As a tax professional, upcoming changes can be a bit confusing and maybe even stressful. However, understanding these changes now can help reduce uncertainty in the future. Here’s a breakdown of recent IRS updates and how you can navigate them effectively:

1. Increased Standard Deductions

The IRS has adjusted standard deductions for inflation, affecting tax planning strategies for many clients.

• Single filers and married individuals filing separately: $15,000 (up $400 from 2024).
• Married couples filing jointly: $30,000 (up $800 from 2024).
• Heads of household: $22,500 (up $600 from 2024).

How Tax Professionals Should Respond

• Review tax plans with clients to determine if itemizing still makes sense.
• Use Drake Software’s tax planning tools to assess how these changes impact returns.

2. Child Tax Credits

The refundable portion of the Child Tax Credit (CTC) has increased to $1,600. This adjustment could impact refund amounts for families with children.

How Tax Professionals Should Respond

• Educate clients on eligibility requirements and changes.
• Update tax strategies for families who may benefit from additional refunds.

3. Foreign Earned Income Exclusion

The maximum foreign earned income exclusion has increased to $130,000 for 2025.

How Tax Professionals Should Respond

• Advise expatriate clients on how to maximize tax savings.
• Ensure correct documentation for foreign income reporting.

Tax credits for electric vehicles (EVs) remain available, with up to $7,500 for new EV purchases and $4,000 for used EVs.

How Tax Professionals Should Respond

• Identify clients eligible for EV tax credits.
• Inform business clients about incentives for transitioning to green energy.

5. Lower Reporting Threshold for Online Sales

The IRS now requires taxpayers earning more than $5,000 through online sales to report their income via Form 1099-K.

How Tax Professionals Should Respond

• Alert clients with side businesses or online sales about reporting obligations.
• Assist clients in gathering the necessary documentation.
• Ensure accurate tax filing to avoid IRS penalties.

6. Repeal of Cryptocurrency Tax Reporting Rule

The repeal of a rule requiring decentralized finance (DeFi) platforms to report transactions reduces reporting burdens for crypto users.

How Tax Professionals Should Respond

• Advise cryptocurrency clients on record-keeping best practices.
• Stay informed about future IRS regulations for digital assets.
• Use Drake Software’s cryptocurrency tax reporting tools for accurate filings.

7. IRS Workforce Reduction

The IRS is reducing its workforce, potentially affecting customer service and processing times.

How Tax Professionals Should Respond

• Anticipate longer processing times for tax filings and refunds.
• Encourage clients to file early to avoid delays.

8. Potential Extension of 2017 Tax Cuts

Senate Republicans are pushing to make the 2017 tax cuts permanent, though concerns remain about federal deficit increases.

How Tax Professionals Should Respond

• Monitor legislative developments and inform clients of potential impacts.
• Offer strategic tax planning sessions to prepare for possible changes.
• Adjust business tax strategies if corporate tax rates shift.

Understanding and being proactive about these changes is essential for providing excellent support to your clients. 

Stay informed! Get access to our free document, Preparing for Policy Changes Ahead of the 2025 Tax Season, where you’ll gain more knowledge on expected changes, pros and cons, and how to prepare for what’s next.

Explore how Drake Software can help streamline your tax preparation process and enhance compliance.