​Personal Income Tax

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This newsletter is designed to give you some guidance on the information needed to prepare your 2025 individual income tax return and provide items to consider for your tax preparation and planning. 

We will once again ask you to sign the annual tax return engagement letter that we will send you in early January, along with your tax organizer. In order to be able to serve all of our clients, we plan to limit in person appointments during the 2025 tax season. Clients can use their web portal accounts to upload information to us and we can send completed returns to your web portal.  In addition, we have a secure drop box available 24/7 and offer other methods of contactless information exchange including e-mails, curbside drop-offs and pick-ups, mail, other delivery services, and virtual appointments.

New in 2025 - ​One, Big, Beautiful Bill Act (OBBBA) 

The One, Big, Beautiful Bill Act (OBBBA), effective for tax years 2025 through 2028, introduces significant new federal income tax deductions for individuals who receive qualified tips and qualified overtime compensation. It also imposes new information reporting obligations on employers and other payors.

DEDUCTION FOR QUALIFIED TIPS

• Eligible Individuals: Employees and self-employed individuals in occupations that customarily and regularly received tips on or before December 31, 2024, as determined by the IRS. The IRS is required to publish a list of such occupations, and taxpayers may rely on the proposed list for 2025 here
• Definition of Qualified Tips - Cash or charged tips (including those received through tip-sharing arrangements) that are:
  • Paid voluntarily by customers, not subject to negotiation, and not required as a condition of service.
  • Not received in the course of a trade or business that is a specified service trade or business (SSTB). For employees, this is determined by the nature of the employer’s business.
• Deduction Limits:
  • Maximum annual deduction: $25,000.
  • For self-employed individuals, the deduction cannot exceed the net income from the trade or business in which the tips were earned (before this deduction).
  • The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $150,000 ($300,000 for joint filers).
• Married individuals must file jointly to claim the deduction.
• Employers and payors must file information returns with the IRS (or SSA for Form W-2) and furnish statements to employees/payees showing the amount of cash tips received and the occupation of the tip recipient. For tax year 2025, due to the phased implementation, Forms W-2 and 1099 will not be updated to separately report cash tips or occupation codes. Employers and payors are not required to separately account for cash tips or occupation on these forms for 2025. In practice however, employees will want this reported. You should request that your employer provide this information through alternative means (e.g., Box 14 of Form W-2, supplemental statements, online portals, etc.) to help you claim the deduction.

DEDUCTION FOR QUALIFIED OVERTIME COMPENSATION

• Eligible Individuals: Employees (and certain non-employees) who receive overtime compensation required under section 7 of the Fair Labor Standards Act (FLSA), i.e., pay for hours worked in excess of 40 in a workweek at not less than one and one-half times the regular rate of pay.
• Only the “premium” portion required by the FLSA (the “half” in “time-and-a-half”) is deductible.
• Overtime paid in excess of FLSA requirements (e.g., double time, state law requirements, or collective bargaining agreements) does not qualify.
• Overtime paid to FLSA-exempt employees does not qualify.
• Qualified tips (as defined above) are excluded from the definition of qualified overtime compensation.
• Deduction Limits:
  • Maximum annual deduction: $12,500 ($25,000 for joint filers).
  • Deduction phases out for taxpayers with MAGI over $150,000 ($300,000 for joint filers).
• Married individuals must file jointly to claim the deduction
• Employers and payors must file information returns and furnish statements to employees/payees showing the total amount of qualified overtime compensation paid during the year. For tax year 2025, Forms W-2 and 1099 will not be updated to separately report qualified overtime compensation. Employers and payors are not required to separately account for qualified overtime compensation on these forms for 2025.  You should request that your employer provide this information through alternative means (e.g., Box 14 of Form W-2, supplemental statements, online portals, etc.) to help you claim the deduction.​

Deductions

We still need to accumulate the information on your 1) medical, 2) state income and property tax, 3) mortgage interest, 4) charity and other deductions in order to apply the latest rules, and to complete your state tax returns.
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​Employee work related business expenses are no longer deductible on the Federal return, but if you incur a lot of these types of expenses including business mileage and even potentially a home office, you may want to discuss the use of an accountable reimbursement plan with your employer to reimburse you, tax-free, for your out of pocket business expenses.

Compliance

The IRS has a question on the very first line of the 2025 Form 1040 asking whether you have bought, sold, spent, or traded any digital assets and we must ask you to verify this for us to avoid IRS penalties. Please answer the related questions on these items in the questionnaire section of your tax organizer that we will send to you in January and return the questionnaire along with your other tax information.

Finally, in order to prepare your return this year we are required to obtain all of your Form W-2’s, Form 1099’s from retirement, interest, dividends and brokers, Forms 1095 for health insurance, mortgage interest Forms 1098, college tuition Forms 1098-T, and any other official IRS documents.  In addition, for new clients, we must receive a copy of your driver’s license(s).

Planning

1. In the current tax era of a greatly increased standard deduction and thus the larger amount of required to itemize deductions, a tax “bunching” strategy may be a planning idea to be used by some taxpayers. The “bunching strategy” recognizes that the best tax deductions are obtained by putting deductions in one year rather than spreading them amongst several years. For example, in years where your charitable contributions are very low, hold off until the next year to catch up, then also pay the full amount of the next year’s contributions in the “catch up” year in order to double your chances of itemizing. Similarly, few Americans receive a benefit from medical deductions anymore, but if you incur a large expense for say, the deductible on surgery, then try to do all of your other medical items in the same year, such as dental and vision exams, check-ups, etc.
2. If you have a Health Savings Account (HSA) eligible medical insurance policy, you should strongly consider depositing some amounts into an HSA - the tax savings benefits are very good.
3. One of the biggest tax savings areas that many people fail to fully utilize to its limit is to defer maximum amounts in the retirement plan or IRA options available to them. If your employer has a 401-K or other retirement plan or you are eligible to contribute to an IRA and you are not putting the maximum deferral amount in, you need to strongly consider increasing your contributions and also be sure to take advantage of any matching contributions from your employer.
4. Check with your employer’s Human Resources department or look in your employer’s handbook to see what employer provided fringe benefits are available and options you have. Taxpayer’s are often surprised at the available benefits, or at our explanation of what some benefits really mean. 
5. If you have someone you want to save funds for future college expenses or who is currently attending college, you need to utilize the 529 Education Savings Plans.  Contributions for 2025 to 529 plans must be made by December 31, 2025 in order obtain a potential state tax deduction for 2025.
6. Estate planning is an issue for almost everyone, no matter your age or level of wealth.  You should make sure you have a plan in place and that plan is reviewed regularly.  Items to consider include wills, trusts, life insurance, titling of assets, beneficiaries, long-term care options, advance directives, etc.  Your financial advising team including your attorney, financial advisor, insurance agent, tax preparer and others all will play roles in developing and implementing a plan.

We are happy to visit with you throughout the year for tax planning, retirement and similar income tax related issues, and sincerely appreciate your continued business each year.