Early preparation for income tax filing is always a good idea.
We don’t have to tell you that the 2025 tax year is going to be challenging. Though Congress can make changes to the tax code up until December 31, 2025, we already know that many tax law changes that will be implemented because of the legislation that was recently passed.
How is this going to affect you? Here is some of what we know now about the impact the new tax law may have on you:
- Tax code changes in the 2017 Tax Cuts and Jobs Act, slated to expire this year, have been made permanent.
- The Child Tax Credit has been increased to $2,200.
- Several clean energy tax credits introduced under the Inflation Reduction Act will be terminated or phased out.
- Children born between 2025 and 2028 will receive tax-advantaged savings accounts seeded with a $1,000 federal tax credit.
- There will be no federal income taxes on reported cash tips (up to $25,000) and overtime (up to $12,500 for single filers and $25,000 for joint filers) through 2028.
As you can see, your 2025 taxes could change significantly, depending on what your financial profile looks like. We have some suggestions about how you might be better prepared for 2025 taxes – and beyond.
Pay close attention to news about tax law legislation
As you probably know, the new tax law is a very big deal. So, there’s news about it in numerous places. We recommend you get your updates from sources that are as unbiased and nonpartisan as possible, not from social media. Financial publications like Kiplinger, Forbes, and the Wall Street Journal are as trustworthy as anyone.
The 2025 IRS Form 1040 is likely to look very different from 2024.
If you haven’t already, start organizing your 2025 income and expenses
There are two ways to do this. If you’re comfortable connecting your online financial accounts to a personal finance or small business accounting application, your work will be much easier. Solutions like Quicken Simplifi and Wave Pro are relatively inexpensive and easy to use. You can import transactions from your bank accounts, credit cards, loans, etc., and categorize them so you know which ones are tax-related. Some, like Quicken Classic, can even generate reports that you or you can use during next year’s tax preparation.
The second method involves manually organizing your tax receipts and documents. If you’re self-employed or have taken on a side gig or two to supplement your main income, you must have a way to store receipts. Label either file folders or large envelopes and store your receipts in them for at least three years after the date you actually file your return. You won’t have to submit them with your income taxes, but you will definitely need them if you ever get audited. You could also scan them and store them in digital folders in something like Google Drive.
Whether you file the actual paper receipts or store them digitally, you’ll need to set up a system for organizing them so you can locate them quickly when they’re needed. If you don’t anticipate having a lot of deductible expenses, you could separate them by month. If you’re familiar with the expense categories the IRS uses on the Schedule C (and if you’re not, you should learn about them), filing them by each of these categories is an even better idea, especially if you have a lot of receipts.
You’ll need to file a Schedule C: Profit or Loss from Business for each of your side gigs or small businesses if you’re a sole proprietor.
If you have more than one side gig or small business, be sure to set up separate filing systems for each, since you’ll have to file a Schedule C for each one.
Evaluate your income tax withholding
If you’re a W-2 employee, you completed a Form W-4 prior to starting your job. The information you provide here helps your payroll manager determine how much money to deduct from your paycheck for income taxes. These forms changed a few years ago and are a bit more complicated. So, ask us if you want our help completing yours.
We usually recommend revisiting your W-4 if you’ve been getting large refunds or big tax bills at filing time. But there will be enough changes to the tax code for 2025 that you may want consult with us to see how to handle your withholding. Let us know whether you’re considering having us take over your tax preparation and filing for the 2025 tax year. We’re always tuned in to tax law changes.
