What are some new tax issues facing us in 2025?

Ralph
00:00:00

Has the thought of 2025 tax changes kept you up at night? You know that pit in your stomach, the one that forms when you hear about drop on estate exemptions that could put your family's legacy at risk?

Or those expiring tax cuts that might take thousands more from your paycheck each month? Maybe you're a small business owner like my friend.

David came into my office last week, had tears in his eyes, worried that these changes could force him to choose between tithing and keeping his business afloat. What if I told you there is hope?

What if I told you you could not only survive these tax changes, but actually use them to strengthen your financial future?

Today, I'm walking you through exactly what's coming in 2025 so you know how to protect your hard earned money and most importantly, help you maintain your commitment to godly stewardship even as tax law shift beneath your feet.

I'm going to share some specific strategies that help David find peace of mind and I'll show you how to prepare your finances while staying true to your Christian values. That's the question we're asking today, and it's one that's been flooding my inbox.

What are the new issues facing us in 2025 and how can we prepare for them as faithful stewards?

Podcast Announcer
00:01:13

Welcome to the Ask Ralph podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now, here's your Host, Ralph Estep Jr.

Ralph
00:01:43

Well, thank you for joining me today. I have got a great topic for you today, and this is a question that's on everybody's mind. And yes, I've got answers. Now, if you missed yesterday's show, we had an interesting discussion about credit scores and why obsessing over achieving that 800 point credit score might be the, might not be the best use of your time and energy and understanding credit scores is crucial for your overall financial health and I broke that all down yesterday. So if you missed it, I'm going to encourage you to check it out.

Well today's listener question comes to us from James in Ohio. Here's what James wrote. He said, "Ralph, I'm really concerned about all the tax changes I keep hearing about for 2025. Between the scheduled sunset of the Trump tax cuts and the upcoming election, (well the election's over now), I feel overwhelmed trying to plan for my family's future. As a small business owner and Christian, I want to be a good steward of what God has blessed me with, but I'm not sure how to prepare. Can you help me understand what's coming and how to get ready?" Now, I'm going to tell you, I got this question about a month and a half ago. It was right before the election, but I didn't get to it, but it's a very valid question for today. So if you've got questions, you know you can always submit them by going to justaskralph.com because that's what this show is all about.

And don't forget, you can join me every Tuesday night at 7:00 PM, Eastern standard time at askralphpodcast.com/live and I'll answer your questions right there on the spot. And one lucky listener every Tuesday night walks away with a $100 Amazon gift card. So again, that's at askralphpodcast.com/live.

James, I found a great Bible verse for today and it comes to us from Proverbs 24:16. And I thought it was really appropriate for today's topic. And it says this. "For though the righteous fall seven times, they rise again, but the wicked stumble when calamity strikes." Now you might be saying Ralph, I don't get it, dude.

How does that even apply? Well, let me tell you. I usually don't take a lot of time at this part of the show to talk about it, but I thought this was really important that we get ourselves in the right mind frame. And this is why this verse perfectly applies to our discussion about 2025 tax changes. Because it speaks about the resilience and the ability to rise after setbacks.

Listen, we don't know exactly what's coming up ahead. But this verse shows us how to rise, how to be resilient after those setbacks. And it directly relates on how we should approach these upcoming tax changes. Like the righteous person in the verse. We may face challenges with changing tax laws. But the truth is with proper planning and faith based principles, we can adapt and overcome these obstacles. And this verse really teaches us three crucial lessons that I think we really need to ground ourselves in right now.

The first one is this. Preparation for setbacks. Just as a righteous person in the verse is prepared to rise again, we need to prepare our finances for potential tax changes. And that's what I'm really talking about today. Number two. Resilience in adversity. This verse reminds us that challenges are part of life, they truly are, but it's our response that matters. When facing tax law changes, we should remain steadfast and focused on personal growth and focused on personal learning.

That is a key to being able to be resilient during adversity because yes, we don't know what's ahead. We know what we already know, but there could be a lot of things that happen in the future. Number three. And this is the last part of this what I'll call my mini-Bible lesson today. And this verse teaches us to trust in God's plan. The truth is even during uncertain financial times, we can trust that God works all things together for the good of those who love Him. I don't know how many times over the last four years or the last 20 years, last 30 years pick a date, that I've had to say, you know what?

