Individual Tax Preparation

ContextEmployers must send W-2s by January 31st. Each form shows gross wages, federal and state income tax withheld, and Social Security and Medicare taxes withheld. Box 12 contains important codes: Code W shows employer-contributed HSA funds (not taxable but affects your total HSA contribution limit), Code DD shows employer-paid health insurance premiums, and Code AA or BB shows Roth 401(k) contributions. If you worked multiple jobs, you need a W-2 from each — missing one is one of the most common filing errors. If a W-2 hasn't arrived by February 15th, contact the employer's HR or payroll department; it may be available digitally through ADP, Paychex, or Workday. If the employer is unresponsive or has closed, call the IRS at 1-800-829-1040 — they can contact the employer and provide Form 4852, a substitute W-2 you can use to file.

ContextAny client who paid you $600 or more as a non-employee is required to issue a 1099-NEC by January 31st. However, your obligation to report income does not depend on receiving a form — you must report all self-employment income regardless of whether a 1099 arrives. A client who paid you $450 for a project does not send a 1099-NEC, but you still owe taxes on that income. Cross-reference your own invoicing records against the 1099s received to catch discrepancies in either direction. For self-employment income, you owe self-employment tax (15.3% on net earnings up to the Social Security wage base, 2.9% above that) in addition to ordinary income tax — this dual obligation is why freelancers often face unexpectedly large bills in their first year of self-employment.

ContextThe 1099-MISC covers income that doesn't fit the wage or contractor categories: royalties (Box 2), rent paid to you by a business tenant (Box 1), prizes and awards (Box 3), and a few other types. If you won a cash prize, a trip, or merchandise from a contest, the fair market value of that prize is taxable income even if no 1099-MISC was issued. Royalties from intellectual property — a book, a patent, or music licensing — are reported here and may involve deductible expenses such as registration fees, legal costs, or a percentage of production costs.

ContextAny distribution from a traditional IRA, 401(k), 403(b), pension, or annuity generates a 1099-R. Box 7 contains a distribution code that determines the entire tax treatment: Code 1 means an early distribution (under age 59½) subject to a 10% penalty plus ordinary income tax; Code 7 is a normal distribution taxed as ordinary income; Code G is a direct rollover and is not taxable. If you rolled over funds from one account to another and received a 1099-R showing the full balance as taxable, confirm the transfer was a direct rollover (Code G) — indirect rollovers must be completed within 60 days or the entire amount is taxable income with potential early withdrawal penalty. Required Minimum Distributions, which begin at age 73, are also reported on 1099-R and are fully taxable as ordinary income.

ContextBanks send a 1099-INT when interest earned exceeds $10, but you must report all interest income regardless of whether a form arrives. High-yield savings accounts currently generating 3.5–4.0% APY produce meaningful taxable interest — a $10,000 balance generates roughly $350–$400 per year, substantially more than most people expected after a decade of near-zero rates. Check the digital portals for every bank where you hold money, including accounts opened mid-year, accounts shared with a spouse, and any accounts at credit unions or online banks. Note that Series I savings bonds defer interest reporting until redemption — if you cashed I-bonds during the year, that accrued interest is taxable and appears on a 1099-INT from TreasuryDirect.

ContextYour brokerage issues a 1099-DIV showing qualified dividends (taxed at favorable capital gains rates: 0%, 15%, or 20% depending on your income) and ordinary dividends (taxed as regular income). The distinction between the two categories is determined by how long you held the stock and whether the dividend meets IRS holding period requirements — your brokerage calculates this for you on the form. Dividends earned inside tax-advantaged accounts (IRA, Roth IRA, 401(k)) are not reported on a 1099-DIV and are not currently taxable; only dividends in taxable brokerage accounts appear here.

ContextIf you sold stocks, ETFs, or mutual funds in a taxable brokerage account, the 1099-B shows proceeds, cost basis, and acquisition date for each sale. These figures determine your capital gain or loss. Short-term gains (assets held one year or less) are taxed as ordinary income; long-term gains (held more than one year) are taxed at 0%, 15%, or 20% — significantly lower rates for most taxpayers. If your brokerage does not have the original cost basis on file (common with older accounts or inherited securities), you must supply it — these are called 'uncovered' securities. The IRS will assume a zero basis if you cannot substantiate it, resulting in the full proceeds being treated as a taxable gain.

