As we approach the 2025 tax year, it’s essential for taxpayers to stay informed about the latest adjustments to tax brackets and deductions. The Internal Revenue Service (IRS) has announced modest increases in tax brackets due to inflation, which could impact your tax planning strategies.
Modest Inflation Adjustment
The tax brackets for 2025 are moving up by approximately 2.8%, which is the smallest adjustment we’ve seen in recent years. While this increase slightly outpaces the current inflation rate, it’s important to note that average hourly earnings have risen by 4% over the past year.
What This Means for Taxpayers
These adjustments could result in a slight decrease in taxes owed for many individuals, even if their income remains the same. However, the difference may only amount to a few hundred dollars for most taxpayers.
Key Changes for 2025
- Standard Deduction Increase
- Singles: $15,000 (up from $14,600)
- Married couples filing jointly: $30,000 (up from $29,200)
- Top Tax Bracket Threshold
- Married couples: $751,600 (an increase of about $20,000)
- Singles: $626,350
- Capital Gains Tax
- 0% rate applies to:
- Singles with taxable income up to $48,350
- Joint filers with incomes up to $96,700
- 0% rate applies to:
- Estate Tax Exclusion
- Increased to $13.99 million (up from $13.61 million)
- Gift Tax Exclusion
- Annual limit raised to $19,000 (up from $18,000)
Planning Considerations
It’s worth noting that 2025 could be a crucial year for tax planning. The Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025, which could lead to significant changes in the tax code. Without congressional action, we may see the top ordinary income tax rate jump from 37% to 39.6% in 2026.
What Remains Unchanged
Not all tax parameters are adjusted for inflation. The following remain the same:
- $10,000 cap on state and local tax (SALT) deductions
- $2,000 maximum for the child tax credit
- $3,000 limit on capital losses deductible against ordinary income
Looking Ahead
While these adjustments provide some relief against inflation, it’s crucial to stay informed about potential changes in the tax landscape. At BrilTax, we’re here to help you navigate these changes and optimize your tax strategy.
Remember, effective tax planning is an ongoing process. If you have questions about how these changes might affect your specific situation, don’t hesitate to reach out to our team of expert CPAs at BrilTax. We’re here to ensure you’re well-prepared for the 2025 tax year and beyond.
