Tax Changes for 2025

As we look ahead to 2025, it’s essential to understand how new tax laws will impact your financial planning. Although these changes will take effect in the 2025 tax filing season, they apply to your income and tax obligations for the year 2024. This means that the decisions you make now can have significant implications when it’s time to file your 2024 tax return next April. This year will bring several significant updates that could impact your business’s tax planning and financial management.

From adjustments in corporate tax rates to new deductions and credits, understanding the nuances of these modifications is essential for maximizing your tax benefits and avoiding potential pitfalls. Businesses will need to pay close attention to changes in depreciation rules, payroll taxes, and international tax regulations that could affect cross-border operations. Additionally, updated reporting requirements and deadlines mean that timely and accurate documentation will be more critical than ever.

Tax Credits and Deductions for the 2025 Filing Season

Meals Expenses Deduction

For 2024 taxes, the deduction for business meal expenses remains at 50%, unchanged from the previous year. This rule applies to meals directly related to the active conduct of your trade or business, including meals with clients, employees, or potential business partners where business discussions occur. Meals provided to employees during meetings, training sessions, or while traveling for business purposes, as well as food for board meetings and office snacks, also fall under this 50% deduction rule. 

This is a reversion to the pre-2021 standard, as food and beverages purchased from a restaurant were 100% deductible in 2021 and 2022 under the temporary provisions of the Consolidated Appropriations Act​.

To ensure compliance with IRS regulations, it is essential to maintain accurate records and documentation. For each business meal, you must document the date and time, the total cost including taxes and tips, the name and location of the restaurant, a description of the business purpose, and the names and business relationships of the attendees. Keeping detailed records and receipts will help substantiate these expenses in case of an IRS audit, ensuring that the deductions are valid and protecting the business from potential disallowances or penalties​.

Bonus Depreciation for 2024

Bonus depreciation allows businesses to deduct a significant percentage of the cost of qualifying property, such as new and used equipment, in the first year it is placed in service. For 2024, the bonus depreciation cap has been reduced to 60%, down from 80% in 2023. This reduction means businesses will need to adjust their asset acquisition strategies to fully leverage the available deduction.

Planning purchases carefully can help maximize the benefits of bonus depreciation before the deduction is further reduced or eliminated. Businesses that are considering significant investments in equipment or technology should take note of this change to optimize their tax savings.

Section 179 Deduction

In addition to bonus depreciation, Section 179 provides another valuable tax-saving opportunity. For 2024, the Section 179 deduction limit has been increased to $1,220,000, with a phase-out threshold of $3,050,000. This allows businesses to immediately expense the cost of qualifying equipment purchases, up to the deduction limit. However, the deduction is reduced dollar-for-dollar once purchases exceed $3,050,000.

Unlike bonus depreciation, Section 179 gives businesses the flexibility to choose which assets to expense, offering a strategic advantage for companies looking to manage their taxable income more effectively.

Valuable Tax Credits for Businesses and Individuals

Several tax credits remain available for businesses and individuals through 2025 and beyond. These incentives provide opportunities to reduce tax liability while supporting key initiatives, such as workforce development, community investment, energy efficiency, and clean energy infrastructure. By taking advantage of these credits, businesses and homeowners can benefit financially while contributing to broader economic and environmental goals.

Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) encourages employers to hire individuals from specific targeted groups who face significant barriers to employment, such as veterans, ex-felons, and long-term unemployed individuals. For each eligible employee, businesses can receive a tax credit of up to $9,600, depending on the target group and the individual’s hours worked. Available through the end of 2025, the WOTC not only helps reduce tax liability but also supports efforts to build a diverse and inclusive workforce.

New Markets Tax Credit (NMTC)

Available through the end of 2025, the New Markets Tax Credit is designed to stimulate investment in low-income communities by providing tax credits to investors who make equity investments in Community Development Entities (CDEs). These CDEs then invest in businesses and real estate projects in economically distressed areas. The NMTC offers investors a 39% tax credit, distributed over seven years. 

Credit for Energy-Efficient Home Improvements

Extended through 2032, the Credit for Energy-Efficient Home Improvements encourages homeowners to upgrade their homes with energy-efficient improvements, such as installing new windows, doors, insulation, and energy-efficient HVAC systems. Beginning January 1, 2023, homeowners can now claim a tax credit equal to 30% of the cost of certain qualified expenses, with specific limitations on different types of property. This credit provides a valuable opportunity for homeowners to reduce energy costs while also benefiting from significant tax savings.

Credit for Alternative Fuel Vehicle Refueling Property

Extended through the end of 2032, the Credit for Alternative Fuel Vehicle Refueling Property incentivizes businesses and individuals to install alternative fuel vehicle refueling infrastructure, such as electric vehicle charging stations. As part of the Inflation Reduction Act, the credit for businesses was increased to cover 30% of installation costs, up to a maximum of $100,000, provided that prevailing wage and apprenticeship requirements are met. For residential properties, the credit remains at 30% of installation costs, with a maximum of $1,000. This credit supports the expansion of clean energy infrastructure and makes it more affordable to invest in sustainable technologies.

