Suppose your adult child or friend needs to borrow money. Maybe it’s to buy a first home or address a cash flow problem. You may want to help by making a personal loan. That’s a nice thought, but there are tax implications that you should understand and take into account.

Get it in writing

You want to be able to prove that you intended for the transaction to be a loan rather than an outright gift. That way, if the loan goes bad, you can claim a non-business bad debt deduction for the year the loan becomes worthless.

For federal income tax purposes, losses from personal loans are classified as short-term capital losses. You can use the losses to first offset short-term capital gains that would otherwise be taxed at high rates. Any remaining net short-term capital losses will offset any net long-term capital gains. After that, any remaining net capital losses can offset up to $3,000 of high-taxed ordinary income ($1,500 if you use married filing separate status).

To pass muster with the IRS, your loan should be evidenced by a written promissory note that includes:

• The interest rate, if any,
• A schedule showing dates and amounts for interest and principal payments, and
• The security or collateral, if any.

Set the interest rate

Applicable federal rates (AFRs) are the minimum short-term, mid-term and long-term rates that you can charge without creating any unwanted tax side effects. AFRs are set by the IRS, and they can potentially change every month.

For a term loan (meaning one with a specified final repayment date), the relevant AFR is the rate in effect for loans of that duration for the month you make the loan. Here are the AFRs for term loans made in April of 2025:

• For a loan with a term of three years or less, the AFR is 4.09%, assuming monthly compounding of interest.
• For a loan with a term of more than three years but not more than nine years, the AFR is 4.13%.
• For a loan with a term of more than nine years, the AFR is 4.52%.

Key point: These are lower than commercial loan rates, and the same AFR applies for the life of the loan.

For example, in April of 2025, you make a $300,000 loan with an eight-year term to your daughter so she can buy her first home. You charge an interest rate of exactly 4.13% with monthly compounding (the AFR for a mid-term loan made in April). This is a good deal for your daughter!

Interest rate and the AFR

The federal income tax results are straightforward if your loan charges an interest rate that equals or exceeds the AFR. You must report the interest income on your Form 1040. If the loan is used to buy a home, your borrower can potentially treat the interest as deductible qualified residence interest if you secure the loan with the home.

What if you make a below-market loan (one that charges an interest rate below the AFR)? The Internal Revenue Code treats you as making an imputed gift to the borrower. This imaginary gift equals the difference between the AFR interest you “should have” charged and the interest you charged, if any. The borrower is then deemed to pay these phantom dollars back to you as imputed interest income. You must report the imputed interest income on your Form 1040. A couple of loopholes can potentially get you out of this imputed interest trap. We can explain the details.

Plan in advance

As you can see, you can help a relative or friend by lending money and still protect yourself in case the personal loan goes bad. Just make sure to have written terms and charge an interest rate at least equal to the AFR. If you charge a lower rate, the tax implications are not so simple. If you have questions or want more information about this issue, contact us.

When it’s time to consider your business’s future, succession planning can protect your legacy and successfully set up the next generation of leaders or owners. Whether you’re ready to retire, you wish to step back your involvement or you want a solid contingency plan should you unexpectedly be unable to run the business, exploring different succession strategies is key. Here are five options to consider, along with some of the tax implications.

1. Transfer directly to family with a sale or gifts

One of the most common approaches to succession is transferring ownership to a family member (or members). This can be done by gifting interests, selling interests or a combination. Parents often pass the business to children, but family succession plans can also involve siblings or other relatives.

Tax implications:

Gift tax considerations. You may trigger the federal gift tax if you gift the business (or part of it) to a family member or if you sell it to him or her for less than its fair market value. The annual gift tax exclusion (currently $19,000 per recipient) can help mitigate or avoid immediate gift tax in small, incremental transfers. Plus, every individual has a lifetime gift tax exemption. So depending on the value of the business and your use of the exemption, you might not owe gift taxes on the transfer. Keep in mind that when gifting partial interests in a closely held business, discounts for lack of marketability or control may be appropriate and help reduce gift taxes.

Estate planning. If the owner dies before transferring the business, there may be estate tax implications. Proper planning can help minimize estate tax liabilities through trusts or other estate planning tools.

