Tax Season 2025: Two Big Changes to Know About

As tax season kicks off today, there are two significant changes that taxpayers should be aware of. These changes could impact your tax strategy and potentially affect your overall tax bill. Let's dive into these changes and discuss how they might influence your financial planning.



1. Increased standard deduction and potential impact on itemizing decisions

The standard deduction for tax year 2025 has been increased, which may influence taxpayers' decisions to itemize deductions or take the standard deduction. The new standard deduction amounts are $15,000 for single filers and those married filing separately, and $30,000 for those married filing jointly. This increase could make the standard deduction more attractive for some taxpayers, potentially leading to a decrease in the number of people who choose to itemize their deductions.

For example, consider a married couple filing jointly with an adjusted gross income (AGI) of $80,000. In tax year 2024, their standard deduction was $24,800. If they had itemized deductions totaling $25,000, they would have chosen to itemize. However, in tax year 2025, their standard deduction will increase to $30,000. If their itemized deductions remain the same, they would now be better off taking the standard deduction, as it exceeds their total itemized deductions. This change in strategy could result in a higher tax bill for the couple, as they would no longer be able to reduce their taxable income by the full amount of their itemized deductions.

Moreover, the increased standard deduction may also affect taxpayers' overall tax strategy by encouraging them to focus more on managing above-the-line deductions, which can be taken regardless of whether they itemize or use the standard deduction. These deductions include contributions to a traditional IRA or health savings account (HSA), student loan interest payments, and certain business expenses. By maximizing these deductions, taxpayers can still reduce their taxable income even if they choose to take the standard deduction.



2. New Direct File program and its potential impact on the tax preparation industry

The new Direct File program, which allows eligible taxpayers in 25 states to file their taxes directly with the IRS for free, could significantly influence the tax preparation industry. This program expands access to free tax filing services, particularly for lower-income individuals and families, and offers a convenient, user-friendly option to file taxes. The Direct File program includes new features like a chat bot to guide users through the eligibility checker and additional authentication options for live chat support.

While Direct File may increase accessibility and convenience for taxpayers, it could also lead to a reduction in demand for commercial tax software and paid tax preparation services. This shift could result in a decrease in revenue for commercial tax software providers and paid tax preparers, potentially leading to higher prices or reduced services for those who continue to use them.

However, the Direct File program also presents new opportunities for tax professionals. Tax professionals can differentiate themselves by offering expertise and personalized advice, particularly for complex tax situations not covered by Direct File. These situations may include taxpayers with income above the Direct File threshold, self-employment income, rental income or foreign assets, or complex deductions or credits. Tax professionals can also provide guidance on tax planning strategies, helping clients optimize their tax situation throughout the year, rather than just during the filing season.

In conclusion, the two big changes for tax season 2025 – the increased standard deduction and the new Direct File program – have the potential to significantly impact taxpayers' decisions and the tax preparation industry. By staying informed and adapting to these changes, taxpayers and tax professionals can make the most of these developments and optimize their tax strategies.