Online Shoppers May Be in Store for Surprises in the Tariff Era
On April 2, 2025, President Trump issued an executive order eliminating the de minimis exemption for low-value imports from China, which previously allowed U.S. consumers to buy goods worth up to $800 directly from online marketplaces based outside of the United States without paying duties. Since the order took effect on May 2, some U.S. shoppers have been surprised by notices from shipping carriers requesting duties that in some cases surpassed the value of the items that were ordered.1
A tariff is a tax on imported goods that the Trump administration has imposed to help protect domestic industries from foreign competition, raise revenue, and use as a bargaining chip in trade negotiations. The term “duty” refers more broadly to multiple types of fees that must be paid by importers when goods are shipped across borders. Depending on the type of product and where it originated, this amount might include tariffs, customs brokerage fees, excise taxes, and/or other miscellaneous charges.
U.S. lawmakers raised the de minimis exemption from $200 to $800 in 2015. As a result, many Americans have become accustomed to shopping for low-value goods such as clothing and housewares without considering where their purchases are shipped from or the prospect of duties. Many other countries, including members of the European Union and Canada, have lower thresholds, so the consumers who live there may already expect to pay duties when goods are ordered from e-commerce sites outside of their home country.2
Critics of the de minimis exemption believe that it disadvantages U.S. manufacturers and retailers and creates a loophole for dangerous and illegal products such as fentanyl and counterfeit luxury goods to enter the United States with less scrutiny.3
Tax rates in flux
Effective May 14, goods valued at $800 or less that are shipped through the U.S. Postal Service to the United States from China or Hong Kong are subject to a tariff rate of 54% of their value or an optional flat rate of $100 per package. Chinese goods shipped by commercial carriers are assessed the default 30% tariff rate, even for low-value packages.4
Back in early May, the tariff on low-value Chinese goods sent through international mail was a punishing 120%, and the default tariff rate that applied to commercial carriers was even higher (145%), until a round of positive trade negotiations resulted in the de-escalation of tensions between the two nations.
While President Trump’s executive order only applies to goods from China, it appears to be just a first step toward ending duty-free de minimis privileges entirely. In fact, a provision in the Big Beautiful Bill passed by Congress and signed by the president on July 4 eliminates de minimis entries from all countries beginning July 1, 2027.5 As a result, shopping internationally could get even trickier, especially if Trump’s threatened reciprocal tariffs, which vary by specific trade partner, are still in the picture.
On May 28, the U.S. Court of International Trade ruled that President Trump had exceeded his authority under the International Emergency Economic Powers Act (IEEPA) when he imposed broad tariffs on goods from nearly every country, including China. This decision likely extended to the status of the de minimis exemption, but the case was appealed to a higher court that granted a temporary stay, so for the time being the president’s IEEPA tariffs and related trade policies remain in effect.6 Regardless of the outcome for tariffs, the fate of the de minimis exemption itself probably won’t be decided in the courts now that Congress has passed a law that settles the issue.
Shopping online? Take a closer look before you click
When you shop on a U.S.-based e-commerce site, whether it’s a small business or a behemoth like Amazon, the duties on imported Chinese goods have already been paid and are likely to be reflected in the item’s price. Some portion of the tariffs paid by the retailers is typically passed along to consumers, so the potential for higher prices across the board — especially for big-ticket purchases such as cars, electronics, and appliances — might be one of your top concerns.
It’s also worth considering that you could unknowingly trigger exorbitant duties for relatively inexpensive online purchases if you respond to a targeted ad or come across a product offered by an unfamiliar online marketplace. One complicating factor is that the duties apply to goods that originate in China, even if they are sold online and shipped to the United States by a company based in a different country (like Canada or the United Kingdom). Before placing an order, check the website or ask customer service where the product ships from. If the order won’t be fulfilled in the United States, go a step further to determine where the product was made (the country of origin).
When U.S. duties apply to an item in your online shopping cart, the best you can hope for is transparency from the seller, so you can make an informed decision before completing the sale. You might see a reference to delivered duty paid (DDP) shipping, which typically means the duties will be included in your charges during the checkout process and paid by the shipper. Delivered duty unpaid (DDU) or tax unpaid shipping means you should expect to receive a bill from the carrier.
