February 2025
Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
2025 tax season, where 2024 income tax returns are filed, is now open and taxpayers have a little over 10 weeks (from February 1) to get their tax forms to the Internal Revenue Service (IRS). Tax preparation can be very stressful and time consuming. According to the IRS, the average taxpayer spends 13 hours preparing their return.
What to do? Consider a "small steps" approach to assembling required information and preparing your tax return. Below are eight action steps to consider:
Gather W-2 and 1099 Forms- Collect forms showing income earned from employers, clients, and other sources, including investments. Examples of the latter include 1099-DIV (for dividends), 1099-INT (for interest on savings), and 1099-R (for distributions from pensions, annuities, IRAs, and retirement savings plans). Employees receive W-2 forms, which detail their wages and tax withholding, and independent contractors get 1099-NECs.
Organize Tax Information by Categories- Subtotal "like" information (e.g., W-2 income, tax withholding, tax deductible items, business income and expenses) to make it easy to enter data into a tax-preparation software program or to hand over organized records to a tax preparer. Not only can doing this reduce the chance of errors, but it makes you more aware of your personal finances as you review the documents required to do this.
Review Last Year's Tax Return- Use it as a reference tool to identify tax schedules that will be required this year and to determine differences in income and tax write-offs between 2023 and 2024. Also look for recurring items such as carryover capital losses on investments and, for older adults, annual required minimum distributions (RMDs) from tax-deferred retirement savings plans.
Analyze Deductible Expenses- Determine if you have the ability to itemize deductions. Most people cannot. Only about 10% of taxpayers itemize deductions since the Tax Cuts and Jobs Act doubled the standard deduction ($14,600 for singles and $29,200 for couples filing jointly in 2024). If you can itemize, tally up all of your 2024 charitable donations, tax payments, and medical expenses, which must exceed 7.5% of adjusted gross income.
Compile Dependent Care Expenses- Assemble records needed to claim the Child and Dependent Care tax credit (e.g., a list of payments to daycare providers and after-school programs). Include the provider's taxpayer ID number, which is required to claim the credit. Depending on income, taxpayers can claim a credit from 20% to 35% of qualifying care expenses up to $3,000 for one qualifying person and $6,000 for two or more.
Prepare to Report Business Income- Tally up business-related mileage, noting the date, purpose, and miles driven for work if you are self-employed. Then choose between the standard mileage rate (65.5 cents per mile in 2024) or the actual expenses method. Total business income for the year, expenses by category (e.g., office supplies, advertising, and professional dues), and quarterly estimated tax payments made throughout the year.
Update Personal Information- If your address has changed, use Form 8822 (PDF) to notify the IRS. Also make plans to use direct deposit if you expect a tax refund because it is faster and more secure than receiving a paper check. In addition, review your tax withholding as you prepare your 2024 tax return and use the IRS Tax Withholding Estimator to ensure that the right amount of taxes is withheld for 2025.
Secure Tax Preparation Resources- Consider a VITA site for simple tax returns, a tax preparation firm for moderately complex returns, and a certified public accountant (CPA) or enrolled agent for complex situations like owning a business, multi-state properties, or international income. Line up appointments now. For do-it-yourselfers, consider using tax software programs including TurboTax, H&R Block, TaxAct, and TaxSlayer.