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Key Tax Considerations

Unlock Your Tax Savings: Essential Tips from GO! Our experts have gathered the top tax strategies you need for savvy planning.

2025

Summary of Key Tax Considerations

Tax Environment Overview

With the potential expiration of key provisions under the Tax Cuts and Jobs Act (TCJA) in 2025, proactive tax planning is essential. A Republican-controlled government may seek to extend or make permanent many TCJA provisions, but federal budget constraints will influence these efforts. Key focus areas include individual taxation, estate planning, pass-through business deductions, corporate tax rates, and various credits and deductions.

Key Areas of Tax Changes and Strategies

Individual Taxation

  • Potential Changes: Individual income tax rates could revert to pre-TCJA levels, with the top rate increasing from 37% to 39.6%.
  • Policy Outlook: Republicans aim to maintain current rates, but the cost of an extension may prompt debate.
  • Planning Strategies:
    • Accelerate income into 2025 or defer deductions if higher rates are expected.
    • Maximize retirement contributions and charitable giving under current rates.
    • Optimize tax credits like the Child Tax Credit and energy-efficient home improvements.

Estate Planning

  • Potential Changes: Estate and gift tax exemptions could decrease from $13.99 million per individual (2025) to approximately $7 million in 2026.
  • Policy Outlook: Republicans are expected to push for extending higher exemptions, but costs remain a challenge.
  • Planning Strategies:
    • Utilize the current high exemptions with large gifts or trust arrangements.
    • Ensure estate plans align with long-term financial goals.

Pass-Through Business Ownership

  • Potential Changes: The 20% Qualified Business Income (QBI) deduction is set to expire after 2025, impacting tax rates for pass-through entities.
  • Policy Outlook: Republicans may advocate for an extension, but the cost complicates this effort.
  • Planning Strategies:
    • Assess eligibility for the QBI deduction and consider restructuring or managing income levels to maximize benefits.
    • Evaluate whether a pass-through or C corporation structure aligns best with long-term goals.

Corporate Taxation

  • Potential Changes: Further reductions in the corporate tax rate (currently 21%) to 15–20% could incentivize foreign corporations to relocate to the U.S.
  • Policy Outlook: Republican tax policy under Trump may focus on corporate competitiveness.
  • Planning Strategies:
    • Review deductions for bonuses, inventory write-offs, and employee benefits
    • Explore retirement plan options for businesses to reduce taxable income.

Deductions, Credits, and Green Energy Incentives

  • Potential Changes: 
    • Standard deduction increases may make itemizing less favorable unless deductions are strategically “bunched.”
    • Rollbacks to IRA credits and IRS enforcement funding under the Inflation Reduction Act may impact clean energy incentives.
  • Planning Strategies:
    • Maximize available credits like energy-efficient home improvements and clean vehicle purchases.
    • Bundle deductions for charitable giving or medical expenses to exceed standard deduction thresholds.

Year-End Tax and Financial Planning Tips to Consider

Let us know about major life events:

  • Marriage or Divorce
  • Births or Deaths
  • New business activities
  • Significant expenditures 

Maximize Contributions:

  • Increase contributions to 401(k)s, IRAs, or HSAs to reduce taxable income.
  • Contribute to employer retirement plans to take advantage of deferred taxes.

Charitable Giving:

  • Consider making charitable contributions before year-end to benefit from potential deductions 
  • Leverage Qualified Charitable Distributions (QCDs) from IRAs for tax-free giving.
  • Consider contributing to a Donor-Advised Fund (DAF) in high-income years.

Capital Gains and Losses:

  • Review your investment portfolio for potential tax-efficient strategies 
  • Offset gains with losses to minimize tax liabilities.
  • Take advantage of lower tax rates on long-term capital gains.

Estate and Gift Planning:

  • Utilize annual gift tax exclusions ($18,000 per individual; $36,000 for couples) for tax-efficient wealth transfers.
  • Review and update estate plans to reflect potential changes.

Retirement and Required Minimum Distributions (RMDs):

  • Plan for RMDs to avoid higher tax brackets due to overlapping distributions.
  • Use QCDs to satisfy RMDs tax-efficiently.

Maximize Tax Credits and Tax-Advantaged Accounts:

  • Review available credits, such as the Child Tax Credit, Education Credits and energy-efficient home improvements. 
  • Evaluate Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) for potential contributions. 
  • Use up any remaining balances in your FSA before they expire.
  • Evaluate 529 Plans. You can transfer unused portions contributed to a Roth IRA for beneficiaries tax free. Confirm with us your 529 plan is eligible. 

Other planning points:

  • Estimated tax payments: with underpayment interest rates on the rise, contact us to review your withholding and estimated tax payments and assess any liquidity needs. 
  • Digital assets: if you are investing in virtual currency, a reminder that capital gains are taxed on the difference between your basis and your sales price. It can be difficult to track down basis for digital assets. Good record keeping can assist with this. 

