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More taxes,  Less Tax Credit after 2025

As the clock strikes midnight on December 31, 2025, a deluge of tax adjustments will cascade upon the majority of Americans with the conclusion of the Trump tax reductions after 2025.

Once the clock strikes midnight on the Tax Cuts and Jobs Act of 2017 (TCJA), its major provisions will fade into the shadows unless Congress takes action to prolong them. An array of tax aspects, from brackets and rates to credits and deductions, are at stake. Should these TCJA elements sunset, their repercussions will be felt far and wide by individuals and families alike.

In light of potential upcoming changes, RapidTax dedicated tax professionals emphasize the importance of being proactive and taking necessary measures to avoid unexpected tax implications in the future.

It is undeniable that alterations in tax deductions and tax credits will impact individuals in varied ways. Higher tax rates will be uniform across the board, affecting everyone.

tax after 2025

Why Are Higher Taxes After 2025?

Implemented under the leadership of President Donald Trump, the Tax Cuts and Jobs Act (TCJA) reduced tax rates for all income levels and altered the boundaries of various tax brackets. While the extent of tax reductions varied among individuals, experts in taxation noted that nearly everyone experienced some level of financial benefit from the changes.

Consider this scenario: In 2017, a married couple with a total income after deductions of $250,000 faced a 33% tax rate, which decreased to 24% by 2024. Similarly, an individual earning $39,000 in taxable income in 2017 had a top tax rate of 25%, which then dropped to 12% in 2024. Those in the highest tax bracket saw their rate decrease from 39.

Taxes May Revert to Rates Before the 2017 TCJA Taxes.

One way Americans can reduce their tax burden is by capitalizing on the current lower tax rates. A strategic approach could involve accelerating income into the upcoming years of 2024 and 2025. Retirees, for instance, may find it beneficial to withdraw a bit more than their mandated minimum distributions during these specific years.

According to him, some individuals might view a Roth conversion as a strategy to reduce costs by taking advantage of current lower tax rates and avoiding taxes upon withdrawing from Roth accounts.

If you foresee a potential increase in your tax rate, it may be advantageous to reassess the timing of deductions. Postpone claiming deductions such as charitable donations and retirement contributions to reduce your taxable income in the coming years, particularly from 2026 onwards.

Less Child Tax Credit After 2025

In light of recent tax reforms, the TCJA ended the personal exemption previously granted for every dependent under the age of 17. However, it also doubled the child tax credit to $2,000 per individual.

Should Congress fail to take action before 2025 concludes, the child tax credit will return to its previous amount of $1,000 for each child under the age of 16. The credit would be both refundable and gradually introduced, with the initial threshold being $3,000 in earned income.

In the recent legislative session, the House approved a bill to enhance the child tax credit under Republican leadership. The proposed changes involved a gradual rise in the refundable segment throughout 2023 to 2025, along with provisions to align the tax credit with inflation from 2024 onwards.

In light of the proposed changes, work obligations will still apply. Yet, families with limited income who are exempt from paying income taxes could now receive a refund of up to $1,800 from the $2,000 per child tax credit, a notable increase from the existing $1,600. This refund amount is anticipated to increase to $1,900 by 2024 and ultimately reach $2,000 by 2025. 

Regrettably, the bill never faced a vote in the Senate, resulting in a standstill for the proposed legislation.

Itemize Your Expenses

Following the implementation of Trump’s tax cuts, there was a significant increase in the standard deduction, effectively lowering individuals’ taxable income and enabling more people to take advantage of it instead of itemizing their tax deductions.

In addition to raising the standard deduction, the TCJA made the decision to remove the personal exemption of $4,050 per individual. Although the elimination of personal exemptions somewhat balanced out the benefits of the higher standard deduction, overall, the Tax Policy Center noted that this change resulted in a rise in the taxable income threshold for 2018, ultimately benefiting taxpayers.

If this provision expires, the standard deduction will be reduced, personal exemptions will be reintroduced, and individuals will be more likely to opt for itemizing their tax returns once again.

