2025 Individual Planning Guide
Tax planning for yourself and your household can ensure a smooth transition from 2025 to 2026. Now is the time to review your taxes and identify opportunities for reducing, deferring or accelerating your tax obligations. Here are some tips to get you started, with additional changes from the One Big Beautiful Bill Act (OBBBA).
Key Tax Provisions in the One Big Beautiful Bill Act
- The OBBBA makes permanent the lower individual tax rates introduced by the Tax Cuts and Jobs Act (TCJA), including the top marginal rate of 37% (which was scheduled to revert to 39.6% after 2025). This permanence provides long-term certainty for high-income taxpayers regarding their marginal tax rates.
- The SALT deduction cap is increased from $10,000 to $40,000 ($20,000 for married filing separately) for tax years 2025 through 2029, indexed for inflation. However, for taxpayers with modified adjusted gross income (MAGI) over $500,000 ($250,000 MFS), the cap is phased down by 30% of the excess over the threshold, but never below $10,000. After 2029, the cap reverts to $10,000.
- The standard deduction is permanently increased to $15,750 for singles, $23,625 for heads of household, and $31,500 for joint filers (2025 amounts), with inflation adjustments starting in 2026.
- For itemizers, only charitable contributions exceeding 0.5% of AGI are deductible. A new above-the-line charitable deduction of $1,000 ($2,000 for joint filers) is available for non-itemizers.
- The unified estate and gift tax exemption is permanently increased to $15 million per individual (indexed for inflation starting in 2027), effective for estates of decedents dying and gifts made after December 31, 2025. For married couples, this means a combined exemption of $30 million (plus inflation adjustments).
- Section 1202, Qualified Small Business Stock, acquired after July 4, 2025, the per-issuer gain exclusion cap is increased from $10 million to $15 million (indexed for inflation), and the gross asset test for qualification is raised from $50 million to $75 million (indexed for inflation). The exclusion is now tiered: 50% exclusion for stock held at least 3 years, 75% for 4 years, and 100% for 5 years or more.
- For 2025–2028, above-the-line deductions are created for qualified tips (in certain occupations) and for overtime premium pay, subject to income and occupation limitations.
Qualified Opportunity Zone Investors
Investors should be aware that deferred capital gains from prior contributions to a Qualified Opportunity Fund (QOF) made under the original 2017 tax law must be recognized by December 31, 2026, and included in 2026 taxable income. Payment is due with the 2026 federal income tax return, typically by April 15, 2027, unless extended.
Any appreciation on the QOF investment remains tax-deferred until it is sold, and holding the investment for at least 10 years may allow exclusion of post-investment appreciation from taxable income.
Investors should review their QOF basis, deferral amount, and holding period, plan for liquidity to cover the 2026 tax liability, and advise your WellsColeman partner of any QOF investments previously made so that they can begin tax planning and projections.
Key Dates:
-
Deferred Gain Recognition: December 31, 2026
-
Tax Payment Due: April 15, 2027 (unless extended)
Certified Payments Update
As a reminder, WellsColeman will no longer send certified payments on behalf of our clients. Rather, we are available to assist you with creating online tax payment accounts as necessary. We included instructions on how to make a payment with or without an account on our website.
2025 Federal Income Tax Rate Brackets
|
Tax Rate |
Joint/Surviving Spouse |
Single | Head of Household |
Married Filing Separately |
Estates & |
| 10% |
$0 – |
$0 – $11,925 |
$0 – $17,000 |
$0 – $11,925 |
$0 – $3,150 |
| 12% | $23,851 – $96,950 |
$11,926 – $48,475 |
$17,001 – $64,850 |
$11,926 – $48,475 |
– |
| 22% | $96,951 – $206,700 |
$48,476 – $103,350 |
$64,851 – $103,350 |
$48,476 – $103,350 |
– |
| 24% | $206,701 – $394,600 |
$103,351 – $197,300 |
$103,351 – $197,300 | $103,351 – $197,300 |
$3,151 – $11,450 |
| 32% | $394,601 – $501,050 |
$197,301 – $250,525 |
$197,301 – $250,500 | $197,301 – $250,525 |
– |
| 35% | $501,051 – $751,600 |
$250,526 – $626,350 |
$250,501 – $626,350 | $250,526 – $375,800 |
$11,451 – $15,650 |
| 37% | Over $751,600 | Over $626,350 | Over $626,350 | Over $375,800 | Over $15,650 |
Timing of Income and Deductions
Taxpayers should consider whether they can minimize their tax bills by shifting income or deductions between 2025 and 2026. Ideally, income should be received in the year with the lower marginal tax rate, and deductible expenses should be paid in the year with the higher marginal tax rate.
Actions to consider that may result in a reduction or deferral of taxes from 2025 to 2026 include:
- Delaying closing capital gain transactions until after year end or structuring 2026 transactions as installment sales so that gain is deferred past 2025 (also see Long Term Capital Gains, below).
