Important Estate and Tax Law Changes for 2025

As we welcome the holiday season, a time of reflection and gratitude, Mission Wealth remains vigilant in keeping track of these important estate and tax law updates. Just as the leaves fall and the air grows crisper, the IRS has unveiled crucial adjustments to tax brackets, credits, and deductions for 2025. The increases this year are less than last year as inflation has dropped, but here are the key highlights that can shape your financial path in the upcoming year.

The 2025 Income Tax Rates by Filing Status

Additional Updates to HSAs, Gifting, and 529 Planning Amounts

• The annual gift exclusion, the amount you can gift to anyone without needing to file a gift tax return, will be $19,000 in 2025 (up from $18,000 in 2024).
• The five-year 529 super funding contribution will be $95,000 in 2025. You can gift any amount above your annual exclusion to a 529 plan, but you must file a gift tax return and pro-rate the gift for an entire five-year period to show the gift, resulting in no tax due or credit exemption used.
• The lifetime annual exclusion, the total aggregate amount of funds you can give to anyone above your annual gift exclusion during your life or at death before owing estate or gift taxes, will be $13,990,000 in 2025 (up from $13,610,000 in 2024). For married couples, this amount can be combined with your spouse through “portability,” meaning a married couple could give up to $27,980,000 in 2024 before owing estate or gift taxes on any gifts in the future.
• In 2025, you can contribute up to $4,300 to your Health Savings Account (HSA) if you are covered by a high-deductible health plan just for yourself or $8,550 if you have coverage for your family. At age 55, individuals can contribute an additional $1,000 to their HSAs.

Reminder: Current Tax Laws Sunset in 2025

The major changes to the tax code under the Tax Cuts and Jobs Act of 2017 are currently scheduled to sunset at the end of 2025. However, with the results of the 2024 election clear, this is likely to be delayed by at least another 5 years, possibly longer. If Congress and the incoming administration do not act, there will be potential income and estate tax increases for most individuals. Read more about 2024 year-end tax planning strategies here. We will update investors about the election’s impact in future posts.

For many investors, this is an opportune time to talk with your Wealth Advisor about the power of Roth conversions, taking advantage of lower tax brackets today to pay fewer tax dollars over your lifetime, and leaving a tax-free legacy to your children or other beneficiaries.

For specific individuals with a higher net worth or expecting to have a high net worth through a liquidity event or business growth in the future, now is the time to update your wealth transfer and estate plan to take advantage of the expanded lifetime unified credit exemption available. The amount you can pass tax-free is scheduled to be cut in half with the tax law sunset at the end of 2025. The IRS has stated this is a “use it or lose it” opportunity. 

At Mission Wealth, we proactively work with our clients to understand the complexities of the tax laws as they are today and plan for changes in the future. Our advisors work closely with you and our internal group of strategy experts – at no additional cost – to ensure you always receive financial advice that is in your best interest. Contact us today for a free consultation.