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The IRS announced tax adjustments affecting its 2025 standard deductions, tax rates, credits, and more. These changes, detailed in Revenue Procedure 2024-40, touch on more than 60 provisions aimed at helping taxpayers prepare for the 2026 tax season.
Several adjustments are broadly relevant:
- Standard Deduction: Single taxpayers and married individuals filing separately may claim a standard deduction of $15,000, up $400 from 2024. For married couples filing joint, the deduction rises to $30,000 (an $800 increase). Heads of households may deduct $22,500, marking a $600 increase from 2024.
- Marginal Tax Rates: Income thresholds for tax brackets will also shift in 2025, with the top rate of 37 percent applied to single incomes above $626,350 and joint incomes above $751,600. Other rates range from 10 percent for incomes up to $11,925 (single filers) or $23,850 (joint filers) to 35 percent for incomes over $250,525 (single) or $501,050 (joint).
- Alternative Minimum Tax (AMT): The AMT exemption amount for single filers increases to $88,100 and $137,000 for married couples filing jointly, with phase-out thresholds adjusted accordingly.
- Earned Income Tax Credit (EITC): The EITC for qualifying taxpayers with three or more dependents will increase to $8,046, reflecting inflation adjustments.
- Employee Benefits: Monthly limits for qualified transportation benefits and parking allowances increase to $325. Health flexible spending accounts can carry over up to $660 into the following year, and contributions are capped at $3,300.
Other areas also see adjustments. For Medical Savings Accounts, deductible limits increase slightly. In addition, the Foreign Earned Income Exclusion reaches $130,000, up from $126,500 in 2024. The estate tax exclusion grows to $13,990,000, and the annual gift tax exclusion increases to $19,000.
Some tax items remain unchanged, including the personal exemption (still at $0) and certain itemized deduction limits, which have been unaffected since the Tax Cuts and Jobs Act, signed into law in 2018.
Optimize Your Tax Strategy
For more than 50 years, AAFCPAs has provided a comprehensive approach to tax planning and compliance. We advise closely held businesses, multinational corporations, and high-net-worth individuals, helping clients optimize tax benefits, manage liabilities, and preserve wealth. Our multi-disciplinary team of CPAs, tax strategists, and CERTIFIED FINANCIAL PLANNER™ professionals provide holistic, customized solutions to meet the demands of complex tax regulations and client needs.
If you have questions, please contact Erica Nadeau, CPA, MST, Tax Partner at 774.512.4111 or enadeau@aafcpa.com, Richard Weiner, CPA, MST, CM&AA, Tax Partner at 774.512.4078 or rweiner@aafcpa.com—or your AAFCPAs Partner.
