As we approach 2025, significant tax changes are on the horizon, impacting individuals and businesses alike. These roll-offs present both challenges and opportunities for strategic planning. Below, we outline the key changes and provide helpful suggestions on when and how to start preparing.

For Individuals

• Estate and Gift Tax
  Starting in 2025, the estate and gift tax exemption will decrease from approximately $13.61 million to about $7 million per individual. This substantial reduction means higher tax liabilities for estates and gifts exceeding the new limits. It’s crucial to review and potentially adjust estate plans before the exemption decreases. Consider making larger gifts in 2024 to take advantage of the higher exemption. Additionally, working with estate planning professionals can help explore strategies such as trusts or family limited partnerships to minimize tax burdens.

• The SECURE Act
  The SECURE Act brings changes to the Required Minimum Distribution (RMD) age, increasing it from 72 to 73 for individuals turning 72 after January 1, 2023. Penalties for missed RMDs from specific IRAs inherited in 2020-2023 are waived, with the penalty for missing an RMD reduced from 50% to 25%, and potentially to 10% under certain conditions. If you turn 72 after January 1, 2023, plan your RMDs accordingly to delay withdrawals until age 73. For those who have inherited an IRA between 2020-2023, understanding the penalty relief provisions is essential to avoid unnecessary penalties.

• Individual Income Tax
  In 2026, individual income tax rates will revert to pre-2018 levels, and the standard deduction will be nearly halved. Consider accelerating income into 2024 and 2025 to take advantage of lower tax rates. With the standard deduction decreasing, it may become more beneficial to itemize deductions, so start tracking deductible expenses now. The child tax credit will also decrease from $2,000 per child to $1,000, and personal exemptions will return. It’s important to review how these changes will impact your tax situation and adjust your withholding or estimated tax payments accordingly. Additionally, the $10,000 cap on deducting state and local taxes will be lifted in 2026, so plan to take full advantage of this deduction if you reside in a high-tax state.

• Mortgage Interest Deduction
  The mortgage interest deduction limit increasing from $750,000 to $1 million of indebtedness in 2025. Consider refinancing or purchasing property to benefit from the increased deduction limit.

• Charitable Contributions
  The cap on deductible charitable contributions will decrease from 60% to 50% of AGI, so make charitable contributions strategically to take advantage of the higher deduction limit before it decreases.

• Medical Expenses
  the threshold for deducting medical expenses will revert to 10% of AGI from 7.5%. If possible, schedule significant medical expenses before the threshold increase to maximize deductions.

For Businesses

• Pass-Through Entity
  The 20% deduction for pass-through entities will expire in 2025. Assess how the expiration of this deduction will impact your business and consider potential restructuring or tax planning strategies to mitigate the effect.

• Other Deductions
  Deductions for research, equipment, and interest expenses will also be limited, so if your business relies on these deductions, plan major investments and research expenses before the limitations take effect.

The impending tax roll-offs in 2025 necessitate proactive planning to optimize tax strategies and minimize liabilities. Start discussions with your tax advisors now to ensure you are prepared for these changes and can make the most of the opportunities they present. By staying informed and acting early, you can navigate the shifting tax landscape with confidence.

At Capossela, Cohen, LLC we are committed to keeping our clients informed and prepared for upcoming changes in the tax landscape. Our team of experienced professionals is here to provide personalized advice and strategic planning to help you navigate these changes effectively. Reach out to us to start a conversation and ensure you are ready for 2025 and beyond.