Just Released! Changes of Tax Year 2025

The Internal Revenue Service announced on Oct. 22, 2024 the annual inflation adjustments for tax year 2025.  

Under Revenue Procedure 2024-40, here are the key tax changes for the 2025 tax year (to be filed in 2026):

Notable Increases for 2025:

• Standard Deductions:
  • Single or Married Filing Separately: $15,000 (up $400)
  • Married Filing Jointly: $30,000 (up $800)
  • Head of Household: $22,500 (up $600)
• Marginal Tax Rates:
  • Top rate remains at 37% for incomes over $626,350 (single) or $751,600 (married).
  • Other rates include 35%, 32%, 24%, 22%, 12%, and 10% depending on income levels.
• Alternative Minimum Tax (AMT):
  • Exemption rises to $88,100 for unmarried individuals and $137,000 for married couples filing jointly.
• Earned Income Tax Credit (EITC):
  • Maximum for taxpayers with three or more children rises to $8,046.
• Qualified Transportation Fringe Benefit:
  • Monthly benefit limits increase to $325 (from $315 in 2024).
• Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs):
  • Contribution limits for FSAs increase to $3,300, and the carryover limit rises to $660.
  • Medical savings account (MSA) limits and out-of-pocket expenses for self and family coverage also increase slightly.
• Foreign Earned Income Exclusion:
  • Increases to $130,000 from $126,500.
• Estate Tax Exemption:
  • Rises to $13.99 million from $13.61 million.
• Gift Tax Exclusion:
  • Annual exclusion increases to $19,000 (from $18,000).
• Adoption Credit:
  • The credit for adopting a child with special needs increases to $17,280.

For your tax planning needs from 2025 to 2026, it’s crucial to stay ahead of upcoming changes and optimize your financial strategy. With various tax adjustments for 2025, including shifts in standard deductions, marginal tax rates, and key credits like the Earned Income Tax Credit, proper planning can help you navigate the evolving landscape and avoid potential pitfalls. Our firm can guide you through:

• Maximizing deductions and credits: With increases in standard deductions and healthcare-related contribution limits, we can help you leverage available benefits.
• Managing AMT and EITC changes: Understanding the impact of exemption increases and EITC thresholds will be key in lowering your tax liabilities.
• Estate planning: As the estate tax exemption rises, this presents opportunities for more efficient wealth transfer strategies.

Consult with us today to tailor a 2025-2026 tax strategy that best suits your personal or business goals, ensuring compliance and tax savings in the years ahead. Our team will help you stay on top of all these adjustments.

Source: IRS releases tax inflation adjustments for tax year 2025 | Internal Revenue Service