Get Prepared for the 2025 Tax Season: Essential Tips and Updates Before Filing

IRS Announces 2025 Annual Inflation Adjustments – The Most Significant Modifications Await You

The 2025 tax year annual inflation adjustments have been released from the Internal Revenue Service (IRS), drastically affecting tax returns for the 2026 tax season. Revenue Procedure 2024-40 stipulates inflation-adjusted modifications for more than 60 provisions of the tax laws. These are the major changes affecting taxpayers.

Standard Deduction

The standard deduction has formed yet another change in 2025 because an increase shall provide relief to the taxpayers, which he has configured as follows:

• Single filer and married filing separately: It has increased to $15,000, $400 more than that from 2024.
• Married filing jointly: $30,000 applies, up by $800 from 2024.

These increases may mean taxpayers are subject to lower taxable income, potentially lowering their tax burden.

Alternative Minimum Tax (AMT)

The taxable basic exemption for the AMT exemption had been adjusted also:

• Single filers: This is increased to $88,100, and the phaseout begins at $626,350.
• Married filing jointly: This is increased to $137,000, and the phaseout begins at $1,252,700.
• Married filing separately: This is increased to $68,650.

The change provides comfort to taxpayers subject to the alternative minimum tax and will be a great gift for them to start a new project.

Earned Income Tax Credit (EITC)

For taxpayers with three or more qualifying children, the maximum amount for the EITC increases from $7,830 in 2024 to $8,046 in 2025. Phase-in and phase-out thresholds have also been updated. It would support such families whose members work, but whose incomes are limited, to attain the best welfare possible for their dependents.

Transportation Benefits

The monthly limits for Qualified Transportation Fringe Benefits and Qualified Parking increase from $315 to $325 in 2024. This increase can help employees reduce their commuting expenses.

Other Adjustments

Employee Contribution Limits: The limit for employees is increased to $3,300, up $100 from 2024.

Medical Savings Account (MSA):

• Individual Coverage:
  • Minimum Annual Deductible: $2,850 (previously $2,800).
    • Maximum Annual Deductible: $4,300 (previously $4,150).
      • Maximum out-of-pocket amount: $5,700 (was $5,550).
• Family coverage:
  • Minimum annual deductible: $5,700 (was $5,550).
  • Maximum annual deductible: $8,550 (was $8,350).
  • Out-of-pocket limit: $10,500 (was $10,200).

Foreign Earned Income

The foreign earned income tax exemption for U.S. citizens and residents working abroad has increased to $130,000 in 2024, up from $126,500. This change will provide more financial assistance to individuals working abroad.

Gift Tax Adjustments

1. Basic general exemption limit: In 2025, the gift tax limit for estates of decedents increases to $13,990,000, up from $13,610,000 in 2024.
2. Annual gift tax: The annual gift tax limit increases to $19,000 in 2025, up from $18,000 in 2024.

Adoption Tax Credit

People who adopt a special needs child or invest in qualified adoption expenses will receive an adoption tax credit that increases to $17,280 in 2025, up from $16,810 previously.

Key Takeaways

Developed to provide tax relief to taxpayers more equitably, these IRS changes allow for inflation during the fiscal year 2025. To fully take advantage of these adjustments, taxpayers will want to see how these changes will affect their tax treatment and in turn may affect their personal financial plans and tax obligations.

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