The IRS has released the annual inflation adjustments for the year 2025, which includes tax rate schedules, tax tables, and cost-of-living adjustments. These numbers will be used for preparing 2025 tax returns starting January 1, 2025. Taxpayers are advised to estimate their liability based on these updated numbers, especially if they anticipate significant changes in their income or circumstances.
Tax brackets and rates for 2025 include seven rates ranging from 10% to 37%, with the top marginal tax rate at 37% for individual single taxpayers earning over $626,350. Personal exemption amounts have been eliminated due to the 2017 tax reform law, and standard deduction amounts will increase to $15,000 for individuals and $30,000 for married couples filing jointly.
Child-related adjustments, such as the kiddie tax and Child Tax Credit, remain unchanged for 2025, with the maximum refundable amount of the child tax credit at $1,700. The Earned Income Tax Credit maximum amount is $8,046, and the adoption credit has also increased to $17,280 for special needs adoptions. Section 199A deduction for qualified business income and AMT exemption rates have also been adjusted for inflation.
Capital gains rates will remain the same for 2025, and education-related adjustments, student loans, and fringe benefits for transportation have been updated. Health-related items such as Health Savings Accounts and Medical Savings Accounts will see increased contribution and deduction limits for the year.
The federal estate tax exclusion amount will increase to $13,990,000 per person in 2025, and the gift tax exclusion amount will be $19,000 per person. Itemized deductions on Schedule A have not changed, with deductions for medical expenses, state and local taxes, home mortgage interest, charitable donations, and casualty and theft losses outlined.
Taxpayers are encouraged to stay informed about any potential legislative changes that could impact their deductions in the future. Additional information and comparisons can be found in the official IRS publication Revenue Procedure 2024-40. These updated numbers are crucial for taxpayers to understand and plan their finances accordingly for the upcoming tax year.
