Big 1099 Change: IRS Raises the Reporting Threshold to $2,000

One of the quiet but impactful updates in the One Big Beautiful Bill is a long-overdue adjustment to the Form 1099-NEC and 1099-MISC reporting rules.

Starting in 2026, businesses won’t need to issue a 1099 unless they pay $2,000 or more to a vendor or contractor — a dramatic increase from the current $600 threshold.

Here’s what you need to know:

What’s Changing?

Under current rules, if you pay a contractor, vendor, or service provider $600 or more in a calendar year, you must issue a Form 1099-NEC (or 1099-MISC for rent and other payments).

Starting January 1, 2026, the threshold will be:

• $2,000, adjusted for inflation annually beginning in 2027

• Applies to Form 1099-NEC, 1099-MISC, and any payments subject to backup withholding

• The reporting threshold is now tied to calendar year, not taxable year

Annual Inflation Adjustment

The $2,000 threshold will rise automatically each year to keep pace with inflation, using the same cost-of-living adjustment method the IRS uses for tax brackets.

For example:

• In 2027, if inflation is 3%, the threshold would increase to approximately $2,060, and so on.

Each year, the IRS will round to the nearest $100.

Who Benefits?

This change significantly reduces reporting burdens for small businesses, landlords, and gig platforms by:

• Eliminating 1099s for small, one-off jobs under $2,000

• Simplifying vendor tracking for year-end reporting

• Reducing exposure to penalties for unfiled or incorrect 1099s

For example, if you pay a handyman $1,500 in 2026, no 1099 is required — even though it would be under current law.

Important Caveats

• Payments still need to be tracked. Even if a 1099 isn’t required, the expense must be properly recorded for tax and audit purposes.

• Backup withholding rules also adjust to this threshold — which means the $2,000 figure now governs when withholding may apply.

• W-9 forms are still essential when onboarding vendors, even if you don’t end up issuing a 1099.

👋 Need help adjusting your 1099 process?

We help small businesses automate and stay compliant with IRS reporting, even as the rules evolve. Whether you issue a handful or hundreds of 1099s, we can ensure you’re filing the right forms at the right time — no stress, no penalties.

Reach out before year-end to review your current vendor payments and prepare for the $2,000 threshold transition in 2026.

Major Upgrade to the QSBS Exclusion: More Gain, Faster Holding Periods, Bigger Limits

The One Big Beautiful Bill brings a long-awaited overhaul to Section 1202, which governs the Qualified Small Business Stock (QSBS) gain exclusion. If you’re a startup founder, early investor, or small business owner thinking about equity-based exits — this change could be a game-changer.

Here’s a breakdown of what’s new, who benefits, and how to plan ahead.

Faster Timeline to Tax-Free Gains

Previously, you had to hold QSBS for 5 years to be eligible for 50%, 75%, or 100% gain exclusion, depending on when the stock was acquired.

Starting now, for QSBS acquired after the new law’s enactment, there’s a phased-in schedule for the exclusion:

3 Years 50%

4 Years 75%

5+ Years 100%

This means you can qualify for meaningful tax relief in just three years — a huge win for founders planning medium-term exits.

Larger Lifetime Cap on QSBS Gains

Another big change: the per-issuer lifetime cap has increased.

• Old Rule: $10 million lifetime exclusion per taxpayer, per corporation.

• New Rule (for post-enactment stock):
  ✅ $15 million lifetime exclusion (indexed for inflation starting 2027)
  ✅ Still $10 million for older QSBS
  ✅ Special phase-out rules to avoid "double dipping" between old and new stock

Also:

• For married filing separately: the cap is halved

• Once you hit the cap, you’re done — no additional inflation bumps in future years

Higher Gross Assets Limit = More Eligible Startups

To qualify for QSBS, a company must have less than $50M in assets at the time of stock issuance.

The new law raises that cap to $75M, indexed for inflation — opening the door for more late-stage startups and larger seed rounds to qualify.

This change applies to stock issued after enactment — a big win for high-growth companies scaling with venture funding.

What Stays the Same

• You still need to buy original-issue C corporation stock (not from another shareholder).

• The company must still meet the active business and domestic C-corp requirements.

