2025 tax update: What to know before filing your taxes this year

Tax season isn’t the most joyful time of year, but it’s certainly one of the most important. With the filing deadline approaching, here’s a rundown of the latest tax updates to help you maximize deductions, avoid penalties, and keep more of your hard-earned money.

A couple of quick notes before we dive in. If you file your own taxes, you may be able to file free, thanks to the expansion of the IRS Direct File program. Previously a pilot program, it’s now available in 25 states, giving more people access to an easy and cost-free way to submit their returns. Check the website to see if you are eligible. Also, more taxpayers are facing IRS penalties for underpayment, often due to freelance income where taxes aren’t automatically withheld. If you’re facing a penalty for underpayment, take the opportunity this tax season to adjust your withholding using IRS Form W-4. And if you earn income that doesn’t come from your employer, make a plan to get any necessary estimated tax payments in on time.

Inflation — adjusted tax changes

Some things in life are certain: death, taxes … and annual adjustments due to inflation. The IRS has once again made incremental shifts to income thresholds for its 2024 tax brackets. You may find yourself in a different bracket when you file this year, potentially changing how much you pay in income and capital gains taxes.

The standard deductions for 2024 have also gone up, making it even more attractive for most taxpayers to forgo itemizing and opt for the standard deduction instead:

• $14,600 for single filers and those married filing separately.
• $21,900 for heads of household.
• $29,200 for married couples filing jointly.
• Additional deductions apply for seniors (65+), with $1,550 extra per person for joint filers and $1,950 extra for single filers.

Retirement contribution limits

The tax rules for 2025 allow you to save even more in tax-advantaged accounts this year:

• IRA contribution limit: $7,000, with an additional $1,000 catch-up contribution for those age 50+.
• 401(k) contribution limit: $23,500, with a $7,500 catch-up contribution for those age 50+.

While 401(k) contributions for 2024 are difficult, if not impossible to make at this point, you can still make 2024 contributions to an IRA until April 15, 2025.

Health savings accounts (HSAs)

For those enrolled in a high-deductible health plan (HDHP), HSAs remain one of the best ways to save on taxes while covering medical expenses. Contribution limits for 2025 have increased to $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up for those age 55+.

Gift and estate tax exemptions

If you’re planning to pass on wealth to loved ones, here’s what you should know: · 

• The estate and gift tax exemption was $13.61 million for 2024. It has risen to $13.99 million in 2025.
• The annual gift tax exclusion was $18,000 per recipient in 2024. It has increased to $19,000 in 2025.
• While it’s too late to make a tax-free gift for 2024, major changes could be coming in 2026, when current exemptions are set to expire.

Bought an EV? Don’t Forget to Report It Electric vehicles are becoming increasingly popular. In fact, the number of EVs on the road rose more than 65% in 2024. Government incentives are a key factor driving adoption, including up to $7,500 in tax credits buyers may take right at the dealership. If you were one of them, the IRS requires that you prove eligibility for this discount by reporting your purchase on your tax return. To do so, you’ll need to file Form 8936, Clean Vehicle Credits, and provide your vehicle’s VIN.

Selling online? Expect a 1099-K

Gig sellers and casual resellers, beware of IRS reporting obligations. If you sold goods online in 2024 on platforms like eBay, StubHub, or Etsy, you may receive a 1099-K tax form if your sales exceeded $5,000. Previously, the threshold to receive a 1099-K was $20,000, but that threshold is dropping quickly. In 2025, it’s scheduled to fall to $2,500.

What’s in store for 2026?

One of the biggest potential tax shake-ups in recent years is on the horizon: The first Trump Administration’s Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire after 2025. This means major changes could be coming, including:

• A decrease in the standard deduction.
• A 50% reduction in the estate tax exemption.
• Tax brackets and rates reverting to higher pre-TCJA levels.
• A reduction in the Child Tax Credit from $2,000 per child in 2025 to $1,000 per child in 2026.
• Elimination of the $10,000 cap on state and local tax (SALT) deductions.
• Changing the alternative minimum tax (AMT) income threshold.

The current administration appears ready to act, suggesting it will work with Congress to extend the TCJA. However, nothing will be certain until changes are made to the tax law.

With so many possible changes in play, staying ahead of tax law updates is more important than ever. Please consult your tax professional for advice tailored to your specific situation before making any significant tax moves. This article has been prepared for informational purposes only.