Tax Information

For tax years beginning after December 31, 2024 and before January 1, 2029, taxpayers can deduct interest to purchase a qualified vehicle. The maximum deduction is $10,000 and income phaseouts for modified adjusted gross income above $100,000 (single) and $200,000 (joint) apply. Loan must originate after December 31, 2024 for a new, personal use vehicle. Vehicle must be qualified, meaning weight less than 14,000 pounds with final assembly in the United States. NHTSA has a feature on their website where you can enter the automobile’s VIN, and it will tell you where final assembly took place. 

Limitation increased to $40,000. A 30% phase out will begin for taxpayers with modified adjusted gross income over $500,000. Practical Considerations: 1) Instead of using the standard deduction, which has been the case in the last several years, itemized deductions could be higher again. So even though we have always continued to need charitable contributions, and medical information as it may have applied to Wisconsin, now it could likely apply again in Federal.  2) Some taxpayers can go back to bunching itemized deductions. For most this means paying real estate taxes and charitable contributions twice in one year so itemized deductions apply and then skipping the next year, so the standard deduction applies. For RE Taxes, you accomplish this by paying in January and July as scheduled and then the full next year bill in December. But be careful, you lose the $300 RE Tax Credit in WI if you do this, so the bunching must make up for that loss. For charitable contributions, you make payment in December for the next year and typically let the charity know that that is a contribution for the following year.

For those that do not itemize deductions, starting in tax year 2026 you will have the ability to deduct up to $1,000 (single) or $2,000 (married filing joint) in charitable contributions. The contribution must be cash and to a public charity. GoFundMe campaigns are not a public charity; those are a gift to the recipient of the funds.

Up to $25,000 of qualified tips will be tax free from 2025-2028.  The deduction will be reduced by $100 for every $1,000 of MAGI over $150,000 (single) and $300,000 (joint). Qualified Tips are cash tips received in a business which customarily and regularly received tips on or before 12/31/2024. The tips must be paid voluntarily without any consequence in the event of non-payment. This brings into question whether or not the standard application of a “service fee” of 15% or 20% for groups of six or eight or more legally qualifies as a tip in this case. Most do not believe that those are qualified tips thus creating a nightmare from a compliance standpoint. In August the IRS published a list of 68 occupations that it will recognize as ordinarily receiving tips for the tips deduction. Your occupation must be on that list in order to take the deduction.  This is to prevent industries that do not normally receive tips from changing the way they do business and charging $20 for services rendered with a “voluntary (wink wink)” tip of $150.  The deduction is income tax only; you still pay social security tax on the tips.

You will be able to deduct up to $12,500 (single) and $25,000 (joint) for qualified overtime compensation.  The deduction will be limited by $100 for every $1,000 of income over $150,000 (single) and $300,000 (joint).  Overtime is defined as only the extra ½ of time and a half for overtime.   For 2025 if you have overtime, you must provide that number to us.  Employers are not required to report that number in 2025.  Any reasonable method to calculate it will be accepted for 2025.

Gain on the sale of qualified farmland property may be elected to be paid over 4 years.  Qualified farmland property is property that was used by the taxpayer as a farm or leased to a farmed during substantially all of a 10-year period ending on the date of sale. 

The Covid expansion of the premium tax credit no longer applies for tax years after December 31, 2025. Obamacare (or marketplace insurance) provides a premium tax credit for health insurance. The premium tax credit is a government payment on your behalf to the insurance company for part of the health care premium. The original premium tax credits were available to anyone who had a marketplace insurance policy and had income below 400% of the Federal poverty limit. For a household of two that limit was $21,150 in 2025, so four times that is $84,600. If your income was over $84,600 for a household of two, you did not get any government assistance towards the premium. You had to pay the full amount. During Covid that limit was changed from 400% of the Federal poverty limit to 8% of your adjusted gross income. This meant you would not pay more than 8% of your adjusted gross income for health insurance.  Anything over that amount the government would pay on your behalf. That 8% limit is now gone and we are back to the straight 400% of Federal poverty limit. 

Practical Pointer: 

What this means for our clients is we are back to the “cliff” that we had to navigate prior to the 8% rule. If your income is $1 over the 400% Federal poverty limit for your household size, you will have to pay back 100% of any premium tax credits you received that year. When this rule was in place prior to the Covid adjustment, we saw paybacks of up to more than $10,000, for very small amounts over the 400% income limit. This means if you are receiving premium tax credits you must monitor your income very very carefully and if you have any surprises, please let us know immediately as there are a few things that can be done to lower income, but if you wait too long those options are lost. Some of those options are lost on December 31st of the tax year and others on the April 15th filing date.