It’s that time of year again! Tax laws are shifting, limits are adjusting, and credits are evolving.
While 2024 brings some minor updates, a major tax overhaul is likely on the horizon for 2025, especially with a new President taking office.
Here's a breakdown of the significant changes you need to know as an individual, business owner, or estate planner.
Key Takeaways for 2024 Tax Changes
Here’s a glimpse of the significant tax law changes for 2024 that will shape the fiscal tax year reflected on 2025 tax returns:
- Tax bracket thresholds increased.
- Standard deduction increased.
- Contribution limits for retirement accounts increased.
- 1099-K reporting threshold dropped to $5,000.
- The EITC and Adoption Credit were updated.
- The refundable portion of the Child Tax Credit increased.
Individuals
1. Electric and Hybrid Vehicle Credits – New Rules
The rules for the EV vehicle tax credit from 2023 did not change much in 2024. However, the big difference is that you can now claim the credit at the dealership! Here’s a blog from last year that provides more details, which you can read here.
The basics are as follows:
- The taxpayer and the car must both qualify for the tax credit. Eligibility for taxpayers depends on income limits.
- Used cars are added to the list but have lower income and sales price limits.
- Restrictions on eligible cars have increased.
- You can transfer the credit to the dealer at purchase and get a reduction in the purchase price instead of waiting until you file your tax return. However, both you and the car must still qualify for the tax credit. The dealer must also provide you with Form 15400, which you must give to your tax preparer.
2. Social Security, Payroll, and Self-Employment Tax Changes
If you receive Social Security, you saw a 3.2% increase in 2024 for inflation. In 2025, you'll see another increase, but for 2.5%.
Who pays for this increase? Workers and business owners.
There’s no change in the Social Security tax rate percentage, but the maximum Social Security tax base increased to $168,600 in 2024 and will increase to $176,100 in 2025. If you are self-employed, you may also see this increase reflected in your self-employment taxes when you file your 2024 return.
Among other changes, Social Security recipients will see a higher full retirement age in 2025. This marks the age at which workers become eligible to claim 100% of their retirement benefits based on lifetime earnings.
3. FSA and HSA Limits Increase
As medical expenses continue to rise, so do the annual limits for FSAs and HSAs.
- The annual HSA contribution limit increases to $8,550 for families ($4,300 for singles) in 2025, up from $8,300 for families ($4,150 for singles) in 2024.
- The annual limit on contributions for healthcare FSAs will increase to $3,300 in 2025, up from $3,200 in 2024.
If you don’t already have an FSA or HSA, now is a great time to look into one. They allow you to reduce your taxable income by contributing pre-tax funds to cover rising medical out-of-pocket costs.
4. Child Tax Credit Stays at $2,000 per Child in 2024
If you have children under the age of 17, you can still claim a child tax credit—if your income isn’t over the threshold mentioned below.
This was a hot topic during election debates by both parties, but no changes (as of this blog date) have been rolled out. We do expect to see some changes in future tax code rollouts.
For 2024:
- The child tax credit is worth up to $2,000, with $1,700 of that refundable.
- Eligibility phases out for married filing jointly taxpayers with adjusted gross incomes of $400,000 or single taxpayers with incomes of $200,000.
5. 529 Conversions to Roth IRAs
If you have unused funds in 529 plan accounts, here’s good news: starting January 1, 2024, you can convert those funds into Roth IRAs for the same beneficiary. Here are the qualifiers:
- The 529 plan must have been open for 15 years.
- The lifetime rollover limit is $35,000.
- The Roth IRA must be in the name of the 529 plan’s beneficiary.
- Contributions made within the past five years (and their earnings) cannot be moved into the Roth IRA.
- The beneficiary must have earned income equal to at least the amount transferred in any year.
Note: Some states, like California, do not yet conform to this change, so you may incur state taxes or penalties for this conversion.
6. Standard Deduction Increases and Tax Bracket Creep
- For married couples filing jointly: $29,200 (up $1,500).
- For single taxpayers: $14,600 (up $750).
- For heads of households: $21,900 (up $1,100).
Tax brackets adjust annually. Knowing where you stand within a bracket is key to proactive tax planning. See 2024 brackets here.
7. Retirement Contribution Limits
2024 and 2025 Traditional IRA and Roth IRA contribution limits remain at $7,000 (under 50) and $8,000 (50+).
Employee contributions to employer-sponsored traditional 401(k) / Roth 401(k) limits for 2025 go up to: $23,500 (under 50) and $31,000 (50+).
