2025 Tax Surprises You Shouldn’t Overlook - 01-15-25

There are a few tax rules new for 2025 that may catch some individuals and their tax advisers by surprise. These changes have not received lots of attention either because they are overshadowed by related changes that are more significant, or they were enacted a few years back with a future effective date that arrives in 2025. 

This article covers changes for 2025 that you will want to be sure to share with clients to avoid surprises at a later date.

From the article by Annette Nellen, CPA, CGMA, Esq. posted on 01-15-25.

This podcast is meant for entertainment purposes only. For the more thorough, complete, and accurately written version of this article which includes citations, visit us at http://www.tottb.tax

Transcript

Everyone, welcome back for another deep dive with us. Today, we're gonna be talking about some of the tax law changes coming up in 2025. And we're really focusing on how this is gonna affect you as a tax professional. Whether you're a CPA or an EA or you have a tax law degree, you know these changes are coming, and we wanna make sure that you're ready for them.

Yeah. You know, it's interesting. A lot of these changes aren't even new laws. There are things that have already been passed, but they don't actually go into effect until 2025. So it's really important to be aware of them now so you can start planning for them.

That makes a lot of sense. So let's talk about some of the specific changes that are coming up. Mhmm. And to help us do that, we brought in a tax expert who has literally written the book on this stuff. I mean, this guy's a CPA.

He's got decades of experience, and he's gonna help us break down some of these complicated topics. So first up, let's talk about digital assets. I mean, everyone is talking about crypto these days, but the tax rules around digital assets are well, let's just say they're a little bit complicated. And our expert actually flagged a big change coming in 2025 with basis tracking for digital assets. Yeah.

Before 2025, the IRS basically let you use what they called a universal approach to track your basis. So, basically, it didn't really matter which wallet or exchange you used to buy or sell your crypto. You could just kinda lump it all together when it came time to calculate your gains and losses. So that sounds pretty simple. But what's changing in 2025?

Well, starting in 2025, you're gonna have to use a wallet specific or account specific method to track your basis. So that means that every single wallet or exchange account you use has to be treated separately. Oh, wow. Okay. So that's a big change.

What does that mean for tax professionals? Well, it means that you need to start talking to your clients now about how they're tracking their digital asset transactions. Make sure they have good records and that they're using a method that's gonna comply with the new rules. And what if they haven't been keeping good records up to this point? Well, there is a safe harbor provision that allows taxpayers to use a specific method to allocate their basis, But they have to do it by the end of this year, 2024.

So if they miss that deadline, it could get a little bit tricky. Yikes. I can imagine that conversation with a client during an IRS audit. Not something I would wanna deal with. So okay.

Digital assets, definitely something to keep an eye on. What else is changing in 2025? Well, another big area of change is energy credits, specifically the energy efficient home improvement credit or section 25 c. C. Right.

And I know that the Inflation Reduction Act made a lot of changes to these credits, so it's already pretty complicated. But what's new for 2025? Well, the big one is the new product identification number or PIN requirement. Starting in 2025, certain energy efficient products like heat pumps, windows, and doors are gonna have to have a PIN in order to qualify for the credit. A PIN?

What's a PIN? It's a 17 character code that identifies both the manufacturer and the specific product. It's basically a digital fingerprint for these energy efficient products. So where do you find this PIN? It should be on the product itself, the packaging, or maybe even our website.

So it sounds like it's gonna be really important for taxpayers to get this PIN from their contractor or the manufacturer. Otherwise, they might not be able to claim the credit. Okay. So digital assets, energy credits, anything else we need to be aware of? Well, there are a few key provisions from the Secure 2.0 Act that are gonna be taking effect in 2025.

Right. Secure 2.0. That's another one of those massive pieces of legislation that seems to affect just about everything. So which provisions should we be focusing on for 2025? Well, the 3 big ones are expanded automatic enrollment and retirement plans, higher catch up limits for people aged 60 to 63, and treating student loan payments as elective deferrals for retirement plan purposes.

Okay. So those are some pretty significant changes. And I know the IRS has already issued some guidance on these provisions. But what are you watching for from the IRS in terms of further clarification? Well, for the expanded automatic enrollment, more clarity on the specific implementation rules and what employers are responsible for would be really helpful.

As for the higher catch up limits, guidance on how those limits will be coordinated retirement plans would be great. And when it comes to the student loan payments, more details on how those payments will be treated for tax purposes and how employers should administer these provisions would be really valuable. Okay. Great. So it sounds like we need to stay tuned for more guidance from the IRS on these secure 2 point o provisions.

But even with what we know now, it's clear that these changes are going to have a big impact on taxpayers and tax professionals. So it's important to start planning now and to stay informed about any new developments. Alright. So we've covered a lot of ground in this first part of our deep dive. We have talked digital assets, energy credits, and secured 2 point o provisions, but there's more to come.

