Tax season
What to Know About 2025 Taxes — and How to Plan Ahead for 2026
Tax season is a good reminder that taxes are not just a once-a-year event. The most effective strategies often come from planning ahead.
Recent federal legislation introduced several updates to the tax code beginning in 2025, with additional provisions scheduled to take effect in 2026. Understanding these changes — and how they interact with your income, investments, and retirement planning — can help you make smarter financial decisions throughout the year.
Below are several key tax concepts and updates that taxpayers should understand when reviewing their 2025 return and preparing for 2026 planning.
Understanding Marginal Tax Rates
The United States uses a progressive tax system, meaning that higher levels of income are taxed at higher rates.
However, a common misconception is that all income is taxed at a single rate. In reality, income is taxed in layers across multiple brackets.
For example, if a married couple filing jointly has $105,000 of taxable income, portions of that income fall into several tax brackets:
- The first portion is taxed at 10%
- The next portion at 12%
- The final portion at 22%
In this example, the couple is considered to be in the 22% marginal tax bracket, meaning their last dollar earned is taxed at 22%, not their entire income.
Understanding marginal rates is important because many financial decisions — such as realizing capital gains, converting retirement assets, or accelerating deductions — depend on where your income falls within the tax brackets.
Key Federal Tax Updates for 2025
Recent federal legislation introduced several changes that may affect taxpayers. While individual situations vary, here are some of the most notable updates:
Changes affecting 2025 tax returns include:
- Adjustments to federal tax brackets
- Slight increases in the standard deduction
- Expansion of the State and Local Tax (SALT) deduction cap
- Continued favorable tax treatment of long-term capital gains
- Continued 8% Net Investment Income Tax for high earners
- New deductions for certain taxpayers
Some of the most widely discussed changes include new deductions related to seniors, tips, overtime income, and auto loan interest.
Additional context on new deductions:
The OBBBA introduced deductions for certain types of income and expenses, including:
- Tip income (up to $25,000 for eligible workers)
- Overtime pay (for certain hourly employees)
- Auto loan interest (up to $10,000 for qualifying vehicles manufactured in the U.S.)
Each of these provisions includes specific eligibility requirements, income thresholds, and phase-outs.1
Because these provisions have different phase-outs and expiration timelines, working with a tax professional or financial advisor can help determine how they apply to your specific situation.
Standard Deduction Changes
Most taxpayers claim the standard deduction, which increased slightly in 2025.
Current deduction amounts include:
- $15,000 for single filers
- $30,000 for married couples filing jointly
- $22,500 for head of household filers
Taxpayers age 65 or older may qualify for additional standard deduction amounts depending on filing status.
New Senior Deduction
The One Big Beautiful Bill Act (OBBBA) introduced a new tax benefit for older Americans.
Beginning in 2025, taxpayers age 65 or older may be eligible for an additional deduction of up to $6,000 (or $12,000 for married couples filing jointly).
Key details include:
- Applies from 2025 through 2028
- Phases out for higher-income households
- Begins phasing out at $75,000 MAGI (single) and $150,000 MAGI (joint)
- Phases out completely at $100,000 MAGI (single) and $200,000 MAGI (joint)2
This deduction is intended to reduce taxable income and provide additional financial relief for retirees.
Expanded SALT Deduction
The State and Local Tax (SALT) deduction cap — originally set at $10,000 under the 2017 Tax Cuts and Jobs Act — has been expanded.
Beginning in 2025:
- The cap increases to $40,000
- The cap increases 1% annually through 2029
- It phases down for taxpayers with MAGI above $500,000
For high-income households in higher-tax states, this change could meaningfully affect tax planning strategies.
Note: This change primarily benefits taxpayers who itemize deductions and have state and local taxes exceeding the previous $10,000 cap — typically those in higher-tax states such as California, New York, and New Jersey. Many taxpayers may still find the standard deduction more beneficial.3
Investment Income and Capital Gains
Investment income continues to receive preferential tax treatment.
Long-term capital gains and qualified dividends are generally taxed at 0%, 15%, or 20%, depending on income levels.
For 2025:
- The 0% rate applies to taxable income up to $48,350 (single) or $96,700 (married filing jointly)
- The 20% rate applies to taxable income above $533,400 (single) or $600,050 (married filing jointly)4
However, higher-income investors may also face an additional 3.8% Net Investment Income Tax (NIIT) on investment income such as:
- Interest
- Dividends
- Capital gains
- Rental income
- Royalty income
Because these surtaxes apply at specific income thresholds, timing investment gains and losses can play an important role in tax planning.
Retirement Contribution Opportunities
Retirement accounts remain one of the most effective tools for tax-efficient saving.
For the 2025 tax year, contribution limits include:
- $23,500 for 401(k), 403(b), and similar employer plans
- $7,000 for traditional or Roth IRAs
- $7,500 catch-up contributions for individuals age 50 or older
New “super catch-up” contributions also allow individuals ages 60–63 to contribute up to $11,250 in additional retirement savings to certain employer-sponsored plans.
Remember that IRA contributions for the 2025 tax year can generally be made until April 15, 2026.
Required Minimum Distributions (RMDs)
Legislation in recent years has increased the age when required minimum distributions must begin.
Currently:
- RMDs generally begin at age 73
- The age will increase to 75 in 2033
Understanding these timelines is important for managing retirement income and minimizing taxes in retirement.
Additional consideration:
Taxpayers age 70½ or older may be able to make Qualified Charitable Distributions (QCDs) directly from their IRA to a qualified charity. These distributions can count toward RMD requirements and are not included in taxable income, subject to annual limits and IRS rules.5
Strategies to Consider for 2026 Tax Planning
Rather than waiting until tax season, many investors benefit from taking a proactive approach to tax planning.
Potential strategies to explore include:
Create a tax projection
Estimating income and deductions for the year can help identify opportunities to manage tax brackets.
Evaluate Roth IRA conversions
Converting traditional retirement assets to Roth accounts can create tax-free income later in retirement, though conversions trigger taxes in the year they occur6.
Maximize retirement contributions
Taking full advantage of retirement savings limits can help reduce taxable income.
Consider charitable giving strategies
Tools like donor-advised funds or qualified charitable distributions may provide tax advantages for philanthropic goals.
Use annual gifting strategies
For 2026, individuals may gift up to $19,000 per person without triggering federal gift taxes.
The Value of Proactive Planning
Tax laws are complex and frequently change. A proactive planning approach — rather than reacting during tax season — can often lead to better financial outcomes.
By reviewing your tax situation regularly and coordinating with qualified professionals, you can better align your investment, retirement, and tax strategies with your long-term goals.
If you have questions about how these tax changes may affect your financial plan, consider speaking with a financial advisor or tax professional.
Disclosure
This information is provided for educational purposes only and should not be considered tax, legal, or investment advice. Individual situations vary, and readers should consult qualified professionals before making financial decisions.
2 https://www.irs.gov/forms-pubs/how-to-update-withholding-to-account-for-tax-law-changes-for-2025
3 https://tax.thomsonreuters.com/en/glossary/salt-deduction
4 https://www.irs.gov/taxtopics/tc409
5 https://www.irs.gov/newsroom/seniors-can-reduce-their-tax-burden-by-donating-to-charity-through-their-ira
6 For Roth IRA withdrawals to be tax-free you must have reached the age of 59 ½ and held the account for 5-years beginning on first year you made a Roth contribution. Before deciding on a Roth conversion speak to a tax advisor to review your specific circumstances.