WSJ Your Money Briefing - Tax Season 2025: What You Should Know Before Filing Your Return

Episode Date: February 2, 2025

Tackle tax season with our two-part series, “Tax Season 2025: What’s New” where we break down the latest changes from the IRS to save you money. In episode one, Wall Street Journal reporter Ashlea Ebeling joins host Ariana Aspuru to discuss how to file your taxes for free, secure your tax data with a PIN, and a new way to check the status of your return. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey Spotify, this is Javi. My biggest passion is music, and it's not just sounds and instruments. It's more than that to me. It's a world full of harmonies with chillers. From streaming to shopping, it's on Prime. Here's your money briefing for Sunday, February 2nd. I'm Mariana Espuduru for The Wall Street Journal. Filing your taxes this year might be a little less aggravating. The IRS has expanded its

free filing products and revamped its online services to help filers keep tabs on their returns. So the IRS launched a pilot last year, something called IRS Direct File, and that's where you actually go onto the IRS website and file your return right there. Last year it was available in 12 states and now it's expanded to 25 states this year and they say up to 30 million taxpayers would actually be eligible for it. Today we're kicking off our two-part series with Wall Street Journal personal finance reporter, Ashlea Ebling, breaking down all the changes you'll need to know before filing. That's after the break. TD Direct Investing offers live support.

So whether you're a newbie or a seasoned pro, you can make your investing steps count. And if you're like me and think a TFSA stands for total fund savings adventure, maybe reach out to TD Direct Investing. January 27th marked the first official day that you can file your taxes. Wall Street Journal personal finance reporter, Ashlea Ebling joins me. Ashle. Ashley tax season kind of crept up on me a bit. Did it creep up on you? Yeah, I'd say I'm ready for it. But like everyone, the challenge is getting your documents in order.

What are the biggest challenges people encounter when they go to file their taxes? Well, figuring out like where you're filing it is a big challenge. Are you using the same tax software you did before? Are you using the same tax pro you did before? If you have big life changes, that might be the first time you reach out to a tax pro. There are new ways to file taxes for free. So on average, the IRS says that taxpayers spend 13 hours and $290 preparing and paying just for the tax prep.

So it's worth looking into different options. So before you file your taxes, it's important to know where you land on the current income tax brackets. How have those changed this year? So that's like something that happens every year. The tax brackets are adjusted for inflation and that means it takes a little more income to move up into the next higher tax bracket. The software does all that for you, so you don't have to really worry about it.

But when you look at that, you might want to make a last-minute retirement account contribution or health savings account contribution, because things like that you're allowed to do up to the April 15th deadline, even though it counts for the 2024 tax year, and that could reduce your tax bite. And depending how much your income's raising, you really might not notice the difference. You mentioned there are ways to file for free, maybe save $290 on a tax return.

What's new this year? So the IRS launched a pilot last year, something called IRS Direct File, and that's where you actually go onto the IRS website and file your return right there. Last year it was available in 12 states and now it's expanded to 25 states this year and they say up to 30 million taxpayers would actually be eligible for it.

But the IRS also has free file. What are the differences between those two programs? Yeah, it's a little confusing. So direct file again is like the actual direct IRS website. Free File, you still should go onto the IRS Free File website to start to make sure you're actually in the right place. And then it links you out to eight tax software partners they have.

And that's for taxpayers with adjusted gross income of $84,000 or less. And it links you to Tax Act, Tax Hawk, Tax Slayer, and then walks you through doing your tax return, just as if you're on one of those sites. So, to qualify for free file, it's below that income threshold. What about to qualify for direct file? So, direct file, there's no income limits.

On the other hand, it really only works for simple returns right now, because they're still working on the other hand, it really only works for simple returns right now because they're still working on the tax software basically. One big change for this year is that it supports more taxpayers in more situations. So it includes health savings accounts, it includes people who have childcare expenses and would be including the child and dependent care tax credit on their tax return, It includes people who get insurance through the marketplace and would qualify for premium credit. So if you looked last year and it didn't work for you, it's worth looking again this year. Who might not benefit from using direct file for their taxes?

