To ensure your tax return is filed quickly and without error, double-check this list of commonly-overlooked items. These little pesks are among the commonly missed items reported as hold ups to filing individual tax returns:
Missing forms. Using last year’s tax return as a checklist, double check that all your W-2s and 1099s are received and applied to your tax return. Missing items here will be caught by the IRS mismatch program, creating an unwanted correspondence audit. If you are missing a form, contact the company responsible for issuing them as soon as possible.
Dependent information. If you added a new dependent in 2024, provide the name, Social Security number and birth date to have them added to your tax return. If you have a dependent that shares custody with someone else, discuss the plan for who is going to claim this person. Your tax return cannot be filed if there is a conflict in this area.
Cost basis information. If you sold any assets (typically investments or real estate), you need to know how much it cost you to determine your taxable capital gain or loss. Check your investment statements to ensure that your broker includes the required information and that you believe it is accurate. Sometimes it’s difficult to find this information on the Form 1099-B summary, but it might be listed later in the statement details.
Schedule K-1s. As an owner of a partnership or S corporation, you will need to receive a Form K-1 that reports your share of the profit or loss from the business activity. When you receive your K-1, pay special attention to box 17 (code V) for S corporations and box 20 (code Z) for partnerships. This is where information is included for the Qualified Business Income Deduction.
Digital asset transactions. If you are buying or selling cryptocurrency or other digital assets, provide details to support the cost basis and sales price of each transaction.
Forms or documents with no explanation. If you receive a tax form, but have no explanation for the form, questions will arise. For instance, if you receive a retirement account distribution form, it may be deemed income. If it is part of a qualified rollover, no tax is due. An explanation is required to file your information correctly.
Missing signatures. Both you and your spouse need to review and sign the e-file approval forms before the tax return can be filed. The sooner you review and approve your tax return, the sooner it can be filed.
By knowing these commonly missed pieces of information, hopefully your tax filing experience will be a smooth one.
With the changes happening in Washington D.C., there is now some uncertainty about what tax policies we may see in 2025 and beyond. During this time of uncertainty, it is challenging to create a workable tax plan. But not to fear. There are several things that we DO know about tax changes to start 2025. Here are the key highlights as they are currently known.
What we DO know
Tax brackets and rates. The seven tax rates remain unchanged while the income subject to each rate got a slight bump. After a 5.4 percent increase in 2024, there’s an additional 2.8 percent increase in income subject to each tax rate in 2025. This means more of your income will be subject to a lower tax rate.
Higher retirement plan limits. The amount you can contribute to a 401(k) in 2025 is $23,500, up from $23,000 in 2024. The 401(k) catch-up contribution limit in 2025 stays at $7,500 if you’re age 50 to 59, and age 64+. New in 2025, if you are ages 60 to 63, the catch-up contribution limit increases to $11,250. The annual contribution threshold for IRAs remains at $7,000, as does the IRA catch-up contribution limit of $1,000.
New cryptocurrency reporting rules. New reporting rules in effect as of January 1, 2025 means you’ll need to be more vigilant with tracking your cryptocurrency transactions and complying with the IRS’s digital asset rules. Brokers of digital assets, including cryptocurrency exchanges, custodial services, and certain payment processors, must report sales and exchanges of digital assets to the IRS starting in 2025. Your digital asset transactions will be summarized annually on a new Form 1099-DA. This new reporting of digital asset transactions will be similar to existing reporting for traditional securities such as stocks and bonds.
Changes on the horizon
The 1099-K reporting threshold. If you use third party payment processors like Venmo or sell tickets on apps like SeatGeek, you’re more likely to receive a tax form of your activity that will also be sent to the IRS. The limit requiring your activity to be reported was $5,000 in 2024. In 2025, this threshold is scheduled to be lowered to $2,500, and further lowered in 2026 to $600.
Uncertainty over TCJA provisions. There has been discussion about extending and/or making permanent many of the provisions contained in the Tax Cuts and Jobs Act (TCJA) of 2017. Most of the provisions are scheduled to expire at the end of 2025, so we will pay attention to any legislation forthcoming that could change any of this tax landscape.
