2025 Tax Year Changes: What Individuals and Business Owners Should Know

Key Takeaways:

• The SALT deduction cap will quadruple to $40,000 for the 2025 tax year. Those who own homes in high-tax states, including California, may benefit.

  • Catch-up contributions increased in 2025 for employees between ages 60 and 63 who are enrolled in eligible retirement plans.

• Understanding the complexity of changes to the tax code is challenging. Consulting with a wealth manager can help ensure that your wealth strategy is current, integrated, and forward-looking.

The passage of the “One Big Beautiful Bill Act” (OBBBA) in July 2025 changed elements of the tax code that are particularly relevant for high-net-worth individuals and business owners. OBBBA made permanent several Tax Cuts and Jobs Act (TCJA) provisions that were set to expire this year. Separately, as mandated by the 2022 passage of the SECURE ACT 2.0, eligible individuals can make super catch-up retirement contribution limits starting in 2025.

The list below includes changes in contribution limits, tax brackets, and other thresholds that are useful for financial planning in 2025. For detailed and personalized advice, it's recommended to consult a financial advisor or tax professional.

State and Local Tax (SALT) Deductions

1. Increased SALT deduction cap for eligible taxpayers: OBBBA raises the federal SALT deduction cap from $10,000 to $40,000 for 2025. Those files who itemize deductions and are homeowners in high-tax states may benefit from the increased SALT deduction.

Retirement

2. Super catch-up contributions: Individuals turning ages 60–63 in 2025 will be able to make catch-up contributions of up to $11,250 for eligible retirement plans, a significant increase from the standard $7,500 catch-up.

3. Limits for 401(k), 403 (b), and other employer-sponsored retirement plans: The contribution limit for 401(k) plans has been raised to $23,500 (up from $23,000 in 2024), with the catch-up contribution staying at the same $7,500 cap for those aged 50-59.

4. Income Limits for Roth IRA Contributions: For single filers or heads of households, the phase-out range for Roth IRA contributions is between $150,000 and $165,000. For married couples filing jointly, the range is $236,000 to $246,000.

Brackets and Estate Planning

5. Income Tax Brackets and Rates: The seven tax rates established by the TCJA are now permanent. For single filers, the 10% tax rate applies to incomes of $0–$11,925, and the top 37% bracket applies to income over $626,350. High income earners might take note that $197,300 is the threshold for moving from the 24% to 32% tax bracket for single filers or head of households. For joint filers, that threshold amount is $394,600.

6. Planning and Gift Tax: The lifetime gift and estate tax exclusion for 2025 is $13,990,000 per individual. OBBBA makes the higher lifetime exemption permanent and increases it to $15 million per individual in 2026. The 2025 annual gift tax exclusion is $19,000 per recipient.
   

Key Highlights for Business Owners

7. Deduction for pass-through business income becomes permanent: The OBBBA made the temporary TCJA deduction for pass-through business income permanent, allowing business owners to continue to deduct up to 20% of qualified income received from their business. 

8. Depreciation of eligible capital expenses: Under the OBBBA, full bonus depreciation for qualifying business assets acquired and placed into service after January 19, 2025, is permanent. Business owners may deduct the entire cost of eligible purchases in the first year the assets are acquired and put into use, rather than depreciating the assets over time. This can significantly reduce a business’s taxable income in the year of purchases and potentially free up cash flow for a business.

If you’re wondering how these provisions may affect your financial plans, please reach out. KW Wealth Management is happy to help you plan ahead and navigate these changes with confidence.

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This article was created with information sourced from irs.gov and shrm.org

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