Key Strategies for Investors

The tax landscape is shifting once again in 2025, bringing both opportunities and challenges. With a Republican sweep in the 2024 elections and new legislation on the horizon, investors must stay ahead of the curve. At Larson, we are committed to helping you remain tax-efficient.

While the IRS’s latest inflation adjustments are not as dramatic as in previous years, compared to the 7% increase in 2023 and 5.4% in 2024, they still warrant careful planning.

For investors with complex financial portfolios, understanding how these tax law changes affect their wealth is essential. Below are six key areas to focus on when developing a tax-efficient strategy for the year ahead.

1. Standard Deduction Increases:
Maximizing Tax Efficiency

For 2025, the standard deduction rises to $30,000 for married couples filing jointly (up $800), $15,000 for single and married filing separately (up $400), and $22,500 for heads of households. Additional deductions apply for those who are blind or over 65.[i]

Consider implementing a rolling three-year deduction analysis to optimize itemization strategies. Bunching charitable contributions, medical expenses, and state tax payments in alternating years may help investors maximize deductions under the new limits. Charitable giving strategies, such as donor-advised funds, can further enhance tax benefits for those near the standard deduction threshold.

2. Inflation-Adjusted Tax Brackets:
Optimizing Income Strategies

To combat “bracket creep,” the IRS has adjusted more than 60 tax provisions, increasing brackets by about 2.8%. For example, the 24% bracket now applies to income up to $394,600 for married couples, while the 37% top bracket applies to incomes exceeding $751,600.

Use multi-year tax projections to take advantage of lower brackets. Roth conversions, capital gains harvesting, and strategic income deferrals can help optimize tax efficiency while staying within favorable brackets.[ii]

3. Capital Gains Tax Planning:
Timing Is Everything

Long-term capital gains rates remain favorable, with the 15% threshold beginning at $96,700 for joint filers and the 20% rate applying at $600,050. However, estate and trust tax brackets for capital gains remain compressed, with the 15% rate kicking in at just $3,250.

Coordinate capital gains harvesting with ordinary income to reduce overall tax liability. High-net-worth investors can also leverage direct gifting of appreciated securities to avoid capital gains while supporting charitable causes.

4. Estate and Gift Tax Exclusion:
A Window of Opportunity

The estate, gift, and generation-skipping transfer (GST) tax exemption increases to $13,990,000 in 2025, up $380,000 from 2024. The annual gift tax exclusion also rises to $19,000 per recipient.

With uncertainty surrounding the potential sunset of the 2017 Tax Cuts and Jobs Act (TCJA), consider accelerating wealth transfer strategies while the current high exemptions remain in place. Families with estates between $10 million and $14 million should explore gifting strategies to reduce future estate tax burdens.

5. Business Income and the QBI Deduction: Structuring for Maximum Benefit

The Qualified Business Income (QBI) deduction remains a critical tax-saving tool for business owners, with phase-out thresholds increasing to $394,600 for joint filers and $197,300 for single filers.[iii]

Business owners should conduct quarterly income projections to manage taxable income levels relative to QBI thresholds. Consider retirement contributions, equipment purchases, and income deferrals to optimize deductions.

6. Net Investment Income Tax (NIIT):
Minimizing Exposure

The 3.8% NIIT remains unchanged at $200,000 for single filers and $250,000 for joint filers, meaning more investors could face this additional tax as portfolios grow.[iv]

High-income earners should implement tax-aware investment strategies, such as placing tax-efficient investments in taxable accounts and income-generating assets in tax-advantaged accounts, to reduce NIIT exposure.

Proactive Planning for a Changing Landscape

While annual inflation adjustments may seem routine, they present strategic opportunities for tax planning. With potential legislative shifts on the horizon, high-net-worth individuals must take a proactive approach to safeguard their wealth.

By leveraging inflation-adjusted tax brackets and utilizing tax-advantaged accounts, investors can ensure their financial future remains resilient and tax-efficient. We remain committed to helping you navigate these complexities with a tailored approach that empowers you to flourish in any tax environment.

[i] https://www.harnesswealth.com/articles/a-guide-to-key-tax-changes/

[ii] https://www.bankerslife.com/insights/personal-finance/understanding-the-new-2025-tax-policies-capital-gains-tax-rates-and-rules/

[iii] https://www.irs.gov/newsroom/qualified-business-income-deduction

[iv] https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

Stay informed.

Watch our most recent Weekly Market Commentaries to make sure you know what’s happening in the markets each week.