In this guide, we’ll explore the key tax changes in effect for 2025, how they’ll influence your filing status, retirement savings, investment, and estate planning—and offer strategic advice to help high-income and high-net-worth individuals prepare more effectively for upcoming coming tax changes.
Table of Contents
- What are the key tax changes for 2025?
- What are the changes to retirement accounts in 2025?
- What are the Backdoor and Mega Backdoor contribution limits?
- What are the capital gains tax changes in 2025?
- What are the possible extensions of the TCJA provisions?
- What are the 1099-K reporting requirements for 2025?
- What are the changes to 529 plans in 2025?
- Tax strategies for high-net-worth individuals in 2025
- Stay tax-efficient with Harness
What are the key tax changes in 2025?
Below are the standard deductions and marginal tax rates for 2024 and 2025.
Standard deductions
The standard deduction, claimed by the vast majority of Americans, will see a small increase in 2025.
| Filing Status | 2024 | 2025 |
| Single | $14,600 | $15,000 |
| Head of household | $21,900 | $22,500 |
| Married filing jointly | $29,200 | $30,000 |
| Married filing separately | $14,600 | $15,000 |
Marginal tax rates
While marginal tax rates will stay the same in 2025, the inflation-adjusted income thresholds mean you’ll owe less tax if your income remains unchanged from 2024. That said, U.S. salaries rose an average of 3.8% in 2024 and are projected to increase by 3.9% in 2025 (according to The Conference Board).
For single taxpayers
| Marginal Tax Rate | 2024 Income | 2025 Income |
| 10% | $0 | $0 |
| 12% | $11,600 | $11,925 |
| 22% | $47,150 | $48,475 |
| 24% | $100,525 | $103,350 |
| 32% | $191,950 | $197,300 |
| 35% | $243,725 | $250,525 |
| 37% | $609,350 | $626,350 |
For married filing jointly
| Marginal Tax Rate | 2024 Income | 2025 Income |
| 10% | $0 | $0 |
| 12% | $23,200 | $23,850 |
| 22% | $94,300 | $96,950 |
| 24% | $201,050 | $206,700 |
| 32% | $383,900 | $394,600 |
| 35% | $487,450 | $501,050 |
| 37% | $731,200 | $751,600 |
What are the changes to retirement accounts in 2025?
Most retirement account limits will increase slightly in 2025. However, the changes are modest, with the IRS raising the 401(k) annual addition limit by just $1,000. If you have automatic contributions set to max out your 401(k), you should adjust them slightly for the coming year.
| Account Type | 2024 Limit | 2025 Limit |
| IRA | $7,000 | $7,000 |
| HSA (Individual) | $4,150 | $4,300 |
| HSA (Family) | $8,300 | $8,550 |
| 401(k) Deferral | $23,000 | $23,500 |
| 401(k) Catch-up | $7,500 | $7,500 |
| 401(k) Annual Additions | $69,000 | $70,000 |
401(k) and Roth changes in 2025
The IRS has announced updates to retirement savings rules for 2025, including higher contribution limits for 401(k) plans and expanded income thresholds for Roth IRA eligibility.
Higher 401(k) contribution limits: Starting in 2025, individuals can contribute up to $23,500 to their 401(k) plans, marking an increase from the 2024 limit of $23,000. This adjustment also applies to participants in 403(b) plans, governmental 457 plans, and the Federal Thrift Savings Plan.
The standard catch-up contribution limit for individuals aged 50 and older remains unchanged at $7,500. However, a change to the SECURE 2.0 Act offers a higher catch-up contribution limit of $11,250 for participants aged 60 to 63 (as opposed to $7,500).
The IRS also announced increased income phase-out ranges for Roth IRA contributions in 2025. For single filers and heads of household, the phase-out range will rise to $150,000–$165,000, up from $146,000–$161,000 in 2024. Married couples filing jointly will see their range increase to $236,000–$246,000, compared to $230,000–$240,000 previously.
The phase-out range for married individuals filing separately remains unchanged at $0–$10,000, as this category is not subject to annual inflation adjustments.
What are the Backdoor and Mega Backdoor contribution limits?