Capital gains tax. If you sell the business to family members, you could owe capital gains tax. (See “5. Sell to an outside buyer” for more information.)

2. Transfer ownership through a trust

Suppose you want to keep long-term control of the business within your family. In that case, you might place ownership interests in a trust (such as a grantor-retained annuity trust or another specialized vehicle).

Tax implications:

Estate and gift tax mitigation. Properly structured trusts can help transfer assets to the next generation with minimized gift and estate tax exposure. Trust-based strategies can be particularly effective for business owners with significant assets.

Complex legal framework. Because trusts involve legal documents and strict rules, working with us and an attorney is crucial to ensure compliance and optimize tax benefits.

3. Engage in an employee or management buyout

Another option is to sell to a group of key employees or current managers. This path often ensures business continuity because the new owners already understand the business and its culture.

Tax implications:

Financing arrangements. In many cases, employees or managers may not have the funds to buy the business outright. Often, the seller finances part of the transaction. While this can provide ongoing income for the departing owner, interest on installment payments has tax consequences for both parties.

Deferred payments. Spreading payments over time can soften your overall tax burden by distributing capital gains across multiple years, which might help you avoid being subject to top tax rates or the net investment income tax. But each payment received is still taxed.

4. Establish an Employee Stock Ownership Plan (ESOP)

An ESOP is a qualified retirement plan created primarily to own your company’s stock, and thus it allows employees to own shares in the business. It may be an appealing choice for owners interested in rewarding and retaining staff. However, administering an ESOP involves complex rules.

Tax implications:

Owner benefits. Selling to an ESOP can offer potential tax deferrals, especially if the company is structured as a C corporation and the transaction meets specific requirements.

Corporate deductions. Contributions to an ESOP are usually tax-deductible, which can reduce the company’s taxable income.

5. Sell to an outside buyer

Sometimes, the best fit is outside the family or current employees or management team. You might decide to sell to an external buyer — for example, a competitor or private equity group. If you can find the right buyer, you may even be able to sell the business at a premium.

If your business is structured as a corporation, you may sell the business’s assets or the stock. Sellers generally prefer stock (or ownership interest) sales because they minimize the tax bill from a sale.

Tax implications:

Capital gains tax. Business owners typically pay capital gains tax on the difference between their original investment in the business (their “basis”) and the sale price. The capital gains rate depends in part on how long you’ve held the business. Usually, if you’ve owned it for more than one year, you’re taxed at the applicable long-term capital gains rate.

Allocation of purchase price. If you sell the assets, you and the buyer must decide how to allocate the purchase price among assets (including equipment and intellectual property). This allocation affects tax liabilities for both parties.

Focus on your unique situation

Succession planning isn’t a one-size-fits-all process. Each option has unique benefits and pitfalls, especially regarding taxes. The best approach for you depends on factors including your retirement timeline, personal financial goals and family or employee involvement. Consult with us to ensure you choose a path that preserves your financial well-being and protects the business. We can advise on tax implications and work with you and your attorney to structure the deal advantageously. After all, a clear succession plan can safeguard the company you worked hard to build.

There are some nice tax breaks for transportation-related employee fringe benefits. If your employer offers these tax-favored fringes, you should probably take advantage of them by signing up. Here’s a quick summary of the current federal tax treatment of transportation-related benefits.

Mass transit passes

For 2025, employer-provided mass transit passes for train, subway and bus systems are tax-free to a recipient employee up to a monthly limit of $325. Thanks to an unfavorable change in the 2017 Tax Cuts and Jobs Act (TCJA), your company can’t deduct the cost of this benefit. However, your company may offer a salary-reduction arrangement that allows you to set aside up to $325 per month from your salary to pay for transit passes with your own money. That way, you pay for the passes with before-tax dollars.

For example, let’s say you set aside the maximum $325 per month to pay for train passes. If you’re in the 24% federal income tax bracket, you could save $993 a year in federal income and Medicare taxes. If Social Security tax is being withheld from your paychecks, you could save $1,235.