Even during uncertain financial times, I know that God is still in control. We may have leaders here in the Bible tells us to pray for our leaders, but we know who the ultimate leader is. And just like I said a few moments ago, trusting in God's plan includes navigating complex tax changes while maintaining our commitment to biblical financial stewardship.

Because even in the midst of those changes, we've got to set our eyes on that financial stewardship. And that's what I'm going to say next. This scripture reminds us that as Christian stewards, we're called not to just survive financial challenges. That's not, that's not what God wants for us. He doesn't want to suggest survive these financial challenges.

He wants us to rise above them and he wants us to do that with wisdom and faith-based planning. Because here's the truth folks. It's not just about avoiding higher taxes. That's a great thing to do. You'll work with me. That's my goal. But it's about being prepared to manage our resources wisely regardless of what changes come our way.

Now to be clear, these are changes for 2025. In a few days or months, weeks, whatever that is, we're going to start filing the 2024 tax returns.

And this always gets people confused. We're always a year behind. So the current laws are still good for the tax return. You're going to be filing in 2025 for 2024, but these things are all things that are changing with the 2025 tax year. And I'm going to talk about some retroactive strategies here in a minute. Oftentimes, and we see an election like this, even though the tax laws starts January 1st, 2025, often times they'll make changes retroactive back to the beginning of a year.

So I've set the stage. Let's get into the details. Let me tell you about that client. I mentioned David a few minutes ago. Now David runs a successful small construction business. He came into my office, and I could tell he was worried. And he had a stack of tax documents and news articles. And just like you James, he was concerned about how these tax changes might affect his ability to support his family and continue to grow his business. And his situation really struck me. Because it shows exactly what many of us are facing. Even more so me, because I'm trying to give people guidance about what to do in this big area of uncertainty. And so you think about it.

David built his business based on the current tax laws. And I tell clients this all the time. Go with what you know now. And David had been carefully planning his equipment purchases. He planned his retirement contributions. He planned his charitable giving. But with 2025 approaching, David said, Ralph, I'm not sure if this careful planning will still work. So let's start by talking about what we know for certain about 2025 as it stands right now.

And I want you to pay close attention because these changes will affect nearly everybody. The biggest one. Number one is the tax cuts and job acts provision. That is going to expire. Well, what does that mean to you? It means that individual tax brackets are going to shift. If they shift, that potentially could increase your tax burden. Another thing that's going to happen. And again, all these things are assuming nothing changes.

The standard deduction will be nearly cut in half because during that tax cut and job act provision that Trump put in when he was in office the first time, he doubled the standard deduction. So now for a married filing joint couple, it's almost $30,000. Well, when this thing expires and we'll talk about why this is going to expire and why it's temporary in a few minutes, that is going to cut that standard deduction in half.

And we'll talk about what's important about that. Another thing that happened was personal exemptions were totally removed from the tax filing system. Well, that's going to come back in. Business expenses are going to change significantly. So let me give you my quick history lesson, because here's what you need to understand about how this particular tax revision was created in the first place. It's what's called budget reconciliation and it's basically a special legislative process that allows Congress to make changes to spending and revenue legislation.

Here's the key to that. The reason that they use this budget reconciliation is they can do it with a simple majority. Just 51 votes in the Senate. See normally, if they want to do it the correct way or the way that it was designed by our founders, you would need 60 votes so that you could break any filibuster. And that's critically important when we talk about the tax change in 2025. Because if they're going to fix this in my humble opinion, this is why it matters. Because this act was originally a plaster budget reconciliation.

So it was temporary. And these provisions were set to expire in 2025. And that's why it gets so complicated because now they've got to comply with these reconciliation rules. And that's going to have an impact on these future tax changes. So any extension of the current tax rates may need to go through reconciliation again. And that means that these provisions will likely be temporary again. And it could, there are some limitations of things they can do because when I looked into the tax law and I looked into the U.S. Code, changes might be limited to items that directly affect the federal budget.

