The IRS has encouraged taxpayers to register for an Identity Protection Personal Identification Number (IP PIN) to strengthen their defenses against tax-related identity theft. With the 2025 tax sea...
The IRS has made significant progress on Employee Retention Credit (ERC) claims, with processing underway on about 400,000 claims, worth approximately $10 billion. The IRS is separating eligible claim...
The IRS has issued a warning to taxpayers to be cautious of unscrupulous promoters claiming to offer help in resolving unpaid taxes through the IRS Offer in Compromise (OIC) program. These fraudulent ...
The IRS Independent Office of Appeals (Appeals) today launched a pilot program as part of the IRS’ ongoing transformation efforts to expand online tools and improve user experiences. From September ...
The IRS has offered some tips to taxpayers about scammers using fake charities to exploit unsuspecting donors in the aftermath of Hurricanes Milton and Helene. Donors can use the Tax-Exempt Organizat...
The IRS has provided a safe harbor under Code Sec. 213(d) for amounts paid for condoms. Because amounts paid for condoms are treated as expenses for medical care, these amounts are deductible if the...
The Idaho State Tax Commission has issued a release announcing that veterans with disabilities are eligible to have their property tax bill reduced by as much as $1,500 on their Idaho residence and up...
The Washington Department of Revenue has issued interim guidance explaining how it will determine if an investment project qualifies for the sales and use tax deferral for underutilized commercial pro...
The IRS has released the annual inflation adjustments for 2025 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
The IRS has released the annual inflation adjustments for 2025 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
2025 Income Tax Brackets
For 2025, the highest income tax bracket of 37 percent applies when taxable income hits:
- $751,600 for married individuals filing jointly and surviving spouses,
- $626,350 for single individuals and heads of households,
- $375,800 for married individuals filing separately, and
- $15,650 for estates and trusts.
2025 Standard Deduction
The standard deduction for 2025 is:
- $30,000 for married individuals filing jointly and surviving spouses,
- $22,500 for heads of households, and
- $15,000 for single individuals and married individuals filing separately.
The standard deduction for a dependent is limited to the greater of:
- $1,350 or
- the sum of $450, plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
- $1,600 for married taxpayers and surviving spouses, or
- $2,000 for other taxpayers.
Alternative Minimum Tax (AMT) Exemption for 2025
The AMT exemption for 2025 is:
- $137,000 for married individuals filing jointly and surviving spouses,
- $88,100 for single individuals and heads of households,
- $68,500 for married individuals filing separately, and
- $30,700 for estates and trusts.
The exemption amounts phase out in 2025 when AMTI exceeds:
- $1,252,700 for married individuals filing jointly and surviving spouses,
- $626,350 for single individuals, heads of households, and married individuals filing separately, and
- $102,500 for estates and trusts.
Expensing Code Sec. 179 Property in 2025
For tax years beginning in 2025, taxpayers can expense up to $1,250,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $3,130,000.
Estate and Gift Tax Adjustments for 2025
The following inflation adjustments apply to federal estate and gift taxes in 2025:
- the gift tax exclusion is $19,000 per donee, or $190,000 for gifts to spouses who are not U.S. citizens;
- the federal estate tax exclusion is $13,990,000; and
- the maximum reduction for real property under the special valuation method is $1,420,000.
2025 Inflation Adjustments for Other Tax Items
The maximum foreign earned income exclusion amount in 2025 is $130,000.
The IRS also provided inflation-adjusted amounts for the:
- adoption credit,
- earned income credit,
- excludable interest on U.S. savings bonds used for education,
- various penalties, and
- many other provisions.
Effective Date of 2025 Adjustments
These inflation adjustments generally apply to tax years beginning in 2025, so they affect most returns that will be filed in 2026. However, some specified figures apply to transactions or events in calendar year 2025.
For 2025, the Social Security wage cap will be $176,100, and social security and Supplemental Security Income (SSI) benefits will increase by 2.5 percent. These changes reflect cost-of-living adjustments to account for inflation.
For 2025, the Social Security wage cap will be $176,100, and social security and Supplemental Security Income (SSI) benefits will increase by 2.5 percent. These changes reflect cost-of-living adjustments to account for inflation.
Wage Cap for Social Security Tax
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:
- a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
- a 1.45 percent Medicare tax, also known as hospital insurance (HI).
