New Tax Law Changes For 2025 & What They Mean for Your Planning

As part of recently enacted federal tax legislation, several important updates are taking effect over the next few years. Many of these changes impact retirees or those approaching retirement, and we wanted to highlight the provisions most relevant to our clients.

Overall, the new law makes many of the 2017 tax rules permanent, introduces a few temporary tax benefits, modifies itemized deductions, and significantly expands the federal estate tax exemption starting in 2026. Below is a summary of what’s changing and how it may affect your planning.

1. Federal Income Tax Rates Remain Largely the Same

The new legislation makes the current tax bracket system permanent. This means:

• The current seven tax brackets—10%, 12%, 22%, 24%, 32%, 35%, and 37%—will remain in place.
• The higher standard deduction introduced in 2017 is now permanent and continues to be inflation-adjusted.
• Personal exemptions remain eliminated.

What this means for you:
Most retirees will continue to fall within the same familiar tax brackets. The “scheduled” 2026 tax increase is no longer happening under current law.

2. New Temporary Deduction for Taxpayers Age 65+

A major change for retirees is the introduction of a new temporary senior deduction:

• Available from 2025 through 2028
• Adds $6,000 per taxpayer age 65 or older
• Married couples where both spouses are 65+ may receive $12,000 total
• Applies whether you itemize or take the standard deduction
• Begins phasing out at $75,000 of income for single filers and $150,000 for joint filers

Why it matters:
For many retirees, this can reduce taxable income enough to lower Social Security taxation or offset IRA withdrawals.

Planning point:
We will continue to help you monitor your income levels to help you preserve this deduction where appropriate, using tools such as Qualified Charitable Distributions (QCDs), strategic IRA withdrawals, tax-advantaged accounts, and Roth conversion planning.

3. SALT Deduction Increased Temporarily

For clients who pay state income taxes, this change is meaningful.

• The deduction for state and local taxes (SALT) increases from $10,000 to $40,000
• Applies for tax years 2025 through 2029
• Begins phasing down for incomes above $500,000
• Scheduled to revert back to $10,000 in 2030 unless extended

Why it matters:
More clients will be able to itemize deductions again, especially those paying NYS income tax and property taxes. This may reduce overall federal tax liability in the coming years.

4. Charitable Giving Changes Beginning in 2026

Two notable updates begin in 2026:

• A new above-the-line charitable deduction of $1,000 for single filers or $2,000 for joint filers, available even if you take the standard deduction.
• High-income taxpayers will see itemized deduction benefits capped at a maximum 35% tax benefit.

Why it matters:
Retirees who consistently donate—even without itemizing—will now receive some tax benefit. Larger donors may want to continue exploring donor-advised funds or gifting strategies.

5. Retirement Planning Impacts

While the new law does not change RMD ages or SECURE Act rules, it does influence retirement planning strategy:

Stable Tax Brackets = More Flexibility

With tax brackets now permanent under current law, Roth conversions no longer face a 2025 “deadline.” Instead, planning becomes more about optimizing brackets over many tax years and managing Medicare IRMAA thresholds.

QCDs Become Even More Valuable

QCDs remain one of the most effective tools for retirees to:

• Satisfy RMDs
• Reduce taxable income
• Lower Medicare premium surcharges (IRMAA)
• Help preserve the new senior deduction

We will continue evaluating this strategy annually for eligible clients.

6. Estate & Gift Tax Changes Starting in 2026

Beginning in 2026:

• The federal estate and gift tax exemption increases to $15 million per person (or $30 million for married couples)
• The exemption will adjust annually for inflation
• The top estate tax rate remains 40%

What this means:
Many families who were previously concerned about the projected 2026 reduction in the exemption will now fall well below the federal estate tax threshold.

However, New York State estate tax rules remain unchanged and still includes the “cliff,” so state-level estate tax planning remains important.

7. Additional Provisions That May Affect Some Clients

While the following updates may not apply to everyone, they are worth noting:

Tax-Free Tips (2025–2028)

• Up to $25,000 of eligible tips may be excluded from taxable income.
• Applies to individuals working in traditionally tipped industries.

Tax-Free Overtime Pay (2025–2028)

• The “premium portion” of overtime pay may be excluded from tax
• Up to $12,500 for single filers or $25,000 for joint filers
• Subject to income phaseouts

Car Loan Interest Deduction (2025–2028)

• Deduct up to $10,000 of interest on loans for new vehicles
• Vehicle must be assembled in the United States
• Income limits apply

Wind-Down of Energy & EV Credits

• Clean vehicle and many residential energy-efficiency credits expire after 2025

New Government-Funded Child Accounts (2025–2028)

• Children born during these years receive a $1,000 seeded account
• Additional IRA-style accounts are available for children born outside these years, not pre-funded, but with the same tax benefits.
• The program is active under federal law, but financial institutions are expected to begin offering these accounts starting July 2026 once Treasury finalizes guidance.

We will continue incorporating these tax-law changes into your financial plan. As always, if you have questions about how any of these updates may impact you, please reach out. We’re here to help you navigate these changes and make thoughtful, informed financial decisions.

Canty Financial Management