A Backdoor Roth IRA is a strategy for high-income earners whose income exceeds the limits for direct Roth IRA contributions. Instead of contributing directly, you first contribute to a traditional IRA and then convert it to a Roth IRA. This allows access to the tax benefits of a Roth IRA—tax-free growth and withdrawals in retirement, assuming certain requirements are met.
Backdoor Roth IRA contribution limits
For 2025, direct Roth IRA contributions phase out at modified adjusted gross incomes (MAGI) between $150,000–$165,000 for single filers and $236,000–$246,000 for joint filers. A backdoor Roth sidesteps these limits, allowing high-income earners to still benefit from a Roth IRA. In 2025, you’ll be able to contribute up to $7,000 to a Roth IRA, or $8,000 if you’re 50 or older, provided your income falls below the phaseout thresholds.
Mega Backdoor Roth IRA contribution limits
A Mega Backdoor Roth strategy expands on the backdoor Roth. It allows individuals with 401(k) plans that permit after-tax contributions to roll those funds into a Roth IRA or Roth 401(k). This enables contributions far exceeding normal Roth IRA limits.
In 2025, the Mega Backdoor Roth limit will be $70,000 ($77,500 for those 50+). As mentioned earlier, the SECURE 2.0 legislation adds a supercharged catch-up contribution of $11,250 for ages 60–63, allowing a maximum of $81,250.
Not all 401(k) plans allow for after-tax contributions or in-service rollovers, which are essential for executing a Mega Backdoor Roth strategy. Be sure to verify with your plan administrator to confirm eligibility.
Backdoor and Mega Backdoor considerations
To take advantage of a Mega Backdoor Roth IRA, your 401(k) plan must permit after-tax contributions as well as in-service rollovers or conversions. However, the process can be a complex one, as conversions may trigger taxes, making timing an important factor.
Backdoor & Mega Backdoor – benefits and drawbacks
Backdoor Roth IRA
Benefits:
- Avoid income limits for Roth contributions.
- Enjoy tax-free growth and withdrawals.
- No required minimum distributions (RMDs).
Drawbacks:
- Conversions may trigger taxes.
- Potential to move into a higher tax bracket.
- You must hold a Roth IRA for at least 5 years to benefit from its tax-free withdrawals.
Mega Backdoor Roth IRA
Benefits:
- Allows much larger contributions compared to standard Roth IRAs.
- Offers tax-free growth and withdrawals in retirement.
- Minimizes taxes if rolled over promptly.
Drawbacks:
- Limited to plans with specific features (after-tax contributions and in-service rollovers).
- Taxes may still apply to the funds you convert from a traditional 401(k) to a Roth account.
- The same five-year rule applies to withdrawals.
Given the complexities involved in backdoor strategies, it’s advisable to consult with a tax professional who’s well-acquainted with the mechanisms involved in backdoor Roth strategies.
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What are the capital gains tax changes in 2025?
For individuals with investments in assets such as stocks, real estate, and other securities, changes in the capital gains tax—especially long-term capital gains—will be particularly relevant.
Investments held for one year or less are considered short-term capital gains and are taxed at the higher ordinary income tax rate (10% to 37%, depending on the taxpayer’s total taxable income), with some exceptions to the one-year holding period rule. Assets held for over one year, however, are subject to more favorable long-term capital gains tax rates.
Long-term capital gains tax rates for 2025
| Filing Status | 0% | 15% | 20% |
| Single | Up to $48,350 | $48,350 to $533,400 | Over $533,400 |
| Head of household | Up to $64,750 | $64,750 to $566,700 | Over $566,700 |
| Married filing jointly | Up to $96,700 | $96,700 to $600,050 | Over $600,050 |
| Married filing separately | Up to $48,350 | $48,350 to $300,000 | Over $300,000 |
Inflation is likely to be a key factor in 2025, with the IRS adjusting income brackets and capital gains thresholds accordingly. These adjustments can affect the timing of when to realize gains, so it’s important to stay continually informed or consult a professional tax advisor.
What are the possible extensions of the TCJA provisions?
The Tax Cuts and Jobs Act (TCJA) is a major tax reform law enacted in December 2017, which introduced widespread changes to both individual and corporate tax policies.
Key provisions of the TCJA include:
- Lowering individual income tax rates.
- Reducing the corporate tax rate from 35% to 21%.
