Family limited partnerships save transfer taxes
Family limited partnerships (FLP) can significantly reduce gift, estate, and generation-skipping transfer (GST)
taxes on generational wealth transfer through valuation techniques employing minority interest and liquidity
discounts.
Tax-advantaged philanthropy
Charitable remainder annuity trusts (CRAT) & unitrusts (CRUT) can be employed to retain lifetime
income with assets passing to charity at death.
Private Foundations create a lasting family legacy, while eliminating income tax on gifts of appreciated property.
Planned giving to public charities can include life insurance and retirement plan assets.
Eliminate non-resident state income tax
Professional corporations can be employed to eliminate non-resident state income tax for Florida
& Texas attorneys. Candidates for this strategy are partners of large, multi-state law firms admitting
corporate partners.
Tax Planning with Grantor Trusts
Gifts of property to family members SHOULD ALWAYS BE TRANSFERS IN TRUST.
Grantor retention of certain fiduciary powers will vest ownership of trust assets with grantor for
federal & state income tax purposes. Trust income and gains are reported on donor's personal
income tax return. Donor's payment of tax on trust income and gains is not a taxable gift to
the trust. This permits income tax-free growth for trust property.
Estate Planning with Grantor Trusts
Simplify testamentary planning by transferring property in trust and retain benefits of ownership.
Generally, a decedent's Will is subject to legal proceeding in probate court. There
will be legal costs and it may take months, or in some cases, years to finalize legal action.
If real property is owned in states / commonwealths, other than where decedent is domiciled at time
of death, ancillary probate proceedings are likely required to pass clear title to heirs.
Creating family trusts, where grantors retain revocation powers, will eliminate any need for
state probate proceedings. The family trust agreement is a superior substitute for a Will, allows
substantial flexibility for addressing the needs of heirs, and permits the transfer of assets on a
completely confidential basis. Generally, family Trusts are drafted so Grantors may revise them
as circumstances change. Proper drafting can insure each spouse's testamentary wishes are protected
upon their death. For income tax purposes, on the death of surviving spouse, generally Trust assets
will receive a basis step-up under IRC Section 1014.
Why is Fiduciary Accounting important?
Trustees & Executors are generally required to account for principal and income under terms of the
governing instrument (Trust Agreement or Decedent's Will). Most states have adopted the Uniform
Principal & Income Act (UPIA), or a modified version, to guide Trustees and Executors when the
governing instrument is silent. Fiduciaries have responsibilities to both current income beneficiaries
and to remainder beneficiaries. So, records must be maintained to determine what $$ are currently
distributable as income and what $$ are to be retained for the remainder interests.
Income tax accounting for Trusts and Estates is not the same. Many inexperienced advisers confuse
the two. It is true however, that calculation of current income tax for a Trust or Estate, will depend upon
computation of fiduciary accounting income.
Most state laws require annual fiduciary accountings by Trustees & Executors and timely reporting to
beneficiaries. Beneficiaries generally have rights to enforce annual reporting, which may involve
legal action, when Trustees & Executors fail to comply.
Key Provisions of 2025 Tax Legislation
Key Individual & Business Tax Provisions within Legislation
Signed into Law July 4, 2025
Individual
SALT Limitation. Increases the SALT cap to $40,000 for 2025. The amount is increased to $40,400 for 2026 and then indexed for inflation annually before reverting to the current $10,000 limit in 2030. The cap is reduced (but not below $10,000) by 30 percent of the excess of the taxpayer's MAGI over $500,000. The phaseout threshold is indexed in the same manner as the cap after 2025.
Individual Tax Rates and Standard Deduction. Makes the TCJA individual tax rates permanent and provides for an extra year of inflation adjustments for the 10-, 12-, and 22-percent brackets. It also makes TCJA enhanced standard deduction permanent and further enhances it by increasing the amounts for the 2025 tax year to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married filing jointly (so, an across-the-board increase of 5 percent). These amounts will be the new base for inflation indexing for years after 2025.
Estate and Gift Tax Exemption. Permanently extends TCJA's estate and lifetime gift tax exemption and increases the exemption amount to $15 million in 2026.
