According to estimates, inflation adjustments to the Internal Revenue Code are expected to yield increases of 2.8 percent compared to 2024 amounts. This means wider tax brackets and increased exemptions, among other things. With the U.S. Bureau of Labor Statistics consumer price index (CPI) moderating, this increase is about 50 percent less than 2024’s inflation adjustment. Below, we’ll look at what the projected 2025 inflation adjustment means in terms of dollars and cents for you and your taxes.

Individual Income Tax Brackets

The tables below illustrate the individual income tax rates and brackets for 2025.

Individual Income Tax Brackets & Rates: Tax Year 2025

 

 

 

 

Trusts & Estates Tax Brackets

The table below illustrates what the income rates and brackets are expected to look like for Trusts and Estates in 2025.

 

Standard Deduction Amounts

The table below illustrates what the projected standard deduction amounts will be for 2025, with a comparison to 2024.

 

Alternative Minimum Tax (AMT)

The table below illustrates the anticipated AMT exemptions for 2025.

 

Capital Gains

The rates applied to long-term capital gains are not expected to change for 2025; however, the brackets that apply to different rates will expand. Note that, in considering the table below, a 20 percent tax rate applies to capital gains that are over the 37 percent ordinary tax rate threshold. Furthermore, capital gains on art and collectibles are subject to other exceptions.

 

Conclusion

First, it’s important to remember that all the figures above are only projections. The IRS will not publish the official numbers until later this year. Moreover, as these rates and brackets have increased, they have done so significantly less than in 2024 and 2023, largely driven by lower inflation.

Former President and current candidate Donald Trump introduced a new policy of his in a recent Arizona rally: No more income tax on overtime pay. This follows both Trump and Vice President Harris’ proposal for a no income tax on tips policy, as well.

Below we will look at the two recent proposals and what they could mean for both taxpayers and businesses.

No Tax on Tips

The no tax on tips policy looks to lighten the tax burden on service industry workers. According to the Fair Labor and Standards Act, anyone who “customarily and regularly” receives $30 or more in tips per month is considered a tipped worker. The mechanism to exempt tip income could possibly come through three different mechanisms.

One option would be to categorize tips as gifts. Service employees are often paid wages lower than the minimum wage (as low as $2.31 per hour), with employers required to “top-up” an employee to the federal minimum wage of $7.25 if tips don’t at least make up the difference themselves. As a result, considering tips as gifts may not legally work.

A second option is to treat a specified amount of tips as non-taxable income. Consider a policy, for example, in which up to $25,000 in tips is treated as non-taxable income. Legally, this is straightforward, but it could have various knock-off effects on those it is intended to help. For example, a taxpayer’s gross income could fall so low they no longer qualify for the earned income tax credit and end up being a net negative.

Finally, there is a third option of creating a new deduction; allowing taxpayers to first claim the income and then take a deduction to offset it. The issue here is that given the claimed income level of most tipped workers, an additional deduction may not be one-for-one incrementally beneficial to the standard deduction. In other words, so much of their income is already non-taxable, this wouldn’t make much of a difference.

Side-Effects

Depending on how the policy is structured, there are negative side effects that could accompany the policy change. Compliance with reporting tip income is already spotty at best. It’s not uncommon for tipped workers to underreport their tip income, especially for cash tips. The main concern is that employers and employees may try to game the system. There is a real chance that who is tipped changes and people may try to change compensation schemes so that other types of income are then changed to tip income to take advantage of the changes; especially for taxpayers for whom the law was never intended to help.

Non-Taxable Overtime

The second proposal is to exempt overtime wages from income taxation. The idea is that it would help workers who get to keep more of their money; and at the same time helping businesses, since employees would be incentivized to work more hours, thereby negating the need to hire more employees. While on the surface it seems like a policy to help the hardest working, there are potential problems.

Unfair to Regular Wage Earners

There are two possible issues. First, it leaves behind hourly workers who cannot work overtime due to other responsibilities, health or their job’s duties. It also disadvantages those who have to work multiple jobs (because their job doesn’t offer overtime, but they need the money).

Second, it doesn’t consider salaried positions. There are many salaried positions, where workers are exempt from overtime laws – and a large swath of these are not highly paid positions.

Administrative Complications

Employers and the IRS would need to deal with distinguishing between regular wages and overtime earnings. What is considered overtime is not always clear when there are pay concepts such as bonuses, shift differentials, commissions or other alternative payment arrangements. It would also add significant complexity to payroll systems.

Conclusion

While both policies are well intended, the devil is in the details. Implementation would need to be carefully considered; the intended taxpayers might not be the main beneficiaries; and there is room for fraud.