For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:
- a 12.4 percent OASDI tax; and
- a 2.9 percent HI tax.
OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.
For 2025, the wage base is $176,100. Thus, OASDI tax applies only to the taxpayer’s first $176,100 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $176,100.
There is no wage cap for HI tax.
Maximum Social Security Tax for 2025
For workers who earn $176,100 or more in 2025:
- an employee will pay a total of $10,918.20 in social security tax ($176,100 x 6.2 percent);
- the employer will pay the same amount; and
- a self-employed worker will pay a total of $21,836.40 in social security tax ($176,100 x 12.4 percent).
Additional Medicare Tax
Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:
- $250,000 for married taxpayers who file a joint return;
- $125,000 for married taxpayers who file separate returns; and
- $200,000 for other taxpayers.
The annual wage cap does not affect the Additional Medicare tax.
Benefit Increase for 2025
Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2025 by 2.5 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.
The IRS announced tax relief for certain individuals and businesses affected by terrorist attacks in the State of Israel throughout 2023 and 2024. The Treasury and IRS may provide additional relief in the future.
The IRS announced tax relief for certain individuals and businesses affected by terrorist attacks in the State of Israel throughout 2023 and 2024. The Treasury and IRS may provide additional relief in the future.
For taxpayers who were affected taxpayers for purposes of Notice 2023-71, I.R.B. 2023-44, 1191, the separate determination of terroristic action and grant of relief set forth in this notice will also postpone taxpayer acts and government acts already postponed by Notice 2023-71 if the taxpayer is eligible for relief under both notices.
Filing and Payment Deadlines Extended
Affected taxpayers will have until September 30, 2025, to file tax returns, make tax payments, and perform certain time-sensitive acts, that are due to be performed on or after September 30, 2024, and before September 30, 2025, including but not limited to:
- Filing any return of income tax, estate tax, gift tax, generation-skipping transfer tax, excise tax (other than firearms tax), harbor maintenance tax, or employment tax;
- Paying any income tax, estate tax, gift tax, generation-skipping transfer tax, excise tax (other than firearms tax), harbor maintenance tax, or employment tax, or any installment of those taxes;
- Making contributions to a qualified retirement plan;
- Filing a petition with the Tax Court;
- Filing a claim for credit or refund of any tax; and
- Bringing suit upon a claim for credit or refund of any tax.
The government is also provided until September 30, 2025, to perform certain time-sensitive acts, that are due to be performed on or after September 30, 2024, and before September 30, 2025, such as assessing any tax.
Taxpayers eligible for relief under Notice 2023-71 who are also eligible for relief under this notice have until September 30, 2025, to perform the time-sensitive acts that were postponed by Notice 2023-71. Taxpayers eligible for relief under Notice 2023-71 who are not also eligible for relief under this notice have until October 7, 2024, to perform the time-sensitive acts postponed by Notice 2023-71.
Government acts that were postponed by Notice 2023-71 until October 7, 2024, are also postponed by this notice until September 30, 2025, for taxpayers that are eligible for relief under Notice 2023-71 and this notice.
The IRS has expanded the list of preventive care benefits permitted to be provided by a high deductible health plan (HDHP) under Code Sec. 223(c)(2)(C) without a deductible, or with a deductible below the applicable minimum deductible for the HDHP, to include oral contraception, breast cancer screening, and continuous glucose monitors for certain patients.
The IRS has expanded the list of preventive care benefits permitted to be provided by a high deductible health plan (HDHP) under Code Sec. 223(c)(2)(C) without a deductible, or with a deductible below the applicable minimum deductible for the HDHP, to include oral contraception, breast cancer screening, and continuous glucose monitors for certain patients.
Contraceptives
A health plan will not fail to qualify as an HDHP under Code Sec. 223(c)(2) merely because it provides benefits for over-the-counter (OTC) oral contraceptives, including emergency contraceptives, and male condoms before taxpayers satisfied the minimum annual deductible for an HDHP under Code Sec. 223(c)(2)(A). The HRSA-Supported Guidelines relating to contraceptives have been updated and no longer contain the "as prescribed" restriction.
