Tax Changes in 2025

With the Republicans controlling the presidency and both houses of Congress, there is certainly the opportunity for some or all of these tax items to be extended.  There is also the possibility that other tax legislation will be enacted.  Will Congress act quickly with new or extending legislation?  Will we have to wait till the end of 2025 to know what our tax laws will be in 2026?  While no one knows the answer to these questions, we can be sure that something will change.

Based on current tax law, below details some of the items that are set to change at the end of 2025.

Individual tax rates revert to 2017 rates.

• Currently the tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.  These are set to change to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
• This could result in an increase of tax in almost all the tax brackets.

The expanded standard deduction will revert to 2017 levels adjust by inflation.

• The standard deduction for 2024 is $14,600 (single) and $29,200 (MFJ).  These amounts are currently scheduled to increase in 2025 to $15,000 (single) and $30,000 (MFJ).
• The 2026 standard deduction is projected to be $8,350 (single) and $16,700 (MFJ).
• This could result in an increase of tax for people who do not itemize on their income tax returns.
• This creates additional complexities with the tax return preparation process as many people will begin to itemize on their income tax return.

The limit on the itemized deduction for state and local taxes (SALT) is currently capped at $10,000.

This cap is set to go away in 2026 reverting to 100% of those taxes being available as an itemized deduction.

• For individuals able to itemize their deductions, this could result in larger deductions applied against taxable income.

Most miscellaneous itemized deductions are not allowed in 2024 or 2025.

Think items like non-reimbursed employee business expenses, and investment management fees. These could return in 2026.

• For individuals able to itemize their deductions, this could result in larger deductions applied against taxable income.

In 2026, the personal exemption is set to return.

The Cato Institute anticipates the personal exemption to be $5,300.

• This exemption would apply for each individual, spouse, and dependent child.

Reduction of the child tax credit in 2026.

• For 2024 and 2025, the credit is $2,000 per child under 17 years of age.  This phases out for upper income earning taxpayers. For example, MFJ in 2024 phases out between $200,000 and $400,000.
• 2026 is currently set to reduce the credit to $1,000 per child under 17 years of age.  The phase out is also reduced.  The full phase out for MFJ is reduced to just $110,000.
• This would likely result in an increased tax burden for many taxpayers with children under the age of 17.

The higher starting point for the Alternative Minimum Tax (AMT) is set to phase out.

• Currently, the 2024 AMT exemption amount is $87,700 (single) and $133,300 (MFJ), with an exemption phase out amount of $609,350 single and $1,218,700 (MFJ).
• The phase out would reduce the exemption amount to $70,900 single and $110,400 MFJ. The exemption would phase out at $157,700 single and $210,300 (MFJ).
• If this is not extended, People will suddenly become subject to the AMT.

The Qualified Business Income Deduction (QBI) would be eliminated.

• This would result in an increase of tax for individuals who own businesses.
• For S-Corporation, analysis would need to be done to determine if switching to C-Corporation status could result in a lower overall tax burden.

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If you have any questions, please reach out to us at The Whitlock Company.