- Considering whether to trigger capital losses before the end of 2025 to offset 2025 capital gains.
- Delaying interest or dividend payments from closely held corporations to individual business-owner taxpayers.
- Deferring commission income by closing sales in early 2026 instead of late 2025.
- Accelerating deductions for expenses such as mortgage interest and charitable donations (including donations of appreciated property) into 2025 (subject to AGI limitations).
- Evaluating whether non-business bad debts are worthless by the end of 2025 and should be recognized as a short-term capital loss.
- Shifting investments to municipal bonds or investments that do not pay dividends to reduce taxable income in future years.
On the other hand, taxpayers that will be in a higher tax bracket in 2026 may want to consider potential ways to move taxable income from 2026 into 2025, such that the taxable income is taxed at a lower tax rate. In these cases, current year actions to consider that could reduce 2026 taxes include:
- Accelerating capital gains into 2025 or deferring capital losses until 2026.
- Electing out of the installment sale method for 2025 installment sales.
- Deferring deductions such as large charitable contributions to 2026.
Long-Term Capital Gains
The long-term capital gains rates for 2025 are shown below. The tax brackets refer to the taxpayer’s taxable income. Capital gains also may be subject to the 3.8% Net Investment Income Tax.
2025 Long-Term Capital Gains Rate Brackets
| Long-Term Capital Gains Tax Rate |
Joint/Surviving Spouse |
Single |
Head of Household |
Married Filing Separately |
Estates & Trusts |
| 0% |
$0 – |
$0 – |
$0 – |
$0 – $48,350 |
$0 – $3,250 |
| 15% | $96,701 – $600,050 |
$48,351 – |
$64,751 – $566,700 |
$48,350 – $300,000 |
$3,251 – $15,900 |
| 20% |
Over $600,050 |
Over $533,400 |
Over $566,700 |
Over $300,000 | Over $15,900 |
Long-term capital gains (and qualified dividends) are subject to a lower tax rate than other types of income. Investors should consider the following when planning for capital gains:
- Holding capital assets for more than a year (more than three years for assets attributable to carried interests) so that the gain upon disposition qualifies for the lower long-term capital gains rate.
- Considering long-term deferral strategies for capital gains such as reinvesting capital gains into designated qualified opportunity zones.
- Investing in, and holding, “qualified small business stock” for at least five years.
- Donating appreciated property to a qualified charity to avoid long term capital gains tax.
Net Investment Income Tax
An additional 3.8% net investment income tax (NIIT) applies on net investment income above certain thresholds. Net investment income does not apply to income derived in the ordinary course of a trade or business in which the taxpayer materially participates. Similarly, gain on the disposition of trade or business assets attributable to an activity in which the taxpayer materially participates is not subject to the NIIT.
In conjunction with other tax planning strategies that are being implemented to reduce income tax or capital gains tax, impacted taxpayers may want to consider deferring net investment income for the year.
The surtax is 3.8% of the lesser of:
- Net investment income (NII), or
- The excess of modified adjusted gross income (MAGI) over a threshold amount ($250,000 for married filing joint or surviving spouse, and $200,000 for single or head of household).
Social Security Tax
The Old-Age, Survivors, and Disability Insurance (OASDI) program is funded by contributions from employees and employers through FICA tax. The FICA tax rate for both employees and employers is 6.2% of the employee’s gross pay, but only on wages up to $176,100 for 2025. Self-employed persons pay a similar tax, called SECA (or self-employment tax), based on 12.4% of the net income of their businesses.
Employers, employees, and self-employed persons also pay a tax for Medicare/Medicaid hospitalization insurance (HI), which is part of the FICA tax, but is not capped by the OASDI wage base. The HI payroll tax is 2.9%, which applies to earned income only. Self-employed persons pay the full amount, while employers and employees each pay 1.45%. An extra 0.9% Medicare (HI) payroll tax must be paid by individual taxpayers on earned income that is above certain adjusted gross income (AGI) thresholds, i.e., $200,000 for individuals, $250,000 for married couples filing jointly and $125,000 for married couples filing separately. However, employers do not pay this extra tax.
Retirement Plan Contributions
Individuals may want to maximize their annual contributions to qualified retirement plans and Individual Retirement Accounts (IRAs).
- Starting in 2026, if you earned more than the annually indexed threshold in Social Security wages from your employer in the prior year ($150,000 for 2025, adjusted for inflation), any catch-up contributions made to a 401(k), 403(b), or governmental 457(b) must be Roth (after-tax). You will no longer be able to make pre-tax catch-up contributions. This rule does not apply to SIMPLE IRAs or SEP plans.
- The maximum amount of elective contributions that an employee can make in 2025 to a 401(k) or 403(b) plan is $23,500 ($31,000 if age 50 or over and the plan allows “catch up” contributions). For 2026, these limits are $24,500 and $32,500, respectively.