If you are caught off guard by duties for an online order, you could choose to pay the duty or refuse the package. Keep in mind that depending on the company’s return policies, you might be charged for return shipping or may not receive any refund at all. Unexpected duties may become less frequent in time as international sellers and carriers refine their policies and procedures in response to shifting trade rules. But unfortunately for consumers, the higher costs that tend to follow the imposition of steep tariffs might be here to stay.
1) The New York Times, June 12, 2025
2) New York Magazine, April 24, 2025
3) The New York Times, May 1, 2025
4) Time Magazine, May 14, 2025
5) The Wall Street Journal, July 2, 2025
6) The Wall Street Journal, June 11, 2025
What tax legislation is in the works?
The One Big Beautiful Bill Act
H.R. 1, the One Big Beautiful Bill Act, narrowly passed the House of Representatives on May 22, 2025. The legislation is now being deliberated in the Senate, after the Senate Committee on Finance released its own version of proposed tax provisions on June 16, 2025.
This legislation is being proposed and considered as part of a process known as budget reconciliation, which is generally limited to tax and spending matters, as well as the debt limit. The budget reconciliation process limits debate, preventing the use of the filibuster to delay or prevent passage. Whereas 60 votes are required to break a filibuster and pass most legislation, budget reconciliation requires only 51 votes in the Senate. The following are some of the act’s provisions that could affect income taxes for individuals and businesses.
Tax Cuts and Jobs Act provisions made permanent
The legislation would make permanent many provisions implemented by the 2017 Tax Cuts and Jobs Act, which are scheduled to expire at the end of this year. These include:
- Lower marginal income tax rates, with a top marginal tax rate of 37%
- Increased standard deduction amounts
- Elimination of deduction for personal exemptions
- Increased Child Tax Credit (some additional changes proposed)
- Limits on mortgage interest deductions and interest on home equity debt
- Higher estate and gift tax exemption
- Alternative Minimum Tax (AMT) exemption and phaseout thresholds
- Changes relating to itemized deductions
- Section 199A Qualified Business Income Deduction
Other changes
The legislation includes a host of additional tax provisions, such as:
- Raising the U.S. debt limit
- Additional deduction for seniors for years 2025–2028, phased out at higher incomes
- New tax-exempt investment accounts (“Trump Accounts”) for children
- State and Local Tax (SALT) deduction; while the House version would significantly increase the cap, the Senate version appears to retain the current $10,000 cap
- New deduction for qualified tips
- New deduction for qualified overtime compensation
- New deduction for personal interest on car loans (2025–2028, U.S.-assembled passenger vehicles)
- New charitable deduction for individuals who do not itemize deductions
- Repeal of energy tax credits created by the Inflation Reduction Act
- Bonus depreciation increased to 100% and Section 179 expense limit increased
What happens next?
The Senate Committee on Finance report already reflects some departures from the House version, including differences relating to the SALT deduction mentioned above, as well as the tax treatment of tips and overtime. The legislation is subject to review by the Senate parliamentarian for compliance with reconciliation rules, and the final Senate version of the legislation must be debated on the Senate floor. If the Senate passes its version of the legislation, the House will need to vote again since the Senate version will include changes.
REAL ID Deadline Almost Here
After years of numerous delays, the REAL ID enforcement deadline is scheduled for May 7, 2025. 1
What is a REAL ID?
A REAL ID is a type of enhanced identification card that is signified by a star marking in the upper top portion of the card. The REAL ID Act, passed by Congress in 2005, set minimum security standards for state-issued driver’s licenses and identification cards. Everyone who is at least 18 years old will need a REAL ID-compliant driver’s license or identification card or another form of identification that is accepted by the Transportation Security Administration (TSA) for domestic air travel and to enter certain federal facilities.
Other TSA-acceptable documents are active passports, passport cards, or Global Entry cards. While standard driver’s licenses will no longer be a valid identification for TSA purposes, enhanced driver’s licenses from certain states are TSA-acceptable alternatives.
Although the TSA has announced that federal agencies are allowed to phase in their enforcement of the REAL ID requirement, travelers who don’t have a REAL ID by the May 7 deadline will face additional screening measures and possible delays at airport security checkpoints. You can visit the TSA website at tsa.gov for updates and information.
