Big Tax Law Changes That Affect You

Tax Rates Are Now Permanent

The lower tax brackets from the 2017 Trump tax law were supposed to expire at the end of 2025, but they've been made permanent. This means your federal tax rate probably won't change.

Estate Tax Changes

Starting in 2026, people who inherit money won't pay estate taxes unless they inherit more than $15 million (adjusted for inflation each year). This same limit applies to large gifts you give during your lifetime.

Time-Sensitive Tax Credits (Act Fast!)

Electric Vehicle Credit

Buy and take delivery of a qualifying electric car by September 30, 2025, and you could get up to $7,500 off your taxes. But there are rules:

• Your income must be under $150,000 (single) or $300,000 (married)

• Car price limits: $55,000 for most cars, $80,000 for SUVs, vans, and trucks

• Used cars can qualify for a smaller credit if they cost under $25,000

• The dealer should give you Form 15400 if your car qualifies

Solar Power Credit

Install solar panels or battery systems by December 31, 2025, and get 30% of the cost back as a tax credit. This credit disappears in 2026. Roof repairs don't count unless you're replacing your roof with solar shingles.

Energy-Efficient Home Improvements

Install energy-efficient windows, doors, skylights, heat pumps, or other qualifying improvements by December 31, 2025, to get an expanded tax credit. This credit also ends in 2026.

Stock Options

If you have incentive stock options from work, consider exercising them in 2025 because the tax rules change in 2026.

Smart Charitable Giving Strategy

The timing of your charitable donations matters because of new rules starting in 2026:

• If you DON'T itemize deductions: Wait until January 2026 to donate. You'll get to deduct your first $1,000 ($2,000 if married) even without itemizing.

• If you DO itemize deductions: Make your donations by December 31, 2025, because starting in 2026, there will be a higher threshold to meet.

Special California Opportunity:

The California College Access Tax Credit gives you a 50% credit on your state taxes for donations made by December 31, 2025. The other 50% is tax-deductible. These donations help fund college grants for low-income students. You must file for this credit by January 2, 2026.

Retirement Savings Maximums for 2025

• 401(k) Plans: Regular limit: $23,500

• Ages 50-59: Extra $10,000 (total $33,500)

• Ages 60+: Extra $11,250 (total $34,750)

No 401(k) at work? You might be able to contribute to a tax-deductible IRA instead.

Self-employed? Look into SEP-IRAs or solo 401(k)s.

Under 55? Ask about Roth options.

College Education Credits

American Opportunity Credit: Get back 100% of your first $2,000 in college costs, plus 25% of the next $2,000. That's up to $2,500 back per student.

Qualifying expenses: Tuition, required fees, and course-related books, supplies, and equipment (like printers).

Income limits: No credit if you earn over $90,000 (single) or $180,000 (married).

Smart tip:

If you haven't spent $4,000 on qualifying expenses this year, consider prepaying some January expenses in December to maximize your credit.

Investment Tax Strategies

Stock Gains and Losses

If you made money on stocks this year, look for losing stocks to sell before December 31. This can offset your gains. You can deduct up to $3,000 in net losses per year, and any extra carries over to future years.

Cryptocurrency

Unlike stocks, crypto isn't subject to "wash sale" rules. This means you can sell crypto at a loss and immediately buy it back to create tax losses.

Small Business Stock

If you sold small business stock, ask your tax professional about special tax treatments under Sections 1244 and 1202.

Other Important Strategies

Charitable IRA Distributions (Age 70½+)

Instead of taking money from your IRA and then donating it, send the money directly from your IRA to charity. This keeps the distribution out of your income, which might lower your Medicare premiums and help with medical expense deductions. These transfers count toward required minimum distributions.

Health Savings Accounts

If you have high-deductible health insurance, consider opening an HSA. You have until April 15, 2026, to set one up for 2025, so this isn't just a year-end strategy. This is especially valuable if you have regular medical expenses.

Bad Debt Deductions

If someone owes you money and won't pay it back, take the necessary legal steps by December 31, 2025, to claim it as a bad debt deduction.

Identity Protection

The IRS now lets anyone with a Social Security number get an Identity Protection PIN to prevent tax identity theft. Visit the IRS website here: https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin. If you get one, make sure to give the IRS letter to your tax preparer.

Additional information for special situations is at:
Year-End Planning - Bad Year
Year-End Planning - Good Year
Year-End Tax Planning for Businesses