Article Highlights:
- Time to Gather Your Information
- New for 2025
- Choosing Your Alternatives
- Tips for Pulling Your Information Together
Tax season is rapidly approaching, and if you are like the majority of taxpayers, you are most likely facing the daunting task of accumulating records in preparation for your tax appointment—whether in person, via videoconference, or by phone. The difficulty of this work is determined on how effectively you preserved your tax records throughout the year. Regardless of how well you kept your records, being fully prepared for your tax return will allow us more time to:
- Consider all available legal deductions.
- Determine which income reporting techniques and deductions are suitable for your scenario.
- Learn about changes in tax laws that may impact your situation.
- Discuss tax-planning options to lower your future tax liability.
New for 2025 – This year has seen various developments, some of which are attributed to the One Big Beautiful Bill Act (OBBBA), including the following:
- Qualified cash tips in customary tip-receiving occupations can be deducted up to $25,000 without paying taxes. The deduction is phased down when AGI exceeds $150,000 for individuals and $300,000 for joint filers, with a reduction of $100 for every $1,000 beyond. The deduction applies to each return and is available to both itemizers and standard deduction taxpayers. Employers will include qualifying tips on employees' W-2 forms, or for 2025 only, they will produce a separate statement reflecting the tips.
- Qualified overtime is tax-free, with a deduction of up to $12,500 ($25,000 for married taxpayers filing jointly). The deduction is phased down for MAGI over $150,000 (singles) and $300,000 (joint filers), with a $100 reduction for every $1,000 over. Available to both itemizers and standard deduction filers.
Example:
Overtime hourly rate is $30.00.
Regular hourly rate: <$20.00>
Deductible amount: $10.00 for every overtime hour worked.
- Individuals can deduct up to $10,000 in interest on loans secured by a new personal-use passenger vehicle produced in the US and weighing less than 14,000 pounds, beginning after 2024. Excludes family debts and non-personal vehicles such as campers. The deduction is phased off for incomes of $100,000 to $150,000 (single) and $200,000 to $250,000 (joint filers). Available to both itemizers and standard deduction filers. The lenders will record the interest using a new Form 1098-VLI. However, for the year 2025 only, the IRS is enabling lenders to issue their own statements with specified information instead of the official form. If you paid interest on a vehicle loan, check for this new form or a substitute statement.
- SALT Deduction maximum: The itemized deduction for state and local taxes (SALT) has been extended to $40,000, up from the previous $10,000 maximum. However, the SALT limit for higher-income taxpayers gradually decreases beginning at $500,000 MAGI and reaches a $10,000 floor at $600,000. It never goes below $10,000.
Beginning in 2025, catch-up contribution restrictions for those aged 60-63 have increased dramatically. They can now contribute the larger of $10,000 or 50% more than the regular catch-up amount to eligible plans such as SIMPLE plans, 401(k)s, 403(b) annuities, and 457(b) government plans, but not to individual retirement accounts. In 2025, the increased catch-up for this age group is $11,250, except for SIMPLE plans, which are $5,250.OBBBA enhanced the Child Tax Credit amount. From 2025 to 2028, the credit is $2,200 ($1,700 refundable) for dependents under the age of 17. Phases out at $400,000 MAGI for joint filers and $200,000 for others, with a reduction of $50 for every $1,000 above these thresholds. A work-eligible SSN is required for both the child and the filer. - Adoption Credit: OBBBA included a refundable amount. For 2025, the credit is $17,280, with $5,000 refundable. The inflation-adjusted prices are $17,670 and $5,120 for 2026. For all filing statuses, the phaseout ranges from $259,190 to $299,190 in 2025 and $265,080 to $305,080 in 2026. Any surplus can be carried forward for five years.
- Section 179 Expensing: Businesses can instantly expense eligible assets like machinery, equipment, and cars. However, SUVs are subject to a deduction cap ($31,300 in 2025). Sec 179 expensing supports many small and medium-sized businesses by offering initial tax savings and encouraging investment. OBBBA significantly expanded the restrictions for Sec 179 expensing. For 2025, the ceiling was raised to $2.5 million. However, the discount is phased out dollar for dollar when annual purchases exceed $4 million in 2025. One disadvantage of the Section 179 expensing method is that if the business's use of the asset declines to 50% or less, part or all of the deducted amount may need to be reclaimed.
