Important Tax Numbers for 2025

Each year the Internal Revenue Service (IRS) adjusts dozens of tax provisions to adjust for inflation and prevent what is called "bracket creep."  Bracket creep occurs when inflation, as opposed to real increases in income, pushes people into higher income tax brackets or reduces the value of credits and deductions.

The IRS recently released the new inflation adjustments for tax year 2025, which taxpayers will use when they file returns in early 2026 (so not for this 2024 tax year).  On average, inflation adjustments will increase by about 2.8%.

New IRS tax brackets 2025

The new inflation-adjusted tax brackets for tax year 2025 are in the table below:

Source: Internal Revenue Service Revenue Procedure 2024-40.

It's essential to remember that, for now, the tax rates (currently 10%, 12%, 22%, 24%, 32%, 35%, and 37%) remain the same, but could change if Congress revisits the Tax Cuts and Jobs Act of 2017 ("TCJA" and also sometimes called the "Trump Tax Cuts"). 

It's also important to note that these income tax rates are marginal, meaning they only apply to the income within the relevant tax bracket range for your filing status.  For example, a single filer with $45,000 doesn't pay 12% on their whole income.  Instead, they pay 10% tax on the first $11,925 of income and then 12% tax on income from $11,926-$45,000.

New Standard Deduction

The IRS also announced an increase in the standard deduction for the 2025 tax year.  These larger standard deductions (a key provision of the TCJA) means that taxpayers who don't itemize their deductions can reduce their taxable income by a larger amount, potentially resulting in lower tax bills or larger refunds.  It will rise to $15,000 for single filers and married individuals filing separately, a $400 increase from the 2024 amount.  It is $30,000 for married filing jointly and $22,500 for heads of household.

Alternative Minimum Tax

The alternative minimum tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax.  This parallel income tax system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT.  The taxpayer then needs to pay the higher of the two tax bills.

To prevent low- and middle-income taxpayers from being subject to the AMT (and without getting too much into the tax compliance weeds), taxpayers are allowed to exempt a significant amount of their income from AMT calculations, but the exemption phases out for high-income taxpayers.  The AMT exemption amount for 2025 is increasing to $88,100 for single filers and $137,000 for married couples filing jointly.

Capital Gains and Annual Exclusion Gifts

Long-term capital gains face different brackets and (and usually lower) rates than ordinary income.

Source: Internal Revenue Service Revenue Procedure 2024-40.

In addition, the first $19,000 of gifts to any person are excluded from gift tax in 2025, up from $18,000.  This is a highly effective tool when used in estate planning and wealth transfer strategies.

What will happen to individual income tax rates and brackets after 2025?

This is the big question for many planners and tax professionals.  The Trump tax cuts brought significant changes to tax policy, but most provisions expire after December 31, 2025.  Unless Congress takes action, most Americans will have higher tax rates for most income levels starting in 2026, with the highest rate reaching 39.6%. 

With President Trump winning reelection and the Republicans taking both the House and Senate, it's likely the Trump tax cuts will at least be extended, if not made permanent.  But it's not guaranteed and, until then, this creates challenges for tax and financial planning.  The best strategy in the interim is to stay informed, seek out and consult financial professionals, and prepare for potential changes in 2025 and beyond.
 

Important: This article does not contain any legal or tax advice. You should always consult your attorney, accountant or other professional advisors before changing or implementing any tax, investment or estate planning strategy.

IRS Circular 230 Disclosure: Pursuant to IRS Regulations, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.