TAX UPDATES
Basic Tax Information - Tax Year 2025
1) Section 199-A (Qualified Business Income Deduction – QBID)
20% Income Deduction
Business taxpayers who are engaged in the following business types: self-employment, partnerships, S Corps, LLCs – may deduct 20% of their taxable income (phase-outs and income thresholds may reduce the deduction). If qualified, this deduction is reflected on Line #10, Form 1040, even for those who own and rent Commercial Buildings or Residential Rental Property. This provision does not apply to high-income taxpayers.
2) Standard Deduction
Standard Deduction (Taxpayer without Itemized deduction) – 2025
| Filing Status | Deduction Amount |
|---|---|
| Single or Married Filing Separate | $15,750 |
| Head of Household | $23,625 |
| Married Filing Jointly | $31,500 |
Additional Standard Deduction – 65 and Older and Blind
| Single or Head of Household | $2,000 |
| Married | $2,000 |
| Married Filing Jointly | $4,000 |
3) Itemized Deduction
SALT (State and Local Tax): For itemizing purposes, the SALT deduction has been capped at $40,000. E.g. real estate taxes, automobile taxes, such as DMV fees, and state and municipal taxes.
Maximum Home Mortgage Interest Deduction: Mortgage interest deductions are limited to the first $750,000 of the mortgage (Mortgages created after Dec. 15, 2017). Please refer to Publication 936 (2019), Home Mortgage Interest Deduction from the IRS.
- California allows deductions for home mortgage interest on mortgages up to $1 million, plus up to $100,000 in equity debt.
Charitable Contributions: Up to 60% of AGI is deductible for 2025 (California 50% of AGI). For non-itemizers (taxpayers who take the standard deduction), in 2025, up to $1,000 is deductible for single filers, and up to $2,000 is deductible for those filing married filing jointly.
4) 2025 Child Tax Credit:
$2,000 per qualifying dependent (child under 17).
- Refundable Credit $1,700. Taxpayers with higher income will see a reduction in benefits. For single filers or heads of household, the benefits start to phase out at $200,000 of income, and for married couples, the benefits start to phase out at $400,000.
5) Other Dependent Credit: $500
6) 2025 Capital Gain Tax Rate: 0%, 15%, 20%, and 28%
7) Holding Period for acquiring a principal residence under Section 1031 exchange – A house exchanged using Section 1031 must be held for a minimum of five years from the date the exchange was completed to exclude any capital gains taxes. One important thing to keep in mind is that, in order to exclude up to $500,000 of gain, the home must be titled in at least one spouse’s name, and the tax return must be filed as married filing jointly.
8) Most taxpayers no longer have the option to carry back the net operating loss (NOL). For most taxpayers, NOLs arising in tax years after 2020 can only be carried forward.
9) Precautions to take with 1040X filings: When amending several years, do not put multiple 1040x filings into one envelope. We recommend our clients to mail in each amendment separately. Submit an amendment (1040X) only after the original tax return (1040) is fully accepted by the IRS. If amendments are received by the IRS prior to the original return, this may cause severe delays and complications. Please do not send related supporting materials with the amendments.
10) Social Security Benefit Rule: A single credit is given for every quarter you have earned income of $1,810 or more as of 2025. 40 credits (10 years) is required to start receiving benefits. The SSA calculates the benefits based on your highest 35 years of earnings.
11) Meals and Entertainment Expenses are for 2025:
| Type of Expense | Deduction |
|---|---|
| Entertaining clients (concert tickets, golf games, etc.) | 0% deductible |
| Business meals with clients | 50% deductible |
| Office snacks and meals | 50% deductible |
| Company-wide party | 100% deductible |
12) Marijuana Industry Considerations: Only the cost of goods sold is deductible. Marijuana businesses are not entitled to claim ordinary and necessary business expenses otherwise allowed under IRC Sec.162. Licensed cannabis business may deduct cost of goods sold and all necessary business expenses, such as rent and wages. Unlicensed cannabis businesses may deduct cost of goods sold, but may not deduct other business expenses, such as rent and wages.
