Tax Tips for January 2025

by | Jan 1, 2025 | Tax Tips

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Married Filing Separately: When It May Make Sense

Filing joint tax returns generally results in the lowest tax bill for married couples. However, in some circumstances, they may pay less taxes if they file separately, such as when one spouse has large medical expenses. Medical expenses are deductible only to the extent that they exceed 7.5% of adjusted gross income (AGI). So if one spouse would have significantly lower AGI filing separately, it may increase the deduction.

But be mindful of the downsides of filing separately. Certain tax credits, for instance, are generally unavailable to separate filers, specifically for child and dependent care and education. Also, the capital loss deduction for separate filers is limited to $1,500 (as opposed to $3,000 for married couples filing jointly).

Yet there may be reasons filing separately is better even if the tax cost is higher, such as if one spouse has an income-sensitive repayment plan for student loans. Contact the office to weigh all the factors and determine the most advantageous strategy for your situation.

 


A Better Way to Help with Tuition

Another year is here, and that comes with a new school semester and tuition bills for many people. If you’re considering helping a grandchild or other loved one with their college expenses, first take time to review the tax implications. If the total amount you give to the student in 2025 exceeds the annual gift tax exclusion, you might owe gift tax on the excess. In 2025, this exclusion is $19,000 per recipient or $38,000 for married donors who split gifts (up from $18,000 and $36,000, respectively, in 2024).

To avoid tax implications on gifts over the exclusion (or to preserve the exclusion for other gifts), you can pay tuition directly to the school, which qualifies for an unlimited gift tax exclusion. This exclusion applies only to tuition, not to room, board, books or supplies.

 


Business Mileage Rate Is Up for 2025

The IRS has issued the 2025 cents-per-mile rates that can be used to calculate tax-deductible vehicle operating costs. Effective Jan. 1, 2025, the standard mileage rate for the business use of a car, van, pickup truck or panel truck is 70 cents per mile. This is up from 67 cents per mile for 2024. (For medical or eligible moving purposes, the 2025 rate is 21 cents per mile, and for charitable driving, it’s 14 cents per mile, both unchanged from 2024.)

These rates apply to gasoline and diesel-powered vehicles and to electric and hybrid-electric automobiles. To protect your deduction, don’t forget to keep detailed mileage records. Contact the office with questions.