Breast Cancer and Diabetes Care
The IRS has also clarified that all types of breast cancer screening for taxpayers (including those other than mammograms) who have not been diagnosed with breast cancer will be treated as preventive care under Code Sec. 223(c)(2)(C). Moreover, continuous glucose monitors for individuals diagnosed with diabetes are also treated as preventive care under Code Sec. 223(c)(2)(C).
Insulin Products Safe Harbor
The new safe harbor for absence of a deductible for certain insulin products under Code Sec. 223(c)(2)(G) will apply without regard to whether the insulin product was prescribed to treat taxpayers diagnosed with diabetes. or prescribed for the purpose of preventing the exacerbation of diabetes or the development of a secondary condition.
Effective Date
This guidance is generally effective for plan years (in the individual market, policy years) that begin on or after December 30, 2022.
Effect on Other Documents
Notice 2004-23 is clarified by noting the safe harbor for absence of a deductible for breast cancer screening.
Notice 2018-12 is superseded with respect to the guidance regarding male condoms.
Notice 2019-45 is clarified and expanded by noting the safe harbor for absence of a deductible for continuous glucose monitors and for certain insulin products pursuant to the Inflation Reduction Act of 2022.
The IRS has released the applicable terminal charge and the Standard Industry Fare Level (SIFL) mileage rate for determining the value of noncommercial flights on employer-provided aircraft in effect for the second half of 2024 for purposes of the taxation of fringe benefits.
The IRS has released the applicable terminal charge and the Standard Industry Fare Level (SIFL) mileage rate for determining the value of noncommercial flights on employer-provided aircraft in effect for the second half of 2024 for purposes of the taxation of fringe benefits. Further, in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) was enacted, directing the Treasury Department to allot up to $25 billion for domestic carriers to cover payroll expenses via grants and promissory notes, known as the Payroll Support Program (PSP). Therefore, the IRS has provided the SIFL Mileage Rate. The value of a flight is determined under the base aircraft valuation formula by multiplying the SIFL cents-per-mile rates applicable for the period during which the flight was taken by the appropriate aircraft multiple provided in Reg. §1.61-21(g)(7) and then adding the applicable terminal charge.
For flights taken during the period from July 1, 2024, through December 31, 2024, the terminal charge is $54.30, and the SIFL rates are: $.2971 per mile for the first 500 miles, $.2265 per mile 501 through 1,500 miles, and $.2178 per mile over 1,500 miles.
The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.
The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.
When Sales of Livestock are Involuntary Conversions
Sales of livestock due to drought are involuntary conversions of property. Taxpayers can postpone gain on involuntary conversions if they buy qualified replacement property during the replacement period. Qualified replacement property must be similar or related in service or use to the converted property.
Usually, the replacement period ends two years after the tax year in which the involuntary conversion occurs. However, a longer replacement period applies in several situations, such as when sales occur in a drought-stricken area.
Livestock Sold Because of Weather
Taxpayers have four years to replace livestock they sold or exchanged solely because of drought, flood, or other weather condition. Three conditions apply.
First, the livestock cannot be raised for slaughter, held for sporting purposes or be poultry.
Second, the taxpayer must have held the converted livestock for:
- draft.
- dairy, or
- breeding purposes.
Third, the weather condition must make the area eligible for federal assistance.
Persistent Drought
The IRS extends the four-year replacement period when a taxpayer sells or exchanges livestock due to persistent drought. The extension continues until the taxpayer’s region experiences a drought-free year.
The first drought-free year is the first 12-month period that:
- ends on August 31 in or after the last year of the four-year replacement period, and
- does not include any weekly period of drought.
What Areas are Suffering from Drought
The National Drought Mitigation Center produces weekly Drought Monitor maps that report drought-stricken areas. Taxpayers can view these maps at
https://droughtmonitor.unl.edu/Maps/MapArchive.aspx
However, the IRS also provided a list of areas where the year ending on August 31, 2024, was not a drought-free year. The replacement period in these areas will continue until the area has a drought-free year.
The IRS has taken special steps to provide more than 500 employees to help with the Federal Emergency Management Agency’s (FEMA) disaster relief call lines and sending IRS Criminal Investigation (IRS-CI) agents into devastated areas to help with search and rescue efforts and other relief work as part of efforts to help victims of Hurricane Helene. The IRS assigned more than 500 customer service representatives from Dallas and Philadelphia to help FEMA phone operations.