- Expanding the Qualified Business Income (QBI) Deduction for certain businesses.
- Implementing bonus depreciation, allowing businesses to immediately write off the cost of eligible property.
The TCJA also placed a cap on the State and Local Tax (SALT) Deduction and increased the lifetime gift and estate tax exemption. However, many of the provisions of the TCJA are set to expire at the end of 2025, creating a great deal of uncertainty for businesses and individuals.
The future of these provisions largely depends on political negotiations and legislative action in the coming months and years. With a Republican majority in Congress and Donald Trump’s imminent return to the White House, the likelihood of some TCJA provisions being extended or made permanent is increasing.
Key provisions at the center of proposed extensions
One of the most prominent provisions set to expire is the Qualified Business Income (QBI) Deduction, which provides a 20% deduction for certain businesses. Trump has proposed extending this deduction beyond 2025, which would benefit many small and medium-sized businesses by allowing them to continue lowering their taxable income. His proposal aligns with the general Republican preference for broad extensions to maintain tax relief for businesses.
Another provision under scrutiny is Bonus Depreciation, which currently allows businesses to immediately write off the full cost of eligible property. However, this benefit is phasing out, with a gradual reduction each year until it fully expires by 2027. Trump’s proposal seeks to reinstate 100% bonus depreciation permanently, which would continue to provide businesses with immediate tax relief.
Individual income tax rates are another main area of concern. Under the TCJA, the current tax rates are set to expire in 2025, with the tax brackets reverting to pre-TCJA levels. Trump has proposed extending these rates or potentially making them permanent as well.
In addition, he suggests replacing the individual income tax with increased tariffs, which could dramatically shift the arena of federal revenue generation. This proposal might be of particular appeal to lawmakers focused on reducing income taxes for individuals.
For corporations, Trump’s proposal includes a corporate tax rate reduction from 21% to 20%, with an additional cut to 15% for companies engaged in manufacturing in the U.S. This initiative aims to provide more tax relief to U.S.-based corporations, encouraging domestic production and job creation.
In the realm of estate planning, the Lifetime Gift and Estate Tax Exemption is set for a substantial decrease in 2026, reverting to approximately $7 million—unless Congress intervenes. Trump’s proposal seeks to extend the current higher exemption limit, which was significantly raised under the TCJA.
He has also suggested maintaining the 40% estate tax rate on estates above the exemption threshold. If enacted, these changes would provide significant benefits to high-net-worth individuals and families planning for a transfer of wealth.
Lastly, the State and Local Tax (SALT) Deduction Cap, which limits SALT deductions to $10,000, has been a source of political controversy since its introduction under the TCJA. Trump has proposed eliminating this cap, which would restore full SALT deductibility for taxpayers in states with high local taxes. This proposal could be particularly appealing to taxpayers in high-tax states who were negatively impacted by the TCJA’s cap.
It’s important to remember, however, that these are proposals and the passage of any tax changes is far from guaranteed. Given the need for Congressional approval, businesses and individuals should prepare themselves for potential tax changes while monitoring the political landscape.
What are the 1099-K reporting requirements for 2025?
In 2025, third-party payment networks will be required to report payments exceeding $2,500 on Form 1099-K, formalized by IRS Notice 2024-85. This marks a major reduction from the previous thresholds of $20,000 and 200 transactions under Section 6050W.
This lower threshold affects various platforms and services, such as auction houses and consignment sellers, which connect customers to sellers of goods or services. Importantly, backup withholding may still apply—even if the threshold isn’t met—if a payee fails to provide a valid taxpayer identification number (TIN) or if there is a TIN mismatch. In such cases, payment settlement networks may be required to file both Form 945 and Form 1099-K.
Penalties will not be imposed for failing to file unless payments exceed the $2,500 threshold in 2025, but businesses should monitor for potential legislative changes that could change these requirements.
Gambling Winnings and 1099-K
Online gambling platforms like DraftKings, FanDuel, or similar services are also subject to the $2,500 gross payment threshold. This includes all payments made to users, such as payouts, stakes returned, or withdrawals, regardless of net winnings. If this threshold is exceeded, the platform will issue a Form 1099-K to the IRS.
