Tax Prep, Planning & Strategy Archives - Page 6 of 66

The 2025 SALT deduction cap increase might save you substantial taxes

Tax Prep, Planning & Strategy|November 6, 2025

If you pay more than $10,000 in state and local taxes (SALT), a provision of the One Big Beautiful Bill Act (OBBBA) could significantly reduce your 2025 federal income tax liability. However, you need to be aware of income-based limits, and you may need to take steps before year end to maximize your deduction.

Higher deduction limit

Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. Historically, eligible SALT expenses were generally 100% deductible on federal income tax returns if an individual itemized deductions. This provided substantial tax savings to many taxpayers in locations with higher income or property tax rates (or higher home values), as well as those who owned both a primary residence and one or more vacation homes.

Beginning in 2018, the Tax Cuts and Jobs Act (TCJA) limited the deduction to $10,000 ($5,000 for married couples filing separately). This SALT cap was scheduled to expire after 2025.

Rather than letting the $10,000 cap expire or immediately making it permanent, the OBBBA temporarily quadruples the limit. Beginning in 2025, taxpayers can deduct up to $40,000 ($20,000 for married couples filing separately), with 1% increases each subsequent year. Then in 2030, the OBBBA reinstates the $10,000 cap.

The increased SALT cap could lead to major tax savings compared with the $10,000 cap. For example, a single taxpayer in the 35% tax bracket with $40,000 in SALT expenses could save an additional $10,500 in taxes [35% × ($40,000 − $10,000)].

Income-based reduction

While the higher limit is in place, it’s reduced for taxpayers with incomes above a certain level. The allowable deduction drops by 30% of the amount by which modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000; when MAGI reaches $600,000, the previous $10,000 cap applies. (These amounts are halved for separate filers.) The MAGI threshold will also increase 1% each year through 2029.

Here’s how the earlier example would be different if the taxpayer’s MAGI exceeded the threshold: Let’s say MAGI is $550,000, which is $50,000 over the 2025 threshold. The cap would be reduced by $15,000 (30% × $50,000), leaving a maximum SALT deduction of $25,000 ($40,000 − $15,000). Even reduced, that’s more than twice what would be permitted under the $10,000 cap. The reduced deduction would still save an additional $5,250 in taxes [35% × ($25,000 − $10,000) compared to when the $10,000 cap applied.

Itemizing vs. the standard deduction

The SALT deduction is available only to taxpayers who itemize their deductions. The TCJA nearly doubled the standard deduction. As a result of that change and the $10,000 SALT cap, the number of taxpayers who itemize dropped substantially. And, under the OBBBA, the standard deduction is even higher — for 2025, it’s $15,750 for single and separate filers, $23,625 for head of household filers, and $31,500 for married couples filing jointly.

But the higher SALT cap might make it worthwhile for some taxpayers who’ve been claiming the standard deduction post-TCJA to start itemizing again. Consider, for example, a taxpayer who pays high state income tax. If that amount combined with other itemized deductions (generally, certain medical and dental expenses, home mortgage interest, qualified casualty losses, and charitable contributions) exceeds the applicable standard deduction, the taxpayer will save more tax by itemizing.

Year-end strategies

Here are two strategies that might help you maximize your 2025 SALT deduction:

1. Reduce your MAGI. If it’s nearing the threshold that would reduce your deduction or already over it, you can take steps to stay out of the danger zone. For example, you can make or increase pretax retirement plan and Health Savings Account contributions. Likewise, you can avoid moves that increase your MAGI, like Roth IRA conversions, nonrequired traditional retirement plan distributions and asset sales that result in large capital gains.

2. Accelerate property tax deductions. If your SALT expenses are less than $40,000 and your MAGI is below the reduction threshold for 2025, for example, you might prepay your 2026 property tax bill this year. (This assumes the amount has been assessed — you can’t deduct a prepayment based only on your estimate.)

Plan carefully

In your SALT planning, also be aware that SALT expenses aren’t deductible for purposes of the alternative minimum tax (AMT). A large SALT deduction could have the unintended effect of triggering the AMT, particularly after 2025.

Under the right circumstances, the increase to the SALT deduction cap can be a valuable tax saver. But careful planning is essential. Contact us for assistance with maximizing your SALT deduction and other year-end tax planning strategies.