ContextEvery cryptocurrency sale, swap, or trade is a taxable event — including exchanging one coin for another or using crypto to pay for goods or services. Receiving cryptocurrency as payment for services is ordinary income at fair market value on the day received; mining and staking rewards are also ordinary income when received. If you traded on multiple exchanges, export CSV transaction histories from each platform and import them into dedicated crypto tax software such as Koinly, CoinTracker, or TaxBit — these tools calculate your cost basis across exchanges using accounting methods (FIFO, HIFO) that standard tax software doesn't handle. All taxpayers must answer the digital assets question on Form 1040 regardless of whether they had transactions.

ContextIf you are a partner in a business, shareholder in an S corporation, beneficiary of a trust or estate, or investor in certain funds (limited partnerships, some real estate funds, MLPs), you receive a Schedule K-1 rather than a 1099. The K-1 reports your share of income, losses, deductions, and credits from the entity. The critical challenge with K-1s is timing: partnerships have until March 15th to file, and many request extensions, pushing K-1 delivery to September or October. If you expect a K-1, this is almost always the correct reason to file a personal extension — do not estimate or guess at K-1 amounts. Errors create mismatches with IRS records that generate automatic CP2000 notices, which take months to resolve.

ContextState income tax refunds are taxable federally only if you itemized deductions in the prior year and deducted state income taxes — if you took the standard deduction last year, your state refund is not taxable. Unemployment compensation is fully taxable as ordinary income at the federal level; some states exempt it from state tax, so check your state's rules separately. The 1099-G is issued by your state tax authority or unemployment agency and is typically available through an online portal by late January.

ContextDepending on your combined income, 0%, 50%, or 85% of Social Security benefits may be taxable. Combined income for this calculation is defined as adjusted gross income plus non-taxable interest plus half of your Social Security benefits. Single filers with combined income between $25,000–$34,000 may pay tax on up to 50% of benefits; above $34,000, up to 85% is taxable. The thresholds for married filing jointly are $32,000–$44,000 (50%) and above $44,000 (85%). The SSA-1099 is mailed in January and is also available through your My Social Security account at SSA.gov.

ContextRental income from any property — a full house, a spare bedroom rented long-term, or short-term rentals through Airbnb or VRBO — is taxable and reported on Schedule E. Deductible expenses include mortgage interest, property taxes, landlord-paid utilities, repairs, property management fees, insurance, and depreciation. The IRS distinguishes sharply between a repair (deductible immediately) and an improvement (must be depreciated over years): a new water heater is a repair; a new HVAC system is typically an improvement. Depreciation requires knowing the property's original purchase price, allocated between land (not depreciable) and structure (depreciable over 27.5 years). If you use part of your home as a short-term rental, there are specific rules governing the personal-use vs. rental-use split that affect which expenses are deductible.

ContextHSA contributions are triple-tax-advantaged: contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. The 2025 contribution limits are $4,300 for self-only HDHP coverage and $8,550 for family coverage, plus a $1,000 catch-up contribution for those 55 and older. Form 5498-SA shows contributions for the year (it arrives after the April deadline — use your bank statements or HSA portal instead for filing); Form 1099-SA shows distributions. Withdrawals used for non-qualified expenses before age 65 are taxable income plus a 20% penalty. Importantly, you can contribute to an HSA for the prior tax year up until the April filing deadline — so there may still be time to make a deductible contribution before you file.

ContextTraditional IRA contributions may be fully deductible, partially deductible, or non-deductible depending on your income and whether you or your spouse participate in a workplace retirement plan. The 2025 contribution limit is $7,000 ($8,000 if age 50 or older). If you have access to a 401(k) at work and your income exceeds the deductibility phase-out range, your IRA contribution may be non-deductible — it's still worth making for the tax-deferred growth, but you must file Form 8606 each year to track your basis and avoid being taxed again on those dollars at withdrawal. Contributions for the prior tax year can be made up until the April filing deadline.

