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For those of us who just popped 2023 tax returns into the mail (or hit send) this month, it feels like the last tax season just ended. But believe it or not, the IRS is already gearing up for the next tax season–and the next tax year.
The IRS has just announced the annual inflation adjustments for 2025, including tax rate schedules, tax tables and cost-of-living adjustments. These are the official numbers for 2025—that tax year begins January 1, 2025. These are not the numbers that you’ll use to prepare your 2024 tax returns in 2025 (you’ll find those official 2024 tax numbers here). You’ll use these just announced numbers to prepare your 2025 tax returns in 2026.
When inflation is elevated, you’ll see big shifts in tax brackets and items like standard deductions. Currently, inflation is modest, so the adjustments from 2024 to 2025 are much less significant than those we saw in 2024 (from 2023).
For example, the standard deduction amounts will increase to $15,000 for individuals and married couples filing separately, representing an increase of $400 from 2024 (that compares to a whopping $750 increase from 2023 to 2024). Married couples filing jointly will see a deduction of $30,000, a boost of $800 from 2024 (the increase was $1,500 in the prior year), while heads of household will see a jump to $22,500, an increase of $600 from 2024 (compared to an increase $1,100 in the previous year).
You can use the 2025 numbers to start planning for next year. If you plan to make more (or less) money or change your circumstances—including getting married, starting a business or having a baby—consider adjusting your withholding or tweaking your estimated tax payments.
This is also a good time to consider making sure that you’re ready for the next tax season. For
tax professionals, it’s an excellent time to renew your Preparer Tax Identification Number (PTIN). (☆) Any tax professional who prepares or helps prepare any federal tax return or claim for a refund and receives compensation must have a valid PTIN from the IRS.
The IRS provides a searchable directory to help taxpayers find qualified preparers. The directory does not include all preparers–it only lists those with a PTIN who hold a professional credential or have obtained an Annual Filing Season Program Record of Completion from the IRS.
Taxpayers are also encouraged to sign up for an identity protection personal identification number (IP PIN)—it’s free and easy. An IP PIN is a six-digit number that prevents someone else from filing a federal tax return using your SSN or ITIN. The IP PIN confirms your identity when you electronically file your tax return, making it much more difficult for thieves to use your information.
While the IRS encourages all taxpayers to sign up, you should definitely consider doing so if you’ve received a Notice 5071C. (☆) The IRS sends out Notice 5071C when they have received a federal income tax return (that’s your Form 1040) filed using your Social Security number (SSN) or individual tax identification number (ITIN) and have concerns about who might have filed it. Before the IRS will process the tax return, they need you to verify your identity.
If you get one of these letters in the mail, don’t panic. It doesn’t necessarily mean that something is wrong. I received one earlier this year, and the IRS just needed me to confirm that we had filed the return. Verification typically only takes a few minutes to do online—but take a lesson I learned the hard way and pay careful attention to the questions.
Expect a lot more announcements focused on tax returns and preparation in the coming weeks. Tax season will be here before you know it.
Enjoy your weekend,
Kelly Phillips Erb (Senior Writer, Tax)
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Taxes From A To Z: V Is For Volunteer Income Tax Assistance
The Volunteer Income Tax Assistance (VITA) program offers free in-person help for eligible taxpayers. VITA is offered at sites across the country and typically focuses on tax assistance for low- and moderate-income taxpayers and the elderly. To qualify, generally, you must make $67,000 or less, or fit one of the other criteria: persons with disabilities, the elderly, and individuals with limited English proficiency who need assistance preparing their taxes.
The related Tax Counseling for the Elderly (TCE) program offers free tax help for taxpayers who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors.
Centers are staffed with volunteers. While VITA volunteers are trained in many areas, they will not prepare all returns and schedules. Specifically, VITA volunteers will generally not prepare complex Schedules C (business schedule) or D (capital gains and losses), as well as certain information schedules and forms. Importantly, for this year, VITA volunteers will not prepare returns with casualty/disaster losses. If your tax return is complicated, or if you need special assistance, you should make an appointment with a professional tax preparer.
To find the nearest VITA or TCE site near you, use the VITA and TCE locator tool available on IRS.gov or call 800.906.9887. Some VITA/TCE sites require an appointment, so check before you head out. Notably, many TCE sites are operated by the AARP Foundation’s Tax Aide program, and sites are not available year-round. To locate the nearest AARP TCE Tax-Aide site between January and April, use the AARP Site Locator Tool or call 888.227.7669.