13) Earned Income Credit
For low-income taxpayers who worked throughout the year, the maximum credit that can be received in 2025 is shown below.
| Qualifying Children | AGI < Amount (MFJ) | AGI < Amount (Other Filing Statuses) | Maximum Credit |
|---|---|---|---|
| No Children | $26,214 | $19,104 | $649 |
| One Child | $57,554 | $50,434 | $4,328 |
| Two Children | $64,430 | $57,310 | $7,152 |
| Three or More Children | $68,675 | $61,555 | $8,046 |
14) Social Security Benefits
Social Security Benefits increased to a maximum of $5,108/month ( age 70) for 2025. The Social Security Benefit was raised due to a “cost of living” (2.5%) adjustment.
Retirement Earnings Tax Exempt Amounts:
Full Retirement age in 2025: 66 and 10 months (born in 1959)
| Age | Retirement Earnings Test Exempt Amounts | Reduction of benefits for every $3 in earning in excess of limit | Tax-free average monthly income |
|---|---|---|---|
| Under 66 years old | $23,400 | 1/2 (50%) | $1,950/Month |
| 66 years old | $62,160 | 1/3 (33%) | $5,180/Month |
| Over 66 years of age | No limit | None | N/A |
**2025 Social Security Benefits: Maximum Monthly Benefits: $5,108 at age 70
Social Security taxed at 50% or up to 85%:
Some must pay federal income taxes on Social Security benefits if their income is high.
| Filing Status | % Taxed | Income Threshold |
|---|---|---|
| Single, HOH, QW, MFS Apart All Year | Up to 50% | $25,000-$34,000 |
| MFJ | Up to 50% | $32,000-$44,000 |
| Single, HOH, QW, MFS Apart All Year | Up to 85% | Over $34,000 |
| MFJ | Up to 85% | Over $44,000 |
| MFS Living With Spouse | Up to 85% | 0 |
15) Medicare Premium Amount for 2025 – $185 (Part B)
Part A Premium (Medicare Hospital Insurance) – Taxpayers with 40 credits or more will not pay Monthly Premium beyond the age of 66. If you are still 65 years old, you will have to pay the maximum base premium of $285 or $518 (each month) for up to a year to the Social Security Office if the taxpayer had a surgery and/or hospitalization.
Part B Premium (Medicare Medical Insurance) – Monthly Standard Premium: $185.00 in 2025 – used when visiting a hospital without surgery. Discounted prescriptions may be purchased. If the taxpayer is still 65, you must pay this premium separately to the Social Security Office for one year. The premiums are automatically distributed from your Social Security Benefits (SSA) from age 66.
Monthly premiums are higher for high-income taxpayers. As annual income increases the standard premiums will increase accordingly. E.g. $185.00, $272.00, $405.00, and $537.90, etc. Premiums may rise to the maximum amount.
16) Health Insurance
Self-employed Premiums paid in 2025 can be deducted from 100% of the total income. Employees may deduct health insurance premiums on Schedule A.
17) Self-employment Tax
If you are self-employed, you are subject to 15.3% in self-employment taxes on net income up to $176,100 in 2025 and $184,500 in 2026. If net income exceeds the above threshold, the taxpayer is subject to an additional 2.9% in taxes (after the 15.3% threshold is met).
18) Standard Mileage Deductions 2025
| Business Mileage | 70 cents |
| Charity Mileage | 14 cents |
| Medical or Moving Purposes | 21 cents |
19) Student Loan Interest
a) If the taxpayer is a student in 2025, he/she may deduct up to $2,500 of student loan interest paid from his/her total income before AGI.
b) Limits: If the MFJ taxpayers’ AGI (adjusted gross income) is between $170,000-$200,000, and for Singles, HOH, or qualifying widower $85,000-$100,000, a phaseout of deductions will occur. Student loan interest is not deductible if the AGI exceeds the maximum ceiling of the bracket.
c) MFS (married filing separate) couples and dependents of another may not claim this deduction.
20) The American Opportunity Credit (Undergraduate Student Only)
a) If the taxpayer is a student in 2025, they may deduct up to $2,500, with a 40% refundable credit on 100% of the first $2,000 of qualified higher education expenses, plus 25% of the next $2,000 of qualified higher education expenses.
b) Limits: If the MFJ taxpayers’ AGI (adjusted gross income) is between $160,000-$180,000, and for Singles, HOH, or qualifying widower $80,000-$90,000, a phaseout of deductions will occur. Student loan interest is not deductible if the AGI exceeds the maximum ceiling of the bracket. Student loan interest is not deductible if the AGI exceeds the maximum ceiling of the bracket.
c) MFS (married filing separate) couples and dependents of another may not claim this deduction.
