The Beat Rolls On
/On October 22, the IRS announced the new federal income tax brackets and standard deductions for tax year 2025 (returns filed in 2026). Federal income tax brackets show how much you owe on each tier of your taxable income, which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
The current tax rates remain the same as established by the 2017 Tax Cuts and Jobs Act (TCJA) at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, the income thresholds for each bracket were raised, leaving the top rate of 37% applying to individuals with taxable income above $626,350 and married couples filing jointly with $751,600 or more for 2025.
The standard deduction will also increase in 2025, as it does each year, rising to $30,000 for married couples filing jointly, up from $29,200 in 2024, with single filers increased to $15,000, a bump from $14,600.
If you are invested in a brokerage account, it’s important to know how these assets impact your taxes. While the capital gains tax rates remain the same, the IRS also announced a boost to the long-term capital gains tax brackets, for the sale of investments held more than one year. Starting in 2025, single filers will qualify for the 0% long-term capital gains rate with taxable income of $48,350 (up from $47,025) or less and married couples filing jointly are eligible with $96,700 (up from $94,050) or less. Other brackets include 15% (single filers taxable income up to $533,400 and married filing jointly up to $600,050). Beyond those thresholds, long-term capital gains are taxed at 20%. As is the norm, short-term capital gains are taxed at the taxpayer’s ordinary tax rate, so it may be best to avoid short-term capital gains for many taxpayers.
With the possibility of higher tax rates reappearing should the TCJA sunset, it may be a good time to discuss harvesting gains and paying the tax in the current year. This will reset your cost basis, or purchase price, by selling an asset at a gain and then immediately repurchasing the same asset. This can be a game changer if you expect your income to be higher in future years. However, bear in mind how it will affect your modified adjusted gross income for Medicare premiums or marketplace health insurance premium tax credits.
- Pam Smitson, CPA, CGMA®, Smitson Erhart-Graves Financial Advisors
