What You Need to Know About the New 2025 IRS Tax Brackets

With tax season just around the corner, understanding the changes implemented by the IRS can be overwhelming. The good news is, we've got you covered.

Learn more about the key aspects of the recently announced 2025 tax brackets, inflation adjustments, and considerations for capital gains taxes.

Inflation Adjustments

Every year, the IRS adjusts tax brackets and other tax provisions to account for inflation. The logic is simple: as the cost of living increases, so should the income thresholds for each tax bracket. This prevents taxpayers from moving into a higher tax bracket simply because their income kept pace with inflation.

For tax year 2025, the IRS has announced an inflation adjustment of approximately 2.8%. This means that the income thresholds for each tax bracket will rise by about 2.8% compared to 2024.

New Tax Brackets for 2025

While the exact details haven't been officially released by the IRS yet, based on past trends and the inflation adjustment, we can expect a slight increase in all tax bracket thresholds.

Here's a projected breakdown of the 2025 tax brackets:

• Single Filers:

  • 10% bracket: Up to approximately $10,725 (from $10,400 in 2024)

  • 12% bracket: $10,726 to approximately $44,725 (from $10,401 to $43,150 in 2024)

  • 22% bracket: $44,726 to approximately $95,700 (from $43,151 to $91,750 in 2024)

  • 24% bracket: $95,701 to approximately $170,050 (from $91,751 to $167,450 in 2024)

  • 32% bracket: $170,051 to approximately $215,950 (from $167,451 to $215,950 in 2024)

  • 35% bracket: $215,951 to approximately $539,900 (from $215,951 to $539,900 in 2024)

  • 37% bracket: Over $539,900 (remains unchanged)

• Married Filing Jointly:

  • Similar adjustments will apply to married couples filing jointly, with each threshold increasing by approximately 2.8%.

• Head of Household and Other Filing Statuses:

  • Adjustments will also be made for Head of Household and other filing statuses based on the same inflation rate.

What This Means for Taxpayers

The slight increase in tax bracket thresholds could result in a slight tax break for many Americans. If your income remains relatively consistent compared to 2024, you might fall into a lower tax bracket in 2025 due to the inflation adjustment.

However, it's crucial to remember that these are projections.

What About Capital Gains Taxes?

Capital gains taxes are levied on the profit earned from the sale of capital assets like stocks, bonds, or real estate.

The good news for investors is that the capital gains tax rates are expected to remain unchanged for 2025. This means the current rates of 0%, 15%, and 20% will likely apply for tax year 2025.

However, there are factors to consider when calculating your capital gains tax:

• Holding Period: Assets held for less than one year are taxed as short-term capital gains, typically at your ordinary income tax rate. Assets held for more than one year are taxed as long-term capital gains, benefiting from the lower rates mentioned above.

• Tax Bracket: Your tax bracket also plays a role. If your taxable income falls into a lower tax bracket, even short-term capital gains could be taxed at a lower rate.

Preparing for Tax Season

While the IRS hasn't officially released the final tax brackets for 2025, these projections offer a valuable starting point.

Here are some ways to stay informed and prepare for tax season:

• IRS Website: The official IRS website (https://www.irs.gov/) is a wealth of information, including tax forms, guides, and updates on tax law changes