On Jan. 1, 2024, the U.S. government debuted the Corporate Transparency Act (CTA). This legislation established the requirement for the majority of private companies, both big and small, to file information with the Financial Crimes Enforcement Network (FinCEN).

As with most new laws, the initial guidance and interpretations have been both challenged and questioned. In response, FinCEN recently turned out new FAQs, which we review below.

Big Question First: To Report or Not

Reporting is generally required by all private, for-profit entities. This includes corporations, LLCs, S-Corps, etc., whenever the company was created by filing a document with the office of the Secretary of State. Entities formed under the laws of jurisdictions outside the United States are also likely subject to reporting if they are registered to do business in the United States.

To help visualize the above, you can take a look at this flowchart published on the FinCEN website.

Screenshot from FinCEN website

While the general rules seem (and are) broad in construction, there are 23 specific exemptions, including publicly traded companies, nonprofits, and certain large operating companies. The FinCEN’s Small Entity Compliance Guide checklist can help in determining if you fall under an exemption.

Now, let’s move on to more specific questions.

Who is a beneficial owner?

An individual who either directly or indirectly exercises substantial controls or owns 25 percent or more of the reporting company.

What constitutes substantial control?

There are four (separate) ways to exercise substantial control:

• The individual is a senior officer
• Has the authority to appoint or remove officers or a majority of directors
• An important decision-maker (regarding strategic, business, or finance)
• They have any other form of substantial control as per the FinCEN’s Small Entity Compliance Guide.

Who is a company applicant for a reporting company?

Another of the more perplexing questions revolves around exactly who a company applicant of a reporting company is.

First, only reporting companies created or registered on or after Jan. 1, 2024, need to concern themselves with the company applicant rules; companies formed before are exempt.

There are two possible individuals who could be considered company applicants. One is the person who directly files the documents to create and register the company. This person will always exist and be an applicant of the reporting company. In the case where there were multiple people involved in the filing or registration, the individual who primarily controlled the filing is also considered an applicant.

Thankfully, FinCEN created another handy flowchart to help navigate through this rather confusing decision.

Screenshot from FinCEN website

What about sole proprietorships?

It depends. Sole proprietorships only have to report if the entity was created by filing a document with a secretary of state or similar office. In other words, if you just start freelancing and don’t file anything with a secretary of state office, you are not subject to the reporting requirements. Basically, if you didn’t form an LLC, you don’t need to report. For example, obtaining an employer identification number, a fictitious business name, or a professional or occupational license does not subject you to the FinCEN reporting requirements.

What if my company ceased to exist before the CTA requirements went into effect?

If a company ceased to exist on or before Jan. 1, 2024, then they are NOT subject to the reporting requirements.

Do I have to report more than once?

No, you only have to file an initial report once. There is NOT an annual report. You do, however, need to amend your original filing to update pertinent changes or corrections within 30 days of their occurrence.

What happens if I don’t file a report?

Willful violation can subject one to a fine of up to $500 per day until the violation is resolved. Criminal penalties could also be imposed, resulting in up to two years imprisonment and a fine of up to $10,000.

Conclusion

The FinCEN released its guidance to clarify uncertainties around the new CTA-created reporting requirements. The goal is to ensure full and accurate compliance without undue burden on companies and individuals.

The enactment of the Tax Cuts and Jobs Act (TCJA) in 2017 brought with it major changes to the tax code on both personal and business levels. While many taxpayers have not only enjoyed but come to see these tax provisions as normal over the past seven years, many provisions of the TCJA are set to expire at the end of 2025. This makes 2026 and beyond potentially a very different tax landscape than the one we operate in today. This article reviews main provisions of the TCJA that could be affected and what it could mean for taxpayers.

Return of Higher Tax Rates

Lower tax rates were a hallmark of the TCJA. Rates on all income brackets were lowered (except the lowest 10 percent bracket). Without an extension of this act, tax rates will automatically return to their former levels, with the highest at 39.6 percent for federal income taxes.

Look for Return of Lower Standard Deductions; Higher Personal Exemptions; Unlimited SALT Deductions

The TCJA created a sort of trade-off by raising the standard deduction but lowering personal exemptions and limiting the state and local tax deductions (SALT) for itemizers. The reversal of these provisions can be either a net positive or negative, depending on each taxpayer’s situation. Generally, for those who reside in high tax brackets (income tax and/or property tax) or with a lot of dependents, the reversion will be favorable.

Currently, the standard deduction is $29,200 (married filing jointly) or $14,600 (single). These amounts will be almost cut in half to $16,600 and $8,300, respectively.

