What Tax Changes Are Coming in 2025? 💸

Your Essential Guide to IRS Tax Changes for 2025

January 28, 2025

The 2025 tax season will bring several changes to the tax code, impacting taxpayers across the board. How can you prepare for what’s ahead? Effective tax preparation means knowing these new tax laws for 2025 and IRS 2025 tax law updates for accurate filing and maximizing your tax benefits. Thankfully, this preparation doesn’t have to be done alone.

This guide by our team at Lewis CPA will break down what tax changes are coming in 2025 and will help you navigate the new IRS rules for 2025.

Individual Income Tax Rates and Brackets

Every year, the Internal Revenue Service (IRS) adjusts individual income tax rates to account for inflation. These annual inflation adjustments affect income thresholds for each tax bracket. For the tax year 2024 (which means returns are filed in 2025), these adjustments will likely result in wider tax brackets, meaning most taxpayers will see a minimal change in their tax liability.

However, this adjustment doesn't offset bracket creep, where inflation pushes taxpayers into higher brackets, leading to a higher tax burden. While bracket creep occurs naturally, tax cuts can reduce its impact. To understand the specifics, we encourage you to familiarize yourself with tax brackets for your filing status.

Here are the projected individual income tax rates for the tax year 2024 (filed in 2025). Keep in mind that these are subject to change before the tax season begins and will be available in the upcoming official IRS publication.

Tax Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
10%	Up to $11,600	Up to $23,200	Up to $11,600	Up to $16,550
12%	$11,601 to $47,150	$23,201 to $94,300	$11,601 to $47,150	$16,551 to $63,100
22%	$47,151 to $100,525	$94,301 to $201,050	$47,151 to $100,525	$63,101 to $100,500
24%	$100,526 to $191,950	$201,051 to $383,900	$100,526 to $191,950	$100,501 to $191,950
32%	$191,951 to $243,725	$383,901 to $487,450	$191,951 to $243,725	$191,951 to $243,700
35%	$243,726 to $609,350	$487,451 to $731,200	$243,726 to $365,600	$243,701 to $609,350
37%	$609,351 or more	$731,201 or more	$365,601 or more	$609,351 or more

The tax rates shown here are used to calculate taxes for returns due in 2025. Use this table to determine your 2024 tax bracket based on your income and filing status.

Key Tax Credits and Deductions

There may be 2025 adjustments to several significant tax credits and tax provisions. Here's what you can expect:

Child Tax Credit

The Child Tax Credit (CTC) will continue to provide financial relief to families. The credit amount is calculated as 20% of the Illinois EITC, but for the 2025 tax year, it will increase to 40 percent.

Earned Income Tax Credit (EITC)

The earned income tax credit is a significant credit for low-to-moderate-income workers. Income limits and maximum credit amounts may change annually, impacting eligible taxpayers. January 31st is EITC Awareness Day which is observed to highlight this important tax benefit for working families.

Alternative Minimum Tax (AMT)

The alternative minimum tax (AMT) prevents high-income individuals from completely avoiding federal income tax. The exemption amount for the AMT may be adjusted for inflation. The projected amount for tax year 2024 (returns filed in 2025) may be available in the upcoming official IRS publication.

Exclusion for Gifts

For 2025, the annual gift tax exclusion increased to $19,000 per recipient, up from $18,000. The exclusion for non-citizen spouses rose to $190,000. These amounts are adjusted annually for inflation.

Lower 1099-K Reporting Threshold

The IRS is lowering the reporting threshold for Form 1099-K, which reports payments received through third-party payment networks (like PayPal, Venmo, etc.). For the tax year 2024 (filed in 2025), this threshold is dropping from $20,000 to $5,000. This means significantly more people will receive a 1099-K. If applicable, be prepared to report this income accurately.

401(k) and Roth Changes

The IRS announced significant changes to retirement savings for 2025, including a $500 increase to the 401(k) contribution limit and higher income thresholds for Roth IRA contributions. A notable change under SECURE 2.0 increased the 401(k) catch-up contribution limit for those aged 60-63 to $11,250.

