Tax updates for 2025 are bringing significant changes and reshaping the financial landscape. As new proposals and regulations emerge, accountants face both challenges and opportunities. Staying ahead of these developments is essential to provide effective guidance and strategic planning for clients in this dynamic environment.
Here’s a breakdown of the most significant updates:
Proposed Tax Changes for High-Income Individuals
President Trump’s recent proposal seeks to increase the highest individual income tax rate from 37% to 39.6% for those earning over $2.5 million annually. This initiative, a departure from past GOP strategies, is designed to fund middle-class tax relief and safeguard Medicaid. Additionally, the longstanding “carried interest” loophole is under scrutiny, potentially impacting investment managers benefiting from capital gains tax rates.
Corporate Tax Adjustments on the Horizon
President Biden’s fiscal year 2025 budget outlines significant corporate tax changes:
- A potential rise in the corporate income tax rate from 21% to 28%.
- An increase in the corporate alternative minimum tax from 15% to 21%.
- An elevated excise tax on corporate stock buybacks, moving from 1% to 4%.
These proposals aim to balance corporate contributions to economic equity while addressing fiscal deficits.
Key Priorities from the U.S. Chamber of Commerce
The U.S. Chamber of Commerce has emphasized three pillars to sustain economic competitiveness:
- Retaining the 21% corporate tax rate and 20% pass-through deduction.
- Restoring full deductions for research and development expenses and full capital expensing.
- Preserving the integrity of the U.S. international tax system while safeguarding the corporate tax base.
These priorities aim to promote innovation and ensure U.S. businesses remain globally competitive.
New Compliance and Reporting Mandates
The Corporate Transparency Act (CTA) now requires businesses to disclose beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Violators face steep penalties. Moreover, electronic filing is now mandatory for all federal tax returns, with more detailed reporting obligations for partnerships and S corporations.
Inflation-Adjusted Tax Limits
For 2025, several tax thresholds have been updated to reflect inflation:
- Section 179 expensing limit increased to $1.25 million.
- Standard mileage reimbursement rate rose to 70 cents per mile.
- 401(k) contribution limits climbed to $23,500.
These adjustments impact planning for both businesses and individuals.
Local Tax Changes Worth Noting
In New York, a payroll mobility tax hike will affect NYC businesses with annual payrolls exceeding $1.25 million. Rates are set to increase to support the Metropolitan Transportation Authority’s infrastructure projects.
Key Takeaways for Accountants
To navigate these shifts effectively:
- Stay Updated: Regularly monitor federal and state tax policy changes.
- Educate Clients: Communicate how new laws may impact their financial strategies.
- Plan Strategically: Help clients mitigate potential tax increases through proactive planning.
- Use Technology: Leverage modern tax software to ensure efficiency and compliance.
By staying informed and proactive, accountants can help their clients thrive in an increasingly complex tax environment.
Email us at info@axiomtax.cpa, call (813) 977-0089 or book a confidential consultation and let’s talk.
