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In 2025, there are tax issues and changes to be aware of, ranging from updates in tax brackets and retirement contribution limits to new policies and potential changes in tax law. While it is impossible to predict all developments with certainty, here are some key tax issues to consider:

1. Changes in Tax Brackets and Rates

• Inflation Adjustments: The IRS typically adjusts tax brackets annually for inflation, and the same will apply in 2025. This could mean slight changes in the tax rate thresholds for individuals and businesses.
• Possible Tax Rate Revisions: While there is no confirmation, future legislation might alter the tax rates for individuals, corporations, or capital gains. Historically, Republicans have favored tax cuts over tax increases, particularly for high-income earners and businesses. Republican-controlled Congress is more likely to focus on tax cuts rather than increases, aiming to reduce the tax burden on individuals, especially for higher-income earners and corporations., especially if there is a shift in political power.  This remains to be seen.

2. Retirement Contribution Limits

• 401(k) and IRA Limits: Contribution limits for retirement accounts like 401(k)s, IRAs, and similar accounts are periodically adjusted for inflation. If inflation continues to rise, you may see increases in the annual limits for contributions to these tax-advantaged accounts.
  • 401(k) Contribution: In 2024, the limit is $23,000 (or $30,000 for individuals 50 and older). A similar increase could occur in 2025.
  • IRA Contributions: For 2024, the limit is $6,500 ($7,500 for those 50+). This could increase in 2025.

3. Required Minimum Distributions (RMDs)

• Changes in RMD Age: In recent years, the age for Required Minimum Distributions (RMDs) from retirement accounts like IRAs and 401(k)s was raised to 73 for individuals born between 1951 and 1959, and 75 for those born in 1960 or later. If you are nearing retirement, be aware of the rules around RMDs in 2025.

4. Capital Gains Tax and Investment Income

• Capital Gains Tax Rates: There may be proposed changes in the tax rate on long-term capital gains. Currently, long-term capital gains are taxed at 0%, 15%, or 20%, depending on income. Future tax reforms could lead to increases or changes in how capital gains are taxed.
• Investment Income Taxes: For high earners, an additional 3.8% Net Investment Income Tax (NIIT) applies. Keep an eye on whether any legislation seeks to alter this tax.

5. Tax Credits and Deductions

• Child Tax Credit and Earned Income Tax Credit (EITC): There may be extensions or changes to credits like the Child Tax Credit (which in 2025 may revert to pre-2021 levels unless extended) or the Earned Income Tax Credit for low-income workers.
• Standard Deduction: The standard deduction is also typically adjusted for inflation. For instance, in 2024, it is $27,700 for married couples filing jointly, and this could increase slightly in 2025.

6. Estate and Gift Tax Exemption Limits

• Estate Tax Exemption: The federal estate tax exemption has been temporarily higher, but it is scheduled to drop in 2026. This could result in lower estate exemptions starting in 2026 but be mindful of any adjustments or proposals in 2025 that may affect estate planning.

Under Republican control of the House, it is highly likely that Republicans will oppose the reduction of the estate tax exemption scheduled for 2026 and will actively work to extend the higher exemption or potentially repeal the estate tax altogether.

• Gift Tax: The annual gift tax exclusion may increase slightly for inflation, so if you plan to make significant gifts, keep track of these changes.

8. Business Tax Changes

• Corporate Tax Rate: Changes to corporate tax rates, or adjustments to deductions and credits available to businesses, could be enacted in 2025. Keep an eye on any tax reform that could affect your business, such as the treatment of business losses, tax incentives for research and development (R&D), or the tax treatment of international profits.
• Small Business Expensing: Certain expensing provisions for small businesses may change, such as Section 179 expensing, which allows businesses to deduct the full cost of certain capital expenditures in the year they are made.

9. Tax Reform Proposals

• Bipartisan Tax Proposals: There may be continued discussions or negotiations around broad tax reform in 2025, especially with the shifting political climate. These proposals could focus on taxes for high earners, corporate taxes, and changes to deductions and credits that impact individuals.
• Digital Economy and Cryptocurrency Taxes: The tax treatment of digital assets like cryptocurrency continues to be under scrutiny. New rules or clarifications may emerge in 2025, especially as more people invest in or use cryptocurrencies.

Contact an Estate Planning Attorney to Take Advantage of New Opportunities

In 2025, tax changes will likely be influenced by ongoing inflation adjustments, potential tax reforms, and shifting political power. It’s essential to keep track of legislative developments and consult an estate planning attorney in conjunction with your tax advisor to ensure you stay compliant and take advantage of any new opportunities or adjustments that may arise.  Contact our experienced Texas estate planning lawyers at Ford + Bergner LLP today to discuss your estate options and protect your family’s future.