Payroll tax implications of new tax breaks on tips and overtime
For 2025–2028, the One Big Beautiful Bill Act creates a new federal income tax deduction that can offset up to $25,000 of annual tip income. It begins to phase out when income is more than $150,000 ($300,000 for joint filers). The deduction is available if a worker receives tips in a job designated as one where tips are customary. However, the U.S. Treasury Dept. has released a draft list of occupations it proposes to receive the tax break and there are some surprising jobs on it, including plumbers, electricians, digital content creators and movers. Tips can be paid in cash, with credit cards or through tip-sharing arrangements. The deduction can be claimed even if a worker doesn’t itemize.
Run a business with your spouse? You may encounter unique tax issues
If you and your spouse operate an unincorporated small business, you face some unique tax issues. For example, an unincorporated spousal business is generally classified as a partnership for federal tax purposes. (However, in community property states, you can treat the business as a sole proprietorship.) As a partnership, you must file an annual partnership return and both spouses must receive Schedules K-1, which allocate taxable income, deductions and credits between the two. With your joint tax return, you must also pay self-employment (SE) tax on your share of the net SE income passed through to you by the partnership. Your spouse must do the same. Contact us for tax-saving strategies.
5 ways your business can build a stronger annual budget
As summer gives way to fall, many businesses begin their annual budget-setting processes. Here are five ways to improve this often-difficult task: 1) Optimize data to eliminate confusing or conflicting information that could hamper budget performance. 2) Involve the entire organization to gain insights from each department’s knowledge base. 3) “Sell” your budget to staff, clearly explaining its rationale and objectives. 4) Once the budget is in place, monitor cash flow carefully and create a plan for shortfalls. 5) Get an objective opinion on your budgeting process. We can show you how to better analyze historical financial data, identify cost-saving opportunities and more.
Teachers and others can deduct eligible educator expenses this year — and more next year and beyond
Teachers commonly buy school supplies for their classrooms. 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). For 2025, up to $300 of qualified expenses paid during the year that weren’t reimbursed can be deducted without having to itemize deductions. The OBBBA creates a new miscellaneous itemized deduction for eligible educator expenses incurred after Dec. 31, 2025. Contact us to learn about the eligibility requirements and discuss other tax-saving strategies.
New rules could boost your R&E tax savings in 2025
A major tax change is here for businesses with research and experimental (R&E) expenses. The One Big Beautiful Bill Act (OBBBA) reinstated the immediate deduction for U.S.-based R&E expenses effective for 2025. This reversed rules under the Tax Cuts and Jobs Act that required businesses to capitalize and amortize these costs over five years. The immediate deduction can substantially reduce your taxable income. But there are strategies you can employ to make the most of R&E tax-saving opportunities, such as applying the changes retroactively if eligible and accelerating remaining deductions from prior years. Contact us for help determining the best approach to maximize your tax savings.
Shining a light on your business’s brand
Like every business, your company has a brand that may need an occasional refresh to keep up with the times. When re-evaluating yours, first identify the strengths of your business. Maybe you’ve pivoted over the last several years to address changing economic or market conditions. Next, determine what personality will draw today’s buyers to your company. Review points of contact with customers and consider whether you’re making the right impression. Finally, check up on the competition. Identify what branding tactics they’re using and develop countermeasures. Contact us for help evaluating your current and prospective branding strategies from a cost-planning perspective.
Investing in qualified small business stock now offers expanded tax benefits
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The preferential tax treatment of qualified small business (QSB) stock is getting even better under the One Big Beautiful Bill Act (OBBBA). Generally, taxpayers selling QSB stock can exclude 100% of the gain if they’ve held the stock for more than five years. The OBBBA provides a 75% exclusion for QSB stock held for four years and a 50% exclusion for QSB stock held for three years. These exclusions go into effect for QSB stock acquired after July 4, 2025. The OBBBA also increases the asset ceiling for QSBs from $50 million to $75 million (adjusted for inflation after 2026) for stock issued after July 4, 2025. Additional requirements apply. Contact us to learn more.
How businesses can fund a buy-sell agreement
Businesses with multiple owners face serious risks if one of the owners suddenly departs or undergoes a major life change. A buy-sell agreement can guard against these risks, but only if it’s securely funded. One popular funding choice is life insurance. The right policy, sometimes combined with riders or other types of coverage, can help ensure that departing owners or their beneficiaries efficiently receive the agreed-upon price for ownership interests following eligible triggering events. Meanwhile, it can ease the strain on the company’s cash flow and reduce the likelihood that the business will have to sell assets to fund an ownership interest buyout. Contact us for more information.
The next estimated tax payment deadline is coming up soon
If you make estimated tax payments, the amount you owe may be affected by the law enacted on July 4. It introduces tax breaks that could shift your income tax liability. Estimated tax payments ensure that certain people pay taxes throughout the year. You may have to make them if you receive interest, dividends, self-employment income, capital gains or other income. If you don’t pay enough through withholding and estimated payments during the year, you may be liable for a penalty. Individuals generally must pay 25% of their required annual tax four times a year with Form 1040-ES (an exception may be available if your income isn’t uniform over the year). The next payment is due Sept. 15.
Lower your self-employment tax bill by switching to an S corporation
If you own an unincorporated small business, are you fed up with high federal self-employment (SE) taxes? The maximum 15.3% SE tax includes Social Security tax (up to an annual ceiling of $176,100 in 2025) and Medicare tax. To lower SE taxes, consider converting your business into an S corp and then paying yourself (and any other shareholder-employees) a modest salary. Distribute most or all of the remaining corporate cash flow to the shareholder-employee(s) as federal-employment-tax-free distributions. However, this strategy isn’t right for every business. The salary must be reasonable or the IRS could impose back taxes, interest and penalties. Consult with us before making a switch.