Tax Changes and Financial Planning in 2025: Insights from an Enrolled Agent

Understanding upcoming tax code changes is essential for effective financial planning. Recently, we spoke with Enrolled Agent Alex Poe about significant changes to the Tax Cuts and Jobs Act, strategic planning for businesses and individuals, and state-specific tax considerations. Here's what you need to know to prepare financially for the year ahead.

The Tax Cuts and Jobs Act (TCJA), implemented in 2018, is scheduled to expire at the end of 2025. While there is strong indication that Congress will extend many provisions, several key components may change:

Qualified Business Income (QBI) Deduction: This provision allows eligible small businesses to deduct 20% of their income, effectively reducing taxable income from $100,000 to $80,000 for someone making $100,000. This deduction has benefited small business owners and may be modified or extended.

Tax Rate Adjustments: The TCJA reduced corporate tax rates to 21% and lowered individual tax rates across all brackets. Without extension, these rates will revert to pre-2018 levels, potentially increasing tax burdens for individuals and businesses.

SALT Deduction Cap: Under the TCJA, the state and Local Tax (SALT) deduction was capped at $10,000. This cap mainly affects residents in high-tax states such as California, New York, New Jersey, and Oregon, who previously could deduct significantly higher amounts of state income, property, and sales taxes.

Innovative Strategies for Small Business Owners

With potential tax changes on the horizon, small business owners should consider implementing these strategies:

Maximize Current Deductions: Review your business expenses thoroughly to ensure you take advantage of all eligible deductions under current tax law.

Consider Equipment Purchases: If you're planning significant equipment purchases, the current bonus depreciation provisions may make it advantageous to acquire these items before any changes take effect.

Review Business Structure: Assess whether your current business structure (sole proprietorship, S-Corp, LLC) remains optimal under potential new tax scenarios.

Plan for QBI Changes: If your business benefits from the QBI deduction, develop contingency plans for potential modifications to this provision.

Small business owners often underutilize legitimate business deductions. A thorough review with a tax professional can identify overlooked opportunities that could significantly reduce your tax burden regardless of upcoming changes.

Poe said: “Many small businesses leave money on the table by not fully understanding or utilizing available tax deductions. It's crucial to work with a tax professional to ensure you're maximizing every legitimate opportunity to reduce your tax burden.”

Who Will Be Most Affected: Demographic Impact

The expiration or modification of the TCJA will affect various demographic groups differently:

Families with Children: Potential reductions to the child tax credit would directly impact families with dependent children.

High-Income Earners: If the highest tax bracket increases from 37% to 39.6%, high-income individuals would face an immediate tax increase.

Investors and Retirees: Discussions about capital gains tax treatment changes could significantly affect those relying on investment income, particularly retirees planning to sell long-held assets.

The current capital gains tax rates (10%, 15%, or 20%, depending on income) could be modified, affecting investment strategies and retirement planning. Additionally, the $3,000 annual capital loss deduction limit has not been adjusted for inflation in decades, reducing its real value over time.

State Tax Considerations: Focus on Oregon

While federal tax changes will affect everyone, state tax policies create additional complexity. In Oregon, particularly Portland, residents face one of the highest combined tax burdens in the nation:

Multiple Layered Taxes: Portland residents pay Oregon state income tax, Metro tax, Supportive Housing Services tax, Multnomah County preschool tax, Portland/Multnomah County business tax, TriMet transit tax, and an Arts tax.

Increasing Rates: Many local taxes will likely increase in 2026, creating additional financial planning considerations for Oregon residents and businesses.

Estate Tax Threshold: While the federal estate tax exemption is approximately $13 million per individual, Oregon's threshold starts at just $1 million, requiring more careful estate planning for Oregon residents with moderate wealth.

These state-specific considerations highlight the importance of understanding federal and local tax implications when developing financial strategies.

“Navigating Oregon’s estate tax requires careful planning, as its threshold is significantly lower than the federal estate tax. Here’s a breakdown of key considerations and strategies: 

• Trust Planning - A well-crafted trust not only preserves your legacy but provides flexibility for beneficiaries while navigating Oregon's specific estate tax considerations.

• Lifetime Gifting - Taking advantage of the annual gift tax exclusion (currently $19,000 per person) can gradually reduce the taxable estate. 

• Charitable Giving - Donations can reduce the taxable estate. Consider charitable trusts or direct donations to qualified organizations. 

• Careful asset management - Understanding what is included in your estate is very important. Real estate, bank accounts, and life insurance policies can all be included. 

By understanding Oregon’s estate tax rules and implementing appropriate strategies, individuals can minimize their tax liability and ensure that their assets are distributed according to their wishes,” said Poe. 

Conclusion

Proactive financial planning is essential as we approach potential changes to the Tax Cuts and Jobs Act. While many provisions may be extended, modifications to specific elements could significantly impact your tax situation.

Key actions to consider include:

• Reviewing business expenses and deduction strategies

• Maximizing retirement contributions through appropriate vehicles

• Understanding how your demographic factors might affect your tax situation

• Considering state-specific tax issues in your planning

Working with a qualified tax professional and financial advisor who can help you navigate these changes and implement personalized strategies is one of the best ways to prepare for the evolving tax landscape. Taking proactive steps now allows you to position yourself for financial success regardless of how tax laws evolve.