Finally, when traveling internationally, you will still need your passport for identification purposes, including travel to Canada or Mexico.
How do you get a REAL ID?
The U.S. Department of Homeland Security (DHS) oversees the enforcement and implementation of the REAL ID Act, but each state’s driver’s licensing agency has its own process for issuing REAL ID-compliant licenses/identification cards.
To obtain a REAL ID, you will need to provide documentation that shows your:
- Full legal name, date of birth, proof of lawful presence (e.g., U.S. passport, birth certificate)
- Social Security number (some states may not require physical documentation of your Social Security number)
- Two proofs of address of principal residence (e.g., driver’s license, utility bill)
If you have had a name change (e.g., marriage, divorce, or court order), you will also need to bring in documentation that demonstrates proof of your name change. States may impose additional requirements, so be sure to contact your state’s driver’s licensing agency for more information.
1) U.S. Department of Homeland Security, 2025
New Social Security Identity Verification Rule: Are You Affected?
The Social Security Administration (SSA) has announced that effective April 14, some individuals who want to claim Social Security benefits or change their direct deposit account information will need to visit a local Social Security field office to prove their identity in person.
According to the SSA, stronger identity verification procedures are needed to prevent fraud. The new rule is already causing confusion, in part because of its hasty rollout, so here are answers to some common questions and links to official SSA information.
Who will need to visit a Social Security office to verify their identity?
This new rule only affects people who don’t have or can’t use their personal my Social Security account. If you already have a my Social Security account, you can continue to file new benefit claims, set up direct deposit, or make direct deposit changes online — you will not need to visit an office.
You must visit an office to verify your identity if you do not have a my Social Security account and you are:
- Applying for retirement, survivor, spousal, or dependent child benefits
- Changing direct deposit information for any type of benefit
- Receiving benefit payments by paper check and need to change your mailing address
You don’t need to visit an office to verify your identity if you are applying for Medicare, Social Security disability benefits, or Supplemental Security Income (SSI) benefits — these are exempt from the new rule, and you can complete the process by phone.
If you’re already receiving benefits and don’t need to change direct deposit information, you will not have to contact the SSA either online or in person to verify your identity. According to the SSA, “People will continue to receive their benefits and on schedule to the bank account information in Social Security’s records without needing to prove identity.”1 There’s also no need to visit an office to verify your identity if you are not yet receiving benefits.
The SSA also announced that requests for direct deposit changes (whether made online or in person) will be processed within one business day. Prior to this, online direct deposit changes were held for 30 days.
What if you don’t have a my Social Security account?
You can create an account at any time on the SSA website, ssa.gov/myaccount. A my Social Security account is free and gives you online access to SSA tools and services. For example, you can request a replacement Social Security card, view your Social Security statement that includes your earnings record and future benefit estimates, apply for new benefits and set up direct deposit, or manage your current benefits and change your direct deposit instructions.
To start the sign-up process, you will be prompted to create an account with one of two credential service providers, Login.gov or ID.me. These services meet the U.S. government’s identity proofing and authentication requirements and help the SSA securely verify your identity online, so you won’t need to prove your identity at an SSA office. You can also use your existing Login.gov or ID.me credentials if you have already signed up with one of these providers elsewhere.
If you’re unable or unwilling to create a my Social Security account, you can call the SSA and start a benefits claim; however, if you’re filing an application for retirement, survivor, spousal, or dependent child benefits, your request can’t be completed until your identity is verified in person. You may also start a direct deposit change by phone and then visit an office to complete the identity verification step. You can find your local SSA office by using the Social Security Office Locator at ssa.gov.
To complete your transaction in one step, the SSA recommends scheduling an in-person appointment by calling the SSA at (800) 772-1213. However, you may face delays. According to SSA data (through February), only 44% of benefit claim appointments are scheduled within 28 days, and the average time you’ll wait on hold to speak to a representative (in English) is 1 hour and 28 minutes, though you can request a callback (74% of callers do).2 These wait times will vary, but are likely to get worse as the influx of calls increases and the SSA experiences staffing cuts.
What if your Social Security account was created before September 18, 2021?
Last July, the SSA announced that anyone who created a my Social Security account with a username and password before September 18, 2021, would need to begin using either Login.gov or ID.me to continue to access a my Social Security account. If you haven’t already completed the transition, you can find instructions at ssa.gov/myaccount.
