For those engaged in 2024 year-end tax planning and the tax savvy
who have already taken on strategic tax planning for the 2025 tax year,
the IRS has just released the marginal tax brackets and related changes
for the 2025 tax year.
With the TCJA currently set to expire in 2025, there are a significant number of tax moves you will need to model in your 2025 and 2026 multi-case tax projections to potentially minimize your exposure to the 37.6% tax bracket coming January 2026.
For the 2025 tax year, the top marginal tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 MFJ).
By contrast, in 2024, the 37% tax bracket was reserved for single taxpayers with incomes greater than $609.350 ($731,200 for MFJ).
For the 2025 tax year, the remaining rates are:
35% for incomes over $250,525 (MFJ).
32% for incomes over $197,300 (MJF).
24% for incomes over $103,350 (MFJ).
22% for incomes over $48,475 (MFJ).
12% for incomes over $11,925 (MFJ).
10% for incomes $11,925 or less ($23,850 or less for (MFJ).
For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000 for 2025, an increase of $400 from 2024. For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024. For heads of households, the standard deduction will be $22,500 for tax year 2025, an increase of $600 from the amount for tax year 2024.
Alternative minimum tax exemption amounts. For tax year 2025, the exemption amount for unmarried individuals increases to $88,100 ($68,650 for married individuals filing separately) and begins to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700.
Health flexible spending cafeteria plans. For the taxable years beginning in 2025, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements rises to $3,300, increasing from $3,200 in tax year 2024. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $660, increasing from $640 in tax year 2024.
Medical savings accounts. For tax year 2025, participants who have self-only coverage the plan must have an annual deductible that is not less than $2,850 (a $50 increase from the previous tax year), but not more than $4,300 (an increase of $150 from the previous tax year).
The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024.
For family coverage in tax year 2025, the annual deductible is not less than $5,700, increasing from $5,550 in tax year 2024; however, the deductible cannot be more than $8,550, an increase of $200 versus the limit for tax year 2024. For family coverage, the out-of-pocket expense limit is $10,500 for tax year 2025, rising from $10,200 in tax year 2024.
Foreign earned income exclusion. For tax year 2025, the foreign earned income exclusion increases to $130,000, from $126,500 in tax year 2024.
Estate tax credits. Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased from $13,610,000 for estates of decedents who died in 2024.
Annual exclusion for gifts increases to $19,000 for calendar year 2025, rising from $18,000 for calendar year 2024.
Unchanged for tax year 2025
Personal exemptions for tax year 2025 remain at 0, as in tax year 2024. The elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017.
Itemized deductions. There is no limitation on itemized deductions for tax year 2025, as in tax year 2024 and preceding, to tax year 2018. The limitation on itemized deductions was eliminated by the Tax Cuts and Jobs Act of 2017.
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We are here to help. If you have questions and would value professional insight and guidance regarding 2024 year-end tax planning, efficiently filing your 2024 individual, business or trust tax returns and 2025 - 2026 tax planning, give our office a call or send an email to napapgni@cobaltpacwestadvisors.com to schedule a complimentary consultation.
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