Article Highlights:​

• Why File Taxes Early?

• New IRS Rules on Tax Refunds

• Increased Standard Deductions for 2025

• State and Local Income Tax (SALT) - Expanded IRS Deduction

• Bonus Personal Exemption of $6,000 for Seniors

• Tax Relief on Tips

• Tax Relief for Overtime Pay

• Tax Deduction for Vehicle Loan Interest for New US-Built Cars

• Retirement & Savings Contributions

• Tax Penalties for Underpayment

• And Much More

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As tax season approaches, it's important to stay informed about changes and key considerations for filing 2025 taxes. Below are some essential updates and reminders to help taxpayers maximize deductions, avoid penalties, and comply with IRS regulations.

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Why File Taxes Early?

• Quicker Refunds: The sooner taxes are filed, the sooner refunds are processed and received.

• Reduced Identity Theft Risk: Filing early minimizes the risk of fraudulent tax returns being filed in your name.

• More Time to Find Deductions: Early filing allows time to identify additional deductions and tax-saving opportunities.

• Error Correction: Provides ample time to fix mistakes or adjust filings before the deadline.

• More Time to Pay Taxes Owed: If a balance is due, early filing allows more time to plan and pay without penalties.

 

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New IRS Rules on Tax Refunds

Beginning with year 2025 tax returns, all tax refunds must be directly deposited into taxpayers checking or savings accounts. The IRS will no longer be issuing any tax refund checks to be sent out by mail.

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Increased Standard Deductions for 2025

Effective tax year 2025, the standard deductions are increased to the following amounts:

• MFJ, QSS: $31,500

• Single: $15,750

• HOH: $23,625

• MFS: $15,750

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State and Local Income Tax (SALT) - Expanded IRS Deduction

Of great benefit for clients who itemize their deductions, effective tax year 2025, the IRS deduction limit for state and local taxes has increased from the previous limit of $10,000 to the following amounts:

1) $40,000 for tax year 2025

2) $40,400 for tax year 2026

3) $40,804 for tax year 2027

4) $41,212 for tax year 2028

5) $41,624 for tax year 2029

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Bonus Personal Exemption of $6,000 for Seniors

For tax years 2025 through 2028, a deduction of $6,000 is granted for each qualified senior individual. A qualified individual is:

1) A taxpayer who has attained age 65 before the close of the tax year, and

2) In the case of a joint return, the taxpayer's spouse, if the spouse has attained age 65 before the close of the tax year. The $6,000 amount is reduced by 6% of the taxpayer's modified adjusted gross income (MAGI) that exceeds $75,000 ($150,000 MFJ).

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​Tax Relief on Tips

Effective for tax years 2025 through 2028, a deduction is allowed equal to the qualified tips received during the tax year that are included on statements furnished to the taxpayer by the employer (or payee if the recipient is not an employee) or reported by the taxpayer on Form 4137. The amount allowed as a deduction for any tax year is limited to $25,000. Taxpayers do not have to itemize to claim the deduction.

 

The deduction begins to phase-out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 MFJ). If the taxpayer is self-employed, the deduction is limited to the net profit from the taxpayer's trade or business that received the tips. Qualified tips means cash tips (including credit card transactions) received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024.

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Tax Relief for Overtime Pay

Effective for tax years 2025 through 2028, a deduction is allowed equal to the qualified overtime compensation received during the year that is included on statements furnished to the taxpayer by the employer. The amount allowed as a deduction for any tax year is limited to $12,500 ($25,000 MFJ). Taxpayers do not have to itemize to claim the deduction.

 

The deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 MFJ). Qualified overtime compensation means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate at which the individual is employed. Employers must separately account for the amount of qualified overtime compensation paid to the employee.

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Tax Deduction for Vehicle Loan Interest for New US-Built Cars

Effective tax years 2025 through 2028, a deduction is allowed for qualified passenger vehicle loan interest. The term qualified passenger vehicle loan interest means any interest which is paid or accrued during the tax year on car loans originating after December 31, 2024 for the purchase of a passenger vehicle for personal use. The deduction for any tax year is limited to $10,000.

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Taxpayers do not have to itemize to claim the deduction. The deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $100,000 ($200,000 MFJ).

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An applicable passenger vehicle means:

1. A new vehicle that is originally used by the taxpayer (a used vehicle does not qualify).

2. A vehicle which is manufactured primarily for use on public streets, roads, and highways.

3. A vehicle that has at least 2 wheels.

4. A vehicle that is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle.

5. A vehicle which is treated as a motor vehicle for purposes of title Il of the Clean Air Act.

6. A vehicle which has a gross vehicle weight rating of less than 14,000 pounds.

An applicable passenger vehicle is a vehicle with final assembly in the United States.

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Retirement & Savings Contributions 

IRA Contributions - The tax-deductible contribution limit for the 2025 tax year is $7,000. Those aged 50 and older can contribute up to $8,000. Contributions for 2025 can be made until April 15, 2026.

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HSA Contributions - Individuals with self-only coverage can contribute $4,300. Those with family coverage can contribute $8,550. Individuals aged 55 and older can contribute an additional $1,000. If both spouses with family coverage are age 55+ (and not enrolled in Medicare), each may contribute the catch-up amount.

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Tax Penalties for Underpayment 

More taxpayers are incurring penalties for underpayment of estimated taxes. There was an increase of 15% more taxpayers being hit with penalties, totaling 14 million taxpayers last year, according to the IRS. The underpayment penalty rate is currently set at 7% and is assessed quarterly. Setting correct estimated tax payments and/or adjusting withholdings can help avoid these common penalties.

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If you have questions related to any of the topics discussed in this article, please call the tax professionals at ProTax Service in Los Angeles at (310) 869-0038. We specialize in filing taxes for self-employed individuals, families, and small business tax preparation in Culver City, Playa del Rey, Westchester, Mar Vista, Santa Monica, and Marina del Rey.