As the Republicans won the U.S. presidential election, the tax and accounting profession is yet again bracing for the potential tax law changes that lie ahead as President-elect Donald Trump returns to the White House.
In the meantime, the IRS has outlined many of its planned adjustments for 2025. On the campaign trail, Trump floated a very diverse range of tax policy ideas that might have a huge impact on individuals, businesses, and estates.
Since he has managed to secure a second term in office, the direction of the tax landscape has started to take shape. Helping clients navigate upcoming changes in tax law and the way it can impact their tax liabilities will ultimately show its value this year. Without a doubt, businesses and individuals will seek clarity and strategic guidance.
“As far as we can tell, the tax landscape is quite uncertain and complicated. I think people are truly worried about what type of legislation we are about to see, especially in response to the sunset of the Tax Cuts and Jobs Act.
This is 100% a period of uncertainty for taxpayers and tax professionals.” explained Shaun Hunley, Thomson Reuters Executive Editor in one of the most recent Thomson Reuters webcasts, “Strategic tax planning in a changing political landscape.
As many questions remain unanswered, now is the ideal time to start exploring some of the potential tax law changes and strategies that would help us keep up with all the changes that are about to unfold. It’s worth taking a look at some of the most important IRS adjustments for 2025.
IRS adjustments for 2025
Every year, the IRS adjusts dozens of tax provisions for an ever-changing inflation. As it was beautifully explained in a recent blog by Alex Durante, an Economist at the Tax Foundation, this can be done to avoid what is commonly known as “bracket creep.”
As Durante explained, “bracket creep takes place when inflation, rather than real increases in income, pushes people into higher income tax brackets or even reduces the value they get from credits and deductions.”
He also added that it is well-known how the IRS previously used the Consumer Price Index (CPI) as a temporary measure of inflation. However, with the Tax Cuts and Jobs Act of 2017, the IRS decided to go with the Chained Consumer Price Index (C-CPI) to efficiently adjust income thresholds, deduction amounts, as well as credit values accordingly.
In late October, the IRS announced the annual inflation adjustments for this tax year, as well as a series of detailed information on adjustments and changes to over 80 tax provisions that could impact taxpayers when they decide to file their returns in 2026.
Rise in standard deductions
For married couples who are filing jointly, the standard deduction increases to $30,000, which is $800 higher than the previous tax year. For heads of households, it is $22,500 for tax year 2025, and up to $600 from the tax year 2024.
For single taxpayers as well as married individuals who file separately for the tax year 2025, the standard deductions go from $15,000 for 2025, and up to $400 from 2024.
Alternative minimum tax (AMT) exemption
For this tax year, the exemption amount for unmarried individuals raises to $88,100 (which is $68,650 for married individuals filing separately) and starts phasing out at $626,350, as the IRS declared. For married couples filing jointly, the exemption amount increases to $137,000 and starts to phase out at $1,252,700.
Earned income tax credit
For all the qualifying taxpayers who have three or even more qualifying children, the maximum Earned Income Tax Credit amount is $8,046 for the tax year 2025. This is much higher than the old $7,830 that was established for 2024.
Estate tax credits
The federal estate tax exclusion amount now increases to $13.99 million from $13.62 million in 2024. What is definitely not changing is the personal exemption, which remains the same at $0 for tax year 2025.
The elimination of the personal exemption was a huge part of the TCJA. Then, there’s also the maximum child tax credit of $2,000 per qualifying child, with a refundable amount of $1,700.
401(k) and Roth changes
Since now we’re right in the midst of the annual inflation adjustments release, the IRS also declared there will be additional changes to retirement-related items, such as 401(k) limit increases as well as higher income thresholds for Roth IRA contributions.
For this year, the amount individuals can contribute to their 401(k) plans could increase to $23,500, all the way from $23,000 for the year prior. This change will go on to those who participate in 401(k) plans, but also 403(b) governmental 457 plans, and the federal government’s Thrift Savings Plan.
The IRS shows that, as of this year, the 401(k) catch-up contribution limit will be the same at $7,500 for participants who are 50 and older. However, under a change made in SECURE 2.0, a higher catch-up contribution limit might apply to investors who are aged between 60 and 63, which is $11,250.
Future of the TCJA
At the end of 2025, a huge portion of the TCJA is bound to expire. Even if uncertainty continues to linger, Republicans will generally favor a broader extension of the sunsetting provisions. Here’s what Trump’s policy proposals look like:
- Trump is looking to extend the Qualified Business Income (QBI) deduction. The 20% deduction for some QBI is currently set to expire at the end of 2025.
- Trump also proposed to reinstate and make permanent 100% bonus depreciation. As soon as it gets enacted by TCJA, bonus depreciation enables businesses to write off 100% of the cost of eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023. Before TCJA, it was 50%. The bonus percentage is slowly decreasing by 20 points every year and is bound to completely phase out starting on January 1, 2027.
- Also, individual income tax rates, such as 10%, 12%, 22%, 24%, 32%, 35%, and 37%, will soon expire after this year, reverting to pre-TCJA rates. Trump also proposed extending or making permanent these rates, as well as replacing the individual income tax with increases in tariffs.
- Moreover, Trump proposed reducing the corporate income tax rate from 21% to 20%, and 15% for companies that produce and manufacture in the United States.
- Unless Congress decides to step in, the lifetime gift and estate tax exemption could take a drastic drop in 2026, reverting to near-2017 levels of roughly $7 million. Unless it has been changed with legislation, the 40% rate is permanent. Trump also proposed to extend the TCJA exemption amount increase and maintain the 40% rate.
Elimination of taxes on Social Security benefits
While he was still campaigning, Trump vowed to eliminate taxes on Social Security benefits. It’s an eyebrow-raising idea that many experts think would be quite difficult to garner the support needed to pass.
This type of change would require a minimum of 60 Senate votes. As Charles Blahous, senior research strategist at the Mercatus Center at George Mason University explained, “It’s hard to imagine the Democrats would be willing to provide votes to get the 60-vote threshold and weaken Social Security solvency.”
The entire notion of nixing the taxes on Social Security benefits somehow sparked concern, since such a move could prove to be detrimental to Social Security’s finances.
Stay aware of upcoming tax law changes
Since so many potential tax law changes line up for us this year, it will be even more important for accountants to keep pace with the changes. Clients might seek clarity and guidance to comply and minimize their tax liabilities. With the right tools and resources in place, accountants can rapidly and confidently find the answers they need for their strategic tax planning.
If you found this article useful, we also recommend checking: 11 Charming Places in the US With Large Senior Populations