• The 100% exclusion still avoids federal income tax AND AMT if you meet the 5-year holding requirement.

Why This Matters Now

If you're:

• Raising funds through equity,

• Planning to sell a startup in the next 3–5 years, or

• Allocating capital gains into early-stage companies…

These new rules sharpen the edge of QSBS as one of the most powerful tax tools in the code.

Planning Tip

Carefully track acquisition dates. The new holding periods and $15M cap only apply to stock acquired after enactment of the bill. Your existing QSBS keeps its prior treatment — but you’ll need to track both tiers if you hold old and new stock in the same company.

Let’s Talk Strategy

QSBS planning involves more than just the tax code — it’s about exit timing, equity structure, and your broader financial goals. We help founders and investors:

• Review eligibility and documentation

• Strategize around timing and stacking exclusions

• Coordinate with estate or trust planning

Want to review your current stock or get set up for QSBS success going forward? Reach out — we’ll help you make the most of this powerful update.

Major Wins for Housing, Community Investment, and Charitable Giving Under the New Tax Law

The One Big Beautiful Bill delivers several long-sought-after changes to the tax code, particularly for those involved in affordable housing development, community revitalization, and philanthropic planning.

Here’s a summary of the key enhancements — now permanent — and what they mean for taxpayers, nonprofits, developers, and corporate donors starting in 2026.

Permanent Expansion of the Low-Income Housing Tax Credit (LIHTC)

The bill permanently increases the state-level housing credit ceiling, restoring the 12.5% boost that had previously expired in 2021. This means:

• More credits available to states to allocate toward LIHTC projects.

• Greater funding opportunities for developers of affordable housing.

Additionally, the bill modifies the "50% test" for projects financed by tax-exempt bonds:

• A project can now qualify for LIHTC if only 25% of its basis is financed with tax-exempt bonds — provided those bonds fund at least 5% of total project basis and are issued after 2025.

• This adjustment will make many more projects eligible and unlock new financing structures.

Effective Date: Buildings placed in service after December 31, 2025.

Permanent Extension of the New Markets Tax Credit (NMTC)

The popular NMTC program — which incentivizes investment in economically distressed communities — is now permanent.

Key provisions:

• $5 billion annual allocation will continue indefinitely beyond 2025.

• Unused credits can be carried forward for up to 5 years (with pre-2026 amounts treated as occurring in 2025).

This is a significant win for community development financial institutions (CDFIs), investors, and project sponsors relying on NMTC financing to fund community facilities, job creation, and commercial revitalization.

Expanded Charitable Deduction for Non-Itemizers

The temporary “above-the-line” charitable deduction is now permanently restored and expanded:

• $1,000 for single filers

• $2,000 for married couples filing jointly

This deduction is available even if you take the standard deduction — a significant incentive for everyday donors to continue giving.

New 0.5% Floor for Individual Charitable Deductions

For all individual taxpayers (whether itemizing or not), charitable contributions must now exceed 0.5% of AGI to be deductible.

• This floor applies to all donations, including cash, property, and appreciated assets.

• Contributions below the 0.5% threshold are not deductible but can be carried forward if the 10/20/30/60% ceilings were otherwise exceeded.

This provision is designed to weed out minimal deductions and ensure the deduction primarily benefits significant charitable giving.

New 1% Floor for Corporate Charitable Deductions

Corporate donors also face a new rule:

• Contributions must exceed 1% of taxable income to qualify for a deduction.

• The overall cap remains at 10% of taxable income.

• Unused contributions can be carried forward for 5 years (on a FIFO basis), but only if the 10% cap was exceeded.

This may slightly discourage small-dollar charitable giving by C-corps, but encourages more structured and sizable giving programs.

Permanent Increase in Cover-Over for Distilled Spirits

The excise tax “cover-over” (rebate to Puerto Rico and the U.S. Virgin Islands for rum production) is locked in at $13.25 per proof gallon, removing uncertainty caused by past temporary extensions.

These permanent extensions and modifications deliver long-term clarity for key sectors:

• Housing developers gain access to more stable credit allocations.

• Community investors have assurance the NMTC is here to stay.

