With the New Year Comes Changes in Tax Rates

Tax Talk Tuesdays

As we enter 2025, significant changes to federal tax brackets and critical updates will impact taxpayers’ financial planning strategies. Here’s a detailed look at what’s new and remains unchanged in the tax landscape for the year ahead.

2025 Tax Brackets and Standard Deductions

The standard deduction is rising once again for 2025:

  • Married couples filing jointly: $30,000 (an $800 increase from 2024).
  • Heads of households: $22,500 (up $600 from the previous year).
  • Single taxpayers and married individuals filing separately: $15,000 (a $400 increase).

Alternative Minimum Tax (AMT) Updates

The AMT exemption amounts have also increased:

  • Unmarried individuals: $88,100, with a phase-out beginning at $626,350.
  • Married individuals filing separately: $68,650.
  • Married couples filing jointly: $137,000, with a phase-out starting at $1,252,700.

Earned Income Tax Credit (EITC)

The maximum EITC for taxpayers with three or more qualifying children will increase to $8,046 in 2024, up from $7,830.

Estate Tax Exclusion

The federal estate tax exclusion amount will rise to $13.99 million, up from $13.61 million in 2024, providing more opportunities for tax-efficient wealth transfer.

Retirement Contribution Changes

The IRS announced several adjustments related to retirement savings:

  • 401(k) contributions: The annual limit increases to $23,500, up from $23,000 in 2024.
  • Catch-up contributions for ages 50 and older: The limit remains at $7,500. However, under SECURE 2.0, a higher limit of $11,250 applies to participants aged 60 to 63.

Roth IRA Income Phase-Out Ranges

For 2025, the income phase-out ranges for Roth IRA contributions have increased:

  • Single filers and heads of household: $150,000–$165,000 (up from $146,000–$161,000 in 2024).
  • Married couples filing jointly: $236,000–$246,000 (up from $230,000–$240,000).
  • Married individuals filing separately: Remains between $0 and $10,000.

What’s Staying the Same?

A few provisions remain unchanged:

  • Personal exemptions remain at $0 for 2025, as established under the TCJA.
  • Child tax credit: The maximum remains at $2,000 per qualifying child, with a refundable portion of $1,700.

Plan for the Year Ahead

With these updates, it’s a great time to review your financial plans and ensure you’re taking full advantage of the available tax benefits and deductions. As always, contact your Stephano Slack tax manager/partner at 610-687-1600 or [email protected] to help you navigate these changes and optimize your tax strategy. We are happy to help.

Author Olympia Z. Anagnostou, CPA, is dedicated to helping clients achieve significant tax savings. As a tax manager at Stephano Slack, Olympia works closely with small business owners and individuals to develop customized tax planning strategies that help them keep more of their hard-earned money. Contact Olympia at 856-489-0222 ext. 3414 or [email protected] to discover how effective tax planning can benefit you.

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