The IRS has taken special steps to provide more than 500 employees to help with the Federal Emergency Management Agency’s (FEMA) disaster relief call lines and sending IRS Criminal Investigation (IRS-CI) agents into devastated areas to help with search and rescue efforts and other relief work as part of efforts to help victims of Hurricane Helene. The IRS assigned more than 500 customer service representatives from Dallas and Philadelphia to help FEMA phone operations.
Further, a team of 16 special agents from across the country were initially deployed last week by the IRS-CI to the Tampa area to help with search and rescue teams. During the weekend, the IRS team moved to North Carolina to assist with door-to-door search efforts. As part of this work, the IRS-CI agents are also assisting FEMA with security and protection for relief teams and their equipment.
Additionally, the IRS reminded taxpayers in Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia that they have until May 1, 2025, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA. Besides all of Alabama, Georgia, North Carolina and South Carolina, this currently includes 41 counties in Florida, eight counties in Tennessee and six counties and one city in Virginia.
The IRS provided guidance addressing long-term, part-time employee eligibility rules under Code Sec. 403(b)(12)(D), which apply to certain 403(b) plans beginning in 2025. The IRS also announced a delayed applicability date for related final regulations under Code Sec. 401(k).
The IRS provided guidance addressing long-term, part-time employee eligibility rules under Code Sec. 403(b)(12)(D), which apply to certain 403(b) plans beginning in 2025. The IRS also announced a delayed applicability date for related final regulations under Code Sec. 401(k).
Application of Code Sec. 403(b)(12)
The IRS provided guidance in the form of questions and answers on the requirement that 403(b) plans allow certain long-term, part-time employee to participate. The IRS clarified that the long-term, part-time employee eligibility rules only apply to 403(b) plans that are subject to title I of ERISA. Thus, a governmental plan under ERISA §3(32) is not subject to the long-term, part-time employee eligibility rules because it is not subject to title I pursuant to ERISA §4(b). The guidance also provides that 403(b) plans can continue to exclude student employees regardless of whether the individual qualifies under long-term, part-time employee eligibility rules.
Future Guidance
The guidance for 403(b) plans applies for plan years beginning after December 31, 2024. The IRS anticipates issuing proposed regulations applicable to 403(b) plans that are generally similar to regulations applicable to 401(k) plans.
Applicability Date for 401(k) Regulations
The IRS also addressed the applicability date of rules for 401(k) plans. Final regulations related to long-term, part-time employee eligibility rules will apply no earlier than to plan years beginning on or after January 1, 2026, the IRS said.
The Internal Revenue Service is estimated a slight decrease in the estimated tax gap for tax year 2022.
According to Tax Gap Projections for Tax Year 2022 report, the IRS is projecting the net tax gap to be $606 billion in TY 2022, down from the revised projected tax gap of $617 billion for TY 2021. The decrease track with a one-percent decrease in the true tax liability during that time.
he Internal Revenue Service is estimated a slight decrease in the estimated tax gap for tax year 2022.
According to Tax Gap Projections for Tax Year 2022 report, the IRS is projecting the net tax gap to be $606 billion in TY 2022, down from the revised projected tax gap of $617 billion for TY 2021. The decrease track with a one-percent decrease in the true tax liability during that time.
The TY 2022 gross tax is projected to be $696 billion, and includes the following components:
- Underreporting (tax understated on timely filed returns) - $539 billion
- Underpayment (tax that was reported on time, but not paid on time) - $94 billion
- Nonfiling (tax not paid on time by those who did not file on time) - $63 billion
For TY 2022, the projected net tax gap broken down by tax type includes:
- Individual income tax - $447 billion
- Corporation income tax - $40 billion
- Employment taxes - $119 billion
- Estate tax and excise tax – less than $500 million in each category
The size of the tax gap "vividly illustrates the ongoing need for adequate funding for the IRS," agency Commissioner Daniel Werfel said in a statement. "We need to focus both on compliance efforts to enforce existing laws as well as improving services to help taxpayers with their tax obligations to help address the tax gap."
From TY 2021 to TY 2022, the voluntary compliance rate slightly increased from 84.9 percent to 85.0 percent and the net compliance rate rose slightly from 86.9 percent from 86.8 percent.
