Navigating the dynamic world of taxes can make you feel bored and exhausted. However, if you want your business to stay ahead of the curve this is crucial.

As we step into 2025, significant updates are set to reshape the tax landscape for individuals and businesses alike. Therefore, staying informed about these developments is important for effective financial planning and compliance.

Curious about what’s on the horizon?

Let’s dive into the key tax law changes that are about to redefine the year ahead.

IRS Inflation Adjustments:

Are you aware of the term “bracket creep”? It usually occurs when inflation hits the market, pushing people into higher income tax brackets. This reduces their deductions value and the amount they receive from credits. In order to avoid this, every year, the IRS adjusts numerous tax provisions for inflation. This year there are some key changes.

Increase in Standard Deductions –

• For married couples filing jointly, it is $30,000, up $800 from tax year 2024.
• For heads of households, it is $22,500 for the tax year 2025, up $600 from tax year 2024.
• For single taxpayers and married individuals filing, it is $15,000 up $400 from 2024.

Alternative Minimum Tax (AMT) exemption –

In 2025, the exemption amount for unmarried people will increase to $88,100. The IRS announced that it will begin to phase out at $626,350.

For married couples filing jointly, the exemption amount rises to $137,000 and begins to phase out at $1,252,700.

Earned income tax credit –

Taxpayers with three or more qualifying children will have a maximum EITC of $8,046.

Estate Tax Exclusion-

The federal estate tax exclusion amount rises to $13.99 million from $13.61 million in 2024.

Earlier, the IRS used the Consumer Price Index (CPI) to measure the inflation. After the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to make necessary adjustments.

Retirement Account Adjustments:

The IRS also announced that there will be several changes to retirement-related items, including 401(k) and Roth accounts.

Individuals contributing to 401(k) plans will increase to $23,500, up from $23,000 for 2024. This change in plan also applies to those who participate in 401(k) plans, 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.

For those contributing to Roth accounts in 2025, the income phase-out range for taxpayers will be between $150,000 and $165,000 for singles and heads of household. The phase-out range for married couples filing jointly will be between $236,000 and $246,000.

Future of TCJA:

The IRS announced that the Tax Cuts and Jobs Act of 2017 will expire by the end of 2025. While the uncertainty remains, Trump has developed some new policy proposals.

• An extension in the Qualified Business Income (QBI) deduction.
• A possibility to reinstate and make permanent 100% bonus depreciation.
• Proposal to extend individual income tax rates with an increase in tariffs.
• Proposal to eliminate the $10,000 cap on state and local tax deductions (SALT)

Elimination of Taxes on Social Security Benefits:

Another significant change is the elimination of taxes on Social Security benefits. Millions of Americans rely on social security as their primary source of income. Therefore, this change will reduce the financial burden of retired individuals, allowing them to save more of their income.

Simplification of Tax Policies:

The best part of the upcoming tax landscape is its simplified version. Many businesses often fail to comply with the tax regulations due to its complex structure. From now onwards, they will come across easy tax policies and streamlined processes.

• The Income Tax Act, of 1961 is underway to remove outdated provisions and simplify the overall structure.
• The Goods and Services Tax (GST) Council is evaluating ways to rationalize rates and slabs.
• The GST Appellate Tribunal will operate effectively in 2025, ensuring faster resolution of disputes and reducing litigation backlogs.

Technological Advancements in Tax Compliance:

Transparency and accuracy are the key aspects of tax filings. In order to enhance these two factors, the government is investing in technological upgrades.

An initiative is taken where the Invoice Matching System (IMS) is introduced to automate invoice reconciliation and reduce fraudulent Input Tax Credit (ITC) claims. The system is designed to improve tax compliance but it may pose significant challenges for businesses, especially the small taxpayers.

Wrapping Up

The tax landscape for 2025 has brought a lot of opportunities and challenges. Whatever it is, you should take note of these developments and stay proactive.

So, looking for a trusted partner to plan your taxes and optimize financial outcomes? Basta and Company has a team of professionals to help you stay compliant and make the most of the available benefits. Whether you are an individual taxpayer or a business owner, seek their help and adapt the strategies to reduce all your liabilities.