Parking allowances

For 2025, employer-provided parking allowances are also tax-free up to a monthly limit of $325. You can be given this fringe on top of the tax-free $325 a month for transit passes. For example, you can get $325 per month to pay for the train, plus another $325 to pay the park-and-ride fee at the station. Or you can simply drive to work and get $325 in tax-free bucks to help cover parking near your office or worksite.

Van pooling

For 2025, an employer can provide employees with tax-free transportation of up to $325 per month in a commuter highway vehicle if the transportation is for travel between employee residences and the workplace. This arrangement is often called van pooling.

To be a commuter highway vehicle, the vehicle must meet the following conditions:

1. It has a seating capacity of at least six adults (not including the driver),
2. At least 80% of the mileage is reasonably expected to be for transporting employees between their residences and their workplace, and
3. It’s used for such trips during which the number of employees transported is at least 50% of the adult seating capacity (not including the driver).

Your company cannot deduct the cost of this benefit. But as explained earlier, the company may offer a salary-reduction arrangement that allows you to set aside up to $325 per month to cover van pooling. That way, you pay with before-tax dollars, which will cut your tax bill.

Job-related moving expenses

Your company may give employees allowances to cover job-related relocation expenses. Through 2025, the TCJA generally doesn’t allow tax-free treatment for these allowances. The exception is when the employee is on active duty as a member of the U.S. Armed Forces and the move is pursuant to a military order involving a permanent change of station.

Hopefully, your company still provides this benefit because it can deduct the cost. If so, you come out ahead even though whatever the company pays to cover moving expenses is treated as additional taxable salary. Getting a taxable benefit is better than getting no benefit at all!

Save money, ease stress

If your company pays for these tax-free transportation-related fringe benefits, you should strongly consider signing up. Saving on commuting costs can make your trips to work less stressful. Contact us if you have questions about these benefits or want more information.

If you made significant gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2024 gift tax return. And in some cases, even if it’s not required to file one, you may want to do so anyway.

Requirements to file

The annual gift tax exclusion was $18,000 in 2024 (increased to $19,000 in 2025). Generally, you must file a gift tax return for 2024 if, during the tax year, you made gifts:

• That exceeded the $18,000-per-recipient gift tax annual exclusion for 2024 (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $36,000 annual exclusion for 2024,
• That exceeded the $185,000 annual exclusion in 2024 for gifts to a noncitizen spouse,
• To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($90,000) into 2024,
• Of future interests — such as remainder interests in a trust — regardless of the amounts, or
• Of jointly held or community property.

Important: You’ll owe gift tax only if an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($13.61 million in 2024). As you can see, some transfers require a return even if you don’t owe tax.

Filing if it’s not required

No gift tax return is required if your gifts for 2024 consisted solely of tax-free gifts because they qualify as:

• Annual exclusion gifts,
• Present interest gifts to a U.S. citizen spouse,
• Educational or medical expenses paid directly to a school or health care provider, or
• Political or charitable contributions.

But you should consider filing a gift tax return (even if not required) if you transferred hard-to-value property, such as artwork or interests in a family-owned business. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 15

The gift tax return deadline is the same as the income tax filing deadline. For 2024 returns, it’s April 15, 2025. If you file for an extension, it’s October 15, 2025. But keep in mind that if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension. Contact us if you’re unsure whether you must (or should) file a 2024 gift tax return.

You may wonder if you can claim itemized deductions on your tax return. Perhaps you made charitable contributions and were told in the past they couldn’t be claimed because you didn’t have enough deductions to itemize. How much do you need? You can itemize deductions if the total of your allowable itemized write-offs for the year exceeds your standard deduction allowance for the year. Otherwise, you must claim the standard deduction.

Here’s how we’ll determine if you can itemize or not for 2024 when we prepare your return.

Standard deduction amounts

The basic standard deduction allowances for 2024 are:

• $14,600 if you’re single or use married filing separate status,
• $29,200 if you’re married and file jointly, and
• $21,900 if you’re a head of household.

Additional standard deduction allowances apply if you’re age 65 or older or blind. For 2024, the extra allowances are $1,550 for a married taxpayer age 65 or older or blind and $1,950 for an unmarried taxpayer age 65 or older or blind.