The agency stated in the report that the relatively static voluntary compliance rate was "largely expected since the projection methodology assumes that reporting compliance behavior has not changed since the TY 2014-2016 time frame," although the voluntary compliance rate is projected to fall from 58 percent in TY 2021 to 55 percent in TY 2022.
By Gregory Twachtman, Washington News Editor
The responsibility for remitting federal tax payments to the IRS in a timely manner can be overwhelming for the small business owner -- the deadlines seem never ending and the penalties for late payments can be stiff. However, many small business owners may find that participating in the IRS's EFTPS program is a convenient, timesaving way to pay their federal taxes.
The responsibility for remitting federal tax payments to the IRS in a timely manner can be overwhelming for the small business owner -- the deadlines seem never ending and the penalties for late payments can be stiff. However, many small business owners may find that participating in the IRS's EFTPS program is a convenient, timesaving way to pay their federal taxes.
The Electronic Federal Tax Payment System (EFTPS) is a simple way for businesses to make their federal tax payments. It is easy to use, fast, convenient, secure and accurate. It also saves business owners time and money in making federal tax payments because there are no last minute trips to the bank, no waiting lines, no envelopes, stamps, couriers, etc. And best of all, tax payments are initiated right from your office!
What is the EFTPS?
EFTPS is an electronic tax payment system through which businesses can make all of their federal tax deposits or payments. The system is available 24 hours a day, seven days a week for businesses to make their tax payments either through the use of their own PC, by telephone, or through a program offered by a financial institution.
What federal tax payments are covered by EFTPS?
Some taxpayers mistakenly assume that EFTPS applies only to the deposit of employment taxes. EFTPS has much broader reach. It can be used to make tax payments electronically for a long list of payment obligations:
- Form 720, Quarterly Federal Excise Tax Return;
- Form 940, Employer's Annual Federal Unemployment Tax (FUTA) Return;
- Form 941, Employer's Quarterly Federal Tax Return;
- Form 943, Employer's Annual Tax Return For Agricultural Employees;
- Form 945, Annual Return of Withheld Federal Income Tax;
- Form 990-C, Farmer's Cooperative Association Income Tax Return;
- Form 990-PF, Return of Private Foundation;
- Form 990-T, Exempt Organization Business Income Tax Return Section 4947(a)(1) Charitable Trust Treated as Private Foundation;
- Form 1041, Fiduciary Income Tax Return;
- Form 1042, Annual Withholding Tax Return for U.S. Sources of Income for Foreign Persons;
- Form 1120, U.S. Corporation Income Tax Return; and
- Form CT-1, Employer's Annual Railroad Retirement Tax Return.
How can I get started using EFTPS?
To enroll in EFTPS, the taxpayer must complete IRS Form 9779, Business Enrollment Form, and mailing it to the EFTPS Enrollment Center. To obtain a copy of IRS Form 9779 a taxpayer or practitioner can call EFTPS Customer Service at 1-800-945-8400 or 1-800-555-4477. The enrollment form may also be requested from the IRS Forms Distribution Center at1-800-829-3676.
After you complete and mail the enrollment form, EFTPS processes the enrollment and sends you a Confirmation Packet, which includes a step-by-step Payment Instruction Booklet. You will also receive a PIN under separate cover. Once the Confirmation Packet and the PIN are received, you can begin to make tax payments electronically.
What flexibility is available within the EFTPS for payment options?
There are two primary ways to make payment under EFTPS - directly to EFTPS or through a financial institution. If you wish to make payments directly to EFTPS, the "ACH debit method" should be selected on the enrollment form. Deposits and payments are made using this method by instructing EFTPS to move funds from the business bank account to the Treasury's account on a date you designate. You can instruct EFTPS by either calling a toll-free number, and using the automated telephone system, or by using a PC to initiate the payment.
If you instead elect to make payments through a financial institution, the "ACH credit method" should be chosen on the enrollment form. This method works by using a payment system offered by the financial institution through which you instruct the institution to electronically move funds from your account to a Treasury account.
Although the ACH debit and the ACH credit methods are the primary payment methods for EFTPS, a taxpayer may also choose the Same Day Payment Method. You should contact your financial institution to determine if it can make a same day payment.
If I provide the IRS with access to my bank account, can it access my account for any other purposes?
