2025 Client Letter

 Happy New Year,

As we start the new tax year, you hopefully have more wonderful things on you mind than taxes.  But I want to provide you with an overview of the key differences between the 2024 and 2025 income tax laws. These changes may affect your financial planning and tax liabilities. Below is a summary of the most notable updates:

1. Standard Deduction and Personal Exemptions

• 2024: The standard deduction for single filers was $13,850, and $27,700 for married couples filing jointly. Personal exemptions remained eliminated under the Tax Cuts and Jobs Act (TCJA).

• 2025: The standard deduction has increased to $14,400 for single filers and $28,800 for married couples filing jointly to account for inflation adjustments. Personal exemptions remain eliminated.

2. Tax Brackets

The tax brackets have been adjusted for inflation:

• 2024 Rates: Income thresholds for the 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets were slightly lower.

• 2025 Rates: Income thresholds for each bracket have increased by approximately 3%, offering slight tax relief for many filers.

3. Child Tax Credit

• 2024: The credit was $2,000 per qualifying child under 17, with $1,600 refundable.

• 2025: The credit has increased to $2,100 per qualifying child, with $1,700 refundable, reflecting efforts to provide additional support for families.

4. Retirement Contributions

• 2024: Contribution limits for 401(k) plans were $22,500, with a $7,500 catch-up contribution for those aged 50 and older.

• 2025: Contribution limits have increased to $23,000, and the catch-up contribution limit for those aged 50 and older is now $8,000. IRA contribution limits have also increased by $500.

5. Energy Efficiency Credits

• 2024: Homeowners could claim a maximum of $3,200 for energy-efficient home improvements under the Energy Efficient Home Improvement Credit.

• 2025: The maximum credit remains the same, but eligibility has expanded to include certain new technologies and improvements.

6. Estate and Gift Taxes

• 2024: The lifetime estate and gift tax exclusion amount was $12.92 million per individual.

• 2025: The exclusion amount has risen to $13.06 million per individual due to inflation adjustments.

7. Sunsetting of TCJA Provisions

As we near the end of 2025, it is important to note that many provisions under the Tax Cuts and Jobs Act, including individual tax rates, standard deductions, and other provisions, are set to revert to pre-2018 levels unless Congress takes action.

Recommendations

Based on these changes, here are some actions to consider:

• Tax Bracket Management: If your income is close to a higher bracket, explore strategies such as retirement contributions or charitable donations to reduce taxable income.

• Maximize Credits: Take full advantage of the increased child tax credit and energy efficiency credits.

• Estate Planning: Review your estate plan in light of the increased exclusion amount and potential changes after 2025.

As we work through your 2024 income filing we will discuss any changes or things you should think about for this year.  If you have questions while gathering together your 2024 tax documents, please contact me.

Unlocking the Benefits of Solar Energy Equipment Tax Credits

 

The transition to renewable energy sources is gaining momentum, and solar power remains a cornerstone of this movement. To make solar energy more accessible and affordable, various governments around the world offer tax incentives. In the United States, solar energy equipment tax credits have played a pivotal role in encouraging homeowners and businesses to adopt this clean energy source. Here, we break down the essentials of these tax credits and how you can maximize their benefits.

What Are Solar Energy Equipment Tax Credits?

Solar energy equipment tax credits are financial incentives provided by the government to offset the cost of purchasing and installing solar power systems. These credits reduce the amount of income tax you owe on a dollar-for-dollar basis. For example, if you spend $20,000 on a solar panel system and are eligible for a 30% tax credit, you can claim $6,000 as a credit against your taxes.

Key Features of the Federal Solar Investment Tax Credit (ITC)

The federal Investment Tax Credit (ITC) is one of the most significant incentives for solar energy adoption in the U.S. Here are some of its critical aspects:

• Percentage of Credit: For systems installed between 2022 and 2032, the ITC offers a 30% tax credit on the cost of solar energy equipment and installation. This percentage decreases for installations after 2032.

• Eligibility: The ITC applies to residential, commercial, and utility-scale solar systems. Homeowners, landlords, and businesses can all benefit.

• Carryover Provisions: If the tax credit exceeds your tax liability for the year, the excess credit can typically be carried forward to the following tax year.

• Inclusion of Storage Solutions: Solar battery storage systems, even if installed separately, are eligible for the ITC as long as they meet certain criteria.

