Employee Spotlight
March 10, 2025
Is there anything I can do this year to change the tax consequences of last year?
The only thing that is commonly done is related to retirement accounts (Roth excluded). If you worked last year, you can contribute to an IRA $7,000 ($8,000 if you’re over 50) for both you and your spouse. Your spouse doesn’t have to be working if you are, or vice-versa. If you are covered by a plan at work and/or you make too much income, you may be limited on how much you can contribute. We check this out as we prepare your return.
While this doesn’t change the results of the current year, contributing to a company 401K plan can greatly help your results for next year. The amount you elect to contribute reduces your taxable wages for next year (as long as it’s not a Roth 401K), thus contributing $10,000 to a plan means you are paying tax on $10,000 less wages at the highest bracket you are currently in, which should save you a significant amount of tax. The beauty part is that the $10,000 is still your money which you can reclaim without penalty when you get over 59 1/2.
Does the deduction for tips and overtime go into effect in 2025?
Yes, both of those deductions are available on the new Schedule 1A provided your employer furnished you with the figures on your W-2 or separately stated on a statement. You get to claim your tips or the overtime paid at 1 and ½ your normal pay rate. Both of these amounts are limited by your Adjusted Gross Income, so you may not get what you think you are entitled too. The limitation on the overtime is higher than in other places, so even if you make into six figures, you still might get a deduction.
Is Social Security really not taxable?
Sort of, is the actual answer. If you are over 65, you get a $6,000 deduction perspouse, also found on the Schedule 1A, as above. This deduction is available even if you aren’t yet receiving social security, so it’s like an extra standard deduction for older people. However, like the overtime and tips deduction, it gets fazed out if you make too much money. Thus, for a married couple, both over 65 who make $200,000, the deduction is completely gone.
I heard the itemized deduction for taxes is now limited to $40,000; is that true?
When the 2017 tax changes were put adopted, itemized deductions effectively applied only 50% of the time. The new $40,000 limit on tax deductions makes it much more likely that people will be able to itemize as real estate taxes can be used with state withholding to claim a much bigger amount, especially if you own multiple properties. In the past, if a person paid their state $7,500 in income tax and $11,000 in real estate taxes, they would have received an itemized tax deduction of only $10,000. Now, under the new bill, taxpayer’s can once again claim $18,500 in taxes. Couple that with the increased rates taxpayer’s are paying on new mortgages and it will be much more likely to see taxpayer’s itemizing.
I had a lot of medical bills this year. Can I use them to itemize my medical?
You may be able to, but it depends (this seems to be true of nearly any tax question that is asked as there are all types of qualifiers to deductions). Generally, medical expenses have to exceed 7.5% of your Adjusted Gross Income (everything you make). So, if your AGI is $100,000, your medical expenses have to be $7,501 before you get even $1 of deduction. Then the medical and your other available deductions, like taxes and mortgage interest, have to exceed your standard deduction, which varies depending upon your filing status and age. Like we said, it depends.
NOTE: If you do think you have a medical deduction (i.e., you spent $35,000 on teeth implants or had major surgery only partially covered by insurance) don’t bring in stacks of bills. Since only what you pay is includable, copy your checkbook or make a listing of all the payments you actually made. Since interpreting your bills is quite timely, your tax preparation cost will increase considerably if we have to determine how much you actually paid.
I never got my refund from the previous years. Is there anything I can do?
Your refund was probably delayed for some exception and, because of Covid, there are still only a few agents that are working those exceptions. Many people working for the IRS were close to retirement and Covid caused many to retire prematurely. This has drained their talent pool and the agents that are left are overworked or they’re new and aren’t up to speed. The result is slow performance and problem resolution. You may be able to find out from their website, irs.gov, if they got your return and processed your refund but where it is, is an unknown. You will need to wait.
What are the new energy credits that I hear are available?
There are many new energy credits still available if you made improvements to your home or you purchased an electric vehicle this year. Since there are a number of qualifications that need to be met in order to comply, it is best to bring in the receipts for your expenditures and allow us to determine if anything qualifies for a credit. The electric vehicle credit can be up to $7,500 if acquired before October 2025, and installation of solar panels on your home can be as much as 30% of the cost. Also, you may be able to claim energy credits on a second home, if you made expenditures there.
My retirement account has taken a beating this year. Is there anything I can do in that situation?
If your investments in your retirement account have lost a lot of value, you might consider converting all or part of the account to a Roth, especially if the rest of your income is lower this year. The Roth conversion is a taxable event, but it’s based on the value of the assets, so if the assets are worth less, the tax you would pay is less and if the value of those assets gets restored or increases you don’t have to pay tax on that increase. Any asset in a Roth account is tax-free if it increases in value, thus, with proper planning, you benefit even though your account has initially gone down in value.
Learn more about Kingdom and our tax offers this year. Contact us to set up appointment.
