IRS changes for 2025 taxes

1. Paper checks – The IRS will be phasing-out issuing paper checks as refunds and will stop accepting checks as payment. Make sure we have the correct direct deposit information if you are receiving an IRS refund. Also, make sure you are familiar with paying the feds online for any payments, including estimated taxes. For a walkthrough on IRS payments see our website under Resources.
2. Tip income deduction – Up to $25,000 of qualified tips will be tax-free from 2025-2028, subject to income limitation. We will need your year-end paystub. Self-employed people should keep track of the amount of their tip income if it’s not part of your credit card merchant report.
3. Overtime pay deduction – Up to $12,500 of qualified overtime compensation will also be temporarily income-tax-free, with similar income limitations. Your employer may be attaching a statement to your W-2, or we will need your year-end paystub.
4. Enhanced deduction for seniors – People aged 65 and older will get an extra $6,000 deduction on top of their standard or itemized deduction.
5. Auto loan interest deduction – You can deduct up to $10,000 of car loan interest when you purchase a new car (starting in 2025 on) for personal use that is assembled in the US, subject to income limits. The loan lender will issue you a form 1098-VLI.
6. Digital asset (i.e. crypto) brokers will be issuing 1099s to report crypto sales. They are not required to report basis information for 2025, but we are hoping they do so anyway. Starting in 2026 they will be required to report both the sales and the basis information.

IRS changes for 2026 taxes

1. Federal energy credits, including clean home energy credits like PV, and electric vehicle credits are discontinued. Note that Hawaii will still have credits for PV systems.
2. Charitable deductions – You can get a $1,000 charitable deduction ($2,000 for a couple filing jointly) even if you are not itemizing your deductions.
3. Gambling losses will be limited to 90% of losses. Make sure to get copies of your win/loss reports to substantiate your losses.
4. 1099-NEC changes – If you need to issue 1099-NECs to someone, the reporting threshold is raised from $600 to $2,000.
5. Healthcare.gov – If you have health insurance through the healthcare.gov marketplace, be aware there are no more caps on repayment of subsidies. Make sure you are careful not to overestimate your subsidies!

Hawaii State Tax Changes

1. Tax brackets – The Hawaii income tax brackets have changed this year, which could result in lower state taxes for many individuals.
2. TAT increase – If you have a transient accommodations rental, be aware that the TA tax is going to 11% for 2026 and beyond. There is a new website to file and pay the TAT at tat.ehawaii.gov/tat/maui .

There are a few things to keep in mind this coming tax year:

1. We’ve moved!! But not very far. We’re now in Suite 220 instead of Suite 225, same building, same floor.
2. If you have ownership in an LLC (single-member or multi-member) or a Corp (C-Corp or S-Corp) there is a MANDATORY new form to file with the US Financial Crimes Enforcement Network called the Beneficial Owner’s Information Report. This is not part of your tax preparation that we do. We have a walkthrough on the Resources page of our website to help you through the process and it is simple to complete. For existing entities, you need to file this report by the end of the year. For new entities formed in 2024 or later, you have 30 days from your formation to file the report. If there is a change in information (e.g. address, ownership, etc.), you have 30 days to file a change report. Penalties are $500 per day up to $10,000 for not filing by the deadline, so make sure this gets done!
3. The Maui wildfires were devastating and our hearts go out to all. The fires also bring some tax challenges. We have a write-up about some of those tax effects a little down this page, so be sure to check there first as a quick guide. If you have other questions, please don’t hesitate to contact us.
4. Maui County has joined the other Hawaii counties in adding a ½% increase to the General Excise Tax. If you pass the tax on to clients or customers, be sure to charge 4.712% instead of 4.166%.
5. Credits for electric vehicles are extended but are now more confusing. The credit amount is determined by where battery materials come from and the location of the assembly of the battery, with a max credit of $7,500. There is an option to receive the credit at the time of the vehicle purchase, but the credit is reconciled on the tax return, so make sure you qualify or you’ll be paying it back on the tax return! Don’t rely on the info the dealer gives you and please call us to make sure you qualify for any tax credit. Also, you can now get a tax credit for some used EVs bought from a dealer.
6. Energy efficient home improvements are back with expanded credits. If you purchase any Energy Star doors, windows, central A/C, etc. keep those receipts.

