For 2025, taxpayers whose income exceeds the thresholds below must file income tax returns.

Single - $15,750
Married Filing Jointly - $31,500
Head of Household - $23,625

Taxpayers over the age of 65 may earn an additional $2000, or $1,600 if filing jointly (per taxpayer) before needing to file a Federal Income Tax Return.

Married Filing Separately must file returns if their income exceeds $5.

TMG Tip: Taxpayers below these income thresholds may still wish to file returns if ANY income tax was withheld from their pay, and to claim refundable tax credits to which they may be entitled, such as the Child Tax Credit and the Earned Income Tax Credit.

State filing requirements vary.

Contact TMG for further questions or to review your individual numbers.

IRS adjusts annually for inflation.

For 2025, the standard deduction is:

• $15,750 for single and married filing seprately filers

• $31,500 for married filing jointly

• $22,000 for head of household.

• Taxpayers aged 65+ and/or blind receive an additional deduction for each status

  • $2,000 per taxpayer if single filers

  • $1,600 if filing joint.

• Seniors over the age of 65, for tax years 2025 through 2028, may qualified for an additional $6,000 Senior Deduction per eligible taxpayer.

Federal Income Tax Brackets range from 10% to 37%, with income thresholds inflation adjusted from 2024.

California Income Tax Brackets range from 1% up to 13.3%.

The United States operates under a progressive tax system, where income tax is levied against portions of income that fall within respective tax brackets.

For example, a married couple with federal taxable income of $150,000 would be taxed in 2025 as follows:

$23,850 taxed at 10% = $2,385
$73,100 taxed at 12% = $8,772
$53,050 taxed at 22% = $11,671

Total Federal Income Tax = $22,828

Their marginal tax bracket, that is the highest bracket a portion of their income fell into, is 22%.

Their effective tax rate, that is the percentage of taxable income they actually paid in taxes, is 15.2%

If we assume the couple took the standard deduction, filing jointly, and thus their adjusted gross income was $31,500 higher, or $181,500, this effective rate is 12.6%, or more simply, they paid roughly $0.13 cents in federal income taxes on every dollar they earned.

For 2025, deductible mileage rate per mile is:

Business: 70.0 ¢
Medical: 21.0 ¢
Charitable: 14.0 ¢
Depreciation: 33.0 ¢

When preparing your income tax return, your filing status determines your tax rates, the amount of your standard deduction, and your eligibility for certain credits and deductions.

There are five filing statuses:

1. Single

2. Married Filing Jointly

3. Married Filing Separately

4. Head of Household

5. Qualifying Surviving Spouse

You should choose the filing status that best fits your situation as of the last day of the tax year (December 31st).

If you qualify for more than one status, you may use the one that results in the lowest tax.

1. Single

• Who qualifies: You are unmarried or legally separated from your spouse under a divorce or separate maintenance decree on the last day of the year, and you do not qualify for another status.

• Key factors: Not married, not a head of household, not a qualifying surviving spouse.

2. Married Filing Jointly

• Who qualifies: You are married and both you and your spouse agree to file a joint return. You can file jointly even if only one spouse had income.

• Key factors: Married on the last day of the year, or your spouse died during the year and you did not remarry by year-end. Both spouses are responsible for the tax due on a joint return.

3. Married Filing Separately

• Who qualifies: You are married but choose to file separate returns. This may benefit you if you want to be responsible only for your own tax or if it results in less tax than a joint return.

• Key factors: Married on the last day of the year, but you and your spouse do not want to file jointly. Some credits and deductions are limited or unavailable with this status.

4. Head of Household

• Who qualifies: You are unmarried or considered unmarried on the last day of the year, you paid more than half the cost of keeping up a home for the year, and a qualifying person lived with you for more than half the year (except for temporary absences, such as school). Your dependent parent does not have to live with you.

• Key factors: Unmarried or considered unmarried, paid more than half the cost of keeping up a home, and have a qualifying person (such as a child or dependent parent).