ContextStudent loan interest of up to $2,500 per year is deductible as an above-the-line deduction — no itemizing required. The deduction phases out at modified AGI between $85,000–$100,000 for single filers and $170,000–$200,000 for married filing jointly; above the upper limit, no deduction is available. Form 1098-E is issued when interest paid exceeds $600, but you can claim interest below that threshold using your loan servicer's records. One important limitation: student loan interest paid by a parent on a loan in the child's name is deductible by neither party — the child can deduct it only if the parent is not claiming them as a dependent.

ContextSelf-employed individuals may deduct health, dental, and vision insurance premiums as an above-the-line deduction on Schedule 1 — no itemizing required. The deduction cannot exceed the business's net profit; it cannot be used to create or increase a loss. You cannot claim this deduction for any month in which you were eligible to participate in a subsidized health plan through a spouse's employer. Long-term care insurance premiums are also partially deductible under age-based limits. Keep all premium payment confirmations. This deduction is separate from — not in addition to — ordinary Schedule C business expense deductions.

ContextQuarterly estimated tax payments reduce your balance due at filing — but only if you can document them. Gather the confirmation numbers from IRS Direct Pay transactions, copies of mailed 1040-ES vouchers with canceled checks, or bank statements showing the transfers. You can also verify received payments through your IRS online account under 'Tax Records.' The quarterly due dates are April 15, June 15, September 15, and January 15 of the following year. Failing to report estimated payments you already made is a costly and surprisingly common error that results in overpaying at filing and waiting weeks for a refund of money you already sent.

ContextThe 2025 standard deduction is $15,750 for single filers and $31,500 for married filing jointly. You will itemize only if your total itemized deductions exceed this amount. The two largest components for homeowners are mortgage interest (Form 1098 from your lender) and the state and local tax (SALT) deduction, which is capped at $40,000 combined for all state income taxes and property taxes. Do a quick calculation: projected mortgage interest + up to $40,000 SALT + anticipated charitable giving + any other deductibles. If that total is at or below the standard deduction, you'll likely take the standard — but you still need to gather these records so your tax software can compare both options and choose the better one. For recent home purchases, also check your Closing Disclosure for deductible mortgage points paid at closing.

ContextCash donations require a bank record or receipt to be deductible. For any single donation of $250 or more, the IRS requires a contemporaneous written acknowledgment from the charity — a dated letter or email confirming the amount and that no goods or services were provided in exchange. Non-cash donations (clothing, household goods) require a receipt from the receiving organization; for donated property valued above $500, you must complete Form 8283; above $5,000, a qualified appraisal is generally required. Donations to individuals, political organizations, and foreign charities are not deductible. Verify any organization's qualified charitable status using the IRS Tax Exempt Organization Search tool at IRS.gov before claiming the deduction.

ContextMedical expenses are deductible only if you itemize and the total exceeds 7.5% of your adjusted gross income. On a $60,000 AGI, the threshold is $4,500 — only the amount above $4,500 is deductible. Eligible expenses include health insurance premiums paid out-of-pocket (not through employer deductions or pre-tax payroll), prescriptions, dental and vision care, doctor and hospital fees, hearing aids, and mileage driven for medical appointments (21 cents per mile in 2025). A year with significant costs — surgery, orthodontia, long-term care, or high-cost prescriptions — is worth calculating carefully, even if you don't typically itemize. Over-the-counter medications, gym memberships, and cosmetic procedures are generally not deductible.

ContextForm 1098-T shows tuition billed or paid and any scholarships received. It supports two credits: the American Opportunity Tax Credit (up to $2,500 per eligible student, for the first four years of higher education; 40% of the credit is refundable, meaning it can reduce your tax below zero) and the Lifetime Learning Credit (up to $2,000 per return, non-refundable, available for any year of post-secondary education). Both phase out at higher income levels. Important: the 1098-T often shows tuition 'billed' rather than 'paid,' and those amounts can differ if payment crossed a calendar year boundary. Use your own payment records and bursar account statements, not just the form, to claim the accurate credit amount.

ContextThe Child and Dependent Care Credit applies to expenses for childcare, after-school programs, summer day camps, or care for a qualifying dependent while you (and your spouse, if married) worked or actively looked for work. Eligible expenses are capped at $3,000 for one qualifying person or $6,000 for two or more. The credit percentage ranges from 20%–35% of eligible expenses based on income. The provider's tax ID is required on Form 2441 — this requirement exists so the IRS can cross-reference that the caregiver reported the income. If you used a Dependent Care FSA at work, those pre-tax dollars reduce the expenses eligible for this credit dollar for dollar.