Receive $10,000 in cash at your business? The IRS wants to know about it

Tax Prep, Planning & Strategy|November 4, 2025

Does your business receive large amounts of cash or cash equivalents? If so, you’re generally required to report these transactions to the IRS — and not just on your tax return. Here are some answers to questions you may have.

What are the requirements?

Although many cash transactions are legitimate, the IRS explains that the information reported on Form 8300 “can help stop those who evade taxes, profit from the drug trade, engage in terrorist financing and conduct other criminal activities. The government can often trace money from these illegal activities through the payments reported on Form 8300 and other cash reporting forms.”

Each person who, in the course of operating a trade or business, receives more than $10,000 in cash in one transaction (or two or more related transactions), must file Form 8300. Who is a “person”? It can be an individual, company, corporation, partnership, association, trust or estate. What are considered “related transactions”? Any transactions between the same payer and recipient conducted in a 24-hour period. Transactions can also be considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.

In order to complete Form 8300, you’ll need personal information about the person making the cash payment, including a Social Security or taxpayer identification number.

The IRS reminds businesses that they can “batch file” their reports, which is especially helpful to those required to file many forms.

Note: Under a rule that went into effect on January 1, 2024, businesses must now file Forms 8300 electronically if they’re otherwise required to e-file certain other information returns electronically, such as W-2s and 1099s. You also must e-file if you’re required to file at least 10 information returns other than Form 8300 during a calendar year.

What’s the definition of cash and cash equivalents?

For Form 8300 reporting purposes, cash includes U.S. currency and coins, as well as foreign money. It may also include cash equivalents such as cashier’s checks (sometimes called bank checks), bank drafts, traveler’s checks and money orders.

Money orders and cashier’s checks under $10,000, when used in combination with other forms of cash for a single transaction that exceeds $10,000, are defined as cash for Form 8300 reporting purposes.

What about digital assets such as cryptocurrency? Despite a 2021 law that would treat certain digital asset receipts like “cash,” the IRS announced in 2024 that you don’t have to report digital asset receipts on Form 8300 until regulations are issued. IRS Announcement 2024-4 remains the latest official word.

Note: Under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier’s checks, treasurer’s checks and/or bank checks, bank drafts, traveler’s checks and money orders with a face value of more than $10,000 by filing currency transaction reports.

What type of penalties can be imposed for noncompliance?

If a business doesn’t file Forms 8300 on time, there can be a civil penalty of $310 for each missed form, up to an annual cap. The penalties are higher if the IRS finds the failure to file is intentional, and there can be criminal penalties as well.

In one recent case, an Arizona car dealer failed to file the required number of Forms 8300. While the dealer did file 116 forms for the year in question, the IRS determined that the business should have filed an additional 266 forms.

The tax agency assessed penalties of $118,140. The dealer argued that it had reasonable cause for not filing all the forms because the software it was using wasn’t functioning properly. However, the U.S. Tax Court ruled that the dealer wasn’t using the software correctly and didn’t take steps to foster compliance. (TC Memo 2025-38)

Stay on top of the requirements

Compliance with Form 8300 requirements can help your business avoid steep penalties and trouble with the IRS. Recordkeeping is critical. You should keep a copy of each Form 8300 for five years from the date you file it, according to the IRS. “Confirmation receipts don’t meet the recordkeeping requirement,” the tax agency adds.

Teachers and others can deduct eligible educator expenses this year — and more next year and beyond

Tax Prep, Planning & Strategy|October 30, 2025

At back-to-school time, much of the focus is on the students returning to the classroom — and on their parents buying them school supplies, backpacks, clothes, etc., for the new school year. But teachers are also buying school supplies for their classrooms. And in many cases, they don’t receive reimbursement. Fortunately, they may be able to deduct some of these expenses on their tax returns. And, beginning next year, eligible educators will have an additional deduction opportunity under the One Big Beautiful Bill Act (OBBBA).

The current above-the-line deduction

Eligible educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize and it reduces your adjusted gross income (AGI), which has an added benefit: Because AGI-based limits affect a variety of tax breaks, lowering your AGI might help you maximize your tax breaks overall.

To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. Also, they must work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

For 2025, up to $300 of qualified expenses paid during the year that weren’t reimbursed can be deducted. (The deduction limit is $600 if both taxpayers are eligible educators who file a joint tax return, but these taxpayers can’t deduct more than $300 each.) The limit is annually indexed for inflation but typically doesn’t go up every year.

Examples of qualified expenses include books, classroom supplies, computer equipment (including software), other materials used in the classroom, and professional development courses. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.