Andrew Lautz, associate director of the Economic Policy Program at the Bipartisan Policy Center, emphasized that Americans will swiftly notice the impact of increased tax rates and reduced standard deductions in 2026 in their paychecks.

Calculating withholding amounts involves predicting your income and applying the tax rate to that income. This calculation assumes you will opt for the standard deduction, the value of which may decrease if the YCJA legislation lapses.

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Unexpected Tax Deductible Expenses

Exploring beyond the familiar tax deductible expenses such as mortgage interest and charitable donations can uncover a multitude of lesser-known expenses that have the potential to reduce your tax bill and boost your refund when you file your taxes. While commonly recognized deductions can be beneficial, there exist various lesser-known deductions that might come as a surprise and offer additional savings. Discovering these unconventional tax deductions could make a significant difference in how much you pay in taxes.

Tax Deductible Sales Taxes

When considering tax deductions, individuals who itemize expenses can tax deduct either local or state income taxes paid or the state and local sales taxes paid during the year. Depending on the tax laws in certain states and years, it could be more beneficial to list your deductions instead of opting for the standard deduction.

Residents living in states without income tax or individuals who have made substantial purchases subject to sales tax may find this deduction to be incredibly beneficial.

Consider this scenario: after a significant purchase, such as a car or an engagement ring, you have the opportunity to deduct sales taxes from your federal tax return. Furthermore, residing in a state without a state income tax means you can claim the sales tax you’ve paid during the year as a deduction.

Tax Deductible

Tax Deductible Medical Expenses

When it comes to medical costs, there are opportunities for tax deduction based on your adjusted gross income. If you choose to itemize your tax deductions, you can tax deduct medical expenses that surpass 7.5% of your AGI. Additionally, self-employed individuals can deduct their health insurance premiums in full. This deduction is applicable if you do not have any other health insurance coverage. Remember, the deduction is limited to the amount of business income generated during that specific year.

Tax Deductible Student Loan Interest

When it comes to managing student loan interest, a helpful tax deduction is available for those responsible for repaying student loan debt. This deduction allows individuals to deduct up to $2,500 of interest paid. However, if the student loan debt is covered by a third party, such as parents, the situation becomes more nuanced. In such cases, the money parents contribute towards the loan is considered a gift to the student.

Tax Deductible College Expenses

When it comes to college costs, many are aware of the deduction available for tuition and fees. However, there are other educational expenses that you may be able to tax deduct as well. This encompasses expenses for workshops, seminars, and specific textbooks and supplies. Furthermore, in some states, you might be eligible to deduct the contributions you make to your 529 College Savings Plan.

Home Office Tax Deduction

When it comes to claiming the Home Office Deduction, it’s important to remember that only spaces in your home exclusively used for business purposes can qualify for a tax deduction of $5 per sq foot, with a maximum of 300 sq feet, which is maximum of $1500 home office tax deduction.

Child & Dependent Care

Assistance with Child and Dependent Care can offer tax benefits to individuals who hire a caregiver to look after their children or elderly parents while they pursue employment, seek job opportunities, or engage in full-time education. This may qualify them for the Child and Dependent Care Credit, provided that the caregiving is conducted for dependents living with them.

Special State Tax Deductions

When it comes to tax deductions, each state may have its own unique offerings. Consider, for instance, that Hawaii provides a special tax break for individuals who care for an “Exceptional Tree,” such as the native Norfolk Pine. This particular deduction can amount to as much as $3,000 per tree and is eligible for claim every three years.

In Alaska, a unique provision grants a deduction of up to $10,000 to help cover the expenses associated with traditional whaling practices where whales are hunted for their blubber and skin to support the local community. Similarly, residents in New Mexico can be exempt from state income taxes upon reaching the age of 100, provided they have been a resident for at least six months prior.

Tax Relief for Taxpayers

Assistance with Taxation for Individuals. The uniqueness of each tax situation is worth noting. Numerous deductions and credits are available to taxpayers for inclusion on their federal or state tax filings.

