Tax Filing Season Has Arrived. Here’s What Individuals and Small Business Owners Need to Know
By Kat Grier CFP®, CPA, Wealth Manager; and, Steven Henderson, CPA, PFS, CFP®, CKA® Regional Director, Partner
Tax preparation is complex for many Americans. In 2023, 54 percent of all individual income tax returns were prepared by paid return preparers. Small business owners are no exception. According to the NFIB’s 2024 Tax Survey, 90 percent of small business owners use a tax professional to complete their annual filings, with 88 percent citing the complex nature of the U.S. tax code as a primary reason for the expenditure.
Change is certainly in the air this year. Between several tax policy changes already in motion and plenty more under consideration, there is much for both individuals and business owners to pay attention to – and potentially benefit from.
With a new administration in the White House, talk of tariffs, and dwindling optimism around additional Fed rate cuts, what should Americans anticipate for the 2025 tax year and beyond?
SECURE 2.0 Begins, and Social Security is in the Crosshairs
We covered changes to SECURE 2.0 extensively this fall, and now several provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 are law, affecting both individuals and employers. Small businesses now have to factor in automatic enrollment of newly eligible employees at a minimum of three percent and provide part-time employees access to employer-sponsored retirement plans.
Individuals between the ages of 60 and 63 who want to superfund their retirement plans can now do so with a significant catch-up contribution of 150 percent of the regular catch-up amount, or $11,250. For those nearing retirement age, this is a considerable benefit.
The Trump campaign discussed many proposed changes to Social Security in the lead-up to the election, including changes to the taxable income brackets or the elimination of taxes on Social Security benefits, which has bipartisan support. This will certainly be one to watch.
Eliminating taxes on tips to employees is also beginning in earnest, and currently, a “No Tax on Tips” bill is being considered in 20 states. Administratively, eliminating taxes on tips will cause headaches for employers. If changes are made to how social security or tips are taxed, they most likely will be means tested due to concerns about the federal budget deficit.
A Big Year for TCJA
Keep an eye on the provisions of the Tax Cuts and Jobs Act (TCJA), which expire at the end of the year. The good news is that many provisions will likely remain, including current tax brackets, the doubling of the standard deduction, and allowing pass through entities, versus shareholders and partners, to pay state income taxes on their flow through income. The latter has been hugely beneficial for small business owners, resulting in reduced K1 income for shareholders and partners.
Changes to the continued tapering of bonus depreciation remain to be seen. This deduction, which simplified small businesses’ expenses of asset purchases by allowing a healthy deduction on qualified purchases like property or equipment, has been phasing out the past few years and is on track to phase out fully by 2027. Still, now, it could come roaring back. Another popular small business deduction, the qualified business income deduction (QBI), will likely also be extended but with changes.
High-net-worth individuals should take particular heed of the upcoming changes to estate taxes. These changes will be particularly impactful for estates that are asset-rich and cash-poor. This can happen when estates have valuable assets, e.g. farmland, or small businesses, but the assets may not be easily or quickly sold. Beginning on January 1, 2026, the estate exemption will revert from $13.99 million per person, or $27.98 million for a married couple deduction, back to $7.25 million per individual, or $14.5 million for a married couple.
President Trump has also expressed his desire to lower the corporate tax rate to 15 percent from its current 21 percent, and a significant reduction of green energy credits is likely. The state and local tax (SALT) deduction cap, determines the amount of state, local and home real estate taxes, that can be included in a taxpayer’s itemized deductions, and possibly lowering their taxable income. Lowered under TCJA during the first Trump Administration to $10,000 per household, it expires at the end of the year. While repealing and raising the cap are both on the table, studies suggest it would mostly benefit the wealthy, and add to the federal budget deficit.
What does this mean in the end? Congress will likely struggle to get a majority vote and pass a TCJA reconciliation to make it revenue-neutral, but unlike previous years, the head start on these conversations should prove fruitful for planning purposes.
Strong Communication and Planning Will Be Key
While tax policy has changed significantly over the last few months, this year’s filing should remain the same. However, the threat of tariffs remains to be seen but could impact tax policy moving forward. After all, a tariff is a tax that is eventually passed down to consumers.
Strong communication between your financial advisor and CPA will help you during any tax season. Take the time to acquaint these two professional resources with one another so all parties are on the same page.
Finally, as investors, don’t let changes to the tax code drive any unsound investment decision. The good news is that 2025 will be an excellent year for individuals and employers to be proactive once more is settled around tax policy.
Finally, remember: your Merit team is here to help! If there is anything we can do to assist you and your accounting team, please let us know. Contact our team and we will connect you with the appropriate financial advisor.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.