They can't do anything that doesn't affect the federal budget. So you might be saying Ralph, okay, what does that mean? Well here from a practical perspective, this means this. Tax planning is going to become more complicated because these provisions may be temporary. Now, maybe they set it up for another four years, another eight years, whatever that looks like is going to be temporary. So those long-term financial strategies are going to need to be flexible and you're going to have to keep an eye on legislative changes more closely.

Now you can always listen to the show because I'm going to be bringing those things to you as they happen. Now you might be saying, okay, Ralph. That's great. But for a Christian, why does this impact me? If I'm trying to be a good Steward, here's what this uncertainty requires. And I'm going to be blunt about this.

It means you've got to be more careful in budgeting to prepare for these potential changes. It means that you need to be strategic in your timing of charitable giving, and it means that you need to regularly review financial plans of qualified advisors. This is no time to set it and forget it. And remember this. We can't control the legislative process.

We can control how we prepare for it. We can contact our legislators. We could do all those things, but we don't have ultimate control over it. But just as Proverbs teaches us about the wisdom of planning ahead, understanding budget reconciliation helps us make informed decisions about our financial future. And that's why I'm going to say this again, it's crucial. Absolutely vital that you work with qualified tax professionals who can understand these complex legislative processes. I am going to help you navigate these potential changes because they're going to be changing, and you need to maintain your financial goals and values. Okay. Well, I know I've given you a tangent there about the history lesson, but I thought it was important to understand how this all came about, because you might be saying, Ralph, why is this temporary? Well, that's the whole reason. It's because it was done through budget reconciliation.

So all they needed was a simple majority. Now let's get back to those other tax changes. So that first one was that elimination of the tax cut and job act which could shrink the standard deduction, could bring back personal exemptions, could change the tax tables. You get the idea. Second thing is there's going to be some estate planning impact. That's E S T A T E. Not state taxes, but estate. So right now, the tax exemption for in estate to pay federal tax is $13 million. Now look, most of us are never going to hit there.

I know I'm not getting there. But it's going to actually drop by almost half to $7 million. So that's going to impact a lot of people with their planning strategies, because when you add in a home, maybe you have a second home, maybe you have a business, there's going to be a lot more people that are affected by that now that it's going to be 7 million instead of 13 million.

So they've got to sit down with their attorneys and the people that write that stuff up and plan effectively because gift taxes may be affected. And like I said, this isn't going to impact most people. But it's something to consider. So that's the second thing. That's the estate planning impact. Number three, I'm going to say is investment considerations. Here's thinking it could happen.

I say this to clients continuously. Capital gains rates could increase. Now right now, they're set at being, if it's something you hold for more than a year, you get this what we call long-term capital gain treatment. So you might have to look at your investment strategy and you might need to make some adjustments depending upon what happens.

And I've talked about this on the show the other day, the whole idea of tax loss harvesting might become more important. You might be saying, Ralph, why is that? Well, we can think about it for a second. If the tax tables change and the top tax rates are pushed downward, in other words, people are hitting higher tax rates at lower levels of income, you're going to be looking for those taxed harvesting losses to help offset that income. So that's where we stand right now going into 2025. And yes, there's a lot of certainty, a lot of uncertainty, excuse me. There's a lot of uncertainty. I think with us having control, when I say us, I find myself to be a Republican.

I believe in small businesspeople. I think we're going to see some positive changes. But let's get real and discuss what we can truly expect with a potential Republican control and here's the things I think we are going to see. Maybe I shouldn't be so bold. Maybe I say we might see but I truly think we're going to see these.

I think you're going to see an extension of the current tax rates. I don't think you're going to see this massive shift downward where the tax rates are going to affect more people. The one things I think you will also see are some new small business incentives. One of the things that Donald Trump has talked about was bringing back investment in small businesses.

I think you're going to see some modified estate tax provisions. Again, that's not state that's estate tax provisions. And I also think, and this is going to be a great one for those of us who are still trying to catch up on retirement savings. I think they're really going to focus on enhancing retirement account benefits. So those are the things I think you're going to see.

