With the Republican victory in the U.S. presidential election, the tax and accounting professions are preparing for potential changes to tax laws. As President-elect Donald Trump returns to the White House, the focus is now on the policy shifts that could reshape the tax landscape for individuals, businesses, and estates. The IRS has already outlined several key adjustments for 2025, providing some early insight into what taxpayers can expect.
Throughout the campaign, Trump proposed a variety of tax policy ideas, all of which could significantly impact different sectors. Now that he has secured a second term, the direction of the tax framework is beginning to solidify.
For tax professionals, helping clients navigate these potential changes and understand their impact on tax liabilities will be crucial in the coming year. Businesses and individuals are likely to seek guidance on how to adapt to new tax realities.
“The tax landscape is very uncertain. It’s complex, and people are concerned about the potential changes, particularly in light of the sunset of the Tax Cuts and Jobs Act (TCJA),” said Shaun Hunley, Executive Editor at Thomson Reuters, in a recent webcast titled Strategic Tax Planning in a Changing Political Landscape.
While the future remains unclear, it is essential to begin exploring potential changes to tax laws and the strategies professionals can employ to stay informed and prepared. Here’s a look at some of the key IRS adjustments for 2025.
IRS Adjustments for 2025
Every year, the IRS adjusts numerous tax provisions for inflation. These adjustments are designed to prevent “bracket creep,” where inflation pushes taxpayers into higher tax brackets or reduces the value of credits and deductions. Alex Durante, an Economist at the Tax Foundation, noted that “bracket creep occurs when inflation, rather than real income growth, results in individuals facing higher tax brackets or losing out on credits.”
The IRS transitioned from using the Consumer Price Index (CPI) to the Chained Consumer Price Index (C-CPI) for adjustments following the TCJA in 2017, making these annual changes more reflective of modern economic trends.
In October, the IRS announced its inflation adjustments for the 2025 tax year, detailing more than 60 provisions that will impact taxpayers filing returns in 2026. Some of the most notable adjustments include:
– Increased Standard Deductions: For married couples filing jointly, the standard deduction rises to $30,000 (up by $800 from 2024). Heads of households will see their deduction increase to $22,500 (up by $600). Single taxpayers and married individuals filing separately will see an increase to $15,000, up by $400 from the previous year.
– Alternative Minimum Tax (AMT) Exemption: The AMT exemption for unmarried individuals will rise to $88,100 ($68,650 for married individuals filing separately) and phase out at $626,350. For married couples filing jointly, the exemption amount will be $137,000, phasing out at $1,252,700.
– Earned Income Tax Credit (EITC): For qualifying taxpayers with three or more qualifying children, the maximum EITC amount will increase to $8,046 in 2025, up from $7,830 in 2024.
– Estate Tax Credit: The federal estate-tax exclusion amount will increase to $13.99 million from $13.61 million in 2024.
What’s Staying the Same?
While many provisions will change, certain elements remain constant. Personal exemptions will stay at $0, as was the case with the TCJA. The child tax credit remains $2,000 per qualifying child, with $1,700 of it being refundable.
Retirement-Related Changes
The IRS has also announced adjustments for retirement-related contributions, including increases to 401(k) limits and higher income thresholds for Roth IRA contributions.
– 401(k) Contribution Limits: The contribution limit for 401(k) plans will rise to $23,500 for 2025, an increase from $23,000 in 2024. This applies to participants in 401(k), 403(b), 457 plans, and the federal government’s Thrift Savings Plan.
– Catch-Up Contributions: The catch-up contribution limit for participants aged 50 and older will remain at $7,500. However, as part of the SECURE 2.0 Act, participants aged 60 to 63 will be able to contribute up to $11,250 in catch-up contributions.
– Roth IRA Contribution Income Thresholds: For Roth IRA contributions in 2025, the income phase-out range for singles and heads of household will be between $150,000 and $165,000 (up from $146,000–$161,000). For married couples filing jointly, the range will increase to between $236,000 and $246,000.
The Future of the TCJA
At the end of 2025, many provisions of the TCJA are set to expire, which could bring significant changes. Republicans are expected to push for an extension of these provisions. Some of the proposals under consideration include:
– Qualified Business Income (QBI) Deduction: The 20% deduction for QBI, which currently expires at the end of 2025, could be extended.
– Bonus Depreciation: Trump has proposed making 100% bonus depreciation permanent. This provision, which allowed businesses to write off the full cost of eligible property in the first year, is set to phase out by 2027.
– Individual Tax Rates: The individual income tax rates introduced under the TCJA (10%, 12%, 22%, 24%, 32%, 35%, and 37%) are slated to revert to pre-TCJA levels unless extended.
– Corporate Tax Rate: Trump has proposed reducing the corporate tax rate from 21% to 20%, with a further reduction to 15% for companies that manufacture in the U.S.
– Estate and Gift Tax Exemption: The lifetime gift and estate tax exemption will revert to near-2017 levels unless legislation is passed to extend it. Trump has suggested maintaining the higher exemption amount and the 40% rate.
The Proposed Elimination of Taxes on Social Security Benefits
During his campaign, Trump promised to eliminate taxes on Social Security benefits, an idea that has drawn mixed reactions. Many experts have raised concerns about its potential negative impact on Social Security’s solvency, as estimates suggest it could increase the program’s 10-year cash shortfall by $2.3 trillion. While such a proposal would face significant opposition, particularly in the Senate, its implications for future tax planning remain unclear.
Staying Informed on Tax Law Changes
With numerous tax changes on the horizon, tax professionals must stay updated to advise their clients effectively. Whether helping individuals or businesses prepare for the future, keeping pace with these adjustments is crucial.
As the political landscape evolves, it presents an opportunity for professionals to help clients make informed decisions about tax planning. Strategies for when to incur income, make gifts, or carry out transactions could make a significant difference in minimizing tax liabilities.
“Preparation is key,” said Daniel Winnick, Principal at KPMG. “We can’t predict the future, but we can provide clients with the tools to navigate potential changes.”
Tax professionals should leverage the right resources and tools to stay ahead of changes as they unfold, ensuring they remain trusted advisors to their clients during this period of uncertainty.
