Important tax-related updates and changes for 2025
It’s a new year and that means there are some new or updated tax-related things to be aware of.
Updated tax brackets
There are many aspects of the U.S. tax code that have built-in inflation adjustments. For example, the dollar amounts of taxable income at which each marginal tax bracket starts and stops are indexed for inflation. Which means those dollar amounts generally increase each year.
Here is a downloadable summary of 2025’s federal tax brackets (as well as lots of other great information), created by The College For Financial Planning. In it, you can see the tax brackets for the various filing statuses (i.e. Single, Head of Household, Married Filing Joint and Married Filing Separate).
Increased standard deductions
The standard deduction is also indexed for inflation and increases over time. For 2025, the standard deductions are:
- $15,000 for Single filers
- $30,000 for Married Filing Joint filers
- $22,500 for Head of Household filers
- $15,000 for Married Filing Separately filers
Additionally, the extra standard deduction for people 65 or older (or blind or disabled) is increased to $2,000 per person for Single filers, or $1,600 per person for Married filers.
Increased gift exclusion
When giving gifts to people (not charitable donations, but gifts; such as giving money to a friend or relative), there is an annual “exclusion” amount whereby if your total gift(s) for the year to an individual recipient doesn’t exceed the exclusion, there is no reporting requirement or potential gift taxes.
For 2025, the federal gift exclusion amount is $19,000.
This means you can give up to $19,000 to as many people as you want in 2025, and there are literally zero reporting requirements or tax implications.
However, if you gift more than $19,000 to any one person in 2025, you have to file a Form 709 gift tax return. You almost certainly won’t owe any gift tax (and the recipient of the gift is never required to pay tax on receipt of the gift), but you nonetheless need to report to the IRS that you made a gift in excess of the annual exclusion amount.
You might be wondering why you have to report the gift if you won’t owe gift taxes on it. Read on to the next topic below to find out more…
Increased estate and gift tax exclusion
If, during your life, you gift more than a certain cumulative amount, you then need to pay federal gift taxes on any gifts you make in excess of that amount.
For 2025, that amount is $13,990,000.
It should also be noted that only gifts in excess of each year’s gift exclusion are included in this lifetime limit.
For example, assume you give $30,000 to a friend in 2025. That is $11,000 more than the $19,000 gift exclusion amount for the year. That $11,000 will use up some of your $13,990,000 lifetime gift limit, reducing it to $13,979,000.
You won’t need to pay any gift tax on that $30,000 gift you made, but you need to report the $11,000 in excess of the exclusion to the IRS on Form 709, which basically keeps track of how much of your lifetime gift limit you’ve thus far used up.
Furthermore, this $13,990,000 amount isn’t just the limit of how much you can gift (without having to start paying gift taxes on additional gifts) during life, but it’s also shared with how much estate size you can have when you die without having to pay federal estate taxes.
For example, assume you die in 2025 and you’ve gifted (in excess of each year’s annual exclusion amounts) a total of $6,990,000 during your life. That means that your taxable estate size can be up to $13,990,000 - $6,990,000 = $7,000,000 before your estate would have to start paying federal estate taxes.
Required Minimum Distributions from certain inherited accounts will start to be required in 2025
For certain inherited IRAs or employer plans (such as 401(k) plans), there has been a few years of confusion around whether annual Required Minimum Distributions (“RMDs”) were actually required.
Specifically, for original owners who died after 2019, were already of their own RMD age and where the beneficiary was a non-spouse individual who was more than 10 years younger than the original account owner, there was a lack of clarity from the IRS regarding whether the beneficiary was required to take annual RMDs from the inherited account, or simply empty the inherited account by the end of the 10th year after the year of the original owner’s death.
In 2024, the IRS clarified that annual RMDs ARE required in this scenario. However, given the persistent confusion around it for the last few years, the IRS waived the penalty for not taking the annual RMDs from inherited accounts in this scenario. However, the missed RMD penalty waiver will no longer be in place for 2025 and beyond, which means annual RMDs from inherited accounts in this scenario WILL need to be taken for 2025 and onward.
So, if you are a non-spouse beneficiary of an inherited IRA or employer plan where the original owner died after 2019, you were more than 10 years younger than the original/deceased owner AND the original/deceased owners was of their own RMD age when they passed, you will have to take annual RMDs from the inherited account in 2025 and beyond.
Various state tax changes
Multiple states have tax-related changes in 2025. The Tax Foundation put together a great summary of the major changes, by state.
For example, New Hampshire used to have income tax only on dividends and interest; not other sources of income. Which meant it was sort of an income tax-free state. However, effective in 2025, New Hampshire is getting rid of personal income tax altogether; not even dividends or interest will be taxable at this point.
While the summary of changes discussed in this blog is far from comprehensive, I hope you nonetheless found it helpful! The few things I brought attention to here are the things I think are most likely to impact those of you reading this.