A new miscellaneous itemized deduction

The OBBBA makes permanent the Tax Cut and Jobs Act’s (TCJA’s) suspension of miscellaneous itemized deductions subject to the 2% of AGI floor. This had included unreimbursed employee business expenses such as teachers’ out-of-pocket classroom expenses. The suspension had been in place since 2018.

But the OBBBA creates a new miscellaneous itemized deduction for educator expenses. This is in addition to the $300 above-the-line deduction. And this deduction isn’t subject to the 2% of AGI floor or a specific dollar limit. The new deduction is available for eligible expenses incurred after Dec. 31, 2025.

Both who’s eligible and what expenses qualify are a little broader for the itemized deduction than for the above-the-line deduction. For example, interscholastic sports administrators and coaches are also eligible. And, for courses in health and physical education, the supplies don’t have to be related to athletics.

Keep in mind that you’ll have to itemize deductions to claim this new deduction next year. Taxpayers can choose to itemize this and certain other deductions or to take the standard deduction based on their filing status. Itemizing deductions saves tax only when the total is greater than the standard deduction. The OBBBA has made permanent the nearly doubled standard deductions under the TCJA, so fewer taxpayers are benefiting from itemizing.

Carefully track expenses

If you’re a teacher or other educator, keep receipts when you pay for eligible expenses and note the date, amount and purpose of each purchase. Have questions about educator deductions or other tax-saving strategies? Please contact us.

What do the 2026 cost-of-living adjustment numbers mean for you?

Tax Prep, Planning & Strategy|October 24, 2025

The IRS recently issued its 2026 cost-of-living adjustments for more than 60 tax provisions. The One Big Beautiful Bill Act (OBBBA) makes permanent or amends many provisions of the Tax Cuts and Jobs Act (TCJA). It also makes permanent most TCJA changes to various deductions and makes new changes to some deductions. OBBBA-affected changes have been noted throughout.

As you implement 2025 year-end tax planning strategies, be sure to take these 2026 numbers into account.

Individual income tax rates

Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $475–$950, depending on filing status, but the top of the 35% bracket will increase by $8,550–$17,100, depending on filing status.

2026 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $12,400	$0 – $17,700	$0 – $24,800	$0 – $12,400
12%	$12,401 – $50,400	$17,701 – $67,450	$24,801 – $100,800	$12,401 – $50,400
22%	$50,401 – $105,700	$67,451 – $105,700	$100,801 – $211,400	$50,401 – $105,700
24%	$105,701 – $201,775	$105,701 – $201,750	$211,401 – $403,550	$105,701 – $201,775
32%	$201,776 – $256,225	$201,751 – $256,200	$403,551 – $512,450	$201,776 – $256,225
35%	$256,226 – $640,600	$256,201 – $640,600	$512,451 – $768,700	$256,226 – $384,350
37%	Over $640,600	Over $640,600	Over $768,700	Over $384,350

Note that the OBBBA makes the rates and brackets permanent. The income tax brackets will continue to be annually indexed for inflation.

Standard deduction

The OBBBA makes permanent and slightly increases the TCJA’s nearly doubled standard deduction for each filing status. The amounts will continue to be annually adjusted for inflation.

In 2026, the standard deduction will be $32,200 for married couples filing jointly, $24,150 for heads of households, and $16,100 for singles and married couples filing separately.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

2026 long-term capital gains brackets*
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
0%	$0 – $49,450	$0 – $66,200	$0 – $98,900	$0 – $49,450
15%	$49,451 – $545,500	$66,201 – $579,600	$98,901 – $613,700	$49,451 – $306,850
20%	Over $545,500	Over $579,600	Over $613,700	Over $306,850
* Higher rates apply to certain types of assets.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2026, the threshold for the 28% bracket will increase by $5,400 for all filing statuses except married filing separately, which will increase by half that amount.

2026 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $244,500	$0 – $244,500	$0 – $244,500	$0 – $122,250
28%	Over $244,500	Over $244,500	Over $244,500	Over $122,250

The AMT exemption amounts were significantly increased under the TCJA. The OBBBA makes the higher exemptions permanent, continuing to index them for inflation. The exemption amounts in 2026 will be $90,100 for singles and heads of households, and $140,200 for joint filers, increasing by $2,000 and $3,200, respectively, over 2025 amounts.

