With tax season looming, now is a good time to review upcoming changes that may impact your financial strategy. While tax planning for 2024 is largely set, several key changes will take effect in 2025 that could influence your retirement contributions, capital gains taxes, and estate planning.
To start, here are the basic changes already in place for the 2025 tax year:
Retirement Contributions: The employee contribution limit for 401(k) and 403(b) plans has increased to $23,500 (up from $23,000).
Catch-Up Contributions: Individuals aged 50 and older can contribute up to $7,500, while those aged 60-63 have an enhanced limit of $11,250.
IRA Limits: There are no changes to contribution or catch-up limits for IRAs or Roth IRAs.
Capital Gains Taxes: The long-term capital gains tax remains 15% for incomes up to $533,400 and 20% for incomes above that threshold. For married couples filing jointly, the 15% rate applies up to $600,050, increasing to 20% above that amount.
Gift Tax Exclusion: The annual gift tax exclusion has risen from $18,000 to $19,000.
While these changes are all quite minor, more significant changes may be coming our way. During his last term, Trump signed the Tax Cuts and Jobs Act (TCJA) into law, introducing sweeping reforms that lowered income tax rates, nearly doubled the standard deduction, permanently reduced the corporate tax rate to 21%, and changed tax brackets and deductions for individuals and businesses. After eight years in place, the provisions of the TCJA are set to expire on December 31, 2025.
So, what lies ahead? There have been discussions about further reducing the corporate tax rate to 15% for certain businesses, as well as extending the TCJA permanently. However, because these changes reduce tax revenues, other steps would be required to balance the federal budget and reduce the federal deficit. This past weekend, Trump made his first move, imposing heavy tariffs on Mexico, Canada, and China, and promising more changes to come. If you’re interested in the details of how extending the TCJA is likely to impact the federal budget (and your own wallet), you can read the report from the Congressional Budget Office (CBO), a nonpartisan federal agency that provides independent economic and budgetary analysis to the US Congress to assist in legislative decision-making, here.
While many of these measures are bound to become partisan battles in Washington, there does seem to be bipartisan support for extending the TCJA provisions that impact individual taxpayers, including maintaining lower individual tax rates, expanding the Child Tax Credit, and making the Employer Credit for Paid Family and Medical Leave permanent. Small businesses may also benefit if support continues for the qualified business income deduction (QBI).
A change that could have a significant impact on many of our clients’ wealth transfer strategies is the lifetime exemption for gift and estate taxes. The TCJA significantly increased this exemption, with inflation adjustments bringing it to $13.99 million per individual and $27.98 million per married couple in 2025. If the current exemption expires, it could revert to approximately $7 million per individual and $14 million per couple, depending on inflation. If you are concerned about tax-efficient wealth transfer, now may be the time to take a close look at your estate planning strategies. Taking advantage of the current exemption before it decreases may help reduce your potential estate tax liabilities. Additional estate planning strategies to consider include:
Annual Gifting: Gifting the maximum $19,000 gift tax exclusion to transfer assets ahead of any policy change.
Charitable Giving: Leveraging donor-advised funds (DAFs) or charitable lead trusts (CLTs), and charitable remainder trusts (CRTs) to reduce taxable estate values. (Gideon explores these and other strategies in his book Giving… Contact us for a complimentary copy.)
Estate Planning: Your estate planning attorney may advise the use of certain trusts—such as Grantor Retained Annuity Trusts (GRATs) or Intentionally Defective Grantor Trusts (IDGTs)—to help secure today’s exemption levels while ensuring a tax-efficient transfer of assets to your heirs.
As always, our team is actively working to grow and protect your wealth. If you have any questions about how changing tax laws could impact your portfolio or your overall wealth, please reach out to us at any time. We are happy to explore each scenario in detail to help pave a confident path forward—no matter what changes lie ahead.
Disclaimer: Leisure Capital Management does not offer clients tax advice on tax accounting matters. The tax and estate planning information presented by the advisor is general in nature, provided for informational purposes only, and should not be construed as legal or tax advice. The recipient should contact their attorney or tax professionals regarding their specific legal or tax situation.