• Nonprofits and donors benefit from simplified charitable deduction rules — with clear floors and expanded limits.

• Corporations will need to be more strategic in their giving to maximize tax efficiency.

If you're a developer, investor, nonprofit, or major donor, now is the time to revisit your tax strategy for 2026 and beyond.

New Reporting Requirements for Opportunity Zone Funds and Businesses

The newly passed One Big Beautiful Bill didn’t just expand the Opportunity Zone program — it completely overhauled the reporting requirements for funds and businesses that participate.

Whether you're an investor, fund manager, or business owner in an Opportunity Zone (OZ) or Rural Opportunity Zone (ROZ), this post breaks down the new rules so you can stay compliant — and avoid steep penalties.

The IRS Is Watching: Why These Changes Matter

The original Opportunity Zone program launched in 2017 with generous tax benefits — but was criticized for lacking oversight. This new law flips the script by requiring detailed, consistent reporting from:

• Qualified Opportunity Funds (QOFs)

• Qualified Opportunity Zone businesses

• Rural Opportunity Funds and businesses

The IRS will now publish annual public reports on how funds are used, what communities are benefiting, and whether investments are actually creating jobs and housing.

Key Takeaways for 2025 and Beyond

Opportunity Zone Businesses Must Report to Their Funds

Any business that receives OZ or ROZ investments must provide detailed annual statements to their fund. This includes businesses that are:

• Directly operated by the fund

• Invested in via OZ stock

• Held through OZ partnership interests

The statements must include all the data required for the fund to file with the IRS — from business type and asset values to location, employee count, and NAICS codes.

Funds Must Electronically File Comprehensive IRS Reports

Qualified Opportunity Funds and Qualified Rural Funds must now file detailed electronic returns annually (via magnetic media or machine-readable format). These returns include:

• Fund structure and total assets

• Names and tax IDs of portfolio companies

• Property values (owned and leased)

• Locations and residential unit counts

• Full-time equivalent employee data

• Investment amounts by business and census tract

• NAICS codes for every trade or business

This data will also be shared with investors, who will receive a statement with details on their investments, including acquisition/disposition dates and amounts.

IRS Will Release Public Reports on OZ/ROZ Impact

The IRS must now publish annual summaries of the Opportunity Zone program's impact, including:

• Total number of funds and assets held

• Where investments are going (by census tract)

• Breakdown of real estate vs. business investments

• Job creation metrics and employment levels

• Residential unit development

• Affordable housing and poverty indicators

Starting in the 6th and 11th year after the law’s passage, the IRS will also publish semi-decennial economic impact reports, comparing changes in OZ tracts to similar non-OZ tracts. Metrics include:

• Job growth

• Poverty reduction

• Housing affordability

• Median income

• Business formation

This adds real transparency to an area previously lacking hard data.

Separate Tracking for Rural Opportunity Zones

Qualified Rural Opportunity Funds will be subject to the same rules and penalties — but with separate IRS reporting and analysis focused on the unique characteristics of rural investments.

What This Means for You

If you’re involved in any Opportunity Zone investment, you must:

✅ Keep detailed records of assets, employees, and locations
✅ Ensure your QOF is collecting statements from all portfolio businesses
✅ File complete, accurate returns with the IRS on time
✅ Notify your investors with required statements
✅ Stay ready for new public scrutiny of fund performance

Need Help Navigating the New OZ Reporting Rules?

Our firm can help you:

• Set up compliance systems for your fund or business

• Prepare the new annual IRS forms and investor disclosures

• Avoid costly penalties

• Evaluate whether OZ or ROZ investments make sense for your tax strategy

Let’s talk before your next filing deadline.

Opportunity Zones 2.0: What the New Tax Law Means for Investors and Communities

If you've heard the term Opportunity Zone before but weren’t quite sure how it worked — or assumed the program was sunsetting — it’s time to take another look.

The One Big Beautiful Bill just gave Opportunity Zones a permanent reboot — with major enhancements for investors, communities, and rural America. Here's what you need to know.

What Are Opportunity Zones?

Opportunity Zones (OZs) are specially designated areas where investors can receive capital gains tax breaks for putting money into long-term community development projects — like real estate, small business growth, or infrastructure.