At your appointment, you’ll need proof of ID and your tax information. For more on what to bring, check out the IRS VITA information here.
Questions
This week, a taxpayer asks:
I was hired as an independent contractor, yet never filled out any paperwork prior to starting work. The employer then proceeded to rip me off for more than $1,200. Am I required to fill out a Form W-9 before receiving the rest of my owed payment in full? Can I be held liable for the 24% withholding rate?
I was told that I would be committing fraud if I signed the document knowing that I was never paid in full. And yes, I was paid over $600 in the time working with them.
I field many of these kinds of questions—and they’re often emotionally charged. So let me start by saying this: Employment law and tax law are two very different things. An employer can be terrible, but that doesn’t relieve you of reporting requirements.
In an ideal world, you would have completed the paperwork before starting your job. Since that didn’t happen, your employer is asking you to do it now. From a tax perspective, the right thing to do is to fill out the paperwork, especially considering you were paid more than $600 (the reportable threshold for Form 1099).
When you fill out Form W-9, you’re not agreeing to a specific pay rate. You’re verifying your tax ID number for tax purposes. And that request isn’t optional—it’s mandatory. It says so right on Form W-9:
“An individual or entity (Form W-9 requester) who is required to file an information return with the IRS is giving you this form because they must obtain your correct taxpayer identification number (TIN)…to report on an information return the amount paid to you, or other amount reportable on an information return.” (emphasis added)
If you fail to complete the form, as you noted, you can be subject to backup withholding. For 2024, that rate is 24%. You may also be subject to a $50 fine—steeper penalties may apply for willful conduct.
At tax time, your employer will issue Form 1099 reporting amounts paid to you. That’s true even if you didn’t complete Form W-9 (failure to provide your tax ID number will be noted on Form 1099). If you don’t agree with the amount reported, you can adjust it on your return (consider these options)—make sure to keep excellent records.
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Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
Statistics
A permanent resident card–often referred to as a green card–indicates that a person has been granted the right to live in the U.S. Importantly, under U.S. immigration law, the assumption is that a green card holder will live in the country permanently. If you’re outside the U.S. for an extended period, you may risk losing your green card status, resulting in problems when you try to reenter at the U.S. border.
In the U.S., tax and immigration systems can be very different. It is possible to have lost the right to live in the U.S. under the immigration laws, but still be subject to U.S. taxation under the tax laws.
If you surrender your green card (whether or not at the border) it’s considered an “expatriation” for tax purposes–basically that means you’ll be treated the same as a U.S. citizen who gives up citizenship. Very significant U.S. tax consequences result if the individual is a “covered expatriate” who is presumed to have given up U.S. status for a tax avoidance motive. If you’re a green card holder, it’s important to understand the tax rules in addition to the immigration rules–and have a good professional to help advise you.
Taxpayers who may spend time out of the country–including green card holders—may also be entitled to certain tax breaks. One of those is the ability to exclude from taxable income certain amounts provided by an employer for foreign housing. The amount you can exclude is calculated based on a formula tied to the current year’s foreign earned income exclusion amount. For 2024, the foreign earned income exclusion amount is $126,500 (the foreign earned income exclusion amount will be $130,000 in 2025).
A Deeper Dive
With the U.S. presidential election just around the corner, many taxpayers have questions about both candidates’ tax plans. Former President Donald Trump and Vice President Kamala Harris have outlined several proposals during their campaigns–Tax Notes White House reporter Alexander Rifaat discusses what those look like on a recent podcast (transcript available).
Key to Trump’s proposal is a blanket tariff of up to 20% on all imports. Rifaat notes that the proposal is fluid–Trump has said 10%, 20%, and, in recent days, as high as 1,000%. So, Rifaat says he’s just really looking at doing a blanket tariff on all imports and raising tariffs that are currently in place for China.
Harris has suggested that those tariffs would essentially be a national sales tax, and that would affect middle-income Americans, citing a report by the Center for American Progress, which estimates that the proposal by Trump would cost American families approximately $4,000 per year. (You can read more about tariffs here.)
Harris plans to stick with Biden’s pledge to expand the child tax credit and is calling for a $6,000 child tax credit for newborns. Harris has also come out in favor of providing a number of incentives for start-ups, including raising the start-up deduction to $50,000.
Both candidates support extending expiring Tax Cuts and Jobs Act provisions to some degree. Harris would extend cuts for those earning less than $400,000 a year, while Trump has called for the full extension of the TCJA provisions with a few tweaks (including increasing the cap on the state and local tax deduction and restoring full deductibility for research and development expensing).