The AMT exemption phases out over certain income ranges. It’s completely phased out if AMT income exceeds the top of the applicable range.

Under the OBBBA, the income thresholds for the phaseout revert to their 2018 levels for 2026 (i.e., removing the inflation adjustments that had been made for 2019–2025) and then will be annually adjusted for inflation again in subsequent years. Also, the OBBBA phases out the exemption twice as quickly beginning in 2026.

So, the exemption phaseout ranges in 2026 will be $500,000–$680,200 for singles and $1,000,000–$1,280,400 for joint filers. These are significantly lower than the 2025 ranges of $626,350–$978,750 and $1,252,700–$1,800,700, respectively.

Amounts for married couples filing separately are half of those for joint filers.

Child-related breaks

Certain child-related breaks are annually adjusted for inflation but don’t necessarily go up every year. In addition, these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

Here are the 2026 figures for two important child-related breaks:

The Child Tax Credit. The OBBBA makes permanent the TCJA’s $2,000 per qualifying child credit amount, plus it increases it to $2,200 for 2025. The OBBBA also adjusts the credit annually for inflation starting in 2026. However, because inflation is relatively low and the dollar amount of the credit is relatively small, the credit will remain at $2,200 for 2026. The OBBBA also makes permanent the annual inflation adjustment to the limit on the refundable portion of the credit, but, again, there’s no increase for 2026. The refundable portion will remain at $1,700.

Beware that the Child Tax Credit phases out for higher-income taxpayers, and the phaseout thresholds aren’t inflation-indexed. Under the OBBBA, they’re permanently $200,000 for singles and heads of households, and $400,000 for married couples filing jointly.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2026 — by $5,890. It will be $265,080–$305,080 for joint, head of household and single filers. The maximum credit will increase by $390, to $17,670 in 2026. Under the OBBBA, a portion of the credit is refundable, and that portion is annually indexed. For 2026, the refundable portion is $5,120 (up from $5,000 for 2025).

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption had been scheduled to return to an inflation-adjusted $5 million in 2026. But the OBBBA permanently increases both exemption amounts to $15 million for 2026 and annually indexes the amount for inflation after that.

The annual gift tax exclusion in 2026 remains the same as the 2025 amount: $19,000 per giver per recipient.

2026 cost-of-living adjustments and tax planning

With many of the 2026 cost-of-living adjustment amounts trending higher, you may have an opportunity to realize some tax relief next year. However, beware that some taxpayers might be at greater AMT risk because of the reductions to the exemption phaseout ranges. If you have questions on the best tax-saving strategies to implement based on the 2026 numbers, please contact us.

Payroll tax implications of new tax breaks on tips and overtime

Tax Prep, Planning & Strategy|October 21, 2025

Before the One Big Beautiful Bill Act (OBBBA), tip income and overtime income were fully taxable for federal income tax purposes. The new law changes that.

Tip income deduction

For 2025–2028, the OBBBA creates a new temporary federal income tax deduction that can offset up to $25,000 of annual qualified tip income. It begins to phase out when modified adjusted gross income (MAGI) is more than $150,000 ($300,000 for married joint filers).

The deduction is available if a worker receives qualified tips in an occupation that’s designated by the IRS as one where tips are customary. However, the U.S. Treasury Department recently released a draft list of occupations it proposes to receive the tax break and there are some surprising jobs on the list, including plumbers, electricians, home heating / air conditioning mechanics and installers, digital content creators, and home movers.

Employees and self-employed individuals who work in certain trades or businesses are ineligible for the tip deduction. These include health, law, accounting, financial services, investment management and more.

Qualified tips can be paid by customers in cash or with credit cards or given to workers through tip-sharing arrangements. The deduction can be claimed whether the worker itemizes or not.

Overtime income deduction

For 2025–2028, the OBBBA creates another new federal income tax deduction that can offset up to $12,500 of qualified overtime income each year or up to $25,000 for a married joint-filer. It begins to phase out when MAGI is more than $150,000 ($300,000 for married joint filers). The limited overtime deduction can be claimed whether or not workers itemize deductions on their tax returns.

Qualified overtime income means overtime compensation paid to a worker as mandated under Section 7 of the Fair Labor Standards Act (FLSA). It requires time-and-a-half overtime pay except for certain exempt workers. If a worker earns time-and-a-half for overtime, only the extra half constitutes qualified overtime income.

