The IRS has released the final tax rules for the 2025 tax year, which include some important changes that could affect many Americans.
While taxes are not always a fun topic to talk about, understanding them is essential to avoid unexpected bills. In this article, we will go over the changes to deductions and how they could impact your taxes.
Changes to Standard Deductions:
One of the most noticeable changes for 2025 is the increase in the standard deduction. The standard deduction is the amount of income you do not have to pay taxes on.
By subtracting the standard deduction from your total income, you get your taxable income, which is the amount you will be taxed on.
For 2025, the standard deduction amounts have been adjusted to help taxpayers save more money. For example:
- Single or Married Filing Separately: The standard deduction will be $15,000, which is a $400 increase from last year.
- Married Filing Jointly: The standard deduction goes up to $30,000, which is $800 more than last year.
- Head of Household: The deduction will be $22,500, a $600 increase.
These changes can help reduce your taxable income, meaning you may end up paying less in taxes.
Itemized Deductions:
While some people will benefit from the standard deduction, others may need to use itemized deductions instead. This is when you list your specific expenses, like medical costs, mortgage interest, or charitable donations, and deduct them from your taxable income.
It’s best to use itemized deductions if they are greater than the standard deduction or if you are not eligible to use the standard deduction. However, most people find the standard deduction to be easier and more beneficial.
Some common items you can deduct with itemized deductions include:
- State and Local Taxes (income or sales taxes)
- Real Estate Taxes
- Mortgage Interest
- Medical Expenses
- Charitable Donations
The IRS allows you to choose between using the standard deduction or itemized deductions, but you must meet certain requirements to use either.
Changes to Alternative Minimum Tax (AMT):
The Alternative Minimum Tax (AMT) is another important part of the tax system. It ensures that high-income earners who have many tax breaks still pay a minimum amount in taxes. For 2025, the AMT exemption amounts have increased.
- Single People: The exemption amount will be $88,100, up from $68,650 last year.
- Married Couples Filing Jointly: The exemption amount will be $137,000.
However, these exemption amounts will start to decrease once your income goes above certain levels.
Who Can’t Use the Standard Deduction?
Not everyone can claim the standard deduction. Here are a few situations where you must use itemized deductions instead:
- If you are married but filing separately and your spouse is using itemized deductions.
- If your tax year is less than 12 months due to a change in your accounting period.
- If you are a nonresident alien, or if you are filing as a trust, estate, or partnership.
The IRS changes to the standard deduction and other tax rules for 2025 aim to help taxpayers keep more of their money.
Whether you should use the standard deduction or itemize your deductions depends on your specific situation.
Understanding these changes and how they affect your tax filing will help ensure that you’re making the best decision for your finances.
What is a standard deduction?
The standard deduction is a fixed amount that reduces your taxable income, which can lower the amount of taxes you owe.
How does the standard deduction change for 2025?
The standard deduction increases for all filing statuses. For example, single filers will get $15,000, which is $400 more than last year.
Can I choose between standard and itemized deductions?
Yes, you can choose which one to use, but you should pick the one that gives you the biggest tax benefit.
What is the Alternative Minimum Tax (AMT)?
The AMT ensures high-income earners pay a minimum amount of taxes, even if they have many tax breaks.
Who cannot use the standard deduction?
People who are married filing separately and whose spouse itemizes deductions, or those with less than 12 months of taxable income, cannot use the standard deduction.
