The IRS released its annual inflation adjustments to various provisions of the tax code for tax year 2025. It is important to recognize that some of these tax rates, limits and deductions available in 2025 are scheduled to expire at the end of the year under the Tax Cuts and Jobs Act (TCJA) of 2017, barring any Congressional action.
Marginal Income Tax Rates
Seven tax rates apply to income individuals earn in 2025.
The marginal income tax rates for trusts and estates also increase in 2025.
The TCJA calls for the top marginal income tax rate to increase to 39 percent after Dec. 31, 2025, meaning that upper income taxpayers will likely see their tax liabilities rise in 2026.
Standard Deduction
The standard deduction for individual taxpayers in 2025 increases to $15,000, or $30,000 for married couples filing joint returns. Taxpayers may use these amounts to automatically reduce their adjusted gross income (AGI) and determine their appropriate federal income tax brackets. The TCJA calls for the standard deduction to be cut in half in 2026.
When taxpayers’ allowable expenses exceed the standard deduction in any given year, they may itemize their deductions and further reduce their taxable income and related tax liabilities. These deductible expenses may include student loan interest, qualifying medical and dental costs and up to $10,000 paid toward state and local taxes. At the end of the year, many of the limits to miscellaneous deductions imposed by TCJA are set to be lifted and taxpayers can expect the return of deductions for unreimbursed employee expenses, casualty losses outside federal disaster areas and fees paid for tax preparation and legal and financial services.
Federal Gift and Estate Taxes
Individuals who pass away in 2025 may exclude up to $13.99 million from the federal estate tax, up from $13.61 million for estates of decedents who died in 2024. For married couples filing jointly, the federal estate tax exemption in 2025 increases to $27.98 million, up from $27.22 million in 2024. In 2026, the amount taxpayers may shield from federal estate tax is set to revert to its pre-TCJA levels of approximately $7 million for individuals or $14 million for married couples filing jointly.
High-net-worth individuals should use this year to consider and implement various planning strategies that can remove highly appreciating assets from their taxable estates, thereby minimizing their exposure to a 40 percent estate tax in the future. For example, individuals may gift up to $19,000 to as many individuals as they wish in 2025 without incurring gift tax. Married couples can continue to gift an unlimited amount to each other tax-free when both spouses are U.S. citizens. By contrast, only the first $190,000 of gifts to a spouse who is not a U.S. citizen escape taxes.
Alternative Minimum Tax (AMT)
For tax year 2025, the AMT exemption for individuals increases to $88,100 and begins to phase out at $626,350. For married couples filing jointly, the exemption rises to $137,000 and begins to phase out at $1,252,700.
Kiddie Tax
Minor children younger than 19 and college students younger than 24 with 2025 unearned income (i.e., investment income) of $1,350 from sources other than salary and wages will be subject to tax at the same rate as trusts and estates. Parents may elect to include between $1,350 and $13,500 of an eligible child’s unearned income on their individual tax returns
Health Care
In 2025, the maximum amount employees may contribute to health flexible spending cafeteria plans via salary deferral is $3,300, a $100 increase from 2024. For plans that allow carryovers of unused amounts, account owners may carry forward $660 in 2025, up $20 from 2024.
The annual deductible for medical savings plans with self-only coverage in 2025 may not be less than $2,850 and no more than $4,300. Maximum out-of-pocket expenses may not exceed $5,700. For family coverage, the annual deductible cannot be less than $5,700 or more than
The maximum amount qualifying taxpayers may contribute to a health savings account (HSA) in 2025 is $4,300, plus an additional $1,000 for account owners age 55 and older. For family coverage, the maximum contribution is $8,550.
Qualified Business Income (QBI) Deduction
The Section 199A deduction of up to 20 percent of qualified business income (QBI) available to eligible sole proprietors and owners of pass-through businesses (i.e., S Corporations) is subject to income limitations. For 2025, the deduction is reduced when taxable income exceeds $197,300 for individuals, or $394,600 for married couples filing jointly and is phased out entirely when individual income reaches $247,300, or $494,600 for married couples filing jointly. It is important for business owners to recognize that the TCJA calls for the elimination of the QBI deduction in tax year 2026.
About the Author: Eric Zeitlin is managing director of Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
 Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
 Eric Zeitlin is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
 This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
 Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
Posted on December 19, 2024