#TCJAExpiration

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Your Guide to Essential Tax Strategies for 2025

As we draw to the end of 2024 and await the dawn of 2025, staying ahead of the curve with effective tax planning strategies becomes crucial. Proactive planning gains greater significance due to potential major changes in tax laws on the horizon, particularly with the likely expiration of several provisions of the Tax Cuts and Jobs Act (TCJA) in 2025. While President-elect Donald Trump and the Republican party have committed to extending many provisions of the TCJA, uncertainty remains about the kind of tax changes the new regime will usher in. We discuss a few essential tax planning strategies you could consider adopting to protect your finances in 2025.

1. Impact of TCJA Expiration

The TCJA significantly altered the tax code, but many of its provisions are set to expire by the end of 2025. Provisions that could revert to the old rules include the following:

·   Individual tax rates that were reduced under the TCJA are likely to revert to the higher old rates unless extended.

·   Standard deductions that were almost doubled under the TCJA will revert subject to adjustments for inflation

·   Mortgage interest deduction on home equity loans was suspended and limited under the TCJA. This could revert to the old limits post 2025.

·   The State And Local Tax (SALT) deductions which were capped at $10,000 under the TCJA could revert to the higher old deduction amounts on property, local, and state taxes. There are also suggestions that the SALT deductions could be eliminated. You could consider delaying any additional SALT payments to 2025 once there is more clarity on the provisions.

Consequently, once the TCJA expires it would be best to prepare for potential increases in tax rates and adjustments to deductions.

2. Increased standard deduction rates for 2025

The standard deduction you can claim in 2025 will be higher than in 2024 which means a larger part of your income will stay exempted from tax. However, this increase in standard deduction will make it harder to itemize your deductions in 2025. Essentially, the probability of getting tax benefits from mortgage interest paid and contributions to charity will decrease. You also need to consider that the standard deduction could fall significantly in 2026. You could offset this fall by deferring any philanthropic donations you are planning for 2025 to 2026 to get higher tax savings in 2026.

3. Maximize Tax-Advantaged Accounts

Take full advantage of 401(k) retirement contributions and contributions to health savings accounts, as you can claim a deduction on such contributions. Plan in advance to spread out your contributions all through the year. You can also benefit from the super catch-up contribution limit introduced by the IRS for older employees. Roth IRA qualifications are likely to change for married couples and singles. Assessing contributions to these retirement accounts can reduce your taxable income and provide long-term benefits.

3. Keep in mind the inflation adjustments

With the IRS releasing the inflation adjustments for 2025, it’s time to consider how these could impact your tax brackets and deductions. Assess whether you will continue to fall under the same tax bracket in 2025 or if adjustments to your income are required by adopting tax-reduction strategies. Stay informed about these changes and tweak your financial plans accordingly to minimize your tax liability.

4. Review Investment Strategies

Evaluate your investment portfolio for potential tax consequences. Consider the tax implications of short-term and long-term investments, and strategize to optimize your returns while minimizing taxes. Long-term capital gains are taxed at a lower rate that you could exploit by holding your investments for over a year before selling them for a profit. Moreover, since tax treatment can differ for various types of investment accounts, strategically positioning your investments can help reduce taxes.

Given the various permutations and combinations involved in tax planning, the process can get challenging and overwhelming. Hence, it is best to work with a tax professional who can offer personalized advice and help you strategize and develop a comprehensive plan tailored to your financial situation. This will ensure you are better prepared to tackle the evolving tax landscape of 2025 and beyond.

FinloTax: Tax expertise you can count on in CA

We are FinloTax, your go-to firm for premier tax consultancy services in California. We offer a range of competitively priced solutions, including CFO services, bookkeeping, tax preparation, tax planning, payroll management, and compliance support. Rely on our taxation expertise to strategize and plan effectively for the uncertainty of the TCJA and other tax laws in 2025. For further information, contact us at 408-822-9406.