How can you help protect yourself against scams?
Scammers may take advantage of confusion over this new rule by posing as SSA representatives and asking individuals to verify their identity to continue receiving benefits. Be extremely careful if you receive an unsolicited call, text, email, or social media message claiming to be from the SSA or the Office of the Inspector General.
Although SSA representatives may occasionally contact beneficiaries by phone for legitimate business purposes, they will never contact you by text message or social media. Representatives will never threaten you, pressure you to take immediate action (including sharing personal information), ask you to send money, or say they need to suspend your Social Security number. Familiarize yourself with signs of a Social Security-related scam by visiting ssa.gov/scam.
1–2) SSA.gov, 2025
Tariffs: How They Work and Potential Economic Effects
President Trump authorized an additional 25% tariff on all goods entering the United States from Canada and Mexico (except for a lower 10% tariff on energy resources from Canada) and an additional 10% tariff on all goods, from China on February 1, 2025. Nine days later, Trump authorized a 25% tariff on steel and aluminum, effective March 12, which strengthened and elevated tariffs levied by the first Trump administration in 2018.1 These were the opening salvos in what promises to be a period of aggressive moves that is likely to shake up the global trade environment.
A tariff is a tax on a particular class of imported goods or services that is typically designed to help protect domestic industries from foreign competition. However, the Trump administration is also using tariffs as leverage for other goals. The tariffs on Mexico and Canada — our two largest trading partners — were suspended for a month after both countries promised major initiatives to secure their U.S. borders against the flow of fentanyl and illegal immigrants.2 Despite these efforts, the tariffs went into effect on March 4. Canada quickly retaliated with 25% tariffs on about $100 billion of U.S. goods, while Mexico promised to announce retaliation measures on March 9.3
On the other hand, China — which exports some of the chemicals used to manufacture fentanyl — immediately responded to the February 1 action by raising its tariffs on selected U.S. exports by 10% to 15%.4 Trump added another 10% tariff on all Chinese goods, which also went into effect on March 4, and China shot back with new 10%–15% tariffs on U.S. agricultural goods as well as restrictions on certain U.S. companies.5
Background
Although the U.S. Constitution specifically grants Congress the power to levy tariffs (also called duties), Congress has delegated much of that authority to the President over the last 90 years. This has led to numerous trade agreements that have created a low-tariff, rules-based global trading structure, with tariffs applied on selected products. Over the past 70 years, tariffs have seldom accounted for more than 2% of federal revenue and were just 1.57% in FY 2024. Prior to the recent actions, about 70% of all foreign goods entered the United States duty-free.6
Who pays for tariffs?
Tariffs are collected by U.S. Customs and Border Protection at U.S. ports of entry. The tariff is paid by the U.S. company or individual who imports the goods. Put simply, if a U.S. company imports $1 million of foreign steel with a 25% tariff, that steel costs the company an additional $250,000 for a total of $1.25 million.
The U.S. company might then absorb all or part of the additional cost or pass it to consumers who buy products made from the steel. Alternately, the foreign steel exporter might lower its prices to maintain access to the U.S. market, in which case the U.S. company would still pay the 25% tariff, but the total price would not rise by the full 25% over the pre-tariff price.
The other factor in this equation, which is the traditional purpose of tariffs, is that the U.S. importer might buy steel from a U.S. manufacturer, thus avoiding the extra tax. The questions then are: 1) Will the U.S. manufacturer raise its price because it no longer must compete with cheaper imports? 2) Will there be enough U.S.-manufactured steel to meet demand?
