Every year brings changes in tax rules, and 2025 is no exception. Whether you are saving for retirement, running a business, or planning for your family’s future, these updates could affect your financial decisions throughout the year. While some changes simply adjust for inflation, others create brand new opportunities to strengthen your financial position.
Staying informed about these tax updates isn’t just about being prepared for tax season—it’s about making smart money moves all year long. These changes can affect everything from your paycheck to your retirement savings, from your business decisions to your charitable giving. Let’s break down what’s new and how these changes might benefit you in the year ahead.
More Money Protected from Taxes
Good news for your wallet—you can shield more of your income from taxes in 2025. Couples filing together can now deduct $30,000 of their earnings with the Standard Deduction, while individuals can deduct $15,000. This is a great start for a majority of taxpayers, as 90% of filers take the Standard Deduction.
If you’re 65 or older or legally blind, you can deduct an additional $1,600 on top of your Standard Deduction. For many individuals and families, this means keeping more money in their pockets without the headache of tracking every deductible expense.
Your Paycheck’s Buying Power
We have all felt the pinch of rising prices, but this year’s tax adjustments help ease that burden. The income levels for tax brackets have increased by about 2.8%, meaning you won’t face higher tax rates just because of inflation. For married couples, this means more of your income will be taxed at lower rates. For example, filers with taxable income below $394,600 will have portions of their income taxed at the 10%, 12%, 22%, and 24% marginal brackets. These tax brackets create a huge opportunity to have income taxed at lower rates, particularly the 22% and 24% tax brackets which span from $96,951 to $394,600. Income over that amount will be taxed at 32% and 35%, with 37% being the top tax rate on income over $751,600.
Since the range of income that is taxed at these marginal rates has increased by 2.8%, it means that more of your income will be taxed at the lower rates. Think of it as the tax system’s way of protecting your purchasing power.
Smart Ways to Grow Your Investments
Here’s some welcome news for investors—the tax benefits for long-term investments continue in 2025. If you have taxable income up to $600,050, and you sell investments held longer than a year, most people pay only 15% in taxes on their gains. Some investors might even qualify for lower rates, and married couples can earn up to $96,700 of taxable income while staying in the 0% tax bracket. These preferential tax rates provide an opportunity to grow your wealth while keeping more of what you earn.
Supporting Your Family’s Future
Planning for your family just got a bit easier. The federal estate tax exemption has grown to $13,990,000 per person, giving you more flexibility in legacy planning. You can also give up to $19,000 to any person this year without touching that lifetime limit. This creates more options for helping children with education, supporting aging parents, or passing on family wealth in tax-smart ways.
Rewards for Business Owners
If you own your own business, the tax code continues to recognize your contribution to the economy. Through the Qualified Business Income deduction, you could reduce your taxable business income by up to 20%. The full deduction is available to joint filers with income below $394,600. For income above that amount, the deduction is phased out, before becoming fully phased out for joint filers whose income exceeds $494,600. These higher income thresholds help entrepreneurs keep more of what they earn.
Managing Investment Income Wisely
As your investments grow and you consider selling appreciated positions, keep in mind the additional 3.8% tax that could apply to those gains. This additional tax, known as Net Investment Income Tax (NIIT), applies to most investment related income, such as taxable interest, dividends, capital gains, rent, and royalty income. For married couples, NIIT applies when income exceeds $250,000, or $200,000 for single filers. Once you exceed this income threshold, those who are subject to the tax will pay 3.8% on the lesser of the following: their net investment income, or the amount by which their modified adjusted gross income (MAGI) extends beyond their specific income threshold.
Unfortunately, these thresholds have never been adjusted for inflation, so thoughtful investment placement becomes even more valuable. Consider spreading investments across different types of accounts, like tax-deferred accounts, to minimize the chance of incurring this additional tax.
Steady Numbers to Remember as These Are NOT Adjusted for Inflation
While many tax numbers change yearly, some key limits remain constant:
- State and local tax deductions (SALT) remain capped at $10,000
- Home sale gain exclusions remain fixed at $500,000 for couples
- Investment loss deductions against regular income are still capped at $3,000
- Income thresholds for paying taxes on Social Security income remain the same: for single filers, your Social Security benefit not be taxed when your income is under $25,000 ($32,000 for Joint filers), 50% of your benefit will be taxed when your income is between $25,000 and $34,000 ($32,000 – $44,000 for Joint filers), and 85% of your benefit will be taxed when income exceeds $34,000 ($44,000 for Joint filers).
Charitable Giving and Tax Planning
The tax rules continue to encourage generosity. Consider bundling multiple years of charitable gifts into a single year to exceed the standard deduction threshold. Donor-advised funds (DAFs) offer another way to bunch your charitable deductions into one year while supporting causes you care about over several years.
Planning for Retirement
The tax code offers various ways to save for retirement while managing your current tax bill. Whether through traditional IRAs, Roth accounts, or employer-sponsored plans, understanding the tax implications of different retirement savings strategies can help you build a more secure future. For those who are approaching retirement, be sure to take advantage of Catch-Up contributions in addition to your normal retirement contributions. For those age 50 and up, an additional $1,000 catch-up contribution can be made to IRAs (in addition to the regular $7,000 contribution), and an additional $7,500 catch-up contribution can be made to 401(k)’s and other employer-sponsored plans (in addition to the regular $23,500 contribution).
Starting in 2025, workers aged 60-63 also have the opportunity to make a “Super” catch-up contribution of $11,250 to their 401(k) and other employer-sponsored plans. This means that in those years, you can contribute and deduct a total of $34,750, helping you to save more for retirement and save even more in taxes!
Making These Changes Work for You
Tax planning isn’t a once-a-year activity—it’s an ongoing opportunity to strengthen your financial health. These 2025 updates provide fresh chances to protect and grow your wealth. Your financial advisor understands both your personal goals and these tax changes, making them an invaluable partner in turning these opportunities into real benefits for you and your family.
Consider scheduling a review with your advisor to explore how these changes align with your financial goals. Together, you can develop strategies that take full advantage of these new tax provisions while staying focused on your long-term financial success.
