It's too late to plan for taxes you pay on April 15. But now's the ideal time to get a head start on ways to navigate tax brackets for the calendar year 2025.
"Smart tax optimization occurs when you plan ahead," said Tal Binder, CEO of accounting firm Gelt. Many tax strategies, he adds, can't be implemented once a calendar year ends.
The more of your earned income you keep and the less you add to the coffers of the U.S. Treasury the better. Here's a 2025 tax guide to highlight key changes to the tax code. And, more important, ways to maximize the after-tax growth potential of your money this year.
Why Tax Brackets For 2025 Changed
For 2025, the Internal Revenue Service has boosted the income break points for tax brackets to adjust for inflation. The IRS also raised contribution limits to tax-advantaged workplace retirement accounts. There are other changes to the tax code you need to keep on top of.
There's also a wrinkle to tax planning this year. Unless Congress acts to extend provisions of the 2017 Tax Cuts and Jobs Act (TCJA), the tax code will revert to pre-TCJA days. If that happens, in 2026 tax filers will see a rise in income tax rates, a much lower standard deduction, smaller child tax credits and a big reduction in the federal gift and estate tax limit.
For now, let's focus on 2025, and what you can control.
What Are 2025 Tax Brackets?
There are no changes to the marginal tax rates in the seven tax brackets. Brackets remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The good news? The income break points for each bracket have increased. That should help taxpayers avoid bracket creep, a term which describes bumping up into a higher tax bracket due to a raise. For example, the 12% tax bracket for joint filers now tops out at $96,950, or 2.8% higher than 2024. Similarly, the 22% bracket climbs to $206,700, a $5,650 increase.
Tax tip: To avoid bumping up to a higher tax bracket, run the numbers to see what bracket you're in and if you're at risk of edging into a higher bracket. Then, if possible, make adjustments. "Know where you are and where the next income threshold is (for the higher bracket)," said Karla Dennis, founder and CEO of KDA, a tax strategy firm. You can do the math yourself. Do a back-of-the-envelope calculation that looks at your expected income for this year, including interest and investment gains, and back out your standard deduction. A review of your completed 2024 tax return can provide insights, too.
If you're at risk of bracket creep, look to reduce your taxable income. You can do that by contributing more to a retirement account funded with pretax dollars and taking advantage of catch-up contributions to get a bigger tax write-off. Also by opting for a triple-tax friendly health savings account, or boosting charitable giving.
What Is The Standard Deduction For 2025?
A big change that went into effect with the TCJA was the nearly doubling of the standard deduction for taxpayers. In 2025, the standard deduction increases $800 to $30,000 for joint filers and $400 to $15,000 for single filers. This higher deduction is a plus for most taxpayers. The reason? The standard deduction effectively creates a 0% tax bracket because it reduces your taxable income dollar for dollar, according to Charles Schwab's "2025 Tax Reference Guide."
But be aware that this higher standard deduction could go away if the TCJA isn't extended. "This could be the last year to enjoy this enormous standard deduction," said Mark Steber, chief tax information officer at Jackson Hewitt, a tax preparation service. "(For 2025), the standard deduction is still big."
Tip: The higher standard deduction, however, means there is a higher threshold to hurdle for tax filers who itemize deductions, such as mortgage interest, property taxes, charitable donations and medical expenses.
"Those are the big items that factor into your itemized deductions, and if you've got enough to benefit, then by all means take it," said Rob Burnette, investment advisor and professional tax preparer at Outlook Financial Center.
Which Deduction Is Best For You?
From a tax standpoint, taxpayers should take the larger of the two deductions, tax experts say.
"Careful planning can help maximize deductions and push beyond the standard deduction," said Binder. To get above the higher threshold, you can deduct interest on your mortgage (and make you January 2026 payment early to boost your interest paid) and increase your charitable contributions by "bunching" 2025 and 2026 gifts to charity into the 2025 tax year. If you have any serious medical issues that result in high medical bills, you can deduct unreimbursed medical expenses that exceed 7.5% of your taxable income.
Getting over the higher threshold, however, could be easier for homebuyers who purchase a home in 2025, due to higher borrowing costs. The rate on the average 30-year fixed mortgage is 7.08%, according to Bankrate.com. Let's say in January you purchased the average priced home of $501,100, according to the St. Louis Fed, and put 20% down. The interest you will pay on the $400,000 loan in the first 12 months is $28,192, according to Bankrate's mortgage calculator. That's within striking distance of the $30,000 standard deduction. Once you add in your property taxes, though, you'll climb above the standard deduction and can benefit from itemizing on your return.
"Buying a home in 2025 can move you out of the standard deduction and into the itemized deduction category," said Steber.
What's The Income Level For Capital Gains Tax In 2025?
Most Americans, of course, can minimize their taxes in 2025 by taking advantage of capital gains tax rates for assets held for more than a year. The income levels in 2025 for the 0%, 15%, and 20% capital gains rates have all increased by 2.8%. In 2025, single filers with taxable income up to $48,350 and joint filers with adjusted gross income (AGI) up to $96,700 will pay 0% on any long-term gains. Most people will pay 15%. The maximum 20% long-term capital gains rate will apply to single filers earning $533,400 or more and joint filers with income of $600,050 or more.
Don't forget: To avoid paying more taxes on stock and other asset gains, make sure you extend your holding period for at least a year, so you are eligible for the lower capital gains tax treatment and not the higher regular income tax. "Be knowledgeable about your portfolio," said Steber, adding that capital gains treatment tends to be taxpayer friendly.
And if you want to reduce gains further, take advantage of tax-loss harvesting, says Burnette. If you have any clunkers in your portfolio, you can offset gains with your losses. And if your capital losses exceed your gains, you can apply $3,000 of those losses to offset ordinary income.
How Will Crypto Gains Be Taxed In 2025?
2025 is slated to be the first year that the government sends out 1099-DA forms for any gains earned via investments in cryptocurrencies made through digital brokers. In short, the government will have a record of your gains in bitcoin and other digital currencies just as they have documents showing how much you made after selling a hot stock like Nvidia. "This will make it easier for the IRS to track taxable transactions," said Binder.
Tip: To prepare, Binder says investors should maintain accurate records of all transactions, including cost basis and holding periods.
Take Advantage Of Super Catch-Up 401(k) Provisions
Starting this year, taxpayers between the ages of 60 and 63 with 401(k) retirement accounts can save on more taxes by taking advantage of the super catch-up contributions of $11,250, which is $3,750 more than the normal catch-up maximum amount of $7,500. So, someone 60 to 63, can sock away $34,750 in their 401(k) in 2025, which can save someone in the 22% tax bracket $7,645 in taxes.
Tip: If you can swing it, max out your 401(k), including the super catch-up contribution, to trim your tax bill further. There is a twofold benefit of doing so. "This is a huge opportunity to catch up on your retirement savings and save on taxes, too," said Dennis.
How Can I Save On Tax Credits In 2025?
Taxpayers looking for tax savings must not overlook tax credits, says Dennis. "They're better than tax deductions because tax credits offset your actual tax dollar for dollar," said Dennis. Of course, you must qualify for tax credits, which are based on income. The Child Tax Credit in 2025 remains at $2,000 (up from $1,000 pre-TCJA). There is a tax credit for out-of-home child care, such as day care, for working parents. The IRS also offers educational tax credits, such as the American Opportunity Tax Credit and Lifetime Learning Credit. You can also get so-called green credits for the purchase of energy-efficient appliances or an electric car.
"We see a lot of green credits overlooked by taxpayers because they don't think they qualify," said Steber.