Proposed decrease in corporate tax rates. There is also discussion about lowering the corporate tax rate from its current level of 21%, in addition to lowering the effective corporate tax rate from 21% to 15% for domestic manufacturers.
Stay tuned for continuing updates of any tax changes as events unfold in 2025.
Navigating the tax system can be challenging for everyone, whether you’re an adult who hasn’t paid much attention to paycheck deductions or a young person starting your first job. A crucial first step in managing taxes is knowing when to seek help, which begins with understanding what can be taxed.
Here are some key points to help you or someone you know better understand the basics of our tax system.
Different types of taxes
When you think about taxes, income tax is often the first to come to mind. Income tax is what you pay on the earnings from your job or from selling products and services. However, many other types of taxes exist. Here are some of the most common:
Payroll Taxes. Unlike income taxes, which can fund various government programs, payroll taxes specifically support Social Security and Medicare. This tax amounts to 15.3% of most employees’ paychecks, but half is typically covered by the employer.
Property Taxes. These taxes are applied to property ownership, such as your home or vacation property.
Sales Tax. This tax is levied on goods and services you purchase. While state and local governments primarily collect sales taxes, certain items like gasoline are also subject to federal sales taxes.
Capital Gains Taxes. If you sell an investment or property for a profit, you may owe capital gains taxes. Selling stocks, homes, or rental properties at a profit could trigger these taxes.
Estate Taxes. These are taxes applied to the assets within your estate after you pass away.
Inheritance Taxes. As opposed to estate taxes, inheritance taxes are applied when you inherit money or assets after someone else passes away.
Not all income is taxable
While most of your income is taxable, some forms of income are exempt from taxation:
Interest from municipal bonds is generally tax-free.
Life insurance benefits often aren’t taxed.
Capital gains on the sale of your primary residence may be excluded up to a certain limit.
Estate tax exclusions mean only estates exceeding a set dollar amount are subject to tax.
Many employee benefits, such as health insurance, Health Savings Account (HSA) contributions, commuter benefits, and small employer-provided gifts, are also tax-free.
The tax rules governing these various types of income can be complex. That’s why it’s often helpful to have a professional guide you through your particular situation. Having a basic understanding of how taxes work, though, will help you to ask the right questions.
MYTH: /miTH/ (noun) – a widely held but false belief or idea
Many myths about the IRS and the tax code have been amplified online in recent years. Here are several myths that if you believe them, could leave you with an expensive tax surprise.
Myth #1: Retirement money is always tax free.
You have retired and withdraw from a 401(k) fully expecting that you won’t owe income taxes. Unfortunately, money withdrawn at any age from a 401(k) – or your traditional IRA – incurs income taxes at your current tax rate.
Lesson Learned: Understand how money in each of your retirement accounts is taxed when withdrawn. Some will have income taxes, some could incur early withdrawal penalties, while some incur no tax at all!
Myth #2: The government won’t find out about a big gambling win.
Gambling winnings are considered taxable income to the feds and most states. The IRS generally wants about a quarter of your winnings from sweepstakes, casinos, bingo, keno, online sports betting, and the like. Casinos and other betting entities also inform the IRS of your winnings over certain thresholds. So it is always best to keep track of your winnings.
Lesson Learned: Gambling winnings fall under tax rules just like other forms of income. Deducting gambling losses is possible, but it has limits that are subject to strict rules. For example, you must itemize deductions on your tax return if you don’t declare yourself a self-employed professional gambler.
Myth #3: Government benefits like unemployment and Social Security aren’t taxable.
Unfortunately, unemployment and Social Security benefits are usually taxable. Unemployment benefits are taxed at your normal tax rate as income at the federal level and in some states. Social Security is taxed, but in a much more confusing way. Supplemental Security Income payments, on the other hand, are not taxable.
