Prepare for Tax Season 2025: Key Updates and Tips

As tax season approaches, many individuals find themselves preparing for the daunting task of gathering necessary documents for their upcoming tax appointments—whether conducted face-to-face, via video call, or over the phone. The ease of this process significantly depends on how effectively you organized your tax records throughout the year. Regardless of your record-keeping prowess, proper preparation has its advantages, allowing us to focus more on crucial areas such as:

  • Identifying every potential legal deduction.

  • Choosing the most suitable income reporting methods and deductions for your particular case.

  • Understanding how recent legal changes might impact your tax situation.

  • Discussing alternative tax planning strategies to lower your future tax obligations.

New for 2025 – The tax year includes changes from the One Big Beautiful Bill Act (OBBBA), impacting taxpayers in several noteworthy ways:

  • No Tax on Tips: Allows a deduction up to $25,000 for cash tips received in customary tip-based jobs. The deduction phases out beyond $150,000 for single filers and $300,000 for joint filers, reducing by $100 for every $1,000 over these thresholds, and applies to both itemizers and non-itemizers.

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  • No Tax on Qualified Overtime: Deductions up to $12,500 ($25,000 for married filing jointly) for overtime pay exceeding regular rates. This deduction phases out for MAGI over $150,000 for singles and $300,000 for joint filers, reducing by $100 for every $1,000 exceeded.

    Example:
    Overtime Hourly Rate: $30.00
    Regular Hourly Rate: $20.00
    Deductible Amount: $10.00 per overtime hour worked

  • Vehicle Loan Interest Deduction: Allows deductions up to $10,000 on interest for loans on new personal-use vehicles assembled in the U.S., not exceeding 14,000 pounds. This excludes family loans and vehicles like campers, phasing out for incomes between $100,000-$150,000 (single) and $200,000-$250,000 (joint filers).

  • SALT Deduction Limit: The deduction cap for state and local taxes increased to $40,000 from $10,000, with provisions for phasing down based on higher income thresholds.

  • Super Retirement Catch Up: From 2025, increased catch-up contributions for individuals aged 60-63, enhancing retirement savings potential especially via SIMPLE plans, 401(k)s, and 457(b) plans.

  • Child Tax Credit: OBBBA raises the credit to $2,200 ($1,700 refundable) for dependents under 17, phasing out beyond $400,000 MAGI for joint filers.

  • Adoption Credit: A new refundable amount under OBBBA presents a $17,280 credit with $5,000 refundable for 2025.

  • Section 179 Expensing: Enhanced expensing limits allow immediate deductions on up to $2.5 million for asset purchases, encouraging investments in machinery and equipment.

  • Bonus Depreciation: OBBBA permanently continues the 100% bonus depreciation for new and used qualified property, boosting cash flow for businesses.

  • Business Research or Experimental Expenditures: New provisions allow immediate deductibility for qualifying domestic expenses.

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For a 30-minute conversation about your business, talk to Jim.
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Making Informed Choices – Tax laws offer diverse handling methods for income and deductions, affecting not only the current year but also future filings. Dividends and depreciation strategies, for instance, can align with long-term financial goals if chosen prudently.

  • Where to Begin – Begin your tax preparation early by organizing documents in a specific, consistent manner. Save all relevant materials in a secure location, creating habits that simplify the tax filing process.

  • Technology and Trepidation – The IRS closely monitors digital currencies and transactions. Ensure reporting through the new 1099-DA forms, stay proactive, and avoid potential penalties.

  • Medical and Health Insurance Documentation: Keep Form 1095-A and other insurance documents ready for appointment use.

  • Record Keeping for Dependents: Accurate tracking of dependent information, including financial support calculations, eases compliance and maximizes deductions or credits.

  • Preparation Tips: Clear organization and readiness will make your filing process with Lighthammer Bookkeeping seamless and efficient, ensuring no aspect is overlooked for optimal tax outcomes.

  • Detailed Transaction Categories: Whether you're dealing with stocks, charitable donations, or home sales, ensure proper documentation and be ready to discuss these during your tax appointment.

For those unusual, out-of-the-ordinary events affecting this year's tax situation, consider reaching out for advice and documentation requirements. Lighthammer Bookkeeping is ready to assist our clients in navigating the complexities of tax season with intelligence and expertise to optimize outcomes.

Talk to Jim
For a 30-minute conversation about your business, talk to Jim.
Talk to Jim
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