Dear Client,

We are writing to inform you of significant changes to the tax law resulting from the recently enacted 2025 Tax Act. This legislation includes a wide range of provisions affecting individuals, businesses, and estates. Below is a summary of the most impactful changes that may affect your tax planning and compliance in the coming years.

Key Provisions for Individuals:

  • Permanent Lower Tax Rates: The individual income tax rate reductions and expanded brackets from the 2017 Tax Cuts and Jobs Act (TCJA) are now permanent. The 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets remain in place, and the marriage penalty fix is retained. Capital gains and qualified dividend tax rate breakpoints are also made permanent. Inflation indexing for brackets is updated, with new base years for certain brackets.
  • Standard Deduction: The increased standard deduction amounts are made permanent and will be indexed for inflation using 2024 as the new base year.
  • Child Tax Credit: The $2,000 per child credit (with inflation-adjusted refundable portion) is now permanent, and the credit for other dependents is extended.
  • SALT Deduction Cap: The state and local tax (SALT) deduction cap is increased to $40,000 for 2025, with further increases and phaseouts for high-income taxpayers through 2029. The cap reverts to $10,000 in 2030.
  • Alternative Minimum Tax (AMT): The AMT exemption amounts and phaseout thresholds are permanently increased and indexed for inflation.
  • Other Credits and Deductions: Enhancements to the child and dependent care credit, adoption credit, and charitable contribution limits are included.

Key Provisions for Businesses:

  • Qualified Business Income (QBI) Deduction: The 20% QBI deduction for pass-through entities is made permanent, with increased phase-in thresholds and a minimum deduction for active QBI.
  • Bonus Depreciation: 100% bonus depreciation (full expensing) is made permanent for qualified property acquired after January 19, 2025.
  • Business Interest Limitation: The definition of adjusted taxable income for the business interest deduction limit is updated to include certain inclusions and deductions related to foreign income.
  • Reporting Thresholds: The Form 1099-MISC and 1099-NEC reporting threshold is increased from $600 to $2,000 for payments made after December 31, 2025, with inflation adjustments beginning in 2027.

Other Notable Provisions:

  • Senior Deduction: Under the 2025 Tax Act, married couples filing jointly can claim a temporary senior deduction of $6,000 per spouse aged 65 or older, for a maximum of $12,000 per year, for tax years 2025 through 2028. If only one spouse qualifies, the deduction is $6,000. To be eligible, each spouse must be at least 65 years old and have a valid Social Security Number included on the return. Single filers are allowed a $6,000 deduction.  The deduction is reduced by 6% of the amount by which the couple’s adjusted gross income (AGI) exceeds $150,000 (single $75,000), but it cannot be reduced below zero. This deduction is not available after 2028.
  • Estate and Gift Tax: The basic exclusion amount is increased to $15 million for decedents dying and gifts made after December 31, 2025, and is indexed for inflation.
  • Energy Credits: Several energy-related credits and deductions will sunset earlier than previously scheduled, including the energy efficient home improvement credit and residential clean energy credit.
  • IRS Implementation Guidance: The IRS has issued transition relief for digital asset broker reporting, Form 1099-K reporting, and Roth catch-up contributions for retirement plans. Please contact us for details if these areas affect you.

Effective Dates: Most provisions are effective for tax years beginning after December 31, 2025, unless otherwise specified.

We encourage you to review these changes and consider how they may impact your tax situation.  Our team is available to discuss your specific circumstances and help you plan accordingly.  Please contact us with any questions or to schedule a tax planning appointment.

Sincerely,

Laurie B. Price, CPA, CGMA-President