2025 Tax Changes to Know

Each year brings new regulations, adjusted thresholds, and updated tax laws. In this post, we'll highlight the key tax changes you need to know, whether you're an individual taxpayer, a business owner, or someone with international income. Understanding these updates will help you navigate your filing with confidence and avoid surprises.

Standard Deduction and Tax Bracket Updates

Each year, the IRS adjusts the standard deduction and tax brackets to reflect inflation, and the changes for 2025 are no exception. Here’s what you can expect:

Standard Deduction: The standard deduction has increased for 2025, which means you can deduct more from your taxable income, potentially lowering your overall tax bill. For single filers, the new standard deduction is $14,600, up from $13,850 in 2024. For those filing jointly, the standard deduction increases to $29,200, up from $27,700 last year.

Tax Bracket Adjustments: The tax brackets have been adjusted slightly upward to account for inflation, meaning you may pay less tax on your income in the 24%, 32%, and 35% brackets. For example, the 24% bracket will apply to income over $190,750 for married couples filing jointly, an increase from $182,100 in 2024. These adjustments will help most taxpayers reduce their taxable income, keeping more of your earnings for the year.

Changes to 1099-K Reporting Threshold

In recent years, there have been significant changes to the way the IRS tracks and reports income from third-party platforms such as PayPal, Venmo, and other online payment systems. For 2025, here are the key changes regarding Form 1099-K:

$2,500 Reporting Threshold: The threshold for receiving a 1099-K will now be $2,500 in aggregate transactions, which is a middle ground between the previous higher $20,000 threshold and the lower $600 threshold that was originally proposed. The $2,500 threshold is applicable for the 2025 tax year.

This change affects those who use third-party platforms for business-related transactions. If you're a small business owner or freelancer who receives payments through these platforms, you will likely receive a 1099-K for transactions over $2,500. It’s crucial to keep track of all business-related transactions to ensure they are properly reported on your tax return.

Payments between friends and family, such as splitting dinner bills or reimbursing someone for a gift, are not subject to this reporting requirement. Only transactions for goods and services are considered reportable income.

Understanding this change is important for those who use online payment systems for business, as failure to report these transactions could lead to an IRS audit.

Estate and Gift Tax Exclusions:

Lifetime estate and gift tax exclusion increases to $13,990,000 for 2025, from $13,610,000 in 2024. The annual gift tax exclusion increases to $19,000, up from $18,000.

International Tax Changes

For U.S. expatriates and taxpayers with international income, 2025 brings notable updates:

Foreign Earned Income Exclusion (FEIE): The exclusion amount rises to $130,000, up from $126,500 in 2024. This means U.S. citizens and resident aliens living and working abroad can exclude up to $130,000 of earned income from U.S. taxation if they meet the IRS residency or physical presence tests.

Foreign Gift Reporting Thresholds: Gifts received from foreign corporations or partnerships must be reported if they exceed $20,116 in 2025 (up from $19,570 in 2024).

Exit Tax Thresholds: For expatriates, the income threshold triggering the exit tax increases to $206,000, with the exclusion amount climbing to $890,000 for applicable assets.

If you have questions or need assistance with preparing your tax return for 2025, contact us at info@mkhstaxgroup.com. We’re here to help you navigate the complexities of tax season with ease.