Dear Clients,
This will be a very interesting and complicated year for taxes.
2025 began with what is already being touted as the most expensive natural disaster in US history: the recent wildfires. The wildfires affected many of you; please know that you remain in our prayers, and we will work with you to ensure the most favorable tax treatment for your lost/damaged property.
LA County (Wildfire) Tax Relief
Please be on the lookout for a more detailed and extensive letter within the next week or two on tax matters specific to the recent wildfires.
This is an evolving situation, and I do not wish to provide information that may very soon prove outdated.
For now, please be advised that taxpayers (both individuals and businesses) located in LA County have been granted a postponement (by the IRS with full California conformity) of various tax filings and payment deadlines that occurred from January 7, 2025, through October 15, 2025.
In plain English, this means that if you live in LA County, your tax deadline has been extended from April 15, 2025 to October 15, 2025. However, please be advised that our firm’s tax season schedule will not change. While we will of course accommodate those of you affected by the wildfires, those of you who are unaffected should adhere to the typical filing schedule. If all our clients wait until October to file, we will be unable to guarantee timely filing.
Additionally, property tax payments due during the 2025 tax year are now due by April 10, 2026, for all properties with the following ZIP codes: 90019, 90041, 90049, 90066, 90265, 90272, 90290, 90402, 91001, 91040, 91104, 91106, 91107, 93535, and 93536.
For those of you who have lost your records (and homes/businesses), this means that tax season stress is greatly alleviated. Filing insurance and LA County assessor claims (for property reappraisal) should be your priority. This information will be necessary for tax purposes regardless.
Federal
We have a new and fiscally conservative administration (I am overjoyed) and this will inevitably benefit all of you. However, 2025 is the year of transition; we are in January, and tax changes take time.
Unfortunately, very little can be planned for the 2025 tax year until we receive clarity. There will likely be many changes this calendar year, and we will endeavor to keep you up to date on the most significant changes as they occur.
However, for now, here are a handful of important items.
Internal Revenue Service (IRS)
The IRS has increased in aggression and zealousness over the past few years, especially the past two.
Congress (under the Biden administration) significantly increased the Budget of the IRS with the Inflation Reduction Act of 2022, initially granting a nauseating $79.4 billion in additional funding through September 30, 2031. In a surprise to no one, the IRS allocated the funding as follows: 44% to Operations Support (salaries and such), 42% to Enforcement, 8% to Business Systems Modernization, and a ludicrous 6% to Taxpayer Services.
If you were looking for confirmation that the IRS are blood-sucking leeches that care only about taking as much of your money as possible, and do not care that their stone-age era infrastructure sets up taxpayers to fail, look no further.
All of the additional funding has paid dividends at the taxpayers’ expense, literally. In fiscal year 2024 (ending September 30, 2024), the IRS collected a new record of $5.1 trillion in taxes; this broke the previous record of $4.9 trillion, set only one year ago.
All this notwithstanding, hope is in the air.
We have seen the additional funding reduced by $21.6 billion between the Fiscal Responsibility Act of 2023 and the Further Consolidated Appropriations Act of 2024. We fully expect to see further recissions under the new administration.
In May 2021, the Biden administration approved the hiring of 87,000 new IRS employees. These new employees have been being slowly hired over the past three years; in this same span of time, we have noticed a profound increase in government notices (many of which are bogus and/or incorrect). But that’s probably a coincidence.
It is my great pleasure to report that, as of January 20, 2025, President Trump has ordered a federal hiring freeze, effective immediately. This hiring freeze spans all executive departments and agencies regardless of their sources of operational and programmatic funding (including the IRS) and will expire in 90 days for all executive departments and agencies, except the IRS.
What?
Yes, the IRS hiring freeze will remain in effect until “it is in the national interest to lift the freeze”. This is great news for all taxpayers hoping to have less of their money taken by the federal government.
I may be being overly optimistic, but it is my hope that the new administration will bring about both a less vicious IRS and also many favorable tax changes.
Tax Rates
The federal tax rates remain consistent from 2023 to 2024 (ranging from 10% up to 37%) but are adjusted for inflation.
Most of you will fall in the 22% to the 32% bracket range with taxable income ranging from $94k to $487k (married filing joint) or $47k to $244k (single).
For those whose gross income is $250k or more (married filing joint) or $200k or more (single), there is additional “sur tax” for Medicare (0.9%) and Net Investment Income (3.8%).
Medicare Premiums
Premiums for Medicare Part B are scheduled to increase in 2025 by between $10-$30 per month depending on your income level.
Part D premiums will be subject to an additional surcharge ranging from $14-$86 per month if your 2023 modified adjusted gross income exceeded $212k (married filing joint) or $106k (single).