Offsetting these deduction losses, personal exemptions return. Currently, there are no personal exemptions, but this will go back to pre-TCJA levels adjusted for inflation, approximately $5,300 for each taxpayer, spouse and dependent.

The SALT deduction is capped at $10,000 under the TCJA. This limit will be eliminated; potentially giving dramatic benefit to taxpayers in high-income tax and property tax states.

Finally, it should be noted that materially lower standard deductions may create a lot more taxpayers who would benefit from itemizing deductions versus taking the standard deduction. In addition, the SALT cap, currently at $10,000 per tax return (not per person), will be eliminated.

Tax-Deductible Mortgage Interest on Large Loans

The TCJA limited tax-deductible interest on mortgages taken out in 2018 and after to interest on $750,000 of mortgage debt, versus the previous $1 million cap. This will revert back to the higher $1 million limit.

Lower Alternative Minimum Tax (AMT) Exemptions and Phase-Outs

Significant increases in AMT exemptions and phase-out limits were part of the TCJA and, as a result, millions of taxpayers were no longer subject to the AMT. This provision will revert as well, subjecting millions of taxpayers to the AMT. In particular, taxpayers who take large, itemized deductions and benefits from incentive stock compensation schemes will be the most negatively impacted.

Lower Estate and Gift Tax Limits

The TCJA nearly doubled the federal lifetime estate and lifetime gift tax exemption from $7 million to $13.61 million for a single taxpayer. These amounts double for couples making joint gifts. The limits would revert back to the $7 million level. Note that the annual gift tax exclusion of $18,000 per person is not expected to change.

Elimination of 20% Qualified Business Income Deduction and Bonus Depreciation

Pass-through business owners (e.g., S-corps, LLCs) benefitted from up to a 20 percent deduction on qualified business income under the TJCA (subject phase-outs). Business owners also benefitted from bonus depreciation as part of the TCJA – as high as 100 percent at one point. Both of these business-friendly provisions are set to expire completely unless Congress takes action.

Plan For Change

Whatever may be in the near-term, the only constant when it comes to taxes is that they will certainly be here. History teaches us to never get comfortable with the current tax code. The exact iteration of an extension of the TCJA or lack thereof is uncertain at this point, but the provisions at risk are known. For some taxpayers, this article is more of an FYI; while for those with multi-year planning strategies, the time to consider various outcomes and work with your tax advisor is now.

I sincerely hope you have never had to go through an IRS audit – and never have to in the future. But what if that dark day does arrive? Should you go it alone and defend yourself or hire a CPA, EA, or Tax Professional to be on your side?

The temptation to handle this alone is usually prompted by one of two things. First, the notion is that this is not such a big deal. Other times, people think if they handle it themselves, they will save money.

Unfortunately, neither of these are good reasons to defend yourself in a tax audit against the IRS. While the decision to hire a CPA or tax lawyer does depend on the case and the issues at hand, the procedural setting plays an important role as well. The answer is nearly universal that you should hire a CPA, EA, or Tax Professional to defend you – or even a tax lawyer if the situation warrants it (sometimes they are one in the same person).

Why it is a Terrible Idea to Defend Yourself in a Tax Audit

There are several reasons why partnering with a pro is a good idea. Let’s look at each one and why.

1. Working with your CPA, EA, or Tax Professional, you can go back and forth with your side of the story, dig into the facts, and challenge each other in formulating a response. You essentially have a thinking partner and someone to fact check your side of the situation. Plus, they know how to “handle” the IRS in the messaging of responses.
2. It is prudent to create some space between you and direct communications with the government. For the same reason, defense attorneys do not want their clients talking directly to the police. It is best if you communicate via your CPA or tax lawyer. Whenever you are in direct communications with the IRS, the chance of making a misstep is greater. Once you have said or written something to the IRS, it is pretty much impossible to backtrack.
3. CPAs, EAs, or Tax Professionals are experienced in advocating for clients and documentation.
4. Early representation is a must! One of the biggest mistakes taxpayers subject to an audit make is to start off on their own and then end up in an even worse situation than they started. One of the biggest reasons why an audit can cost a lot is because the taxpayer dug themselves into hole that a CPA, EA, or Tax Professional then later had to get them out of.
5. Most cases rest on fundamental accounting problems. Someone with expertise and good records can address these problems early and competently. Seeing your own facts and documents through an unbiased and objective lens is not easy for most of us.

Conclusion

Ultimately, the decision to hire a CPA, EA, or Tax Professional to represent you in a tax audit is a personal one. Exactly how necessary this is depends on the facts and circumstances of each individual situation, but it’s almost never a good idea to go it alone. If you ever find yourself in an audit, seriously consider hiring a CPA, EA, or Tax Professional – and do it early in the process.