Originally created under the 2017 Tax Cuts and Jobs Act, OZs were set to phase out. But the new bill:

✅ Makes the program permanent
✅ Improves the incentives
✅ Adds new reporting requirements
✅ Expands the benefit for rural areas

What’s New Under the 2025 Tax Law

Recertification Every 10 Years

• Opportunity Zones will now be re-evaluated every decade

• The first recertification: July 1, 2026

• Zones that no longer meet income or poverty criteria may be replaced with newly qualified areas

Stricter Criteria for Designation

The new law tightens the definition of what qualifies as a low-income community:

• Income must be <70% of the statewide or metro median, OR

• Poverty rate ≥20% and income <125% of the benchmark

Also, the rule that allowed adjacent (contiguous) tracts to be designated even if they weren’t low-income? That’s gone.

10-Year Limit on Zone Duration

• Any new designation will only last for 10 years

• Example: A zone designated in 2026 will remain in effect through the end of 2035

What About the Tax Benefits?

The biggest draw of Opportunity Zones has always been the tax breaks on capital gains. The new law enhances those benefits:

Shorter Deferral Period

• Previously: Tax was deferred until 2026

• Now: Capital gains invested in OZs are deferred for up to 5 years

New Basis Step-Up for 5-Year Hold

• After holding an OZ investment for 5 years, you can exclude:

  • 10% of your original gain, or

  • 30% if it's a rural zone investment

The 10-Year “Forever Tax-Free” Rule Remains

• After 10 years, no tax is owed on any appreciation in the OZ investment

• You can now hold the investment for up to 30 years total

Special Boost for Rural Opportunity Zones

• New definition of “Qualified Rural Opportunity Fund”

• Rural OZs get higher basis increases (30%) and looser improvement requirements

• “Rural” defined as outside cities of 50,000+ or adjacent urbanized areas

New Transparency and Reporting Rules

The old OZ rules were heavily criticized for lacking oversight. That’s been fixed:

• Qualified Opportunity Funds (QOFs) must now file detailed annual reports

• Reports must include:

  • Property values, business activity, jobs created, residential units, NAICS codes

  • Investor-level reporting on buy/sell dates and amounts

• These rules apply to both regular and rural QOFs

These transparency rules are designed to prevent abuse and measure real economic impact, especially in housing and employment.

Why It Matters for You

If you're a:

• Developer looking to revitalize a neighborhood

• Investor sitting on large capital gains

• Small business owner in an eligible tract

• Local leader seeking to attract capital into your area

…these changes open a fresh window of opportunity.

You can now defer capital gains, potentially avoid tax on future growth, and invest in communities that need it most — all with a better reporting framework and longer planning horizon.

When Do These Changes Take Effect?

• Most enhancements apply to investments made after Dec 31, 2026

• Some administrative provisions (like reporting) take effect immediately

• New designations begin July 1, 2026

Need Help Navigating the New OZ Rules?

We can help you:

• Identify eligible zones (including new ones in 2026)

• Evaluate whether your capital gains qualify

• Set up or invest in a compliant Qualified Opportunity Fund

• Prepare for new reporting obligations

Schedule a consultation today to explore how Opportunity Zones can support your tax strategy and community impact goals.

Investing in Families, Kids, and Community: Tax Changes You’ll Actually Notice

The latest tax bill isn’t just about corporate reform and international compliance — it also delivers meaningful support to families, small businesses, and students. Here’s a quick overview of some of the biggest wins from Chapter 4 of the One Big Beautiful Bill.

Employer-Provided Child Care Credit: Now Bigger, Better, and More Accessible

For businesses helping employees with child care, the tax code just got a lot more generous.

• Credit increased to 40% of qualified child care costs (up from 25%)

• Small businesses (those with <$25M in average gross receipts) get an even bigger break: 50% credit

• New credit cap:

  • Up to $600,000/year for eligible small businesses

  • Up to $500,000/year for larger businesses

  • Indexed for inflation starting in 2027

Other enhancements:

• You can now claim the credit even if you partner with a third-party intermediary that contracts with providers.

• Joint ownership or operation of a facility won’t disqualify it from the credit.