Qualified overtime income doesn’t include overtime premiums that aren’t required by Section 7 of the FLSA, such as overtime premiums required under state laws or overtime premiums pursuant to contracts such as union-negotiated collective bargaining agreements. Qualified overtime income also doesn’t include any tip income.

Payroll tax implications

While you may have heard the new tax breaks described as “no tax on tips” and “no tax on overtime,” they’re actually limited, temporary federal income tax deductions as opposed to income exclusions. Therefore, income tax may apply to some of your wages and federal payroll taxes still apply to qualified tip income and qualified overtime income. In addition, applicable federal income tax withholding rules still apply. And tip income and overtime income may still be fully taxable for state and local income tax purposes.

The real issue for employers and payroll management firms is reporting qualified tip income and qualified overtime income amounts so eligible workers can claim their rightful federal income tax deductions.

Reporting details

The tip deduction is allowed to both employees and self-employed individuals. Qualified tip income amounts must be reported on Form W-2, Form 1099-NEC, or another specified information return or statement that’s furnished to both the worker and the IRS.

Qualified overtime income amounts must be reported to workers on Form W-2 or another specified information return or statement that’s furnished to both the worker and the IRS.

IRS announcement about information returns and withholding tables

The IRS recently announced that for tax year 2025, there will be no OBBBA-related changes to federal information returns for individuals, federal payroll tax returns or federal income tax withholding tables. So, Form W-2, Forms 1099, Form 941, and other payroll-related forms and returns won’t be changed. The IRS stated that “these decisions are intended to avoid disruptions during the tax filing season and to give the IRS, business and tax professionals enough time to implement the changes effectively.”

Employers and payroll management firms are advised to begin tracking qualified tip income and qualified overtime income immediately and to implement procedures to retroactively track qualified tip and qualified overtime income amounts that were paid before July 4, 2025, when the OBBBA became law. The IRS is expected to provide transition relief for tax year 2025 and update forms for tax year 2026. Contact us with any questions.

New rules could boost your R&E tax savings in 2025

Tax Prep, Planning & Strategy|October 14, 2025

A major tax change is here for businesses with research and experimental (R&E) expenses. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) reinstated the immediate deduction for U.S.-based R&E expenses, reversing rules under the Tax Cuts and Jobs Act (TCJA) that required businesses to capitalize and amortize these costs over five years (15 years for research performed outside the United States).

Making the most of R&E tax-saving opportunities

The immediate domestic R&E expense deduction generally is available beginning with eligible 2025 expenses. It can substantially reduce your taxable income, but there are strategies you can employ to make the most of R&E tax-saving opportunities:

Apply the changes retroactively. If you qualify as a small business (average annual gross receipts of $31 million or less for the last three years), you can file amended returns for 2022, 2023 and/or 2024 to claim the immediate R&E expense deduction and potentially receive a tax refund for those years. The amended returns must be filed by July 4, 2026.

Accelerate remaining deductions. Whatever the size of your business, if you began to amortize and capitalize R&E expenses in 2022, 2023 and/or 2024, you can deduct the remaining amount either on your 2025 return or split between your 2025 and 2026 returns, rather than continuing to amortize and capitalize over what remains of the five-year period.

Relocate research activities. Consider relocating foreign research activities to the United States. Before the OBBBA, the five-year vs. 15-year amortization period made domestic R&E activities more attractive from a tax perspective. Now the difference between a current deduction and 15-year amortization makes domestic R&E activities even more advantageous tax-wise.

Take advantage of the research credit. A tax deduction reduces the amount of income that’s taxed, while a tax credit reduces the actual tax you owe dollar-for-dollar, providing much more tax savings than a deduction of an equal amount. So consider whether you may be eligible for the tax credit for “increasing research activities.” But keep in mind that the types of expenses that qualify for the credit are narrower than those that qualify for the deduction. And you can’t claim both the credit and the deduction for the same expense.

We’re here to help

With the recent changes to the R&E expense rules, understanding your options is more important than ever. Our team can walk you through the updates, evaluate potential strategies, and help you determine the best approach to maximize your savings and support your business goals.

New information return and payroll tax reporting rules require attention

Tax Prep, Planning & Strategy|October 10, 2025

The One Big Beautiful Bill Act (OBBBA) introduced or updated numerous business-related tax provisions. The changes that are likely to have a major impact on employers and payroll management companies include new information return and payroll tax reporting rules. Let’s take a closer look at what’s new beginning in 2026 — and what businesses need to do in 2025.

