7 Upcoming Tax Changes You Need to Know

tax changes

What Tax Changes Can You Expect in the Coming Years?

  1. Individual taxes will be going up. At the end of 2025, the individual tax rates are going to go back to the 2017 levels. The top tax rate will be going up to 39% from 37%.
  2. Standard deductions are being cut in half at the end of 2025. Right now, if you’re married or filing jointly, you get a standard deduction of $26,000. That deduction gets cut in half, not only for those filing jointly but for individuals as well.
  3. Pass-through deductions are going away. Right now, if you’re a pass-through business like a partnership or S Corp, you can take a 20% deduction off your income immediately before it passes through to your individual tax return. This is going away at the end of 2025.
  4. Bonus depreciation is decreasing. You used to be able to depreciate a million dollars of your first year equipment, software or hardware. That number has gone down to 80% and next year in 2024 will be going down to 60%. This means you should buy capital equipment this year to get a bigger tax deduction.
  5. The Work Opportunity Tax Credit is expiring after 2025. Right now you can apply this tax credit against your income up to $9,600 if you hire someone off of welfare or who is out of the military. And if you’re helping employees with student loans, that credit is also going away in 2025.
  6. You can no longer immediately deduct research and development taxes. You have to amortize them over five years.
  7. Estate tax exemptions are being cut in half by the end of 2025. So if you’ve built up assets over time, your estate taxes could go up significantly unless you shelter them now in trusts.

Transcript

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Gene (00:02):

Hey everybody, it’s Gene Marks and welcome to this week’s edition of the Hartford Small Biz Ahead podcast. Thank you so much for joining me. I wanna talk a little bit about taxes with you this week. And by the way, I mean, I’m an accountant, so there’s gonna be a, I’m gonna be talking about taxes a lot with you over the next however many years. So, but this is, this is a topic that you need to start being aware of because remember, my smartest clients, the smartest businesses that I work with, they’re always thinking ahead. They’re always looking to the future. So let’s think ahead together, because there are some big changes in taxes that are coming on the horizon that are going to impact your business. Some of them are already happening now. Some of them are gonna be happening in 2024 and 2025.

Gene (00:44):

And you need to be thinking ahead about this because taxes take a giant bite out of your income. So these are some things that you should be talking about with your accountant. For example, at the end of 2025, and I realize we’re getting into 2024 now, so it’s not that long from now. The individual tax, first of all, let me take a step back. A lot of these changes have to do with the 2017 Tax Act, that was passed under the Trump administration. That tax act had a lot of provisions and benefits for individuals and small businesses, and a lot of the provisions of that tax act are starting to expire. So now, let me explain what I mean. At the end of 2025, individual tax rates are gonna go back to the 2017 levels with the top tax rate going up to close to 39%.

Gene (01:33):

Right now it’s at 37%. So if you’re earning more than say $450,000 a year, that could impact you. You’re gonna be paying a lot more in taxes after 2025. So you might want to be thinking about that when you, if you can accelerate income into lower tax periods. The standard deduction that we’re using right now, if you’re married and filing jointly on your tax return, you get a standard deduction of close to $26,000 just right off the top of whatever expenses that you have. Well, that deduction gets cut in half, not only for married filing jointly, but also for individuals as well. And that happens at the end of 2025. So we really have two more years left, 2024 and 2025 of enjoying that standard deduction before really it gets cut completely in half. And that could have a big impact on your taxes. If you’re running a pass through business, so you’re a partnership or an S corporation, you’ve been enjoying this thing called the qualified business income deduction. You take a 20% deduction off of your income immediately before it passes through to your individual tax return. It’s been a huge benefit to tons of pass through businesses around the country. That deduction goes away at the end of 2025, so we only have…

Gene (02:59):

Two more tax years left where we can take advantage of that deduction, and that could have a giant impact on your taxes. And if there’s bonus depreciation, that has already started to decrease. It used to be that you could depreciate approximately a million dollars of your first year purchases of equipment that you would buy, as well as software and hardware. Well, in 2023 this year, that number has gone down to 80%, which means you can only deduct 80% of that number immediately. The rest has to be depreciated over the life of the asset. Next year in 2024, it goes down to 60%. So if you are buying capital equipment, my advice to you, if you’re listening to this now and there’s still time left in 2023, buy capital equipment this year, you will get a much bigger tax deduction by doing that.

Gene (03:55):

Some other things that are changing over the next two years, there’s something called the Work Opportunity Tax Credit. It’s an amazing credit against your income up to $9,600. If you hire somebody that’s off of welfare or who is out of the military, or somebody that’s been unemployed for a long time, that tax credit expires at the end of 2025. So it’s a disincentive for hiring after that. you want to take advantage of those hiring these people beforehand. If you are helping your employees out with their student loans, you can do that and take a tax deduction for doing that of up to $5,250 per employee. That goes away at the end of 2025. Research and development expenses has already changed. That started last year. Now you can no longer immediately deduct R&D expenses. You have to amortize them over five years.

Gene (04:54):

So that’s already started right now, and there’s some attempts in Congress to change all of that. And finally, there are estate taxes. Estate tax exemption is being cut in half. It’s gonna go back to about six to $7 million of your assets, by the end of 2025. Right now it’s like 12 million, which means that if you’ve built up assets over time, your state taxes could significantly go up unless you take some actions now and shelter them in trusts because those, this state tax rates are gonna be going up significantly at the end of, after 2025. So let me recap. Big changes in your taxes, individual tax rates going up, standard deductions being cut in half, your pass through deduction is going away. That’s all happening at the end of 2025. Bonus depreciation has already started to go away. Credits for work opportunity and student loan deduction that’s going away. R&D expense deduction is already going away.

Gene (05:57):

Is state taxes significantly going up after 2025? All these things impacting you and it’s not that far away. So my advice to you is you should be talking to your accountant now, planning out what could or could not happen. But the bottom line is, is that taxes take a huge bite of your income, and there are significant changes coming to taxes over the next couple of years, and you need to be aware and take action now. My name is Gene Marks, and you have been listening to the Small Biz Ahead podcast from The Hartford. Hope you got some good information from this. If you need any other advice or information or tips in helping you to run your business, please visit us at smallbizahead.com or SBA.thehartford.com. Trust me when I tell you I’m gonna be back with more tax advice over the next couple of years, but this will definitely get you started. Again, my name is Gene Marks. Thanks for listening. I’ll be back next week with some tips to help you run your business. Take care.