Tax changes and trends for 2025

Now that we’re in 2025, tax professionals and taxpayers alike face a dynamic landscape filled with crucial tax changes and evolving trends.

Some of the topics that are particularly impactful include the sunset of the Tax Cuts and Jobs Act (TCJA), the nuances of the home office deduction, new digital asset reporting requirements, and a focus on self-employed health insurance deductions. Here’s what taxpayers and tax professionals need to know to navigate these areas effectively.

1. Sunset of the Tax Cuts and Jobs Act (TCJA) and its relation to the 2024 election

One of the most significant concerns for taxpayers this year is the anticipated expiration of provisions under the TCJA. Set to sunset at the end of 2025, the TCJA includes reduced tax rates, a doubled standard deduction, and expanded credits for families, among other benefits. Unless Congress acts, these provisions will revert to pre-2018 tax law.

The 2024 elections add further uncertainty, because different political stances could affect the renewal or adjustment of TCJA provisions. Some proposals include extending or even expanding the TCJA benefits, while others aim to increase taxes for high-income individuals and corporations. Tax professionals should stay informed on these potential changes to help clients plan effectively, especially when it comes to decisions that could impact their taxable income over the next few years.

Individuals may want to consider strategies such as Roth IRA conversions or capital gains harvesting if they anticipate future tax rate hikes. Businesses may need to evaluate whether deferring income or accelerating deductions makes sense under the current or anticipated tax rates. Being proactive and adaptable can help taxpayers mitigate the impact of potential policy shifts.

2. Home office deduction nuances

The home office deduction can be a valuable tax-saving tool, but eligibility requirements vary depending on the taxpayer’s business structure. As a sole proprietor, qualifying for the deduction is straightforward: the space must be used regularly and exclusively for business purposes. This enables deductions for a proportionate share of household expenses such as mortgage interest, utilities, and property taxes.

However, the rules change for S corporation owners, partners in partnerships, and C corporation owners. S corporation owners, for instance, cannot deduct home office expenses on their individual returns. Instead, they may use an accountable plan, allowing the S corporation to reimburse them for home office expenses, which are then deductible as a business expense. This strategy makes home office costs tax-free for the owner-employee and beneficial for the corporation if it is documented.

Partners can also deduct home office expenses on their personal returns if they use the space for business and the partnership agreement includes provisions for home office use. This is considered an unreimbursed partner expense or UPE. C corporation owners can similarly use an accountable plan to gain tax-free reimbursement for qualifying expenses.

Misconceptions are common, and many taxpayers fail to meet the “exclusive use” requirement, which is essential. The office space cannot double as a guest room or multipurpose area. Proper documentation is vital for maintaining compliance, especially since the IRS scrutinizes home office deductions closely. Special rules apply to daycare providers, and also when inventory or product samples are stored.

3. 1099-DA: Digital asset reporting requirement changes

The IRS has increased its focus on digital assets, including cryptocurrencies; the new Form 1099-DA, Digital Asset Proceeds From Broker Transactions, reflects this shift. Starting in 2024, digital asset brokers will be required to report transactions on Form 1099-DA, which helps the IRS better track cryptocurrency transactions. This change increases transparency and aligns digital asset reporting with traditional financial asset reporting, like Form 1099-B for stock trades.

Taxpayers who trade cryptocurrencies should be mindful of accurately reporting gains and losses to avoid penalties. Digital asset taxation can be complex, especially with issues like cost-basis tracking and the wash-sale rule. Tax professionals should encourage clients who engage in significant digital asset trading to maintain detailed records and seek specialized advice to ensure they stay compliant with the new reporting requirements.

4. IRS Form 7206 – Self-employed health insurance deduction

Form 7206, Self-Employed Health Insurance Deduction, introduced in 2023, is used by self-employed individuals to determine their deductible health insurance premiums for reporting on Schedule 1 (Form 1040). This form replaces the previous worksheet in Publication 535, aiming to streamline how eligible individuals calculate deductions for health, dental, and qualified long-term care insurance premiums, as well as Medicare premiums paid for themselves, their spouses, and dependents. These expenses can include insurance covering children under 27, even if they are not dependents.

To qualify, the taxpayer must establish the insurance under their business, whether as a sole proprietor, partner, or more-than-2% shareholder in an S Corporation. For partners, premiums must either be paid by the partnership, or reimbursed to the partner and reported as income on Schedule K-1. S Corporation shareholders need the corporation to either pay or reimburse premiums, reporting them as W-2 wages. Medicare premiums can be included if the individual voluntarily pays them for coverage akin to private insurance. However, these premiums cannot count toward the deduction if the taxpayer or their dependents had access to employer-subsidized health plans for any part of the month.

Form 7206 also introduces limitations for individuals with multiple businesses, multiple health plans, or those using long-term care insurance, with age-based caps for long-term care coverage. If the taxpayer has access to a health insurance subsidy, such as one obtained through an employer, they are ineligible to claim the deduction for that period, regardless of actual participation. The deduction impacts only income tax calculations and not self-employment tax, making Form 7206 essential for maximizing deductions while adhering to IRS requirements for self-employed health insurance premiums.

 Stay informed

With several key tax topics taking center stage this year, staying informed is essential for tax professionals and clients. From the TCJA’s uncertain future and the varying rules for the home office deduction, to the new digital asset reporting requirements and the self-employed health insurance deduction, understanding the implications of these trends is critical to making sound, tax-efficient decisions.

By proactively planning and staying flexible, taxpayers can better navigate the tax landscape, position themselves for potential policy shifts, and maximize their deductions for 2024.