As we approach the end of 2025, preparing for the tax season in early 2026 means navigating new inflation adjustments, potential legislative shifts, and opportunities for smart planning.
1. Higher Standard Deductions
To combat inflation, the IRS has increased standard deduction limits for the 2025 tax year. For single filers, the deduction is projected to rise to approximately $15,000, while married couples filing jointly could see it increase to around $30,000.
Strategy: If your total itemized deductions (mortgage interest, state taxes, charitable contributions) fall below these new thresholds, taking the standard deduction will likely save you more time and money.
2. Adjusted Tax Brackets
Income tax brackets have also widened by roughly 3-4% to prevent “bracket creep,” ensuring that cost-of-living raises don’t inadvertently push you into a higher tax rate. This adjustment effectively lowers the tax bill for many middle-income earners compared to prior years with similar real income.
3. Business Mileage Rate Increase
For business owners and freelancers, the standard mileage rate for 2025 is expected to increase slightly to reflect fuel and maintenance costs. If you drive extensively for work, tracking every mile is more valuable than ever.
Tip: Use a mileage tracking app to ensure your logs are IRS-compliant.
4. 401(k) and IRA Contribution Limits
Retirement savers get a boost this year. The 401(k) contribution limit is projected to increase to $23,500 (excluding catch-up contributions), while IRA limits may see a bump to $7,500. Maximizing these contributions before April 15, 2026, (for IRAs) or December 31, 2025 (for 401ks) is one of the most effective ways to lower your taxable income.
5. Energy Credits Remain Strong
Credits for residential clean energy (solar panels, heat pumps) and electric vehicles remain in effect. If you made green home improvements in 2025, ensure you have the necessary certifications and receipts to claim up to 30% of the cost as a credit.
Planning Ahead
The best time to impact your 2025 tax liability is right now, before the year closes. Review your withholdings, harvest capital losses to offset gains, and consider deferring bonuses if appropriate for your situation.