Tax Time 2025: What’s New and How It Affects You

The IRS has announced the inflation-adjusted tax brackets and standard deductions for 2025, marking an essential update for taxpayers. This year's adjustments are more moderate compared to the significant increases seen in recent years due to heightened inflation following the COVID-19 pandemic. In previous years, the adjustments reflected considerable inflation spikes, but the projected increases for 2025 are more typical, ensuring that taxpayers are not pushed into higher tax brackets simply due to nominal wage increases.

Here’s what you need to know for effective financial planning in 2025:

Key Tax Changes for 2025

• Revised Tax Rate Tables - The IRS has updated the tax brackets for 2025. Here are the key brackets for different filing statuses:

Top Tax Rate (37%):

• 2025 Amount: $626,350 for singles, $751,600 for married couples.

• Increase: $17,000 for singles, $20,400 for married couples.

35% Bracket:

• 2025 Amount: $250,525 for singles, $501,050 for married couples.

• Increase: $6,800 for singles, $13,600 for married couples.

32% Bracket:

• 2025 Amount: $197,300 for singles, $394,600 for married couples.

• Increase: $5,350 for singles, $10,700 for married couples.

24% Bracket:

• 2025 Amount: $103,350 for singles, $206,700 for married couples.

• Increase: $2,825 for singles, $5,650 for married couples.

22% Bracket:

• 2025 Amount: $48,475 for singles, $96,950 for married couples.

• Increase: $1,325 for singles, $2,650 for married couples.

• Increased Standard Deductions - The standard deduction amounts for 2025 will see an increase:

  • Married Filing Jointly: $30,000

  • Heads of Household: $22,500

  • Single Filers: $15,000

• Child and Adoption Tax Credits - The Child Tax Credit will now have a refundable portion of $1,700, while the Adoption Credit for adopting a child with special needs will be $17,280.

• Capital Gains and Kiddie Tax Changes - For 2025, the maximum capital gains tax rates will be adjusted, with the "Kiddie Tax" remaining set at $1,350. This ensures that unearned income for minors is taxed at a lower rate, benefiting families.

• Estate and Gift Tax Changes - The estate tax exemption will be adjusted for inflation. For individuals who pass away in 2025, the basic exclusion amount is projected to be $13,990,000, which helps shield larger estates from taxation.
  Additionally, the annual gift exclusion will increase to $19,000, allowing individuals to gift more money without incurring tax implications.

• Health Care and Retirement Contributions - The contribution limits for Health Flexible Spending Accounts (FSA) will be $3,300, with a carryover limit of $660.

These updates are important as they will impact your tax planning for the coming year.

At The Purple Group, we actively monitor these changes and the political landscape to provide the best advice for our clients. Our team incorporates these updates into regular planning, ensuring you make informed financial decisions. Come work with us to see the difference!

For more information on these changes, please visit the IRS announcement here.

Contact us today to learn more.