21) The Lifetime Learning Credit- (IRC SEC. 25A)
Maximum Credit: $2,000 per year
a) Tuition: Up to $10,000
b) 20% of Tuition Fee – Ex) Tuition $4,000 x 20% = $800
This credit is available for children as well as taxpayers. Taxpayers with high incomes will see a phaseout of the credit. In the case of married couples, if the revised AGI (income – various expenses prescribed by the tax law) is $160,000- $180,000, or in the case of a single or head of household $80,000- $90,000, the credits will be phased out.
22) Section 179 Depreciation
If equipment or machinery is purchased this year and the business is expected to continue for 5 or 7 years, the purchase price in the first year can be expensed up to $2.5 million in 2025.
Bonus Depreciation allows for 100% of the purchase price to be used starting from January 19, 2025. Transitional Rate: For the period from January 1, 2025 to January 19, 2025, Bonus Depreciation will be 40%.
23) I.R.A. Maximum Contribution
| Year | Maximum Payment | Maximum Payment (for those over 50) |
|---|---|---|
| 2025 | $7,000 | $8,000 ($7,000+$1,000) |
24) Gift Tax
For 2025, you may give up to $19,000 to an individual without filing a gift tax form. If the gift exceeds $19,000, Form 709 must be filed. The lifetime gift limit without having to pay a gift tax is $13,990,000 in 2025. Lifetime gifts that exceed $27,980,000 are subject to a gift tax. The highest gift tax rates range from 34% to 40%.
25) Estate Tax Exclusion
| Applicable Exclusion Amount | |
|---|---|
| 2025 | $13,990,000 (40% of exceeding amount) |
| 2026 | $15,000,000 (40% of exceeding amount) |
26) Foreign Earned Income Exclusion
Tax exemption of $130,000 USD in 2025 on foreign income if the U.S. citizen or permanent resident continues to live abroad for more than 330 days in a calendar year to receive. Employees working abroad will be able to apply their foreign taxes paid against their foreign earned income. If self-employed abroad, a self-employment tax (15.3%) is applied.
27) 2025 BASIC TAX RATES
General Income Tax Rate: This tax rate is calculated based on taxable income.
| Tax Rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $11,925 | $0 to $17,000 |
| 12% | $11,926 to $48,475 | $23,851 to $96,950 | $11,926 to $48,475 | $17,001 to $64,850 |
| 22% | $48,476 to $103,350 | $96,951 to $206,700 | $48,476 to $103,350 | $64,851 to $103,350 |
| 24% | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 | $103,351 to $197,300 |
| 32% | $197,301 to $250,525 | $394,601 to $501,050 | $197,301 to $250,525 | $197,301 to $250,500 |
| 35% | $250,526 to $626,350 | $501,051 to $751,600 | $250,526 to $375,800 | $250,501 to $626,350 |
| 37% | $626,351 or more | $751,601 or more | $375,801 or more | $626,351 or more |
28) Long-term Capital Gain (holding over 12 months) Rate for 2025 (Taxable Income)
- 0 % -Single $0-$48,350: Married filing jointly $0-$96,700.
- 15% – Single $48,351 -$533,400: Married filing jointly $96,701-$600,050.
- 20% -Single $533,401 or more: Married filing jointly $600,051 or more.
- 25% – Applies to the gain from selling real estate that has been depreciated.
-
28% – Collectibles and rare metals (tax rate can go as high as 28%). Small business stock.
Note: Taxpayers with a tax rate of 37% are subject to an additional Medicare tax of 3.8%, which is imposed on short-term capital gains and other net investment income. The general tax rate for short term capital gains is 41.7% (37 + 3.8). Long term capital gains rate for these taxpayers is 23.8% (20 + 3.8).
29) QUALIFYING WIDOW(ER) TEST (IRC SEC. 2 (A))
In the year of the spouse’s death, the tax return may be filed as MFJ, and in the second year, the taxpayer may file as a Qualifying Widow(er) for up to 2 years as long as there is a dependent.
What is the age limit for a qualifying child? 19 years old.
To meet the qualifying child test, your child must be younger than you and either younger than 19 years old or be a “student” younger than 24 years old as of the end of the calendar year to receive other dependent credit. There’s no age limit if your child is “permanently and totally disabled” or meets the qualifying relative test.