Bottom line: This provision gives employers more flexibility and more reward for investing in working parents — especially small businesses.

The Adoption Tax Credit: Now Partially Refundable

Adopting a child is expensive — and this credit helps, especially now that up to $5,000 of it is refundable.

• That means even if your tax bill is low, you can still get money back.

• The refundable portion will increase with inflation starting in 2026.

• Indian Tribal governments are now recognized when determining whether a child has “special needs” for adoption credit eligibility.

Effective for tax years after 2024.

Dependent Care Accounts: Bigger Limits Ahead

Section 129 (your Dependent Care Assistance Program, or DCAP) just got an inflation-adjusted facelift:

• Old max: $5,000 ($2,500 married filing separately)

• New max: $7,500 ($3,750 MFS) — starting in 2026

This increases the tax-free amount that employers can contribute toward dependent care, providing real value to working parents.

The Child and Dependent Care Tax Credit: More Value for More People

The Child and Dependent Care Credit (CDCTC) has been expanded again:

• Base credit stays at 50% of expenses (up to $3,000 per child)

• Phaseouts start at $15,000 of AGI, but the minimum credit is now locked at 20% for households earning up to $150,000 (joint)

This helps middle-class families get more out of the credit — not just the lowest earners.

Applies starting in 2026.

New Tax Credit for Private School Scholarships (Section 25F)

Here’s a brand-new provision: a $1,700 annual federal tax credit for individuals who donate to approved scholarship-granting organizations that help fund K–12 private school tuition for lower-income families.

Key details:

• Scholarships go to kids from households earning up to 300% of area median income

• Donations must be made to approved nonprofit organizations

• If you also get a state tax credit, it reduces your federal credit (no double-dipping)

• The unused portion of the credit can be carried forward up to 5 years

• No charitable deduction allowed for the same gift

This is an opt-in program for states, so it’ll only be available where governors (or designated state agencies) choose to participate.

What Should You Do Now?

These changes are phased in across 2025 and 2026, but now is the time to prepare:

• Business owners: Talk to your accountant about setting up or expanding employer-provided child care support and DCAPs.

• Adoptive parents: Plan your timing to capture the refundable credit.

• Philanthropists and parents: Watch for your state’s participation in the new scholarship credit — it could give you a win-win: help kids, reduce your tax bill.

Have questions about how to take advantage of these new provisions?
Let’s talk — our team can help you strategize before these updates take effect.

International Tax Overhaul: What Changed and Why It Matters

The latest tax reform package brings sweeping updates to how the U.S. taxes foreign income, shifting the language, rules, and incentives that govern global business activity. If your company operates internationally or has controlled foreign corporations (CFCs), these changes are worth a close look.

A New Name and Framework: Goodbye GILTI, Hello Net CFC Tested Income

One of the headline changes is mostly semantic—but symbolically important:

• “Global Intangible Low-Taxed Income (GILTI)” has been rebranded as “Net CFC Tested Income.”

• While the term “GILTI” is being retired, the core mechanics remain in place—with a key difference: the tax-free deemed return on certain foreign investments has been repealed.

In other words, businesses will no longer receive a built-in exclusion for a “normal” return on foreign assets, meaning more foreign profits may now be subject to U.S. tax.

FDII Is Now Foreign-Derived Deduction Eligible Income (Still a Mouthful)

Another terminology shift: Foreign-Derived Intangible Income (FDII) is now Foreign-Derived Deduction Eligible Income (FDDEI).

This change reflects a move away from targeting “intangible” income specifically. Instead, the deduction is now tied to export-related income more broadly—still an incentive for U.S.-based companies selling goods or services abroad, but with less emphasis on IP.

Base Erosion Minimum Tax (BEAT) Gets a Slight Bump

To discourage multinational corporations from shifting profits offshore through payments to related foreign entities, the BEAT rate has been increased from 10% to 10.5%.

While this is a relatively small rate increase, the modification signals an effort to maintain pressure on base erosion strategies. Key structural clarifications and corrections were also made to the BEAT rules.

Coordination Between Business Interest Deductions and Capitalization Rules

New rules clarify how interest deductions work when businesses are required to capitalize interest under other tax rules (like Section 263A for inventory or long-term production):

• The Section 163(j) limitation now applies before determining whether interest should be deducted or capitalized.