Business Tax Strategies:

  • Timing the deduction of employee bonuses and executive compensation.
  • Prepay rent and suppliers if on cash basis.
  • Assess inventory write-offs or other deductible business activities.

Section 199A Phase Out

199A is set to expire December 31st 2025 (congressional action could change this). This code section allows for most taxpayers to deduct up to 20% of their qualified business income. Income classified as QBI effectively reduces the top tax rate from 37% to 29.6%. Income limitations may apply for individual filers with income above $191,950 ($383,900 for joint filers).

Simplified employee pension (SEP)

Contribute as much as 25% of your net earnings from self-employment, up to $69,000 for 2024.

Bonus Depreciation Phase Out

First-year bonus depreciation that allows a business to deduct 100% of capital purchases is phasing out beginning 2023. For qualified improvement property and other assets with a tax life of 15 years or less, the deduction is 60% (down from 80% in 2023). The deduction decreases 20% each year until completely eliminated by 2027. Thus, it’s important to consider the timing of your capital purchases. Let us help you receive the best tax treatment.

Research and development (R&D) expensing (section 174)

There is a great push to have this repealed. A recent bill was passed by the House in January, but stalled and was voted down by the Senate in August. The Section 174 applies to expenditures incurred in connection with a taxpayer’s trade or business that represent R&D costs in not only a laboratory/new to the world element, but also to those expenditures that are related to activities intended to eliminate uncertainty in the development or improvement of a product. As amended by the TCJA, for tax years beginning after Dec. 31, 2021, taxpayers are required to capitalize and amortize all R&E expenditures regardless of how such expenditures were treated previously.

Business Loss Limitation 

The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under the 2017 tax reform effective for tax years 2021 through 2026. It has been extended through 2028 under the IRA of 2022. The tax break limited individuals from taking business losses to offset nonbusiness income. The limitation for 2024 applies for taxpayers with business losses exceeding $305,000 ($610,000 for joint filers). Excess business loss is treated as a Net Operating Loss carryforward to the next tax year.

E-filing of W2s and 1099s

Taxpayers must e-file W-2s and 1099s if they are filing more than 10 forms total. Penalties apply to any paper filed forms in excess of 10. Plan ahead and obtain W-9 information from your service providers well ahead of the January 31 deadline.

Standard mileage rates 

The IRS has not yet released the standard mileage rate for 2025. The rates are typically updated in December for the following year. Beginning on 1/1/2024, the standard mileage rates for the use of a car are 67 cents per mile driven for business, 22 cents per mile driven for medical or military moving, and 14 cents per mile driven in service of charitable organizations.

Business meals and entertainment deductions

Meals remain a 50% deduction in 2024. Entertainment is not deductible.

Business Ownership Reporting, including LLCs

A new filing requirement, Beneficial Ownership Information Reporting (BOI) to the Financial Crimes Enforcement Network (FinCEN) starts in 2024. This new requirement applies to all businesses that are registered with state(s) to engage in business including one-member LLCs, sole proprietorships, and rental activities under LLCs. Severe penalties are imposed on businesses who do not comply. Businesses will need to complete this reporting by different dates based on when they were formed:

Formed before 2024: January 1, 2025

Formed in 2024 only: 90 days after formation to file the initial report.

Formed after 2024: 30 days after formation

Please reach out to your business attorney and/or registering agent as soon as possible if you own a business.

Retirement Accounts

Ensure you’ve maximized contributions to your retirement accounts, such as 401(k)s and IRAs. If eligible, consider making catch-up contributions to retirement accounts.

Individual Retirement Account (IRA) 

For tax year 2024, you may contribute up to $7,000 by April 15th, 2025. If you are 50 or older by the end of 2024, you may contribute an additional $1,000 as a catch-up contribution, bringing the total to $8,000.

401(k) Contribution Limits

The 401(k) Contribution limit also increased to $23,000 in 2024 with an additional $7,500 in catch-up contributions for those aged 50 and older by the end of the year. This brings the total to $30,500.

Required minimum distributions (RMDs)

The Secure 2.0 Act raised the RMD minimum age to 73 beginning in 2023.

  • If you turned age 73 in 2024, remember to take your first RMD by April 1, 2025, for tax year 2024.
  • Starting in 2024, RMDs are no longer required from designated Roth accounts in 401(k) or 403(b) accounts.
  • The rules for inherited IRAs changed for account owners who died after December 31, 2019. Please contact us if you recently inherited an IRA for more information.
  • Planning ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs.

Qualified charitable distribution (QCD) one-time election

After its inception in 2023, a one-time $53,000 qualified charitable distribution (QCD) can be made from your IRA to charitable trusts as part of the $105,000 annual QCD limit in 2024. These amounts have been indexed for inflation. 

IRA to HSA one-time transfer

It’s a good idea to contribute to your HSA as much as possible to maximize your tax benefits. The contribution limits are $4,150 for individuals and $8,300 for family in 2024, and $4,300 for individuals and $8,550 for family in 2025. If you are 55 or older by the end of 2024, then you can contribute an additional $1,000. You can transfer funds directly from your IRA to a Health Savings Account (HSA) without taxes or penalties. If you’re hit with high medical expenses and have an insufficient balance in your HSA, transferring funds from your IRA may be a solution. You are allowed a one-time fund transfer directly from your IRA to a Health Savings Account (HSA) without taxes or penalties.

