How IRS changes to more than 60 tax provisions will affect your 2025 returns

On October 22nd 2024, the IRS issued Revenue Procedure 2024-40, impacting deductions for individual taxpayers, exempt organisations, employee benefit plans, annual gifting exclusions, and other key tax credits for the 2025 tax year. The revenue procedure sets forth annual inflation-adjustments for over 60 provisions in the Internal Revenue Code (IRC), many of which haven’t been updated for inflation since 2020. 

These changes are essential for US taxpayers across all income levels to understand and below we highlight some of the most relevant adjustments for our clients for calendar year 2025:

Standard deductions

• For single taxpayers and married individuals filing separately, the standard deduction rises to $15,000 for 2025, an increase of $400 from 2024.
• For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024. 
• For heads of households, the standard deduction will be $22,500, an increase of $600 from the amount for tax year 2024.

Marginal rates

For tax year 2025, the top income tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The other rates are:

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

Capital Gains Rates

• 0% for incomes $48,350 or less ($96,700 or less for married couples filing jointly).
• 15% for incomes $533,400 or less ($600,050 or less for married couples filing jointly).
• 20% for incomes over $533,400 (over $600,050 for married couples filing jointly).

Foreign Earned Income Exclusion

The foreign earned income exclusion amount under IRC § 911(b)(2)(D)(i) is $130,000.

Annual Exclusion for Gifts

(1) The first $19,000 of gifts made to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under IRC § 2503. 

(2) The first $190,000 of gifts made to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under IRC § 2503 and 2523(i)(2).

Large Gifts Received from Foreign Persons

US recipients of gifts received from certain foreign persons must report these gifts if the aggregate value of the gifts received in the taxable year exceeds $20,116 under IRC § 6039F.  (It is not clear if the current $100,000 limit for gifts from foreign individuals will remain in effect.)

Unified Credit Against Estate Tax

For an estate of any decedent dying in calendar year 2025, the basic exclusion amount is $13,990,000 for determining the amount of the unified credit against estate tax under IRC § 2010.

Expatriation

Expatriation to Avoid Tax. An individual is a covered expatriate if the individual’s “average annual net income tax” under § 877(a)(2)(A) for the five taxable years ending before the expatriation date is more than $206,000. 

Tax Responsibilities of Expatriation. The amount that would be includible in the gross income of a covered expatriate by reason of § 877A(a)(1) is reduced (but not below zero) by $890,000 pursuant to § 877A(a)(3). 

Penalties

Failure to File Tax Return. In the case of any return required to be filed in 2026, the amount of the addition to tax under § 6651(a) for failure to file an income tax return within 60 days of the due date of such return (determined with regard to any extensions of time for filing) will not be less than the lesser of $525 or 100 percent of the amount required to be shown as tax on such return.

Revocation or Denial of US Passport

For calendar year 2025, the amount of tax debt to be classified as a seriously delinquent taxpayer under IRC § 7345 is $64,000.

Note: As a result of the presidential election, and the possible changes in both the House and Senate, it is possible there may be changes in the US tax laws in 2025.

If you have any questions regarding your obligations under these new provisions, we recommend you seek the advice of tax professionals who can ensure you are compliant. Please contact us to speak to our team of advisors. 

Article written by Gregory Dean