The U.S. Bureau of Labor Statistics reported that the consumer price index (CPI) increased by 0.2% in August after rising the same level in July, resulting in a 2.5% increase in the all items index over the last 12 months. These boosts in inflation will impact tax forms by pushing out deduction limitations and resulting in upward adjustments to tax brackets and other key thresholds. Inflation-adjusted amounts in the tax code will increase by 2.8% from 2024 numbers in 2025, about half the increase seen in 2024.
For the tax year 2025, tax brackets are expected to change, with projected standard deduction amounts for various filing statuses increasing from 2024. Personal exemption amounts will no longer be applicable, as they were eliminated by the Tax Cuts and Jobs Act. Capital gains rates will remain the same in 2024, but the brackets for these rates will change.
The Alternative Minimum Tax (AMT) exemption rate is also subject to inflation, and projections show an increase for 2025. Other changes include adjustments to the maximum amount of refundable child tax credit, fringe benefits like transportation expenses, and limits on deductions for student loan interest and health savings accounts. The projected numbers also include predictions for IRAs, charitable distributions, Roth IRAs, foreign-earned income exclusion, federal estate tax exclusion, gift tax exclusion, and section 199A deduction.
While these are projections, the IRS will publish the official tax brackets and other tax numbers for 2025 later this year, likely in October. The full report is available for tax professionals and taxpayers to prepare for the forthcoming year, providing crucial forecasts to address the impact of inflation on the tax code. As inflation continues to affect the tax code, Bloomberg Tax & Accounting offers research and tools to assist users in addressing day-to-day workflow issues by providing relevant intelligence where needed.
