The IRS has released its annual inflation adjustments for tax year 2025, and the numbers reflect the continued impact of elevated inflation on the tax code. Revenue Procedure 2024-40 adjusts more than sixty tax provisions, including the income tax brackets, the standard deduction, the estate and gift tax exemption, and numerous other thresholds that affect tax planning for individuals and businesses.^[1] For business owners, the most significant numbers involve the estate tax exemption — likely the last year at the current elevated level — and the continued adjustments to retirement plan contribution limits.

Income Tax Brackets

The seven federal income tax rates remain the same for 2025: 10, 12, 22, 24, 32, 35, and 37 percent. However, the income thresholds at which each rate applies have been adjusted upward for inflation. For married couples filing jointly, the 37 percent rate now applies to taxable income above $751,600, up from $731,200 in 2024. For single filers, the 37 percent threshold is $626,350, up from $609,350. The bracket adjustments effectively reduce the tax burden for taxpayers whose income has kept pace with inflation but has not grown in real terms.

Standard Deduction

The standard deduction for 2025 is $30,000 for married couples filing jointly (up from $29,200 in 2024) and $15,000 for single filers (up from $14,600). These amounts continue to reflect the near-doubling of the standard deduction enacted by the TCJA, which remains in effect through the end of 2025. The additional standard deduction for taxpayers who are 65 or older or blind remains at $1,550 for married taxpayers and $1,950 for single taxpayers.

Estate and Gift Tax Exemption: The Last Year at This Level?

The unified credit against estate and gift tax provides a basic exclusion amount of $13.99 million per individual for 2025 — up from $13.61 million in 2024. For married couples with proper planning, the combined exemption is $27.98 million. This means that estates below this threshold are not subject to the federal estate tax, and individuals can make cumulative lifetime gifts up to this amount without incurring gift tax.^[2]

Critically, the TCJA provision that approximately doubled the estate tax exemption is scheduled to sunset after December 31, 2025. Unless Congress acts to extend it, the exemption will revert to approximately $7 million per individual (adjusted for inflation) beginning in 2026. This makes 2025 potentially the last year in which taxpayers can take advantage of the historically high exemption. For high-net-worth individuals who have not yet fully utilized their exemption, the window for making large gifts — whether outright or to irrevocable trusts — is closing.

Annual Gift Tax Exclusion

The annual gift tax exclusion increases to $19,000 per donee for 2025, up from $18,000 in 2024. This is the amount that any individual can give to any other individual in a calendar year without using any of their lifetime exemption or filing a gift tax return. For married couples, the combined annual exclusion is $38,000 per donee. For taxpayers who make annual exclusion gifts to multiple family members, the inflation adjustment provides additional gifting capacity each year.^[3]

Alternative Minimum Tax

The AMT exemption amount for 2025 is $88,100 for single filers and $137,000 for married couples filing jointly. The phase-out thresholds are $626,350 for single filers and $1,252,700 for married couples. These adjustments continue the TCJA's expansion of the AMT exemption, which significantly reduced the number of taxpayers affected by the AMT.

Other Key Numbers for 2025

Several other thresholds that affect business owners and high-income individuals have been adjusted. The Section 179 expensing limit remains at $1,160,000, with the phase-out beginning at $2,890,000 in total property placed in service. The qualified transportation fringe benefit exclusion increases to $325 per month. And the foreign earned income exclusion rises to $130,000.

Planning Implications

For business owners, the 2025 inflation adjustments underscore the urgency of estate tax planning. The $13.99 million exemption represents a planning opportunity that may not exist in 2026. Taxpayers who have already made significant lifetime gifts should review their cumulative gift tax return history to determine how much exemption remains. Those who have not yet engaged in estate tax planning should consult with counsel promptly — the most effective planning strategies, such as spousal lifetime access trusts, grantor retained annuity trusts, and intentionally defective grantor trusts, require time to implement properly.^[4]

On the income tax side, the bracket adjustments are a reminder to review year-end planning strategies, including the timing of income recognition, the acceleration of deductions, and the optimization of retirement plan contributions. The interaction between the higher standard deduction and the SALT cap continues to limit the benefit of itemizing for many taxpayers, making charitable giving strategies such as donor-advised funds and bunching particularly relevant.