The Republicans’ triumph at the presidential and congressional elections will bring important changes to the US tax regulations, especially for income and corporate taxes. Taxes can cut into an investor’s profit, and changes to regulations for the 2025 tax year could impact traders in new ways. Let’s examine how.
Potential Tax Changes for 2025
The US tax changes for 2025 cover dozens of key areas, including the unearned income of minor children, maximum capital gains, adoption credit, child tax credit, earned income credit, a refundable credit for coverage under a qualified health plan, and rehabilitation expenditures treated as separate new buildings. For investors and traders engaged in online trading, changes in standard deductions and marginal rates are key to managing returns from trading.
The new government will be sworn in by January 20, 2025, and begin implementing its tax policies. The current Tax Cuts and Jobs Act(TCJA) is scheduled to expire at the end of 2025, when the other changes will be in full effect. Although President-elect Donald Trump is expected to tackle aspects of the TCJA and introduce other changes, fiscal realities may influence the new measures and how taxpayers react.
These are the notable changes for the tax year 2025.
Changes to Tax Brackets
The US’s progressive tax system may inadvertently cause taxpayers to pay higher taxes as their salaries increase. This is why the IRS announced a tax bracket update in October, which will see annual income thresholds rise by 2.8% for 2025, marking a small increase from 2024. These inflation-adjusted changes to the tax brackets aim to protect taxpayers from higher taxes due to inflation and higher living costs when they enter higher wage brackets.
The new rates for 2025 are:
| Tax rate | Single Filers | Married Filing Jointly | Heads of Household |
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| 12% | $11,926 to $48,475 | $23,851 to $96,950 | $17,001 to $64,850 |
| 22% | $48,476 to $103,350 | $96,951 to $206,700 | $64,851 to $103,350 |
| 24% | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 |
| 32% | $197,301 to $250,525 | $394,601 to $501,050 | $197,301 to $250,500 |
| 35% | $250,526 to $626,350 | $501,051 to $751,600 | $250,501 to $626,350 |
| 37% | Over $626,350 | Over $751,600 | Over $626,350 |
Standard Deductions
The new tax year will also change the standard deductions for all tax brackets. The standard deductions will increase from $14,600 to $15,000 for single taxpayers and married individuals filing separately. For married couples filing jointly, the standard deduction will be $30,000, up from $29,200 in 2024, while heads of household will get a deduction of $22,500 in 2025, which is an increase from $22,100 in 2024.
Capital Gains Tax Rates
Long-term capital gains tax rates for 2025 will remain at 0%, 15%, and 20%. However, the income thresholds will be adjusted upward to reflect the changes in tax brackets. Taxpayers with income exceeding certain thresholds will also pay the net investment income tax (NIIT), an additional 3.8%. Individuals with income up to $48,350 will pay 0% capital gains, while those earning between $48,350 and $533,400 will pay 15% and 20% on earnings above $533,400.
Lower Corporate Income Tax Rate
The incoming government has said it would lower the corporate income tax rate from 21% to 15% for qualified businesses that manufacture their products in the US. The Trump-led government is also expected to exempt social security benefits from income taxes and exempt tip income from income and social security taxes.
Foreign Earned Income Exclusion
Taxpayers in the foreign-earned income bracket will see exclusion rates rise from $126,500 to $130,000. This does not exclude expats from paying taxes in their country of citizenship, but US taxpayers can be excluded after filing tax returns.
What Traders Should Prepare for
Although these changes are largely important, they may impact traders differently, especially regarding the total taxes paid. The economic impact of tax changes could also be important, driving market sentiments and influencing trade.
Increased Tax Scrutiny
Traders must prepare for increased tax scrutiny in 2025 as the IRS focuses on high-income earners. The IRS will intensify efforts to ensure that taxpayers with substantial income comply with new changes and pay their fair share of taxes. The IRS will also focus on cryptocurrency and digital assets, paying closer attention to transaction reports and heightened compliance with related tax obligations.
Economic Impact
Tax changes impact the economy by impacting industries and sectors, especially manufacturing and services, contributing significantly to the GDP. Tax changes will influence debt, research and development, entity structure, cost of capital, supply chain, and employee satisfaction. Although it’s certain that these changes will impact US citizens, the overall economic impact is not exactly set in stone. It could be good for the economy in the long run, or it could create challenges. For example, the incoming government’s plan to lower the corporate income tax rate from 21% to 15% for US-based manufacturers might encourage companies to move operations to the US. This boosts manufacturing jobs and strengthens the dollar. A stronger dollar could make imports cheaper, benefiting consumers, but it might also make US exports more expensive, hurting some industries.
On a more personal level, these tax changes could affect everyday finances, like home loan payments. For instance, if you’ve taken out a mortgage, higher taxes on your income could leave you with less disposable income to pay down your loan faster. Conversely, increases to the standard deduction (like the jump to $15,000 for single filers in 2025) might reduce your tax burden and help offset rising costs, leaving more room in your budget for saving or paying off debts.
In vocational industries like steelworks or construction, the changes could have mixed effects. If lower corporate taxes lead to greater investment in US manufacturing, companies might have more resources to raise wages or expand hiring. However, workers getting raises could face “bracket creep,” where higher incomes push them into a higher tax bracket, potentially increasing their tax bills. For example, if a welder’s salary rises from $48,000 to $50,000, they might inch closer to the 22% tax bracket, meaning they owe more in taxes despite the raise.
For traders, these economic shifts, like a stronger dollar or fluctuating GDP, could create opportunities or risks depending on how markets respond. As a trader, you can prepare for potential changes when markets react to tax changes and investors’ sentiments in three ways: to adjust trading in this period and wait out uncertain periods, hedging to manage risks, and diversifying to enhance profitability.
Adjustments to Financial Plans
Changes in the tax bracket will require traders to revise their financial plans in 2025. Think of it like updating your financial roadmap. If you’re earning more money next year, you might end up owing more in taxes, which could affect your big financial dreams. This isn’t about panicking—it’s about being smart. You’ll want to find ways to keep more of your hard-earned money by understanding how taxes work. This might mean looking for smart investment options that can help reduce what you owe, like retirement accounts or other tax-friendly investments. The key is to plan ahead: talk to a tax professional, review your income, and make sure you’re filing your taxes on time to avoid any unnecessary penalties.
Explore Tax-Deferred Retirement Plans
Tax-deferred retirement accounts can help traders manage their investments directly while enjoying tax-deferred growth. This is possible with the Traditional IRA, Roth IRA, and Solo 401(k) plans. Although custodial restrictions and contribution limits apply, traders can enjoy a more diversified portfolio, tax deferral, and potential tax savings.