Increased reporting thresholds go into effect in 2026

Businesses generally must report payments made during the year that equal or exceed the reporting threshold for rents; salaries; wages; premiums; annuities; compensation; remuneration; emoluments; and other fixed or determinable gains, profits and income. Similarly, recipients of business services generally must report payments they made during the year for services rendered that equal or exceed the statutory threshold. This information is reported on information returns, including Forms W-2, Forms 1099-MISC and Forms 1099-NEC.

Currently, the reporting threshold amount is $600. For payments made after 2025, the OBBBA increases the threshold to $2,000, with inflation adjustments for payments made after 2026.

Reporting qualified tip income and qualified overtime income

Effective for 2025 through 2028, the OBBBA establishes new deductions for employees who receive qualified tip income and qualified overtime income. Because these are deductions as opposed to income exclusions, federal payroll taxes still apply to this income. So do federal income tax withholding rules. Also, tip income and overtime income may still be fully taxable for state and local income tax purposes.

The issue for employers and payroll management companies is reporting qualified tip and overtime income amounts so that eligible workers can claim their rightful federal income tax deductions. In August, the IRS announced that for 2025 there will be no OBBBA-related changes to federal information returns for individuals, federal payroll tax returns or federal income tax withholding tables. The 2025 versions of Form W-2, Forms 1099, Form 941, and other payroll-related forms and returns will be unchanged.

Nevertheless, employers and payroll management companies should begin tracking qualified tip and overtime income immediately and implement procedures to retroactively track qualified tip and overtime income amounts that were paid going back to January 1, 2025. The IRS will provide transition relief for 2025 to ease compliance burdens.

Proposed regulations list tip-receiving occupations

In September, the IRS released proposed regs that include a list of tip-receiving occupations eligible for the OBBBA deduction for qualified tip income. Eligible occupations are grouped into eight categories:

Beverage and food services,
Entertainment and events,
Hospitality and guest services,
Home services,
Personal services,
Personal appearance and wellness,
Recreation and instruction, and
Transportation and delivery.

The IRS added three-digit codes to each eligible occupation for information return purposes.

2026 Form W-2 draft version

The IRS has released a draft version of the 2026 Form W-2. It includes changes that support new employer reporting requirements for the employee deductions for qualified tip income and qualified overtime income and for employer contributions to Trump Accounts, which will become available in 2026 under the OBBBA.

Specifically, Box 12 of the draft version adds:

Code TA to report employer contributions to Trump Accounts,
Code TP to report the total amount of an employee’s qualified cash tip income, and
Code TT to report the total amount of an employee’s qualified overtime income.

Box 14b has been added to allow employers to report the occupation of employees who receive qualified tip income.

Stay on top of the latest guidance

The OBBBA makes some significant changes affecting information returns and payroll tax reporting. The IRS will likely continue to issue guidance and regulations. We can help you stay informed on any developments that will affect your business’s reporting requirements.

The power of catch-up retirement account contributions after 50

Tax Prep, Planning & Strategy|October 9, 2025

Are you age 50 or older? You’ve earned the right to supercharge your retirement savings with extra “catch-up” contributions to your tax-favored retirement account(s). And these contributions are more valuable than you may think.

IRA contribution amounts

For 2025, eligible taxpayers can make contributions to a traditional or Roth IRA of up to the lesser of $7,000 or 100% of earned income. They can also make extra catch-up contributions of up to $1,000 annually to a traditional or Roth IRA. If you’ll be 50 or older as of December 31, 2025, you can make a catch-up contribution for the 2025 tax year by April 15, 2026.

Extra deductible contributions to a traditional IRA create tax savings, but your deduction may be limited if you (or your spouse) are covered by a retirement plan at work and your income exceeds a certain amount.

Extra contributions to Roth IRAs don’t generate any upfront tax savings, but you can take federal-income-tax-free qualified withdrawals after age 59½. There are also income limits on Roth contributions.

Higher-income individuals can make extra nondeductible traditional IRA contributions and benefit from the tax-deferred earnings advantage.

Employer plan contribution amounts

For 2025, you can contribute up to $23,500 to an employer 401(k), 403(b) or 457 retirement plan. If you’re 50 or older and your plan allows it, you can contribute up to an additional $7,500 in 2025. Check with your human resources department to see how to sign up for extra contributions.

