Key Takeaways:
With thin majorities in Congress, legislators may find it challenging to act quickly on the scheduled sunset of the provisions of the 2017 Tax Cuts and Jobs Act. If no action is taken or action is delayed, many key benefits will expire on December 31, 2025 that will impact your tax situation in 2026. With all the consequential issues requiring the attention of Congress in the coming months and the legislative complexities around tax code changes, it may be that tax legislation happens later in the year, leaving precious little time to reach consensus prior to expiration of the TCJA.
One significant potential sunset provision will affect individual income tax rates. The lower brackets would return to the higher pre-2018 levels. Individual taxpayers may want to plan income and expenses such that they have flexibility to accelerate income recognition in 2025 at the lower TCJA rates and potentially push deductions to 2026 to reduce income taxes at higher pre-2018 rates when possible.
Another major provision that would be impacted is the lifetime gift and estate tax exclusion, which is currently $13,990,000 for an individual and $27,980,000 for a married couple. Should TCJA sunset, this exclusion would decrease by roughly one-half and therefore increase the number of estates subject to gift and estate tax. Individuals may choose gifting to trusts and other estate planning mechanisms now to utilize the lifetime gift tax exclusion before it is reduced.
Other notable provisions subject to sunset:
Your LBMC tax advisors and financial planners are ready to help you make a 2025 plan that considers these and other potential sunset provisions.
The Corporate Transparency Act (CTA), effective January 1, 2024, mandates the disclosure of the beneficial ownership information of certain entities to the Financial Crimes Enforcement Network (FinCEN). Notably, this reporting requirement may also apply to single member LLCs, which are typically disregarded entities for income tax purposes.
It is crucial to understand that this is not a tax filing requirement, but rather an online report submitted directly to FinCEN if applicable. There are severe penalties for businesses who willingly do not comply with the requirements. For entities in existence before January 1, 2024, the report must be filed by January 1, 2025. There are other deadlines related to entities created during 2024 and those with changes to reported information.
However, there have been several court battles over the legality and constitutionality of the CTA. These battles have variously put in place and removed stays against the enforcement of the CTA. It has been a mercurial and confusing time for whether this law will actually apply to businesses across the country. On January 23, 2025, the Supreme Court opined that stays against the enforcement of the law were inappropriate and that FinCEN can enforce the law as written for the time being. The Supreme Court also indicated that it would fully review the CTA in March 2025 and issue a final opinion on its legality and constitutionality. Companies and their owners who have not yet filed BOI reporting should stay informed about new deadlines resulting from the Supreme Court’s recent decision and future developments that impact enforcement requirements to be sure they comply with the law.
The BOI reporting is made directly through FinCEN’s website at www.fincen.gov/boi. It is important to note that this is a one-time filing requirement with an obligation to update the reporting with any material changes to the reported information. Businesses and owners may voluntarily complete and file the BOI report during the period of suspension.
Multi-generational wealth can be a double-edged sword, the proverbial blessing and curse. Often the older generation keeps control of the family wealth longer than it should, and the next generation fails to develop the knowledge and skills needed to step into effective management of the family fortune and businesses. Families who do not address these concerns may find themselves sowing the seeds of discord and family conflict.
If you have not yet done so, start 2025 with a tradition of family financial meetings. Work with professionals skilled in helping families have high-stakes conversations about family wealth, knowledge, and skills to minimize conflict and maximize family ties. These discussions differ from planning what to do with the assets. Rather, these conversations are a tool to plan for the next generation to develop their talents and acquire the qualifications and know-how to continue to be good stewards of the family bounty and businesses. Also, the gatherings should include conversation about the older generation developing interests to enjoy that facilitate their transition to retirement with a sense of purpose outside of their work and the family wealth. Such regular, planned gatherings can deepen relationships and trust across generations, allow the generations to acknowledge all perspectives, and align the family sense of unity.
The older generation can share their thoughts, ideas, and values about the qualities and experiences they believe are needed to ensure the family’s prosperity. The next generation can share their point of view and additional values they want considered while also being accountable to develop the mutually agreed upon qualities, so they are ready to step into management of the family wealth. The entire family benefits as the older generation can enjoy retirement and the fruits of their labor knowing the next generation is ready for the challenges of management, and the next generation moves into leadership with the full confidence of the family that they are ready, willing, and able to competently take the helm of leadership.
LBMC Shareholder Cheryl Panther, CPA/PFS, is a financial planner with extensive training in facilitating strategic, high-stakes, wealth conversations with families while minimizing conflict. Contact her to design a plan for family meetings and be intentional about transfer of the management of family wealth.
