $29,200 in 2024. Single taxpayers will also receive a $400 increase, bringing their standard deduction to $15,000 from $14,600 in 2024. However, if the Tax Cuts and Jobs Act (TCJA) expires as scheduled, these figures may change again in 2026.

Key takeaway: Consider taking advantage of the current lower rates for strategies like Roth conversions or realizing capital gains in 2025 if you use the standard deductions.

2. State and Local Tax (SALT) Cap

• The $10,000 cap on State and Local Tax (SALT) deductions is still in place, but discussions about raising, doubling, or eliminating the SALT cap continue.

Key takeaway: Taxpayers in high-tax states should remain engaged, as changes could significantly impact deductions.

3. Retirement Contributions: Super Catch-Up

Individuals aged 60-63 can now make additional “super catch-up” contributions to their 401(k) plans starting in 2025. Details are below.

Employee Contribution Limits:

• Standard Limit: $23,500
• Catch-Up Contributions:
  • $7,500 for individuals over age 50
  • $11,250 for individuals between age 60 and 63

Total Contribution Limit (Employee + Employer): $70,000 plus any applicable catch-up contributions

Key takeaway: Consider boosting your retirement savings to reduce taxable income and save more for retirement if you are in this age range.

4. Clean Energy Incentives

• Current credits for solar panels, electric vehicles, and home efficiency upgrades are still available, but changes could come soon.

Key takeaway: If you have been planning clean energy projects, act now to lock in available credits.

5. Estate and Gift Tax Exemptions

• The annual gift tax exemption for individuals will increase to $19,000 in 2025. Couples who elect gift splitting on their joint tax return will have an exemption of $38,000.
• The current estate tax exemption of $13.99 million per individual and $27.98 million for couples is scheduled to decrease in 2026.

Key takeaway: High-net-worth families should consider executing their gifting strategies before the exemption decreases.

6. Inherited IRA RMDs

• Starting in 2025, some beneficiaries of inherited IRAs must take required minimum distributions (RMDs) annually under the 10-year rule.

Key takeaway: If you’ve inherited an IRA, plan for annual distributions to avoid penalties and ensure compliance with the new rules.

7. Other Important Items

• 529-to-Roth Transfers: Starting in 2024, 529 plan funds can be transferred to a Roth IRA, but this comes with many restrictions, among them a $ 35,000 lifetime contribution limit, a 15-year minimum holding period for the 529 plan, and earned income and beneficiary matching requirements for the Roth IRA holder.
• Solo-401(k) Plan Deferrals: Self-employed individuals can make retroactive first-year solo-401(k) plan deferrals up to the tax filing due date (excluding extensions). S Corp owners receiving a W-2 should exercise caution.
• RMD Age Increase: The Required Minimum Distribution (RMD) age has been raised to 73 for those reaching 73 between 2023 and 2033. For those turning 73 in 2033 and beyond, the RMD age will be 75. This change extends the Roth conversion window for large IRA holders but may also result in larger distributions over a shorter timeframe.
• Self-Employed 401(k) Catch-Up Contributions: Beginning in 2026, individuals earning over $145,000 in the previous calendar year must make all catch-up contributions (for those 50 and older) to a Roth 401(k) account.
• Section 199A Deduction: The Section 199A deduction for Qualified Business Income (QBI) is expected to remain, with potential increases linked to corporate tax cuts.

Key Takeaway: Due to their complexity, it is advisable to consult with your advisor regarding these matters.

What We Need to Look Out For

1. Tax Law Sunsetting

• The TCJA, which lowered tax rates and introduced the SALT cap, is set to expire at the end of 2025. This could lead to:
  • Higher individual tax rates.
  • Reduced standard deductions.
  • A return of personal exemptions.
• Why it matters: 2025 is a critical year to act before potential increases in 2026.

2. Alternative Minimum Tax (AMT)

• The AMT, largely sidelined by the TCJA, could re-emerge if pre-2018 rules return.
• Why it matters: High-income earners and those with significant deductions may need to reevaluate their tax exposure.

3. Child Tax Credit

• Proposals to increase the credit and adjust phaseout thresholds are on the table.
• Why it matters: Families should monitor changes to maximize benefits.

4. Business Tax Deductions

• Deductions for research and development (R&D) expenses and bonus depreciation could change.
• Why it matters: Business owners should stay informed to optimize year-end planning.

5. Legislative Developments

• Discussions around eliminating taxes on tips, overtime pay, and Social Security are ongoing but uncertain.
• Why it matters: These changes could have far-reaching effects on both individual and business taxes.

How to Stay Ahead

• Plan strategically: Evaluate your income, deductions, and retirement contributions to make the most of 2025.
• Consult a professional: Work with a tax advisor to navigate potential changes and identify opportunities.
• Stay informed: Keep an eye on legislative updates to adapt your strategies as needed.

See additional relevant tax articles we wrote:

• Estate Changes are Coming: Who Needs to Act
• New Gifting and Contribution Limit Changes for 2025
• What the 2024 Election Could Mean for Your Taxes
• Tax Checklist

Final Thoughts

Tax planning is like a chess match — you don’t want to wait until the last move to react. The decisions you make in 2025 will set the stage for the years ahead, so now’s the time to think several steps ahead. By staying informed and proactive, you’ll be ready to adapt no matter what moves Congress makes next.

Please reach out to your Wealth Management team at Coldstream with questions about how to plan ahead.

*All of Coldstream’s staff shall attain the required licenses and designations necessary for his/her position. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S.

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