2025 Year End Financial Planning: Tax Law Sunsets and Key Changes to Prepare For

by Babak Gahvari

As 2025 comes to a close, we thought it could be helpful to recap the legislative changes that may affect your financial household and review strategies that might be impactful for your personal 2026 financial planning. 2025 has been a pivotal year, as the previous Tax Cuts and Jobs Act of 2017 was set to sunset at the end of the calendar year. Earlier this year, however, Congress passed the One Big Beautiful Bill Act, which extended or made permanent many of the TCJA provisions. With only a few weeks remaining, here are the highlights of what is coming in 2026 and how you could use these provisions for your own personal financial planning strategies. As always, we suggest speaking to your tax and investment professional to ensure accuracy and application to your own personal financial situations.

1. Most TCJA Individual Tax Cuts Are Extended or Made Permanent

Rather than letting the individual tax provisions expire at the end of 2025, the One Big Beautiful Bill Act keeps key elements in place. As of the bill’s signing on July 4^th,2025, the following is a highlight of the tax bracket revisions. 

• Current individual income tax brackets of 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent remain unchanged and permanent.
• Standard deduction levels continue at their higher amounts instead of reverting to pre TCJA levels.

These changes prevent what would have been across the board tax increases for many taxpayers.

2. SALT Deduction Cap Increased Temporarily Through 2029

The state and local tax deduction cap was raised.

• Up to $40,000 for tax years 2025 through 2029, after which it reverts to $10,000 in 2030 absent new legislation.
• The deduction phases down for higher income taxpayers beginning around $500,000 of modified adjusted gross income.
  This change is particularly impactful for residents of higher tax states.

3. New Senior Deduction

A new $6,000 deduction for taxpayers age 65 and older, or up to $12,000 if married filing jointly, is available for tax years 2025 through 2028.

• The deduction phases out as income rises above certain thresholds.
  This provision is especially meaningful for retirees and those with mixed retirement income.

4. New Deductions for Workers

Several new work income deductions were created for tax years 2025 through 2028.

• No Tax on Tips deduction. Qualified tipped workers in occupations that customarily receive tips may deduct up to $25,000 of qualified tip income from federal taxable income.
• No Tax on Overtime deduction. Nonexempt employees who earn overtime pay as required by the Fair Labor Standards Act may deduct the premium portion of overtime pay, up to $12,500 for single filers or $25,000 for joint filers.
• Auto loan interest deduction. Individuals who purchased a new United States assembled vehicle for personal use after December 31, 2024 may deduct up to $10,000 in annual loan interest.

5. Key Tax Credits and Benefits for Children

The One Big Beautiful Bill Act introduced or enhanced several significant tax benefits for families, primarily in the form of tax credits, which reduce tax liability dollar for dollar.

• Child Tax Credit. For tax year 2025, typically filed in early 2026, the maximum credit increased to $2,200 per qualifying child under age 17, up from $2,000 in 2024. The credit is partially refundable, with the maximum refundable portion being $1,700 per child. The credit begins to phase out for single filers with modified adjusted gross income over $200,000 and for married couples filing jointly over $400,000.
• Trump Savings Accounts. The Act creates a new type of tax deferred savings account for children. For United States citizens born between 2025 and 2028, the federal government will make a one time $1,000 initial contribution to an eligible account. Parents and others may contribute up to $5,000 annually using after tax dollars. These accounts grow tax deferred and funds generally cannot be withdrawn until the child reaches age 18, at which point rules similar to traditional IRAs apply.
• Adoption Tax Credit. For tax year 2025, families may claim an adoption credit of up to $17,280 per child. A portion of this credit, up to $5,000, is refundable.
• Child and Dependent Care Credit. For 2025, taxpayers may continue to claim a credit for qualified childcare expenses up to $3,000 for one child or $6,000 for two or more children.
• Expanded 529 plan use. Qualified withdrawals from 529 education savings plans remain tax-free. Beginning in 2026, qualified expenses expand to include additional K through 12 education costs up to $20,000 annually, as well as certain certification and licensing programs.
  Eligibility for these benefits depends on income and other requirements. Reviewing IRS guidance or working with a tax professional can help determine applicability.

6. Estate and Gift Tax Changes

The One Big Beautiful Bill Act made significant changes to the federal estate and gift tax framework.

• The lifetime estate and gift tax exemption increases to $15 million per individual beginning in 2026, or $30 million for married couples, with annual inflation adjustments thereafter.
• The prior sunset provision that would have reduced the exemption in 2026 was removed.
• The top federal estate tax rate remains at 40 percent, and the step up in basis for inherited assets remains unchanged.

7. Retirement Savings Limits for 2026

For 2026, retirement contribution limits increase across several account types.
401k, 403b, 457b, and Thrift Savings Plan

• Employee deferral limit increases to $24,500.
• Age 50 and older catch up contribution is $8,000, for a total of $32,500.
• Ages 60 through 63 may be eligible for enhanced catch up contributions of up to $11,250 if permitted by the plan.
• Total employer and employee contribution limit increases to $72,000.
• Beginning in 2026, individuals with prior year earnings over $150,000 must make catch up contributions on a Roth after tax basis.
  Individual Retirement Accounts
• Contribution limit increases to $7,500.
• Age 50 and older catch up contribution is $1,100.
• Income phase outs for deductibility and Roth eligibility adjust upward.
  SIMPLE IRA
• Contribution limit increases to $17,000.
• Age 50 and older catch up contribution is $1,000, with higher limits available for certain participants under SECURE Act 2.0 rules.
  SEP IRA
• Contribution limit remains 25 percent of compensation, capped at $72,000.

Key Planning Considerations

• Roth conversions and tax efficient retirement strategies may be planned with greater predictability due to extended tax provisions.
• Higher SALT limits may affect whether itemizing deductions makes sense.
• New deductions for tips, overtime, and auto loan interest create additional year end planning opportunities.
• The senior deduction and Trump Savings Accounts introduce new considerations for retirees and families.
• The annual gift tax exclusion remains $19,000 per recipient for 2025 and 2026.
• Federal changes do not impact state estate or inheritance tax rules.
• Even with a higher exemption, lifetime gifting remains a valuable planning tool as future laws may change.

Disclosures:

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