ContextThe Energy Efficient Home Improvement Credit (25C) provides a 30% credit for qualifying upgrades: exterior windows and skylights (capped at $600), exterior doors (capped at $500 for all doors combined), insulation and air sealing (subject to the annual overall cap), heat pumps (separate $2,000 cap), central air conditioners ($600 cap), and home energy audits ($150 cap). The annual overall cap is $1,200, except heat pumps which have their own $2,000 cap. The Residential Clean Energy Credit (25D) covers solar panels, solar water heaters, and battery storage systems at 30% with no dollar ceiling and can roll over unused amounts to future years. Keep receipts, product certification statements from manufacturers, and contractor invoices — you'll need them to complete Form 5695.

ContextYour marital status on December 31st determines your filing status for the entire year. Married December 31st means you file as married (jointly or separately) for that full year. Divorced December 31st means you file as single for that full year. Filing status is one of the most consequential variables in tax calculation — it determines your bracket, standard deduction amount, and eligibility for numerous credits. Married filing jointly almost always produces a lower combined tax liability than married filing separately, but there are exceptions: if one spouse has large unreimbursed medical expenses or significant student loan interest, separate filing may allow those deductions to clear the income-based thresholds. If you finalized a divorce, confirm in the divorce agreement which parent claims shared dependents — the IRS tiebreaker rules apply when both parents attempt to claim the same child.

ContextNew dependents may qualify you for the Child Tax Credit ($2,200 per qualifying child under age 17, with up to $1,700 refundable in 2025), the Earned Income Tax Credit (which increases significantly with children), and the Child and Dependent Care Credit. A child born during the tax year must already have an SSN assigned before you can claim dependent-related credits — apply for the Social Security card at the hospital at birth, as it typically arrives within a few weeks. Adoption-related expenses may qualify for the Adoption Tax Credit, worth up to $17,280 per child in 2025 (with up to $5,000 refundable). If you're uncertain whether someone qualifies as your dependent, the IRS offers an interactive 'Who Can I Claim as a Dependent?' tool at IRS.gov.

ContextHome sale: if you owned and lived in the home as your primary residence for at least 2 of the last 5 years, you may exclude up to $250,000 of capital gain ($500,000 for married filing jointly) from taxation. If the gain exceeds the exclusion or you don't meet the 2-year rule, the excess is taxable. If the title company issued a 1099-S reporting the sale proceeds, the IRS will match this against your return. Home purchase: mortgage points paid at closing on a new primary residence are generally deductible in full in the year paid — review your HUD-1 or Closing Disclosure to identify deductible amounts. For rental property sales, depreciation recapture applies to depreciation claimed over the holding period, taxed at up to 25%.

ContextStarting self-employment introduces self-employment tax (15.3% on the first $176,100 of net self-employment income in 2025, 2.9% above that), quarterly estimated payment obligations, and eligibility for Schedule C deductions: home office, business vehicle mileage, equipment, subscriptions, and professional fees. The deductible half of self-employment tax reduces your AGI. New self-employed individuals can also open a SEP IRA (contribute up to 25% of net self-employment income, max $70,000 in 2025) or a Solo 401(k) — contributions to these accounts can dramatically reduce taxable income. If this is your first year of significant self-employment income, working with a CPA at least once is advisable; the compounding value of optimal retirement account and deduction decisions far exceeds the one-time fee.

ContextInherited assets receive a stepped-up cost basis to fair market value at the date of the decedent's death — meaning if you inherit stock worth $50,000 that the deceased bought for $5,000, your basis is $50,000, and you owe no capital gains on the accumulated $45,000 in appreciation. Estate distributions to beneficiaries are generally not taxable income; the estate pays estate tax at the federal level if applicable. Gifts: you can give or receive up to $19,000 per person in 2025 without filing a gift tax return; gifts above that threshold require Form 709, though no actual gift tax is owed until lifetime gifts exceed the federal exemption ($13.99 million in 2025). Forgiven debt is generally taxable income — if a creditor cancels $2,000 of your balance, you typically receive a 1099-C and owe income tax on that amount, with exceptions for insolvency and certain mortgage debt forgiveness.