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You may be thinking, “I haven’t finished my payment plan for my 2024 taxes, so why should I worry about 2025 and 2026?”
True confession, I am in the same boat, but based on over 35 years of experience, this is the best time to set up a tax plan for 2025. Also, if you are interested in fiscal fitness, we can show you how to incorporate this strategy into your 2025 business and personal wealth plan.
Are you interested now? If yes, keep on reading.
Tax planning is most effective when you understand it’s a strategic, evolving process that requires you to think ahead, especially when policy changes are on the horizon. Effective Jan. 1, 2026, the Tax Cuts and Jobs Act (TCJA), which went into effect in 2018, might expire, and with it, the potential reversion to the 2017 pre-TCJA tax rates.
What could be the effect on you? Higher taxes in 2026. We will explore five thoughtful strategies to help you take advantage of the lower 2025 rates and if the 2026 rates increase, how to make strategic decisions to optimize them.
1. Understand the changes
What’s changing?
The current tax framework under the TCJA is temporary. Several of its key components — lower individual tax rates, higher standard deductions and special credits — might sunset or revert by Dec. 31, 2025. For instance, consider:
- Tax brackets: Once the TCJA provisions lapse, expect higher tax rates for high earners. The top individual rate may jump from 37 percent to pre-TCJA levels around 39.6 percent.
- Deductions and credits: The expanded standard deduction and enhanced child tax credit will likely shrink. Your current tax planning might have been optimized for today’s generous deductions, so adjusting your financial habits is essential.
If you itemize, you may be excited to get the Salt deduction back; if you do not itemize, the current standard deduction is better for you.
Deep thinking
Ask yourself how these changes impact more than just your annual refund. Reconsider the timing of major financial moves in light of this broader economic reset. In plain language, what can you do?
To take advantage of the lower 2025 rates, think about accelerating income from 2026 into 2025.
Think about taking advantage of maximizing contributions to a retirement plan during 2025 to shelter that accelerated income. Talk to your tax preparer; sometimes, you can defer funding a retirement plan contribution for 2025 until Sept. 15, 2026.
Consider additions to your real estate investment portfolio if you have extra cash.
If you are going to have a lower income in 2025, consider converting funds in a taxable IRA to a Roth IRA. This creates some taxable income now, but it is at lower rates, and after you have your Roth set up for five years, at age 59 1/2, you can start drawing from the Roth tax-free.
On the expense side, if your business entity is an S Corporation or an LLC consider the use of the Pass Through Entity Tax. (Useful if you are in a high state income tax state).
If you are charitable, consider setting up a Donor Advised Fund to shelter some of that accelerated income.
Please note: This is not tax advice.
Discuss these and other personalized ideas with your tax preparer now. As your year progresses, revisit some of the ideas you are thinking about taking. You need to begin implementation no later than October 2025 to have enough time to set things up.
Next up, how to get more deductions with organized financial records.
2. Reassess and organize your financial records
Get a real-time picture
A solid tax plan begins with immaculate record-keeping. This means not only tracking receipts, pay stubs and investment statements, but also understanding the context behind every transaction.
- Digital tools and analysis: Invest in tax software or professional apps that offer real-time insights. Automated categorization and alerts can help you avoid last-minute scrambles when policy changes take effect.
Deep thinking
Beyond organization, this is about creating a financial narrative. How do your daily expenses and sporadic income events weave into your broader financial strategy? A detailed audit of your books might reveal trends, like recurring deductible expenses, that you can optimize for maximum tax efficiency in a changing environment.
3. Reevaluate life changes and their tax implications
Life’s big moments
Whether it’s marriage, divorce, having a child, buying a home or switching jobs, life events directly affect your tax picture.
- Marriage/divorce: These events can change your filing status, eligibility for certain deductions and even the timing of income.
- New homeownership: Mortgage interest deductions could shift in priority if tax benefits shrink or vanish.
Deep thinking
Beyond the immediate monetary impact, consider the long-term fiscal life design. How might these changes interact with a future of higher tax rates or a smaller standard deduction? Develop a narrative that connects today’s events with tomorrow’s fiscal responsibilities — possibly altering long-term plans such as retirement savings or education investments.
4. Strategize on income, deductions and timing
Take control of your numbers
With the possibility of future tax rate increases, consider these strategic adjustments:
- Accelerate income where beneficial: If you anticipate higher tax brackets later, pulling forward income into 2024 or early 2025 could preserve lower tax rates.
- Time your deductions: Align deductible expenses — like charitable contributions or mortgage interest payments — with the timing of these tax changes to maximize their benefit.
- Consider Roth conversions: Converting traditional IRA assets to a Roth IRA while tax rates are still comparatively favorable can lock in your lower rate. The long-term growth potential in tax-free accounts can be a compelling benefit if legislation changes in the future.
Deep thinking
Think of tax planning as dynamic chess rather than checkers. Each decision — from accelerating income to timing deductions — should factor in not only today’s tax code but the likely future environment. Contemplate your “tax timeline” in the context of an evolving economy and be willing to adapt your strategy as laws change and your personal finances mature.
5. Stay engaged with policy developments
Knowledge is power
Tax laws are subject to ongoing debate. In addition to preparing for known expirations under the TCJA, keep a finger on the pulse of legislative changes:
- Monitor reliable sources: Follow updates on the IRS website, financial news outlets or subscribe to tax policy newsletters.
- Consult professionals regularly: A knowledgeable tax advisor can offer real-time insights and help pivot your strategy as new policies emerge.
Deep thinking
Evolving policies can be both risks and opportunities. View your financial plan as a living document — one that adapts to the economic environment. Embrace a mindset of continuous learning, and consider attending workshops or webinars to better understand possible future tax scenarios. This proactive engagement not only mitigates unforeseen costs but might uncover innovative tax-saving strategies that can enhance your overall financial well-being.
Preparing for 2025’s tax changes is more than ticking boxes on a to-do list — it’s about reshaping your financial strategy to align with a shifting economic landscape. By understanding the evolving policy framework, organizing your financial records, reassessing life events, strategically timing income and deductions, and staying informed, you create a resilient fiscal plan capable of weathering legislative changes.
Remember, while no one can predict the future with absolute certainty, proactive measures today will empower you to make confident, informed decisions tomorrow. As you rebuild your tax strategy for 2025, explore new avenues for saving, consider deeper adjustments to your long-term financial plan, and always be ready to engage with the complexities of an ever-changing tax system.
Further considerations
- Scenario planning: Map out different “what if” situations to see how various life events intersect with future tax scenarios.
- Long-term strategy sessions: Consider regular reviews with your financial advisor, creating a quarterly routine to reassess goals, review legislative news and adapt your plan.
- Tech and tools: Evaluate new technologies that offer predictive insights on legislative changes to stay ahead of the curve.
By diving deeper into these strategies, you not only safeguard your finances but also build a more informed, agile approach that could serve you for decades.
What are your thoughts on aligning your personal financial narrative with these impending changes? Feel free to share your experiences or questions on navigating these complexities.
Maeda Palius has been a practicing CPA for 40 years, focused on helping small and medium enterprises become more profitable and help the owners grow personal wealth. Connect with her on LinkedIn.