Stick with us for part 2 where we'll explore even more potential surprises heading your way in 2025. We'll be right back after a short break. Welcome back, everyone, to our deep dive into the 2025 tax surprises. We were just discussing some of the big changes coming down the pike, like those secured 2 point o provisions, especially those around automatic enrollment and those increased catch up limits and, of course, treating student loan payments as elective deferrals. Yeah.

Those are definitely gonna be some big changes for both taxpayers and tax professionals. Definitely. But while we wait for the IRS to release more guidance, I think it's worth taking a step back and looking at the bigger picture. Absolutely. I mean, with all these changes happening, and who knows what else might be coming down the line, how can we, as tax professionals, really step up and be those trusted advisers that our clients need?

That is the $1,000,000 question. Right. What do you think? Well, I think it boils down to a few key things. 1st and foremost, we need to be proactive in our communication.

We can't wait until tax season to spring these surprises on our clients. We need to be having these conversations now. That's so true. Especially when some of these changes require action on the client's part throughout the year Mhmm. Like tracking those digital asset bases Mhmm.

Or getting those peek ins for energy efficient home improvements. Exactly. If we wait till the last minute, it's just gonna be a mad scramble. Absolutely. Nobody wants that.

So proactive communication, that's number 1. Number 2 is we need to become masters of complexity. Oh, yeah. Tax law is only getting more and more complicated. Staying up to date is no longer optional.

It's essential. So we need to invest in our own education, whether it's attending conferences or webinars or joining professional organizations. Yeah. Continuing education is a must in this field. It really is.

And then the third thing is leveraging technology. There are so many great tools out there that can help us work more efficiently and provide better service to our clients. Absolutely. Think about tax planning software that incorporates all these new rules. Client portals for secure document sharing, even AI powered tools that can analyze complex tax scenarios.

We've gotta work smarter, not harder. Right? So proactive communication, ongoing education, and leveraging technology. Those are the keys to success in 2025 and beyond. I think so.

Okay. So we've talked about digital assets, energy credits, secure 2 point o provisions, and the changing landscape for tax professionals. What else should we be aware of as we approach 2025? Well, our tax expert did mention a few more potential surprises that could be lurking out there. Oh, like what?

Well, for starters, the individual tax cuts, the sole cap, and the higher estate tax exemption, all of those were part of the Tax Cuts and Jobs Act, and they're all set to expire at the end of 2025. Oh, right. That's the big one that everyone's been talking about is anybody's guess what's gonna happen with those provisions. Yeah. It's a lot of uncertainty.

And then there are some other expiring provisions that we need to be aware of, like the work opportunity tax credit and the expanded premium tax credit. So congress is gonna have a lot on its plate in 2025. To say the least. It's gonna be a busy year for tax legislation. That's for sure.

Def And with a new president in office, we can see some pretty big changes. I mean, remember all those tax proposals that were floated during the campaign? Yeah. Things like not taxing tips, a deduction for interest on loans to purchase domestic vehicles, potentially lowering the corporate tax rate, even the possibility of new tariffs. It really does feel like we're on the cusp of a new era of tax law.

It does. And that's why it's more important than ever for tax professionals to stay informed, to be adaptable, and to keep providing top notch guidance to our clients. Well said. Now before we move on to the last part of our deep dive Mhmm. I wanna zero in on one particular area that I think could trip a lot of people up in 2025.

We already talked about the PIN requirement for energy efficient products, but I think it's worth digging a little deeper. Yeah. I agree. It's one of those seemingly small changes that could have a huge impact if we're not careful. Right.

I'm picturing a scenario where a client comes to you in, say, February or March, expecting to claim that nice energy credit for their new heat pump Mhmm. And then they realize they don't have the PIN. What happens then? Oh, man. That's a real nightmare scenario.

And it's probably gonna play out in a lot of tax professionals' offices come tax season. I can see you now. So the first thing is to make sure that our clients understand that they need get that p on from the get go. Don't wait until tax time to start looking for it. Make it part of your checklist when you're discussing these credits with them.

Got it. So education is key. But what if the client is already in that situation? They've had the work done. They don't have the PI, and they're looking to you for a solution.

Well, hopefully, the contractor kept good records and can provide the PI. But if not, the client might have to contact the manufacturer directly, and that's not always easy. And then there's the potential for discrepancies too. Right? What if the PI and the contractor provides doesn't match up with what the manufacturer has on file, or what if the product itself doesn't even have a PI?

That's definitely a possibility, especially with older products or situations where maybe the product was imported, and it doesn't quite meet the same standards. In those cases, it might be a matter of working with the client to gather as much documentation as possible, invoices, receipts, product specifications, anything that can help substantiate the claim. Okay. So it sounds like we need to be extra diligent when it comes to energy credits in 2025. Absolutely.

It's better to be safe than sorry. Alright. I think we've given everyone a good heads up on the PI situation. Now let's shift gears and talk about another area where I think tax professionals need to be especially vigilant in 2025, and that's the whole world of digital assets. Yes.

