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Prepare Now: Tax Season is Just Ahead

As the tax season looms, taxpayers find themselves faced with the familiar task of organizing records in anticipation of their tax submission—be it in person, online, or over the phone. The ease of this process heavily hinges on the organization of your financial documents throughout the year. Proper preparation will allow us more time to:

  • Identify every feasible legal deduction,

  • Analyze income reporting strategies and optimal deduction options for your circumstances,

  • Assess how recent legislative changes impact your taxation, and

  • Discuss tax-planning strategies to minimize future tax obligations.

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What's New for 2025 – This year brings multiple adjustments, primarily due to the One Big Beautiful Bill Act (OBBBA), including:

  • Tax-Free Tips: Allows a deduction of up to $25,000 for qualifying cash tips in customary tip-based roles. This deduction phases out for AGI over $150,000 for singles and $300,000 for joint filers, tapering by $100 for each $1,000 over the limit. It's applicable to both itemizers and standard deduction filers. Relevant amounts will be included on the employee's W-2 or a separate statement for 2025.

  • Overtime Pay Exemption: Grants a deduction of up to $12,500 ($25,000 for joint filers) for overtime pay above the regular rate. This benefit phases out for MAGI above $150,000 (singles) and $300,000 (joint filers), decreasing by $100 for each $1,000 over. Available for all filers.

  • Vehicle Loan Interest Deduction: Deduct up to $10,000 in interest on new vehicle loans for U.S.-assembled, personal-use cars weighing under 14,000 pounds. Does not apply to family loans or non-personal vehicles. Phases out for incomes between $100,000-$150,000 (single) and $200,000-$250,000 (joint). Reported on the new Form 1098-VLI.

  • SALT Deduction Increase: Increases the deduction for state and local taxes to $40,000 from the previous $10,000 cap. The limit reduces starting at $500,000 MAGI, with a floor of $10,000.

  • Enhanced Retirement Catch Up: For those aged 60 to 63, contribution limits to certain plans, excluding IRAs, have been increased significantly. In 2025, $11,250 is allowed, and $5,250 for SIMPLE plans.

  • Child Tax Credit: Credit amount raised to $2,200 ($1,700 refundable) for dependents under 17, phasing out at $400,000 MAGI for joint filers and $200,000 for others.

  • Adoption Credit: A refundable portion is now added. In 2025, the credit is $17,280 with $5,000 refundable. Income phase-outs apply.

  • Section 179 Expensing: Allows immediate expensing of qualifying business assets. Limit hiked to $2.5 million in 2025, phasing out past $4 million in purchases. Beware of potential recapture if business use drops.

  • Bonus Depreciation: 100% depreciation for qualifying assets placed in service post-January 19, 2025. Applies to tangible property under a 20-year recovery window.

  • Research and Experimental Expenditure Changes: Allows immediate deduction of domestic expenses beginning in 2025, with foreign expenses amortized over 15 years.

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Optimal Tax Strategy Choices – Tax laws provide multiple ways to manage income and deductions on your return. Decisions made now can impact future returns. Key considerations include:

  • Property Sales: Consider reporting gains either during the year of sale or over an extended period as payments come in.

  • Depreciation Methods: Decide on depreciating business assets over several years or, in some cases, immediately.

Beginning Your Preparations – Start tax preparation in January regardless of whether your appointment is virtual, in-person, or via mail. Set aside a secure space for storing important documents. Print out digital forms or consult with us if advised otherwise. Other preparation tips include:

  • Organize documents by categories such as medical expenses, mortgage interest, and charitable donations. Complete any received organizers meticulously.

  • Disclose foreign financial interests to ensure compliance with reporting requirements and avoid severe penalties.

  • Stay aware of IRS scrutiny on cryptocurrency, as all transactions must be reported similarly to stock sales. Digital brokers will use Form 1099-DA.

  • Include health insurance forms (1095-A, 1095-B, or 1095-C) to determine eligibility for premium tax credits.

Be vigilant with your annual income statements, maintaining them separately from other documentation, and meticulously record questions to raise during your tax appointment. Accuracy in personal information such as names and Social Security numbers is crucial.

Changes in marital status or dependents should be noted along with corresponding legal documents. Assess if unique tax-deductive scenarios apply to you, leveraging professional insights where necessary.

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If you've experienced non-standard financial activities this year, reach out for additional guidance on documentation required.

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