Standard Deduction Changes for 2025

The standard deduction amount also increases annually to account for inflation. For tax year 2024, here are the projected standard deduction amounts:

Filing Status	2024 Standard Deduction	2025 Standard Deduction
Single	$14,600	$15,000
Married Filing Jointly	$29,200	$30,000
Married Filing Separately	$14,600	$15,000
Head of Household	$21,900	$22,500

What do these deduction changes mean? This adjustment impacts taxable income, potentially reducing the tax liability for some qualifying taxpayers. Note that the table amounts will be used when calculating your tax liability for the 2024 tax year on your tax return filed in 2025.

Potential Tax Changes to Watch

Several other provisions are anticipated to change:

Corporate Income Tax Rate: The corporate income tax rate may be altered. For businesses, business income and business expenses will need to be reviewed according to these changes.
Federal Estate Tax Exclusion: The federal estate tax exclusion is expected to be adjusted for inflation which will potentially impact estates above a certain value. Estate tax credits might also be subject to changes. This change will affect married couples filing jointly and married individuals filing separately.
Bonus Depreciation: Bonus depreciation allows businesses to deduct a larger portion of the cost of certain qualifying assets in the year they are placed in service. Businesses should be aware of changes to bonus depreciation rules.
Digital Assets: Taxpayers should familiarize themselves with the tax laws surrounding digital assets. The rules regarding reporting capital gains and losses are complex and are expected to develop further.
Partnership Basis Shifting: New IRS rules regarding partnership-related-party basis shifting transactions are now in effect. These changes impact how certain transactions are reported and may require additional disclosures.
Tax Cuts and Jobs Act (TCJA) Implications: Many TCJA provisions are set to expire at the end of 2025, including individual and corporate tax rates, the QBI deduction, and the increased estate tax exemption.
Itemized Deductions: Review the availability of itemized deductions. Mortgage interest and state and local taxes are common deductions but are subject to limitations.

Why Tax Planning Matters

Proactive tax planning offers significant advantages that go beyond simply preparing your tax return. It allows you to strategically manage your financial future, potentially saving you money and reducing stress during tax season. However, effective tax planning isn’t just about maximizing deductions; it's also about avoiding penalties. If you don’t meet crucial deadlines, it may result in significant financial consequences that could have otherwise been avoided.

We understand that tax-related topics can be overwhelming. This is why it’s so important to work with an experienced and punctual team. This tax season, we can help you stay informed about changes to the retirement savings contributions credit, premium tax credit, and any other income tax credits that may affect you. Rest assured that Lewis.cpa is dedicated to helping you navigate the changes in the tax code.

Lewis CPA: Your Experts for Stress-Free Tax Season

The 2025 tax season brings significant changes, impacting various tax provisions, credits, and income thresholds. Our team is only a phone call away and we’re ready to help you. Contact Lewis CPA for personalized tax preparation and planning services designed to maximize your tax benefits and minimize your stress.

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When will I receive my tax refund?

Generally, you can expect to receive your refund within three weeks of e-filing if you’re using direct deposit. Paper tax returns take significantly longer, often six to eight weeks or more. For the fastest processing, file electronically and choose direct deposit.

How can I avoid common tax filing mistakes?

Carefully review all tax forms, ensure they are accurate, and work with a qualified tax preparer to double-check your return. A second set of eyes can often catch errors you might miss, saving you potential problems with the IRS.

What if I can't meet the April 15th deadline?

You can request an extension using Form 4868 but know that this only extends the filing deadline, not the payment deadline. Consult a tax professional about payment plans if you owe taxes; penalties and interest can accumulate quickly.

What is the impact of inflation on my taxes?

Inflation leads to increases in the standard deduction, tax brackets, and other income limits, potentially impacting your tax liability. However, it's often insufficient to offset bracket creep; proactive tax planning can help mitigate the effects of inflation on your taxes.

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