5. Qualifying Surviving Spouse (with Dependent Child)

• Who qualifies: Your spouse died in one of the two years immediately before the current tax year, you have not remarried, you have a dependent child, and you paid more than half the cost of keeping up your home, which was the main home for your child for the entire year.

• Key factors: Allows you to use joint return tax rates and the highest standard deduction, but you cannot file a joint return. This status is available for two years following the year of your spouse’s death.

How to choose:

• Your marital status on December 31st determines whether you are considered married or unmarried for the year.

• If you qualify for more than one status, choose the one with the lowest tax.

• Special rules apply for those who are separated, divorced, or widowed during the year.

Tip: If you are unsure which status applies, the IRS Interactive Tax Assistant or your TMG Tax Advisor can help determine the correct filing status for your situation.

When deciding whether to itemize deductions or take the standard deduction, you should compare the total amount of your allowable itemized deductions to the standard deduction amount for your filing status.

Let’s examine the differences and considerations:

Standard Deduction:

• The standard deduction is a fixed dollar amount that reduces your taxable income.

• The amount depends on your filing status, age, and whether you are blind or can be claimed as a dependent.

• For 2025, the standard deduction amounts are:

  • Single or Married Filing Separately: $15,750

  • Married Filing Jointly or Qualifying Surviving Spouse: $31,500

  • Head of Household: $23,625

  • Additional amounts are available if you are age 65 or older or blind.

• The standard deduction is simple to claim and does not require you to track or document specific expenses.

Itemized Deductions:

• Itemized deductions are specific expenses you paid during the year, such as:

  • Mortgage interest on your primary home (limited to $750,000 in total mortgages)

  • State and local income or sales taxes (subject to a cap)

  • Real estate and personal property taxes

  • Charitable contributions

  • Certain medical and dental expenses (if they exceed 7.5% of your adjusted gross income)

  • Certain casualty and theft losses

• To itemize, you must keep records and receipts for these expenses and report them on Schedule A (Form 1040).

• The total of your itemized deductions must be more than your standard deduction to provide a tax benefit. Otherwise, you are generally better off taking the standard deduction.

Key Considerations:

• If your total itemized deductions are greater than your standard deduction, itemizing will reduce your taxable income more, resulting in lower tax.

• If your itemized deductions are less than or equal to your standard deduction, you should take the standard deduction.

• Itemizing often makes sense if you have significant deductible expenses, such as high mortgage interest, large charitable contributions, or substantial medical expenses.

• For most taxpayers, the standard deduction is the better choice because it is higher than what they could claim by itemizing, and it is much simpler to claim.

Practical Perspective:

• Itemizing means you are spending whole dollars (for example, paying mortgage interest, property taxes, or making charitable donations) in order to reduce your tax bill by a fraction of those dollars (a few cents on the dollar, depending on your tax bracket).

• The government only subsidizes a portion of your spending through the deduction.

• The standard deduction, on the other hand, is a set amount you can claim without having to spend money on deductible expenses or keep records.

Take the standard deduction if it is greater than your total itemized deductions or if you do not have significant deductible expenses.

Itemize deductions only if your total deductible expenses exceed the standard deduction for your filing status, and you are willing to keep the necessary records and receipts.

In summary, most taxpayers benefit from the standard deduction due to its simplicity and relatively high amount. You should only itemize if your deductible expenses are substantial enough to exceed the standard deduction, keeping in mind that itemizing means you are spending real money to get a partial tax benefit.

When preparing for your taxes, you should retain and provide documents that support the income, deductions, and credits you report on your tax return.

IRS does not require a specific recordkeeping system; however, your records must clearly show your income and expenses.

Below is a reference guide of what to keep and for how long:

1. What Documents to Retain

• Income Records:

  • Forms W-2 (wages)

  • Forms 1099 (interest, dividends, self-employment, retirement, etc.)

  • Bank and brokerage statements

  • Schedule K-1s (partnerships, S corporations, trusts)

  • Records of any other income (rental, alimony, unemployment, etc.)

