2025 Tax and Financial Updates: What You Need to Know

Dear Client,
As the new year approaches, it’s important to stay updated on the latest tax changes and financial news. This newsletter highlights increased retirement contribution limits, updated FSA allowances, BOI reporting deadlines, and tax benefits for businesses, military families, and charitable giving. We also cover estate and inheritance taxes, disaster relief for Alaska, changes to Form 1099-K reporting, and the potential economic impact of proposed tariffs. 

Healthcare FSA Contribution Limits for 2025

Healthcare Flexible Spending Account (FSA) contribution limits have increased to $3,300 for 2025, up from $3,050 in 2024. FSAs allow participants to use pre-tax dollars to cover medical expenses, such as co-pays, deductibles, dental and vision care, and over-the-counter medications. Plans permitting carryovers will now allow up to $660 into 2025, an increase from the $640 carryover limit in 2024. Employers may contribute additional amounts if the plan allows. If both spouses have FSAs, they can contribute up to $6,600 collectively. Note that FSAs require annual re-enrollment and are not available to self-employed individuals.

Estate and Inheritance Taxes

Twelve states and Washington, D.C., impose estate taxes, while six states levy inheritance taxes. Maryland uniquely applies both taxes. Estate taxes are charged on the overall value of the decedent’s estate before distribution, while inheritance taxes are imposed on beneficiaries based on their share.

Tax Benefits for Businesses Supporting Disabilities

The Disabled Access Credit is available to small businesses earning $1 million or less or employing fewer than 30 full-time workers. This credit can cover expenses for improving accessibility for individuals with disabilities, such as modifying entrances and restrooms. The Barrier Removal Tax Deduction allows businesses of any size to deduct up to $15,000 annually for expenses related to removing architectural or transportation barriers. Businesses can combine these two programs in the same tax year for qualifying expenses, though the deduction will be adjusted for any credits already claimed.

Tax Benefits for Military Families

Military families are eligible for several tax benefits to ease financial burdens. Combat pay earned in hazardous zones is tax-free, and tax deadlines are extended for individuals serving in combat zones. Military families can also exclude Armed Forces dependency allotments from taxable income. Eligible service members may qualify for the Earned Income Tax Credit (EITC), which could be worth up to $7,830 for tax year 2024. Moving expenses related to permanent station changes are deductible, and relocation allowances for active-duty members are non-taxable.

Qualified Charitable Distributions

IRA owners aged 70½ or older can donate up to $105,000 tax-free to qualified charities in 2024, with the limit increasing to $108,000 in 2025. These Qualified Charitable Distributions (QCDs) count toward Required Minimum Distributions (RMDs) for individuals aged 73 or older. Married couples with separate IRAs can contribute a combined total of $210,000. Donations must be sent directly from the IRA trustee to the charity to qualify.

Changes to Form 1099-K Reporting

Beginning in 2024, third-party payment platforms such as PayPal, Venmo, and Square must report payments exceeding $5,000 for goods or services. This new threshold is a significant reduction from the previous $20,000 and 200 transactions. Personal transactions between friends and family remain excluded, but taxpayers should ensure accurate reporting for business-related transactions.

Tax-Free Donations for IRA Owners

The IRS reminds IRA owners aged 70½ and older that they can donate up to $105,000 tax-free to qualified charities in 2024 through Qualified Charitable Distributions (QCDs). This limit has increased from $100,000 in previous years. For those aged 73 or older, QCDs also count toward their required minimum distribution (RMD) for the year.

While IRA distributions are typically taxable, QCDs are tax-free if directly sent to a qualified charity by the IRA trustee. To ensure QCDs are processed by the end of 2024, IRA owners should contact their trustee promptly. Married couples, with separate IRAs, can donate a combined total of up to $210,000. Additionally, starting this year, the QCD limit will be adjusted annually for inflation, with the limit expected to rise to $108,000 in 2025.

For reporting purposes, QCDs should be reported on the 2024 tax return using Form 1099-R. The full amount of any IRA distribution appears on Line 4a of Form 1040, with “0” entered on Line 4b if it is a QCD. Donors must also obtain written confirmation from the charity of their donation.

Interest Rates for Q1 2025

The IRS has decreased interest rates for the first quarter of 2025. Individual overpayments and underpayments will accrue interest at 7%, while large corporate underpayments will incur a 9% interest rate. Corporate overpayments exceeding $10,000 will have an interest rate of 5%.

Impact of Trump's Proposed Tariffs on the U.S. Economy

President-elect Trump's proposed tariffs on imports, including 10-20% on all goods, 60% on Chinese imports, and up to 100% on Mexican goods, are expected to harm the U.S. economy. While tariffs may benefit some domestic industries by raising the price of imported goods, they lead to inefficiencies, reduced economic output, and lower living standards. Tariffs also discourage innovation and can trigger retaliatory tariffs from foreign countries, further hurting U.S. exports and economic growth. Overall, these tariffs are likely to harm the economy, with benefits for protected industries coming at the expense of consumers.