By Tim Grant
Pittsburgh Post-Gazette
(TNS)
Mar. 26—Taxpayers who made money from stocks or interest income last year might experience sticker shock when filing their 2025 tax returns.
After a booming stocks and bonds market sent capital gains, dividends and interest income soaring in 2024, many taxpayers are now seeing the flip side—bigger tax bills and smaller refunds.
“It was a very good year for a lot of people in the stock market. Their 1099s are showing that,” said Elizabeth “Li” Connolly, a partner at Connolly & Steele Co. accounting firm in Avalon, PA.
The financial windfall from savings and investments is showing up on Form 1099s across the country, which are filed with the IRS to report income from sources other than wages, salaries and tips.
The stock market soared in 2024 and savers finally enjoyed a full year of meaningful interest income last year after years of near-zero rates. But the IRS is taking notice of it, too.
“When you make money, you pay the tax,” Ms. Connolly said. “If you’re doing well, you should expect to pay tax on the money you’re making.”
Overall, people’s investment accounts did well last year, tax accountants say.
“Comparing year-over-year, we’re seeing clients with higher interest income,” said Lucas Rihely, a tax partner at H2R CPA in Green Tree, PA.
“The impact on them this year is maybe smaller refunds and a little larger balance due than they had previously anticipated coming into the year,” Mr. Rihely said.
On the surface, the 2025 tax season looks pretty tame because it didn’t come with any sweeping new tax laws or last-minute IRS curveballs. But if you’re one of the people who made more money from investments and savings in 2024 you might have more at stake this year.
The S&P 500 was up more than 23% in 2024. The 10-year U.S. Treasury topped 4.6%. While interest rates for bonds and bank savings accounts started rising in 2023, investors didn’t get a full year of receiving the higher interest payments until 2024.
Now the surge in capital gains and interest income from 2024 is making 2025 tax planning a headache.
Taxpayers who earn income that is not subject to tax withholding pay estimated taxes in advance on a quarterly schedule based on what their tax bill was the previous year. They do this to avoid receiving an overwhelming tax bill at the end of the year.
With treasury bond rates leveling off at around 4.25%, and the stock market off to a rocky start this year, taxpayers are facing a tougher time predicting what they will owe next year, since their earnings from interest and stock might not be as high this year.
So far this year, the S&P 500 has returned a mere -1.9%.
“In the next nine months, we’ll have to see how the rest of the year looks,” Mr. Rihely said.
Ms. Connolly said some clients don’t want to pay higher estimated taxes than they need to if the markets end up not producing as much capital gains distribution this year.
“We’re definitely feeling that people are a little more anxious about the economy than they were even six months ago,” Ms. Connolly said. “So, with this kind of unease, some people are pushing back on paying higher estimates.”
In those cases, she said, the firm is recommending they do some tax planning later in the year to see what the actual situation is, since it’s still too early to tell how the market will perform this year.
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© 2025 the Pittsburgh Post-Gazette. Visit www.post-gazette.com. Distributed by Tribune Content Agency LLC.
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