OVER OF TAX REFORMS FOR 2025

Potential Policy Changes in a Second Trump Administration 

1. Uncertainty in Tax Law: There is uncertainty regarding how tax laws will change with the potential re-election of the Trump administration, which could have significant impacts on both individuals and businesses.

2. Possibility of Extending Tax Cuts and Jobs Act (TCJA) Provisions: Efforts may be made to extend or permanently enact key provisions of the TCJA, such as individual income tax rates, Qualified Business Income (QBI) deduction, and estate tax exemptions, in order to prevent their expiration.

3. Corporate Tax Rate Reduction: Trump proposed reducing the corporate tax rate from the current 21% to 20%, and for U.S.-based manufacturers, it could be reduced further to 15%.

4. Abolition of SALT Deduction Cap: If the SALT (State and Local Tax) deduction cap of $10,000 is abolished, it could benefit high-income taxpayers and those living in states with high state and local taxes.

IRS Adjustments for 2025

1. Increase in Standard Deduction:

For married couples filing jointly, the standard deduction for 2025 will increase to $30,000, which is an $800 increase from 2024.

For heads of household, it will increase to $22,500, which is a $600 increase from 2024.

For single and married individuals filing separately, it will increase to $15,000, which is a $400 increase from 2024.

2. Increase in Alternative Minimum Tax (AMT) Exemption:

For single taxpayers, the exemption will increase to $88,100, and for married couples filing jointly, it will increase to $137,000.

The exemption amount will gradually phase out for high-income earners, with the exemption for married couples filing jointly starting to phase out at $1,252,700.

3. Earned Income Tax Credit (EITC):

Eligible taxpayers with three or more children can receive a maximum of $8,046 in the 2025 tax year, which is a $216 increase from 2024.

4. Estate Tax Exemption:

The federal estate tax exemption limit will increase to $13.99 million, up from $13.61 million in 2024.

Changes to 401(k) and Roth IRA 

1. Increase in 401(k) Contribution Limits:

Starting in 2025, the contribution limit for an individual’s 401(k) will increase to $23,500, up from $23,000 in 2024.

This increase also applies to 403(b), 457 plans, and federal savings plans.

2. Changes in Catch-Up Contribution Limits:

The existing catch-up contribution limit for individuals aged 50 and above will remain at $7,500, but under the SECURE 2.0 Act, the limit for individuals aged 60 to 63 will increase to $11,250.

3. Increase in Roth IRA Income Limits:

For single filers and heads of household, the income limit will increase to $150,000–$165,000.

For married couples filing jointly, the income limit will increase to $236,000–$246,000.

Expiration of Key Provisions of the TCJA 

1. QBI Deduction:

The current 20% deduction is set to expire at the end of 2025, and there is a possibility that discussions will take place to extend or make it permanent.

2. Bonus Depreciation:

Bonus depreciation is set to phase out gradually by 2027, but Trump has proposed making it permanent at 100%.

3. Individual Income Tax Rates:

The current individual income tax rates (10%, 12%, 22%, 24%, 32%, 35%, 37%) are set to expire at the end of 2025, with a possibility of returning to the previous higher rates.

4. Estate Tax Exemption Limit:

The exemption limit is expected to be reduced to around $7 million, back to pre-TCJA levels, but Trump has proposed keeping it at the current level.

Abolition of Social Security Tax 

1. Abolition of Taxes on Social Security Benefits:

Trump has promised to abolish taxes imposed on Social Security benefits, but this is likely to face significant legislative challenges.

2. Fiscal Impact:

According to reports, this measure could increase Social Security's 10-year cash shortfall by approximately $2.3 trillion and potentially advance the point at which the Social Security trust fund becomes insolvent to 2031.