First, the IRS has delayed certain tax returns and payments for people who reside or have a business in the disaster area. The following

• Estimated payments due Sept 15^th and Jan 16^th

• Quarterly payroll tax returns usually due on Oct 31^st and Jan 31^st 

• Personal tax returns on extensions due Oct 16^th (although payments were due this past April 2023 and will still be considered late)

• Partnership and S-Corp tax returns on extensions and due Sept 15^th

Are all extended until Feb 15^th 2024.

If you need to take money out of a retirement account, you can waive the usual 10% early withdrawal penalty on the first $22,000, and you can also elect to spread that taxable income over 3 years.

See the IRS’s press release at https://www.irs.gov/newsroom/irs-hawaii-wildfire-victims-qualify-for-tax-relief-oct-16-deadline-other-dates-postponed-to-feb-15 for more information.

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If you get disaster relief payments, they may or may not be taxable depending on what the money is for. The general rule is that if the funds are used for personal, family, living expenses, funeral expenses, repair or rehabilitation of your home, or the repair or replacement of your home’s contents it’s nontaxable. If the payment is for lost wages, it is taxable.

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If your business lost inventory and keeps a running cost of goods sold, just track your ending inventory at the end of the year like normal.

If you lost depreciable business equipment or property, you can write off the rest of whatever has not been depreciated, minus whatever insurance reimbursement you receive (or expect to receive).

If you have lost personal property (for example your home, property inside your home, car, etc) you can either deduct the loss on your 2023 tax return, or you can amend your 2022 tax return. The loss is the lessor of two equations: (1) The basis (usually what you originally paid plus cost of major improvements and renovations) of your property, minus insurance money you receive or expect to receive. (2) The market value of your property before the fire minus the market value of your property after the fire, minus any insurance money you receive or expect to receive.

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Edit 8/31/23:

Hawaii Dept. of Taxation has addressed some of these same issues. For those affected by the fires, Hawaii will consider extensions to file and pay taxes and for waivers of penalties and interest on a case-by-case basis. They outlined instructions on how to do so when your tax return is filed.

Hawaii also is adopting IRS section 139, which says that any amounts received by an individual as a “qualified disaster relief payment” are not taxable. (These amounts are also expensed by the business paying these costs.)

For more information, see the state’s announcement here: https://files.hawaii.gov/tax/news/announce/ann23-03_amended.pdf

There has been a heavy increase in tax scams over the past couple of years. Some have been around a while, but identity thieves are always developing new ways to harvest your info. The IRS keeps a list of scams that target taxpayers at www.irs.gov/newsroom/tax-scams-consumer-alerts.

Just this last Monday the IRS warned of a new scam being mailed to taxpayers. The letter comes in a cardboard envelope, with the IRS logo and a notice that you have an unclaimed refund. These should be disregarded. If you are interested in checking your refund status you can use the “Where’s my Refund” on the IRS website (the link is always on our resources page as well).

There is a company that mails out letters to Hawaii entities saying they can file your annual report for $160. But you can file this report yourself, and it costs around $13.50 on the DCCA website. The letter looks very official (see below), but please be aware that this is a scam!

If you ever have a question if something is legit, please contact us!

There are a few things to keep in mind this coming tax year:

