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2025 Tax Talk: Inflation Adjustments and What They Mean for You

The IRS has announced its annual inflation adjustments for the 2025 tax year, bringing significant changes to tax brackets, deductions, and credits. These updates are designed to help taxpayers manage the impact of inflation and prevent “bracket creep,” where individuals end up in higher tax brackets despite only keeping pace with rising costs. Here’s an overview of the changes:

Income Tax Brackets

The tax brackets for 2025 have shifted upward, meaning higher thresholds for each tax rate. For example, the 37% top rate now applies to incomes over $626,350 for individuals and $751,600 for married couples filing jointly.

Here’s the breakdown for other brackets:

  • 10%: Up to $11,925 (or $23,850 for married couples filing jointly)
  • 12%: Over $11,925 ($23,850 for married couples)
  • 22%: Over $48,475 ($96,950 for married couples)
  • 24%: Over $103,350 ($206,700 for married couples)
  • 32%: Over $197,300 ($394,600 for married couples)
  • 35%: Over $250,525 ($501,050 for married couples)

Standard Deduction Increases

For the 2025 tax year, the standard deduction is higher, offering more income shielded from taxation:

  • $15,000 for single filers and married individuals filing separately
  • $30,000 for married couples filing jointly
  • $22,500 for heads of household

Alternative Minimum Tax (AMT) Exemptions

  • Unmarried individuals: Exemption increases to $88,100, phasing out at $626,350.
  • Married couples filing jointly: Exemption increases to $137,000, with a phaseout starting at $1,252,700.

Earned Income Tax Credit (EITC)

The maximum credit for taxpayers with three or more qualifying children rises to $8,046, with corresponding adjustments for income thresholds and phaseouts.

Qualified Transportation and Health Benefits

  • Transportation Fringe Benefit: Monthly limit increases to $325.
  • Health Flexible Spending Arrangements (FSAs): Maximum contribution rises to $3,300, with a carryover limit of $660.

Medical Savings Accounts (MSAs)

  • Self-only coverage: Deductible range is $2,850–$4,300, with out-of-pocket expenses capped at $5,700.
  • Family coverage: Deductible range is $5,700–$8,550, with out-of-pocket maximums at $10,500.

Foreign Earned Income Exclusion

This exclusion rises to $130,000, up from $126,500 in 2024.

Estate and Gift Tax Exemptions

  • Estate Tax: Exemption increases to $13,990,000, up from $13,610,000.
  • Gift Tax: Annual exclusion rises to $19,000.

Adoption Credit

The credit for adoption of a child with special needs rises to $17,280, reflecting higher allowable adoption expenses.

Additional Updates for Business Owners

Section 179 and Bonus Depreciation

The limit for Section 179 expense deductions for business equipment purchases has increased, now capped at $1.2 million, with the phaseout threshold starting at $2.8 million.

Bonus depreciation for 2025 remains at 60% but is scheduled to phase out by 2027.

Qualified Business Income Deduction (QBID)

The income thresholds for the 20% pass-through deduction under Section 199A have been adjusted for inflation:

  • $182,100 for single filers.
  • $364,200 for married couples filing jointly.

Research & Development (R&D) Tax Credit

Businesses investing in R&D can benefit from expanded thresholds for expenses eligible for the credit. Small businesses may also offset payroll taxes with unused R&D credits.

Retirement Plan Contributions

  • 401(k): Contribution limit increases to $23,500, with a catch-up contribution of $7,500 for those aged 50 and older.
  • SIMPLE IRAs: Contribution limit rises to $17,500.
  • SEP IRAs: Contribution limit increases to 25% of compensation, up to $66,000.

Florida-Specific Considerations

Florida continues to have no state income tax, providing additional opportunities for tax savings when combined with federal strategies.

Business owners in Florida should note that the state corporate income tax rate remains at 5.5%, with no announced changes for 2025.

Florida’s sales tax exemptions for manufacturing equipment and certain business inputs can further reduce costs for qualified businesses.

Real estate businesses should remain aware of property tax updates at the county level, which may impact business expenses.

How These Changes Affect You

These adjustments aim to alleviate inflation’s effects while providing opportunities for tax savings. If you’re navigating business or personal financial planning, these updates may present strategic opportunities. Contact tax and business attorney Kelly Swartz or our team for tailored advice on maximizing tax efficiency under the new 2025 at 321-255-2332 or kelly@uslegalteam.com.

About the Author

Attorney Kelly Swartz is both a board-certified intellectual property attorney and a tax lawyer. She advises individuals and businesses on the optimal tax treatment for agreements, transactions, and planning opportunities that may affect them. Despite the complexity of tax, she works with clients to give them a plain language explanation, providing clear direction in the client’s best interest to resolve tax audits and controversial cases.

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Kelly Swartz

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