For 2025, the basic standard deduction allowances are $15,000, $30,000 and $22,500, respectively. The additional allowances are $1,600 and $2,000, respectively.

Don’t assume

Suppose you think your total itemizable deductions for 2024 will be close to your standard deduction allowance. In that case, spend some extra time looking at all your expenditures to make sure you’re not missing some itemized deduction items. In other words, don’t reflexively assume you can’t itemize for 2024 just because you didn’t for 2023.

In addition to charitable contributions, consider the following key expenses:

Mortgage interest. Check the 2024 Form 1098 for the exact amount of mortgage interest expense you paid. You can generally deduct interest on up to $750,000 of home acquisition debt that’s secured by your primary residence and one other residence, such as a vacation home. If you use married filing separate status, the limit is $375,000. If you took out a home equity loan and used the proceeds to buy or improve your primary residence or a second residence, that counts as home acquisition debt as long as it doesn’t put you over the $750,000/$375,000 limit.

State and local taxes. Add up the state and local income and property taxes you paid in 2024. If you have a mortgage, property taxes will be shown on the Form 1098 you receive from the lender. The maximum amount you can deduct for all state and local taxes combined is $10,000, or $5,000 if you use married filing separate status.

Instead of deducting state and local income taxes, you can choose to deduct general state and local sales taxes. Making that choice may pay off if you paid nothing or not much for state and local income taxes. You can use one of two methods to quantify your deduction for state and local sales taxes. Assuming you have the necessary records, you can deduct the actual amount of sales taxes you paid in 2024. Alternatively, you can opt to claim a sales tax deduction based on an IRS table. The optional deduction allowance is based on the state where you reside, your filing status, your income and the number of your dependents. If you use the IRS table, you can add actual sales tax amounts for certain big-ticket items to the amount from the table. These items include:

• Cars, trucks, SUVs and vans,
• Boats and aircraft,
• Motorcycles and off-road vehicles,
• Motor homes, mobile homes or prefab homes, and
• Materials to build or renovate a home.

Medical expenses. You can deduct qualified medical expenses you paid for 2024 to the extent they exceed 7.5% of your adjusted gross income. If you paid qualified expenses for a dependent relative, such as an elderly parent you support, include those expenses in your total. To deduct a dependent’s expenses, you must pay them yourself. You can’t count expenses that you simply reimburse your dependent person for. Eligible expenses also include qualified long-term care insurance premiums, subject to age-based limits.

Claim all deductions you’re eligible for

Gather all your records, and we’ll run the numbers when we prepare your tax return. Contact us if you have questions or want more information on this or any other tax subject.

If an individual taxpayer has substantial business losses, unfavorable federal income tax rules can potentially come into play. Here’s what you need to know as you assess your 2024 tax situation.

Disallowance rule

The tax rules can get complicated if your business or rental activity throws off a tax loss — and many do during the early years. First, the passive activity loss (PAL) rules may apply if you aren’t very involved in the business or if it’s a rental activity. The PAL rules generally only allow you to deduct passive losses to the extent you have passive income from other sources. However, you can deduct passive losses that have been disallowed in previous years (called suspended PALs) when you sell the activity or property that produced the suspended losses.

If you successfully clear the hurdles imposed by the PAL rules, you face another hurdle: You can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards explained below.

Deducting NOLs

You generally can’t use an NOL carryover, including one from an excess business loss, to shelter more than 80% of your taxable income in the carryover year. Also, NOLs generally can’t be carried back to an earlier tax year. They can only be carried forward and can be carried forward indefinitely. The requirement that an excess business loss must be carried forward as an NOL forces you to wait at least one year to get any tax-saving benefit from it.

Example 1: Taxpayer has a partial deductible business loss

David is unmarried. In 2024, he has an allowable loss of $400,000 from his start-up AI venture that he operates as a sole proprietorship.

Although David has no other income or losses from business activities, he has $500,000 of income from other sources (salary, interest, dividends, capital gains and so forth).

David has an excess business loss for the year of $95,000 (the excess of his $400,000 AI venture loss over the $305,000 excess business loss disallowance threshold for 2024 for an unmarried taxpayer). David can deduct the first $305,000 of his loss against his income from other sources. The $95,000 excess business loss is carried forward to his 2025 tax year and treated as part of an NOL carryover to that year.