Because Form 1099-K reports gross payments rather than net winnings, gamblers must maintain accurate records of their bets and losses. Net winnings—calculated as winnings minus losses—are what should be reported as taxable income. Proper documentation of losses can help reduce taxable income and avoid overpayment.
What are the changes to 529 plans in 2025?
Contributors to 529 education savings plans can count on a recent federal tax adjustment that gives them the opportunity to increase their investments for children or grandchildren. The adjustment also gives them the benefit of gift tax exclusions.
The federal annual gift tax exclusion will increase from $18,000 (2024) to $19,000 for individual contributors and from $36,000 to $38,000 for married couples filing jointly, becoming effective in the 2025 tax year.
Contributions to a 529 plan are considered gifts for tax purposes. In addition to offering flexible investment options and a broad range of qualified expenses, 529 plans allow families to contribute up to five years’ worth of contributions in a single year. Under the 2025 limits, individual contributors can contribute up to $95,000, while married couples filing jointly may contribute up to $190,000 in one year. These adjustments apply to income tax returns for the 2025 tax year, filed during tax season in 2026, as outlined by the IRS. Additionally, contributions to 529 plans may be deductible at the state level, depending on your state of residence, offering further potential tax advantages.
Tax strategies for high-net-worth individuals for 2025
As tax laws and political landscapes change, high-net-worth individuals (HNWIs) will need to remain on their toes in 2025. We’ll close this article with a number of strategies that HNWIs can pursue in order to stay tax-efficient.
Asset location for tax-efficient investing
A key component of a tax-efficient investment strategy is asset location—strategically placing investments in the most tax-advantageous accounts. HNWIs can reduce their taxable income and avoid overpaying taxes through careful review of the type of income an investment generates.
Certain investments, such as bonds and other income-generating assets, benefit from being placed in tax-advantaged accounts like IRAs, 401(k)s, and 403(b)s. These accounts allow for tax deferral, meaning that taxes on interest, income, or dividends generated by these investments are postponed until the funds are withdrawn.
On the other hand, tax-efficient assets like stocks, index funds, or exchange-traded funds (ETFs), which generate minimal taxable distributions due to their low turnover, should be kept in taxable accounts. In doing so, HNWIs can make sure they’re not paying unnecessary taxes on capital gains, which are often taxed at lower rates than regular income.
Tax-loss harvesting
Tax-loss harvesting is an effective strategy for reducing taxable income. The concept is relatively simple—by selling underperforming investments at a loss, investors can offset capital gains realized from other investments. This reduction in taxable income helps to lower the overall tax liability for the year.
Tax-loss harvesting is especially important during periods of market volatility, as asset values may fluctuate dramatically, creating opportunities to realize losses.
Optimizing withdrawal strategies
Careful planning of withdrawals from tax-advantaged accounts can significantly reduce taxes owed on retirement income by keeping individuals within a lower tax bracket. Individuals should consider the timing of their withdrawals and the possibility of spreading withdrawals over several years to minimize taxable income in any given year.
Charitable giving
This remains a key strategy for reducing tax liabilities while making a positive impact on society. Within this, there are several tax-efficient ways for HNWIs to make contributions:
Donor-advised funds (DAFs) allow individuals to donate appreciated securities, avoid capital gains tax, and receive up to 30% of adjusted gross income (AGI) in income tax deductions.
Required minimum distributions (RMDs) can be used to make charitable contributions directly from retirement accounts, lowering taxable income.
Charitable remainder trusts (CRTs) provide a way to donate assets while avoiding capital gains tax, providing income during the donor’s lifetime, and leaving a legacy for a charitable cause.
Estate and gift tax planning
Estate planning and gift tax strategies are important for minimizing tax liabilities and ensuring wealth is transferred efficiently across generations. The lifetime gift tax exemption provides an opportunity for HNWIs to reduce the value of their taxable estate by gifting substantial amounts to family members without incurring gift taxes.
For 2025, the exemption amount is $13.99 million for individuals and $27.98 million for married couples, allowing for significant gifts that will reduce estate taxes later. It should be noted, however, that these exemptions are set to drop to approximately $7 million per individual in 2026. A Republican-run Congress may well intervene on this issue.
Either way, it’s important to review and update estate plans regularly to align with changing tax laws and personal circumstances. This may include revising wills, trusts, and other legal documents to make sure that wealth is transferred according to the individual’s wishes while minimizing the tax burden on heirs.