Mileage Rates
2024:
Business: 67 cents/mile (up from 65.5 cents in 2023)
Charity: 14 cents/mile (remaining the same as in 2023)
Medical: 21 cents/mile (down from 22 cents in 2023)
Form 1099-K
The IRS has been working hard to implement new methods of “tracking” small amounts of potential income to tax. The 1099-K is now a required filing for third-party settlement organizations (TPSOs) such as Venmo, PayPal, Apple Pay, etc.
If you received payments for goods or services through these platforms, you may (and should) receive a 1099-K reporting your “income” to the IRS. These forms are required from a TPSO when annual payments received reach a threshold; for 2024 the threshold is $5,000, for 2025 it is $2,500, and for 2026 and thereafter it is $600.
The obvious problem, especially as this threshold shrinks to $600, is that something as innocent and nontaxable as being reimbursed for a few dinner bills may result in an erroneous 1099-K being issued to you, reporting “income” to the IRS. As such, it will become critical to maintain detailed records to support the amounts you are paid through these platforms.
If you receive an erroneous 1099-K, we will ensure that only the correct amount of income is taxed; however, the burden of proof will fall upon you, the taxpayer, to prove that the payment received to reimburse you for dinner is not income.
Form 1099-DA (New For 2025)
To resolve the current mess that is digital asset reporting (cryptocurrency, NFTs, etc.), the IRS has issued the new Form 1099-DA (Digital Asset Proceeds from Broker Transactions
This new form will be required from all brokers and will report the gross proceeds and cost basis pertaining to the sale of digital assets. All our clients who are invested in cryptocurrencies should be on the lookout for these starting in January of 2026.
CALIFORNIA
I have nothing positive or optimistic to say about California. Gavin (the bad one) is still Gavin, and everything continues to get worse.
The maximum state individual tax rate has risen, again, to a horrifying 14.5%, with another increase to the State Disability Insurance (SDI) tax.
SDI Tax Increase
SDI is a payroll tax withheld from your salary, and it has increased again.
In 1996, the SDI tax rate was 0.5% on the first $31,800 of your salary.
In 2024, the rate was 1.1% of your total salary and will increase to 1.2% of your total salary in 2025.
FUTA (Federal Unemployment Tax Act) Tax Increase
Because California was so generous in its unemployment benefits during the COVID-19 debacle, and exceeded federal guidelines so egregiously, employers can expect a 40% increase in their unemployment taxes paid in 2025.
Section 1031 Exchanges
The Franchise Tax Board (FTB) has made it known that the Section 1031 exchange (the tax-free exchange of two real property assets) will be a top audit issue.
Given this warning from the FTB, please do not hesitate to reach out with any questions before beginning the 1031 exchange process to minimize the risk of errors.
There are many opportunities for error when conducting this complex transaction, and most of them occur long before tax time.
OTHER
Tax Cuts and Jobs Act (TCJA) Sunset
The TCJA was passed into law on December 22, 2017, and contained more tax provision changes than any bill since the Tax Reform Act of 1986.
Many provisions are scheduled to sunset (expire) on December 31, 2025. The tax provisions vary widely, and include lower federal income tax rates, bonus depreciation, increased child tax credits, and the current estate and gift tax exclusion, just to name a few.
President Trump has made it known that he desires to extend many of these provisions or make them permanent. However, tax legislation is anything but quick; for example, the initial TCJA took the entirety of President Trump’s first year in office to pass.
We will be monitoring the situation closely. If President Trump is unsuccessful in extending TCJA provisions, many of you will need to plan for the adverse tax consequences of the sunset.
Beneficial Ownership Information (BOI) Reporting
I am as sick of talking about this as I am sure many of you are of hearing about it.
Is it required? Is it not? It depends on the day. Since early December, the answer has changed a handful of times.
As of today, the Financial Crimes Enforcement Network (FinCEN) reports that BOI is not required but that voluntary submission is encouraged. Because the penalties threatened for non-compliance are so high ($591 per day) we advise that our clients either (1) commit to following BOI news very closely, or (2) voluntarily comply.
Personally, I do not believe that this proposed requirement is reasonable or constitutional. I will be following the news very closely, and I will not be filing a BOI for our company unless I have no other choice. However, I would hate for any of you to suffer significant penalties because you have better things to do with your time.
For any business owners who are still in the dark about this proposed requirement, please let us know, and we will send you detailed information (previously sent).
CLOSING
Once again, 2025 will be a very interesting tax year; there will likely be many changes, but at this time we can only watch and wait.
I apologize for what will inevitably be many more tax emails than any of us would prefer, including and especially myself.
Thank you all for your continued trust in our firm; we remain resolutely committed to saving you the maximum amount of tax dollars legally possible.
God Bless,
Leo Kanzelberger, CPA