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2025 Tax Changes: What They Mean for High-Net-Worth Individuals

2025 Tax Changes: What They Mean for High-Net-Worth Individuals

 

   Key Highlights

  • The IRS released inflation adjustments for tax year 2025 including changes to federal income tax brackets, an increased standard deduction amount, and other provisions that may impact your federal income tax liability.
  • An increase to the federal lifetime estate and gift tax exemption and the annual gift tax exclusion may provide estate planning opportunities for high-net-worth individuals.
  • Consider engaging your private wealth management team to identify and implement strategies that may ultimately lower your overall tax liability.

 

Each year, the IRS provides adjustments to existing tax provisions to account for inflation which may impact your tax planning. Staying informed of these changes may help you adjust your strategy to minimize your overall tax liability. For high-net-worth individuals who generally face larger tax obligations, proactively planning toward tax efficiency can promote the preservation of wealth over time.

Income tax brackets have been adjusted for inflation

The IRS generally adjusts federal tax brackets annually to account for inflation. This year is no different, as taxable income thresholds were increased across each bracket.

For example, in tax year 2024, the top federal income tax rate of 37% applied to taxpayers with incomes greater than $609,350 for single filers and $731,200 for married couples filing jointly. In tax year 2025, the top rate applies to single filers with incomes over $626,350 and married couples filing jointly with incomes over $751,600. High earners may benefit from the higher taxable income thresholds for the top federal income tax rate in 2025, potentially reducing their tax liability compared to prior years assuming similar income levels.

Notably, the federal marginal income tax rates have not changed for tax year 2025. Consider consulting your private wealth management team to explore tax planning techniques, such as charitable giving or family gifting strategies, that may mitigate your income tax liability.

Federal lifetime estate and gift tax exemption increased

The federal lifetime estate and gift tax exemption has increased to adjust for inflation. This exemption amount determines how much of your estate and taxable gifts given during your lifetime can be transferred without incurring federal estate and gift taxes.

In tax year 2024, the federal lifetime estate and gift tax exemption was $13.61 million and increased to $13.99 million in 2025. This exemption amount is effectively doubled for married couples as the IRS allows the transfer of the deceased spousal unused exclusion (DSUE) amount to the surviving spouse. Since 2018, the exemption amount has increased steadily to keep pace with inflation after the Tax Cuts and Jobs Act increased the exemption amount from $5.49 million in 2017 to $11.18 million in 2018.

Maximizing the use of your available exemption amount may lessen the impact of estate taxes on your family, ensuring more of your estate’s value is preserved for your beneficiaries when they inherit your assets. Generally, the greater the combined value of your estate and lifetime taxable gifts exceeds the exemption amount, the higher your federal estate tax liability. Proactively implementing estate planning strategies that mitigate estate taxes, such as funding irrevocable trusts or utilizing the annual gift tax exclusion, may serve to secure your wealth for future generations.

Annual gift tax exclusion increased

The IRS allows individuals to gift a certain amount tax-free each year to as many recipients as the donor wants. Donors can give up to the annual gift exclusion amount to each child, grandchild, sibling, or any other individual each calendar year without triggering a taxable gift. Taxable gifts either use a portion of the donor’s federal lifetime estate and gift tax exemption or are taxed at a top rate of 40% if the donor’s lifetime exemption is exhausted.

In calendar year 2024, the annual exclusion for gifts was $18,000 per recipient, which has increased to $19,000 for calendar year 2025. The annual gift tax exclusion amount is doubled for gifts given from a married couple. Any qualified gift exceeding $19,000 in value from an individual or $38,000 from a married couple given to the same recipient in 2025 is considered a taxable gift. Triggering a taxable gift requires the donor to file Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return.

For high-net-worth individuals, consistently using the annual gift tax exclusion to strategically lower the value of their taxable estate is a straightforward estate planning strategy that may ultimately lead to a lower estate tax liability.

Alternative minimum tax (AMT) exemption amounts and phaseout thresholds increased

The main function of the alternative minimum tax (AMT) is to ensure that all taxpayers pay at least a minimum level of taxes regardless of the deductions or credits they claim. High-net-worth individuals are typically those most impacted by the AMT, so efficiently utilizing the AMT exemption amount is key for individuals with substantial income and complex financial portfolios to minimize AMT exposure.

There are different rules for calculating your tax liability under the AMT versus traditional federal income taxes. Generally, taxpayers will pay the higher amount between the traditional income tax calculation and the AMT, ensuring significant deductions do not allow them to fully escape taxation.

A certain amount of income is shielded from the AMT, the AMT exemption amount, and this exemption is reduced as taxpayer income exceeds a phaseout threshold. The AMT exemption amount has increased from its 2024 levels of $85,700 for single filers and $133,300 for married couples filing jointly to $88,100 and $137,000 respectively for tax year 2025. This exemption is gradually reduced at income above $626,350 for single filers and $1,252,700 for married couples in 2025, up from $609,350 and $1,218,700 in 2024.

High-net-worth individuals who typically have a significant amount of itemized deductions may consider reviewing their income and deduction timing with their private wealth management team to minimize potential AMT exposure.

Standard federal income tax deduction has been adjusted for inflation

The standard federal income tax deduction, or the amount subtracted from your taxable income if you do not itemize your deductions, has increased by $400 for single filers and $800 for married couples filing jointly. In 2025, standard deductions are $15,000 for single taxpayers and $30,000 for married couples filing jointly.

Deciding whether to claim the standard deduction or itemize your deductions depends on the total amount of your allowable itemized deductions. If the sum of your allowable itemized deductions is greater than the standard deduction, itemizing your deductions may lower your taxable income more than taking the standard deduction.

Certain deductions, such as business use of your car or home, student loan interest, or the self-employed health insurance deduction can be claimed regardless of whether you take the standard deduction or itemize. Other deductions, such as those for charitable donations, home mortgage interest, and certain state and local taxes, can only be claimed if you itemize your deductions.

High-net-worth individuals may lower their overall tax liability by itemizing deductions, as they may have more qualifying expenses that exceed the standard deduction. Your private wealth management team, in collaboration with a tax professional, may help you identify all your available deductions and determine the best strategy to minimize your tax liability.

How might the tax changes for 2025 impact your financial situation?

Tax planning is crucial for preserving wealth and optimizing your income to support your goals. At Commerce Trust, your private wealth management team is comprised of tax management*, financial planning, estate planning, and investment portfolio management specialists who can help you understand what your potential tax liabilities may be, implement strategies to minimize your taxes, and secure your legacy for generations to come.

Contact Commerce Trust today to learn more about our private wealth management services and how we can help you navigate tax planning to preserve your wealth.

 

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*Commerce Trust does not provide tax advice to customers unless engaged to do so.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.

The opinions and other information in the commentary are provided as of January 31, 2025. This summary is intended to provide general information only and may be of value to the reader and audience.

This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. 

Commerce Trust does not provide legal advice to its customers. Consult an attorney for legal advice, including drafting and execution of estate planning documents.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Commerce Trust is a division of Commerce Bank.

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