Harris has also proposed increasing the top federal income tax rate on long-term capital gains to 28% for taxpayers making more than $400,000 a year. Some taxpayers wonder whether they should recognize long-term capital gains now to avoid the possible increase next year. Tax advisors are suggesting the answer is no.
Tax Filings And Deadlines
📅 February 3, 2025. Due date for individuals and businesses affected by Hurricanes Beryl and Debby (more info here (☆) and here (☆)), those in South Dakota affected by severe storms, straight-line winds and flooding that began on June 16, 2024, taxpayers in Puerto Rico affected by Tropical Storm Ernesto, and those individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024.
📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.
📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
Tax Conferences And Events
📅 November 5-8, 2024. NATP Tax Con. Virtual, CPE available. Registration required. (If you tune in, I’m speaking on November 8, 2024.)
📅 November 11-13, 2024. AICPA-CIMA 2024 Women’s Global Leadership Summit, Hyatt Regency Bellevue, Bellevue, WA. Virtual. Registration required.
📅 November 18, 2024, 1 p.m. to 2:30 p.m. ET. IRS webinar to help large business taxpayers understand the Compliance Assurance Process (CAP, which helps large corporate taxpayers improve federal tax compliance through real-time issue resolution tools). Free. Registration required, space is limited to the first 1,000 registrants.
📅 December 12-14, 2024. ABA Section of Tax, 2024 Criminal Tax Fraud and Tax Controversy Conference, Las Vegas, NV. CLE available. Registration required. (Maybe I’ll see you there?)
📅 December 16-17, 2024. NYU 43rd Institute on State and Local Taxation, Westin New York at Times Square, New York, NY. CLE and CPE available. Registration required, virtual option available.
Trivia
In 2025, there are seven individual ordinary income tax rates (10%, 12%, 22%, 24%, 32%, 35% and 37%). How many individual income tax rates appeared on the first income tax return under the modern U.S. system?
(A) One
(B) Three
(C) Five
(D) Seven
Find the answer at the bottom of this newsletter.Find the answer at the bottom of this newsletter.
Positions And Guidance
The IRS issued final regulations to provide guidance for the Advanced Manufacturing Production Credit established by the Inflation Reduction Act of 2022 (IRA).
The IRS issued Revenue Procedure 2024-31 and proposed regulations to provide guidance for the Energy Efficient Home Improvement Credit.
PwC recently submitted a letter to the Financial Accounting Standards Board indicating that it generally supports the proposed Accounting Standards Update (ASU) on derivative scope and share-based payments from customers but suggests clarifications to improve operability.
Noteworthy
Ankura Consulting Group announced that Steven Richards and Regina Lee have been named Global Head of Legal Partnerships and Platforms, and Global Leader of Risk, Forensics & Compliance business, respectively. Richards will focus on aligning the firm’s strategic experts and global services platform with AI and technology offerings, while Lee will focus on fraud investigations and bankruptcy-related disputes.
Nixon Peabody has announced the addition of attorney Brian Organ, who joins the firm as a partner in the Project Finance and Public Finance practice. Organ’s practice focuses largely on section 103 tax matters, involving interest on state and local bonds.
The Public Company Accounting Oversight Board (PCAOB) announced a settled disciplinary order sanctioning Yusufali & Associates, LLC and Yusufali Musaji, CPA, owner and partner of the firm, for violations of multiple PCAOB rules and standards in connection with four audits of two issuer clients, and for violations of PCAOB quality control standards. The PCAOB also found that Musaji directly and substantially contributed to the firm’s violations.
Ernst and Young UK reported that distributable profits before tax were £653m (£659m in FY23). That resulted in a decline in average distributable profits per partner of 5% to £723,000 compared to £761,000 in FY23.
The IRS announced the launch of the 2024 Nationwide Tax Forum Online, providing tax professionals access to 18 seminars recorded at this year’s IRS Nationwide Tax Forum.
Forbes is compiling its first-ever list of best-in-state CPAs, and nominations are now open. You can find all the details and submit a nomination here.
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In Case You Missed It
Here’s what readers clicked through most often last week:
You can find the entire newsletter here.
Trivia Answer
The answer is (D) seven.
In 1913, the first year of the modern U.S. tax system, the tax rates were 1%, 2%, 3%, 4%, 5%, 6%, and 7%. You can see a copy of that first tax return in the National Archives.
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