• Expense and Deduction Records:

  • Receipts, invoices, and canceled checks for deductible expenses (e.g., medical, charitable contributions, mortgage interest, property taxes, business expenses)

  • Year-end pay statements for deductible payroll deductions (e.g., union dues, health insurance)

  • Written communications from charities for donations

  • Childcare provider information (name, address, taxpayer ID)

  • Records of education expenses (tuition, books, etc.)

  • Records of retirement account contributions (Forms 5498, 8606)

• Property and Investment Records:

  • Closing statements and purchase/sale documents for real estate

  • Records of home improvements (for basis adjustments)

  • Brokerage statements showing purchase and sale of stocks, bonds, mutual funds

  • Records of reinvested dividends, stock splits, and capital improvements

• Other Supporting Documents:

  • Prior year tax returns (helpful for carryovers, basis, and future returns)

  • Any correspondence with the IRS

  • Documentation for credits (e.g., adoption, energy, child tax credit)

2. How Long to Keep Tax Records

• General Rule:

  • Keep records that support items on your tax return until the period of limitations for that return runs out. This is generally 3 years from the date you filed the return or the due date, whichever is later.

• Exceptions:

  • 6 years if you underreported income by more than 25% of the gross income shown on your return.

  • 7 years if you file a claim for a loss from worthless securities or bad debt deduction.

  • Indefinitely if you do not file a return or file a fraudulent return.

  • Property Records: Keep records relating to property (real estate, stocks, etc.) until the period of limitations expires for the year in which you dispose of the property. This is to determine any gain or loss and to support depreciation, amortization, or depletion deductions. If you received property in a nontaxable exchange, keep records on both the old and new property until you dispose of the new property and the period of limitations expires for that year.

• Employment Tax Records (if you have employees): Keep for at least 4 years after the tax becomes due or is paid, whichever is later.

3. Electronic Records

• Electronic records are acceptable as long as they are accurate, accessible, and can be reproduced in a legible format for the IRS if requested.

Key Points:

• Keep all documents that support your tax return entries.

• Retain records for at least 3 years, but longer in special situations.

• Keep property records as long as you own the property plus 3 years after disposal.

• Electronic records are acceptable if they meet IRS requirements.

These guidelines will help you be prepared in case of an IRS inquiry or audit and ensure you have the necessary documentation to support your tax filings.

A charitable deduction for income tax purposes is a deduction allowed for contributions made to qualified organizations, subject to specific requirements and limitations.

Historically, charitable deductions were limited to itemized filers. Beginning in 2026, under the 2025 OB3 Tax Legislation, standard filers will now be able to claim a limited charitable deduction for qualified contributions.

1. Eligible Organizations

To qualify for a charitable deduction, contributions must be made to or for the use of a "qualified organization." These include:

• Nonprofit organizations organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.

• Churches, synagogues, mosques, and other religious organizations.

• Federal, state, and local governments, or their subdivisions, if the contribution is for exclusively public purposes.

• War veterans' organizations.

• Domestic fraternal societies, orders, and associations, if the contribution is used solely for charitable, religious, scientific, literary, or educational purposes.

• Certain nonprofit cemetery companies (but not for the care of a specific lot or crypt).

• Indian tribal governments or their subdivisions that perform substantial government functions.

• Certain foreign charities, but only under specific circumstances and treaties (e.g., some Canadian, Mexican, or Israeli charities, and only if the taxpayer has income from those countries).

You can verify an organization’s status using the IRS Tax Exempt Organization Search tool.

2. Types of Contributions

a. Cash Contributions:
Money given by cash, check, electronic funds transfer, credit card, or payroll deduction.

b. Property Contributions:
Donations of tangible personal property (e.g., clothing, vehicles, artwork), real estate, stocks, bonds, or other assets. The deduction is generally the fair market value (FMV) of the property at the time of the contribution, but special rules may apply (see below).

c. Out-of-Pocket Expenses:
Unreimbursed expenses incurred while providing services to a qualified organization (e.g., supplies, mileage at a standard rate, uniforms required for volunteer work).

d. Special Contributions:

• Qualified conservation contributions (e.g., easements on real property for conservation purposes).

