KEY TAX QUESTIONS ABOUT 2025 TAXES
Right now, you may be more focused on what you’ll owe (or receive as a refund) when you file your 2024 tax return in April than on tax planning for the new year. However, as you work through your annual tax filing, you should familiarize yourself with amounts that may have changed for 2025 due to inflation adjustments.
Here are four commonly asked questions (and answers) about 2025 tax figures:
1. How much money can I contribute to an IRA? If eligible, you can contribute up to $7,000 to a traditional or Roth IRA (but only up to 100% of your earned income, if less). If you’re age 50 or older, you can make another $1,000 “catch-up” contribution. (These amounts are the same as for 2024.)
2. What’s the maximum I can contribute to a 401(k) plan through my job? The amount you can contribute is up to $23,500 to a 401(k) or 403(b) plan (up from $23,000 in 2024). Those 50 or older can add a $7,500 catch-up contribution (unchanged from 2024). New in 2025, employees ages 60 through 63 can make enhanced catch-up contributions of up to $11,250 (including the $7,500 standard catch-up contribution).
3. How much must I earn not to pay Social Security on my entire salary? The Social Security tax wage base rises to $176,100 (from $168,600 for 2024). You don’t owe Social Security tax on amounts earned above this threshold. (Medicare tax must be paid on all amounts earned.)
4. How much can I give one person without requiring a gift tax return? The annual gift tax exclusion is $19,000 (up from $18,000 in 2024).
These are only some of the tax figures that may apply to you. Contact the office for more information.
MARRIED FILING SEPARATELY: WHEN IT MAY MAKE SENSE
Filing joint tax returns generally results in the lowest tax bill for married couples. However, in some circumstances, they may pay less taxes if they file separately, such as when one spouse has large medical expenses. Medical expenses are deductible only to the extent that they exceed 7.5% of adjusted
gross income (AGI). So if one spouse would have significantly lower AGI filing separately, it may increase the deduction.
But be mindful of the downsides of filing separately. Certain tax credits, for instance, are generally unavailable to separate filers, specifically for child and dependent care and education. Also, the capital loss deduction for separate filers is limited to $1,500 (as opposed to $3,000 for married couples filing jointly).
Yet there may be reasons filing separately is better even if the tax cost is higher, such as if one spouse has an income-sensitive repayment plan for student loans. Contact the office to weigh all the factors and determine the most advantageous strategy for your situation.
BUSINESS MILEAGE RATE IS UP FOR 2025
The IRS has issued the 2025 cents-per-mile rates that can be used to calculate tax-deductible vehicle operating costs. Effective Jan. 1, 2025, the standard mileage rate for the business use of a car, van, pickup truck or panel truck is 70 cents per mile. This is up from 67 cents per mile for 2024. (For medical or eligible moving purposes, the 2025 rate is 21 cents per mile, and for charitable driving, it’s 14 cents per mile, both unchanged from 2024.)
These rates apply to gasoline and diesel-powered vehicles and to electric and hybrid-electric automobiles. To protect your deduction, don’t forget to keep detailed mileage records. Contact the office with questions.