While direct Roth IRA contribution limits are only available to taxpayers with modified adjusted gross income under $161,000 for single and $240,000 for married filing joint; direct employee contributions to an employer-sponsored Roth 401(k) account are not subject to income limits. This provides a new avenue in 2024 and beyond for all individuals to contribute to a Roth without having to do the Backdoor Roth strategy.
The Backdoor Roth strategy remains a viable option for those exceeding income limits for direct Roth contributions. It is recommended that taxpayers work with wealth or financial advisors to execute Backdoor Roth strategies and stay within compliance.
8. Retirement Plan Early Withdrawal Exceptions
Starting in 2024, taxpayers can take penalty-free withdrawals of up to $1,000 from retirement plans to cover personal emergency expenses. However, income taxes may still apply.
Businesses
1. Meals Back to 50% Deductibility
Business meals made a temporary change during the pandemic, allowing for 100% deductibility. Starting in 2023, most business meals returned to 50% deductibility.
However, meals that are promotional in nature, part of required all-employee training, or employee appreciation events are 100% deductible. Track your meals by category to optimize your deductions.
2. Increase in Mileage Rate
If you use your vehicle for business, it’s essential to track your miles. We recommend using an app like MileIQ to simplify the process.
For 2024, the standard mileage rate is 67 cents per mile, which will increase to 70 cents per mile in 2025.
3. Bonus Depreciation Falls to 60% in 2024
Depreciation remains a key topic among lawmakers. For now, the scheduled 60% bonus depreciation limit in 2024 is in effect, with plans to drop further to 40% in 2025. Stay tuned for updates if a new tax bill is approved.
4. Retirement Plan Credits and California Requirements
Small businesses offering retirement plans can take advantage of expanded tax credits:
- 100% credit for new plan costs, covering administrative expenses and employer matching (up to $1,000 per employee).
- Eligible employers can claim up to $5,000 annually in start-up credits for three years.
To qualify:
- You must have fewer than 100 employees who earned at least $5,000 the previous year.
- At least one plan participant must not be a highly compensated employee (earning under $150,000 in 2023 and 2024).
- Your business must not have offered another plan in the past three years.
For California businesses:
- If you have 5 or more employees, you are required to offer a retirement plan. This threshold drops to 1 employee in 2025.
- Businesses must also register with CalSavers unless they already have a retirement plan in place.
5. Beneficial Ownership Reporting Required in 2024
The Beneficial Ownership Information (BOI) reporting rule has been a rollercoaster. Initially mandatory, it has been paused and reinstated multiple times. As of December 27, 2024, it’s paused again.
If the mandate resumes, penalties for late filing could reach $571 per day. If you own a registered entity (LLC, corporation, or trust), ensure you stay updated and file your report prior to the re-instated deadline.
For more details, check out our article: BOI - New FinCEN Mandatory Reporting for Businesses and YouTube Video.
6. California Business Withholding for Non-Resident Service Providers
California businesses paying non-resident service providers more than $1,500 annually are required to:
- Withhold 7% of all payments.
- Remit those withholdings quarterly to the Franchise Tax Board.
Non-California residents must file a non-resident California tax return to claim withheld amounts.
7. 1099 Reporting Changes (1099-K, 1099-NEC, and New 1099-DA Form)
For 2024:
- Payment processors will issue 1099-Ks for transactions exceeding $5,000.
- Businesses must still report payments of $600 or more on 1099-NEC and 1099-MISC forms if paid via cash, check, ACH, or Zelle.
For 2025:
- A new 1099-DA form will be required for crypto and digital asset transactions.
Deadlines: All 1099 forms must be filed by January 31, 2025.
8. Increase in Payroll Taxes
California businesses will face increases in SDI and FUTA rates in 2025. This stems from a federal loan California took out during COVID-19 that remains unpaid. As a result, the IRS is collecting more FUTA from California-based businesses.
Estates and Trusts
1. Estate and Gift Tax Exclusions Increase
The estate and gift tax exclusion rises to $13.99M in 2025, up from $13.61M in 2024. The estate limit is expected to decrease by 50% in the next year unless a bill extends it. Consider advanced planning strategies to reduce estate taxes:
- Use portability to lock in higher exclusion limits.
- Make annual exclusion gifts ($19,000 per person in 2025).
- Directly pay education or medical expenses to avoid gift tax reporting.
Looking Ahead to 2025
With much of the current tax code set to expire, 2025 is shaping up to be a critical year for tax planning. Don’t wait until filing season—proactive planning can save you thousands.
Next Steps
- Schedule a review with your tax advisor to strategize for 2024 and beyond.
- Monitor pending tax legislation that could impact 2025.