Lessons from round one
There have been numerous studies of the 2018-19 tariffs, which were not as restrictive as the new program but offer some possible answers to these questions. Almost all the steel and aluminum tariff costs were passed directly to U.S. companies in the form of prices that rose by about 22% and 8%, respectively. However, many foreign producers received exemptions from the tariffs, and U.S. steel and aluminum production — which represented more than two-thirds of the U.S. market before the tariffs — grew moderately to meet demand, rising by an annual average of $2.8 billion over the period from 2018 to 2021. Even so, companies that had depended on cheaper imported metal struggled, and overall production of goods that use steel and aluminum decreased by an annual average of $3.4 billion.7
U.S. importers also bore near the full cost of the broader tariffs on Chinese goods but generally passed only part of the costs to consumers.8 However, a separate tariff on washing machines added $86 to the retail price of a washing machine and $92 to the price of a dryer, ultimately costing consumers over $1.5 billion.9 Broadly, a 2024 analysis found that the 2018–19 tariffs (many continued by the Biden administration), combined with retaliatory tariffs by other countries, reduced U.S. gross domestic product by a little more than 0.2% and cost about 169,000 full-time jobs.10
Reciprocal tariffs and de minimis suspension
Trump has also ordered a study of reciprocal tariffs, which would set tariffs based dollar-for-dollar on the tariffs each country charges on U.S. goods, as well as nontariff trade barriers. As with most issues related to tariffs, there are differing opinions on this. At best, reciprocal tariffs could lead to negotiating lower tariffs and removing barriers that prevent U.S. businesses from operating in a foreign country. At worst, they could lead to a global trade war, with ever-increasing tariffs and barriers.11
Along with the 10% tariff on Chinese goods, Trump excluded China from the de minimis provision of U.S. customs law that exempts goods valued at less than $800. This would make cheap goods from Chinese online retailers, which are often shipped directly to consumers, subject to existing tariffs plus the new 10% tariff. The exclusion was suspended on February 7 to give the U.S. Postal Service and Customs and Border Protection time to develop a plan to collect the tariffs.12 It’s unclear how this change will affect consumer prices, but processing could slow delivery times.13
Inflation
Most economists believe that tariffs cause inflation, and President Trump admitted there might be short-term price increases. The potential for tariff-driven inflation is of particular concern in the current economy; two recent surveys show a significant decline in consumer confidence due to inflation fears.14–15 The full economic impact will depend on how the tariff program plays out — how much is intended as a negotiating tool and how much turns into long-term policy. For now, it would be wise to maintain a steady course and keep an eye on further developments.
1) The White House, February 1 and 11, 2025
2) CBS News, February 3, 2025
3, 5) CNN Business, March 5, 2025
4) AP News, February 4, 2025
6) Congressional Research Service, January 31, 2025
7) U.S. International Trade Commission, May 2023
8) National Bureau of Economic Research, October 2019
9) University of Chicago, April 2019
10) Tax Foundation, February 13, 2025
11, 14) The Wall Street Journal, February 13, 2025
12) CNBC, February 7, 2025
13) AP News, February 5, 2025
15) CNN Business, February 25, 2025
Federal 2024 Tax Filing Season Began January 27
IRS began accepting and processing 2024 tax-year returns on Monday, January 27, 2025.
Tips for making filing easier
To speed a potential tax refund and help with tax filing, the IRS suggests the following:
- Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2025. You may need to allow additional time for mail delivery.
- Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1960), and their instructions.
- File electronically and use direct deposit.
- Check irs.gov for the latest tax information.
Key filing dates
Here are several important dates to keep in mind:
- January 10. IRS Free File opened. IRS Free File Guided Tax Software, available only at irs.gov, allows participating software companies to accept completed tax returns of any taxpayer or family with an adjusted gross income of $84,000 or less in 2024 and hold them until they can be electronically filed with the IRS starting January 27. Also beginning January 27, Free File Fillable forms were available to taxpayers of any income level to fill out and e-file themselves at no cost.
- January 27. IRS began accepting and processing individual tax returns. Also, Direct File (a web-based service that works on mobile phones, laptops, tablets, or desktop computers) opened to eligible taxpayers (check at irs.gov; not all tax situations are covered) in 25 states to file their taxes directly with the IRS for free.
- April 15. Deadline for filing 2024 tax returns (or requesting an extension) for most taxpayers.
- October 15. Deadline to file for those who requested an extension on their 2024 tax returns.
Tax refunds
The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS expects to issue most tax refunds within 21 days of their receiving a tax return if the return is filed electronically, the tax refund is delivered through direct deposit, and there are no issues with the tax return. To minimize delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.
Act Increases Benefits for Millions The Social Security Fairness
Under the Social Security Fairness Act signed by President Biden on January 5, 2025, almost 3 million Americans will receive a boost to their Social Security benefits.1 This bill, which had bipartisan support, restores full Social Security benefits to some public-sector employees, including teachers, law enforcement officers, firefighters, and others who have been affected by two provisions of current federal law — the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP).
