Get Ready: Tax Season Is Closer Than You Think
Tax time is just around the corner, and if you are like most taxpayers, you are probably facing the ominous chore of compiling records in preparation for your tax appointment—whether in person, by videoconference or telephone. The difficulty of this task depends upon how well you maintained your tax records throughout the year. No matter how good your record keeping was, being fully prepared for your tax return preparation will give us more time to:
Consider every possible legal deduction,
Evaluate which income reporting methods and deductions are best suited to your situation,
Explore current law changes affecting your tax status, and
Talk about tax-planning alternatives that could reduce your future tax liability.
New for 2025 – There are several changes this year, partially due to the One Big Beautiful Bill Act (OBBBA), including these predominate ones:
No Tax on Tips: A deduction up to $25,000 is allowed for qualified cash tips in customary tip-receiving occupations. The deduction phases out when AGI is over $150,000 for singles and $300,000 for joint filers, reducing by $100 for every $1,000 over. The deduction applies per return and is available to both itemizers and standard deduction filers. Employers will include qualifying tips on the employee’s W-2, or for 2025 only, will provide a separate statement reporting the tips.
No Tax on Qualified Overtime: A deduction of up to $12,500 ($25,000 for married taxpayers filing jointly) for overtime pay exceeding the regular rate. The deduction Phases out for MAGI over $150,000 (singles) and $300,000 (joint filers), reducing by $100 for every $1,000 over. Available to both itemizers and standard deduction filers.
Example:
Overtime Hourly Rate: $30.00
Regular Hourly Rate: <$20.00>
Deductible Amount: $10.00 per overtime hour workedVehicle Loan Interest Deduction: Individuals may deduct up to $10,000 in interest on loans taken out after 2024 and secured by a new personal-use passenger vehicle, assembled in the U.S. and weighing under 14,000 pounds. Excludes family loans and non-personal vehicles like campers. The deduction phases out for incomes between $100,000-$150,000 (single) and $200,000-$250,000 (joint filers). Available to both itemizers and standard deduction filers. The lenders will report the interest on a new Form 1098-VLI. However, for 2025 only, IRS is allowing lenders to issue their own statements with specified information in lieu of the official form. If you paid vehicle loan interest, be on the lookout for this new form or a substitute statement.
SALT Deduction Limit: The itemized deduction for state and local taxes (SALT) has been increased to $40,000 up from the prior $10,000 limit. However, the SALT limit for higher income taxpayers’ phases down starting at $500,000 MAGI, reaching a $10,000 floor at $600,000. It never drops below $10,000.
Super Retirement Catch Up: Beginning in 2025 catch-up contribution limits have significantly increased for individuals aged 60 through 63. They can now contribute the greater of $10,000 or 50% more than the standard catch-up amount to qualified plans, such as SIMPLE plans, 401(k)s, 403(b) annuities, and 457(b) government plans, but not IRAs. For 2025 the enhanced catch-up for this age group is $11,250 except for SIMPLE plans which is $5,250.
Child Tax Credit: OBBBA increased the credit amount. In 2025 through 2028 the credit is $2,200 ($1,700 refundable) for dependents under 17. Phases out at $400,000 MAGI for joint filers, $200,000 for others, decreasing by $50 per $1,000 above these limits. A work-eligible SSN is required for the child and one filer.
Adoption Credit: OBBBA added a refundable amount. For 2025 the credit is $17,280 with $5,000 refundable. Those inflation adjusted amounts are $17,670 and for $5,120 for 2026. Phases out between $259,190 and $299,190 for 2025 and in 2026 between $265,080 and $305,080 for all filing statuses. Any excess can be carried forward 5 years.
Section 179 Expensing: Allows businesses to immediately expense the cost of qualifying assets such as machinery, equipment, and certain vehicles, although SUVs are limited to a specific deduction cap ($31,300 for 2025). Sec 179 expensing benefits many small and medium-sized business enterprises, providing upfront tax savings and encourages investment. OBBBA substantially increased the limits for Sec 179 expensing. For 2025 the limit was increased to $2.5 million However, the deduction phases out dollar-for-dollar when purchases for the year exceed $4 Million in 2025. A drawback to the Section 179 expensing method is that if the business’ use of the asset drops to 50% or less, some or all the amount deducted may need to be recaptured.
