The IRS has announced several important changes that will affect your tax filing for the 2025 tax year. This article will focus on three key areas: the new capital gains tax threshold, modifications to the Kiddie Tax, and the increase in Flexible Spending Account (FSA) limits.
1. New Capital Gains Tax Threshold:
- Understanding Capital Gains: Capital gains taxes are levied on the profit from the sale of capital assets, such as stocks, bonds, real estate, and collectibles.
- The New Exemption Threshold: For the 2025 tax year, individual tax filers will not have to pay any capital gains tax if their total taxable income is $48,350 or less.
- Comparison to the Previous Year: This threshold has increased from $47,025 in 2024.
- Tax Rates for Higher Incomes: The capital gains tax rate is 15% if your income falls between $48,351 and $533,400. If your income exceeds $533,400, you will pay 20% in capital gains tax when you sell your investments.
- Implications for Taxpayers: This change could significantly benefit individuals with lower incomes who sell capital assets.
- Practical Example: For instance, an individual with a taxable income of $45,000 who sells stock for a $5,000 profit will not owe any federal capital gains tax in 2025.
2. Changes to the Kiddie Tax:
- Understanding the Kiddie Tax: The Kiddie Tax applies to the unearned income of certain children and aims to prevent parents from shifting income to their children to reduce their tax liability.
- New Unearned Income Threshold: For a child wage earner under age 19, the first $1,350 of any unearned income is tax-free in 2025.
- Definition of Unearned Income: According to the IRS, “unearned income” includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. www.jacksonhewitt.com and www.jacksonhewitt.com
- Taxation of the Next Tier: The next $1,350 of unearned income will be taxed at the child’s tax rate.
- Taxation at the Parents’ Rate: Any unearned income above $2,700 will be taxed at the parents’ tax rate.
- Implications for Families: These changes will affect how investment income for children is taxed.
- Practical Example: Consider a child with $3,000 in dividend income. The first $1,350 will be tax-free, the next $1,350 will be taxed at the child’s rate, and the remaining $300 will be taxed at the parents’ rate.
3. Flexible Spending Account Increases:
- Understanding FSAs: A Flexible Spending Account (FSA) allows you to set aside pre-tax dollars for eligible healthcare and dependent care expenses.
- New Contribution Limit: The dollar limit for flexible spending accounts (FSA) increases to $3,300 in 2025.
- Carryover Provision: If your employer’s plan allows it, you can carry over up to $660 of unused funds to the following tax year.
- Benefits for Taxpayers: This increase provides an opportunity for families to save more pre-tax money for anticipated healthcare and dependent care costs.
- Important Considerations: It’s crucial to check with your employer to confirm if their FSA plan offers the carryover option.
Conclusion:
Staying informed about these key tax changes announced by the IRS for 2025 is essential for effective financial planning. Understanding how these adjustments to capital gains, the Kiddie Tax, and FSA limits may impact your specific situation is crucial for accurate tax preparation.
Call to Action:
Contact us today for a personalized consultation to discuss how these specific IRS changes for 2025 might affect your tax situation and to get expert guidance with your tax planning and filing.
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