• Certain expenses for hosting a student under a written agreement with a qualified organization.

• Reasonable and necessary whaling expenses for recognized Alaska Eskimo whaling captains (up to $50,000 per year for tax years after 2025).

3. Key Requirements

a. Substantiation and Recordkeeping:

• For any cash contribution, you must have a bank record or written communication from the donee showing the name of the organization, date, and amount.

• For contributions of $250 or more, you must obtain a contemporaneous written acknowledgment from the organization stating the amount, a description of any property contributed, and whether you received any goods or services in return.

• For noncash contributions over $500, you must file Form 8283 with your tax return; for contributions over $5,000, a qualified appraisal is generally required.

b. No Benefit in Return:

• If you receive goods or services in exchange for your contribution (e.g., tickets to an event, merchandise), you can only deduct the amount that exceeds the fair market value of what you received.

c. Itemization:

• Generally, you must itemize deductions on Schedule A (Form 1040) to claim a charitable deduction. However, for tax years after 2025, a limited above-the-line deduction is available for non-itemizers: up to $1,000 ($2,000 for joint filers) for cash contributions to certain organizations.

4. Key Limitations

a. Percentage Limits:

• Deductions are generally limited to a percentage of your adjusted gross income (AGI), depending on the type of contribution and recipient:

  • Cash contributions to most public charities: up to 60% of AGI.

  • Noncash contributions to public charities: up to 50% of AGI.

  • Contributions to certain private foundations or for the use of a charity: 20% or 30% of AGI.

  • Qualified conservation contributions: up to 50% of AGI (100% for qualified farmers/ranchers, subject to restrictions.

b. Carryovers:

• Excess contributions can generally be carried forward for up to five years (15 years for qualified conservation contributions).

c. Non-Deductible Contributions:

• Contributions to individuals, political organizations or candidates, social clubs, for-profit groups, or foreign organizations (except as noted above) are not deductible.

• The value of your time or services, blood donations, and raffle or lottery tickets are not deductible.

d. Special Rules for Certain Property:

• Used clothing and household items must be in good used condition or better.

• For vehicles, boats, or airplanes, the deduction is generally limited to the gross proceeds received by the charity upon sale, unless the charity makes significant use or improvement, or gives it to a needy individual.

5. Additional Considerations

• If you receive a state or local tax credit in return for your contribution, your federal deduction may be reduced by the amount of the credit, unless the credit is 15% or less of the contribution.

• Contributions of partial interests in property are generally not deductible, except for certain exceptions (e.g., remainder interests in a personal residence or farm, qualified conservation contributions).

TLDR: To qualify for a charitable deduction…

• Give to a qualified organization.

• Make a voluntary gift without receiving substantial benefit in return.

• Keep proper records and obtain required acknowledgments.

• Observe AGI percentage limits and other special rules for property and noncash gifts.

It happened, the dreaded IRS letter surprised you in the mail. What do you do?

In the immortal words of Douglas Adams, DON’T PANIC!

Tax agency letters, whether IRS, FTB, or others, begin in almost every case from a computer generated prompt.

You are not being targeted, a government bureaucrat hasn’t picked you out to ruin your day.

When the inevitable tax letter arrives, and over your lifetime, nearly every taxpayer gets one, DON’T ignore it, it won’t go away on its own.

Take the following steps to achieve the most successful resolution.

1. Read the letter in full.

2. Take notes, highlighting exactly what is requested. Remember, most of these letters are computer generated are often simply looking for further information.

3. Immediately contact your TMG Tax Advisor and provide a copy of every page of the letter.

4. Review the request with your TMG Advisor, and make a plan of action for responding to the tax agency.

5. Follow through on all action items until the matter is resolved.

6. Remain calm and patient as the matter is worked. Remember, the tax agencies are understaffed, overworked government employees. The collections personnel are often the least trained and the newest on the job. Patience and understanding are key to successful resolution.

7. Implement the required remediation plan, if applicable.

8. Congratulations, you too have survived a tax letter. Well done citizen!

In 2025, qualifying seniors may receive an extra deduction that reduces the amount of Social Security income subject to tax. This can lower or even eliminate taxes on benefits for many retirees, depending on total income.

