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What's New for Taxes in 2025? Thumbnail

What's New for Taxes in 2025?

Tax

Andrea McClelland, CFP®

The IRS has released its tax updates for 2025, which include adjustments to tax brackets, deductions, and retirement contribution limits to keep pace with inflation. While these changes are modest, they set the stage for more significant tax planning considerations as we approach the scheduled sunset of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025.

Social Security Cost-of-Living Adjustment (COLA)

Social Security benefits will see a 2.5% cost-of-living adjustment in 2025. This increase is lower than previous adjustments of 3.2% in 2024,  8.7% in 2023 and 5.9% in 2022, reflecting the decreased rate of inflation.

Inflation-Adjusted Tax Brackets

While all tax rates remain the same, the income thresholds for each 2025 tax bracket have increased by approximately 2.8%, meaning more income will be taxed at lower rates.1 

Standard Deduction Increase

The standard deduction has increased for each filing status:

  • Single: $15,000 (up from $14,600 in 2024).
  • Married Filing Jointly: $30,000 (up from $29,200).
  • Married Filing Separately: $15,000 (up from $14,600).
  • Head of Household: $22,500 (up from $21,900).

Retirement Contribution Limits 

  • 401(k), 403(b), 457(b) Plan Deferrals: The employee contribution limit has increased to $23,500, up from $23,000 in 2024.
  • Catch-Up Contributions: For those aged 50 to 60 and 64 and older, the catch-up contribution amount remains $7,500, allowing for a total employee deferral limit of $31,000.
    • Note: Starting in 2026, eligible individuals with wages over $145,000 must make any catch-up contribution with after-tax dollars (i.e., a Roth contribution).2
  • Enhanced Catch-Up Contributions: Starting in 2025, individuals aged 60 to 63 can make an increased catch-up contribution of up to 150% of the standard catch-up amount ($11,250 for 2025).3 
  • IRA Contributions: The contribution limit for IRAs remains $7,000, with an additional $1,000 catch-up available for those 50 and older.

Gift and Estate Tax Updates

  • Annual Gift Tax Exclusion: The 2025 annual gift tax exclusion has increased to $19,000 per person, per beneficiary, up from $18,000 in 2024. 
  • Estate Tax Exemption: The Federal estate tax exemption has increased to $13.99 million per person ($27.98 million per couple), up from $13.61 million per person ($27.22 million per couple) in 2024. This may allow for additional tax-free gifting. For example, a couple who fully utilized their lifetime gift tax exclusion by the end of 2024 could gift an additional $760,000 in 2025 and still remain within their combined lifetime exemption.

What’s Ahead?

While most 2025 tax updates are routine, significant shifts may be on the horizon as we approach the scheduled sunset of key provisions of the TCJA at the end of 2025. Given the current political landscape, it is reasonable to anticipate that some TCJA elements will be extended or modified rather than allowed to expire outright.

Several potential changes are under discussion, including adjustments to the State and Local Tax (SALT) deduction cap, the child tax credit amount and phase-outs, and the Alternative Minimum Tax (AMT) rules. Other proposals that have been floated include additional corporate tax cuts, exempting tips and overtime from taxation, and changes to taxation of Social Security benefits.

Much remains to be seen. We will be closely monitoring developments to best advise clients as the new landscape takes shape. Stay tuned!

  1. IRS Releases Tax Inflation Adjustments for Tax Year 2025
  2. High Earners Get More Time for IRA Roth Catch-up Contributions
  3. Who Can Make Additional 401(k) Catch-up Contributions Under the Secure 2.0 Act? 

This article is intended for educational and informational purposes only and does not constitute specific tax, legal, investment, or financial advice. The information provided is derived from sources believed to be reliable and is based on current tax laws and regulations as of the date of publication, which are subject to change. Aegis Wealth Management, LLC is not a law firm or accounting firm and does not give legal, accounting, or tax advice. Readers should consult with a qualified legal and/or tax professional to understand how these laws and regulations may apply to their unique circumstances. This material is not intended to be relied upon to avoid tax penalties under U.S. federal tax law. Past performance does not guarantee future results. All investing involves risk, including risk of loss.