The Internal Revenue Service (IRS) has officially announced the start of the 2025 tax season, bringing with it a host of changes and considerations for investors. As the new tax year begins, it's essential to stay informed about the key tax changes and how they may impact your investment strategies. Here's what you need to know to make the most of the 2025 tax season.



1. Key Tax Changes for 2025
The IRS has released Revenue Procedure 2024-40 PDF, outlining the inflation-adjusted tax rates and brackets for 2025. Some of the notable changes include:

* 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 for tax year 2025, an increase of $600 from the amount for tax year 2024.
* Marginal Tax Rates: The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). Other rates include 35%, 32%, 24%, 22%, 12%, and 10% for different income brackets.
* Alternative Minimum Tax (AMT) Exemption Amounts: For unmarried individuals, the exemption amount increases to $88,100 ($68,650 for married individuals filing separately) and begins to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700.
* Earned Income Tax Credit (EITC): For qualifying taxpayers who have three or more qualifying children, the maximum EITC amount is $8,046, an increase from $7,830 for tax year 2024.
* Qualified Transportation Fringe Benefit: The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $325, increasing from $315 in tax year 2024.
* Health Flexible Spending Arrangements (FSAs): The dollar limitation for employee salary reductions for contributions to health FSAs rises to $3,300, increasing from $3,200 in tax year 2024. The maximum carryover amount rises to $660, increasing from $640 in tax year 2024.
* Medical Savings Accounts (MSAs): For self-only coverage, the annual deductible must be at least $2,850 (a $50 increase from the previous tax year) but not more than $4,300 (an increase of $150 from the previous tax year). The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024. For family coverage, the annual deductible is not less than $5,700, increasing from $5,550 in tax year 2024; however, the deductible cannot be more than $8,550, an increase of $200 versus the limit for tax year 2024. The out-of-pocket expense limit is $10,500 for tax year 2025, rising from $10,200 in tax year 2024.
* Foreign Earned Income Exclusion: The foreign earned income exclusion increases to $130,000, from $126,500 in tax year 2024.
* Estate Tax Credits: Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased from $13,610,000 for estates of decedents who died in 2024.
* Annual Exclusion for Gifts: The annual exclusion for gifts increases to $19,000 for calendar year 2025, rising from $18,000 for calendar year 2024.
* Adoption Credits: For tax year 2025, the maximum credit allowed for an adoption of a child with special needs is the amount of qualified adoption expenses up to $17,280, increased from $16,810 for tax year 2024.



1. Tax Planning Strategies for Investors
As the 2025 tax season begins, investors should consider the following strategies to optimize their tax situation:

* Review and update client strategies: As clients begin to deliver their 2024 financials, tax professionals can use this opportunity to review their financial activities over the past year and discuss potential changes in the upcoming 12 to 24 months. This can help clients plan for future financial considerations and potentially offer advisory services.
* Embrace current tax rates: Help clients embrace the current tax rates and plan accordingly, as taxes are not going to zero. By looking at the tax tables for income taxes and long-term capital gains, tax professionals can discuss ways to mitigate the impact of those taxes on their portfolio.
* Prepare for potentially higher capital gains distributions: Despite recent market performance, investors should prepare for potentially higher capital gains distributions in the future. This can be achieved by planning for harvesting losses, transitioning portfolios, and embracing tax management strategies to improve after-tax wealth.
* Don't overlook interest income: Investors should be reminded that interest income is taxable as ordinary income, unless it's specifically labeled as "Tax Exempt Interest." This means that investments like total-return bond funds, high yield funds, money market accounts, and CDs can contribute to a significant tax burden if not properly managed.
* Create a realistic plan: Tax professionals should help clients create a realistic plan for their investments, focusing on what is currently available rather than speculating on future tax changes. This can involve discussing the tax rates that apply to their clients and exploring ways to mitigate the impact of those taxes on their portfolios.

By addressing these topics with clients, tax professionals can help them maximize their after-tax wealth in 2025 and beyond. As the 2025 tax season unfolds, investors should stay informed about the key tax changes and adjust their investment strategies accordingly to make the most of the new opportunities and challenges that arise.