The IRS recently announced new tax brackets and standard deduction amounts for the 2025 tax year. The inflation adjustments mean that people will not end up in higher tax brackets just because their salaries kept pace with inflation. It also means that deductions will not lose value due to inflation.
2025 Standard Deduction Amounts: The 2017 Tax Cuts and Jobs Act significantly increased standard deduction amounts. Under the current tax policy, most tax filers use that deduction as opposed to itemized deductions. Each filing status has a specific standard deduction amount. The 2025 amounts are shown below:
Single: $15,000
Married Filing Jointly: $30,000
Head of Household: $22,500
Standard deductions directly reduce taxable income. For instance, Oliver, a single person with $60,000 of taxable income, takes the standard deduction and has no other credits, deductions, or adjustments. That deduction reduces his taxable income to $45,000.
Ordinary Income Tax Brackets: The U.S. uses a progressive structure with seven tax brackets – 10%,12%, 22%, 24%, 32%, 35%, and 37%. Each layer of taxable income is subject to the tax rate within the specific bracket. Things like wages, interest, and taxable distributions from retirement accounts are in the ordinary income category.
A 2.8% inflation adjustment was applied to the income falling within each bracket. Visit the Tax Foundation’s web site to compare 2024 and 2025 tax brackets:
The highest bracket applicable to an individual’s taxable income is their marginal tax rate. In the example above, Oliver, would be in the 12% marginal tax bracket. However, his average tax rate (tax liability/ income) would be 9.8%.
Capital Gains Tax Brackets: Profits earned from the sale of a capital asset (such a stock) held for greater than 1 year are taxed at long terms capital gains rates. These brackets (0%, 15%, and 20%) are also indexed for inflation.
A taxpayer anticipating a large capital gain may be able to plan a lower ordinary taxable income for that year to get a 0% capital gains rate. In 2025, the 0% rate applies to single filers with taxable income up to $48,350, married filing jointly couples up to $96,7000, and head of household filers up to $64,750.
The Tax Foundation provides the 2025 Capital Gains Brackets in Table 6 on their web page.
Plan Ahead: An annual analysis of taxable income and tax brackets can help with tax planning, avoid tax surprises, and potentially reduce tax liability. The Tax Foundation provides a wealth of information and annual tax bracket updates to assist.
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