These deductions are valid for the 2025 tax year, but we have some items on the radar regarding possible legislation changes that might affect your financial planning. This guide explains everything you need to know about important tax deductions, proposed reforms and how to optimize your tax benefits.
Key Tax Deductions
LIMITATION ON SALT (STATE AND LOCAL TAX) DEDUCTION
The SALT deduction enables taxpayers to deduct certain state and local taxes from their federal taxable income. Currently, the deduction is limited to $10,000. However, recent proposals from the legislature are seeking to raise this limit, with proposals ranging up to $100,000. Keep in mind these are proposals and not guarantees that will get enacted; tax law can undergo significant revisions.
Home Office Deduction
For home office workers, the home office deduction may come in handy. To qualify, the space must be used only and regularly for business purposes and be your principal place of business. Taxpayers have the option of using one of two methods to figure this deduction:
- Regular Method: This is the method that requires calculating additional home office-related expenses, such as a percentage of rent, utilities, and other expenses associated with the home office.
- Simplified Method: You can claim a standard deduction based on the square footage of your home office, maximum 300 square feet. When claiming this deduction, it’s important to keep detailed records and follow IRS guidelines. Politico
529 Plan Contributions
Tax benefits apply to contributions to 529 college savings plans. And unlike contributions to 401(k) plans, federal tax deductions for contributions aren’t available, but many states offer state-level deductions or credits. For instance, New York, Georgia and Michigan allow taxpayers to deduct contributions to their 529 plans. Earnings in a 529 plan also grow tax-deferred, and if used to cover qualified education expenses, withdrawals are tax-free. Keep in mind that a withdrawal that isn’t qualified may be taxed and penalized. Barron’s
Some Proposals on Tax Reform and Consideration
Changes to tax proposed by the Government are speculative and parietal.
New legislative ideas, such as raising the limit on the SALT deduction, getting rid of taxes on tips, and expanding the Child Tax Credit, imply dramatic changes. But these are proposals, not already guaranteed changes. Tax laws can change quite a bit, and it helps to know as much as you can from trustworthy sources. Politico+1Investopedia+1
The Impact 50–50 Tax Bracket Potential
Note: Tax brackets may change due to new legislation. Stay current with what is being discussed and proposed to see how it might impact your tax planning.
Ways To Get The Most Out Of Your Tax Deductions
- Review and Adjust Withholdings: Make sure your tax withholdings reflect your current financial status to prevent underpayment or overpayment.
- Itemize if you can: If your deductions are greater than the standard deduction, it may save you more on your taxes to itemize.
- Maintain Your Records: Keep records of all deductible expenses, including receipts and statements, that support your claims.
- Consult a Tax Professional: A tax advisor can offer tailored strategies and help ensure compliance with current tax laws.
Conclusion
It is important to stay up to date about current tax deductions and possible legislation changes to plan your taxes correctly. You have until end of the tax year to find available deductions and implement conforming strategic approaches to optimize the tax situation for the year ahead. Note: Always consult with your tax professionals to adjust strategies to suit your specific situations.