Variation: If David’s 2024 business loss is $305,000 or less, he can deduct the entire loss against his income from other sources because he doesn’t have an excess business loss.

Example 2: Taxpayers aren’t affected by the disallowance rule

Nora and Ned are married and file tax returns jointly. In 2024, Nora has an allowable loss of $350,000 from rental real estate properties (after considering the PAL rules).

Ned runs a small business that’s still in the early phase of operations. He runs the business as a single-member LLC that’s treated as a sole proprietorship for tax purposes. For 2024, the business incurs a $150,000 tax loss.

Nora and Ned have no income or losses from other business or rental activities, but they have $600,000 of income from other sources.

They don’t have an excess business loss because their combined losses are $500,000. That amount is below the $610,000 excess business loss disallowance threshold for 2024 for married joint filers. So, they’re unaffected by the disallowance rule. They can use their $500,000 business loss to shelter income from other sources.

Partnerships, LLCs and S corporations

The excess business loss disallowance rule is applied at the owner level for business losses from partnerships, S corporations and LLCs treated as partnerships for tax purposes. Each owner’s allocable share of business income, gain, deduction, or loss from these pass-through entities is taken into account on the owner’s Form 1040 for the tax year that includes the end of the entity’s tax year.

The best way forward

As you can see, business losses can be complex. Contact us if you have questions or want more information about the best strategies for your situation.

The Child Tax Credit (CTC) has long been a valuable tax break for families with qualifying children. Whether you’re new to claiming the credit or you’ve benefited from it for years, it’s crucial to stay current on its rules and potential changes. As we approach the expiration of certain provisions within the Tax Cuts and Jobs Act (TCJA) at the end of 2025, here’s what you need to know about the CTC for 2024, 2025 and beyond.

Current state of the credit

Under the TCJA, which took effect in 2018, the CTC was increased from its previous level of $1,000 to $2,000 per qualifying child. The TCJA also made more taxpayers eligible for the credit by raising the income threshold at which the credit begins to phase out.

For both 2024 and 2025, the CTC is $2,000 per child under age 17. Phaseout thresholds in 2024 and 2025 will continue at the levels established by the TCJA:

• $200,000 for single filers, and
• $400,000 for married couples filing jointly.

Refundable portion

The refundable portion of the credit for 2024 and 2025 is a maximum $1,700 per qualifying child. With a refundable tax credit, you can receive a tax refund even if you don’t owe any tax for the year.

Credit for other dependents

A nonrefundable credit of up to $500 is available for dependents other than those who qualify for the CTC. But certain tax tests for dependency must be met. The credit can be claimed for:

• Dependents of any age,
• Dependent parents or other qualifying relatives supported by you, and
• Dependents living with you who aren’t related.

What’s scheduled after 2025?

If Congress doesn’t act to extend or revise the current provisions of the TCJA, the CTC will revert to the pre-TCJA rules in 2026. That means:

• The maximum credit will drop down to $1,000 per qualifying child.
• The phaseout thresholds will drop to around $75,000 for single filers and $110,000 for married couples filing jointly (inflation indexing could alter these figures).

In other words, many taxpayers will see their CTC cut in half if the current law sunsets in 2026. Consequently, families could experience a larger federal tax liability starting in 2026 if no new law is enacted.

Proposals in Washington

When it comes to the future of the CTC, there have been various proposals in Washington. During the campaign, Vice President J.D. Vance signaled support for expanding the CTC. While specifics remain unclear, there have also been indications that President Trump favors extending the current $2,000 credit beyond 2025 or even increasing it.

Many Congressional Republicans have voiced support for maintaining the credit at the $2,000 level or making it permanent. However, in a 50-page menu of options prepared by Republicans on the House Budget Committee, there’s a proposal that would require parents and children to have Social Security numbers (SSNs) to claim the CTC. (Currently, only a child needs a valid number.) That would make fewer families eligible for the credit.

Because these proposals haven’t yet been enacted (and may not be), taxpayers should keep an eye on legislative developments.

