2025 Tax

OB3 changes, general tax rules, etc

Standard Deduction - MFJ

$31,500

Standard Deduction - Single/MFS

$15,750

Standard Deduction - HOH

$23,625

Qualified Tips (2025-2028)

Deduction up to $25k, MAGI phaseout at $150k ($300k for MFJ)

Qualified OT (2025-2028)

Deduction up to $12,500 ($25k for MFJ), MAGI phaseout at $150k ($300k for MFJ)

MAGI (Modified Adjusted Gross Income)

Take your AGI, then add back certain deductions (Student loan interest, IRA contributions, taxable SS payments, tuition and fees, ½ SE tax, foreign income and housing expenses, interest from EE savings bonds used for education, passive income or loss, rental expenses, adoption expenses)

Used for: Roth IRA Contributions, Premium Tax Credit, Student Loan Interest Deduction

AGI (Adjusted Gross Income)

Gross Income (Wages, interest, dividends, business income, unemployment compensation, capital gains/loss, retirement plan distributions) and subtract “Above-the-line” Deductions reported on Schedule 1 (Educator expenses, IRA contributions, student loan interest, HSA deduction, ½ SE tax, SE health insurance, Alimony paid (Agreements prior to 2019))

Qualified Passenger Vehicle Loan Interest Deduction

Up to $10k of interest paid on vehicles that are

• New

• 100% personal use

• Assembled in the US

• Phaseout for MAGI over $100k ($200k MFJ)

Enhanced Deduction for Seniors (Temporary)

Additional $6k deduction per eligible individual 65+ for 2025-2028

• MAGI Phaseout over $75k ($150k MFJ)

Trump Accounts

Children born after 12/31/24 and before 1/1/29 will receive a one-time $1k contribution

• Parents, guardians, and employers may contribute up to $5k annually (indexed for inflation

• Can’t be withdrawn before the child turns 18

Qualified Disaster Loss

Loss is deductible without having to itemize

• Not subject to the 10% AGI limitation

• Per-casualty floor is increased from $100 to $500

Higher Catch-up Limit

Ages 60-63 at end of tax year - for 401(k), 403(b), 457(b) plans = $11,250

Penalty Withdrawal Exceptions (SECURE Act 2.0)

Emergency withdrawals - up to $1k/year for unforeseeable or immediate financial needs

Domestic Abuse Victims - The lesser of $10k or 50% of the account balance

2025 Tax Rates

10%, 12%, 22%, 24%, 32%, 35%, and 37%

• NRs are taxed at a flat 30% rate unless specified by treaty

Dependency Gross Income Test

Gross income limitation for qualifying relative is $5,200

Roth and Traditional IRA Limits

$7k (Additional catch-up of $1k for age 50+)

Kiddie Tax

Under 18 and certain dependents under 24.

• Unearned income threshold is $2,700

Nanny Tax - Household Employees

2025 threshold = $2,800

• Household employers are obligated to withhold and pay FICA

$1k/EE or more in a calendar quarter → ER is required to pay FUTA

OASDI maximum wage base

$176,100

EE & ER FICA

6.2% Social Security + 1.45% Medicare

• Self-employment tax = 15.3%

Additional Medicare Tax

.9% on earned income exceeding:

• MFJ: $250k

• MFS: $125k

• Single/HOH/QSS: $200k

Gain on sale of collectibles

Artwork, antiques, stamps, etc → Max 28%

Unrecaptured 1250 gain

Applies to depreciable real estate property → Max 25%

NIIT

3.8% tax applies to individuals, estates, and trusts with net investment income above the following thresholds:

• MFJ/QSS: $250k

• Single/HOH: $200k

• MFS: $125k

• Estates/Trusts: $15,650

2025 Bonus Depreciation

100% bonus depreciation made permanent for qualified property acquired and placed in service on or after 1/19/25

