New Year, New Tax Updates Part 1
2025
New year, new tax updates! Over the next couple of weeks, I will be sending out relevant tax changes. These can apply to both businesses and individuals and are incredibly important to save on taxes, save for retirement, and more.
1. Increase to the Standard Mileage Allowance Deduction
What’s Changed: In 2025, the IRS has increased the standard mileage rate for business, medical, and moving purposes. This means you can now deduct a higher amount per mile for using your personal vehicle for these activities. As of 2025, the IRS standard mileage rate has risen to 65.5 cents per mile for business purposes (up from 65 cents in 2024). Others rates include 21 cents for medical and military moving purposes and 14 cents for charity use.
Why It Matters: The standard mileage deduction allows taxpayers who use their personal vehicles for business (or for medical or moving-related purposes) to deduct a portion of the cost of their car usage. This deduction helps offset the costs of fuel, maintenance, and depreciation.
Impact: If you drive a lot for business purposes, this increase can significantly reduce your taxable income. For example, if you drove 10,000 miles for business in 2025, this increase would allow you to deduct an extra $50 in mileage. Additionally, if you have medical or moving expenses related to the use of your car, you can now claim higher deductions in those areas too.
2. Penalty-Free IRA Withdrawals for Emergency Expenses
What’s Changed: In 2025, a new rule allows individuals to access their IRA funds without a penalty for emergency expenses. This means you can make early withdrawals from your Traditional IRA or Roth IRA (before the usual age of 59½) without facing the typical 10% early withdrawal penalty, but you’ll still owe taxes on the withdrawal (for Traditional IRA funds) or may face other restrictions on Roth IRAs.
Why It Matters: Emergency situations, such as medical emergencies, job loss, or significant unexpected expenses, often require fast access to cash. Previously, early withdrawals from IRAs typically triggered a 10% penalty unless specific exceptions applied. This new rule gives you more flexibility to tap into your retirement savings when you're in need, without an additional penalty burden.
Impact: You can now access up to $10,000 of your IRA savings per year for qualifying emergency expenses, and while you may still owe taxes on the amount (depending on the type of IRA), the 10% penalty has been waived. This is particularly useful if you face a situation where other savings or credit options are unavailable. It's important to consider the long-term effect on your retirement savings, though, as dipping into your IRA could reduce your future retirement funds.
3. New “Super Catch-Up Contribution” Allowance for Retirement Accounts
What’s Changed: The "super catch-up contribution" program is a new initiative introduced in 2025 that allows individuals aged 60 and above to make significantly higher contributions to their retirement accounts beyond the standard catch-up contributions.
For 401(k) and 403(b) plans, individuals aged 60+ can now contribute an additional $15,000 to their annual contribution limit on top of the standard $23,000, making the total contribution limit $38,000.
For IRAs, the catch-up contribution is raised to $12,500, up from the standard $7,500 for those 50 and older.
Why It Matters: This new "super catch-up" option gives those who are closer to retirement an opportunity to accelerate their retirement savings. As retirement approaches, people often have less time to build up savings, and this new rule helps mitigate that gap.
Impact: If you're 60 or older, you can now put a significant amount more into your 401(k), 403(b), or IRA, allowing you to grow your retirement nest egg faster. For example, if you are 60 years old and contribute $38,000 to your 401(k) in 2025, it’s an additional $15,000 compared to prior years, which can be incredibly beneficial if you're trying to catch up on savings before retirement.
4. Expansion of the IRS Free File Program
What’s Changed: The IRS has expanded its Free File program in 2025 to include more taxpayers, allowing a greater number of individuals to file their taxes for free. Previously, the program was limited to individuals earning under a certain threshold (approximately $73,000 annually), but with the 2025 expansion, the program now covers up to $80,000 of annual income for those filing individual returns.
Additionally, the program is now offering more comprehensive assistance for taxpayers with simpler returns, including offering free filing for both federal and state taxes for eligible individuals.
Why It Matters: Filing your taxes can be expensive, especially if you hire a tax professional or purchase expensive tax software. The expansion of the IRS Free File program helps lower-income or middle-class individuals avoid these costs. The program provides free access to a variety of online filing tools to help you prepare and file your taxes quickly and easily.
Impact: If your income is below $80,000 and you qualify for the program, you can now use Free File to file your taxes at no cost. This saves you money on preparation fees or software. Additionally, with more providers participating, the program offers a wider range of options for taxpayers with simple to moderate tax situations.
Summary of Impact for You
Increased Mileage Deduction: The higher mileage rate for 2025 means more savings if you use your vehicle for business or qualifying personal reasons.
Penalty-Free IRA Withdrawals for Emergencies: Accessing your IRA funds penalty-free for emergency expenses gives more flexibility during financial crises but should be used cautiously to protect retirement savings.
Super Catch-Up Contributions: If you’re over 60, you can save more for retirement through the increased catch-up contributions, allowing you to put away more money as you near retirement.
Expanded IRS Free File: If you qualify, you can now file your tax return for free, potentially saving hundreds of dollars on tax preparation services or software.
These tax changes reflect a growing push toward making the tax system more flexible, affordable, and supportive for individuals saving for retirement, facing emergencies, or trying to reduce their filing costs.
Questions? We are here to help!