Although the increased benefit amount for individuals will vary, the Congressional Budget Office (CBO) has estimated that eliminating the GPO will increase monthly benefits for 380,000 impacted spouses by $700 on average and by $1,190 on average for 390,000 impacted surviving spouses. Eliminating the WEP will increase monthly benefits for approximately 2.1 million impacted individuals by $360 on average. 2
Those affected will be entitled to higher benefits starting in January 2025. Individuals who received benefits in 2024 will also be entitled to back payments equal to the difference between what they received in 2024 and what they would have received without a GPO or WEP reduction.
Some background
Both the GPO and the WEP were originally intended to equalize benefits for those who receive Social Security benefits based on a job where they contributed to Social Security through payroll taxes (covered employment) and a pension from a job where Social Security payroll taxes were not withheld (noncovered employment). For decades, advocates for reform have been trying to change or repeal these provisions, arguing that they are unfair and cause financial hardship.
Enacted in 1977, the GPO has affected spouses and surviving spouses who receive pensions from a federal, state, or local government or non-U.S. employer based on noncovered employment and who also qualify for Social Security benefits based on their spouses’ work histories in covered employment. The GPO reduces Social Security spousal or widow(er) benefits by two-thirds of the amount of the pension. The reduction was intended to help ensure that the spousal and widow(er) benefits of those with covered or noncovered lifetime earnings would be about equal.
Enacted in 1983, the WEP has affected individuals who receive Social Security retirement or disability benefits based on their own covered employment (if fewer than 30 years) and a pension from noncovered employment. The Social Security benefit formula is progressive, meaning it replaces a greater share of career-average earnings for lower-paid workers than for higher-paid workers. The WEP was passed so that workers receiving pensions from noncovered employment would not receive higher benefits because the Social Security benefit formula did not count their noncovered earnings, making it appear as if they were lower-paid workers. A modified formula was implemented to figure benefits for those affected by the WEP, resulting in lower monthly Social Security benefits; the reduction was limited to half of the amount of the pension.
While advocates of the bill are cheering, opponents of the bill are concerned that repealing the GPO and the WEP will worsen the outlook for the combined Social Security trust funds. According to a CBO cost estimate, the depletion date for the combined Old-Age, Survivors, and Disability Insurance (OASDI) trust funds could be pushed forward about six months, potentially leading to a substantial reduction in Social Security benefits for all beneficiaries even sooner than expected, unless Congress acts to address the impending trust fund shortfall.3
What happens next?
If you’re among those affected, be aware that implementing benefit changes may take some time, according to a message from the Social Security Administration:
“At this time, the Social Security Administration is evaluating the law and how to implement it. We will provide more information on our website, ssa.gov as soon as it is available. If you are already entitled, you do not need to take any action at this time except to verify that we have your current mailing address and direct deposit information. If you are receiving a public pension and are now interested in filing for benefits, you may file online at ssa.gov or schedule an appointment.”4
The SSA notes that you can verify your current mailing address and direct deposit information online without calling or visiting a Social Security office by signing in to a personal my Social Security account or creating one on the SSA website.
1–3) Congressional Budget Office, September 2024
4) Social Security Administration, December 2024
Year-End Charitable Giving
The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.
Tax deduction for charitable gifts
If you itemize deductions on your federal income tax return, you can generally deduct your gifts to qualified charities. This may also help increase your gift.
Example: Assume you want to make a charitable gift of $1,000. One way to potentially enhance the gift is to increase it by the amount of any income taxes you save with the charitable deduction for the gift. At a 24% tax rate, you might be able to give $1,316 to charity [$1,000 ÷ (1 – 24%) = $1,316; $1,316 x 24% = $316 taxes saved]. On the other hand, at a 32% tax rate, you might be able to give $1,471 to charity [$1,000 ÷ (1 – 32%) = $1,471; $1,471 x 32% = $471 taxes saved].
Note, the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). Your deduction for gifts to charity is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your AGI, depending on the type of property you give and the type of organization to which you contribute. Charitable deductions that exceed the AGI limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years.
