Key IRS Tax Changes for 2025: What You Need to Know

Now that 2025 is well underway, it’s important to stay informed about tax updates that may affect your financial planning. With adjustments based on inflation, certain tax limits and deductions have changed, potentially impacting your budgeting, savings, and insurance strategies.

Standard Deduction Increases

The IRS has raised the standard deduction amounts for 2025, reducing taxable income for many filers:

• Single filers: $15,000 (a $400 increase)
• Married couples filing jointly: $30,000 (a $800 increase)
• Heads of household: $22,500 (a $600 increase)

These adjustments may lower your taxable income, so it’s worth reviewing how they fit into your overall tax strategy.

Marginal Tax Bracket Adjustments

While tax rates remain unchanged, the income thresholds for each bracket have been adjusted. The highest tax rate of 37% now applies to:

• Single filers earning over $626,350
• Married couples filing jointly earning over $751,600

Here’s how the other tax brackets are structured:

• 35% for incomes over $250,525 (or $501,050 for married couples filing jointly)
• 32% for incomes over $197,300 (or $394,600 for married couples filing jointly)
• 24% for incomes over $103,350 (or $206,700 for married couples filing jointly)
• 22% for incomes over $48,475 (or $96,950 for married couples filing jointly)
• 12% for incomes over $11,925 (or $23,850 for married couples filing jointly)
• 10% for incomes below these amounts

Understanding which bracket you fall into can help you better anticipate your tax obligations.

Increased Contribution Limits for FSAs

For those using a Flexible Spending Account (FSA), the contribution limit has increased to $3,300, with a maximum carryover of $660. This means you can set aside more pre-tax dollars for eligible healthcare expenses.

Estate and Gift Tax Exemptions

Individuals engaging in estate or gift planning will benefit from the increased exemption amounts:

• Estate tax exclusion: Raised to $13,990,000
• Annual gift tax exclusion: Increased to $19,000

These higher thresholds create more opportunities for tax-efficient wealth transfers.

Steps to Take Now

With these IRS changes in effect, consider these actions to stay ahead:

• Review Your Tax Withholding – Ensure your withholdings align with your expected tax liability to avoid surprises at tax time.
• Adjust Your Savings Strategy – Take advantage of increased FSA limits and consider maximizing retirement contributions.
• Assess Your Insurance Coverage – Ensure your financial protection aligns with any changes in your income and tax strategy.
• Consult a Tax Professional – A tax expert can help optimize your strategy based on these updates.

By staying informed and proactive, you can make the most of these tax changes and keep your financial goals on track. If you have questions about how these adjustments may impact your short-term and long-term financial plans, call us for expert guidance.