Prepare for Tax Season: Key Updates and Strategies for 2025
As the tax season draws near, it's crucial for taxpayers to gear up and ensure all records are well-organized ahead of your tax filing appointment—whether it's in-person, via video, or over the phone. The ease of this task greatly depends on your tax record maintenance throughout the year. By being thoroughly prepared, you enable us to focus on:
Identifying all possible legal deductions,
Evaluating the optimal income reporting methods and deductions for your unique situation,
Reviewing any legal changes impacting your tax position, and
Exploring tax-planning strategies that could lower your future tax liabilities.
Important Changes for 2025: The introduction of the One Big Beautiful Bill Act (OBBBA) brings several significant tax changes this year, including:
No Tax on Tips: Qualified cash tips, up to $25,000 in customary tip-receiving occupations, are deductible. This deduction decreases as AGI exceeds $150,000 for singles and $300,000 for joint filers, reducing by $100 per additional $1,000. Employers will report qualifying tips on W-2 forms or through separate statements for 2025.
No Tax on Qualified Overtime: Deductions up to $12,500 ($25,000 for joint filers) for overtime pay above regular rates. Phases out for MAGI over $150,000 (singles) and $300,000 (joint filers). Available for itemizers and standard deduction filers.
Example:
Overtime Hourly Rate: $30.00
Regular Hourly Rate: $20.00
Deductible Amount: $10.00 per overtime hour worked
Vehicle Loan Interest Deduction: Deduct up to $10,000 in interest on loans for new personal vehicles secured after 2024, provided they are assembled in the U.S. and weigh under 14,000 pounds. Family loans and non-personal vehicles are excluded. The deduction phases out for single incomes $100,000-$150,000 and joint incomes $200,000-$250,000. Lenders report this on the new Form 1098-VLI.
Increased SALT Deduction: The SALT deduction limit is now $40,000, a significant increase from the previous $10,000 limit. However, it phases down starting at $500,000 MAGI, reaching a floor of $10,000 at $600,000 MAGI.
Super Retirement Catch-Up: From 2025, individuals aged 60-63 can contribute either $10,000 or 50% more than the standard catch-up limit to qualified plans (excluding IRAs). Enhanced catch-up for 2025 is $11,250, except for SIMPLE plans, which is $5,250.
Child Tax Credit: OBBBA increases the credit to $2,200 ($1,700 refundable) through 2028 for dependents under 17. MAGI phase-out thresholds are $400,000 for joint filers and $200,000 for others.
Adoption Credit: OBBBA introduces a $17,280 credit with $5,000 refundable for 2025, inflation-adjusted for future years. It phases out between $259,190 and $299,190 MAGI.
Section 179 Expensing: The Section 179 expensing cap has been substantially increased to $2.5 million for 2025, but it phases out once purchases for the year exceed $4 million. Remember that if business use of an asset falls below 50%, recapture may be required.
Permanent Bonus Depreciation: OBBBA's continuation of 100% bonus depreciation encourages investments by allowing businesses to fully deduct qualified asset costs immediately upon placement in service after January 19, 2025.
Research or Experimental Expenditures: Starting 2025, domestic expenditures are fully deductible. Foreign expenditures are amortized over 15 years.
Strategizing Your Tax Alternatives: The variety of permissible methods to report income and deductions can significantly impact current and future tax obligations. Notably:
Sales of Property: Opt to report all gains at once or over the contract's term when selling property under installment agreements.
Depreciation: Select between multi-year depreciation or immediate expensing under specific conditions.
Getting Started: Begin organizing your tax return materials in January, regardless of your appointment method. Establish a secure spot for records, like a file drawer or safe. Promptly file received records to circumvent losing or forgetting them. Some tips include:
Organize records by income and expense categories, keeping documents like medical expenses, mortgage interest, and charity donations in separate folders. Complete all relevant sections of any office-sent organizers or questionnaires.
Report foreign financial accounts, trusts, or inheritances for special reporting requirements due to severe penalties for non-compliance.
- Stay vigilant: The IRS's focus on cryptocurrency includes enforced reporting via the new Form 1099-DA. Treat these transactions as property, similar to stocks.
Include Forms 1095-A, 1095-B, or 1095-C with your tax materials if you obtained health insurance through government marketplaces or your employer.
Keep income statements separate from other documents (e.g., W-2s, 1099s, and K-1s) for submission with your tax materials.
Document questions and discrepancies found during material assembly to discuss at tax appointments.
Verify dependent Social Security numbers, as the IRS reviews these for deduction and credit approvals.
Accuracy Matters: Scrutinize personal data to ensure accuracy on tax returns. Note changes from previous returns and ensure updated phone numbers and email addresses for quick communication.
Life Changes: Report marital status changes, separations, divorces, and spouse deaths, accompanied by relevant legal documents and submissions in your tax materials if needed. Include trust or will copies for a deceased spouse.
Dependents: Provide necessary details for qualifying dependents, ensuring no need to resubmit unchanged data from previous years. Discuss support amounts for potential dependents passing five strict tests, assisting in final determination.
Special Transaction Treatment: Be diligent in preparing records for transactions such as:
Sales of Property: All property sales, regardless of profit or loss, must be reported, with detailed purchase and sale documentation.
Gifted or Inherited Property: Clarify original purchase information for gifts and original value at inheritance for sales. Estate tax returns or executors may assist.
Reinvested Dividends: Gather records of stock purchases funded through dividend reinvestment programs.
Home Sale: For primary home sales, provide the final closing statement to utilize gains exclusions per current ownership, occupancy, and holding requirements.
For unique activities potentially affecting taxes, consult our office beforehand for necessary documentation. Reach out for guidance in tax data compilation.
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