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Financial planning for 2025 brackets and retirement rules

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Cooling inflation will bring some relief in the form of slightly lower taxes next year.

An average inflationary adjustment of 2.8% under IRS guidance for 2025 released earlier this month came in lower than the 5.4% hike for this year and a boost of more than 7% across the seven federal income brackets in 2023, according to an analysis by the nonpartisan, nonprofit Tax Foundation. 

At the same time, the slower rise in cost-of-living expenses this year led the agency’s subsequent annual announcement of the level of penalty-free limits on contributions to individual retirement accounts to stay the same, at $7,000. 

On the other hand, yearly contribution limits to 401(k), 403(b) and 457 retirement plans, as well as the federal government’s Thrift Savings Plan, will each rise by $500 in 2025 to $23,500 and a shift in the rules from the Secure 2.0 Act will give savers aged 60 to 63 a new “super catch-up” option for the first time.

READ MORE: With Congress slow to act, financial advisors plan ahead on estate taxes

The yearly protection against so-called bracket creep and the numbers involved with more than 60 other tax items put a bookend on “a continual conversation during the course of the year” about the question of “whether there are ways to reduce your income by booking losses” or “trying to take advantage of recognizing some income so you pay a lower amount of tax” for 2024 and 2025, according to Alan Weissberger, the senior tax and estate planning solution specialist with West Conshohocken, Pennsylvania-based Hirtle Callaghan. For financial advisors, tax professionals and their clients, the potential expiration of many provisions of the Tax Cuts and Jobs Act after 2025 is adding another layer to the standard year-end planning

“The actual inflation adjustment is relatively lower compared to what we’ve seen the last couple of years,” Weissberger said in an interview. “All things being equal, any taxpayer with the same amount of income is going to end up paying a little less in taxes.”

Experts often point out the significant differences in tax rates that come down to every single dollar worth of income. Via the Tax Foundation analysis, here’s how the federal tax brackets will look in 2025:

  • 10%: $0 to $11,925 (individuals or married filing separately); $0 to $23,850 (married filing jointly); $0 to $17,000 (heads of households)
  • 12%: $11,925 to $48,475; $23,850 to $96,950; $17,000 to $64,850
  • 22%: $48,475 to $103,350; $96,950 to $206,700; $64,850 to $103,350
  • 24%: $103,350 to $197,300; $206,700 to $394,600; $103,350 to $197,300
  • 32%: $197,300 to $250,525; $394,600 to $501,050; $197,300 to $250,500
  • 35%: $250,525 to $626,350; $501,050 to $751,600; $250,500 to $626,350
  • 37%: $626,350 or more; $751,600 or more; $626,350 or more

In terms of retirement savings, the two Secure Acts have altered many rules around planning. For example, many beneficiaries who have inherited IRAs know that they must begin taking their required minimum distributions in 2025 as part of a 10-year schedule that has replaced the “stretch” strategy after the IRS delayed that obligation for several years in a row.

READ MORE: Final IRS rules to IRA beneficiaries: Get going on those RMDs already

For 2025, the cost-of-living adjustments to retirement contributions did not make any impact on the ceiling on regular IRA contributions and the extra “catch-up” savings available to those 50 or older of $1,000. The “catch-up” contributions for 401(k) and other retirement-plan participants who are aged 50 or above will stay the same at $7,500, too. For those employee-plan participants between the ages of 60 and 63, a new “super catch-up” beginning next year will provide the flexibility to contribute as much as $11,250 on top of their allotted $23,500.

Those decisions could reverberate for decades in a saver’s portfolio, according to a blog earlier this year by financial educator Patrick Villanova for advisor matchmaking and personal finance service SmartAsset. Even though they started with the same value of $256,244 in their 401(k) at age 60, a sample investor named “Sam the Super Saver” racked up over $16,000 in additional savings compared to “Ian the Ignorer” by the time she turned 64 through the extra catch-up contributions. By their 90th birthdays, Sam had more than $23,000 more in portfolio value.

“Those extra dollars can add up over the course of a 25-year retirement and continue to compound along with retirement account investment growth,” Villanova wrote. “However, the potential long-term growth of those enhanced contributions simply may not be enough to entice some pre-retirees to save the extra money between ages 60 and 63.”

Planners and their clients will also be watching closely to see how this week’s election and the current sunset date at the end of 2025 for a lot of the Tax Cuts and Jobs Act affect their estate and income taxes. Absent Congressional action, the minimum value of estates subject to taxes as high as 40% will revert back to half its present level.

READ MORE: 30 tax questions to answer by the end of the year

Ultrahigh net worth families that are part of the base of Hirtle Callaghan’s clients generally fall into one of three categories around the estate tax, Weissberger noted. Some have been updating their plans every year, others shifted slightly in anticipation of potential tax changes during President Joe Biden’s term and the third group includes “some clients who have done absolutely nothing for any estate planning,” he said.

“A lot of clients haven’t done anything, and they’ve been waiting and thinking that this problem is eventually going to solve itself — which doesn’t look like it’s going to happen,” Weissberger said.

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IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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