• If limited, deductible amounts are first applied to interest that would otherwise be capitalized, which may reduce basis in assets rather than creating an immediate tax deduction.

This change could impact how and when businesses get tax benefit from interest expense, especially in real estate, manufacturing, or infrastructure-heavy sectors.

Other International Updates You Should Know:

• Look-through rule made permanent: Section 954(c)(6), which helps prevent foreign-to-foreign dividends from being taxed as Subpart F income, is now permanent (was previously extended annually).

• One-month deferral repeal: The election allowing certain foreign subsidiaries to use a tax year that ends one month before the U.S. parent is being repealed. This aligns reporting periods and may impact consolidation and foreign tax credit timing.

While many of these changes may seem like technical adjustments, they represent a larger effort to tighten loopholes, simplify compliance, and reinforce U.S. tax on foreign earnings. For multinational businesses, especially those relying on foreign IP, low-tax jurisdictions, or intercompany payments, the cost of foreign profits just went up.

Big Wins for Manufacturers, Exporters, and Even Spaceports

The latest tax legislation brings a slew of changes aimed at boosting American innovation and competitiveness—both at home and abroad. Here are some of the biggest takeaways from this part of the bill:

Bigger Tax Credit for Advanced Manufacturing Investments

If your business manufactures semiconductors or other advanced technology components, you're in luck. The Advanced Manufacturing Investment Credit has been increased from 25% to 35% of qualified property placed in service after December 31, 2025.

This means qualifying businesses can claim a larger upfront credit when investing in manufacturing infrastructure—especially important for U.S. competitiveness in high-tech sectors.

Spaceports Now Treated Like Airports for Bond Financing

In a nod to the growing commercial space industry, the bill updates tax-exempt bond rules to include spaceports—facilities used for launching, reentering, manufacturing, or repairing spacecraft and space cargo.

Key points:

• Spaceports can now benefit from tax-exempt facility bonds, just like airports.

• Ground leases on federal land won’t disqualify a spaceport from being treated as publicly owned.

• A spaceport does not need to be open to the general public.

• Industrial parks and manufacturing facilities for spacecraft are included in the definition.

This could help attract private capital to space infrastructure, especially in states investing heavily in aerospace.

Foreign Tax Credit Changes: More Relief, More Complexity

A series of international tax reforms aims to ease the burden for multinational businesses while tightening some loopholes.

Key adjustments include:

• Increased deemed-paid foreign tax credit: The share of foreign taxes that U.S. companies can claim as a credit on foreign income rises from 80% to 90%.

• Better sourcing rules for U.S.-produced inventory: Income from sales of U.S.-made goods through foreign branches can now be partially sourced as foreign, allowing better use of foreign tax credits (limited to 50% of the sale income).

• Updated deduction rules: The bill prevents some indirect expense allocations that previously reduced foreign-source income (such as interest and R&D), potentially improving foreign tax credit utilization.

FDII and GILTI Deductions Trimmed

Two deductions that benefit U.S. exporters and multinationals—FDII (Foreign-Derived Intangible Income) and GILTI (Global Intangible Low-Taxed Income)—are getting a haircut starting in 2026:

• FDII deduction drops from 37.5% to 33.34%

• GILTI deduction drops from 50% to 40%

While not drastic, these reductions will increase the U.S. tax liability on international income, slightly narrowing the advantage for U.S. multinationals.

Clarified FDII Scope: Now Covers More Sales

The definition of what qualifies for the FDII deduction has been expanded to explicitly include income from the sale or disposition of depreciable, amortizable, or intangible property, including things like patents and machinery.

At the same time, expense allocations have been tightened to ensure only directly related deductions count against this income.

This part of the bill reinforces a theme: invest in America, and you’ll be rewarded—especially in manufacturing, infrastructure, and advanced technology. At the same time, international tax changes aim to level the playing field without completely reversing prior incentives for global operations.

If your business deals in exports, manufacturing, tech, or operates internationally, these provisions could materially impact your tax planning starting in 2026.