It is important to retain proper substantiation of your charitable contributions. In order to claim a charitable deduction for any contribution of cash, a check, or other monetary gift, you must maintain a record of such contributions through a bank record (such as a cancelled check, a bank or credit union statement, or a credit-card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. If you claim a charitable deduction for any contribution of $250 or more, you must substantiate the contribution with a contemporaneous written acknowledgment of the contribution from the charity. There are additional requirements if you make any noncash contributions,
Year-end tax planning
When making charitable gifts at the end of the year, you should consider them as part of your year-end tax planning. Typically, you have a certain amount of control over the timing of income and expenses. You generally want to time your recognition of income so that it will be taxed at the lowest rate possible, and time your deductible expenses so they can be claimed in years when you are in a higher tax bracket.
For example, if you expect to be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction next year when the deduction results in a greater tax benefit. Or you might shift the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction amount. And if the income percentage limits above are a concern in one year, you might consider ways to shift income into that year or shift deductions out of that year, so that a larger charitable deduction is available for that year. A tax professional can help you evaluate your individual tax situation.
A word of caution
When making charitable contributions, be sure to deal with recognized charities and be wary of charities with names that sound like reputable charitable organizations. It is common for scam artists to impersonate reputable charities using bogus websites as well as misleading email, phone, social media, and in-person solicitations. Check out the charity on the IRS website, irs.gov, using the Tax-Exempt Organization Search tool. And remember, don’t send cash; contribute by check or credit card.
Qualified Charitable Distributions from an IRA
Individuals must be 701/2 or older to make tax-free charitable donation up to $105,000 in 2024. Among the requirements are that the payments must be paid directly from the IRA to a qualified charitable organization and receive an acknowledgement from the charitable organization. The acknowledgment must state the date and the amount of the contribution. The acknowledgement must also state whether the donor received anything of value for the payment.
Medicare Open Enrollment Kicks Off
Medicare’s Open Enrollment period began on October 15 and runs through December 7. If you are covered by Medicare, it’s time to compare your current coverage with other available options. Medicare plans can change every year, and you may want to switch to a health or prescription drug plan that better suits your needs or your budget.
During this period, you can:
- Switch from Original Medicare to a Medicare Advantage Plan, and vice versa
- Change from one Medicare Advantage Plan to a different Medicare Advantage Plan
- Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn’t offer prescription drug coverage, and vice versa
- Join a Medicare Part D drug plan, switch from one Part D plan to another, or drop your Part D coverage
Any changes made during Open Enrollment are effective as of January 1, 2025.
Original Medicare (Part A) hospital insurance and (Part B) medical insurance) is administered directly by the federal government and includes standardized premiums, deductibles, copays, and coinsurance costs.
A Medicare Advantage (Part C) Plan is an alternative to Original Medicare. Medicare Advantage Plans cover all Original Medicare services and often include prescription drug coverage and extra benefits. They are offered by private companies approved by Medicare. Premiums, deductibles, copays, and coinsurance costs vary by plan.
Medicare (Part D) drug plans, like Medicare Advantage Plans, are offered by private companies and help cover prescription drug costs.
Key changes for 2025
- Medicare Part D: As of January 1, all Medicare Part D plans will include an annual $2,000 cap on out-of-pocket on costs for prescription drugs covered by the plan. No copayment or coinsurance costs for Part D drugs will apply for the rest of the year. In addition, enrollees can opt in to a Medicare Prescription Payment Plan to pay their out-of-pocket prescription drug costs monthly rather than all at once at the pharmacy.
- Medicare Advantage: During the summer, Medicare Advantage Plans will send out a mid-year statement to enrollees that shows supplemental benefits available but unused and remind enrollees how to take advantage of them.
- Original Medicare: Starting in July, more caregivers of people with dementia who are not residing in a nursing home and are covered by Original Medicare may have access to a model program called Guiding an Improved Dementia Experience (GUIDE). This program, which initially rolled out in July 2024, provides a 24/7 support line, care coordination, referrals to community-based social services, caregiver training, and respite services. Although this program will be expanded in 2025, it won’t be available in all communities. Visit the CMS Innovation website at cms.gov to find out if a program is available in your area.