The Wild West of the tax world. Exactly. We already touched on the new basis tracking rules, but I think it's worth emphasizing just how big of a shift this is and how much confusion is likely to cause for both taxpayers and tax professionals. You're absolutely right. This is a fundamental change in how the IRS expects us to handle digital assets, and it's gonna require a lot of education and adjustment on our part.

Now we mentioned the safe harbor for those who complete the basis allocation by December 31, 2024. But let's be real. How many of your clients do you think are actually gonna meet that deadline? Honestly, I'd say probably a small percentage. A lot of taxpayers are still in the dark about these changes, and even those who are aware might be procrastinating or struggling to gather all the necessary documentation.

So for those who missed the deadline, what's the game plan? What advice are you giving your clients? Well, the first thing is don't panic. Yes. The IRS might scrutinize those pre 2025 tax years more closely, but there are still options.

For example, if a client can demonstrate that they made a good faith effort to track their basis even if it wasn't perfect, That could go a long way in mitigating any potential penalties. So good faith effort is key. What else can clients do to protect themselves? Documentation. Documentation.

Documentation. I can't stress that enough. Gather as much information as possible. Transaction histories, wallet addresses, exchange statements, even screenshots of online platforms. Histories, wallet addresses, exchange statements, even screenshots of online platforms.

The more evidence they have to support their basis calculations, the better. Okay. So documentation is crucial. What about specific allocation methods? Are there any that you recommend for clients who miss the safe harbor?

Well, revenue procedure 202428 lays out 2 methods. The first in first out or CFO method and the specific identification method. CFO is generally simpler. But specific identification can be more advantageous if the client has the records to support it. It really depends on the individual circumstances.

So this is where our expertise as tax professionals really comes in, helping clients choose the allocation method that's best for them and guiding them through the process. Exactly. This is not something that most taxpayers can handle on their own. They need our help. Now let's say a client comes to you and they've been using one of those crypto tax software programs to track their transactions.

How do those programs fit into this new basis tracking landscape? That's a great question. A lot of those programs are already updating their software to comply with the new regulations. But it's important to remember that those programs are only as good as the information you feed them. Garbage and garbage outright.

Exactly. We still need to be diligent in reviewing the output from those programs and making sure that it aligns with the IRS guidelines. And if there are any discrepancies, we need to be able to explain those to our clients. So we still need to be on top of things even if our clients are using software. Absolutely.

Alright. So we've talked about proactive communication, staying educated, leveraging technology, and the importance of documentation. Anything else we should be doing to prepare ourselves and our clients for the digital asset challenges in 2025? I think it's also really important to stay informed about any additional guidance or clarification that the IRS might issue. This is still a relatively new area of tax law, and things are constantly evolving.

So we need to be flexible and adaptable as we said before. Exactly. And we need to be prepared to adjust our strategies and advice as needed. Okay. Great advice.

Well, you've certainly given us a lot to think about when it comes to digital assets, And we've covered a lot of ground in this second part of our deep dive, but we're not done yet. There's one more critical area we need to explore, and that's the potential impact of regulatory changes. Stay tuned for the final part of our deep dive. We will unravel that aspect of the 2025 tax landscape. Welcome back to the final part of our deep dive into all these 2025 tax surprises.

We've been through a lot. Digital assets, energy credit secure 2 point o, and, of course, the evolving role for the tax professional. But now we gotta tackle this last piece of the puzzle, the regulatory landscape. Right. Because, you know, it's not just about the laws themselves.

It's also about how those laws are interpreted and enforced. Exactly. And our tax expert actually made a really interesting point about this. He thinks we might see less regulation under the new administration. Oh, really?

Yeah. He thinks there might be fewer published rulings, less specific guidance from the IRS on how to apply these new tax laws. That's interesting. I mean, less regulation can be a good thing in some ways, but it can also create more uncertainty for taxpayers and for us as tax professionals. Right.

Like, how do we know what the rules are if the IRS isn't telling us? Exactly. Do we have to become, like, tax detectives piecing together clues from court cases and private letter rulings? Well, in a way, yes. We might have to rely more heavily on those sources of guidance if the IRS is putting out less information.

So on top of everything else we already have to do, we might have to start digging through court cases too. It could mean doing a bit more research. But, hey, that's what keeps things interesting. Right? I guess so.

It definitely keeps us on our toes. It does. It's a constantly evolving field. Okay. So just to recap, we've talked about those digital asset bases, the constantly changing energy credits, the secure 2 point o curve balls, and the potential for less regulatory guidance in the future.

It's a lot to keep track of. It is. But as we've been saying, the key is to stay in informed, to be proactive, and to never stop learning. Couldn't have said it better myself. And with that, I think we've come to the end of our deep dive.

Hopefully, this has given you a good overview of some of the big changes coming up in 2025 and maybe even spark some ideas for how you can prepare yourself and your clients for these changes. Definitely. And don't forget to check out the show notes for links to all the resources we mentioned, the IRS publications, the revenue procedures, all that good stuff. Absolutely. Thanks for joining us on this deep dive, everyone.

Until next time. Stay curious, keep learning, and we'll catch you on the next episode.