Enhancements to 529 Plans. For tax years beginning after December 31, 2025, increases the annual limit on distributions from 529 savings plans from $10,000 to $20,000. It also allows distributions to be used for additional educational expenses in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, including: curriculum and curricular materials; books or other instructional materials; online educational materials; tutoring or educational classes outside the home; certain testing fees; fees for dual enrollment in an institution of higher education; and certain educational therapies for students with disabilities.
Charitable Contribution Deduction. For tax years after December 31, 2025, reinstates and enhances Code Sec. 170(p), which provided a charitable contribution deduction for non-itemizers. The provision creates a permanent deduction of up to $1,000 in cash contributions for single filers ($2,000 for married filing jointly). For individuals who elect to itemize, the new law imposes a new 0.5-percent AGI floor on charitable contributions.
Child Tax Credit. Permanently increases the child tax credit to $2,200 per child beginning in 2025 and indexes it for inflation.
Adoption Credit. Makes the adoption tax credit partially refundable up to $5,000 (indexed for inflation) beginning in 2025.
Student Loan Discharges. Includes both bad news and good news for student loan discharges. The bad news is that it allows a Biden era provision allowing all student loan discharges (regardless of the reason) to be excluded from income to expire at the end of 2025. The good news is that it permanently extends a narrower TCJA provision allowing exclusion from income of student loan discharges resulting from the individual's death or permanent disability.
Deduction for Tip Income. Creates a new above-the-line deduction of up to $25,000 for qualified tips received by an individual in an occupation which customarily and regularly receives tips during a given tax year. The deduction is allowed for both employees and independent contractors. The deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). The deduction is allowed for the 2025-2028 tax years.
Deduction for Overtime Pay. Creates a new above-the-line deduction for up to $12,500 ($25,000 in the case of a joint return) for "qualified overtime compensation" (defined as overtime compensation paid to an individual under Section 7 of the Fair Labor Standards Act). The deduction begins to phase out when the taxpayer's MAGI exceeds $150,000 ($300,000 in the case of a joint return). The deduction is allowed for the 2025-2028 tax years.
Temporary Senior Deduction. Adds a deduction for all individuals who have attained age 65 before the end of the tax year. The deduction amount is $6,000 per individual. The senior deduction begins to phase out when the taxpayer's MAGI exceeds $75,000 ($150,000 in the case of a joint return). The deduction is allowed for the 2025-2028 tax years.
Deduction for Car Loan Interest. Creates a new deduction of up to $10,000 of "qualified passenger vehicle loan interest," defined as interest paid on debt incurred after December 31, 2024 for the purchase of a new "applicable passenger vehicle" assembled in the U.S. The deduction is allowed for tax years 2025 through 2028 and begins to phase out when the taxpayer's MAGI exceeds $100,000 ($200,000 in the case of a joint return).
Deduction for Mortgage Insurance Premiums. Beginning in 2026, permanently restores the deduction for mortgage insurance premiums (previously available from 2018 through 2021) by treating such premiums as interest on acquisition indebtedness. As before, the deduction is phased out for taxpayers with adjusted gross income above $100,000 ($50,000 for married filing separately).
Health Savings Account Enhancements. For plan years beginning after December 31, 2024, permanently extends the safe harbor providing that a health plan will not fail to be treated as a high deductible health plan (HDHP) because of not having a deductible for telehealth services. Beginning in 2026, allows - (1) individuals with HDHPs to also enroll in direct primary care arrangements and allows HSA funds to be used to pay for DPC services (up to $150 per month for individuals or $300 per month for family arrangements); and (2) for all bronze and catastrophic health insurance plans on the Exchange to be eligible plans for the purpose of making HSA contributions.
Tax Exempt Accounts. Creates a new type of tax-exempt savings account administered by banks and other financial institutions. Starting January 1, 2026, parents of any child under age 8 may open an account for their child. Aggregate contributions are limited to $5,000 annually, but the limit does not apply to contributions from tax-exempt entities such as private foundations. Beginning at age 18, account holders may access up to 50 percent of funds for a limited set of purposes, including higher education. At age 25, the 50 percent limitation is lifted. At age 30, account holders have access to their full balance for any purpose. Under a pilot program, for U.S. citizens born between January 1, 2024, and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account.
