Tag: tax-planning

Financial Insights: Navigating Tax Breaks in 2025

January 3, 2025

As we step into 2025, it’s crucial to stay informed about the tax breaks available across different income brackets and for businesses. This edition of “Financial Insights” will cover the tax breaks for the top one percent, middle class, and lower class, as well as those for businesses. We’ll also discuss the tax breaks that are set to expire and provide an outlook on the potential changes under a new presidential administration.

Tax Breaks for the Top One Percent

The top one percent of earners benefit from several tax breaks, including lower rates on capital gains and dividends, and various deductions and credits. The Tax Cuts and Jobs Act (TCJA) of 2017 significantly reduced the tax burden for high-income earners, with the top marginal tax rate dropping from 39.6% to 37%. However, many of these provisions are set to expire after 2025, potentially increasing the tax rates back to pre-TCJA levels2.

Tax Breaks for the Middle Class

Middle-class taxpayers have access to several tax breaks designed to ease their financial burden. These include the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and deductions for mortgage interest and state and local taxes (SALT). The TCJA also doubled the standard deduction, which has been beneficial for many middle-class families2. However, like the benefits for the top one percent, these provisions are also set to expire after 2025.

Tax Breaks for the Lower Class

Lower-income earners benefit from tax credits such as the EITC and the CTC, which can significantly reduce their tax liability. The American Rescue Plan Act (ARPA) temporarily expanded these credits, but these expansions are set to expire, potentially reducing the benefits available to lower-income families1.

Expiring Tax Breaks

Several key tax provisions are set to expire after 2025, including the lower individual income tax rates, the doubled standard deduction, and the expanded CTC. Unless Congress acts to extend these provisions, taxpayers could see higher tax rates and reduced deductions starting in 2025.

Tax Breaks for Businesses

Businesses can take advantage of various tax breaks, including deductions for salaries and wages, health insurance, and retirement plan contributions. The TCJA also introduced a 20% deduction for qualified business income, which has been beneficial for many small businesses2. However, this provision is also set to expire after 2025.

Outlook Under a New Presidential Administration

With the recent election of President Donald Trump for a second term, we can expect potential changes to the tax code. President Trump has proposed lowering the corporate tax rate from 21% to 20% and introducing new individual tax breaks, such as exempting Social Security payments from federal taxation. However, the exact details of these changes remain uncertain, and taxpayers should stay informed about potential legislative developments8.

In conclusion, staying informed about the available tax breaks and upcoming changes is crucial for effective financial planning. As we move forward, “Financial Insights” will continue to provide updates and guidance to help you navigate the evolving tax landscape.

Financial Insight Newsletter

December 19, 2024

The Corporate Transparency Act and Your Small Business

The Corporate Transparency Act (CTA) was enacted to combat money laundering and terrorist financing by requiring small businesses to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This law aims to close loopholes that allow criminals to hide their identities using shell companies2.

How It Works:

  • Small businesses must report information about individuals who own at least 25% of the company or exercise substantial control over it.
  • The required information includes the beneficial owner’s name, date of birth, address, and an identifying number from a government-issued ID.

Pros:

  • Enhances transparency and accountability in business operations.
  • Helps prevent illegal activities such as money laundering and terrorism financing.
  • Levels the playing field for law-abiding businesses.

Cons:

  • Imposes additional administrative burdens and costs on small businesses.
  • Raises privacy concerns due to the disclosure of personal information.

Impact on Different Economic Classes:

  • Rich: May face increased scrutiny and compliance costs but can afford the administrative burden.
  • Middle Class: Small business owners may struggle with the additional costs and administrative requirements.
  • Poor: Limited impact as they are less likely to own businesses affected by the CTA.

Health Care Costs in Retirement: Are You Prepared?

Health care costs in retirement can be a significant financial burden. It’s essential to plan ahead to ensure you have enough savings to cover these expenses.

How It Works:

  • Health care costs include premiums, deductibles, prescriptions, and out-of-pocket expenses.
  • Medicare provides coverage starting at age 65, but it doesn’t cover all expenses.

Pros:

  • Planning ahead can help you avoid financial stress in retirement.
  • Utilizing Health Savings Accounts (HSAs) can provide tax advantages and help cover medical expenses.

Cons:

  • Rising health care costs can be unpredictable and challenging to budget for.
  • Medicare coverage gaps may require additional insurance or out-of-pocket spending.

Impact on Different Economic Classes:

  • Rich: Better positioned to cover rising health care costs and can afford supplemental insurance.
  • Middle Class: May face financial strain if not adequately prepared for health care expenses.
  • Poor: Likely to rely more on government programs like Medicaid, which may not cover all needs.

Tax-Smart Ways to Gift Highly Appreciated Assets

Gifting highly appreciated assets can be a tax-efficient way to transfer wealth to family members or charities while reducing your tax burden.

How It Works:

  • You can gift appreciated assets such as stocks or real estate directly to family members or charities.
  • This allows you to avoid capital gains taxes on the appreciation and potentially reduce your taxable estate.

Pros:

  • Reduces your taxable estate and potential estate taxes.
  • Provides financial support to family members or charitable organizations.
  • Avoids capital gains taxes on appreciated assets.

Cons:

  • Gifting assets to family members may result in them paying capital gains taxes when they sell the assets.
  • Complex tax rules and potential changes in tax laws require careful planning.

Impact on Different Economic Classes:

  • Rich: Can significantly reduce estate taxes and provide substantial gifts to heirs or charities.
  • Middle Class: May benefit from tax savings but need to carefully plan to avoid unintended tax consequences.
  • Poor: Less likely to have highly appreciated assets to gift, so the impact is minimal.

By understanding these financial topics and their implications, you can make informed decisions to secure your financial future. We encourage you to share your thoughts and experiences with us. How do you feel about these issues, and what steps are you taking to prepare for them? Let us know in the comments below!