Bonus Depreciation: 100% bonus depreciation was made permanent by OBBBA and after January 19, 2025, allows businesses to immediately write off 100% of the cost of qualifying assets in the year they are placed in service. This applies to new and used tangible property with a recovery period of 20 years or less, such as machinery, equipment, and certain improvements. This provision is designed to incentivize business investments by accelerating tax deductions, providing businesses immediate financial benefits and improved cash flow. For qualifying property placed in service between January 1, 2025, and January 19, 2025, the bonus depreciation rate was 40%.
Business Research or Experimental Expenditures: Effective beginning in 2025, domestic expenditures are immediately deductible. Expenses incurred outside the U.S. continue to be amortized over 15-years.
Choosing Your Best Alternatives – The tax law allows a variety of methods of handling income and deductions on your return. The choices you make when preparing your return often affect not only the current year but also future returns. Related topics include:
Sales of Property – If you sold property for which you’re receiving payments on a sales contract over a period of years, you can sometimes choose between reporting the whole gain in the year of the sale or over a period of time as you receive payments from the buyer.
Depreciation – You can deduct the cost of your investments in certain business properties. You can either depreciate the cost over a number of years or, in certain cases, deduct them all in one year.
Where to Begin – Start preparing for your tax return in January, whether you are going have a face-to-face appointment, meet by videoconference or mail in your information and then have a follow-up telephone discussion. Right after the New Year, set up a safe storage location, such as a file drawer, cupboard or safe. As you receive pertinent records, file them right away, before you forget or lose them. Make this a habit, and you’ll find your job a lot easier on your appointment date or when sending in your material. If you will be receiving source documents electronically, you’ll need to print out a copy of the forms or statements, unless advised otherwise by this office. Other general suggestions include:
Segregate your records according to income and expense categories. File medical expense receipts in one envelope or folder, mortgage interest payment records in another, charitable donations in a third, etc. If you receive an organizer or questionnaire to complete before your appointment, fill out every section that applies to you. (Important: Read all explanations and follow the instructions carefully. By design, organizers remind you of transactions you may otherwise miss.)
Call attention to any foreign bank account, foreign financial account or foreign trust in which you have an ownership interest, signature authority or controlling stake. We also need to know about foreign inheritances and ownership of foreign assets. In short, bring any foreign financial dealings to our attention so we know if you will have any special reporting requirements. The penalties for not making and submitting required reports can be severe.
Beware! The IRS has kept cryptocurrency on its radar and is ramping up enforcement programs. Cryptocurrency (virtual currency) and other digital assets are treated as property, and every time it is sold or used, the gain or loss from the transaction must be computed and reported in the same manner as a stock transaction. This year brokers are required to report digital transactions on new Form 1099-DA.
If you acquired your health insurance through a government marketplace, you would receive Form 1095-A, issued by the marketplace, which will include information needed to complete your return and determine the amount of your premium tax credit. Include the 1095-A with the other material you bring to your appointment or mail in. If your insurance coverage was through an employer and the employer issued a Form 1095-B, Form 1095-C or substitute form detailing your coverage, include that as well.
Keep your annual income statements separate from your other documents (e.g., W-2s from employers; 1099s from banks, stockbrokers, etc.; and K-1s, including instructions and attachments, from partnerships and trusts). Be sure to take these documents to your appointment or provide them with the other items you are sending in!
Write down your questions as you assemble the material, so you don’t forget to ask them at the appointment or include them with the documents being mailed in. Review last year’s return. Compare your income on that return to your income for the current year. A dividend from ABC stock on your prior year’s return may remind you that you sold ABC this year and need to report the sale or that you haven’t yet received the current year’s 1099-DIV form.
Make sure you have Social Security numbers for all of your dependents. The IRS checks these carefully and can deny deductions and credits for returns filed without them.
Compare deductions from last year with your records for this year. Did you forget anything?
Collect any other documents and financial papers that you’re puzzled about. Prepare to bring these to your appointment or include them with the rest of your tax material that you are mailing in so you can ask about them.
Accuracy in Details – Make sure you review personal data to ensure the greatest accuracy possible in all details on your return. Check names, addresses, Social Security numbers and occupations on last year’s return. Note any changes for this year. Although your telephone number and e-mail address aren’t required on your return, they are always helpful should questions occur during return preparation.
Marital Status Change – If your marital status changed during the year, you lived apart from your spouse or your spouse died during the year, list the dates and details. Bring copies of prenuptial, legal separation, divorce or property settlement agreements, if any, to your appointment or include copies when sending your material to this office. If your spouse passed away during the year, you should have a copy of their trust agreement or will available for review.