100% Business Meal Deductions Are Back (Temporarily) — Here's What You Need to Know

Yes, it’s true: You can fully deduct business meals again — but only for a limited time. The newly passed One Big Beautiful Bill brings back the 100% deduction for meals provided by restaurants. This is a big win for small businesses, consultants, sales teams, and anyone who regularly meets clients or travels for work.

What Changed?

Under Section 70421 of the bill, Congress has temporarily restored the 100% tax deduction for business meals that meet the following criteria:

• Provided by a restaurant (dine-in, takeout, or delivery all qualify)

• Incurred after December 31, 2024, and before January 1, 2027

• Must otherwise qualify as a legitimate business expense under IRS rules

So What Can You Deduct at 100%?

• Meals with clients or prospects

• Meals while traveling for business

• Team meals from restaurants (e.g., lunch for staff, client-facing teams)

• Takeout ordered for business meetings

• Food and beverage provided at company events if purchased from a restaurant

What’s Not Covered?

• Grocery store food (not a “restaurant” under IRS definition)

• Meals provided on-site by the employer (e.g. in-office cafeteria, catered from non-restaurant sources)

• Lavish or extravagant expenses (still disallowed under §274(k))

The Fine Print: What the Law Says

Section 70421(a) of the bill amends IRC §274(n)(2)(D), stating:
“...for amounts paid or incurred after December 31, 2024, and before January 1, 2027, the full amount of the expense for food or beverages provided by a restaurant shall be deductible.”

This mirrors the temporary COVID-era provision from 2021–2022. It’s meant to support the restaurant industry while giving small businesses a boost.

How to Track These Expenses

Make sure your bookkeeping system clearly tags meals from restaurants separately — that’s the only way to take advantage of the 100% deduction. Hedgi AI, for example, uses machine learning to automatically classify these based on vendor and context, so you're ready come tax time.

Bottom Line

From 2025 through 2026, business meals from restaurants are 100% deductible.
After that, we go back to the standard 50% deduction — unless Congress extends the rule again.

Now’s the time to get your expense tracking dialed in.

Tax Updates for Business Owners: Interest Deductions, Paid Leave Credits, and Expensing Boosts

As part of the sweeping new tax legislation aimed at strengthening American businesses, several updates will significantly impact how your company handles interest deductions, employee leave, meals, and capital investments. Here's a breakdown of what business owners and CFOs need to know:

Interest Deductions Get a Boost

Under prior law, the deduction for business interest expense was capped at 30% of adjusted taxable income (ATI), but the calculation method was more favorable before 2022. The new bill removes the 2022 cutoff, making the more generous pre-2022 calculation permanent.

Why it matters:

• For capital-intensive businesses (manufacturing, real estate, etc.), more interest expense will now be deductible, freeing up cash flow and reducing taxable income.

• Applies to tax years starting after December 31, 2024

Also:

• The definition of floor plan financing now includes recreational trailers and campers, making interest on these types of inventory eligible for special treatment.

Expanded Credit for Paid Family and Medical Leave (Section 45S)

The employer credit for paid family and medical leave has been extended and enhanced.

Two new options:

1. Wage-based credit — based on wages paid directly to employees on leave.

2. Insurance-based credit — if the employer uses a private insurance policy, they can now claim a credit based on the premiums paid.

Additional enhancements:

• Employers can elect a 6-month tenure requirement instead of 1 year.

• Part-time workers who average at least 20 hours/week are now eligible.

• The law clarifies coordination with state-mandated leave, ensuring you don't double-dip but still receive credit for employer-funded benefits.

Effective for tax years starting after December 31, 2025

Section 179 Expensing Limits Are Increased

Section 179 allows businesses to immediately expense certain capital asset purchases instead of depreciating them over time.

New limits:

• Deduction cap increases to $2.5 million (up from $1M)

• Phase-out threshold increases to $4 million (up from $2.5M)

These changes help small and midsize businesses write off more upfront capital investments — such as equipment, software, and qualifying vehicles.

Applies to property placed in service in tax years starting after December 31, 2024

New 100% Depreciation for "Qualified Production Property"

A new special depreciation allowance has been introduced for certain U.S.-based production facilities.

