Prepare Now: Tax Season Approaches Quickly
As tax season looms closer, many taxpayers find themselves grappling with the daunting task of organizing records for their upcoming tax appointments—whether it be in-person, via videoconference, or over the phone. The ease or difficulty of this task heavily depends on your record-keeping practices throughout the year. Regardless of your past efforts, being thoroughly prepared can significantly streamline your tax return preparation, allowing more time for the following opportunities:
Maximize every possible legal deduction.
Assess the best-suited income reporting methods and deductions for your situation.
Understand recent legal changes impacting your tax obligations.
Discuss tax-planning strategies to minimize future tax liabilities.
Changes for 2025 – In light of the One Big Beautiful Bill Act (OBBBA), several significant changes are taking effect this year, including:
Tip Income Exemption: You can now deduct up to $25,000 for qualified cash tips in standard tipping occupations. This deduction phases out at an Adjusted Gross Income (AGI) of $150,000 for singles and $300,000 for joint filers. It’s available whether you itemize or take the standard deduction. For 2025, employers will either include these tips in the employee's W-2 or provide a separate statement.
Overtime Pay Deduction: A deduction of up to $12,500 ($25,000 for joint filers) is now available for overtime pay exceeding the regular hourly rate, with a phase-out beginning at $150,000 Modified AGI for singles and $300,000 for joint filers.
Vehicle Loan Interest Deduction: Individuals may deduct up to $10,000 in interest on loans for new personal-use vehicles assembled in the U.S. This excludes family loans and non-personal vehicles. It phases out between $100,000 and $150,000 for singles, $200,000 and $250,000 for joint filers.
Increased SALT Deduction: The state and local taxes (SALT) deduction ceiling has risen from $10,000 to $40,000, although it phases down starting at a $500,000 MAGI, with a $10,000 limit at $600,000 for high earners.
Enhanced Retirement Catch-Up: From 2025, individuals aged 60 to 63 can contribute the greater of $10,000 or 50% more than the standard catch-up amount. The enhanced limit is $11,250, but only $5,250 for SIMPLE plans.
Child Tax Credit: The OBBBA increased this credit to $2,200 ($1,700 refundable) for children under 17, with phase-outs starting at $400,000 MAGI for joint filers and $200,000 for others.
Adoption Credit: Increased to $17,280 with $5,000 refundable for 2025, phasing out between $259,190 and $299,190.
Section 179 Expensing: The OBBBA significantly raised the limits for Section 179 expensing to $2.5 million, with a phase-out at $4 million in annual purchases.
Permanent 100% Bonus Depreciation: Businesses are allowed to immediately write off qualifying assets placed in service after January 19, 2025. This move is aimed at enhancing cash flow by facilitating immediate tax benefit realization.
R&D Expenditure Deductions: Domestic research and experimental expenses become immediately deductible from 2025 onward.
Making Informed Choices – The tax code provides a variety of options for managing income and deductions. Your choices can have implications on both current and future tax returns. Key considerations include:
Property Sales: When selling property with an installment contract, decide whether to report all gain in the sale year or over the payment period.
Depreciation Strategy: You can opt to depreciate certain investments over years or expense them in the first year, under certain conditions.
Getting Started – Be proactive and start preparing your tax documentation in January. Whether you plan a face-to-face meeting, use videoconference, or choose to send materials by mail, establishing an organized document storage system early is beneficial.
If you receive electronic documents, print them as needed, unless informed otherwise by our office. Here are some additional tips:
Organize documents by type, such as medical receipts, mortgage interests, and charitable donations. Fill out any provided organizers or questionnaires diligently.
Alert us to any foreign bank or trust involvement to ensure proper reporting and avoid severe penalties.
Stay informed about cryptocurrency rules, as gains or losses from these virtual assets need reporting similar to stock transactions. A new Form 1099-DA will track digital currency transactions.
Include any received Form 1095 related to your health insurance coverage.
Ensure separation of your annual income statements from other documents for ease of reference.
Listing queries during document collection ensures all questions are addressed during consultations.
Keep accurate Social Security numbers for dependents to ensure all eligible tax credits and deductions are applied correctly.
Double-check this year's deductions against those from last year to avoid omissions.
Attention to Detail – Accuracy in detail is essential to avoid complications with your return. Double-check personal data for accuracy and report any marital status changes, legal agreements, or dependent clarifications.
Special Considerations – Certain transactions warrant special attention due to their tax treatment implications:
Asset Sales: Every sale needs reporting, supported by purchase and sales documents.
Gifted and Inherited Assets: Be prepared to document the acquisition values and dates for accurate gains assessment.
Reinvested Dividends: Maintain thorough records of any dividends reinvested in stocks or funds.
Home Sales and Purchases: Keep records for gains exclusion accuracy and provide sale documents for verification.
Electric Vehicles and Energy Upgrades: Present purchase statements to qualify for potential credits.
Identity Protection: Monitor for signs of identity theft and follow IRS procedures if affected.
Business Vehicle Use: Maintain separate records for each business vehicle's expenses, mileage, and reimbursement details.
Unusual Transactions – If you encountered any unusual circumstances during the year that might impact your tax position, reach out to this office for guidance on necessary documentation or additional requirements.
If you need assistance in assembling your tax information or have any questions, please do not hesitate to contact us for support.
Want tax & accounting tips and insights?
Sign up for our newsletter.