Author: Elizabeth Lamkin

As the year winds down and we prepare for tax season in 2025, the IRS has announced a range of tax inflation adjustments that will impact both individual and corporate taxpayers. These changes, designed to keep pace with inflation, affect key aspects of tax brackets, deductions, credits, and retirement savings limits. If you’re a taxpayer, business owner, these adjustments will play a critical role in shaping your tax strategy moving forward.

Here’s a breakdown of the most important changes and what they mean for you.

1. Tax Bracket Increases: More Room for Growth

The IRS has raised the income thresholds for all tax brackets, a move aimed at ensuring that inflation doesn’t push you into a higher tax bracket merely due to rising wages or prices. This means more of your income will be taxed at lower rates, keeping more of your earnings in your pocket.

• 10% tax bracket: Now applies to income up to $11,000 for single filers and $22,000 for married couples filing jointly.
• Top 37% tax bracket: Kicks in at $578,100 for single filers and $693,750 for married couples filing jointly.

These adjustments help avoid “bracket creep” — the phenomenon where inflation results in a higher tax rate without an actual increase in real purchasing power.

2. Standard Deduction Increases: Reducing Your Taxable Income

For many taxpayers, the standard deduction represents the simplest way to reduce taxable income. The IRS has once again raised the standard deduction amounts, which will directly reduce your taxable income and, by extension, your tax liability.

• Single filers: The standard deduction will rise to $15,800 in 2025, up from $15,250 in 2024.
• Married couples filing jointly: The standard deduction increases to $31,600, up from $30,500 in 2024.

This increase helps counterbalance inflation, making it easier for middle-income households to lower their overall tax bill without having to itemize deductions.

3. Retirement Contributions: Boost Your Savings Potential

For those contributing to retirement accounts, the IRS has raised the contribution limits for several key retirement plans. These increases allow you to save more for your future while benefiting from tax advantages like deferred taxes on 401(k) contributions or tax-free growth in Roth IRAs.

• 401(k), 403(b), and 457 plans: The contribution limit will rise to $23,500, up from $23,000 in 2024.
• IRAs: The contribution limit for traditional and Roth IRAs will increase to $7,500, up from $7,000.

These changes are particularly valuable for higher earners looking to maximize their retirement savings and reduce their taxable income in the process.

4. Expanded Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is one of the most important benefits for low- to moderate-income working individuals and families. For tax year 2025, the IRS has increased the maximum EITC amounts, providing significant relief for those who qualify.

• Maximum EITC: The credit for families with three or more children can rise to $7,430 in 2025, up from $7,000 in 2024.

This adjustment is a step toward helping families cope with rising costs, supporting working parents and individuals in lower income brackets.

5. Estate and Gift Tax Exemption Increases

For high-net-worth individuals, the exemption for estate and gift taxes has increased. This allows you to transfer a larger portion of your estate to heirs without triggering the federal estate tax.

• Estate tax exemption: For 2025, the estate tax exemption rises to $13.2 million per individual, up from $12.92 million in 2024.

This change is especially important for those engaged in estate planning and wealth transfer, helping reduce the burden on families who may inherit substantial assets.

6. Adjustments to Other Key Provisions

There are several other provisions adjusted for inflation in 2025, including:

• Adoption Tax Credit: The maximum credit increases to $17,050.
• Child Tax Credit: The phase-out limits for the credit will increase slightly.
• Alternative Minimum Tax (AMT): The exemption will rise to $81,300 for single filers and $122,000 for married couples filing jointly.

These adjustments affect various aspects of tax planning, from family tax credits to tax minimization strategies for high-income earners.

What Does This Mean for You?

The IRS’s inflation adjustments for 2025 will have a significant impact on your overall tax situation, whether you’re an individual taxpayer, a family trying to maximize your credits, or a business owner looking to plan for retirement. Here’s how you can take advantage of these changes:

• Review your withholding: With the new tax brackets and higher standard deductions, you may find that your current withholding amounts are no longer appropriate. It’s a good idea to revisit your W-4 form and adjust if necessary.
• Maximize retirement savings: If you haven’t yet reached the maximum contribution limits for your 401(k) or IRA, 2025 will be a great time to take full advantage of those higher limits. This will not only increase your retirement savings but may also lower your taxable income.
• Plan for future tax credits: If you’re eligible for the Earned Income Tax Credit or other family-related credits, take note of the new amounts and phase-out thresholds to maximize your benefits.

Information found in this article can be sourced from The IRS Official website. For more information, please visit https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025.

Registered Representatives of Sanctuary Securities Inc. and Investment Advisor Representatives of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Adviser. M&K Legacy Wealth is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.