How the New Inflation-Adjusted Tax Brackets Will Affect Tax Filers in 2025
As we approach the 2025 tax filing year it is important for taxpayers to be aware of upcoming changes.
One change we look for each year is inflation-adjusted tax brackets. The IRS has released information on its new inflation-adjusted tax brackets for 2025. Inflation-adjusted tax brackets occur as the IRS adjusts various tax provisions in an effort to prevent "bracket creep" (when inflation pushes taxpayers into higher income tax brackets despite their purchasing power not having increased).
These adjustments can have meaningful impacts on how much you owe in taxes, how much you can save, and even which credits and deductions you may qualify for.
Key Inflation-Adjusted Changes for 2025
Income Thresholds Will Rise on Tax Brackets: The income thresholds for all seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) have been increased. For instance, the 22% tax bracket will now cover incomes up to $96,950 for married couples filing jointly.
Source: IRS Revenue Procedure 24-40
Standard Deduction Increases: The standard deduction is also adjusted for inflation, providing additional relief. For 2025, single filers will see a deduction increase to $15,000, while married couples filing jointly will have a standard deduction of around $30,000. There is also an increase for those that qualify to file as heads of households, up to $22,500 for 2025.
Contribution Limits for Tax-Advantaged Accounts: Contribution limits for retirement accounts such as 401(k)s, IRAs, and Health Savings Accounts (HSAs) will likely increase, allowing you to save more tax-deferred money.
Changes to Other Provisions: Other tax provisions such as medical savings accounts, the Earned Income Tax Credit (EITC), Alternative Minimum Tax (AMT) exemption thresholds and Estate tax credits will also adjust upward, benefiting a range of taxpayers.
Planning Tips for 2025
Review Your Withholding: Ensure your withholding aligns with your expected tax liability based on the changes to tax brackets to avoid surprises during filing season.
Maximize Contributions: Take advantage of increased limits for retirement and health savings accounts.
Tax Bracket Optimization: If you’re on the edge of a tax bracket, consider strategies like deferring income or accelerating deductions to minimize your tax burden.
Stay Updated: Tax laws are subject to change, and 2025 could also see the expiration of certain provisions under the Tax Cuts and Jobs Act (TCJA), potentially impacting your overall tax liability.
Seek Professional Guidance: Tax professionals can help you create a customized plan that aligns with your financial goals while maximizing benefits under the new tax rules.
How We Can Help
Inflation adjustments to tax brackets are a welcome relief for many taxpayers, helping to offset the rising cost of living and ensuring that tax burdens remain fair. However, these changes also highlight the importance of proactive tax planning. By understanding how the new brackets affect you and taking steps to optimize your tax strategy, you can make the most of the 2025 filing season.
We’re here to help you navigate these changes and create a tailored plan to meet your financial goals. Stay proactive and schedule a Discovery Call to ensure you’re fully prepared for the 2025 filing season.
