Learning Center for Tax and Financial Insights

In this video, learn more about tracking mileage for business vehicles and issuing 1099-NEC forms to service providers. These tips will keep you organized and tax-compliant in 2025

For 2025, several significant tax changes are on the horizon that could impact individuals, businesses, and tax professionals alike. From the expiration of key provisions in the Tax Cuts and Jobs Act (TCJA) to inflation adjustments and potential legislative developments, staying informed is crucial for proactive planning. Here’s an overview of what’s coming and how to prepare.Expiration of Key TCJA ProvisionsThe TCJA, enacted in 2017, introduced sweeping changes to the U.S. tax code, but many provisions were temporary and are set to expire at the end of 2025. Key changes include:Individual Tax Rates: The current tax brackets and rates are scheduled to revert to pre-TCJA levels, potentially increasing tax liabilities for many households. For example, the top individual rate would rise from 37% back to 39.6%.Standard Deduction: The enhanced standard deduction—currently $13,850 for single filers and $27,700 for married couples filing jointly—will decrease significantly, while personal exemptions, which were eliminated under the TCJA, are set to return.Child Tax Credit: The credit amount is expected to drop from $2,000 per child to $1,000, with stricter income thresholds, reducing its accessibility for middle-income families.SALT Limitation: Currently the itemized deduction for state and local income tax is limited to an annual $10,000. That limit will expire after 2025. There has already been talk about raising it to $20,000 while others favor allowing it to expire. Changes 1 through 3 on the above list could result in higher tax bills for many Americans unless Congress acts to extend or amend the provisions. Change number 4, on the other hand, would reduce taxes for higher-income taxpayers. IRS Inflation AdjustmentsEach year, the IRS adjusts various tax provisions to account for inflation, and 2025 will be no exception. Key updates include:Tax Brackets: Income thresholds for each tax bracket will increase, offering some relief against inflation-driven income growth.Standard Deduction: Set to rise slightly, with single filers expected to see a deduction of $15,000, and joint filers $30,000.Earned Income Tax Credit (EITC): Income limits for eligibility and maximum credit amounts will also increase, benefiting low- to moderate-income workers. The maximum EITC will increase from $7,830 in 2024 to $8,046 in 2025. These adjustments aim to prevent “bracket creep,” where inflation pushes taxpayers into higher brackets, increasing their liability despite no real increase in purchasing power.Retirement ContributionsGood news for savers: Contribution limits for certain retirement accounts, including 401(k)s and Self Employed Retirement (SEP) plans, are increasing in 2025, while IRA contribution limits remain unchanged.401(k) Plans: The elective deferral limit increases from $23,000 in 2024 to $23,500 in 2025, enabling employees to save more for retirement on a tax-deferred basis. But the big news is the increase in the makeup contributions for taxpayers aged 60 through 63. Catch-Up Contributions: For taxpayers aged 50 and older, catch-up contribution limits remain unchanged at $7,500 for 2024 and 2025. However, for 2025 those aged 60 through 63 the catch up contribution will be $11,250. Giving those aged 60 through 63 additional opportunities to bolster retirement savings.These increases reflect the IRS’s effort to align savings opportunities with inflation, ensuring Americans can adequately prepare for their golden years.

Determining a reasonable salary for an S corporation shareholder is required and may be one of the most difficult tasks related to S corporation accounting and tax preparation.S corporation shareholders enjoy tax advantages not available to owners of other entity types. Only the portion of their cash distributions that is characterized as reasonable compensation (W-2 wages) is subject to payroll taxes while the profits passed through on the K-1 are not subject to self-employment (SE) tax. Compare that to a partnership where the entire profits of general partners are subject to SE tax.