With the 2024 presidential election now in our nation’s rearview mirror and the Trump administration regularly unveiling new policies, we're gaining more insight on what personal income tax policy might look like, specifically as it relates to the Tax Cuts and Jobs Act (TCJA) of 2017. Recall, the TCJA is set to expire at the end of this year, and while an extension is likely, the details are being debated amongst policy advisors and members of congress. For our clients, it’s important to understand what’s currently in place, what could change, and most importantly, what to do about it. The key? Both tactical and strategic planning—not just how to plan for 2025, but how to factor in tax trends affecting the long-term, multi-decade tax planning process.
The Tax Landscape in 2025: What’s Staying, What’s Changing?
The TCJA significantly reshaped the tax code, introduced lower individual tax rates, a higher standard deduction, a cap on state and local tax (SALT) deductions, and an increased estate tax exemption. But the expiration date was baked into the legislation, meaning that without congressional action, tax laws revert to pre-2017 levels. However, Congress included an expiration date in this legislation that reverts tax laws to pre-2017 levels unless there is additional congressional action.
With a unified government in place (with albeit slim margins), there is strong momentum to extend key elements of the TCJA. However, extension doesn’t necessarily mean a carbon copy of the current law. Some provisions are almost certain to stay intact, while others are prime candidates for revision. Here’s what we’re watching:
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Individual Income Tax Rates: The seven-bracket structure (ranging from 10% to 37%) is widely expected to remain unchanged. While the brackets may remain stable, we are keeping an eye on potential changes to itemized deductions that could subtly increase effective tax rates, particularly for those in high-tax states. Changes in Adjusted Gross Income (AGI) limitations on deductions could further impact high-income taxpayers, underscoring the importance of projecting income in the current year.
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Standard Deduction and Itemized Deductions: One of the most notable changes from the TCJA was the near doubling of the standard deduction, currently set at $15,000 for individuals and $30,000 for married couples filing jointly. (Single seniors over 65 can claim an additional $2,000 while seniors filing jointly can claim an additional $1,600). If allowed to expire, these thresholds will shrink, making itemization more attractive. Unfortunately, this means more people will need to keep a tally on potential deductible expenses like out-of-pocket medical bills and charitable donations.
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The SALT Deduction: A Political Battleground: The $10,000 cap on state and local tax deductions (for joint filers) has been one of the most debated aspects of the TCJA. Initially designed to limit tax benefits for residents of high-tax states, this cap has faced bipartisan pushback. We wouldn’t be surprised if there was a compromise to either increase the deduction limit or include a phase-out at higher income levels. Careful modeling of various scenarios will be key to optimizing deductions and tax efficiency, particularly for taxpayers with high state income and property tax burdens.
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Estate and Gift Taxes: One of the most significant TCJA changes was the near doubling of the estate and gift tax exemption, which now sits at $13.990 million per person. Without an extension, it is estimated this exemption would revert to approximately $7 million per person in 2026. A tax-efficient wealth transfer is a critical piece of a family’s wealth plan. We will continue to counsel our clients and work with their attorneys to explore strategies, such as grantor-retained annuity trusts (GRATs) and spousal lifetime access trusts (SLATs), to mitigate potential estate tax burdens.
- Section 199A Deduction: The 20% deduction for pass-through qualified business income has been a significant tax benefit for our clients who are business owners. It’s possible this will be extended—especially if corporate tax rates are reduced further. This could represent a major opportunity to optimize tax structures and maximize deductions. We expect to work with clients and their CPAs on strategic entity selection, compensation deferral, and other topics to remain key tools for business owners.
Other Proposed Tax Changes to Personal Tax Policy
Beyond the TCJA, the Trump administration has proposed additional tax initiatives aimed to stimulate economic growth and restructure the tax system. Below are proposals that address personal tax liability and exclude corporate tax policy and, of course, tariff policy.
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Elimination of Federal Taxes on Tips: The administration has suggested making tip income tax-free, which would benefit service industry workers. The goal is to increase take-home pay without imposing higher costs on employers. However, this would require adjustments to payroll processing, wage reporting, and employer obligations under the Federal Insurance Contributions Act (FICA).