Compare your options
Start by reviewing any materials your plan has sent you. Look at the coverage offered, the costs, and the network of providers, which may be different than last year. Maybe your health has changed, or you anticipate needing medical care or new or pricier prescription drugs.
If your current plan doesn’t meet your healthcare needs or fit your budget, you can make changes. If you’re satisfied with what you currently have, you don’t have to do anything — your current coverage will continue.
If you’re interested in a Medicare Advantage Plan or a Medicare Part D drug plan, you can use the Medicare Plan Finder on medicare.gov to see which plans are available in your area and check their overall quality rating. For personalized information, you can log in or create an account to compare your plan to others and see prescription drug costs.
Get help
Determining what coverage you have now and comparing it to other Medicare plans can be confusing and complicated, but help is available. Call 1-800-MEDICARE or visit the Medicare website to use the Plan Finder and other tools that can make comparing plans easier. You can also call your State Health Insurance Assistance Program (SHIP) for free, personalized counseling. Visit shiphelp.org to find the phone number and website address for your state.
Can You Access Your Retirement Plan Money After a Disaster?
If you have been affected by Hurricane Helene, Hurricane Milton, or another recent federally declared major disaster, you may be relieved to hear that over the past few years, it has become easier to access your work-based retirement plan and IRA money. Following is a summary of the rules for qualified disaster recovery distributions and disaster-related plan loans. For more information, please contact your retirement plan or IRA Administrator.
Penalty-free distributions
Since 2019, many work-based plan participants affected by disasters have had the option to take a hardship withdrawal from their plan accounts to help recover from qualified losses. Generally, hardship withdrawals are subject to a 10% early-distribution penalty for those younger than 59½, as well as ordinary income taxes.
In 2022, the SECURE 2.0 Act ushered in a new provision allowing retirement savers to take qualified disaster recovery distributions of up to $22,000 in total, penalty-free, from their retirement accounts. Plans include (but are not limited to) 401(k) plans, 403(b) plans, 457(b) plans, and — unlike hardship withdrawals — IRAs.
The distribution must be requested within 180 days of the disaster or declaration, whichever is later. Although ordinary income taxes still apply to qualified disaster recovery distributions, account holders may spread the income, and therefore the tax obligation, over three years.1
Moreover, account holders have the option of repaying the amount distributed, in whole or in part, to any eligible retirement plan within three years, thereby avoiding or reducing the tax hit.2 (Note that if a work-sponsored plan does not accept rollovers, it is not required to accept repayments.)
An individual is qualified for a disaster recovery distribution if their primary residence is in the disaster area and the individual has suffered a disaster-related economic loss. Examples of economic loss include:
- Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, or wind
- Loss related to displacement from the individual’s home
- Loss of livelihood due to temporary or permanent layoff
This is not a comprehensive list; other losses may also qualify.
Although work-based plans are not required to offer qualified disaster recovery distributions, an individual may treat a distribution as such on his or her tax returns. Qualified disaster recovery distributions are reported on Form 8915-F.
Plan loans
Rather than taking a distribution and having to report it as taxable income, work-based plan participants (but not IRA account owners) may also be able to borrow from their plan accounts.
Typically, plan loans are limited to (1) the greater of 50% of the participant’s vested account balance or $10,000, or (2) $50,000, whichever is less. In addition, loans generally need to be repaid within five years. However, with respect to a qualified disaster, employers may raise the loan limit to as much as the full amount of the participant’s balance or $100,000, whichever is less (minus the amount of any outstanding loans). Employers may also extend the period for any outstanding loan payments due in the 180 days following a disaster for up to one year; the overall repayment period will adjust accordingly.
Employers are not required to offer plan loans or modify plan provisions due to a disaster.
For more information on qualified disaster recovery distributions and disaster loans, please speak with your IRA or retirement plan administrator, and consider seeking the guidance of a qualified tax professional.
For more information about disaster assistance available from the IRS, please visit www.irs.gov/newsroom/tax-relief-in-disaster-situations.
For information specific to Hurricanes Helene and Milton, please visit www.usa.gov/disasters-and-emergencies.
For general information about disaster financial assistance available from the federal government, please visit www.usa.gov/disaster-financial-help.
1) Alternatively, an individual may elect to report the entire distribution in the year it is made.
2) Taxpayers may file an amended tax return for taxes previously paid on the distribution(s).
