January 2025
The Internal Revenue Code imposes income, estate, gift, and generation skipping transfer taxes.
Certain items are subject to annual inflation adjustments.
The Service published Rev. Proc. 2024-40, which sets forth inflation adjusted items for 2025. The following increases are beneficial for tax planning.
Income tax is imposed on taxable income. I.R.C. § 1.
For married individuals filing joint returns, and surviving spouses, the maximum rate of 37% is imposed on taxable income over $751,600. Rev. Proc. 2024-40, § 2.01.
For married individuals filing separately, the maximum rate of 37% is imposed on taxable income over $375,800. Rev. Proc. 2024-40, § 2.01.
For unmarried individuals, the maximum rate of 37% is imposed on taxable income over $626,350. Rev. Proc. 2024-40, § 2.01.
For estates and trusts, the maximum rate of 37% is imposed on taxable income over $15,650. Rev. Proc. 2024-40, § 2.01.
Taxable income is calculated by subtracting the standard deduction from gross income for an individual who does not elect to itemize deductions. I.R.C. § 63(b).
For married individuals filing joint returns, and surviving spouses, the standard deduction is $30,000. I.R.C. § 63(c); Rev. Proc. 2024-40, § 2.15.
For married individuals filing separately, the standard deduction is $15,000. I.R.C. § 63(c); Rev. Proc. 2024-40, § 2.15.
For unmarried individuals, the standard deduction is $15,000. I.R.C. § 63(c); Rev. Proc. 2024-40, § 2.15.
Estate tax is imposed on the transfer of a taxable estate of a decedent who is a citizen or resident of the United States. I.R.C. § 2001(a).
The rate is 40%. I.R.C. § 2001(c).
The estate tax is calculated by subtracting the unified credit against the estate tax. I.R.C. § 2010(a).
For an individual that dies in 2025, the basic exclusion amount is $13,990,000 for determining the amount of the unified credit against estate tax. I.R.C. § 2010(c); Rev. Proc. 2024-40, § 2.41.
This amount, however, is scheduled to be reduced to $5,000,000 on January 1, 2026. I.R.C. § 2010(c)(3)(C). Gift planning should be considered in 2025 for those with large estates.
Gift tax is imposed on the transfer of property by gift by an individual. I.R.C. § 2501(a).
The rate is 40%. I.R.C. § 2502(a); I.R.C. § 2001(c).
The first $19,000 ($18,000 in 2024) of gifts to any person (other than gifts of future interests) are excluded from the total amount of taxable gifts. I.R.C. § 2503(b); Rev. Proc. 2024-40, § 2.43(1).
The gift tax is calculated by subtracting the unified credit against the gift tax. I.R.C. § 2505(a); I.R.C. § 2010(c).
For an individual that dies in 2025, the basic exclusion amount is $13,990,000 for determining the amount of the unified credit against gift tax. I.R.C. § 2505(a); I.R.C. § 2010(c); Rev. Proc. 2024-40, § 2.41.
This amount, however, is scheduled to be reduced to $5,000,000 on January 1, 2026. I.R.C. § 2010(c)(3)(C). Gift planning should be considered in 2025 for those with large estates.
GST tax is imposed on every generation skipping transfer. I.R.C. § 2601.
The rate is 40%. I.R.C. § 2602; I.R.C. §§ 2641(a)(1) & (b); I.R.C. § 2001(c).
The GST tax is calculated based on the inclusion ratio, which depends on allocation of the GST exemption. I.R.C. § 2641(a)(2); I.R.C. § 2631(a).
For an individual that dies in 2025, the GST exemption is $13,990,000. I.R.C. § 2631(c); I.R.C. § 2010(c); Rev. Proc. 2024-40, § 2.41.
This amount, however, is scheduled to be reduced to $5,000,000 on January 1, 2026. I.R.C. § 2010(c)(3)(C). Gift planning should be considered in 2025 for those with large estates.