State and Local Incentives

In addition to the federal ITC, many states and local governments provide their own solar incentives. These can include:

• State Tax Credits: Some states offer additional tax credits, further reducing the cost of going solar.

• Rebates and Grants: Certain programs provide upfront rebates or grants for solar installations.

• Property Tax Exemptions: Solar equipment may be exempt from property tax assessments, preventing an increase in your property tax bill due to the installation.

• Sales Tax Exemptions: Some states waive sales tax on the purchase of solar equipment.

How to Claim Your Solar Tax Credits

1. Consult with a Tax Professional: Before installing solar equipment, consult with a tax professional to understand your eligibility and potential savings.

2. Keep Records: Maintain detailed records of all expenses related to your solar installation, including receipts and invoices.

3. File IRS Form 5695: Use this form to claim the Residential Energy Credits on your federal tax return.

Why Now Is the Time to Act

The availability and terms of solar tax credits can change due to legislative updates. With the ITC currently offering a generous 30% credit and additional state incentives, now is an opportune time to invest in solar energy. Transitioning to solar not only reduces your energy bills but also contributes to a cleaner, more sustainable future.

Final Thoughts

Solar energy equipment tax credits represent a compelling financial incentive to embrace renewable energy. By taking advantage of these credits, you can significantly reduce the upfront cost of solar installations and enjoy long-term savings. Whether you’re a homeowner or a business owner, exploring these opportunities can be a smart step toward energy independence and environmental stewardship.

Unlocking the Power of Roth Contributions: Why They’re Worth Your Consideration

 

When it comes to retirement savings, one of the most pivotal decisions you can make is choosing the right account type for your contributions. Roth accounts—whether a Roth IRA or Roth 401(k)—offer a unique set of benefits that can provide significant value over the long term. Let’s explore why Roth contributions deserve a spot in your financial plan.

1. Tax-Free Growth and Withdrawals

One of the standout features of Roth accounts is their tax treatment. Unlike traditional retirement accounts, where contributions are tax-deferred, Roth contributions are made with after-tax dollars. While this means you don’t get an immediate tax deduction, the long-term benefits often outweigh the upfront cost.

All the growth in your Roth account—dividends, interest, and capital gains—is completely tax-free as long as you meet the withdrawal criteria. This can translate into substantial savings during retirement, especially if your account grows significantly over decades.

2. Flexibility in Retirement

Roth contributions give you unparalleled flexibility when it’s time to withdraw funds in retirement. Because distributions are tax-free, you won’t have to worry about bumping yourself into a higher tax bracket or paying unexpected taxes when you need to access your money. This can make Roth accounts a strategic tool for managing your overall retirement tax burden.

Additionally, Roth IRAs do not have required minimum distributions (RMDs) during the account holder’s lifetime. This allows your money to continue growing tax-free for as long as you wish, giving you more control over when and how you use your funds.

3. Diversification of Tax Strategy

In the face of uncertain future tax rates, having a mix of taxable, tax-deferred, and tax-free accounts can be a game-changer. Roth contributions add a tax-free component to your portfolio, offering a hedge against the risk of rising tax rates. By having this diversification, you gain more flexibility to choose the most tax-efficient sources of income in retirement.

4. Ideal for Younger Savers

Roth accounts are particularly beneficial for those who are early in their careers or expect their income to grow over time. When you’re in a lower tax bracket, the impact of paying taxes on your contributions now is less significant. Plus, younger savers have the advantage of time, allowing their contributions to compound tax-free over decades.

5. Estate Planning Benefits

Roth accounts can also be a powerful tool for estate planning. Because distributions are tax-free, beneficiaries can inherit Roth IRAs without the burden of income taxes. While inherited Roth IRAs are subject to RMDs, the distributions remain tax-free, making them an attractive legacy-building option.

6. Backdoor Roth Conversions

For high-income earners who exceed the income limits for direct Roth IRA contributions, the backdoor Roth strategy offers a way to enjoy Roth benefits. This involves contributing to a traditional IRA and then converting it to a Roth IRA. While taxes may apply during the conversion, the long-term advantages of tax-free growth can make it worthwhile.

Final Thoughts

Roth contributions provide a powerful combination of tax advantages, flexibility, and long-term growth potential. Whether you’re just starting your career, in your peak earning years, or planning for retirement, a Roth account can play a pivotal role in achieving your financial goals. By understanding the unique value of Roth contributions and incorporating them into your overall strategy, you can build a more secure and tax-efficient future.