What Are the Current Federal Tax Developments?

Federal tax laws are constantly evolving due to new legislation, Internal Revenue Service (IRS) guidance, and inflation adjustments. These changes influence the financial decisions of individuals, the strategies of businesses, and the long-term planning of families. Staying informed about these developments allows for better preparation throughout the year. This article provides an overview of significant recent developments in federal taxation that impact a broad spectrum of taxpayers.

Recent Tax Adjustments for Individuals

Each year, the IRS makes inflation adjustments to tax provisions to account for changes in the cost of living. For the 2025 tax year, these adjustments result in higher standard deduction amounts and wider tax brackets. The standard deduction for single filers will increase to $15,000, and for married couples filing jointly, it will rise to $30,000.

The income thresholds for each tax bracket have also been raised. For instance, the 37% top marginal rate will apply to single filers with taxable income over $626,350 and married couples with income over $751,600. Contribution limits for Health Savings Accounts (HSAs) have also been adjusted, and to contribute in 2025, an individual must be enrolled in a high-deductible health plan.

The clean vehicle tax credit provides an incentive for purchasing new or used electric vehicles, but it has strict requirements. These rules include limitations on the manufacturer’s suggested retail price (MSRP), the vehicle’s battery capacity, and the sourcing of its components. Taxpayers must also meet specific modified adjusted gross income (AGI) thresholds to qualify.

A feature of the clean vehicle credit is the ability for a buyer to transfer it to a registered dealer at the point of sale. This allows the credit’s value to be realized as an immediate discount on the vehicle’s price. To ensure a vehicle qualifies, potential buyers should consult the official list provided by the government at FuelEconomy.gov.

The energy efficient home improvement credit encourages homeowners to invest in energy-saving upgrades. This credit covers a percentage of the costs for improvements like new windows, doors, and high-efficiency heating equipment. There is an annual limit on the total credit amount, with specific sub-limits for different types of property, and homeowners must retain all documentation.

Key Updates for Business Taxation

A significant development for businesses is the scheduled phase-out of 100% bonus depreciation. This provision allowed companies to immediately deduct the full cost of certain assets. Beginning in 2023, the bonus depreciation percentage dropped to 80% and will continue to decline by 20 percentage points each year until it is completely phased out. The shift from full expensing means cost recovery for new assets is spread over a longer period, altering the after-tax return on investments and affecting capital expenditure planning.

Another update is the mandatory amortization of research and experimental (R&E) expenditures. Previously, businesses could often expense these costs in the year they were incurred. Under the new rules, domestic R&E costs must be capitalized and amortized over a five-year period, while foreign-based R&E costs must be amortized over 15 years. This change significantly alters the tax treatment of innovation activities.

This transition from immediate expensing to mandatory amortization primarily impacts technology, pharmaceutical, and other research-heavy sectors. It delays the tax benefit of R&E spending, which can increase a company’s current taxable income and reduce cash flow for reinvestment. This has prompted many businesses to re-evaluate the location and structure of their research operations.

The Employee Retention Credit (ERC), a COVID-era relief measure, has also been a focus for the IRS. The agency has intensified scrutiny of improper claims and established a deadline of April 15, 2025, for businesses to file amended returns to claim the credit for the 2021 tax year. The IRS has implemented programs for claim withdrawal and voluntary disclosure to resolve incorrect filings.

Retirement and Estate Planning Modifications

The SECURE 2.0 Act of 2022 introduced substantial changes to retirement savings rules. One of the most widely applicable changes is the increase in the age for Required Minimum Distributions (RMDs). The age at which account holders must begin taking distributions from accounts like 401(k)s and traditional IRAs has been raised, allowing funds to grow tax-deferred for longer.

The act also created new provisions for catch-up contributions for older workers. While individuals aged 50 and over can already make additional contributions, new rules will eventually require these to be made on a Roth (after-tax) basis for high-income earners. For 2025, the 401(k) contribution limit for employees is $23,500, with an additional $7,500 catch-up allowed for those 50 and over.

A new provision allows employers to match an employee’s qualified student loan payments with contributions to their retirement account. This means an employee can receive a matching contribution from their employer even if they cannot contribute to their 401(k) while paying down student debt.

On the estate planning side, the federal estate and gift tax exemption amounts are adjusted annually for inflation. For 2025, the lifetime exemption for estates and gifts has increased to $13.99 million per individual, which is effectively doubled for married couples. The annual gift tax exclusion, the amount one can give to any number of individuals per year without using the lifetime exemption, has increased to $19,000 per recipient.

IRS Enforcement and Procedural Changes

The IRS is implementing new reporting requirements for transactions involving digital assets like cryptocurrency. Starting with the 2025 tax year, brokers must issue a new Form 1099-DA to report proceeds from the sale of digital assets. This change is intended to provide the IRS with greater visibility into these transactions, and the definition of a “digital asset” is broad, including NFTs. While the requirement for individuals to report this activity is not new, broker reporting is expected to increase accuracy.

Another procedural development concerns the reporting threshold for third-party payment networks. The IRS planned to lower the reporting threshold for Form 1099-K, which reports payments from platforms like PayPal or Venmo, to $600. However, implementation has been delayed, and for the 2024 tax year, the threshold was set at $5,000 as a transitional step. These adjustments reflect the challenge of distinguishing between business payments and personal reimbursements.

The IRS has also received a substantial increase in funding to enhance enforcement activities, particularly for high-income individuals, large corporations, and complex partnerships. The agency’s strategic plan emphasizes using data analytics and improved technology to identify areas of noncompliance, including a focus on taxpayers with complex financial structures. This focus is intended to help close the “tax gap,” which is the difference between taxes owed and taxes paid on time.

Preparing for Major Tax Law Expirations

A significant development is the impending expiration of many provisions from the Tax Cuts and Jobs Act of 2017 (TCJA). Unless Congress acts, these provisions are scheduled to sunset at the end of 2025, resulting in substantial changes to the tax code for individuals and some businesses.

Several impactful provisions are set to expire at the end of 2025:

• The current individual income tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% will revert to the higher, pre-TCJA levels. This would mean a higher income tax liability for most individuals starting in 2026.
• The higher standard deduction will be cut by roughly half (adjusted for inflation). This change would likely require many more taxpayers to track itemized deductions, such as mortgage interest and charitable contributions.
• The $10,000 cap on the deduction for state and local taxes (SALT) will be eliminated. If the cap expires, the deduction for state and local taxes would again be unlimited for those who itemize, significantly benefiting taxpayers in high-tax states.
• The 20% deduction for qualified business income (QBI), available to owners of pass-through entities like sole proprietorships and S corporations, will be eliminated. This deduction effectively lowers the tax rate on business income for many entrepreneurs.
• The federal estate and gift tax exemption is scheduled to be cut by approximately half, returning to its pre-TCJA level, adjusted for inflation. This would subject more estates to the federal estate tax.