The IRS recently released its Revenue Procedure 2024-40, which provides adjustments and changes to more than 60 tax provisions for 2025. You can read all the details by clicking on the link, but I'll cover some of the changes here for your review.
Standard Deductions: The standard deduction is the amount of income people don't have to pay federal income taxes on if not itemizing deductions. In 2025 it will increase to $15,000 for individuals and $30,000 for married couples filing jointly. This represents an increase of $400 and $800 respectively.
Marginal Tax Rates: These rates are all increasing by about 2.8%. One of the most common misconceptions we hear about taxes is the difference between marginal and effective tax rates.
- 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly)
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly)
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly)
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly)
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly)
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly)
Estate Tax Exclusion: In 2025, federal estate taxes will only apply to the portion of an estate over $13,990,000. This is doubled to $27,980,000 for married couples. This is up from $13,610,000 & $27,220,000. If you think your total net worth is over this number and you haven't recently visited your estate planning, I'd strongly recommend doing that. Please contact us to be connected with a legal team that can collaborate on your trust and estate planning.
Gift Tax Exclusion: In 2025, gifts to individuals of up to $19,000 do not require filing of an estate tax form. Keep in mind that this amount is for any one individual to another, so it's quite possible to give much more if you're married and giving to someone who is married. For example, if you're married and planning on gifting to a married adult child, each parental spouse can give to each child spouse, allowing you to give up to $76k without having to file gift taxes.
If you do go over this amount, the lifetime gift tax exclusion applies to all gifts over the exclusion and is applied to your estate tax exclusion. So just because you give more than the exclusion amount doesn't necessarily mean you'll have to pay taxes on gifts. But if you think your estate may be subject to the estate tax, you should plan accordingly and consider alternative strategies.
Medical Savings Accounts:Health savings account contribution limits are rising for 2025 to $4300 for self-only coverage, and $8550 for family plans.
Individual participants must have an annual deductible of at least $2,850 to participate. Family plans must have an annual deductible of more than $4,300. Both are a modest increase of $50 and $150 from the previous year.
The IRS hasn't yet published the retirement account contribution limits, but I'll update this or post a new blog when they do. There are some other new retirement plan provisions changing in 2025 thanks to the Secure Act 2.0 which I'll also include in a future post.
Do you have questions about how these changes will affect your planning?
Taxes are one of the biggest factors impacting financial plans for our clients - especially for those in a higher tax bracket. Understanding how taxes may impact you and what choices you have to control the impact of these taxes can potentially provide a huge opportunity for improving outcomes. If you don't have an advisor who is helping you understand the impact of taxes on your financial planning, reach out for a conversation, it's possible we can help.