​Engaging in strategic tax planning now can help ensure your business benefits from these incentives while they are still available. At DHJJ, our team of experienced tax professionals provides personalized guidance and strategic tax planning. Let us help you optimize your tax position and secure the financial advantages your business deserves.

New Tax Brackets

For 2024, the IRS has adjusted tax brackets for inflation, impacting the income ranges for each tax rate. These adjustments aim to prevent “bracket creep,” where inflation pushes taxpayers into higher income brackets without an actual increase in real income. Here’s a breakdown of the new tax brackets for individuals and married couples filing jointly:

Individual Tax Rates:

Understanding these changes is crucial for effective tax planning and optimizing your tax strategy for the year ahead. By incorporating these new rates into your financial plans, you can better estimate your tax liability and explore opportunities to minimize taxes.

Standard Deductions

For the 2024 tax year, the IRS has increased the standard deductions to adjust for inflation, offering taxpayers higher deductions that reduce their taxable income. Here’s a breakdown of the new standard deduction amounts:

• Single Filers: The standard deduction for 2024 increases to $14,600, up from $13,850 in 2023.
• Married Filing Jointly: The standard deduction rises to $29,200, up from $27,700 in 2023.
• Head of Household: For 2024, the standard deduction increases to $21,900, up from $20,800 in 2023.

These adjustments help ensure that taxpayers maintain their purchasing power in the face of inflation, providing a bit more relief during tax season. The increase in the standard deduction means more income can be earned before being subject to federal income tax, which is beneficial for individuals and families alike.

Retirement Plan Changes

For 2024, the IRS has announced inflation-adjusted increases to retirement plan contribution limits, providing individuals with enhanced opportunities to save for retirement. Here are the key updates:

401(k) Plans:

• The contribution limit for 401(k) plans has increased to $23,000, up from $22,500 in 2023. This limit applies to employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.

Catch-Up Contributions for 401(k) Plans:

• For employees aged 50 and over, the catch-up contribution limit increases to $7,500, allowing for a total contribution of up to $30,500 for 2024.

Individual Retirement Accounts (IRAs):

• The contribution limit for IRAs has risen to $7,000, up from $6,500 in 2023. This applies to both traditional and Roth IRAs.

Catch-Up Contributions for IRAs:

• The catch-up contribution limit for individuals aged 50 and over remains at $1,000, bringing the total possible contribution to $8,000 for those eligible.

These increased limits reflect the IRS’s ongoing adjustments for inflation, ensuring that retirement savings keep pace with the cost of living. By taking full advantage of these higher contribution limits, individuals can bolster their retirement savings and improve their financial security for the future.

Tax Law Changes on the Horizon for 2025

Significant tax law changes are set to take effect at the end of 2025, which will have a substantial impact on both individual and business tax planning. Here are the key changes to consider:

Reversion of Individual Tax Rates:

• The individual tax rates are expected to revert to pre-Tax Cuts and Jobs Act (TCJA) levels. This means the highest tax rate will increase from the current 37% back to 39.6%.

Expiration of Qualified Business Income (QBI) Deduction:

• The QBI deduction, which allows eligible self-employed and small business owners to deduct up to 20% of their qualified business income, is set to expire. This change will significantly increase the taxable income for many business owners.

Standard Deduction Adjustments:

• With the expiration of the Tax Cuts and Jobs Act (TCJA), the standard deduction is expected to revert to pre-TCJA levels, adjusted for inflation. While current levels are $14,600 for single filers and $29,200 for married couples filing jointly, estimates suggest that post-sunset, the standard deduction will decrease to $7,850 for single filers and $15,750 for married couples filing jointly.

State and Local Tax (SALT) Deduction Cap:

• The $10,000 cap on state and local tax (SALT) deductions, which was introduced by the TCJA, will be removed, allowing taxpayers to fully deduct their state and local taxes paid.

Alternative Minimum Tax (AMT) Phaseout Thresholds:

• The AMT phaseout thresholds will revert to pre-TCJA amounts but will be adjusted for inflation. For single filers, the phaseout will begin at $120,700, and for married couples filing jointly, it will begin at $160,900.

Reduction of Lifetime Gifting Exemption:

• The lifetime gifting exemption is set to be reduced by 50% from the current $12.92 million per individual, which was established under the TCJA.

Changes to the Child Tax Credit (CTC):

2024 Changes:

• The Child Tax Credit (CTC) will revert to $2,000 per child in 2024, down from the higher amounts temporarily provided by the American Rescue Plan Act in 2021.
• Income Thresholds: The thresholds remain at $200,000 for single filers and $400,000 for married couples filing jointly. However, the credit will phase out more quickly, with a reduction of $50 for each $1,000 over these limits.
• Refundable Portion: The refundable portion of the CTC will increase slightly, from $1,600 in 2023 to $1,700 in 2024. This adjustment offers some continued relief to eligible families.

2025 Changes:

• In 2025, the CTC is expected to revert to $1,000 per child, representing a significant decrease from the 2024 levels.

These changes will impact the overall tax liability of families with children and may result in lower tax refunds or higher taxes owed compared to previous years when the expanded CTC was in effect.

Choose DHJJ to Help Navigate Tax Changes