Article highlights:
- W-4 Updates.
- W-9 Collection
- Estimated Tax Payments
- Charitable contributions
- Required minimum distributions
- Gifting
- Retirement Plan Contributions
- Beneficiaries
- Reasonable compensation.
- Business Vehicle Mileage
- College Tuition Plans
- Record Keeping
Individuals and small companies can explore a variety of strategies for getting off to a good start in the 2025 tax year.
W-4 Updates
If you are working, your employer will use the information on your Internal Revenue Service (IRS) Form W-4 to the IRS's withholding tables to calculate how much income tax to withhold from your earnings each payroll period.
If your 2024 refund or balance due does not meet your expectations, you might consider changing your withholding to reflect your estimated tax for 2025. If you want help, please contact this office.
W-9 Collection
If you own a company, you must send a Form 1099-NEC to each service provider to whom you paid at least $600 in a given year. It is a good practice to obtain a completed W-9 form from each service provider (even if you pay less than $600), as you may need to use that provider later in the year and may have difficulty obtaining a W-9 after the fact, particularly from providers who do not intend to report all of their income for the year.
Estimated Tax Payments
If you are self-employed, you prepay your taxes quarterly using 1040-ES payment vouchers or electronic payments. For the 2025 tax year, the first three installments are due on April 15, June 16, and September 15, 2025, with the last payment due January 15, 2026. Generally, these payments are based on the past year's taxable income; if you anticipate major changes in either income or deductions from the previous year, please contact this office for assistance in modifying your payments appropriately.
Charitable Contributions
If you barely itemize your deductions, you may use the bunching approach, which is taking the standard deduction one year and itemizing your deductions the following. However, you must make this choice early in the year to allow for two years' worth of philanthropic donations during the bunching year.
Required certain Distributions
If you are 73 or older, you must withdraw a certain amount from each of your retirement funds each year or suffer a significant penalty. By taking this distribution early in the year, you may avoid forgetting and mistakenly exposing yourself to fines.
Gifting
If you want to reduce your estate-tax exposure or simply give money to family members, keep in mind that you can gift up to an inflation-adjusted amount, which in 2025 is $19,000, to each of an unlimited number of beneficiaries without affecting your lifetime estate-tax exclusion amount or paying a gift tax.
Retirement Plan Contributions
Examine your retirement-plan contributions to see whether you can afford to boost them and ensure that you are taking full benefit of your employer's contributions to the plan.
Beneficiaries
Marriages, divorces, births, deaths, and even family disagreements can have an impact on who you designate as a beneficiary. It is a good idea to evaluate your will and trust on a regular basis, as well as your retirement plans, insurance policies, property holdings, bank accounts, and other assets, to ensure that your beneficiary designations are correct.
Reasonable compensation
With the introduction of the 20% pass-through deduction a few years ago, which is accessible to most firms other than C corporations, the question of fair pay became more important, especially for S company shareholders. This has been a problematic issue in the past since it has permitted stockholders who are not just investors but also work in the firm to accept a minimal wage (or no compensation at all) and have all of their income reported on the K-1 as investment income. This method enables such stockholders and the S business to avoid paying payroll taxes on income that should be reported as W-2 compensation. A lot of factors go into determining acceptable remuneration, including comparisons to individuals working in comparable industries and workers inside the same firm, as well as the cost of living in the business's location. This is a subjective figure that is often calculated by a business that specializes in making such assessments.
Business-Vehicle Mileage
In most cases, automobiles used for business have some nondeductible personal usage throughout the year. It is usually a good idea to record a vehicle's mileage at the start and end of each year in order to calculate its overall mileage for that period. The overall mileage amount is then utilized to prorate the vehicle's personal and commercial usage charges.
College Tuition Plans
Contribute to your child's Section 529 plan as soon as possible; the funds begin accruing gains as soon as they enter the account, which is significant since the student will most likely begin spending that money at age 18 or 19.
Record Keeping
Only a handful of the tax-related acts you perform during the year can help you or others. The most crucial of these steps is to maintain timely and correct tax records; for enterprises, this is especially vital. Those who have well-documented income and spending records usually come out on top when the IRS questions them.
If you have any concerns about your taxes or would want to schedule an appointment for tax predictions or tax planning, please contact this office.
