2025 Tax Season Newsletter

Another year closes, and quite a year it has been. In July, we moved to our new offices at the Abrego Business Building, just around the corner from our old space in downtown Monterey. This year, we added a new service for our clients, joining the National Association of Registered Social Security Analysts brings powerful new software tools and in-depth insights into planning for social security benefits and the tax implications thereof. Further, we’ve expanded our experiments with the ever-growing artificial intelligence models, partnering with Blue J to bring a truly groundbreaking tax research tool into our firm. While we have many thoughts on AI tools, and the potential futures they herald, it is undeniable they are powerful, and we must proactively utilize their abilities to support outstanding outcomes for our clients.

In our community, J has joined the Board of Directors for the Ventana Wildlife Society, a notable regional conservation organization dedicated to California Condor recovery. It has been an eye-opening experience as VWS utilizes the power of satellite imagery, AI tracking tools, and good old-fashioned boots on the ground outreach to support our California ranchers in sustaining their livelihoods and ensuring the survival of nature’s greatest arial vacuum sweeper, our majestically ugly California Condors. Look for Condor Canyon a new documentary to air next year highlighting the lives of several of our local birds.

On the Homefront, J’s kiddos are now in 2nd and 6th grade and he and Elisabeth are navigating the trials and tribulations of a pre-teen in middle-school. Of note, school fundraisers, truly the bane of every parent’s existence. Recently, J & Elisabeth supported a fundraiser for their daughter’s upcoming science camp, to the tune of about $100. As a result of the collective efforts, they are “saving” $29 on the cost of the camp. Spent $100, to “save” $29, sounds just like a tax deduction. As we close this year, we urge one and all, don’t spent whole dollars to save 29 cents. Should your business have a need to spend dollars that will in turn generate new dollars, that’s gravy on the biscuit; however, chasing tax deductions for the simple desire to pay less to Uncle Sam – there be madness.

This past year, J had the opportunity to present at several seminars with our trusted colleagues in home lending, trusts and estates, and insurance. J has never shied to stand at a podium and wax poetically on matters of tax, finance, and the importance of good, buttered biscuits. We are grateful for the opportunity to serve in our community, and to meet so many new and interesting friends. Of note, this year brought home the somber fact, we are all on this great blue marble for a finite period, and disaster, tragedy, and loss are an integral part of the abundant lives we each lead. For this reason, we encourage one and all, if you haven’t yet planned for sharing your legacy with your loved ones, make a plan and begin to implement it now. We have several trusted colleagues with whom we are happy to make introductions to assist you in securing the future for you and your family that you most desire.

The election has come and gone, and countless opinions abound on the results. For our purposes, we will now likely see continuity in the tax code for the foreseeable future. Come January 1, 2026, new tax legislation is required at the federal level, or the tax code reverts in large measure to 2016 rules. Our expectation is an extension of the 2017 Tax Cuts and Jobs Act (TCJA) in largely similar form, which we internally refer to as TCJA 2.0. We anticipate a return to 100% bonus depreciation for business assets, and some changes to retirement plans, income tax brackets, itemized deduction limits, and other deductions and credits for businesses. We further expect significant changes to the tax credits for electric vehicles, solar panels, and home battery systems that were increased in the 2022 Inflation Reduction Act. We anticipate a more in-depth view of the potential changes later in 2025 as Congress begins their negotiations. That being said, we would encourage anyone wishing to take advantage of current EV/Solar credits to consider their purchase in 2025, cash flow permitting.

As we kick off our 18th tax season, we wish for fair weather, minimal extensions, and plenty of opportunities to converse with each of you, our treasured clients. Thank you for your business, thank you for your outstanding referrals, and thank you for continuing to lead impactful and inspiring lives that are transforming the communities in which we live and serve.

We wish one and all a safe, joyous, and healthy holiday season.

Very respectfully,

Team Mattox

Here are some of the changes and issues you need to know for 2025.

