The IRS has released important inflation adjustments for the 2025 tax year, which will impact individual taxpayers and estates. Individuals and families may find themselves in different tax brackets, potentially reducing or increasing their tax burden. From an estate planning perspective, knowing these 2025 tax adjustments in advance can help individuals and families plan accordingly. This is especially important with the expiration of many provisions of the Tax Cuts and Jobs Act (“TCJA”) after December 31, 2025.
Federal Gift/Estate Tax Exemption Increases
One of the most noteworthy updates is the increase in the Federal Gift/Estate Tax exemption. For decedents who die in 2025, the exemption rises to $13,990,000, increased from $13,610,000 in 2024. Taxpayers are able to apply this exemption to lifetime gifts and/or their estate upon their death. Individuals and families should connect with their estate planning attorney to ensure they are taking full advantage of the increased exemption, particularly if they have significant wealth. Under current law, this exemption is scheduled to decrease by 50% in 2026, to approximately $7,000,000 per individual (or approximately $14,000,000 for a married couple).
Annual Gift Tax Exclusion Increases
Another update is the annual gift tax exclusion will also see an increase to $19,000 per recipient, up from $18,000 in 2024. This 2025 tax adjustment is significant for individuals looking to give assets away during their lifetime without the requirement to file a Federal Gift Tax Return. From an estate planning perspective, it encourages proactive wealth transfer strategies, allowing clients to provide financial support to loved ones while reducing the overall size of their taxable estate.
Impact on Retirement Accounts
Minor adjustments to retirement account contribution limits will also take effect in 2025. The contribution limit for 401(k) plans increases to $23,500, up from $23,000. Contributing to an IRA? The limit on annual contributions to an IRA remains $7,000; the IRA “catch‑up” contribution limit for individuals aged 50 and over remains $1,000. Retirement planning is one factor of estate and financial planning, and many individuals benefit from contributing to a tax-deferred retirement account. Speak to your professional advisors about whether or not this strategy makes sense for you and your family.
Planning ahead for 2025 tax adjustments
It is important for taxpayers to reassess their financial plans, estate strategies, and gifting approaches on a regular basis. Engaging with an estate planning attorney can provide clarity on how these changes affect individual circumstances, ensuring that your estate plan aligns with current laws and maximizes tax efficiency.
