Last month, the Internal Revenue Service (IRS) announced major inflation adjustments for the 2025 tax year. Millions of Americans from all walks of life will feel its effects. Boston Financial Advisory Group is committed to keeping our clients abreast of what's on the horizon.

Key Changes for Tax Year 2025

• Standard Deduction Increases Single filers and married individuals filing separately: $15,000 (up from $14,600 in 2024)
• Married couples filing jointly: $30,000 (an $800 increase from 2024)
• Heads of household: $22,500 (up from $21,900 in 2024)
• These increases allow taxpayers to shield more of their income from taxation, potentially leading to lower tax bills for many residents.

Tax Bracket Adjustments

• All individual income tax brackets have been adjusted upward.
• Highest Marginal Income Tax Rate: The highest marginal rate of 37% will apply to: Single taxpayers with income above $626,350.
• Joint filers with incomes above $751,600. This adjustment eliminates 'bracket creep,' where inflation pushes taxpayers into higher tax brackets without a real increase in purchasing power.
• Capital Gains Tax Rates: Tax rates for long-term capital gains have also changed:
• 0 percent applies to single filers with incomes below $48,350 and joint filers with incomes below $96,700.
• 15 percent applies to income below $533,400 for single filers and below $600,050 for joint filers.
• 20 percent applies to income above those thresholds. Additionally, the 3.8% Net Investment Income Tax continues to apply to the taxpayer's adjusted gross income above $200,000 (or $250,000 for married filing jointly).
• Estate and Gift Tax Exclusions: The single level of estate and gift tax exclusion is $13,990,000 (up from $13,610,000 in 2024). The annual contribution limit for 401(k) plans is $23,500 for 2025.These all represent incredible planning opportunities for high-net-worth Residents.
• Retirement Account Contributions: The annual contribution limit under the 401(k) plan is $23,500 for 2025.

The traditional and Roth IRA annual contribution limit for 2025 is $7,000, but an extra $1,000 catch-up contribution applies to participants aged 50 and older.

• Tax Bracket Shifts: Because of the upward adjustment of tax brackets, some residents may be bumped into a lower bracket. This may lead to a reduced effective tax rate on their income.
• Retirement Savings Opportunities: The more contribution limit for 401(k) plans is an excellent opportunity for employees to save more toward retirement while potentially reducing taxable income.
• For Small Businesses: Payroll Adjustments: Boston small business owners should consult with their payroll departments or providers to make necessary adjustments for proper employee withholding.
• Retirement Plan Offerings: It would be smart to expand the retirement plan options available at your company to take advantage of the increased contribution limits. This could be an attractive benefit for the hiring and retaining of the best talent in Boston's competitive job market.
• Business Structure Review: Given the changes in tax brackets and deductions, it's wise to review your business structure to ensure it's still the most tax-effective option.
• For Gig Economy Workers Easy Tax Filing: The increased standard deduction can make tax filing easier for many gig workers. However, it's important to account for income and expenses.
• Retirement Savings Focus: For Gig workers, this rise in contribution limits for IRAs serves as the chance to build wealth during retirement, since they are left to their own devices regarding the employer's contribution plans.
• Quarterly Estimated Taxes: With the higher deductions and adjusted brackets, gig workers will need to rethink their quarterly estimated tax payments to avoid overpaying.
• Tax Compliance Strategies Proactive Planning: One cannot wait for the arrival of tax season. It is good to consult a CPA to forecast your tax liability for the year 2025 and to make necessary changes throughout the year.
• In fact, detailed record-keeping has become essential, especially for small business owners and gig workers, due to the changing thresholds and deductions. It's wise to prepare for a quarterly review with your financial advisor to keep you on course with your tax strategy, and make the necessary changes where life changes or financial performance will require such changes.
• There is also a need to be in the know of these changes and how they will work. Attend local workshops or webinars put on by financial advisory groups in Boston to better understand how these changes affect your personal situation.

Conclusion :

• The Annual Inflation Adjustments for Tax Year 2025 bring both promise and challenge to the taxpayer. By comprehending these modifications and collaborating closely with a knowledgeable financial advisor based in USA, one can optimize their tax strategy and financial planning for the forthcoming year.
• At Boston Financial Advisory Group, we are devoted to assisting our clients in effectively navigating these changes. Our team of expert Certified Public Accountants (CPAs) and financial advisors is available to offer personalized guidance tailored to your distinctive financial circumstances It is advisable not to postpone tax planning until the tax season arrives. Call the Boston Financial Advisory Group today to schedule a consultation so you can be assured to be making the most out of these new tax adjustments.
• Schedule your tax planning appointment with our Boston CPA team at: https://bostonfagroup.com/