• Property acquired before 1/19/25 is subject to 40% bonus depreciation in 2025

2025 Section 179 Deduction

Maximum expense if $2.5m

• Limit is reduced by the amount by which the cost of Section 179 property placed in service during the tax year exceeds $4m

• Investment phaseout threshold ends at $6.5m

QBI Deduction Limits

MFJ: $394,600 - $494,600

All other filing statuses: $197,300 - $247,300

W-7

Used to apply for ITIN for non-citizens who aren’t eligible for a SSN, but need to file a tax return

W-4V

Used to withhold from Social Security payments

• Retirees with side gigs

Backup Withholding

24% for citizens and legal residents

• not as common anymore

Amount of time a taxpayer has to claim a loss from worthless securities

7 years

Deadline to file for NRs with income not subject to US withholding

June 15

2025 Standard Mileage Rate

Business use: 70 cents/mile

Medical/moving: 21 cents/mile

Charitable: 14 cents/mile

Foreign Earned Income Exclusion

$130k/person

HSA Limit

Self-only coverage → $4,300

Family coverage → $8,550

Additional $1k for taxpayers 55+

Must have a high-deductible health insurance

FSA limit

Health Care FSA → $3,300

Dependent Care FSA → $5k (Single/MFJ)

• $2,500 (MFS)

QSEHRA limit

Max payments and reimbursements are $6,350 for EE only and $12,800 for EE + family

Long-term care premiums (Max Deduction/person)

Under 40 → $480

More than 40 but not more than 50 → $900

More than 50 but not more than 60 → $1,800

More than 60 but not more than 70 → $4,810

More than 70 → $6,020

AMT Exemption

Single/HOH: $88,100

MFS/QSS: $137,000

MFS: $68,500

Estates/Trusts: $30,700

Estate and Trust Exemption Amounts

Estates: $600

Simple trusts: $300

Complex trusts: $100

Qualified disability trusts: $5,100

Estate and Gift Tax Exclusion Amounts

Estate and gift tax (highest rate): 40%

Combined estate tax and lifetime gift/GST exemption: $13,990,000/person ($27,980,000/married couple)

Gift tax annual exclusion: $190,000

Annual exclusion for gifts to noncitizen spouse: $190,000

2025 EITC Changes

Investment income limit: $11,950

Taxpayers who file MFS may qualify in limited circumstances

Max EITC amounts

No qualifying children: $649

1 qualifying child: $4,328

2 qualifying children: $7,152

3 or more qualifying children: $8,046

Child and Dependent Care Credit (CDCTC)

Percentage randing between 20-30% of up to $3k in qualifying expenses (1 dependent)

• $6k for 2 dependents

CTC maximum

$2k/qualifying child

• Taxpayer and spouse must have valid SSN for 2025

AOTC

up to $1,700 is refundable

CTC Phaseout

$400k (MFJ)

$200k for all other filing statuses

Adoption Credit

Max credit is $17,280

• AGI Phaseout → $259,190 - $299,190 (All filers)

• Refundable portion: up to $5k, nonrefundable amount eligible for 5 yr carryforward

ODC max credit amount

$500/dependent

• no refundable portion

• New for 2025 - taxpayer and spouse must have valid SSN or ITIN on or before the due date of the return

Premium Tax Credit (PTC)

repayment caps range from $375 - $3,250 depending on income and filing status

• repayment caps are repealed in 2026

Saver’s Credit

Between 10-50% of eligible contributions.

• max credit - $1k

Max MAGI for Saver’s Credit

MAGI must not exceed $39,500 - Single/MFS/QSS

$59,250 - HOH

$79k - MFJ

Form 5695

Used to claim Residential Clean Energy Credit and Energy Efficient Home Improvement Credit

Energy Efficient Home Improvement Credit

Max credit of $3,200

• Insulation material, natural gas, etc

• Nonrefundable and no carry forward

• PIN requirement - 4-digit Qualified Manufacturer code

AOTC Max Amount

Up to $2,500/student

• Refundable portion: up to 40% of the credit (up to $1,000) can be refundable.