Dependents – If you have qualifying dependents, you will need to provide the following for each (if you previously provided us with items 1 through 3, you will not need to supply them again):
First and last name
Social Security number
Birth date
Number of months living in your home
Income amounts (both taxable and nontaxable). If your dependent is a child over age 18, note how long the child was a full-time student during the year.
For anyone other than your child to qualify as your dependent, they must pass five strict dependency tests. If you think one or more other individuals qualify as your dependents (but you aren’t sure), tally the amounts you provided toward their support vs. the amounts they provided. This will simplify the final decision.
Some Transactions Deserve Special Treatment – Certain transactions require special treatment on your tax return. It’s a good idea to invest a little extra preparation effort if you have had the following types of transactions:
Sales of Stock or Other Property: All sales of stocks, bonds, securities, real estate and any other property need to be reported on your return, even if you had no profit or loss. List each sale and have purchase and sale documents available for each transaction.
The purchase date, sale date, cost and selling price must all be noted on your return. Make sure this information is contained in the documents you bring to your appointment.Gifted or Inherited Property: If you sell property that was given to you, you need to determine when and for how much the original owner purchased it. If you sell property you inherited, you need to know the original owner’s death date and the property’s value at that time. You may be able to find this on estate tax returns or in probate documents; otherwise, ask the executor.
Reinvested Dividends: You may have sold stock or a mutual fund for which you participated in a dividend reinvestment program. If so, you will need to have records of each stock purchase made with the reinvested dividends.
Sale of Home: The tax law provides special breaks for home sale gains, and you may be able to exclude up to $500,000 of the gain from your primary home if you file a married joint return and meet certain ownership, occupancy and holding period requirements. The maximum exclusion is $250,000 for others. Since the cost of improvements made on your home can also be used to reduce gains, it is good practice to keep a record of them. The exclusion of gains applies only to a primary residence, so keeping a record of improvements to other property, such as your second home, is important. Be sure to provide us with a copy of the sale documents (usually the final closing escrow statement).
Purchase of a Home: We’ll need to see a copy of the final closing escrow statement if you purchased a home in 2025.
Vehicle Purchase: If you purchased a new plug-in electric car (or cars) in 2025 before September 30, 2025, you may qualify for a special credit. Please bring the purchase statement to the appointment with you or include a copy if you are mailing in your documents.
Home Energy–Related Expenditures: If you installed a solar, geothermal or wind power-generation system in your home or second home, you’ll need to provide the details of the purchase and manufacturer’s credit qualification certification. You may qualify for a substantial energy-related tax credit.
Energy-Efficient Home Modifications: If you made qualifying energy-saving improvements to your home, you may qualify for a tax credit equal to 30% of the cost (capped to certain amounts by type of modification) subject to an overall limit of up to $1,200. The credit-qualifying improvements include energy-efficient air conditioning, heaters, storm windows and doors, certain energy-efficient roofing, qualifying windows and skylights. There is an additional credit of up $150 for having an energy audit during the year.
Identity Theft: Identity theft is rampant and can impact your tax filing. If you have reason to believe that your identity has been stolen, please contact this firm as soon as possible. The IRS provides special procedures for filing if you have had your identity stolen.
Car Expenses for Business: If you used one or more automobiles for business, list the expenses of each business vehicle separately. When claiming vehicle-related business expenses, the government requires your total mileage, business miles, and commuting miles for each business vehicle to be reported on your return, so be prepared to have those numbers available.
Job-related vehicle expenses are not deductible by employees for federal and most states on their federal returns. However, some states, including California, still allow them. So, if you have unreimbursed employee business expenses, continue to provide the information noted above in case the deduction is allowed for your state taxes. If you were reimbursed for mileage through an employer, know the reimbursement amount and whether it was included in your W-2.Charitable Donations: You must substantiate cash contributions (regardless of amount) with a bank record or written communication from the charity showing the name of the charitable organization, date and amount.
Unreceipted cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible. For clothing and household contributions, donated items must generally be in good or better condition, and items such as undergarments and socks are not deductible. You must keep a record of each item contributed that indicates the name and address of the charity, the date and location of the contribution, and a reasonable description of the property. Contributions valued under $250 and dropped off at an unattended location do not require a receipt. For contributions above $500, the record must also include when and how the property was acquired and your cost basis in the property. For contributions above $5,000 and other types of contributions, please call this office for additional requirements.
If you did something out of the ordinary this year that could be related to your tax return, please contact us in advance about what me documentation or additional information may be needed. If you have questions about assembling your tax data, please give this office a call.
Want our best tax and accounting tips and insights delivered to your inbox?
Sign up for our newsletter.