In case anyone forgot, federal income tax is due next week. (Though it’s easy to get an extension, full tax must be paid on time or interest and penalties will be assessed on the balance.)
As an AARP Tax Aide volunteer, I see many tax returns since I have been assigned to Quality Review.
AARP Tax Aide is aimed toward the elderly and working class so we don’t see the poor. We can do returns for upper middle class people as long as they have simple dividend, interest and business income but more complex returns are “out of scope” for us.
According to Tax Policy Center projections, about 40% of households will pay no federal income tax in 2025. This is because the high standard deduction means that almost nobody itemizes anymore. The extra “bonus” deduction of $6,000 each for elderly on top of the standard deduction plus senior add-on has taken many Tax Aide clients to 0% or 10% tax brackets. Of course, everybody ends up paying all kinds of additional taxes, some of which (like sales tax) are highly regressive.
Social Security benefits are taxed when your “combined income” (AGI + nontaxable interest + 50% of benefits) exceeds $25,000 (single) or $32,000 (married filing jointly). Most Tax Aide clients end up owing at least a little tax since most have some income in addition to Social Security.
Many individual tax breaks are built into our minestrone tax code.
Some benefit the poor but several benefit investors significantly.
One temporary tax break that isn’t on this list is the temporary (until 2030) rule that allows Traditional IRA Required Minimum Distributions to be QCD’d to an annuity at a charity. The previous law allowed IRA RMDs to be QCD’d to a charity. The new part is that the annuity will pay income (taxable) to the donor while the previous arrangement provided no income to the donor. Anyone who is considering lowering their income by a QCD of an RMD should look into this. When calculating, include the impact on tax bracket and also on IRMAA. Check your favorite charity – they have jumped on the bandwagon since an annuity makes a large QCD much more favorable.
Another change in the 2025 OBBBA tax bill is the deductibility of charity up to $1,000 outside of itemized deductions starting in 2026. I guess the churches were screaming because putting small charitable deductions into the “itemized” category (which few use) cut their legs out from under them.
Wendy