Tax Changes for 2025

Tax season is upon us yet again, and while preparing and filing your 2024 taxes is likely top of mind, this is also the time of year to take note of the IRS’s tax changes that are coming this year in 2025 (so, applicable for next tax season, and pertinent for your tax planning this year).

And with the advent of e-filing, it’s becoming increasingly common for Americans to take preparing their tax returns into their own hands. If you’re one of the 65M+ who prepared their own tax return last year and plan to continue doing so, it’s even more important to be aware of these 2025 tax changes coming your way.

Learning about these 2025 tax changes ahead of time can help inform your financial planning throughout the year, helping you to make calculated money moves that optimize your tax situation and minimize your tax liability.

Tax Changes in 2025 to Know

• The U.S. tax code contains a total of seven brackets ranging from 10% to 37%. What the IRS has updated for 2025 is not the rate but rather the income limit for each category, adjusting upward slightly for inflation. The 10% bracket will apply to income up to $11,925 (slightly higher than the $11,600 cap this year), and the 37% bracket now starts at $626,351, up from $609,000. While these might not be huge changes, the bracket shifts can lead to lower effective tax rates for many taxpayers, leaving a bit more money in your pocket.
• The standard deduction is also increasing. Single filers will see their deduction rise to $15,000, up from $14,600 in 2024. For joint filers, it’s climbing to $30,000, and heads of households will get a $22,500 deduction. The standard deduction is a helpful way to reduce your taxable income, particularly for those who don’t itemize deductions.
• The IRS has also increased the annual gift tax exemption limit (to $19,000 per recipient for individuals and $38,000 for couples) and bumped up capital gains tax brackets. Short-term capital gains will remain tethered to income tax brackets, and long-term capital gains will move up slightly, with a 0% rate now applying to individuals earning less than $48,350 and couples earning up to $96,700. The 15% rate will apply to individuals earning between $48,350 and $533,400, and the 20% rate will apply to those above that threshold.
• Retirement account contribution limits also get a bump. Starting with 401(k) plans, the employee contribution limit has increased to $23,500 (up from $23,000 in 2024), and combined with employer matches and other contributions, the total annual limit rises to $70,000. For those aged 50 to 60, catch-up contributions remain the same as in 2024 at $7,500 extra.
• Some other quirky contribution caveats are rolling out in 2025 as well, thanks to SECURE 2.0, the 2022 bipartisan law focused on encouraging Americans to save for retirement — those new provisions include: For investors aged 60-63, an enhanced catch-up contribution limit that is the greater of $10,000 or 150% of the standard catch-up contribution limit for individuals age 50 and older, meaning in 2025, the limit is $11,250 additional dollars, bringing the total contribution limit (before employer matching) to $34,750 for those in this age bracket. This update is optional for employers, meaning each plan sponsor will have to decide individually whether or not they elect to offer this new benefit. These updated limits apply to similar plans like 403(b)s and 457s, giving a range of options for increasing retirement savings.
• IRA and Roth IRA limits will remain the same ($7,000), but health savings accounts (HSAs) will have their limits go up to $4,300 for individuals and $8,550 for families, and flexible spending accounts (FSAs) will see their contribution limits rise to $3,300. Additionally, individuals aged 55 or older can contribute an extra $1,000, maintaining the opportunity for extra savings in preparation for healthcare costs during retirement.

How to Use These Tax Changes to Your Advantage

Now that you’re up to speed on the tax code changes coming in 2025, the best way to use that knowledge is to take advantage of those changes.

Here are a few things you can do

• Maximize your retirement contributions: This opportunity is the same every year, and increased contribution limits across the board are just another reason to take advantage. By maximizing your retirement account contributions, not only will you be saving money on your taxes, but you’re also setting yourself up for your golden years.

• Make sure to get your employer match: The contribution limits applied to your retirement accounts increase significantly when we factor in the employer match. If your employer offers a retirement account contribution match, it’s wise to do everything you can to take advantage of that.

• Take advantage of FSA/HSA limits: If you’re enrolled in a qualifying high-deductible health plan, an HSA or FSA account is your tax-advantaged sidekick here. With higher contribution limits in 2025, the triple-tax advantage of these accounts is further multiplied.

• Use this year to get ahead on your estate planning: While a marginal rise in the annual gift exemption doesn’t change much, it serves as a reminder to get ahead on your estate planning. Remember, the current estate tax exemption period will sunset starting January 1st, 2026, barring any legislative changes, and the lifetime exemption limit will drop back down to 2017 levels, which, when adjusted for inflation, is likely about $7M.

• Your paycheck might get slightly larger — use it for good: A subtle but meaningful result of the tax brackets creeping up is the possibility of a slight increase to your paycheck as your withholdings shift as well. If you’re still living on a similar budget, toss that extra money into your retirement account each month and reap the rewards of compound interest for years to come.

• The standard deduction is rising again, and about 86% of taxpayers will be taking it, as they always do. “If you’ve found yourself often on the borderline between being able to itemize and being forced to take the standard deduction, maybe consider bunching some of your charitable donations this year to take advantage of possible itemization — before it rises again in 2026.” — Matt Shapiro, Origin Certified Financial Planner®

• Don’t let the reporting delay impact your bookkeeping: Just because the IRS has delayed its reporting requirements for third-party platforms doesn’t mean we don’t have to report those earnings as income. Failing to keep up with your own transactions and reportable income can result in a lot of chaos and stress down the road, so make sure you’re documenting well, regardless.

Conclusion

No matter how much of a personal finance aristocrat you may be, preparing your taxes is a complex undertaking regardless of your experience. For most of us — we’re already busy enough as it is, and the last thing we need is a complicated, time-consuming tax-filing process.