Lesson Learned: Plan ahead to mitigate the tax shock. You can have taxes withheld from your unemployment benefits so you don’t have to pay a lump sum when you file your return. With Social Security benefits, understand when and how they can be taxed, since up to 80% of these benefits could be subject to income tax by the federal government.
Myth #4: I work from home and can write off my office expenses.
You can only deduct home office expenses if you operate a business out of your home. If you’re an employee, you’re out of luck. If you do run a business exclusively out of your home, there are still hurdles to clear before you qualify to use the home office deduction.
Lesson Learned: Tax rules can be complicated, even for something that seems as simple as a home office deduction.
If there’s one common theme here, it’s that tax laws can be complex even when they seem simple on the surface. When in doubt ask for help.
As 2024 winds down, here are some ideas to help you prepare your business for filing your upcoming tax return:
Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so.
Shifting income and expenses. Consider accelerating income, or deferring earnings, based on profit projections.
Be prepared to receive a Form 1099-K. You may receive a Form 1099-K from each payment processor from whom you’ve received a payment. In addition to credit card companies and banks, payment processors can include Amazon, Etsy, PayPal, Venmo and Apple Pay. You’ll need to include the 1099-K on your tax return.
Categorize income and expenses. Organize your records by major categories of income, expenses and fixed asset purchases. If your accounting records are accurate, then any tax form should be easy to tie out to your books.
Separation of expenses. Review business accounts to ensure personal expenses are not present. Reimburse the business for any expenses discovered during this review.
Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit.
Fixed asset planning. Section 179 or bonus depreciation expensing versus traditional depreciation is a great planning tool. If using Section 179, the qualified assets must be placed in service prior to year-end.
Leveraging business meals. Business meals with clients or customers are 50% deductible. Retain the necessary receipts and documentation that note when the meal took place, who attended and the business purpose on each receipt.
Charitable opportunities. Consider any last-minute deductible charitable giving including long-term capital gain stocks.
Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline out of a home office can be difficult to deduct, cell phone use can be documented and deducted for business purposes.
Inventory review. Review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction.
Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs.
Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full year earnings. Then make your 2024 4th quarter estimated tax payment by January 15, 2025.
Tax credits are some of the most valuable tools around to help cut your tax bill. But figuring out how to use these credits on your tax return can get complicated very quickly. Here’s what you need to know.
Understanding the difference
To help illustrate the difference between a credit and a deduction, here’s an example of a single taxpayer making $50,000 in 2024.
Tax Deduction Example: Savi Lesse earns $50,000 and owes $5,000 in taxes. If you add a $1,000 tax deduction, she’ll decrease her $50,000 income to $49,000, and owe about $4,800 in taxes.
Result: A $1,000 tax deduction decreases Savi’s tax bill by $200, from $5,000 to $4,800.
Tax Credit Example: Now let’s assume Ima Smart has a $1,000 tax credit instead of a $1,000 tax deduction. Ms. Smart’s tax bill decreases from $5,000 to $4,000, while her $50,000 income stays the same.
Result: A $1,000 tax credit decreases Ms. Smart’s tax bill from $5,000 to $4,000.
In this example, your tax credit is five times as valuable as a tax deduction.
What you need to know
Credits are generally worth much more than deductions. There are several hurdles you have to clear, though, before being able to take advantage of a credit. To illustrate these hurdles, consider the popular child tax credit.
Hurdle #1: Meet basic qualifications. You can claim a $2,000 tax credit for each qualifying child you have on your 2024 tax return. The good news is that the IRS’s definition of a qualifying child is fairly broad, but there are enough nuances to the definition that Hurdle #1 could get complicated.
Hurdle #2: Meet income qualifications. If you make too much money, you can’t claim the credit.
Hurdle #3: Meet income tax qualifications. To claim the entire $2,000 child tax credit in 2024, you must owe at least $2,000 of income tax.
Take the tax credit…but get help!
The bottom line is that tax credits are usually more valuable than tax deductions. But tax credits also come with many rules that can be confusing. It’s always best to get help.