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Expansion of Child Tax Credits and Dependent Deductions: To support families and encourage economic growth, the administration has proposed an expansion of child tax credits, increasing the current $2,000 per child credit and expanding eligibility thresholds. Additionally, there have been discussions about reinstating personal exemptions for dependents, which were eliminated under TCJA. These changes could reduce tax burdens for middle-class families and provide additional financial relief for parents with multiple children.
- Change in Taxation of Social Security Income: A potential new policy involves exempting a portion of Social Security benefit withdrawals from federal income taxation for individuals over a certain age. Under current law, up to 85% of retirees’ benefit is taxable, depending on income levels.
What to do?
Tax law negotiations can be volatile and it’s extremely difficult to predict or determine what laws may change, stay the same, or be modified. With about 6,500 pages of law (and about 10x that in rulings, regulations, and case law), there are innumerable variables which could be changed. We believe clients are best served by being proactive with the current law but remaining vigilant as that with yawning federal deficits to address, tax rates could be biased higher in the coming years. There are certainly no guarantees for what the law will be, but there are prudent strategies to discuss with CPA partners. These include:
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The Power of Roth Conversions: With the potential for tax rates to remain relatively low, Roth conversions continue to be a compelling strategy. Converting traditional IRA assets to Roth IRAs lock in today’s tax rates, shielding future withdrawals from potential tax increases. For those with significant retirement assets, partial Roth conversions—spread over multiple years to avoid bracket creep—can be an effective way to manage taxable income while maximizing long-term tax efficiency. This type of strategy warrants a multi-year tax projection. However, by analyzing projected income and tax rates, we can help clients determine whether accelerating income recognition or deferring deductions makes the most financial sense before the TCJA expires. We have written, at length, about the potential advantages and pitfalls for upcoming and recent retirees.
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Retirement Withdrawal Sequencing: Structuring distributions to minimize tax liability requires careful planning. Balancing withdrawals between taxable, tax-deferred, and tax-free accounts can optimize after-tax income throughout retirement. An effective strategy can be both an art and a science and requires careful consideration. We wrote about this in a prior article posted to our site but, in short, taking distributions before they’re required (at RMD age) could actually make sense in certain circumstances.
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Maximizing the Estate Tax Exemption (Even If It Stays): Even if the estate tax exemption remains high, strategic gifting still plays a vital role in wealth preservation for multiple generations. If employed properly (and with legal counsel), irrevocable trusts, dynasty trusts, and charitable remainder trusts (CRTs) can help reduce taxable estates while ensuring assets are transferred according to your values and goals. One key consideration to factor in are the step-up in basis rules. While gifting can reduce estate tax exposure, certain assets may be better held until death to take advantage of a step-up in basis. Implementing a basis-management strategy can help families preserve tax efficiency while transferring wealth effectively. Our trust counsel detailed our thoughts at the end of 2024, which can be read here.
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Charitable Planning: A Win-Win Opportunity: Charitable giving remains a powerful tool for both tax efficiency and legacy planning. Whether through donor-advised funds (DAFs), charitable lead annuity trusts (CLATs), or direct gifts of appreciated assets, incorporating philanthropy into tax planning can provide both immediate and long-term benefits. One potential shift to watch: If the SALT cap is adjusted, it may impact the attractiveness of certain charitable strategies. Being nimble with philanthropic planning will be key, especially for those who engage in bunching strategies to optimize itemized deductions.
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Maxing Out Tax-Advantaged Accounts: Increasing contributions to tax-deferred savings vehicles, such as 401(k)s, Health Savings Accounts, and 529 plans, can provide meaningful tax benefits, particularly if income tax rates rise in the future.
Bottom Line
While the specifics of 2025 tax legislation remain uncertain, one thing is clear: strategic, proactive planning and coordination with the tax preparer is essential. Rather than waiting for policy changes to be finalized, we believe proactive steps taken sooner rather than later help build flexibility into your wealth plan and reduce exposure to what can be household’s largest annual expense: taxes.
As always, the best tax planning isn’t just about minimizing today’s tax bill; it’s about taking a multi-year approach and evaluating alternatives that could pay off years, or even generations, into the future. We always encourage our clients to work closely with both their wealth advisor, CPA and attorney to ensure their financial plan remains optimized considering evolving tax laws and opportunities. By maintaining a coordinated approach between financial and tax professionals, families can mitigate risks and take advantage of emerging opportunities.