As we approach the 2025 tax year (filing returns in 2026), significant legislative developments and IRS adjustments are poised to impact taxpayers across the United States. Both known and unknown changes for 2025 taxes lie ahead. For Timbuktu Capital Management, LLC (TCM) clients, understanding these changes and staying on top of them is crucial for effective financial planning and investment strategy. At TCM, we monitor these developments to help clients make informed decisions on tax planning, investment strategy, and estate management.
Key Legislative Developments:
In May 2025, House Republicans introduced a comprehensive tax and spending bill, informally known as the “One, Big, Beautiful Bill.” This legislation aims to extend and modify provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and introduces several notable changes.
- Standard Deduction Amounts: The IRS has increased standard deduction amounts for the 2025 tax year to adjust for inflation.
- Single filers: $15,000 (up from $14,600 in 2024). If TCJA expires, the standard deduction will likely be reduced to $8,350.
- Married couples filing jointly: $30,000 (up from $29,000). If TCJA expires, the standard deduction will likely be reduced to $16,700.
- Heads of household: $22,500 (up from $21,900). If TCJA expires, the standard deduction will likely be reduced to $12,250
- Individual Income Tax Rates: The seven federal income tax brackets – 10%, 12%, 22%, 24%, 32%, 35%, and 37% – remain unchanged in 2025, but income thresholds have been adjusted for inflation. These adjustments could affect tax liability, especially for those with incomes near bracket thresholds. See the “Marginal Tax Bracket” table below for more information.
- Deductions for Small Business Owners: The 20% deduction for pass-through entities remains intact for 2025, but is set to expire after 2025 unless extended by Congress. Business owners should begin evaluating potential impact now, especially if their income exceeds current phaseout thresholds.
- Limits on Estate Tax Exemptions: For 2025, the federal tax exemption is set at $13.61 million per individual, or $27.22 million for married couples, up from $13.44 million in 2024. However, this historically high exemption is scheduled to revert to approximately $7 million per person in 2026 if Congress does not act. High-net-worth individuals may want to consider proactive estate planning strategies now to take advantage of the elevated exemption before it potentially sunsets.
- State and Local Tax (SALT) Deduction Cap Increase: The bill proposes raising the SALT deduction cap from $10,000 to $30,000, with a phase-out beginning at $400,000 of household income. This adjustment is particularly significant for taxpayers in states with high housing costs like the coastal states.
- Elimination of Certain Green Energy Tax Credits: To offset the cost of tax cuts, the legislation plans to phase out specific green energy tax credits starting in 2031, which could have implications for ESG-aligned investment portfolios.
- Introduction of “MAGA” Savings Accounts: A new provision introduces savings accounts for children born between 2025 and 2028, with an initial government contribution of $1,000 and an annual family contribution limit of up to $5,000.
- 529 Accounts: Significant legislative and regulatory updates have expanded the utility of 529 plans, offering investors increased flexibility and new opportunities for tax-advantaged savings. The "One, Big, Beautiful Bill," introduced by House Republicans in May 2025, proposes to broaden the scope of qualified expenses for 529 Plan withdrawals. If enacted, the following K-12 and homeschooling expenses would be considered qualified:
- Curriculum and instructional materials
- Books and online educational resources
- Tutoring and external educational classes
- Standardized test fees (e.g., SAT, ACT, AP)
- Dual-enrollment fees for college courses taken during high school
- Educational therapies for students with disabilities
Additionally, the bill seeks to include a wide range of workforce credentials as qualified expenses, encompassing, fees, books, supplies, and required exam costs for programs recognized by state or federal workforce development agencies.
The bill has passed the House Ways and Means Committee and the full House. The spending cuts added to it at the last minute on Medicare and other programs are making some republican senators request adjustments before backing the bill. It remains to be seen what the final bill will look like in the coming weeks.
Final Thoughts:
Given the potential for these changes to affect various aspects of financial planning, clients are encouraged to consult with their financial advisor at Timbuktu Capital Management, LLC, to assess how these developments may influence their individual circumstances.
