Deduction limits could help on 2025 returns

Adjustments to the standard deduction and individual income brackets could put more money into the pockets of millions of taxpayers in 2025.

In announcing its annual changes to the tax code, the IRS said its adjustments were based on growing concerns over “bracket creep” – or when taxpayers land in a higher tax bracket because of inflation.

The rules go into effect for the 2024 tax year, which will be reflected on returns filed in 2025.

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One of the biggest changes will be increases to the standard deduction. Those are:

• $29,200 for married couples filing jointly (up $1,500 from 2024)
• $21,900 for heads of households (up $1,100)
• $14,600 for single individuals and married individuals filing separately (up $750)

The alternative minimum tax exemption amount will climb to $85,700 for 2025 returns (up from $81,300) and begins to phase out at $609,350 (up from $578,150). For married couples filing jointly, the new exemption is $133,300 and will phase out at $1,218,700.

Among other changes that will affect 2025 returns:

• The earned income tax credit will jump to $7,830
• Employee HSA contribution limits will increase to $3,200
• The foreign earned income exclusion climbs to $126,500
• Gift exclusion limits jump to $18,000
• Qualified adoption expenses increase to $16,810

The IRS announced additional increases for transportation and parking deductions, cafeteria plans, medical savings account limits, and exclusions for estates of decedents.

Marginal tax brackets also will undergo changes for tax year 2024. The new brackets are:

• 37% for taxable income of more than $609,350 ($731,200 for married couples filing jointly)
• 35% for taxable income of more than $243,725 ($487,450 for married couples filing jointly)
• 32% for taxable income of more than $191,950 ($383,900 for married couples filing jointly)
• 24% for taxable income of more than $100,525 ($201,050 for married couples filing jointly)
• 22% for taxable income of more than $47,150 ($94,300 for married couples filing jointly)
• 12% for taxable income of more than $11,600 ($23,200 for married couples filing jointly)
• 10% for taxable income of up to $11,600 (up to $23,200 for married couples filing jointly)

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