Termination of Clean Energy Credits. Terminates the new clean vehicle credit and the previously-owned clean vehicle credit for vehicles acquired after September 30, 2025. It also terminates the energy efficient home improvement credit and residential clean energy credit at year's end.
New Limit on Gambling Losses. Beginning in 2026, further limits the term "losses from wagering transactions" in Code Sec. 165 to 90 percent of the amount of such losses. Any deduction for gambling losses remains limited to the amount of gambling winnings.
Business
Qualified Business Income Deduction. Permanently extends the qualified business income deduction (QBI) under Code Sec. 199A at the current 20 percent rate and increases the deduction limit phase-in range from $50,000 to $75,000 for non-joint returns and $100,000 to $150,000 for joint returns. In addition, introduces a new, inflation-adjusted, minimum deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trades or businesses in which the taxpayer materially participates.
Bonus Depreciation. Permanently extends the additional first-year depreciation deduction. The allowance is increased to 100 percent for property acquired and placed in service on or after January 19, 2025, as well as for specified plants planted or grafted on or after January 19, 2025.
Section 179 Expensing. Increases the maximum amount a taxpayer may expense under Code Sec. 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. The $2.5 million and $4 million amounts are adjusted for inflation for tax years beginning after 2025. The change applies to property placed in service in tax years beginning after December 31, 2024.
Research or Experimental Expenses Deduction. Allows taxpayers to immediately deduct domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Additionally, small business taxpayers with average annual gross receipts of $31 million or less generally may apply this change retroactively to tax years beginning after December 31, 2021. Furthermore, all taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, may elect to accelerate the remaining deductions for such expenditures over a one-year period or a two-year period.
Special Depreciation Allowance for Qualified Production Property. Allows taxpayers an additional first-year depreciation deduction equal to 100 percent of the adjusted basis of "qualified production property." Qualified production property is essentially nonresidential real property in the United States (or any possession) used for manufacturing and placed in service after July 4, 2025 and before January 1, 2031.
Modification of Limit on Business Interest. Increases the cap on the deductibility of business interest expense for tax years beginning after December 31, 2024. Specifically, "adjusted taxable income" is calculated in a way that corresponds with the financial accounting concept of earnings before interest, taxes, depreciation and amortization (EBITDA).
Increased Threshold for Forms 1099-MISC and 1099-NEC. For payments made after December 31, 2025, increases the threshold for reporting payments on Forms 1099-MISC and 1099-NEC for services performed by independent contractors from $600 to $2,000.
Repeal of Revision to De Minimis Rules for Form 1099-K. Modifies requirements for third-party settlement organizations to eliminate their reporting requirement for payees unless they have earned more than $20,000 on more than 200 separate transactions in an applicable tax period.
Capital Gains from the Sale of Certain Farmland Property. For tax years beginning after July 4, 2025, adds a new provision that allows capital gains from the sale or exchange of qualified farmland property to a qualified farmer (i.e., an individual who is actively engaged in farming) to be paid in four equal annual installments, beginning on the original due date of the tax return for the tax year in which the sale or exchange occurred.
Limit on Excess Business Losses of Noncorporate Taxpayers. Makes permanent the excess business loss limitation for noncorporate taxpayers under Code Sec. 461(l).
1 Percent Floor for Corporate Charitable Contributions. For tax years beginning after December 31, 2025, allows a deduction for corporate charitable contributions only to the extent that the aggregate of corporate charitable contributions exceeds one percent of taxable income.
Expansion of Qualified Small Business Stock Gain Exclusion. Modifies the qualified small business stock (QSBS) gain exclusion by providing a tiered gain exclusion for QSBS acquired after July 4, 2025. The provision allows a 50 percent exclusion after three years, 75 percent after four years and 100 percent after five years.
Enhancement of Employer-Provided Child Tax Credit. Permanently increases the employer-provided childcare credit and creates a separate credit amount for qualified small businesses. Specifically, the provision increases the maximum credit from $150,000 to $500,000 ($600,000 for small businesses) and the percentage of qualified childcare expenses covered from 25 percent to 40 percent (50 percent for small businesses).
Termination of Clean Energy Credits. Terminates an array of business-related clean energy tax credits enacted by the Inflation Reduction Act of 2022. The popular commercial clean vehicle credit now expires for vehicles acquired after September 30, 2025.