CHARLOTTE — Some of the biggest tax changes in years could hit your federal return right now. From untaxed tips and overtime to a new incentive for new-car buyers, to a bigger child tax credit, Consumer Reports breaks down what it means for you, and what to do if you end up owing Uncle Sam.
Let’s start with the changes tied to the One Big Beautiful Bill: First, no federal taxes on tips, which actually means you may be able to take a federal deduction on reported tip income up to $25,000.
There’s going to be a lot of taxpayers, particularly in the service industries, which are going to qualify for the deduction. If you make a certain amount, then that deduction starts to reduce until it does completely phase out.
It’s the same school of thought for the new ‘no tax on overtime’ deduction. You might be able to deduct up to $12,500.
Attention seniors, 65 and up, if you file a return, you might qualify for an additional $6,000 deduction ($12,000 for couples). There are income limits. It phases out if you make more than $75,000 ($150,000 for couples).
To keep up with inflation, the Child Tax Credit has increased to $2,200 per child.
If you financed a new car for personal use last year, you might be able to deduct interest up to $10,000. Here’s the deal: the final assembly had to have taken place in America. So, this is a deduction that’s meant to stimulate the purchasing of vehicles that are made in the USA. And taxpayers will have to provide the vehicle identification number. And this loan needs to originate with the purchaser of the vehicle.
If you owe the IRS and are short of cash, it’s important to file by April 15, pay what you can, then choose an option for the balance either a credit card or an IRS payment plan, known as an installment agreement. There is a fee to take advantage of this process, and it does not make the interest go away.
The bottom line is Consumer Reports says the key is knowing which changes apply to you. Check your withholding, keep good records, and if you owe, file on time and set up a payment option that fits your budget.
Also new this year, more transparency when it comes to basic math errors. If you goofed on your return, the IRS notice now must spell it out and explain exactly what’s wrong. You’ll then have 60 days to challenge it.
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