- OBBBA made 100% bonus depreciation permanent after January 19, 2025, allowing enterprises to instantly write off the cost of eligible assets in the year they are placed in service. This applies to both new and used tangible property with a 20-year or shorter recovery period, such as machinery, equipment, and certain upgrades. This provision is intended to encourage corporate investment by speeding tax deductions, offering immediate financial benefits, and improving cash flow. The bonus depreciation rate for qualifying property placed in service between January 1, 2025, and January 19, 2025 was 40%.
Choosing Your Best Alternatives The tax code allows you a variety of ways to handle income and deductions on your return. The decisions you make when preparing your return frequently influence not only the current year but also future returns. Relevant issues include:
- If you sold a property and are getting payments from the buyer over time, you can choose to report the entire gain in the year of sale or over time as payments are received.
- Depreciation - You may deduct the cost of your investments in certain commercial assets. You can either depreciate the expense over several years or, in some situations, deduct it completely in one year.
Where to Begin? Begin preparing for your tax return in January, whether you will have a face-to-face session, meet via videoconference, or mail in your information and then have a follow-up phone call. Set up a secure storage facility immediately following the New Year, such as a file drawer, cabinet, or safe. As soon as you obtain essential records, file them right away to avoid forgetting or losing them. Make this a habit, and your task will be much easier on your appointment date or when you submit your content. If you receive source documents electronically, you must print a copy of the forms or statements, unless otherwise advised by this office. Other common options are:
- Organize your information by income and expense categories. Medical expense receipts should be filed in one envelope or folder, mortgage interest payments in another, charitable donations in a third, and so on. If you are given an organizer or questionnaire to complete before to your visit, fill out each area that applies to you. (Important: Read all explanations and follow the directions exactly. Organizers are designed to remind you of transactions that you may otherwise overlook.
- Draw attention to any overseas bank account, financial account, or trust in which you have an ownership interest, signatory authority, or a controlling stake. We also need to understand overseas inheritances and ownership of foreign assets. In brief, please notify us of any international financial transactions so that we can determine if you will be required to record them separately. Failure to prepare and submit mandatory reports might result in severe penalties.
- Beware! The IRS has kept bitcoin on its radar and is increasing enforcement efforts. Cryptocurrency (virtual currency) and other digital assets are considered property, and any gain or loss from the sale or use must be computed and reported in the same way as a stock transaction. This year, brokers are required to disclose digital transactions using the new Form 1099-DA.
- If you purchased your health insurance through a federal marketplace, you will get Form 1095-A from the marketplace, which will contain the information required to complete your return and calculate the amount of your premium tax credit. Include the 1095-A with any additional materials you bring to your appointment or mail in. Include any Form 1095-B, Form 1095-C, or replacement forms issued by your employer that outline your insurance coverage.
- Keep annual income statements separate from other records (e.g., W-2s from employers, 1099s from banks and stockbrokers, and K-1s with instructions and attachments from partnerships and trusts). Make sure to bring these documents to your appointment or include them with the other items you are mailing in!
- Make a list of questions to ask during the appointment or include them in the mailed documents. Examine last year's return. Compare your revenue from that return to your income in the current year. A dividend from ABC stock on your prior year's tax return may remind you that you sold ABC this year and need to disclose the sale, or that you have yet to get the current year's 1099-DIV form.
- Ensure you have Social Security numbers for all dependents. The IRS closely examines these and may disallow deductions and credits for returns filed without them.
- Compare previous year's deductions to this year's records. Did you forget something?
- Gather any additional documents or financial records you are unsure about. Prepare to bring these to your appointment or include them with the rest of your tax documents that you are mailing in so that you can inquire about them.
Accuracy in Details - Review personal data to verify that all details on your return are as accurate as possible. Check the names, residences, Social Security numbers, and jobs on last year's return. Note any changes for this year. Although your phone number and e-mail address are not necessary on your return, they are usually useful if concerns arise throughout the return process.
Marital Status Change - If your marital status changed during the year, you lived apart from your spouse, or your spouse died during the year, document the dates and facts. Bring copies of any prenuptial, legal separation, divorce, or property settlement agreements to your appointment, or include copies with your paperwork when sending it to this office. If your spouse died this year, you should have a copy of their trust agreement or will ready for perusal.Dependents - If you have qualified dependents, you must give the following information for each (if you already provided us with items 1–3, you do not need to provide them again):
1. First and last names
2. Social Security number.
3. Birthdate
4. The number of months you've lived in your home.
5.Income amounts (taxable and non-taxable). If your dependent is a youngster over the age of 18, keep track of how long they were enrolled full-time during the school year.
