From the battle against inflation to the election of a new administration and subsequent speculation about what it could mean for financial policy and regulation moving forward, the 2024 financial landscape has been dominated by uncertainty. And as the calendar flips to 2025, arguably no topic is more at center stage than taxes.

With numerous shifts in policy potentially set to be rung in over the course of the next 12 to 18 months, 2025 is set to become perhaps one of the most significant years in modern history when it comes to shaping the tax and financial planning environments over the short and medium term. Whether it’s the extended child tax credit or changes to the state and local tax deduction, numerous provisions hang in the balance and are set to elapse by the end of 2025. And with that, as we edge closer to this period of uncertainty, individuals are understandably eager to find ways to maximize their financial outlook as much as possible.

With that in mind, here are a few key and often overlooked items that individuals should keep in mind as they look ahead and prepare for the 2025 filing season and beyond.

Anticipate cuts to the estate tax and gift exemption

One of the most notable tax-related items that is “up in the air” as we head into 2025 is what will happen to the existing federal estate and gift tax exemption. Particularly impactful for high-net-worth individuals, this exemption allows individuals to pass on assets upon death or during their lifetime — from stock investments to real estate — to beneficiaries without paying federal estate or gift taxes. What makes this exemption even more appealing is that the threshold is set to jump from an existing all-time high of $13.6 million to $13.9 million on Jan. 1, 2025. However, this historic estate tax and gift exclusion is set to elapse on Jan. 1, 2026, and will fall to approximately $7 million if it isn’t extended by Congress. Moreover, navigating this exemption is notoriously complex, with individuals needing to take into consideration everything from the state they live in to the size of their net worth. Therefore, while there might be quiet optimism that the new administration and Congress will extend the exemption, individuals need to be proactive in taking steps to make the most of this exemption and guard against potentially missing out on millions in savings in the case that it does expire. 

Navigating IRA inheritance

In 2022, more than 40% of American households owned an individual retirement account. In addition, given there is no limit to the number of IRAs an individual can have, many households likely have several. This means not only a huge opportunity for beneficiaries to inherit but also leaves them with numerous stipulations that they need to navigate — namely when it comes to required minimum distributions, or the mandated amount that an individual must withdraw on a yearly basis. Most individuals are familiar with RMDs for their own IRA accounts. However, many do not realize they are also required to meet RMDs for inherited accounts as well, and because RMDs from traditional IRAs count toward the beneficiary’s taxable income, it’s imperative for these contingencies to be planned for in advance. What’s more, beneficiaries themselves are subjected to different criteria for managing their inherited IRAs. For example, many adult children who inherit IRAs must withdraw all funds from the account within 10 years of the account holder’s passing, while other beneficiaries such as spouses face different demands. These nuances result in a slew of potential avenues to maximize future management and tax efficiency opportunities, so individuals need to consult with their advisors as soon as possible to make sure they are optimizing their inherited IRAs.

Harvest your losses, sell losing stocks and reinvest

Loss harvesting — or selling off failing stocks where you have lost money — is one of the most powerful tax-saving tools for individuals, allowing them to use their investment losses to negate any taxable gains from strongly performing investments at a dollar-to-dollar ratio. In addition, if individuals have had a particularly bad investment year and have realized losses that exceed their gains, they can deduct up to $3,000 off their ordinary taxable income as well. Furthermore, individuals who have seen more than $3,000 in losses can roll the remaining losses over from year to year until completely written off to further reduce future tax burdens. From there, beyond just the tax benefits, individuals can parlay any returns from the sales of their losing stocks into investments in other better performing alternatives.

Reducing taxable income

Reducing your taxable income may seem like a “no brainer” when it comes to maximizing taxes; however, with so many different avenues available to filers, it isn’t uncommon for individuals to end up missing out on opportunities. For example, while many filers may be familiar with the tax benefits of 401(k) plans, they should know health savings accounts, 529 plans — which allow for tax-friendly savings for educational expenses — and traditional IRAs all allow filers to reap significant tax savings as well. These opportunities offering incredibly appealing contribution limits that can help individuals significantly reduce their taxable income:

• 401(k) plans: $23,000 ($31,000 if age 50 or older);
• Traditional IRAs: $7,000 ($8,000 if age 50 or older);
• 529 plans: $18,000 per person (or $36,000 for a married couple) per recipient without implicating gift tax (individual states set contribution limits);
• HSAs: $4,150 for self-only coverage and $8,300 for family coverage (those 55 and older can contribute an additional $1,000).

Looking ahead

Navigating tax season can feel like a Herculean effort, especially when so much uncertainty is on the horizon. However, by keeping these key items in mind, individuals can help mitigate headaches as much as possible and optimize their tax opportunities for years to come.