Claiming the CTC

To claim the CTC, you must include the child’s SSN on your return. The number must have been issued before the due date for filing the return, including extensions. If a qualifying child doesn’t have an SSN, you may currently claim the $500 credit for other dependents for that child.

To claim the $500 credit for other dependents, you’ll need to provide a taxpayer identification number for each non-CTC-qualifying child or dependent, but it can be an Individual Taxpayer Identification Number, Adoption Taxpayer Identification Number or SSN.

Stay tuned

The CTC remains a critical resource for millions of families. For the 2024 and 2025 tax years, you can still benefit from up to $2,000 per qualifying child. The future of the credit after that is uncertain. As always, you can count on us to keep you informed of any changes. Contact us with any questions about your situation.

Retirement is often viewed as an opportunity to travel, spend time with family or simply enjoy the fruits of a long career. Yet the transition may bring a tangle of tax considerations. Planning carefully can help you minimize tax bills. Below are four steps to take if you’re approaching retirement, along with the tax implications.

1. Consider your post-career lifestyle

Begin by assessing what retirement might look like for you. For example, will you relocate to a different state or downsize by selling your home? Will you continue to work part-time?

Tax implications: Moving to a state with lower income or property taxes may stretch your retirement savings. If you sell your home and the capital gain exceeds $250,000 ($500,000 for married couples filing jointly), you’ll need to pay tax on the amount over the exclusion limit. And if you work part-time, your earnings could reduce your Social Security benefits (depending on your age) or push you into a higher tax bracket.

2. Assess your income sources

Social Security is a major income component for many retirees, and deciding when to start collecting benefits is crucial. The government will permanently reduce your monthly benefit if you begin collecting before your full retirement age. Conversely, if you delay benefits past your full retirement age (up to age 70), you’ll receive larger monthly payments.

Tax implications: Depending on your total income (including wages, retirement distributions and taxable investment income), up to 85% of your Social Security benefits could be taxable. Proper planning can help you manage taxable income and potentially reduce or avoid higher taxes on benefits.

If you’re fortunate enough to have a pension, find out your payout options. Some pensions offer lump-sum distributions, while others offer monthly annuity payments.

Tax implications: Most pension income is taxable at ordinary income tax rates.

In addition to retirement accounts, you may have savings and investments in brokerage accounts that can supplement your income.

Tax implications: Capital gains and dividends may be taxed differently than ordinary income, potentially at lower rates. Strategic withdrawals from taxable accounts and retirement accounts can help you manage your overall tax liability.

3. Develop a retirement account withdrawal strategy

Once you turn 73, you must take required minimum distributions (RMDs) from most tax-deferred retirement accounts such as traditional IRAs and 401(k)s. Failing to do so can result in hefty penalties.

Tax implications: RMDs are treated as ordinary income for tax purposes. If you don’t need them for living expenses, you might consider a qualified charitable distribution (QCD) to lower your taxable income. With a QCD, funds go directly from your retirement account to a qualified charity. They can count toward your RMD but aren’t included in your taxable income.

Distributions from Roth IRAs and Roth 401(k)s are generally tax-free (if holding-period requirements are met), making them valuable tools for reducing taxes in retirement. If you have traditional and Roth accounts, you might choose to take withdrawals from Roth accounts in years when you want to manage your tax bracket more carefully.

Tax implications: Roth accounts don’t require RMDs during the original owner’s lifetime.

4. Plan for health care expenses

Medical costs can significantly impact retirees. Medicare premiums, hospital visits, prescriptions and potential long-term care are just some of the expenses that can eat into your retirement savings without careful planning.

Tax implications: Health Savings Accounts (HSAs) allow for tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. If you’re retiring soon and have a high-deductible health plan, maximizing HSA contributions can be a smart move. In addition, qualified medical expenses can sometimes be deducted if they exceed a certain percentage of your adjusted gross income (AGI).

Final thoughts

Retirement can span decades, and tax laws frequently change. By combining various withdrawal strategies and staying proactive about tax changes, you can tame the tax tangle. These are only some of the tax issues and implications. Contact us. We can help forecast tax outcomes under different scenarios and advise on strategies that complement your retirement goals.

