Yahoo Finance

The IRS announcing new federal income tax brackets for 2025 to adjust for inflation. Now the brackets help determine how much of your taxable income you owe the government. Joining me now to break down what you need to know, we've got Mark Steber, who is the Jackson Hewitt Chief Tax Information Officer. All right, so what are the biggest changes for filers?

Well, there's a whole host of changes that happen each and every year. Part of what we're talking about are the inflationary adjustments, but those, to be clear, are for next tax year, not next, or not this year when you do your taxes in 2025. So the rate brackets, the standard deduction increase, the earned income increase, and dozens of others, those are adjusted each and every year by the IRS in order to prevent bracket creep. And what is bracket creep? Well, if you got a 5% raise, for example, and they didn't do this, you would move into a higher tax bracket, just because your income went up to adjust for inflation. You'd pay more taxes and you'd be economically worse off. So the IRS adjusts a host of things to reflect inflation, to keep everything status quo. Now to your question, nothing's ever status quo between life changes, tax law changes otherwise, and everything else that goes on. Likely, your taxes are different each and every year. So it's important that you pay attention to your largest single financial transaction, namely your taxes, and not just the inflationary adjustments.

Okay. And so we're looking at some of these bracket adjustments and the new levels here. What are some of the big items that have changed as well within these new tax brackets?

Well, I'll start off by saying the standard deduction went up handsomely to also give people a bigger tax break. If you don't itemize, earned income tax credit went up, child tax credit. And those are just the ones that are being adjusted for statutory inflationary adjustments. As we know, we're right in the midst of a presidential election, who knows what 2025 we'll look at? And we have enough for 2024 right now, which starts in about, you know, 67 days. So there's a lot to watch and a lot to watch out for. 2024 with 67 more days in it, and then 2025 of what you're talking about, already has changes on the books from these rate adjustments, the bracket adjustments, standard deduction adjustments, and a whole lot more.

My goodness, my heart almost jumped out of my chest when you said 67 more days in 2024. My goodness. Thanks for putting that in perspective here. You know, Mark, as we're thinking about what people can start doing now to prepare themselves for the next tax filing season, how can you kind of get your affairs in order well in advance here?

Well in advance would have been last summer, but with 67 days, I have a couple of three tips for your viewers. The one thing you should do if you've not done, and I recommend this to all of my clients and our clients at Jackson Hewitt, you need to do a year-end tax projection. Right now, with October wrapping up, you have about four more payrolls or two more months. Take your October 31st information, your pay stub, your earning statement, estimate two more months worth of income, do the same for you withholding, do a rudimentary tax calculation in the margin of last year's tax return, adjust for some of your passive income, dividends and interest, you should have those statements, and kind of see where you are with a big high-level projection. If you get an answer that's shocking, whether you owe a balance due or a big refund, you might get some help and take a little bit more action. But other things you can still do with four weeks or eight weeks left to go, you can maximize those in your retirement accounts if you've not, you've got a couple more payroll cycles. Look at those cafeteria plans or those health insurance plans, make sure you're spending that correctly because that has a cap and a lock on it. Health Savings accounts, if you want to set one of those up for next year, you have to do those. And then those Roth conversions are also very hot. The one thing I would tell your viewing audience, though, is my number one easy pick, go look at those lost losers in your portfolio, get rid of those, they're not going to come back. You know it. Accelerate those losses into this year, you can take a offset against your other gains or you can take up to $3,000 just offset against ordinary income. So look at that portfolio, do a little bit of house cleaning while you have a few weeks left and get those lost dogs out of your out of your portfolio.

Mark, I'm going to go rogue here, but it's just it's because I trust that you have a great answer on this one too. A lot of people are going to be doing some smart spending over the course of this holiday season as well. How can they make sure that their smart spending also perhaps gives them a tax advantage when they do file next year?

Well, there's a couple of buckets of people that that's particularly important for. If you itemize, you know, we'll talk about those second. The more important people are your self-employed people that have that home based business and there's like 40 million of them. You know, those people have a great deal more control over their tax outcome than you might think. They can certainly put off billing and defer some income. But more importantly, and this is a time tested strategy, you can accelerate some deductions. You can make some of those purchases before year end. You can watch out for those gifts that you give to your clients because some of that might be deductible up to a cap. But keep track of your self-employment activity and in particular, if you're in an income position, consider moving some losses or some deductions into the current year by some purchases of equipment, expenses prepaid, or even buying some gifts for those valuable clients and putting that on your tax return as a tax deductible item. So if you have control over that, that's great. Now, if you're an itemizer, as I mentioned, you do get the standard deduction, all Americans do, but if you're an itemizer, that is to say your mortgage interest, property taxes, state income taxes, medical expenses and charitable deductions, those can go into this year, but they have to be spent before December 31st. So if you're an itemizer, consider some of those year-end charitable donations and keep good records. Also consider making perhaps an accelerated home mortgage payment, property tax payments, or some of those other items that can go on your tax return. I'll simply say this, before you go down this road, though, get some guidance from a trusted tax pro. Ignore all that tick-tock fodder, it's usually more dangerous than true.

Mark, I knew you'd have a good answer. Thanks so much. Mark Steber who is the Jackson Hewitt Chief Tax Information Officer. Appreciate the time, Mark.

67 days.

There you go.