Overtime deductions and inherited retirement accounts could change your next tax bill.
She’s not a medical doctor, but she can cure your financial woes! On this episode, Dr. Friday dives into the most pressing tax topics for today. With the November 3rd extension deadline for 2024 taxes looming, she explains why it’s crucial to get those returns filed before you can effectively plan for the new year.
Then, she unpacks the massive changes coming in the 2025 tax year, including the highly anticipated tax credits for overtime and tips, and a new deduction for car loan interest. What do these changes really mean for your paycheck and your refund? Dr. Friday breaks down the rules, income limits, and what you need to do now to prepare. Plus, she answers listener questions on dealing with back taxes when selling property and the tax pitfalls of inheriting money.
Episode Summary
New Car Loan Interest Deduction: Starting in 2025, you may be able to deduct interest on a loan for a new qualified personal vehicle purchased after December 31, 2024. This deduction is available even if you don’t itemize.
Retirement & Investment Payouts: A cautionary tale: when taking money from a retirement account, ensure enough is withheld for both the 10% penalty (if under 59 ½) and your ordinary income tax rate. Under-withholding can lead to a massive surprise tax bill.
Inheritance Tax Traps: Inheriting an IRA or 401(k) can create a large, immediate tax liability if you cash it out. Dr. Friday advises rolling it into a beneficiary IRA and spreading distributions over the allowed 10-year period to manage the tax impact.
Back Taxes and Asset Sales: If you’re in a deal with the IRS (like an Offer in Compromise) and sell a major asset like a condo, do not try to hide it. The IRS will likely find out via a 1099-S form and can revoke your deal for nondisclosure.
In this episode
Report retirement withdrawals even when taxes were withheld, and budget for ordinary income tax plus a possible 10% early withdrawal penalty before age 59½.
Consider spreading inherited IRA withdrawals over the applicable 10-year period instead of cashing out immediately and pushing income into a higher tax bracket.
Qualified overtime deductions cover only the extra half of time-and-a-half pay, with limits of $12,500 for single filers and $25,000 for married couples.
The 2025–2028 car loan interest deduction requires a qualifying new personal vehicle and a secured loan originated after December 31, 2024.
Disclose property sales when negotiating an IRS offer in compromise, because undisclosed assets can trigger review and jeopardize the agreement.
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