AOTC Phaseout

Single: $80k - 90k

MFJ: $160k - 180k

Lifetime Learning Credit

Up to $2,000 per tax return

• Available for all years of post-secondary education/courses to improve job skills

• No limit on number of years the credit can be claimed

Form 8863

Used to claim AOTC and LLC

Non-Qualified Expenses for Education Credits

Room and board, transportation, insurance, medical expenses, and student health fees (even if mandatory) do not qualify for either credit

Coverdell ESA Max

$2k/beneficiary

Educational Savings Bond Expense Exclusion

Allows taxpayers to exclude interest income upon redeeming eligible savings bonds when the bond owner pays qualified higher education expenses at an eligible institution

• Single/HOH: MAGI phaseout at $99,500 - $114,500.

• MFJ: MAGI phaseout at $149,250 - $179,250

• MFS are not eligible

Educator Expense Deduction

$300 adjustment to income ($600 if both spouses are teachers filing jointly)

Student Loan Interest Deduction Phaseout

Single: $85k - $100k

MFJ: $170k - $200k

• Max deduction is $2,500

• MFS can’t take the deduction

Student Loan Forgiveness

Exclusion from gross income is available if granted after 2020 and before 2026 (under the American Rescue Plan Act)

Student Loan Forgiveness - ER Payments

ER may contribute up to $5,250 annually

• Excluded from income

• Cap also includes other educational assistance

2025 Increase in Penalty for Failure to File

More than 60 days late

• shall not be less than the lesser of 1) $525 or 2) 100% of the tax due on the return

Qualified Charitable Distribution Max

$108k

• Applies to each spouse if filing jointly

Required Minimum Distribution

First RMD for someone who turns 73 in 2025 is due by 4/1/26

Excess Business Loss Limit

MFJ: $626k

All other filing statuses: $313k

De Minimis Customs Entry Privilege - Revoked

Effective 8/29/25

• Taxpayers importing goods may be subject to duties and taxes regardless of value

• $5 for first violation and $10k for second

Valid SSN

Required to claim CTC, Senior Deduction, Qualified Tips, and Qualified OT

90% Rule

Pay at least 90% of the tax owed for the current year

100% Rule

Pay 100% of the tax owed in the previous year

$1,000 Rule

Owe less than $1k in tax after subtracting withholdings and credits

No PY Tax Liability

If a taxpayer had no taxes owed in the previous year, they are typically not subject to the underpayment penalty for the current year, regardless of the amount due

Earned Income

All taxable income earned through work, such as wages, salaries, tips, and other forms of employee compensation. This category also includes self-employment earnings from business or farm ownership

Unearned Income

interest income, dividends, capital gains, retirement income, gambling winnings, and prizes

If a taxpayer omits >25% of their income…

They must retain their tax records for 6 years

Innocent Spouse Relief

When a joint return has understated tax liability due to “erroneous items” attributable to a taxpayer’s spouse or former spouse. Must establish that they did not know the understated liability when they signed the return

• Must request relief within 2 years after the date on which the IRS begins collection activity

Separation of Liability Relief

Taxpayer must either no longer be married or legally separated from their spouse, be widowed, or have lived apart for at least one year to qualify.

• Only applies to amounts owed that have not been paid.

• Will not generate a refund

Equitable Relief

IRS will review the case and determine whether holding the taxpayer liable for the relief would be fair

• Must be granted for an underpaid tax, meaning it was properly reported but not paid

Injured Spouse Claim

Must meet the following:

• Have filed a joint return

• Have paid federal income tax or claimed a refundable tax credit

• All or part of the refund was, or is expected to be, applied to the other spouse’s past financial obligations

