The saying goes that nothing is certain in life except death and taxes. But an evolving tax landscape in 2025 could mean some uncertainty for taxpayers, who may want to start planning for potential changes before the end of the year.
Of central concern is the impending expiration of numerous temporary provisions in the Tax Cuts and Jobs Act (TCJA) of 2017. Among them are a lower top marginal tax rate of 37%, the expanded capital gains brackets, an increase in the standard deductions, reduced state and local tax (SALT) and mortgage deductions, as well as an expansion of the estate tax exemption to $13.99 million for single people and $27.98 million for couples in 2025. At the end of the year, these provisions will return to pre-2017 levels, adjusted for inflation as appropriate, unless the new administration and Congress extend them.
While the current view is that the tax cuts will likely be extended, the nation is also facing a big budget deficit. Extending the TCJA alone could add $4.6 trillion to the deficit over the next 10 years,1 according to some estimates. Additionally, President Trump in the runup to the election discussed further tax breaks, including eliminating taxes on Social Security, tips, and overtime pay, all of which could further increase the deficit.
Despite a Republican majority in both the Senate and House, negotiations in Congress to extend the TCJA or add new tax cuts aren’t expected to be fast. An extension of the original provisions and any add-ons will have to be passed through reconciliation, says Alice Joe, vice president of federal government relations for Fidelity. And reconciliation carries with it several restrictions. Among them, the extension cannot add to the deficit beyond a 10-year window unless there are accompanying offsets. So anything new that is an expense, such as eliminating taxes on tips, must come with a reduction in cost elsewhere in the bill.
“The general consensus in Washington is that passage of the bill may not happen until the second half of 2025 when Congress has to pass a budget,” says Joe, who adds other priorities, such as a government spending bill, an extension of the debt limit, and potentially a bill on immigration, may come first.
Planning considerations
Regardless of how congressional negotiations play out this year, changes to the tax code—which could include an extension of TCJA, keeping rates essentially where they are today—are likely to be phased in during the 2026 tax year. What does that mean for your 2025 taxes? Perhaps the soundest strategy for the 2025 tax year is to stick to your current plan, says David Peterson, head of advanced wealth solutions for Fidelity. “It’s still very early in the negotiations process and I’d suggest planning for what we know right now,” Peterson adds.
Longer term, you may want to adjust as the tax landscape evolves. Here are 6 ideas that can help you build an “all-weather” plan that can help reduce your taxable income in any environment.
1. Revenue, credits, and deductions
If you expect tax rates to go up, and your annual income is flexible, it may make sense to consider accelerating revenue to the current year while rates are low, and extend expenses to the following year that may be tax-deductible or eligible for tax credits and deductions.
These tactics might work specifically for people who run their own business or do contract work, rather than W-2 workers who earn regular paychecks, says Peterson. For example, a business owner might, to the extent possible, consider booking revenue when tax rates are lower and purchasing equipment or making other upgrades that can be used as potential offsets to revenue during a higher-tax year, Peterson adds.
2. Consider maximizing deductions if you plan to itemize
The original 2017 TCJA eliminated many personal itemizations in favor of a larger standard deduction, which is currently $15,000 for individual filers and $30,000 for married couples filing jointly for tax-year 2025.
Nevertheless, if you think your itemizable deductions would add up to more than the standard deduction, there are 5 main categories of deductions, subject to various limitations, that you can consider.
You can deduct medical expenses, home mortgage interest which is fully deductible up to $750,000 of mortgage debt, state and local taxes (SALT), charitable contributions, and theft and casualty losses due to a federally declared disasterOpens in a new window. Many deductions have limits, however. For example, you cannot deduct health care costs that are less than 7.5% of your adjusted gross income (AGI). Deductible expenses may include unreimbursed fees for doctor and hospital visits, dentists, chiropractors, mental health care, medical plan premiums for which you are not claiming a credit or deduction, and much more.
Another potential way to reduce income is by donating to charity. You can only deduct charitable donations if you itemize deductions, and if you’re looking to reduce income, one tax-savvy way to do this is through bunching charitable donations. Bunching means concentrating charitable donations in a single year, and skipping the following year, or even several years. If you follow this strategy, you itemize deductions in the first year then take the standard deduction in following years. And if you donate to a donor-advised fund, you can recognize the charitable deduction in 2025 but spread your grants out over many years. However, deducting charitable donations may be subject to adjusted gross income (AGI) limits depending on the receiving charity and what you donated. Donations eligible for deduction not taken in the current year due to AGI limits may be carried forward up to 5 years in the future.
3. What about the SALT deduction?
The TCJA capped the SALT deduction for homeowners at $10,000 regardless of marital status, but it’s possible the current limit may get an increase as part of ongoing negotiations, Joe says. Currently, if you itemize, you're allowed to deduct a combination of your property taxes and either your state and local income taxes or your state and local sales taxes up to the $10,000 limit.
4. Take advantage of credits
Numerous credits also exist that might help you reduce what you owe in a higher-tax year. If you’re paying for a dependent’s post-secondary education, for example, the American Opportunity Tax Credit, is available to single earners with modified adjusted gross income (MAGI) of $80,000 or less and joint filers with income of $160,000 or less. To qualify for the full $2,500 per student credit generally you must have $4,000 worth of higher education expenses. Similarly, the Lifetime Learning CreditOpens in a new window lets you claim up to $2,000 on qualified tuition and education-related expenses for undergraduate, graduate, and professional degree courses during the tax year. Good to know: You can't take both credits for the same student or the same expenses in the same tax year.
Similarly, if you have a child age 17 or younger, you might also qualify for the Child Tax Credit, which can lower your tax bill by $2,000 per qualifying child, subject to MAGI thresholds.
5. Remember Roth conversions
It may make sense to consider a Roth conversion during years of lower taxable income or if you expect tax rates to increase in the future. A Roth conversion involves transferring money in a traditional IRA, workplace, or related plan to a Roth IRA, and then paying taxes on the converted amount, assuming pretax or employer contributions. After that, qualified withdrawals are tax-free,2 and they're not subject to required minimum distributions (RMDs) for the life of the original owner, generally once you have met the 5-year aging period.
By converting money into a Roth, you may also reduce the size of your retirement accounts that are subject to required minimum distributions (RMDs) and, correspondingly, the dollar amount of the RMD you must begin taking at age 73 (75 in 2033), reducing further income tax obligations.
6. Gifting and the estate tax
Without an extension, the estate tax exemption could drop to its pre-2017 level, or half the current amount ($13.99 million for single filers, twice that amount for joint filers), adjusted for inflation. Be aware though that many states also have their own estate tax thresholds, often much lower than the federal amount.
If you want to reduce the value of your estate without affecting your estate tax exclusion, you can gift up to $19,000 per person in 2025 to an unlimited number of people. Joint filers can gift double this amount ($19,000 per person).
For more complex estate planning needs, it’s important to have a plan in place sooner rather than later, says Peterson. That may be especially the case if you’re creating and funding an irrevocable trust which can also help lower the value of your estate. By funding one now, Peterson says, you could take advantage of the current, relatively high lifetime estate tax exemption, and get any potential, incremental growth on trust assets out of your estate.
It may make sense to consult an attorney about potential trust needs before any tax changes take place to avoid a rush for their services, Peterson says. “You can draft your trust plan now and fund it later,” he adds.
Although no one can predict the future, changes to the tax landscape in the coming months are likely. Taxes can also be complex, so consider connecting with financial and legal professionals who can help you navigate any changes. They can also help you create an all-weather plan for your money that can serve you now and in years to come.