Chances are, you’re more concerned about your 2024 tax return right now than you are about your 2025 tax situation. That’s understandable because your 2024 individual tax return is due to be filed by April 15 (unless you file for an extension).

However, it’s a good time to familiarize yourself with tax amounts that may have changed for 2025 due to inflation. Not all tax figures are adjusted annually for inflation, and some amounts only change when Congress passes new laws.

In addition, there may be tax changes due to what’s happening in Washington. With Republicans in control of both the White House and Congress, we expect major tax law changes in the coming months. With that in mind, here are some Q&As about 2025 tax limits.

I haven’t been able to itemize deductions on my last few tax returns. Will I qualify for 2025?

Beginning in 2018, the Tax Cuts and Jobs Act eliminated the ability to itemize deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2025, the standard deduction amount is $30,000 for married couples filing jointly (up from $29,200 in 2024). For single filers, the amount is $15,000 (up from $14,600 in 2024) and for heads of households, it’s $22,500 (up from $21,900 in 2024). If the total amount of your itemized deductions (including mortgage interest) is less than the applicable standard deduction amount, you won’t itemize for 2025.

If I don’t itemize deductions, can I claim charitable deductions on my 2025 return?

Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations.

How much can I contribute to an IRA for 2025?

If you’re eligible, you can contribute up to $7,000 a year to a traditional or Roth IRA. If you earn less than $7,000 during the year, you can contribute up to 100% of your earned income. (This is unchanged from 2024.) If you’re 50 or older, you can make an additional $1,000 “catch up” contribution (for 2024 and 2025).

I have a 401(k) plan with my employer. How much can I contribute to it?

In 2025, you can contribute up to $23,500 to a 401(k) or 403(b) plan (up from $23,000 in 2024). You can make an additional $7,500 catch-up contribution if you’re age 50 or older (for 2024 and 2025). However, there’s something new this year for 401(k) and 403(b) participants of certain ages. Beginning in 2025, those who are age 60, 61, 62 or 63 can make catch-up contributions of up to $11,250.

I occasionally hire a cleaning person. Am I required to withhold and pay FICA tax on the amounts I pay him or her?

In 2025, the threshold for when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. who are independent contractors is $2,800 (up from $2,700 in 2024).

How much of my earnings are taxed for Social Security in 2025?

The Social Security tax “wage base” is $176,100 for this year (up from $168,600 in 2024). That means you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts you earn.)

How much can I give to one person without triggering a gift tax return in 2025?

The annual gift tax exclusion for 2025 is $19,000 (up from $18,000 in 2024).

How will the changes in Washington affect taxes this year and in the future?

We obviously can’t predict the future with certainty. The specifics of any new tax legislation depend on various political and economic factors. However, there are likely to be many changes in the next few years. President Trump and Republicans have signaled that they’d like to extend and possibly make permanent the provisions in the Tax Cuts and Jobs Act that expire after 2025. They’ve also discussed raising or eliminating the cap on the state and local tax deduction. Other proposals include expanding the Child Tax Credit and making certain types of income (tips, overtime and Social Security benefits) tax-free. Some of these tax breaks could become effective for the 2025 tax year.

Changes ahead

These are only some of the tax amounts and potential changes that may apply to you. Contact us if you have questions or need more information.

The nationwide price of gas is slightly higher than it was a year ago and the 2025 optional standard mileage rate used to calculate the deductible cost of operating an automobile for business has also gone up. The IRS recently announced that the 2025 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 70 cents. In 2024, the business cents-per-mile rate was 67 cents per mile. This rate applies to gasoline and diesel-powered vehicles as well as electric and hybrid-electric vehicles.

The process of calculating rates

The 3-cent increase from the 2024 rate goes along with the recent price of gas. On January 17, 2025, the national average price of a gallon of regular gas was $3.11, compared with $3.08 a year earlier, according to AAA Fuel Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.

Standard rate or real expenses

Businesses can generally deduct the actual expenses attributable to business use of a vehicle. These include gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

When you can’t use the standard rate

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2025 — or claiming 2024 expenses on your 2024 income tax return.