30) Net Investment Income Tax (NIIT) – 3.8% – Form 8960
Taxpayers whose income exceeds a certain MAGI threshold and investment income are subject to an additional 3.8% tax (net investment income tax).
| Filing Status | Threshold Amount |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
| Qualifying widow(er) with dependent child | $250,000 |
Taxpayers should be aware that these threshold amounts are not indexed for inflation.
- Net Investment Income (included): Capital gains, dividends, rental and royalty income, taxable interest, passive income from investments, etc.
- Net Investment Income (not included): SSA and Veterans’ benefits, wages, qualified retirement plan withdrawals, tax-exempt interest from funds or bonds, life insurance proceeds, etc.
- High income earners with net investment income can pay up to 41.7% (37+3.8) federal income taxes.
31) Identity Theft
Due to an increase of ID theft in recent years, the IRS has been issuing notices to taxpayers whose identity may have been compromised. If you have received an identity theft notice from the IRS, you must provide us with the IP PIN to file your tax return electronically. If you are suspecting ID theft, please visit the website below.
https://www.irs.gov/identity-theft-fraud-scams/identity-theft-guide-for-individuals
32) First- Time Penalty Abatement Waiver – FTA
1. The IRS’s first-time abatement penalty waiver (FTA), although introduced 12 years ago, is infrequently used by qualifying taxpayers. An FTA can be obtained for a failure- to-file, failure-to-pay, or failure-to-deposit penalty.
2. A taxpayer may claim an FTA for only a single tax period. To qualify, taxpayers must not have been assessed any other penalties of a “significant amount” on the same type of tax return within the past three years and must be in compliance with all filing and payment requirements.
33) Taxpayers who are more likely to be audited
- High-income taxpayers
- Taxpayers with multiple Forms 1099 and W-2 (all sources of income must be reported even if a tax form was not received)
- Taxpayers with high charitable contributions in a given year
- Taxpayers who claim a home office while having excessive deductions for their business/es
- Rental property shows an excessive loss
- Taxpayers who claim 100% of their automobile expenses as business expenses
- Schedule C self-employed taxpayers who report multiple years of losses in a row
- Businesses that deal frequently in cash transactions
- Taxpayers who receive high interest income from a foreign bank
- A taxpayer who deposits and/or withdraws more than $10,000 in cash from a bank
- Taxpayers who do did not retain sufficient supporting documents for deductions claimed on Schedule A
34) Form 1099-K Matching Program
Small business owners who receive revenues from credit card transactions will be issued a Form 1099-K from the credit card processor. This summary of credit card transactions will be reported directly to the IRS from the credit card processor. If revenue is calculated correctly (cash sales + credit card sales), reported revenue should almost always exceed the credit card sales. For the 2025 tax year, the 1099-K reporting threshold for third party organizations returns to over $20,000 and more than 200 transactions.
35) Trump Accounts for Newborns
This is a benefit where President Donald Trump will deposit $1,000 into accounts for U.S. children born after December 31, 2024, and before January 1, 2029. Parents can then add $5,000 into the account. The following is a comparison between Section 529 Plans and Trump Accounts (Investment Accounts for Minors):
1) Prime Purpose: A 529 Plan is designed to save for children’s education costs, such as college. A Trump Account, on the other hand, is meant to provide for children’s long-term retirement savings. When the child turns 18, the account will convert into a Traditional IRA.
2) Contribution Limits: The 529 Plan allows for a lifetime contribution of up to $100,000. A Trump Account allows for an annual contribution of up to $5,000 over a 4-year period.
3) Tax Treatment: With a 529 Plan, there are no taxes when the funds are withdrawn for education expenses. With a Trump Account, taxes will be due when the money is withdrawn after the child turns 18.
4) Withdrawals: With a 529 Plan, withdrawals of up to $20,000 per year are allowed. With a Trump Account, after the child turns 18, they can withdraw funds from the Traditional IRA for any purpose.
5) Ownership: The 529 Plan is owned by the parent or guardian. In the Trump Account, the account becomes the child’s property once they turn 18.
6) Government Seed Money: The 529 Plan does not receive any seed money from the government. However, the Trump Account receives $1,000 in seed money from the government.
7) Financial Aid Impact: The 529 Plan does not affect eligibility for financial aid. On the other hand, the Trump Account will be considered when calculating financial aid, which may reduce the amount of financial aid the child can receive.
Clients can view their tax information easily through the irs.gov website. Go to “Sign In to Your account” and create an id.me account to view tax information such as transcripts. This account can also be used to view information on ssa.gov.
