Preparing for Tax Season: Essential Updates for 2025
As tax season approaches, many individuals find themselves amidst the challenging task of gathering necessary paperwork for their tax meetings — be it in-person, through videoconference, or by phone. The ease of this process largely relies on how organized your tax records are throughout the year. Regardless of your record-keeping skills, ensuring thorough preparation for your tax return process allows us more time to:
Identify all potential legal deductions,
Determine the most beneficial methods for income reporting and deductions specific to your situation,
Adapt to new legislative changes affecting your tax circumstances, and
Discuss tax strategies that could minimize your future tax obligations.
Introducing Changes for 2025 — This year, the One Big Beautiful Bill Act (OBBBA) introduces several key updates, including the following:
No Tax on Tips: Taxpayers can now deduct up to $25,000 for eligible cash tips in customary tip-receiving jobs. This deduction begins phasing out for individuals with AGIs exceeding $150,000 and joint filings above $300,000. Tips qualified for this deduction will appear on your W-2 forms or, temporarily for 2025, via a separate statement from employers.
No Tax on Qualified Overtime: A deduction is available, up to $12,500 for singles and $25,000 for joint filers, on overtime paid beyond regular rates. The deduction phases out as Modified AGI surpasses $150,000 for individuals and $300,000 for joint filers. Suitable for both itemizers and those taking standard deductions.
Example:
Overtime Hourly Rate: $30.00
Regular Hourly Rate: $20.00
Deductible Amount: $10.00 per overtime hour workedVehicle Loan Interest Deduction: For loans started post-2024 on new personal-use cars assembled in the USA, a deduction on interest up to $10,000 is applicable. This excludes family loans and non-personal vehicles. Deductions phase out for incomes between $100,000 - $150,000 (single) and $200,000 - $250,000 (joint filers). Details will be reported on the new Form 1098-VLI, or temporarily in 2025, may come as a lender-provided statement.
SALT Deduction Limit: The cap on itemized deductions for state and local taxes (SALT) rises to $40,000, though begins phasing down starting at $500,000 MAGI, stabilizing at $10,000 for $600,000 MAGI.
Super Retirement Catch Up: Enhanced catch-up contribution limits for those aged 60 through 63 now allow $10,000 or 50% above the standard catch-up amount for qualifying plans, excluding IRAs. For 2025, contributions can hit $11,250, with $5,250 for SIMPLE plans.
Child Tax Credit: OBBBA adjustments mean from 2025 to 2028, the credit is $2,200 ($1,700 refundable) for eligible dependents under 17. It phases out at $400,000 MAGI for joint filers and $200,000 for others.
Adoption Credit: Added a refundable amount under the OBBBA. The credit is $17,280 with $5,000 refundable for 2025, adjusting to $17,670 and $5,120 respectively in 2026. The credit phases out between $259,190 and $299,190 for 2025 across all filing statuses.
Section 179 Expensing: Lets businesses instantly expense qualifying assets' costs, though there's a specific deduction cap for SUVs ($31,300 for 2025). Limits were substantially increased to $2.5 million by the OBBBA, phasing out dollar-for-dollar beyond $4 million in qualifying purchases in 2025. There can be a clawback of deductions if an asset's business use drops below 50%.
Bonus Depreciation: OBBBA made permanent the immediate write-off of 100% of qualifying asset costs. This policy aims to inspire business investments by accelerating deductions, providing immediate financial advantages. However, the rate was 40% for property placed in service between January 1 and January 19, 2025.
Business Research or Experimental Expenditures: For 2025, domestic expenses are deductible instantly, whereas international ones remain amortized over 15 years.
Selecting Optimal Tax Strategies — Your choices in handling income and deductions can shape both current and future tax years.
It's crucial to:
Property Sales: If you're receiving payments through a sales contract over several years, you can opt to report gains immediately or over time.
Depreciation: Choose between spreading investment costs over several years vs. immediate deduction in certain situations.
Getting Started — Kickstart your preparation in January, whether an in-person, video, or document-based appointment is planned. Immediately set up a secure location for tax documents. Filing each document as you receive them simplifies the process. For digital source documents, print them or follow your office's guidance. Further tips include:
Organize records by category — e.g., medical receipts, mortgage interest, charitable donations — in separate folders. Completing any pre-appointment organizer or questionnaire helps ensure nothing's overlooked.
Highlight foreign financial assets or interests. Disclose all to comply with special reporting requirements, avoiding severe penalties.
The IRS maintains a keen focus on digital transactions, requiring full reporting for cryptocurrency gains or losses, now captured on Form 1099-DA.
If you acquired health insurance via a marketplace, include Form 1095-A for premium tax credit calculations. Similarly, employer-provided insurance forms like 1095-B or 1095-C should accompany their corresponding documentation.
Separate your annual income documents — W-2s, 1099s, K-1s — from other paperwork. Their inclusion is crucial during appointments or mail-ins.
Note down lingering questions throughout the drafting process to avoid missing them at the meeting. Reviewing last year's return helps track significant changes for this year.
Ensure Social Security numbers for all dependents are available, avoiding deduction and credit denials for omissions.
Cross-reference last year's deductions with current figures to ensure accuracy.
Gather any perplexing papers for clarifications during meetings or included with mailed forms.
Detail Accuracy Matters — Verify personal information, such as names, addresses, Social Security numbers, and job titles, ensuring precision in your return. Highlight any contact information updates, aiding hassle-free correspondence during filing.
Changes in Marital Status — If your marital situation evolved this past year, document relevant details, including dates and legal paperwork, for consideration during your appointment or alongside mailed forms. Upon a spouse's passing, ensure availability of will or trust documents, maximizing tax return accuracy.
Dependent Information — For qualifying dependents, ensure the following information is supplied, subject to previous submission:
Full name
Social Security number
Birthdate
Residing period within your household
Both taxable and nontaxable income figures, with student status for adults over 18 during the year.
Clarifying whether others qualify as dependents demand stringent analysis. Precise funding assessments between providing and receiving aid refine decisions significantly.
Special Transactional Considerations — Certain transactions warrant meticulous treatment within tax filings.
Property Sales or Gifts/Inheritances: Every sale of property requires recording, including purchases and sales dates and figures — documentation should accompany your filing.
Gifted or Inherited Property: Original owner purchase information alongside relevant inheritance documents might be necessary, obtainable from estate or probate filings.
Reinvested Dividends: Participation in reinvestment programs mandates comprehensive records on each stock purchase credited with reinvested dividends.
Home Sales or Purchases: With special home sale gain exclusions available, retaining improvement records and acquiring final escrow statements for 2025 buyers are essential.
Vehicle Purchases: Special credits potentially arise for electric vehicle acquisitions before September 30, 2025 — submit necessary purchase documentation.
Home Energy Improvements: Tax credits might apply for installed renewable energy systems or energy-efficient modifications, warranting proper purchase details and credit certifications.
Identity Theft Defense: Immediately notify us of any identity theft suspicion to leverage IRS's special filing procedures.
Business Travel Vehicle Expenses: For claimed vehicle expenses, categorize vehicle usage (business, personal, or commuting) distinctly, assuring deduction eligibility.
Charitable Donations: Documentation validating cash or item donations is imperative for deductions, particularly as additional requirements rise, such as contributions over $5,000. Rigid record-keeping fortifies claims.
Unique occurrences this year may influence tax filings significantly. Feel free to contact us for guidance on documenting and assembling relevant tax data effectively!
For clarifications or inquiries concerning your tax data compilation, please contact our office.
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