• Not be responsible for the debt

Gerard and Kimberly got married in 2025 and decided to file jointly. Kimberly has delinquent student loan debt, which she incurred before she married her husband. Gerard files Form 8379 to request his portion of their tax refund as an injured spouse. The IRS will retain Kimberly’s share of the couple’s tax refund to offset her debt but will allow Gerard to obtain his portion of the refund

Injured Spouse Allocation

Margot was a victim of domestic violence, and she now lives apart from her husband. She filed a joint return in the prior year with her ex-husband, and the return was later audited. When Margot signed the joint return, she knew her husband was underreporting income and falsifying deductions from his business, but she was afraid of what would happen if she refused to sign. After the IRS audited their return, and the IRS discovered the understated tax, Margot filed for equitable relief. She was able to document her history of spousal abuse using affidavits from family members and other legal proof. The IRS granted her request for relief of her portion of the understated tax, penalties, and interest

Equitable Relief

Collection Statute Expiration Date (CSED)

10 years from the date tax is assessed (Not date of filing)

Form 843

Filed along with form 1040NR to request a refund if Social Security and Medicare taxes were withheld in error for foreign student or exchange visitor on an F-1, J-1, M-1, or Q visa

“Considered Unmarried” for HOH Status

Taxpayer must not file a joint return

Must not pay more than half the cost of a home, but home must be the main residence of a child for more than half the year

Not live with a spouse in the home during the last six months of the tax year

Be able to claim an exemption for the child

Green Card Test

A lawful immigrant who has been issued a green card is a U.S. resident by default

• Residency start date is the 1st day during the calendar year on which the individual is physically present in the US as a lawful permanent resident, but they may opt out of the calendar year treatment for tax purposes

Sole Proprietorship

• Unincorporated

• Can’t be passed on to a new owner as the sale business entity

General Partnership

All partners are general partners with each partner jointly and severally liable for the debts and obligations of the partners

Limited Partnership

Has at least one limited partner in addition to general partners

• State-level entity in which a Certificate of Limited Partnership of Certificate of Formation must be filed with the SOS

• In many states, a limited partner is restricted regarding how active they can be in the management of the partnership

Limited Liability Partnership

Formed under state law and is generally used for specific professional services

• LLCs can’t provide certain professional services in CA, including law, medicine, accounting, etc

• Allows each partner to actively participate in management affairs but still provides limited liability protection to each partner

• Each partner is not personally liable for the partnership debts of malpractice of other partners

Late Filing Penalty for Partnerships

For returns required to be filed in 2026 for the 2025 tax year, the penalty is $255/month/partner, for up to 12 months

Qualified Joint Venture (QJV)

Both spouses materially participate as the only members of a jointly owned and operated business

• Can avoid the complexity of filing a partnership return but still allows each spouse to take credit for self-employment earnings from the business for Social Security purposes

• The spouses file separate Schedules C and SE

• Only available to married couples who file joint tax returns

• Spousal owners of a LLC or LP generally do not qualify

• Different rules for community property states

Centralized Partnership Audit Regime (CPAR)

If a partnership’s tax return is audited and is found to have underreported income, the partnership itself is responsible for paying the tax

• Certain small partnerships can opt out on Schedule B-2

CPAR Eligible Partnership

• Must have 100 or fewer partners during the year

• Have only eligible partners

  • Individuals (natural persons only; neither LLCs nor grantor trusts are considered eligible partners)

  • C Corps or foreign entities classified as corporations

  • S corps

  • Estates of deceased partners (not bankruptcy estates)

C Corporations

Conducts business, realizes net income or loss, and distributes profits to shareholders

• Considered a separate entity from shareholders and must elect a BOD who are responsible for oversight

• May have an unlimited number of shareholders and may be either foreign or domestic

• Does not receive a tax deduction when it distributes dividends. Shareholders can’t deduct losses of the corporation

Double Taxation for C Corps

After-tax profits may be taxable income to shareholders when distributed as dividends

C Corp Tax Rate

Flat 21%

S Corp Late Filing Penalty

$255/month/shareholder for up to 12 months