In October, the Internal Revenue Service shared important updates to different areas of the tax code including but not limited to tax brackets, standard deduction, and credit programs. Many Americans are worried about remaining compliant with these changes. Those who aren’t stressed about new obligations may believe that the IRS ‘has it out’ for taxpayers. These annual changes actually prevent people from paying more taxes due to inflation, not a rise in their standard of living.
Manuel Aragon, founder of Aragon Tax Return Services aims to quell the anxiety many have regarding taxes. Through his firm and its dedication to education, he is working to educate Americans on why these changes occur and how to take advantage of them.
The IRS’ amendments to tax brackets, earned income tax credits, and other items apply to 2025 earnings and returns filed in 2026. If taxpayers are proactive in responding to these adjustments, they can not only stay compliant but optimize their returns. However, many individuals have a flawed perception of the American tax system, often arguing that its rules limit innovation and wealth creation.
Compared to other countries, the United States has a progressive taxation system, where rates increase moderately with income. This simply means that the more you make, the higher taxes you pay. These marginal rates work in a stairstep manner, increasing gradually based on different income levels and creating tax brackets. Individuals making $11,600 or less have the lowest marginal tax rate of 10% and those making over $609,350 are taxed 37% on their last dollar of income. Percentages vary based on single or married filing status and other factors. Ultimately, this approach allows federal and state entities to create and maintain critical infrastructure in a way that is fair to all taxpayers.
The IRS continuously adjusts tax brackets in response to inflation, so taxpayers pay the same proportion of income regardless of fluctuations in cost of living expenses. The Chained Consumer Price Index informs the IRS and other economic regulators about inflation’s impact on consumers, enabling them to make data-driven decisions about tax amendments.
Thankfully, inflation has consistently slowed since 2022, reaching its lowest level since February 2021. This is good news for taxpayers, who will see less dramatic changes to the tax code as inflation stabilizes.
Besides a $400 increase in standard deductions for single taxpayers and married individuals filing separately, there have been nominal changes to tax exemption programs, earned income tax credits, medical savings accounts, and several other categories. The IRS has increased standard deductions and various contributions to ensure that a larger amount of income won’t be considered in an individual’s tax liability to offset inflation.
The IRS enforces tax laws written by Congress, meaning that certain items in the tax code remain unadjusted. Some of these intentionally fixed policies include capital gains tax, social security tax caps, and many tax credit programs.
As a result of the Tax Cuts and Jobs Act of 2017, personal exemptions for 2025 will stay at 0%. Itemized deductions will also have no restrictions and lifetime learning credit reduction will continue unaltered.
Domestic and foreign businesses are also required to file a Beneficial Owner Information report to comply with the Corporate Transparent Act and combat financial crime. Civil penalties can be as high as $500 per day and non-compliance can lead to criminal charges if unresolved.
Manuel Aragon, founder of comprehensive tax firm Aragon Tax Return Services advises Americans to stay knowledgeable about changing regulations. Like many tax professionals, he speaks about the industry’s nuanced rules that require case-by-case scrutiny.
“The majority of middle-class Americans won’t have to do anything new over the next two years as they file,” Manuel says. “But that doesn’t mean they don’t need to be aware of specific obligations. Partnering with a tax firm or independent professional makes it much simpler to know if you’re following the rules and leveraging tax advantages properly.”
Over the next decade, the landscape of American tax will transform significantly as technology and economic shifts bring more complexity. After 2025, important provisions like the Tax Cuts and Jobs Act 2017 will expire, potentially reverting rates to pre-2018 levels and affecting other deduction and credit programs.
It’s hard to say what the future of tax holds, but Manuel suggests taxpayers in all categories consider modernizing their planning strategies to stay ahead of the curve. With Aragon Tax Return Services, individuals and businesses can maximize their returns with less stress. The firm’s experienced team offers personalized support that closes knowledge gaps, fosters financial literacy, and empowers American taxpayers.