Tax Return Due Dates:

Individuals must file returns by April 15, 2025, for the 2024 tax year;

Partnerships and S-Corporations must file returns by the 15th day of the third month following the close of the taxable year (March 17, 2025 for calendar-year taxpayers);

C-Corporation returns are generally due by the 15th day of the fourth month following the close of the taxable year (April 15, 2025 for calendar-year taxpayers);

Exempt organizations are generally due by the 15th date of the fifth month following the close of the taxable year (May 15, 2025 for calendar year organizations);

W-2s and 1099s must be filed by January 31, 2025, for the 2024 tax year; and

Barring flood or fire, automatic extensions of time to file must be filed by the original due date of the return, and will extend to September 15, October 15, and November 17, 2025 respectively for eligible taxpayers.

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Cost of Living Increases: Social Security benefits, Veterans Disability Compensation and certain Federal retirees will see a 2.5% increase in 2025, down from 3.2% in 2024. Maximum taxable earnings for Social Security payroll taxes increases to $176,100 in 2025.

Standard Deduction: Increasing at least $400 per taxpayer, the standard deduction in 2025 rises to $30,000 for married couples filing jointly, $15,000 for single filers, and $22,500 for heads of household.

Tax Brackets: While the overall bracket percentages are unchanged, due to inflation adjustments more income will be taxed at lower rates in 2025.

Medical Savings Accounts: For tax year 2025, self-only coverage health plans must have an annual deductible that is not less than $1.650. Maximum out-of-pocket expenses are $8,300. For families the annual deductible minimum is not less than $3,300 and out-of-pocket expenses are capped at $16,600. Health Savings Account (HSA) contributions are capped at $3,400 for self-only plans and $8,550 for family plans. Taxpayers over 55 are allowed an additional $1,000 to those maximums.

Retirement Planning: For 2025, eligible taxpayers may contribute up to $7,000 to an IRA, or $8,000 for taxpayers over 50. The 401k/403b/457 plan contribution limit increases to $23,500, or up to $31,000 for taxpayers passing their mid-century mark and a special bonus of up to $34,750 for taxpayers aged 60-63.

SECURE 2.0 Act: For taxpayers retiring in 2025, Required Minimum Distributions (RMD) are no longer mandatory for ROTH IRA accounts. RMDs are not required for taxpayers unless they will celebrate 73 years of age in 2024, at which point their first RMD must be taken on required accounts not later than April 1, 2025.

For those inheriting IRAs in 2025, you will now have 10 years to draw down the balance inherited in full.

SIMPLE and SEP IRA plans now are authorized to accept ROTH (after-tax) contributions. Should you be looking to create a new plan, or fund an existing plan, let’s chat about the impacts ROTH contribution could make to your tax planning.

We’re especially excited by Solo-401k plans for self-employed business owners with no employees. With a simplified contribution matrix over SIMPLE and SEP IRA plans, these can be highly valuable retirement and tax tools for our clients. Remember, when seeking tax deductions, paying your future self a whole dollar is a savvier strategy than paying someone else.

Please be sure to discuss these provisions with your financial advisors.

Clean Vehicle Credits: Since 2023, taxpayers have three separate tax credits available for the purchase of clean vehicles: a credit for new vehicles, a credit for previously owned vehicles, and a credit for business vehicles. Each credit contains many rules and limitations, and now, some of these credits can be claimed at the dealership at the time of purchase. Note, with a future omnibus tax bill looming for 2026, these credits may change, or be eliminated, thus we recommend making your new vehicle purchase in 2025, if needed.

Be sure to discuss the tax ramifications with us if you are unsure whether you qualify for a vehicle credit.

Property Transactions: Did you sell any real estate this year? Be sure to provide copies of escrow statements, the Closing Disclosure form, and California Form 593, Real Estate Withholding Tax Statement. We need these documents to properly prepare your return and to maximize your capital gain exclusions.

