2024’s Tax Season Finale and the Dawn of 2025 Filing
The close of 2024 witnessed dramatic legal challenges with potential ramifications for the 2025 tax season. The IRS issued final regulations regarding information reporting for Decentralized Finance (DeFi) participants, prompting a lawsuit alleging violations of administrative procedures and constitutional rights. Contesting the IRS’s interpretation of its authority, the suit argues that the regulations infringe on privacy and due process, foreshadowing a broader debate about government oversight in the digital finance realm. Concurrently, the Department of Justice petitioned the Supreme Court to lift the injunction against enforcing beneficial ownership information (BOI) reporting under the Corporate Transparency Act (CTA). The DOJ’s argument hinges on the principle of upholding Congressional acts pending final judicial review, mirroring its successful appeal to the Fifth Circuit. The Supreme Court’s decision on this stay application will significantly impact the trajectory of BOI reporting.
As the new year commences, the focus shifts towards tax season preparation. Taxpayers can anticipate the arrival of tax forms, including the crucial Form 1099, which is linked to Social Security numbers for efficient IRS tracking. Unreported income documented on these forms can lead to swift tax bills. Equally important is maximizing eligible tax credits and deductions. The IRS has identified significant underutilization of the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and education credits, resulting in billions of dollars left unclaimed. Resources like the IRS’s "Get Ready" webpage aim to bridge this gap and assist taxpayers in optimizing their returns.
Preparations for the upcoming tax season extend beyond individual taxpayers, with the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs actively recruiting volunteers. These programs provide invaluable free tax assistance to low-to-moderate income individuals, seniors, those with disabilities, limited English proficiency, and Native Americans. No prior experience is necessary to volunteer, with the IRS offering free training for various roles, including tax preparation, interpretation, and administrative support. The VITA/TCE programs play a vital role, processing millions of returns annually with the help of thousands of volunteers. One noteworthy initiative is the Alaska VITA Project, a collaboration between the American Bar Association Tax Section and the Alaska Business Development Center, which sends tax professionals to remote Alaskan villages to provide essential tax services.
Reflecting on 2024, several key tax and accounting events shaped the landscape. The Supreme Court deliberated on a potentially pivotal tax case, and the accounting industry experienced a surge in private equity investments. Further insights into the last year can be found in articles reviewing memorable events and discussions, which range from financial scams to the validity of tax-filing excuses. Looking forward to 2025, the expiration of several Tax Cuts and Jobs Act (TCJA) provisions introduces uncertainty. With a new administration and Congress, taxpayers await clarity on how these expiring provisions will be addressed, anticipating a dynamic and potentially transformative tax year.
Regarding specific tax guidance, a reader inquired about deducting a recently repaid old tax debt. While commendable, paying off federal income tax debts is not deductible. However, delinquent state and local income taxes paid during the year may be deductible for itemizers, subject to a combined limit of $10,000 ($5,000 for married filing separately). This limit is slated to expire at the end of 2025. In other developments, the IRS proposed updated regulations for tax professionals practicing before the agency, outlining qualifications and conduct standards.
Finally, updates on Form 1099-K reporting requirements provide clarity for taxpayers engaging in online transactions. Following a transition period, the reporting threshold for third-party network transactions will settle at $600 in 2026. This tiered implementation, starting with $20,000 and 200 transactions, then $5,000 in 2024, $2,500 in 2025, and finally $600 in 2026 and beyond, allows taxpayers and platforms to adjust to the new rules. This comprehensive overview covers the closing events of 2024, sets the stage for the 2025 tax season, and highlights significant developments and resources for taxpayers and tax professionals alike.