Contributions are subtracted from your taxable wages, so you effectively get a federal income tax deduction. You can use the tax savings to help pay for part of your extra catch-up contribution, or you can set the tax savings aside in a taxable retirement savings account to further increase your retirement wealth.

Examples of how catch-up contributions grow

How much can you accumulate? To see how powerful catch-up contributions can be, let’s run a few scenarios.

Example 1: Let’s say you’re age 50 and you contribute an extra $1,000 catch-up contribution to your IRA this year and then do the same for the following 15 years. Here’s how much extra you could have in your IRA by age 65 (rounded to the nearest $1,000):

4% annual return: $22,000
8% annual return: $30,000

Keep in mind that making larger deductible contributions to a traditional IRA can also lower your tax bill. Making additional contributions to a Roth IRA won’t, but they’ll allow you to take more tax-free withdrawals later in life.

Example 2: Assume you’ll turn age 50 next year. You contribute an extra $7,500 to your company plan in 2026. Then, you do the same for the next 15 years. Here’s how much more you could have in your 401(k), 403(b), or 457 plan account (rounded to the nearest $1,000):

4% annual return: $164,000
8% annual return: $227,000

Again, making larger contributions can also lower your tax bill.

Example 3: Finally, let’s say you’ll turn age 50 next year and you’re eligible to contribute an extra $1,000 to your IRA for 2026, plus you make an extra $7,500 contribution to your company plan. Then, you do the same for the next 15 years. Here’s how much extra you could have in the two accounts combined (rounded to the nearest $1,000):

4% annual return: $186,000
8% annual return: $258,000

The amounts add up quickly

As you can see, catch-up contributions are one of the simplest ways to boost your retirement wealth. If your spouse is eligible too, the impact can be even greater. Contact us if you have questions or want to see how this strategy fits into your retirement savings plan.

Run a business with your spouse? You may encounter unique tax issues

Tax Prep, Planning & Strategy|October 2, 2025

Do you and your spouse together operate a profitable unincorporated small business? If so, you face some challenging tax issues.

The partnership issue

An unincorporated business with your spouse is classified as a partnership for federal income tax purposes, unless you can avoid that treatment. Otherwise, you must file an annual partnership return using Form 1065. In addition, you and your spouse must be issued separate Schedules K-1, which allocate the partnership’s taxable income, deductions and credits between the two of you. This is only the beginning of the unwelcome tax compliance tasks.

The self-employment tax issue

Self-employment (SE) tax is how the government collects Social Security and Medicare taxes from self-employed individuals. For 2025, the SE tax consists of 12.4% Social Security tax on the first $176,100 of net SE income plus 2.9% Medicare tax. Once your 2025 net SE income surpasses the $176,100 ceiling, the Social Security tax component of the SE tax ends. But the 2.9% Medicare tax component continues before increasing to 3.8% — because of the 0.9% additional Medicare tax — if the combined net SE income of a married joint-filing couple exceeds $250,000. (This doesn’t include investment income.)

With your joint Form 1040, you must include a Schedule SE to calculate SE tax on your share of the net SE income passed through to you by your spousal partnership. The return must also include a Schedule SE for your spouse to calculate the tax on your spouse’s share of net SE income passed through to him or her. This can significantly increase your SE tax liability.

For example, let’s say you and your spouse each have net 2025 SE income of $150,000 ($300,000 total) from your profitable 50/50 partnership business. The SE tax on your joint tax return is a whopping $45,900 ($150,000 × 15.3% × 2). That’s on top of regular federal income tax. (However, you do get an income deduction for half of the SE tax.)

Here are three possible tax-saving solutions.

1. Use an IRS-approved method to minimize SE tax in a community property state

Under IRS guidance (Revenue Procedure 2002-69), there’s an exception to the general rule that spouse-run businesses are treated as partnerships. For federal tax purposes, you can treat an unincorporated spousal business in a community property state as a sole proprietorship operated by one of the spouses. By effectively allocating all the net SE income to the proprietor spouse, only the first $176,100 of net SE income is hit with the 12.4% Social Security tax. That can cut your SE tax bill.

2. Convert a spousal partnership into an S corporation and pay modest salaries

If you and your unincorporated spousal business aren’t in a community property state, consider converting the business to S corp status to reduce Social Security and Medicare taxes. That way, only the salaries paid to you and your spouse get hit with the Social Security and Medicare tax, collectively called FICA tax. You can then pay reasonable, but not excessive, salaries to you and your spouse as shareholder-employees while paying out most or all remaining corporate cash flow to yourselves as FICA-tax-free cash distributions. Keep in mind that S corps come with their own compliance obligations.