Additional Information:
IRS Inflation Adjustments for 2025:
Separately, the IRS has announced standard inflation adjustments for the 2025 tax year:
- Standard Deduction Increases
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- Single filers: $15,000 (up from $14,600 in 2024)
- Married couples filing jointly: $30,000 (up from $29,000)
- Heads of household: $22,500 (up from $21,900)
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- Additional Standard Deduction for Seniors and the Blind:
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- Single filers: Additional $2,000
- Married couple filing jointly: Additional $1,600 per qualifying individual
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- Marginal Tax Brackets
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- The seven tax brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- Income thresholds for these brackets have been adjusted for inflation; therefore, the qualifying income for each 2025 tax bracket is slightly higher than in 2024. For example, the 24% bracket now applies to single filers with incomes over $103,350 and up to $197,300.
- 2025 Capital Gains Tax Brackets:
How Rates, Tax Brackets, and Family-Related Provisions Will Be Affected if the TCJA Expires:
- Changes in Tax Brackets
- Change in Tax Brackets for Filers
Note: There are no significant changes until the 4th rate, which will likely affect middle-class families, those with high incomes.
- Changes in Family-Related Provisions:
The Tax Cuts and Jobs Act (TCJA) lowered tax rates across all income levels on average. If the TCJA is allowed to expire as scheduled after 2025, many provisions affecting individual income taxes would lapse, leading to higher taxes for a broad range of Americans. In fact, more than 62% of tax filers are projected to see an increase in their tax liability starting in 2026.
Implications for Investors:
These legislative and IRS changes carry several implications:
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- Tax Planning Opportunities: The proposed increase in the SALT deduction cap may offer additional itemization opportunities for taxpayers in high-tax jurisdictions.
- Investment Strategy Adjustments: The phasing out of green energy tax credits could impact investment strategies focused on renewable energy sectors.
- Estate and Education Planning:
- The introduction of “MAGA” savings accounts presents new avenues for long-term saving and estate planning for families with young children.
- The gift tax inclusion increased from $18,000 in 2024 to $19,000 in 2025. The exclusion increased to $190,000 for gifts to spouses who are not citizens of the United States
- The lifetime exclusion amount on estates of descendants who die increased from $13.6 million in 2024 to $13.99 million per individual in 2025.
- Retirement Plan Contributions:
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- Contribution limits for simplified employee pension (SEP) IRA increase from $69,000 in 2024 to $70,000 or 25% of the employee’s contribution, whichever is lower. The maximum compensation that can be considered for SEP IRA contribution has increased to $350,000 in 2025.
- Contribution limits for individuals with a SIMPLE IRA have increased from $16,000 in 2024 to $16,500 in 2025.
References and Recommended Articles:
McDermott, B. (2025, January 31). Federal Individual Income Tax Brackets, Standard Deduction, and Personal Exemption: 1988 to 2025. Congress.gov. https://www.congress.gov/crs-product/RL34498
New tax laws 2025: Tax brackets and deductions. U.S. Bank. (n.d.). https://www.usbank.com/wealth-management/financial-perspectives/financial-planning/tax-brackets.html
Parys, S., & Orem, T. (2025, April 25). Standard Deduction for 2024 and 2025: Amounts, When to Take. NerdWallet. https://www.nerdwallet.com/article/taxes/standard-deduction
Qualified business income deduction. Internal Revenue Service. (2025, April 25). https://www.irs.gov/newsroom/qualified-business-income-deduction
Rubin, R. (2025, May 13). Republican Tax Plan Boosts SALT Deduction, Ends Green-Energy Breaks. The Wall Street Journal. https://www.wsj.com/politics/policy/republican-tax-plan-boosts-salt-deduction-ends-green-energy-breaks-57bc922c
Trull, J. (2025, May 14). How Trump’s 2025 Budget Reconciliation Bill Could Reshape 529 Plans. Saving For College. https://www.savingforcollege.com/article/trump-budget-reconciliation-529-plans
The United States Government. (2025, May 16). The One, Big, Beautiful Bill is a Once-in-a-Generation Chance. The White House. https://www.whitehouse.gov/articles/2025/05/one-big-beautiful-bill-is-a-once-in-a-generation-chance/
Will Trump and Congress Extend TCJA Tax Cuts?. Bloomberg Government. (2025, February 20). https://about.bgov.com/insights/elections/2025-tax-policy-crossroads-what-will-happen-when-the-tcja-expires/#which-tcja-individual-tax-provisions-are-set-to-expire
York, E. (2024, October 24). How 2026 Tax Brackets Would Change if the TCJA Expires. Tax Foundation. https://taxfoundation.org/blog/2026-tax-brackets-tax-cuts-and-jobs-act-expires/
Published June 24, 2025
Written May 20, 2024