- Individuals are now able to contribute to their traditional IRAs in or after the year in which they turn 70½.
- Beginning in 2023, the SECURE Act 2.0 raised the age that a taxpayer must begin taking required minimum distributions (RMDs) to age 73. If the individual reaches age 72 in 2024, the required beginning date for the first 2025 RMD is April 1, 2026.
- Individuals age 70½ or older can donate up to $108,000 to a qualified charity directly from a taxable IRA. The amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040.
- The SECURE Act generally requires that designated beneficiaries of persons who died after December 31, 2019, take inherited plan benefits over a 10-year period. Eligible designated beneficiaries (i.e., surviving spouses, minor children of the plan participant, disabled and chronically ill beneficiaries and beneficiaries who are less than 10 years younger than the plan participant) are not limited to the 10-year payout rule. Special rules apply to certain trusts.
- Under final Treasury Regulations (issued July 2024) that address required minimum distributions (RMDs) from inherited retirement plans of persons who died after December 31, 2019, and after their required beginning date, designated and non-designated beneficiaries will be required to take annual distributions, whether subject to a ten-year period or otherwise.
- If eligible to do so, consider converting traditional-IRA money into a Roth IRA.
- Keep in mind, however, that such a conversion will increase your AGI for 2025.
Itemized Deductions
Many taxpayers will not be able to itemize because of the high basic standard deduction amounts that apply for 2025 (single and married filing separately $15,750, married filing jointly $31,500, head of household $23,625). Additionally, many itemized deductions have been reduced or abolished.
- The state and local tax (SALT) deduction cap is increased to $40,000 per household and would be phased out for taxpayers with modified adjusted gross income (MAGI) over $500,000, not to fall below the previous $10,000 cap. In 2030, the deduction will revert to $10,000; miscellaneous itemized deductions (i.e., tax preparation fees and unreimbursed employee expenses) are not deductible.
- Medical expenses may be itemized if they exceed 7.5% of your adjusted gross income.
- Payments of the above items will not save taxes if they do not cumulatively exceed the standard deduction for your filing status.
- Cash contributions made to qualifying charitable organizations, including donor advised funds, in 2025 and 2026 will be subject to a 60% AGI limitation. The limitations for noncash contributions continue to be 30% of AGI. Tax planning around charitable contributions may include:
- Creating and funding a private foundation, donor advised fund or charitable remainder trust.
- Donating appreciated property to a qualified charity to avoid long term capital gains tax.
- To note: Starting in 2026, individuals who itemize can only deduct charitable contributions that exceed 0.5% of their adjusted gross income.
Kiddie Tax
The unearned income of a child is taxed at the parents’ tax rates if those rates are higher than the child’s tax rate.
529 College Savings Plan
The OBBBA expands the qualified expenses that may be used to pay for K-12 education from $10,000 to $20,000. Additionally, more K-12 expenses are considered “qualified expenses”, including tuition, study materials, educational tutoring, college admission exam fees, and educational therapies. Certain post-high-school credentialing costs are now 529-eligible.
Estate and Gift Taxes
The gift tax annual exclusion is $19,000 for 2025 and is $19,000 for 2026. For 2025, the unified estate and gift tax exemption and generation-skipping transfer tax exemption is $13.99 million per person. For 2026, the unified estate and gift tax exemption and generation-skipping transfer tax exemption is $15 million. All outright gifts to a spouse who is a U.S. citizen are free of federal gift tax.
Tax planning strategies may include:
- Making annual exclusion gifts.
- Making larger gifts to the next generation, either outright or in trust.
Net Operating Losses and Excess Business Loss Limitation
Net operating losses (NOLs) generated in 2025 are limited to 80% of taxable income and are not permitted to be carried back. Any unused NOLs are carried forward subject to the 80% of taxable income limitation in carryforward years.
A non-corporate taxpayer may deduct net business losses of up to $313,000 ($626,000 for joint filers) in 2025. A disallowed excess business loss (EBL) is treated as an NOL carryforward in the subsequent year, subject to the NOL rules. With the passage of the Inflation Reduction Act, the EBL limitation has been extended through the end of 2028.
Foreign Bank Account Reporting
The IRS has become increasingly aggressive at tracking down individuals who have not reported foreign bank accounts. If you have an interest in a foreign bank account, it must be disclosed. Failure to do so carries stiff penalties.
You must file a Report of Foreign Bank and Financial Accounts (FBAR) if:
- You are a U.S. resident or a person doing business in the United States;
- You had one or more financial account that exceeded $10,000 during the calendar year;
- The financial account was in a foreign country; and
- You had a financial interest in the account or signatory or other authority over the foreign financial account.
These are just some of the year-end tax planning strategies that could potentially benefit you. Please contact us if you have questions, want more information, or would like us to assist with year-end planning.
Sincerely,
WellsColeman
5004 Monument Ave
Richmond, VA 23230
T: 804.249.3328