30 Jan Tax Law Changes and Planning Considerations
There are a few changes to tax laws for 2024 and 2025 that you may or not be aware of. This post describes these changes, so you can be aware of them and implement them. This post will also summarize some planning considerations that each change can give rise to.
Reaching out to your CPA or accountant throughout the year to do planning work will help you stay on top of how changes the IRS makes affect your situation and how you can best take advantage of advantages or mitigate risks that result from these changes. You may consider reaching out to our firm.
Federal Tax Law Changes:
Inflation Adjustments:
Each year, the IRS makes adjustments to account for inflation. This changes the tax brackets around, increasing the ceilings at each level of tax. For 2024-2025, the inflation adjustment was 2.81% For example, the 22% tax bracket will start at $96,950 for a joint filing versus $94,300.
Planning Considerations:
Each year, these inflation adjustments are made. They do not always keep pace with actual inflation rates. It is important to be aware of top brackets and phaseouts of credits, and if you have a way to stay within a lower bracket by taking actions that create tax deductions (i.e., contributing to a retirement plan or HSA), you may want to take those actions. In lower income years, you may want to consider taking actions that generate more income but help you plan for the long term, like converting an IRA to a ROTH plan.
Increased Standard Deduction:
For 2025, the standard deduction has risen to $15,000 for single filers and $30,000 for joint filings.
Planning Considerations:
As the standard deduction increases, more and more individuals will not itemize. Since the taxes deductible are capped at $10,000 and mortgages interest are capped at $750,000 mortgage total for a joint return, many individuals will not have an aggregate of more than $30,000 to deduct. This makes most charitable contributions nondeductible from a tax perspective. A way to make a deductible charitable contribution could be to aggregate deductions to a single year to make a large gift (and this could include a gift of appreciated stock, instead of selling the stock and recognizing capital gains).
Inherited IRA Distribution Rules:
Beneficiaries of IRAs inherited from 2020 onwards are now required to fully withdraw the total amounts within 10 years following the owner’s death. This will require more careful planning to mitigate tax burdens from the accelerated withdrawal schedule.
Planning Considerations:
Converting an IRA to a ROTH IRA makes it a better inheritance tool since distributions from the ROTH are not taxable, however, the conversion does give rise to a taxable event, so it is best to make the conversion in a lower tax year.
North Carolina State Tax Changes:
Individual Income Tax Rate Reduction:
Effective January 1, 2025, North Carolina’s individual income tax rate has decreased from 4.5% to 4.25%. This reduction is part of a planned series of cuts aiming to lower the rate to 3.99% by 2027.
Planning Considerations:
If possible, defer income to lower tax years for North Carolina.
Disclaimer: The information provided in this blog article is for general informational purposes only and should not be considered professional advice. While we strive to provide accurate and up-to-date content, tax laws, financial regulations, and accounting practices may vary depending on individual circumstances, and they are subject to change. Before making any financial decisions or taking action, we strongly recommend consulting via a formal engagement with a certified public accountant (CPA) or qualified financial advisor to address your specific needs and ensure compliance with current tax regulations. This article does not establish a client relationship.