1099s and K-1s: If you received 1099s or K-1s from investments in 2024, we may need to extend your return in case these documents are corrected after the original filing deadline. We are seeing increasing numbers of corrected information returns, which require taxpayers to amend their original tax returns to reflect the corrected amounts. In some cases, the amounts are vastly different and can create additional costs in amending the tax returns and potential penalties and interest levied against the return.

1099-Ks: The filing threshold for 1099-K, scheduled to drop to $600 for 2024, has been postponed until 2025, and will initially phase in at $2,500 annually, and then finally $600 in 2026, barring any future changes. If you receive income through a third-party settlement provider (such as a credit card company or even a mobile phone app like Venmo or Apple Pay, among many others) then you may receive a 1099-K for that income even if you haven’t in the past. Many providers were preparing to file forms at the $600 level, and may still submit forms even if not required, as they test their new systems.

Be sure to provide a copy of any 1099-Ks you receive, regardless of the income source. Do not ignore the 1099-K as the IRS will expect you to report the income. If the income stated on the 1099-K was not received in exchange for goods and services, then taxpayers may report the amount in a manner that ensures you are not taxed on it.

Home Loans: Interest rates have stabilized to more historical norms. More taxpayers are becoming aware of 2018 changes that capped the Primary Residence Mortgage Interest Deduction at the first $750,000 in home acquisition debt. For many California taxpayers making a home purchase in the past year, this limit may have a significant impact on their taxable income. Deductions simply reduce the amount of income subject to tax, they don’t directly reduce your taxes.

When considering the average California homebuying household, their combined effective income tax rate is generally less than 25%. This means for every $1 paid to a mortgage lender, the taxpayer is only saving $0.25 in taxes. Further, for homes that exceed the $750,000 limit, the mortgage interest above that threshold makes no impact on your taxes. So, remember, buying a home isn’t a “tax strategy”, it’s an investment in the lifestyle that you best want for your family. It’s about you, first and always.

We’re huge fans of home ownership. We believe every person should have a safe, comfortable, and secure home, and ideally be able to own that home. For a variety of reasons, that opportunity isn’t the best choice, or even an available choice for many. We encourage SMART home ownership: buying a sustainable home in a marketable area, that achieves your goals while providing a reasonable return on your investment and which was acquired and is maintained in concert with a talented team of professionals that have your objectives in their best interests.

We’re always willing to walk through your numbers and connect you with our expert home ownership professionals to help support your SMART homebuying opportunity. We’re also always going to tell you when we don’t feel a financial decision is in your best interests, and we’re never going to encourage spending your hard-earned whole dollars, just to chase a quarter.

Gifting Tax Strategy: Leveraging the annual gift limit can be a resourceful way to reduce your taxable income. The annual gifting limit per recipient is $19,000 in 2025. Gifts over this allotted amount are taxable and require the filing of a gift tax return (Form 709). When determining the true gift amount, remember that tuition paid directly to a qualified educational organization and direct medical payments to a medical provider are usually not considered gifts.

Estate Planning: Under current law the lifetime maximum estate tax exemption, increasing to $13.99 million per taxpayer in 2025, will revert to 2016 levels after December 31, 2025. Additionally, several changes in inherited IRA accounts, and other impacts from SecureAct2.0 make solid estate planning a winning strategy for many taxpayers.

We have outstanding colleagues to navigate these matters and are happy to make a warm introduction when needed.

For our clients with young children, we encourage creating your first estate plan. For well-established clients, considering a Charitable Remainder Trust, or a See-Through Trust, along with other strategic planning, may allow larger tax-advantaged distributions to your desired beneficiaries, and may even reduce your tax liability today.

As always, never hesitate to reach out with any questions about these or any other matter.

We appreciate each of you, we’re awed by your stories and the impactful lives you lead. We wish you great and continued success in this new year! Alons y!