Anyone other than your child must pass five strict dependence tests before they can be considered your dependent. If you believe one or more other people qualify as your dependents (but are unsure), compare the amounts you contributed for their support to the amounts they provided. This simplifies the ultimate decision.
Some Transactions Need Special Treatment - Certain transactions necessitate particular reporting on your tax return. It's a good idea to commit a little more planning effort if you've had the following types of transactions:
- Report any sales of stocks, bonds, securities, real estate, and other property on your tax return, even if there was no profit or loss. List each sale and keep purchase and sale documentation handy for each transactionYour return must include the purchase and sale dates, as well as the cost and selling price. Make sure that this information is included in the documents you bring to your visit.
- When selling inherited or gifted property, it's important to determine the original owner's purchase date and price. If you want to sell property you inherited, you must know the original owner's death date and the property's value at the time. You may be able to find information on estate tax returns or probate paperwork; otherwise, contact the executor.
- Reinvested Dividends: If you sold a stock or mutual fund and participated in a dividend reinvestment program. If this is the case, you will need to keep track of each stock purchase made with reinvested dividends.
- If you file a married joint return and meet certain ownership, occupation, and holding time conditions, you may be eligible to deduct up to $500,000 of the gain from the sale of your primary property. Others are subject to a maximum exclusion of $250,000. It is a good idea to keep track of the costs of house upgrades since they might be utilized to diminish gains. The exclusion of profits only applies to primary residences, therefore keeping track of upgrades to other properties, such as your second house, is essential. Please give us with a copy of the sale documentation (typically the final closing escrow statement).
- If you purchased a home in 2025, please provide us with a copy of your final closing escrow statement.
- If you acquired a new plug-in electric car before September 30, 2025, you may be eligible for a special credit. Please bring the purchase statement to the appointment, or include a copy if you are sending your paperwork.
- Home Energy-Related Expenditures: If you installed a solar, geothermal, or wind power-generation system in your home or second home, you must supply the purchase information and manufacturer's credit qualification certification. You may be eligible for a considerable energy-related tax credit.
- Energy-Efficient Home Modifications: If you made qualifying energy-saving modifications to your home, you may qualify for a tax credit equal to 30% of the cost (limited by type of modification), subject to an overall limit of up to $1,200. Credit-qualifying improvements include energy-efficient air conditioning, heaters, storm windows and doors, some energy-efficient roofs, qualifying windows, and skylights. There is an additional credit of up to $150 for doing an energy audit during the year.
- Identity theft is common and might affect your tax file. If you have cause to believe that your identity has been stolen, please contact this firm immediately. If your identity has been stolen, you can file with the IRS using special procedures.
- List car expenses for business vehicles separately. When claiming automobile-related business expenses, the IRS requires you to disclose your overall mileage, business miles, and commuting miles for each company vehicle on your return, so make sure you have those statistics ready.
- Employees cannot deduct job-related automobile expenses on their federal and most state income tax filings. However, several states, notably California, continue to allow them. So, if you have unreimbursed employee business expenditures, please continue to give the information listed above in case the deduction is authorized for state taxes. If your employer compensated you for mileage, be sure you know how much it was and if it was listed on your W-2.Charitable Donations: Provide a bank record or written communication from the charity with the name, date, and amount of cash contributions, regardless of quantity.
- Unreceived financial donations placed in a "Christmas kettle," church collection plate, etc. are not deductible. Clothing and household donations must generally be in good or superior condition, and things like underwear and socks are not deductible. You must keep a record of each item donated, including the name and address of the charity, the date and location of the contribution, and a reasonable description of the property. A receipt is not required for contributions of less than $250 that are dropped off at an unattended location. For contributions greater than $500, the record must also detail the date and method of acquisition, as well as your cost basis in the property. For gifts greater than $5,000 and other forms of contributions, please contact this office for further details.
If you did something unusual this year that could affect your tax return, please contact us ahead of time to discuss what documents or additional information may be required. Please call this office if you have any issues regarding gathering your tax data.
