The end of the year is always a busy time, especially for those preparing for the hustle and bustle of the holiday season. However, this is also a good time to start thinking ahead to tax season, which typically swings into gear after the beginning of the new year.

Most importantly, taxpayers should make themselves aware of some notable adjustments being made to standard deduction amounts, marginal rates and credits beginning in tax year 2025.

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Why Are Tax Adjustments Being Made?

There are many reasons as to why adjustments can be made to tax deductions, credits and more. For the 2025 tax year, however, a primary reason for the adjustments is inflation. Typically, inflation-based adjustments are made each year by the Internal Revenue Service (IRS) to ensure that tax rates reflect current rates of inflation as much as possible. Because inflation has been high for the past few years (4.06% in 2023 and an anticipated 3.1% in 2024), some significant adjustments need to be made for the 2025 tax year.

Notable Tax Adjustments for 2025

So, what exactly can taxpayers expect when it comes to tax adjustments for inflation in 2025? The IRS recently released its annual inflation adjustments, providing detailed information on changes that will affect upwards of 60 tax provisions for the 2025 tax year and beyond.

Standard Deductions

Standard deductions for taxpayers will increase for the 2025 tax year. This includes standard deductions for individual taxpayers and married couples filing jointly.

Specifically, the standard deduction for an individual taxpayer will increase to $15,000 in 2025 ($13,850 in 2024). For married couples filing jointly, the standard deduction will increase to $30,000 ($27,700 in 2024). For heads of household, the standard deduction will increase to $22,500 for 2025 ($20,800 in 2024).

Marginal Rates

The marginal tax rate (the percentage at which your last dollar of taxable income is actually taxed) will be as follows for the 2025 tax year:

• 37% for individual taxpayers with incomes greater than $626,350 (or $751,600 for married couples filing jointly).
• 35% for individual incomes over $250,525 (or $501,050 for married couples filing jointly).
• 32% for individual incomes over $197,300 (or $394,600 for married couples filing jointly).
• 24% for individual incomes over $103,350 (or $206,700 for married couples filing jointly).
• 22% for individual incomes over $48,475 (or $96,950 for married couples filing jointly).
• 12% for individual incomes over $11,925 (or $23,850 for married couples filing jointly).
• 10% for individual incomes $11,925 or less (or $23,850 or less for married couples filing jointly).
  
  

AMT Exemption Amounts

2025 will also bring changes to Alternative Minimum Tax exemption amounts, so taxpayers will need to plan accordingly. Specifically, the exemption amount for individual taxpayers in 2025 is increasing to $88,100 (or $68,650 for married couples filing separately). This exemption will begin to phase out at $626,350. For married couples who are filing jointly, the AMT exemption increases to $137,000 and will begin phasing out at $1,252,700.

EITC Amounts

Those who normally claim the Earned Income Tax Credit and have three or more children will also want to be aware of changes for the 2025 tax year. Specifically, qualifying taxpayers with three or more qualifying children will see an increased maximum credit amount of up to $8,046, which is a couple hundred dollars higher than it was for the 2024 tax year.

Other Changes to Note

In addition to the specific adjustments outlined here, there are many other inflation-related adjustments being made to approximately 60 tax provisions. This includes changes to medical savings account deductibles, estate tax credit exclusions, adoption credits and more.

Is Anything Staying the Same?

While it may seem like everything is changing for the 2025 tax year, there are some provisions that are staying the same. This includes:

• Personal exemptions
• Itemized deduction limits
• Lifetime learning credits
  
  

The Bottom Line: Talk to a Tax Professional

Many taxpayers will be affected by these changes in 2025 and beyond, so it's important to be aware of these adjustments in order to plan ahead. For taxpayers who aren't sure how these adjustments may affect them, this is also a good time to consult with a tax professional or financial advisor for further guidance. Scheduling an appointment with a professional sooner rather than later is the best way to prepare for the upcoming tax season and to be able to file a return with confidence!

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