Right now, you are likely more concerned about your 2024 tax return than you are about your 2025 taxes. However, now is a good time to familiarize yourself with tax limits that are changed for 2025. Not all tax figures are adjusted annually for inflation, and some amounts only change when Congress passes new laws.
In addition, there may be tax changes due to what’s happening in Washington. With Republicans in control of both the White House and Congress, we expect major tax law changes in the coming months. With that in mind, here are some Q&As about 2025 tax limits.
ITEMIZED DEDUCTIONS
Beginning in 2018, the Tax Cuts and Jobs Act eliminated the ability to itemize deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2025, the standard deduction amount is $30,000 for married couples filing jointly (up from $29,200 in 2024). For single filers, the amount is $15,000 and for heads of households, it’s $22,500. If the total amount of your itemized deductions is less than the applicable standard deduction amount, you won’t itemize for 2025. Taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations.
IRA LIMITATIONS
If you’re eligible, you can contribute up to $7,000 a year to a traditional or Roth IRA. If you earn less than $7,000 during the year, you can contribute up to 100% of your earned income. If you’re 50 or older, you can make an additional $1,000 “catch up” contribution for 2025.
401(K) PLAN LIMITS
In 2025, you can contribute up to $23,500 to a 401(k) or 403(b) plan. You can make an additional $7,500 catch-up contribution if you’re age 50 or older for 2025. However, there’s something new this year for 401(k) and 403(b) participants of certain ages. Beginning in 2025, those who are age 60, 61, 62 or 63 can make catch-up contributions of up to $11,250.
HOUSEHOLD WORKERS AND WITHHOLDING FICA TAX
In 2025, the threshold for when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. who are independent contractors is $2,800.
SOCIAL SECURITY TAXES
The Social Security tax “wage base” is $176,100 for 2025. That means you don’t owe Social Security tax on amounts earned above that. You must pay Medicare tax on all amounts you earn. 85% of Social Security is generally taxed for US purposes on a joint return if gross income is above $44,000. Missouri no longer assesses income taxes on Social Security.
GIFT LIMITS
The annual gift tax exclusion for 2025 is $19,000. Filing a gift tax return, does not trigger owing a tax. You will not owe tax until your lifetime gifts have exceeded $12,920,000 in 2025.
HOW CHANGES IN WASHINGTON AFFECT TAXES THIS YEAR AND IN THE FUTURE
We cannot predict the future with certainty. The specifics of any new tax legislation depend on various political and economic factors. However, there are likely to be many changes in the next few years. President Trump and Republicans have signaled that they’d like to extend and possibly make permanent the provisions in the Tax Cuts and Jobs Act that expire after 2025. They’ve also discussed raising or eliminating the cap on the state and local tax deduction. Other proposals include expanding the Child Tax Credit and making certain types of income (tips, overtime and Social Security benefits) tax-free. Some of these tax breaks could become effective for the 2025 tax year, and if for 2025, certainly for 2026.
CHANGES AHEAD
We are always here to explain how some of the known and potential changes that may apply to you. Contact us if you have questions or need more information.