1. The American Rescue Plan authorized advance payments of the Child Tax Credit starting in July of 2021. If you received advances of the credit your tax refund may be lower this year. Also, if you received more than you should have, you may have to pay some or all of it back. So, if you received any payments, please let us know the total amount to avoid any complications. The IRS just sent out a Letter 6419 showing the total advance payments you received, so please include this with your tax preparation material.
2. The 3^rd round of stimulus payments started going out in March of 2021. This was an advance on a 2021 tax credit. If you received less than you were due you will be eligible for a credit on your 2021 tax return, so be sure to let us know how much you received. The IRS sent out a Letter 6475 to everyone who received a payment, so please include this with your tax preparation material.
3. If you were eligible and received PPP funds in 2021, we will need to include this information on your tax return, including the amounts granted and amounts forgiven.
4. In 2020, the first $10,200 of unemployment was not taxable for many people. There’s no such provision in 2021, so if you received unemployment, be aware that that money is fully taxable this year.
5. Both the IRS and Hawaii have made it easier to make payments online. IRS payments (including estimated payments) can be made at irs.gov/payments. You can either pay with a bank account at no cost, or pay with a credit card with fees Hawaii payments can be made at hitax.hawaii.gov. Click on “Make a Payment”, and the website will ask for some information to confirm it’s you.
6. In the near future, it will be harder to set up an online account with the IRS. An online account is useful to have in case you need to look up past tax returns, check account payments and balances, IRS letters, etc. The IRS is moving to a 3^rd party authenticator called ID.me (to set up an account, go to https://www.irs.gov/payments/your-online-account, click on “Sign in to your Online Account”, then click on the “Create an Account” button). Beginning in the summer of 2022, this will be the only way to access your IRS account and it’s a pain to set up, so it’s recommended that you set up an account before you’re in a time sensitive situation.
7. Please be sure to fill out the Tax Worksheet (as best you can and whatever applies to you) before coming in to your appointment. The worksheet can be found on our website under “Resources”.
8. Lastly, a note on the secure portal system on our website. If you just want to send and receive messages you can, but the messages (and attachments) disappear after 14 days. If you create a username and password, the messages won’t expire.

We look forward to helping you adapt and take advantage of all the new changes in the tax world. We appreciate your trust and aloha.

The IRS has opened its online portals for the advance payments of the child tax credit (see previous post).

If you want to view your eligibility, view your advance payments, or opt out of the advance payments, you can go here.

If you don’t need to file a tax return but want to sign up for the advance payments, there are instructions and a tool here.

The new credit is for 2021 ONLY. It will be a $3,600 credit for each child under age 6, and a $3,000 credit for children ages 6 to 17.

Half of the credit will be paid monthly from July thru December, $300 in each month for children under age 6 and $250 for each child aged 6 to 17. The other half will be claimed on the filing of the 2021 tax return.

There are limits on the credit based on your Adjusted Gross Income (AGI) for 2021. You get the full credit for head of household taxpayers if your AGI is $112,500 or less. For married filing joint, the AGI limit is $150,000.

The money will be paid out based on your 2020 tax return that you should have just filed.

This credit is NOT like the stimulus money. Over- or under-payment is reconciled on your 2021 tax return. Basically, this means that if you qualify for the credit based on the 2020 tax return and then you make too much money to claim it when you file your 2021 tax return, you’ll need to pay it back (or your refund will be reduced).

It’s our recommendation that you add direct deposit information to your 2020 tax return if you haven’t filed it yet so that payments are direct deposited. And keep track of the payments you receive!!

The IRS should be setting up a portal by July 1^st so that people can update their information. The portal should allow you to update your number of children (including birth), marital status, change in income from 2020 to 2021, and it should include an option to opt out of the prepayments.

The IRS has already started sending out its second round of stimulus payments for $600 per eligible person. The IRS must stop sending payments by January 15^th, so you should see the money soon. If you don’t have direct deposit set up for this payment, set it up ASAP! Right now the website is down as the IRS updates it, but it should be back up shortly. Check the status or update your information here: https://www.irs.gov/coronavirus/get-my-payment

The payments are based solely on your 2019 AGI, and the phase-out ranges are a little narrower than they were for the first round of money. If you want to check how much you may be getting you can use the calculator here: https://my.kiplinger.com/kiplinger-tools/taxes/second-stimulus-check-calculator/index.php

The good news is if you don’t receive the payment you’re due by the January 15^th deadline, you can still claim the money through a credit on your 2020 tax return. As a side note, make sure to keep track of both the amounts of the payments you receive as you’ll need that sum to file your 2020 tax return.