When it comes to maximizing your tax benefits, it’s essential to consult with a tax advisor to determine the tax deductions and tax credits you qualify for and the supporting documents required for claiming them. It’s crucial to note that attempting to claim deductions without adequate substantiation may result in tax audits and delays in processing your tax return.

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How Life Events Can Save You Money from Tax Savings

Experiencing significant life milestones like getting married recently or buying your first home can lead to a myriad of uncertainties and inquiries. While you may be pondering how these pivotal moments impact your financial situation, rest assured that they can also yield tax savings opportunities.

Embarking on the journey of marriage, becoming a homeowner, welcoming a new addition to the family – these pivotal milestones have the potential to bring about tax savings when the time comes for tax filing.

Getting Married

If you have recently tied the knot or are contemplating marriage this year, chances are you are aware of the significant financial commitment involved. Despite the hefty price tag associated with weddings, one silver lining of getting married is the potential for increased tax benefits compared to when you were unmarried.

With marriage joining your lives, you and your partner can now combine your tax returns under the status of married filing jointly. This status may result in decreased tax obligations compared to when you were filing individually, thanks to the more favorable federal tax rates provided to married couples filing jointly.

In many cases, married individuals can enjoy tax benefits. If a couple ties the knot on the last day of the year, they are deemed married for the entire year and can take advantage of the various perks that come with marriage.

Choosing to file jointly as a married couple opens the door to potentially increased tax deductions and tax credits. One notable enhancement is the larger standard deduction available for the 2024 tax year.

In the upcoming tax year, individuals filing as single will see a boost in the standard deduction to $14,600, while those filing jointly as married will enjoy an increased deduction of $29,200. Moreover, married couples filing jointly in 2024 can benefit from an EITC (Earned Income Tax Credit) of up to $7,830 with three children.

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Buying a New Home

Making the decision to become a homeowner brings about significant life changes and presents an opportunity for substantial tax savings. The costs associated with a mortgage and property taxes can be quite substantial. Still, for those who have recently bought a home or are contemplating the idea, there is potential to lower tax liabilities by deducting mortgage interest and property taxes when itemizing deductions on Schedule A.

Having a Child or Children

If you welcomed a new member to your family this past year, I extend my warm congratulations! Amidst the happiness and thrill that comes with having a child, you might now be contemplating the financial aspects of caring for your little one.

Great news! Your family can now take advantage of additional tax deductions and tax credits. When you welcome a new baby, you become eligible for various tax benefits, such as the Child Tax Credit and the Child and Dependent Care Credit if you incur child care expenses.

Child Tax Credit:

  • Each dependent or a child must be under 17
  • Up to $2,000 for the tax years from 2022 to 2025 
  • If you are a single filer with an income of $200,000 or less or a married couple filing jointly with a combined income of $400,000 or less, you may be eligible for the Child Tax Credit.

Child and Dependent Care Tax Credit:

When considering tax credits for childcare expenses, you may qualify for a tax credit of up to 35% of eligible expenses. This Child Care Tax Credit applies to up to $3,000 of expenses for one child or $6,000 for two or more children.

Once your adjusted gross income surpasses $15,000, the tax credit begins to decrease, dropping to a minimum of 20% instead of the usual 35%. This adjustment highlights how welcoming a new addition to the family can lead to a significant tax benefit.

Experiencing life transitions can evoke a mix of emotions, from excitement and hope to confusion and costliness. However, amidst the whirlwind, it’s worth noting that these transitions often come with significant tax advantages.

Rest assured that you don’t need to stress about understanding the intricate tax regulations. Regardless of the financial decisions you made in the past year, the experts at Rapid Tax dedicated Tax Professional will ensure that they are accurately reflected in your tax filing. Whether you prefer to handle your taxes independently or have one of our seasoned professionals assist you, we are committed to maximizing your refund and ensuring you receive every entitlement you are due, which is guaranteed.