It is a good idea to be sure your tax advisor is well informed of your 2025 income to accurately calculate the estimated quarterly payment for both federal and any state taxes to which you are subject so that you minimize the risk of underpayment. Should your income change significantly during the year – up or down – be sure to communicate this timely to your tax advisor to adjust your estimated payments accordingly.
If not, consider doing so now. Talk to your financial advisor about maximizing your portfolio’s tax efficiency while also balancing your cash flow needs. Is your diversification plan one that helps to defend against inflation? Consider what portion of your investment strategy should include real estate, commodities, and other vehicles that exhibit a low correlation to stocks and bonds.
This can include not only cryptocurrency but also your social media accounts and digital photos. Make sure these assets are considered and inventoried in your estate plan. How will your loved ones identify and access these assets when you are gone? Create a plan to make sure these important assets can be passed to your heirs. Consider naming a digital executor in your will or trust to manage these assets after you are gone.
For 2025, that catch-up amount is $7,500 for employer-sponsored plans such as 401(k), 403(b), and 457(b) plans, and $1,000 for traditional and Roth IRAs. New for 2025 is that those aged 60 – 63 are entitled to a catch-up contribution to 401(k), 403(b), and 457(b) plans of $11,250 instead of $7,500. At age 64, the catch-up reverts to the $7,500. Be sure to update your 2025 retirement contributions to take full advantage of catch-up contributions. And, don’t forget that health savings accounts also have a catch-up contribution for those aged 50 and older.
Consider hiring your children so they can earn income and open a Roth IRA for kids. Earned income can be contributed to the child’s Roth IRA up to $7,000 annually, which grows tax-free and can be withdrawn at retirement without tax. Families can use this as an opportunity to teach children the importance of saving and planning for the future, as well as investment education. The business owner also receives the tax benefit of paying a salary.
Risk management is most often addressed through various insurances (health, life, long-term care, personal property/umbrella, excess valuables, disability, etc.). Many people purchase a policy, continue to pay premiums year after year, and never do a thorough review to determine if the policies remain sufficient or if risks have changed. The start of the new year can be a good time to do a comprehensive evaluation of risk management.
Often those with wealth think they do not need to create or contribute to 529 Plans. However, these education plans can be another mechanism to pass wealth to future generations tax-free. Any contributor can make a contribution equal to the annual exclusion for a five-year forward gift. With the 2025 annual gift exclusion at $19,000, that is a $95,000 gift or $190,000, if both parents make a five-year forward gift. This money grows tax-free until needed and then can be withdrawn tax-free if used for permitted educational expenses of the beneficiary. If the original beneficiary does not use all of the funds, the beneficiary can be changed to other family members, including siblings and children of the original beneficiary without tax consequence. Contributions can continue to be made up to certain limits.
Consider gifting the public charities you favor appreciated stock or other property. The owner of the property enjoys a charitable deduction (subject to federal limits) of the fair market value of the appreciated property without having to pay any capital gains or net investment income taxes. The charity is able to sell the appreciated property also without tax consequence. Fair market value for stock and other appreciated property not publicly traded may need to be determined by a qualified appraiser. Plan early in the year to get any needed appraisals and have a solid plan to take advantage of the tax savings.
You may want to talk with your financial advisor and estate attorney to see if there have been any changes to state or federal laws since you last updated your documents. It is often beneficial to check with these trusted professionals even if you do not intend to make changes. Updates to the language in your documents to align with state and federal law changes may enable your estate and heirs to minimize estate taxes. It is also a good opportunity to confirm any specific bequests you might wish to make to individuals and charities.
Consider utilizing a credit monitoring service to prevent unauthorized credit intrusions. Most do put a freeze on your credit. You will need to plan ahead to lift the freeze when you need to address financing needs. Another useful service is a password locker. That allows you to have complex, hard-to-guess password for all your online accounts and only need to remember one password. It is also recommended to change your passwords periodically for added security. Finally, be sure to utilize multi-factor authentication, which requires entry of a code sent to your email address or mobile device, to increase the security of your financial and medical accounts.
Busy businesspeople often forget to tend to their mental well-being like they do their financial well-being. Make 2025 the year you take up a new hobby or re-commit to one long neglected. Take that bucket-list vacation. Enjoy extra time with your loved ones. Read that book you’ve been meaning to. Do something not connected to your professional life and just for you. Studies show a strong connection of mental well-being to physical well-being.
Dealing with tax law changes, wealth transfer strategies, and financial planning can be tricky, but you don’t have to face it by yourself. LBMC Wealth Advisors are ready to help you make smart choices that fit your long-term goals. If you need tax strategies, estate planning tips, or investment help, our team is here with personalized solutions.
For a deeper dive into tax and business trends shaping 2025, download our Business Outlook Report today and stay ahead of what’s next.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.