So it's not set up yet for people with self-employment or Schedule C income. We hear the words simple tax return thrown around a lot. What sort of qualifies something as a simple tax return? And then when does it start getting a little more complicated? Simple, say you have one job and one W-2. And you have a bank account with a 1099 form that shows that you have a little bit of interest income. That's pretty simple as you get. And then once you start having side gigs and other things,

it gets a little more complicated. Well, yeah, multiple jobs. And then certainly, if you live in one state and you work in another state, and we're generally talking about federal returns here, but don't forget, in most states, there's the state return too. For someone who has a more complicated tax return, what does the IRS suggest that they do?

So generally, at that point, you'll be either going to tax software online where they can hook you up with a tax pro so you start doing it on your own or you can basically outsource it. Or you go to a traditional CPA, enrolled agent, or a tax lawyer to help you with your return. So someone's starting their taxes. We're going to make a little flow chart. You start off, you have all your documents, you're ready to go, a few options, free file, direct file, both with the IRS. Or the IRS partners. Yes, or the IRS partners. And you have all these options with free file and direct file. If not, you go ahead to an online platform like TurboTax or H&R Block and then if not, you hire a professional. Is that correct?

That's right. Another wrinkle is that the H&R Blocks and TurboTaxes of the world, they're now offering not just you can get the software and kind of it guides you through it with their chat bots and everything, or you can move up a tier and you can pay to get tax pros to help guide you through it. And does it matter if you use the same platform or way of filing that you did last year? Does it benefit you to use the same one? From a standpoint that it's easier because all the information will already be there. But in a lot of cases, they can, even if you switch to a new provider, they can pull information

off your W-2s. There's all this automatic importing that goes on now that makes everything quicker than it was in years past. And once your taxes are filed and you're expecting a return, the IRS says it expects more people to sign up for online accounts this tax season to keep track of their return. How have they changed it this year? Having an online account with the IRS gives you the ability to view your payment status. You can get an identity protection pin. You can even

respond to IRS messages. They're now putting IRS notices, a lot of them on those online accounts. So it's a great resource for taxpayers. You mentioned PINs. What did those have to do with the IRS online accounts? So there's something called an IP PIN, an identity protection PIN, and that prevents someone else from filing a tax return with your social security number, which obviously, unfortunately, because of fraud, that is something that can happen. And one tax prior I talked to said that she really recommends it. Clearly if you've ever been like a fraud victim or even if you're going through a divorce,

those would be situations you might want to get one of these IP pins. The easiest way to get that is through your online account. How do you get your online account. How do you get an online account with the IRS? So this all starts at IRS.gov. Again, that's super important for security and safety and the links you can follow straight through. I got one a couple years ago. It's not insurmountable. If someone just wants to check the refund, do they need an online account? The online account is one way to get that information, but you don't have to have an online account.

There's a Where's My Refund tool that's on the IRS app or on IRS.gov, Where's My Refund, and they keep improving that too. So it'll give you a better idea of where you are in processing and when you can expect to get it. And for most people, if you file electronically and you choose direct deposit, then it should be within the 21 days. Filing your taxes and getting your tax return, you know, is just half the battle. Making sure that you get all the credits available to you is another challenge, right, Ashleigh? It's like dozens of tax credits, tax deductions, and it's not just a matter of putting your W-2 into the software and clicking a button, but you have to see do you have child care

expenses? Did you put an extra thousand dollars in your health savings account? Like all these things. If you don't put that on your return, you're missing out on the tax breaks. Thanks for being here, Ashlea. We'll explore some of those new rules in episode two. See you next week. Thanks. That's WSJ reporter Ashleya Ebling, and that's it for your money briefing. Join us next Sunday for part two of our special series, tax season 2025, what's new,

where we'll dive into the new tax rules that could end up saving you money on your return. But before that, we'll be back with a new episode tomorrow. This episode was produced by Jess Jupiter. Sound designed by Shannon Mahoney. Our supervising producer is Melanie Roy. Aisha Al-Muslim is our development producer. Scott Salloway and Chris Zinsley are our deputy editors.

And Falana Patterson is The Wall Street Journal's head of news audio. I'm Arianna Aspuru for The Wall Street Journal.