• For taxpayers over the age of 65, the deduction is $6,000 per eligible taxpayer.

• Taxpayers may itemize or claim the standard deduction and still take the senior deduction.

• Taxpayers must file joint returns if married.

• Deduction is time limited to tax years beginning January 1, 2025 through December 31, 2028.
  
  Learn more in our 2025 OB3 Senior Deduction video
  
  Read our Social Security Taxation white paper

Yes, the Child Tax Credit remains in place at up to $2,200 per child under age 17. The credit begins to phase out at $200,000 of income for single filers and $400,000 for married filing jointly.

Yes, you may still deduct up to $2,500 of interest if your income is below the IRS limits. However, forgiven student loan balances may have different tax treatment depending on the program.

A credit reduces your tax bill dollar-for-dollar. A deduction lowers your taxable income. Credits usually provide greater savings than deductions of the same dollar amount.

You may contribute up to $7,000 ($8,000 if 50+) in 2025 to a Roth IRA.

Contributions phase out for single filers starting at $150,000 and for married couples starting at $236,000 of modified AGI.

TMG Tip: Taxpayers with earned income may benefit significantly from FIRST contributing to a pre-tax Traditional IRA, 401k, 403b, or other tax advantaged investment account.

• For most taxpayers, contributing pre-tax income to retirement is the single greatest tax deduction they are eligible to claim.

• Pre-tax retirement contributions are paying whole dollars to future you, while receiving a tax deduction (fraction of those dollars) today.

• By investing pre-tax dollars, taxpayers often have more money to invest, and are more likely to generate larger gains than with post tax plans such as the Roth IRA.

• Yes, taxpayers may have to pay income tax on those earnings when they retire, depending on their overall financial situation and respective taxable income in each given year of retirement.

• Careful tax planning reduces that tax liability and maximizes gain.

TMG recommends taxpayers maximize their pre-tax contributions while in their peak earning years, and make supplemental contributions to Roth IRAs when excess funds are available.

• Our retiree clients often have modest Roth IRA accounts, which they use for vacations, new cars, or other expenses that would most benefit from tax free funds.

• Their primary sources of income are rarely their Roth IRAs, having taken advantage of pre-tax options when they were paying 15%, 20%, or more in effective income tax.

• Our average retiree client today, with a net worth of $3-5M, pays significantly less in income tax in retirement - as an effective percentage - than when they were earning income during their careers.

At TMG, we love a Roth IRA, in the proper order, and encourage our clients to consider all financial and personal goals when planning an effective and sustainable retirement.

Employees cannot deduct home office expenses under current law. Only self-employed individuals or business owners may deduct qualified home office expenses.

You may gift up to $19,000 per person per year without filing a gift tax return. Larger gifts count against your lifetime estate and gift tax exemption of $13.99 million per person.

Married couples may double up and contribute $38,000 per recipient per tax year.

An exception exists allowing for up to 5 years of gifts in a single year, committing to treat this gift as if it occured over 5 years and not making further gifts to the beneficiary during that time period. This allows tax free gifts to an individual of up to $95,000 in 2025, or $190,000 for joint filers.

Have a young couple in your life about to get married, or considering buying their first home? You are allowed to gift each person the maximum contribution, which could mean up to $380,000 in tax free wealth transfer to the newlyweds in 2025.

TMG Tip, contributing gifts to eligible 529 Education Plans ensures the growth on that gift remains tax free for qualified education purposes. New in 2025, 529 plans now benefit from expanded K-12 education and related expenditures, further strengthening the value of these savings plans.

Common triggers include unreported income, large charitable deductions compared to income, excessive business losses, and mismatched W-2/1099 reporting. While risk for an audit remains low for most taxpayers, the cure for all that ails is maintaining good documentation. Remember, avoiding income tax through legitimate deduction, credits, and tax planning, is not only legal, but highly recommended. Evading income tax is always wrong, and gambling with your future financial freedom is not a worthwhile endeavor.