Important: The information below is general in nature does not constitute tax advice. CommunityAmerica Wealth Management and our Wealth Advisors do not provide tax advice. For guidance specific to your situation, please consult a tax professional.
Here’s a breakdown of the updates and their impact on your tax bill and financial planning.
1) Standard Deduction Increase — You Keep More Income
The standard deduction, the portion of income exempt from federal income tax, has increased for the 2025 tax year due to inflation adjustments and recent law changes:
|
Filing Status |
2024 |
2025 |
|
Single / Married filing separately |
$14,600 |
$15,750 |
|
Married filing jointly |
$29,200 |
$31,500 |
|
Head of household |
$21,900 |
$23,625 |
Why it matters:
For most taxpayers, the standard deduction is the simplest and most effective way to reduce taxable income. A higher deduction means more of your income remains tax-exempt, which generally lowers your tax bill.1
2) Tax Bracket Income Limits Adjust for Inflation
Each year, the IRS updates federal tax bracket income limits to keep pace with inflation.
For the 2025 tax year:
- The seven federal tax rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) remain unchanged1.
- Income thresholds for these brackets have increased to prevent rising wages from automatically pushing you into a higher tax bracket1.
Why it matters:
When tax brackets shift upward, your income can grow without being taxed at a higher rate — helping protect more of your earnings1.
3) Credits and Exclusions May Boost Your Return
Earned Income Tax Credit (EITC)
For the 2025 tax year, the maximum EITC amounts increased slightly due to inflation:
- Up to $8,046 for families with three or more qualifying children1.
Why it matters:
The EITC is a refundable credit, meaning it can reduce your tax owed and potentially increase your refund, especially for working families.
Adoption Tax Credit
For the 2025 tax year, the maximum adoption credit increased to $17,2801.
Why it matters:
This credit helps offset adoption costs, can lower your tax bill, and may even be refundable.
Alternative Minimum Tax (AMT)
AMT exemption amounts have increased due to inflation: $88,100 for singles and $137,000 for married couples filing jointly1.
Why it matters:
A higher exemption means more income is taxed under the regular system rather than the AMT, reducing surprise tax bills.
Child Tax Credit (CTC) Expansion
Under the 2025 Tax Act, the federal Child Tax Credit increased to $2,200 per qualifying child and will now adjust annually for inflation2.
Why it matters:
Families with children can reduce their tax bill or increase their refund using this larger credit.
Other Benefit Changes Under the 2025 Tax Act
Signed July 4, 2025, this law introduced several noteworthy adjustments effective for the 2025 tax year and beyond:
- Tip and overtime income tax changes: Certain reported tips and overtime pay for eligible workers may now be partially or fully excluded from taxable income3.
- Car loan interest deduction: Allows a deduction for interest on loans for qualifying U.S.-assembled vehicles, up to a set limit3.
- Unreimbursed educator expenses deduction: Starting in 2026, eligible educators can deduct certain out-of-pocket classroom costs3.
- Dependent care FSA increase: Contribution limits for dependent care flexible spending accounts will rise in 20263.
Why it matters:
These provisions expand tax benefits for certain families, educators, and employees, helping lower out-of-pocket costs and reduce overall tax burden.
4) Annual Inflation-Adjusted Items You Should Know
Along with law changes, the IRS also updates several limits each year for inflation—these don’t apply to everyone, but they can shape benefits and planning decisions. For tax year 2025, key updates include:
- Qualified transportation and parking benefit: Monthly cap increased to $325
- Health flexible spending account (FSA): Increased contribution and carryover limits
- Medical savings account (MSA): Higher deductible and out-of-pocket limits
- Foreign earned income exclusion: Raised to $130,000
- Estate tax exclusion: Increased to $13,990,000
- Annual gift tax exclusion: Up to $19,000
Why it matters:
These adjustments help prevent inflation from eroding the value of key tax benefits, allowing you to protect more income and take advantage of tax-favored opportunities.
Need Help Planning Ahead?
Staying informed about tax updates is valuable, but what matters most is understanding how they fit into your financial picture. At CommunityAmerica Wealth Management, our Wealth Advisors can help you evaluate how these tax updates may influence your overall financial plan - though they cannot provide tax advice. For tax-specific questions and filing support, we recommend partnering with a qualified tax professional.
Ready to take the next step? Meet with a Wealth Advisor or start your plan today.
