ARTICLE
23 January 2025

2025 IRS Inflation Adjustments

In October of 2024 the Internal Revenue System announced the annual inflation adjustments for over 60 tax provisions for tax year 2025. The following provisions are potentially applicable to nonprofits...
United States Tax

In October of 2024 the Internal Revenue System announced the annual inflation adjustments for over 60 tax provisions for tax year 2025. The following provisions are potentially applicable to nonprofits.

Low Cost Article

The unrelated business income of certain tax-exempt organizations does not include proceeds from the distribution of "low cost articles" related to charitable solicitations (such as mugs or key chains imprinted with the organization's logo). For the 2025 tax year, a low cost article is an article costing $13.60 or less, a 40 cent increase from 2024.

2025: $13.60

2024: $13.20

Other Insubstantial Benefits

In Revenue Procedure 90-12 (as amplified by Rev. Proc. 92-49 and modified by Rev. Proc. 92-102), the IRS provided guidelines for charitable organizations regarding the deductibility of contributions by donors who receive something in return for their payments. The original guidelines stated that even when donors receive benefits in return for their donations, they may still deduct the entire amount donated under one of the following two circumstances:

  • If, for a contribution of $25 or more, the contributor did not receive something in return that costs more than $5, or the rate of a "low cost article," as described above; or
  • If the fair market value of all the benefits received in connection with the donation is not more than 2% of the payment, or $50, whichever is less.

The $5/$25/$50 schedule is adjusted annually for inflation. For the 2025 tax year, the schedule has been increased to $13.60, $68.00 and $136.00, respectively.

2025: $13.60/$68.00/$136.00

2024: $13.20/$66.00/$132.00

Mileage

Effective January 1, 2025, the mileage rate used to calculate the deductible cost of operating an automobile for business use of a vehicle is 70 cents per mile — an increase from the 67 cents per mile rate in 2024. The mileage rate for use of a vehicle for medical or moving purposes for 2025 is 21 cents per mile, unchanged from 2023. The standard mileage deduction rate for volunteer or charitable use of a vehicle, which is set by statute, remains 14 cents per mile.

2025:

  • 70¢/mile for business use
  • 21¢/mile for medical or moving purposes
  • 14¢/mile for volunteer or charitable use

2024:

  • 67¢/mile for business use
  • 21¢/mile for medical or moving purposes
  • 14¢/mile for volunteer or charitable use

Dues Paid to Agricultural or Horticultural Organizations

Internal Revenue Code Section 512(d)(1) provides that required annual dues paid by members of 501(c)(5) agricultural or horticultural organizations will not be treated as income derived from an unrelated trade or business, as long as the amount of annual dues each member is required to pay does not exceed $100. This annual dues limitation is indexed to inflation and has increased to $207 for the 2025 tax year, up from $201 in 2024.

2025: $207

2024: $201

Lobbying Expenditure Notice Exemption

Internal Revenue Code Section 6033(e) requires certain tax-exempt organizations that pay or incur non-deductible lobbying expenditures to provide their members and supporters, at the time dues (or other similar amounts) are assessed or paid, with a reasonable estimate of the portion of dues that is allocable to such expenditures. In 1998, the IRS issued Revenue Procedure 98-19, which established that 501(c)(4) social welfare organizations and 501(c)(5) agricultural and horticultural organizations are exempt from this notification requirement if more than 90% of their annual dues (or similar amounts) are received from persons, families or entities who pay $75 or less. This annual dues limitation is indexed for inflation, and has increased to $143 for the 2025 tax year.

2025: $143

2024: $140

Annual Exclusion for Gifts

The annual gift tax exclusion in 2025 increased to $19,000, up from $18,000 in 2024. The first $19,000 worth of gifts to any person during the year (other than gifts of future interests in property) will not be included in the total value of taxable gifts.

2025: $19,000

2024: $18,000

Retirement Plan Limits

Some of the key annual limits related to retirement plans have increased for 2025. The limit on total contributions to a defined contribution plan (section 415(c)) rose from $69,000 to $70,000. Also increasing in 2025 is the maximum amount of an employee's compensation which can be considered under a qualified pension, profit-sharing or stock bonus plan (section 401(a)(17)). The new limit is $350,000, a $5,000 increase over the 2024 limit.

Other key limits have been increased for 2025. The most an employee participating in a 401(k) or 403(b) may contribute to the plan increased to $23,500 in 2025, up from $23,000 in 2024. However, the "catch-up" contribution allowed for employees aged 50 and older remains $7,500 for 2025. The limit on annual contributions to a Roth IRA remains $7,000 for 2025. The additional catch-up contribution to a Roth IRA for those 50 and older remains $1,000 for 2025. The maximum limit on annual benefits under a defined benefit plans (section 415(b)) for retirees aged 62 or older is increased to $280,000, a $5,000 increase from 2024. The compensation threshold for a "highly compensated employee" for purposes of pension, profit-sharing, etc. plans is increased to $160,000, a $5,000 increase from 2024.

Healthcare Flexible Spending Account Limits

In 2025, the amount employees may contribute to a health flexible spending account (FSA) without paying income or employment taxes has increased to $3,300, up from $3,200 in 2024.

2025: $3,300

2024: $3,200

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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