2025 Tax Law Update – Highlights for Individuals & Businesses
Individuals & Businesses
Recent federal legislation and IRS guidance bring a mix of extensions and new rules that will affect 2025 returns and beyond. Here are a few key takeaways.
Individual tax updates
Rates & deductions largely extended. Current income tax brackets (top rate 37%), capital gain rates (0%, 15%, 20%), the higher standard deduction, and the 20% qualified business income (QBI) deduction continue. Personal exemptions remain eliminated.
New and expanded deductions/credits. Starting in 2025, there are enhanced deductions for seniors, plus expanded child tax and dependent care credits. The SALT (state and local tax) deduction cap is increased and then phased out over 2025–2029.
Targeted incentives. For 2025–2028, qualifying tips and overtime pay may be excluded from taxable income, and certain car loan interest is deductible.
Charitable giving rules shift. Non-itemizers will eventually get a modest above-the-line deduction for cash gifts, while itemizers face a small floor and a new reduction formula for overall itemized deductions at higher incomes.
Energy-related incentives
Credits for new electric vehicles are scheduled to end after September 30, 2025, and home-energy efficiency credits now sunset after 2025 (earlier than previously expected). EV charging equipment still qualifies for a credit if placed in service before July 1, 2026.
Estate & gift tax
The estate and gift tax exemption was set to fall sharply after 2025, but new law increases the exemption to $15 million per person (indexed from 2026) and makes this higher threshold permanent, creating additional planning opportunities for larger estates.
Key business tax provisions
100% bonus depreciation on eligible personal property is restored on an indefinite basis, making immediate expensing once again a powerful planning tool.
Business interest limitation (Section 163(j)) generally reverts to a more favorable 30% of tax-basis EBITDA calculation, with an option for capitalization in some cases.
R&D costs (Section 174) still face unfavorable treatment for foreign research expenditures, though transitional guidance may ease some of the change.
A new category of “qualified production property” allows partial expensing of certain real estate placed in service between 2025 and 2031, likely requiring detailed cost segregation studies once IRS guidance is issued.
Workforce-related incentives are expanded, including a larger employer-provided dependent care benefit limit and a permanent credit for paid family and medical leave.
Transaction & investment considerations
Rules for Qualified Small Business Stock (QSBS) are enhanced, with changes to holding-period treatment and the definition of a “small business,” which may increase potential tax-free gain on eligible stock sales when requirements are met.
International tax snapshot
The basic post-2017 international tax framework remains intact; a proposed expansion of the base-erosion (BEAT) regime was not enacted.
Key definitions and incentives are reworked: FDII becomes a broader export-focused regime (FDDEI) with a reduced effective rate, and GILTI is replaced by NCTI, which can be less favorable for taxpayers with significant foreign fixed assets. Expense allocation rules also shift, and certain branch sales of U.S.-produced inventory are now treated as 50% foreign-source.
New deductions for tips & overtime (employees & employers)
From 2025–2028, individuals may deduct up to $25,000 of qualifying tips and up to $12,500 ($25,000 for joint filers) of qualifying overtime compensation, subject to income limits and detailed reporting rules.
Employers will need to adjust payroll systems to track and report “qualified” vs. non-qualified tips and overtime. The IRS has announced no changes to 2025 W-2 and 1099 forms, with new payroll reporting expected to begin in 2026 and transition relief for 2025.
What should you do now?
These changes create both new opportunities and new compliance requirements for individuals, business owners, and employers. The impact will vary widely depending on your income level, business structure, international footprint, and compensation arrangements.
If you have questions about how these updates affect your situation—or would like to explore planning strategies—please reach out to Christine Sanducci, CPA or your Financial Synergy CPA. We’re happy to review your specific facts and help you plan ahead before year-end.