It is important to note you retain total control of when a payment is made under EFTPS because you initiate the process in all instances. In addition, at no time does the government or any other party have access to your account from which the deposits are made. The only way to authorize deposits or payments from your account is through use of the PIN that is given to you upon enrollment.
Many businesses have recognized the convenience of voluntary participation in the IRS's EFTPS program. If you are interested in discussing whether your business would also benefit from this program, please contact the office for a consultation.
Imagine you had a camera that could take a snapshot of your financial transactions over the course of a year. This snapshot would give you a chance to see the results of financial decisions you made during the course of the year -- good and bad. By using your recently filed Form 1040 as a "snapshot" of your past spending and investment habits, you can use this information to make better financial decisions in the current year.
Imagine you had a camera that could take a snapshot of your financial transactions over the course of a year. This snapshot would give you a chance to see the results of financial decisions you made during the course of the year -- good and bad. By using your recently filed Form 1040 as a "snapshot" of your past spending and investment habits, you can use this information to make better financial decisions in the current year.
Evaluate your investment strategies. Reviewing Schedule D, Capital Gains and Losses, of Form 1040 for the past few years can be an eye-opener for many people. Did you hold stocks long enough to be entitled to the long-term capital gains rate? Did you try to balance short-term gains with short-term losses? Are you bouncing from one investment trend to another without a long-term investment plan that achieves long-term needs? Are your mutual funds "tax smart"? Looking at your tax return will help you decide whether the investments you now have are the right ones for you.
Become familiar with different types of banking institutions and their products. Find out about CDs, money-market funds, government securities, mutual funds, index funds, and sector funds and how they interrelate with the determination of your tax liability each year. If you are in a high tax bracket and need to diversify away from common stocks, for example, looking into tax-exempt bonds might help, especially if you have state income taxes to worry about, too. You may want to put that knowledge to work in your investment strategy.
Identify borrowing patterns. A look at the interest deductions you claimed on Schedule A, Itemized Deductions, of your Form 1040 can also pinpoint ways for you to let Uncle Sam help pay off some of your loans with tax deductions. Should you have more home-equity interest rather than credit card debt? Are you maximizing -- or overusing -- the advantages of borrowing on margin? Consumer debt is a necessary way of life these days for many taxpayers, but smart borrowing on an after-tax basis can help "tame that tiger."
Revisit medical costs. Should you be taking advantage of the medical expense deduction? Many people assume that with the 7.5 percent adjusted gross income floor on medical expenses that it doesn't pay for them to keep track of expenses to test whether they are entitled to itemize. But with the premiums for long-term care insurance now counted as a medical expense, some individuals are discovering that along with other health insurance premiums, deductibles and timing of elective treatments, the medical tax deduction is theirs for the taking.
Maximize retirement planning efforts. A look at your Form W-2 for the year, and at the retirement contribution deductions allowed in determining adjusted gross income, should tell you a lot. Are you maximizing the amount that Uncle Sam allows you to save tax-free for retirement? Should your spouse set up his or her own retirement fund, too? Are you over-invested in tax-deferred retirement plans, facing a large amount of tax each year after you retire?
Remember, too, that a defined amount of retirement income will only be available for a definite amount of time after you retire. If you are spending down your retirement savings with a five percent return at ten percent per year, those savings will be exhausted in a finite number of years. Do the analysis and try to save enough so that, between Social Security and your savings, you can keep your annual withdrawals to under five percent per year and still meet living expenses.
Extrapolate into the future. Review your Form 1040 like you would reconcile your checkbook except, instead of balancing your monthly budget in your check register, balance your annual budget in your life's registry. You may already use your checkbook to extrapolate one, three or five months into the future to ensure that your income will cover the bills. So why not use your tax return to extrapolate one, three or five years into the future to develop a plan that will cover your life?
Consider "The Big Picture". Many people ask "How long should I keep my tax returns?" It depends on how much of your own financial history you want to see documented. The tax code requires retention of tax returns for a minimum of three years but the more history you have of your financial progress - or regress - over the years, the more information you will have for your analysis for the future.
When you are reviewing your tax return and learning how you have spent your money during the last year, it may help to review some of what you've learned with the person who prepared the return. In fact, taking this step is very important to enable you to work together to better plan your financial future. Please contact the office if you need additional assistance or have any questions as you review your recently filed return.