2025 Tax Changes and Good Music

2025 Tax Changes and Good Music

The focus of this newsletter is to highlight the multitude of tax changes we've observed in 2025 on both the federal and state level — compared to some classic songs to make it more exciting.

Federal Changes Under the One Big Beautiful Bill (OBBB)

1. Tax Cuts Made Permanent — Celebrate Good Times! (Kool and the Gang)

The OBBB locks in many provisions from the 2017 Tax Cuts and Jobs Act: lower individual income tax brackets, a higher standard deduction, and favorable capital gains thresholds.

2. Senior Deduction — When I'm 64(65) (The Beatles)

Starting in 2025, individuals aged 65 or older may claim an additional $6,000 deduction ($12,000 for couples), on top of the standard deduction. Phases out at $75,000 (single) / $150,000 (married). Expires after 2028.

3. Expanded SALT Deduction — Margaritaville (Jimmy Buffet)

The SALT deduction cap rises from $10,000 to $40,000 for taxpayers with income under approximately $500,000, through 2029.

4. Charitable Giving Incentives — Give a Little Bit (Supertramp)

Non-itemizers can now take a $1,000 charitable deduction ($2,000 for married couples) in addition to the standard deduction in 2026.

5. Higher Federal Estate and Gift Tax Exemption — Joy to the World (Three Dog Night)

Beginning in 2026, the federal exemption rises to $15 million per person ($30 million for couples), indexed for inflation.

6. Social Security Changes — A Life of Illusion (Joe Walsh)

The bill does not eliminate federal taxes on Social Security income. The new senior deduction can reduce provisional income and in some cases decrease the taxable portion of Social Security benefits.

Washington State Tax Changes for 2025

Capital Gains Tax Increase

The state tax on long-term capital gains above $1 million rises from 7% to 9.9%, retroactive to January 1, 2025. If you are considering selling appreciated securities, timing and transaction structure matter more than ever.

Estate Tax Adjustments

The WA estate tax exemption increases to $3 million starting July 1, 2025. The top rate climbs from 20% to 35% for estates above approximately $9 million. Break-even point is about $8,833,250 in gross estate value.

Our Key Planning Takeaways

• Reviewing 2025 tax withholdings to capture the new senior deduction.
• Reassessing itemizing vs. standard deduction given the larger SALT deduction and new charitable giving incentives.
• Updating estate plans to reflect both the new federal and WA state estate tax rules.
• Planning large asset sales strategically to limit exposure to Washington's higher capital gains tax rate.