In the latest tax bracket updates, the IRS announced an approximate 2.8% inflation adjustment for 2025 that will slightly raise income thresholds across federal tax brackets. This means that taxpayers may be able to retain a bit more of their income, providing some relief as inflation continues to impact the economy.
Let’s take a closer look at what these new adjustments mean for your tax planning:
Key Tax Bracket Changes for 2025
In 2025, the income level at which each tax rate applies will increase. Notably, the threshold for the highest income tax bracket (37%) will rise by about $20,000 for joint filers, reaching $751,600. Single filers will see the top bracket begin at $626,350. These adjustments mean that a slightly larger portion of your income could be taxed at lower rates, potentially reducing the overall tax burden.
Updated Standard Deduction
The standard deduction, an essential benefit for many taxpayers, is also receiving a boost. Individual filers can now claim a standard deduction of $15,000, up from $14,600. Married couples filing jointly will see their deduction increase from $29,200 to $30,000. This increase may help reduce taxable income for those who do not itemize deductions, providing additional tax savings in light of inflation.
Capital Gains and Estate Tax Thresholds
Updates to capital gains and estate taxes also reflect the IRS’s inflation adjustments. For 2025, the 0% capital gains rate will apply to single filers with taxable income up to $48,350 and joint filers with incomes up to $96,700. This is a favorable change for investors and those managing substantial estates or assets, offering more flexibility in tax planning for investment income.
The federal estate tax exemption has risen as well, now at $13.99 million for 2025, compared to $13.61 million in 2024. This adjustment is good news for those involved in estate planning, especially given the potential expiration of certain tax cuts in 2026, when estate exemptions could decrease. Now may be a good time to review your estate plan to ensure that you’re positioned to maximize tax advantages.
What’s Ahead for 2026?
With the Tax Cuts and Jobs Act set to expire at the end of 2025, the upcoming tax season provides an opportunity to evaluate your tax strategy and maximize deductions and credits under current laws. Should Congress choose not to extend certain provisions, tax rates and exemptions may revert to pre-2017 levels, impacting overall tax liabilities.
Planning Ahead with Kramer Wealth Managers
Our team at Kramer Wealth Managers is here to help you make sense of these changes and adjust your financial strategy accordingly. Whether you’re interested in maximizing retirement contributions, managing investment income, or refining your estate plan, we can guide you in making the most of these updates.
Contact us today to discuss how we can help optimize your financial approach for 2025 and beyond.