I think you're going to see an extension of the current tax rates. I suspect you're going to see an extension of that entire tax cut and job act. I just feel like that's going to happen. I think you're going to see some more small business incentives. They're going to do something about estate taxes and they're going to enhance retirement account benefits. So you might be saying that's great, Ralph, but will all of this uncertainty, how can I actually prepare for this? So here's Ralph's way to prepare for this.

I'm going to give you 5 steps on how you can prepare. Number 1 thing. Look at tax efficient investment strategies. This is where you want to start thinking about maximizing those contributions to tax advantage accounts. That's your IRA, your 401k, your health savings accounts or HSA's. It's all the most important to do that while tax rates are lower so that you can benefit from that if the tax rates go up. You also might want to consider Roth conversions. Taking those traditional IRAs and converting them to a Roth if we feel like the tax rates are going to increase. Another thing, sit down with your broker and review your investment portfolio to make sure it has the best tax efficiency and while you're doing that, look into some municipal bonds for tax-free income.

So that's first thing. Number one. In this uncertain time, look at your portfolio and tax efficient investment strategies. Number 2. I can't stress this one enough. If the standard deduction comes down, then we really need to start focusing again on comprehensive deduction planning. So what does that mean, Ralph?

It means start documenting all your potential deductions. Those charitable contributions, those medical deductions. And think about if you can bunch those together, you also want to look at your home office and business expense tracking because a lot of those things are going to come back on too. And then here's the key to this whole thing. Maintain detailed records of all those business-related activities. You should be doing that anyway. Well start thinking about, well, if the standard deduction comes down from 30,000 to 15 or 12, whatever it's going to be, then you may be able to itemize. Again, a lot of people have gotten into this position where they're not keeping track of this stuff anymore because they weren't able to itemize. Well they could itemize, but it didn't make any sense because you take the higher standard deduction so start thinking about documenting that stuff.

And now's the time to start planning that because come January 1st start keeping track of all those medical, those dental, those out-of-pockets, those copays, those prescriptions. Start keeping track of charitable contributions. Another thing that could go away is that whole salt thing, that estate local income tax thing could go away. Right now, it's capped at $10,000.

So that may be an area for growth as well. Number 3 thing. Estate planning. I don't care how much your estate is worth. This is a great time to take a look at your will and if you got a trust and see, do they still make sense moving into a new tax system? It's a great time. Again, I've harped on this. Review those beneficiary designations. Consider accelerated gifting strategies if you feel like tax rates are going to go up. And again, if you're looking at your estate plan, if you've got some charitable intentions in that, make sure you're documenting those. And number 4. It's a great time to do this is why I did a show about this the other day. Review your structure, your business structure. Maybe you're operating as a sole proprietorship.

Now it's time to start thinking about an LLC or an S Corp and think about restructuring that if it's necessary. It's a great time to plan equipment purchases strategically and review employee benefit programs. So this is a great time of year to do that, especially going into this uncertain tax planning time. And number 5 and that's retirement planning adjustments. I can't stress this enough. This is a great time to again, think about maximizing those retirement contributions while tax rates are lower.

Consider those Roth conversions I talked about a few minutes ago. Look at your RMDs if you're retired and evaluate pension and social security time. These are all great times to do that regardless of what's going to happen with the tax code. Now I'm going to share how all these changes can impact you in a few moments.

And I'm going to give you some action steps. I've already given you a bunch of stuff today, but first let me ask you this. Maybe you're feeling overwhelmed by all these financial challenges. You're saying, Ralph, man, you lost me five minutes ago. Maybe you're buying a home, you're running a small business, or maybe you're one of those people like a lot of Americans are living paycheck to paycheck. Well, let me just tell you now. You don't have to walk this journey alone. Like many other people that I talk to, you might be watching your dream slip away. You're struggling with mounting debt. You know, this time of inflation has really hurt you. You're feeling stuck.

You're feeling frustrated. You're trying to balance your business and your personal finances, and you just feel like you're all alone in this, but let me tell you, there is hope. I'm going to encourage you to work with me. Cause we can create a plan to give you that financial freedom while honoring your Christian values.