 

Washington State Capital Gains Tax

The 2021 Washington State Legislature passed a 7% capital gains tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets (excluding real estate). The Washington Supreme Court upheld the tax in appeals and the recent proposition to repeal the tax in the November 2024 election did not pass. The tax only applies to individuals if the total long-term capital gains exceed the annual threshold of $262,000 (2023 threshold, the 2024 threshold has not yet been released). Individuals can be liable for their ownership interest in a pass-through or disregarded entity that sells or exchanges long-term capital assets. The tax only applies to gains allocated to Washington State. 

2023 thresholds (2024 has yet to be released)

  • Standard Deduction: $262,000 ($250,000 in 2022)
  • Cap on Amount of Charitable Donation Deduction: $105,000 ($100,000 in 2022) 
  • Worldwide gross revenue limit for Qualified Family-Owned Small Business deduction: $10,480,000 ($10,000,000 in 2022)

Standard Deduction

After an inflation adjustment, the 2024 standard deduction increases to $14,600 for single filers, $21,900 for heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction rises to $29,200.

 

Itemized Deductions

For most filers, taking the higher standard deduction is more beneficial and saves the hassle of keeping track of receipts. However, if you have enough tax deductible expenses, you might benefit from itemizing.

State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.

Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of indebtedness. Those who had $1,000,000 of home mortgage debt before December 16, 2017, are still able to deduct the interest on that loan.

Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2024.

Charitable donations: In 2024 the annual income tax deduction limits for gifts to public charities are 30% of AGI for contributions of non-cash assets and 60% of AGI for contributions of cash. 

Miscellaneous deductions: No miscellaneous itemized deductions are allowed.

 

Child tax credit

For 2024, the child tax credit is up to $2,000 per qualifying dependent child. The refundable portion, known as the additional child tax credit, is up to $1,700 per qualifying dependent child. 

 

Clean Vehicle Tax Credits

Tax credits for electric cars purchased in 2024 must be determined at the time of sale. Eligibility for the credit up to $7,500 is determined based on MSRP, battery manufacturing, purchase price and the buyer’s income.

Confirm in advance if the vehicle is eligible for the credit on https://fueleconomy.gov/feg/tax2023.shtml. It is also important to consider your income for the year of purchase. If the car is eligible, but your income is too high and you receive the credit indirectly through the dealer, then there is a potential to repay the IRS when the 2024 tax return is filed.

 

Earned Income tax credit

To be eligible for the EIC without a qualifying child in 2024, your income must be less than $18,591 ($25,511 if married filing jointly). You must be at least age 25 but under age 65 at the end of 2024. 

 

Energy Efficient Home Improvement Credit

These expenses may qualify if they meet requirements:

https://www.irs.gov/credits-deductions/home-energy-tax-credits 

  • Exterior doors, windows, skylights, and insulation materials
  • Central air conditioners, water heaters, furnaces, boilers, and heat pumps
  • Biomass stoves and boilers
  • Home energy audits

The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation. From 2023 through 2032, 30%, up to a maximum of $1,200 per year (heat pumps, biomass stoves and boilers have a separate annual credit limit of $2,000) with no lifetime limit. You can’t claim the credit if you’re a landlord or other property owner who doesn’t live in the home. Beginning in 2025, for each item of qualifying property placed in service, no credit will be allowed unless the item was produced by a qualified manufacturer and the taxpayer reports the PIN for the item on their tax return.

 

Residential Clean Energy Credit

These expenses may qualify if they meet requirements detailed on energy.gov:

  • Solar, wind, and geothermal power generation
  • Solar water heaters
  • Fuel cells
  • Battery storage (beginning in 2023)

The amount of the credit you can take is a percentage of the total improvement expenses in the year of installation:

  • 2022 to 2032: 30%, no annual maximum or lifetime limit

You can’t claim the credit if you’re a landlord or other property owner who doesn’t live in the home.

Take advantage of the annual gift tax exclusion to transfer wealth tax-efficiently to loved ones. The annual exclusion from gift tax is $18,000 per year per donor to donee in 2024 and $19,000 in 2025. Note that a married couple are considered as two separate donors.

The Federal estate tax exclusion increased from $13.61 million per person for 2024 to $13.99 million per person for 2025.

The Washington state estate tax exclusion remains at $2.193 million for 2024 and 2025.

Assess your estate planning goals and review your will, trusts, and beneficiary designations. The federal lifetime estate and gift tax exclusion is scheduled to be reduced from $13.99 million per person to $5 million per person indexed for inflation after December 31, 2025.

Appraisers and business valuators anticipate a spike in business as taxpayers try to obtain fair market values for gifting before the 2025 cliff. We recommend you reach out to us and your estate planning attorney to discuss gift planning strategies.