529 education savings plans
529 plans remain a valuable tax-advantaged tool for saving for educational expenses. While contributions to 529 plans are not deductible at the federal level, many states offer state tax benefits, making them attractive for residents in certain states. The primary benefit of a 529 plan is the tax-free growth on investments when used for qualified education expenses like tuition, books, and room and board.
Consider Dynasty Trusts for Wealth Transfer
For high-net-worth individuals (HNWIs), dynasty trusts offer a powerful alternative to 529 plans, particularly in low-tax states. A dynasty trust allows families to take advantage of state tax benefits while locking in the lifetime gift and estate tax exemption before it is set to drop in 2026.
In 2025, the exemption stands at $13.99 million per individual (or $27.98 million for married couples), allowing significant tax-efficient wealth transfers. However, unless Congress acts, the exemption will revert to ~$7 million per individual in 2026. Establishing a dynasty trust before this change can help preserve the current higher exemption amount.
These trusts provide flexibility, asset protection, and opportunities to grow wealth tax-efficiently across generations. HNWIs should work with estate planning professionals to determine the best strategies for using dynasty trusts or 529 plans to meet their financial and legacy goals.
Roth IRA conversions
Finally, Roth IRA conversions offer HNWIs a way to take advantage of lower tax rates. Converting traditional IRAs to Roth IRAs can help lock in lower tax rates, as qualified withdrawals from Roth IRAs are tax-free. This strategy is particularly beneficial for those who expect to be in a higher tax bracket in the future, as it allows individuals to pay taxes on the converted amount now and avoid higher taxes on withdrawals later.
Stay tax-efficient in 2025 with Harness
As IRS tax limits and requirements change, staying tax-efficient requires careful planning and expert advice. Harness is transforming tax and financial guidance by connecting individuals and small businesses with innovative advisory firms. Offering an advanced platform for both individuals and tax advisors, we deliver personalized tax strategies tailored to specific financial circumstances and goals.
Our network of tax advisors can help equip you with the tools to minimize liabilities and maximize opportunities in 2025.
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Harness makes it easy to find tax and financial advisors best suited to your needs. Starting at $1,500 per year.
Harness makes it easy to find tax and financial advisors best suited to your needs. Starting at $1,500 per year.
FAQs
Get answers to the most commonly asked questions about tax changes
What is TCJA?
The Tax Cuts and Jobs Act (TCJA) is a comprehensive tax reform law passed in 2017. It lowered individual and corporate tax rates, increased standard deductions, and introduced changes to tax credits, deductions, and exemptions. However, many of its provisions are set to expire after 2025.
What is 1099-K?
Form 1099-K reports income from payment card transactions and third-party networks (e.g., PayPal, Venmo). It is issued by payment processors to businesses and individuals who meet certain thresholds. The form helps ensure proper tax reporting for transactions made through these networks and is essential for accurate tax filings.
What are 529 plans?
A 529 plan is a tax-advantaged savings plan designed to help families save for future educational expenses. It offers tax-free growth and withdrawals when used for qualified education costs, such as tuition, books, and room and board. Plans can be used for both college and K-12 expenses.
What is a Backdoor Roth IRA?
A Backdoor Roth IRA is a strategy for high-income earners to contribute to a Roth IRA, bypassing income limits. It involves making a nondeductible contribution to a traditional IRA and then converting it to a Roth IRA. This allows for tax-free growth and withdrawals in retirement.
What are exchange-traded funds?
Exchange-traded funds (ETFs) are investment funds traded on stock exchanges, similar to stocks. They hold a diversified portfolio of assets such as stocks, bonds, or commodities. ETFs offer flexibility, cost-efficiency, and diversification, making them a popular choice for investors seeking exposure to various markets without buying individual securities.
What is tax-loss harvesting?
Tax-loss harvesting is a strategy where investors sell underperforming assets to realize losses, which can offset taxable gains from other investments. This reduces overall taxable income. The strategy is often used during market volatility and can help optimize portfolio performance while minimizing tax liabilities.
Tax related products and services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness Wealth”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. Registration does not imply a certain level of skill or training. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances. This article is a product of Harness Tax LLC.
Content should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your tax advisor prior to implementation.