I'm going to tell you how I'm going to get there. I want you to understand this. I'm going to assess where you're at currently. We're going to take a look at it, and this is not emotional. This is fact driven. We're going to identify your God-given dreams. I'm going to help you align your goals with your faith. And here's the best part.

We're going to build a personalized financial roadmap for you. You don't have to be on this journey alone. I'm going to be right there next to you. I'm going to help you by establishing accountability and showing you how to track your success. Listen, there are no cookie cutter solutions here. It's just a practical faith-based approach, tailored to your unique situation. I'm going to help you break free from debt.

I'm going to help you find financial stability. I'm going to work to help you achieve long-term success. And I'm going to help you grow spiritually while building wealth. Listen, don't let another day pass feeling stuck or overwhelmed. You can book your consultation now, just go to askralph.com. When you get there, you'll see a banner at the top says, book a call with Ralph and let's create your path to financial freedom and spiritual growth. Again, that is at askralph.com. Just click on the top. Book a call with Ralph. Well, now let's talk Turkey. If that tax cuts and job acts is not extended, here's the expected impact. So for someone in the middle tax bracket, that's middle-income America. These changes could mean this, and I'm not trying to scare anybody.

These are just facts. If this thing isn't extended, then those people in those middle tax brackets are going to see a tax increase of anywhere from $2,000 to $5,000 annually. That's just the truth. So this is the time to start putting pressure on your elected representatives and say, listen, we need a tax cut.

We need to extend this thing. We also may see reduced deductions. You're going to see reduce deductions between $1,000 and $3,000. We talked about those estate planning needs. Those are the things worth considering at all. And also there might be some new retirement planning opportunities. So that's what I'm thinking about on the individual side. Potential tax increase of $2,000 to $5,000. Deductions reduced by $1,000 to $3,000. Now let's talk about small business owners.

We have a lot of listeners that are small business owners. They could really change how depreciation rules or work. And that may really affect cashflow right now. I mean, you can buy stuff on loan and take a hundred percent deduction for it. Those are what we call section 179 deduction, not going to get into the weeds today. But they could change that. They could also change deduction limits impacting business decisions. There could be new opportunities for tax advantage benefits and they may modify retirement plan contribution limits.

So those are all the things that I think are going to affect small business owners. So now let's get to those action steps. Number one, schedule a tax planning meeting with your advisor early so that we can start to plan what's going to happen for 2025. Take a look at your current deductions and credits and make sure you're tracking those things moving into the next year.

That's why I say number three, start gathering documentation for those potential changes. I'm telling all my clients when I meet with them, keep track of all those things you haven't been keeping track of because now you may see a situation where we're going to go back to that itemized deductions. Maybe you want to accelerate income or deductions based on your situation.

Maybe want to take those deductions now. And last but not least. And I can't stress this one enough. Pray for wisdom in making these important financial decisions. Again, you're not alone. Remember we started the show talking about that even when we have elected officials, God is still in control. And remember this. As Christians we're called to be wise stewards of our resources. And this is not at all about avoiding our responsibilities. It's about being prudent of what we've been blessed with. Think about the parable of the talents.

I talked about this on the show all the time. The master praise the servants who wisely managed what they were given. Well now let's get back to my client, David. Now I said, David came in, he was concerned. He had that a bunch of papers and online articles and all this stuff. And when David left my office, I couldn't tell him, hey David, here's what's going to happen. But he had a clearer plan. And here's the deal. By starting early, he's positioning himself to handle these changes while maintaining his commitment to tithing and supporting his family and growing his business. You can do the same thing by taking action now. Pay attention to what's coming down the road and make yourself able to be pivot and see what happens. Now on tomorrow's show, I'm going to be discussing why you might want to consider designating a trust as your retirement account beneficiary.

Now I'm not an attorney, but I'm giving you some tax advice. This is another important topic for your long-term financial planning. Now I know I went a little long today, but there was a lot to cover with these tax changes. Remember this, my passion is to help you achieve financial success. I want to see you live out your dreams. And I want to see you grow in your faith. And I know together, we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy out there and God bless you.

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