3. Disband your partnership and hire your spouse as an employee

You can disband the existing spousal partnership and start running the operation as a sole proprietorship operated by one spouse. Then hire the other spouse as an employee of the proprietorship. Pay that spouse a modest cash salary. You must withhold 7.65% from the salary to cover the employee-spouse’s share of the Social Security and Medicare taxes. The proprietorship must also pay 7.65% as the employer’s half of the taxes. However, because the employee-spouse’s salary is modest, the FICA tax will also be modest.

With this strategy, you file only one Schedule SE — for the spouse treated as the proprietor — with your joint tax return. That minimizes the SE tax because no more than $176,100 (for 2025) is exposed to the 12.4% Social Security portion of the SE tax.

Additional bonus: You may be able to provide certain employee benefits to your spouse, such as retirement contributions, which may provide more tax savings.

We can help

Having a profitable unincorporated business with your spouse that’s classified as a partnership for federal income tax purposes can lead to compliance headaches and high SE tax bills. Work with us to identify appropriate tax-saving strategies.

Act soon: The OBBBA ends clean energy tax breaks

Tax Prep, Planning & Strategy|September 30, 2025

The newly enacted One, Big, Beautiful Bill Act (OBBBA) represents a major move by President Trump and congressional Republicans to roll back a number of clean energy tax incentives originally introduced or expanded under the Inflation Reduction Act (IRA). Below is a summary of the key individual tax credits that will soon be scaled back or eliminated.

Clean vehicle tax credits

If you’re planning to buy a clean vehicle, consider acting soon to take advantage of expiring tax benefits:

New clean vehicle credit. This credit offers up to $7,500 for qualifying new electric and fuel cell vehicles, depending on how the battery components and critical minerals are sourced. Vehicles that meet only one of the sourcing criteria may be eligible for a reduced $3,750 credit. Originally set to expire in 2032, this credit now ends on September 30, 2025.

The maximum manufacturer’s suggested retail price is $55,000 for cars and $80,000 for SUVs, trucks and vans. To qualify, your adjusted gross income (AGI) must not exceed $150,000 ($300,000 for married couples filing jointly and $225,000 for heads of households).

Used clean vehicle credit. Buyers of eligible used EVs or fuel cell vehicles may claim up to $4,000, or 30% of the purchase price — whichever is lower — if bought from a dealer. This credit also expires on September 30, 2025.

The maximum price of the vehicle is $25,000. To be eligible for the credit, your AGI must not exceed $75,000 for single taxpayers ($150,000 for married joint filers and $112,500 for heads of households).

Alternative fuel refueling property credit

Homeowners who install equipment to recharge EVs or dispense clean fuel may qualify for the alternative fuel vehicle refueling property credit. The IRA had extended and expanded this benefit.

For property placed in service at a primary residence after 2023, the credit equals 30% of the installation cost, up to $1,000 per item (charging port, fuel dispenser, or storage property). Equipment must be placed in service by June 30, 2026, instead of the previous end-of-2032 deadline.

Home energy tax credits

The OBBBA shortens the lifespan of several tax credits available to individual homeowners. Those planning home upgrades may want to act swiftly to make the most of these two opportunities.

Energy efficient home improvement credit. This tax break provides a 30% nonrefundable credit for qualified expenses such as energy-efficient doors, windows, skylights, insulation, heat pumps and home energy audits. The maximum credit you can claim this year is $1,200.

There are no income restrictions, but credit caps vary by item. In 2025, credit limits include:

$250 per exterior door ($500 total),
$600 for windows, central A/C, panels, and select equipment,
$150 for energy audits, and
$2,000 for heat pumps, water heaters, and biomass systems (superseding the usual $1,200 limit).

This credit was previously scheduled to end after 2032. The expiration has been moved up to December 31, 2025.

Residential clean energy credit. This tax break provides a 30% nonrefundable credit for renewable energy systems like solar, wind, geothermal, and biomass installations. There are no income limits. Under prior law, this credit was set to expire after 2034. The OBBBA makes the new expiration date December 31, 2025.

Secure savings now

Given the shortened timelines and reduced availability of green tax benefits under the OBBBA, proactive planning is key. If you’re interested, you should make the most of these incentives while they last. Contact us with any questions about your situation.

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