Who qualifies:

• Businesses constructing or renovating nonresidential real estate used for:

  • Manufacturing, production, or refining of tangible goods

  • Construction beginning between Jan 20, 2025 and Dec 31, 2028

  • Property must be placed in service by Jan 1, 2031

Key points:

• Full 100% depreciation in the first year

• Property used for admin, sales, research, or software dev does not qualify

• If the property use changes within 10 years, recapture rules apply (i.e., you'll owe back some tax)

This is essentially a massive tax incentive for domestic production, especially in manufacturing, energy, or heavy industry sectors looking to build or expand facilities.

From higher expensing limits to enhanced employee leave credits and more generous depreciation options, these updates are geared toward boosting domestic investment and rewarding U.S. job creators.

Full Expensing Is Back: What It Means for Your Business and R&D Strategy

The new tax bill delivers a major win for U.S. businesses: 100% full expensing is now permanent for certain capital investments and domestic R&D spending. This move is designed to boost domestic manufacturing, innovation, and economic competitiveness — and it could reshape how your business approaches growth and tax planning.

Here’s what you need to know.

Permanent 100% Bonus Depreciation for Business Property

Businesses can now immediately deduct 100% of the cost of qualifying assets — machinery, equipment, computers, vehicles, and more — placed in service after January 19, 2025.

Key highlights:

• Applies to new and used property

• Covers property with a useful life of 20 years or less

• Includes self-constructed assets

• Includes certain plants and agricultural property

• No longer phases down over time — 100% expensing is permanent

This change is especially valuable for capital-intensive businesses like manufacturers, logistics, construction, and agriculture. It replaces the previous phase-out schedule (which was set to hit 0% by 2027), giving businesses certainty to invest long-term.

Transitional rule:

• For property placed in service during your first tax year ending after Jan 19, 2025, you can elect a reduced expensing rate: 40% for general property and 60% for long-production property or plants — if you prefer to spread out deductions.

Full Deduction for U.S.-Based Research & Development (R&D)

Section 174A creates a new, permanent deduction for domestic research and experimental (R&E) expenditures, reversing the unpopular requirement to amortize R&D costs over five years.

What qualifies:

• R&D conducted in the U.S.

• Includes software development costs

• Covers wages, supplies, and contract research

You now have two options:

1. Deduct the full amount immediately

2. Amortize over at least 60 months, if you choose

This is a significant change for tech companies, manufacturers, life sciences firms, and any startup investing in IP or product development. It also aligns with how the R&D tax credit is calculated, making planning simpler.

Note: Foreign R&D still must be amortized over 15 years and is not eligible for full expensing.

Catch-Up Option for Prior R&D Costs

If your business capitalized R&D expenses between 2022–2024 (as previously required), you may now:

• Elect to fully deduct the remaining unamortized costs in 2025, or

• Spread that deduction over 2025–2026

This offers immediate tax relief for companies that were forced into longer amortization schedules under the 2017 TCJA.

Retroactive Relief for Small Businesses

Certain small businesses (meeting the gross receipts test under IRC §448) can retroactively apply these rules back to 2022. That means you can:

• Amend prior returns

• Elect full deductions for domestic R&D done in 2022, 2023, or 2024

• Recalculate R&D credits accordingly

This is a valuable opportunity for startups and growth-stage businesses to reclaim cash and lower their effective tax rates.

Impact on the R&D Credit

The R&D credit under Section 41 is still available — and now it’s easier to claim:

• Domestic R&D must now be deducted under 174A

• Coordination between the credit and deduction has been simplified

• You can still choose to reduce the credit instead of reducing the deduction (under IRC §280C)

Between full expensing of business assets and the full deductibility of domestic R&D, this bill delivers significant tax savings and strategic flexibility for businesses that invest in the U.S.

If you’re planning capital expenditures, expanding your product team, or filing amended returns — now’s the time to review your strategy.

Want help modeling your 2025 tax impact or amending past returns? Let’s talk. We’ll help you quantify the benefit and make sure you comply with the new rules — especially if you want to retroactively apply these deductions.

Trump Accounts: A New Tax-Free Savings Program for Kids

The latest tax reform bill introduced a brand-new savings vehicle called the Trump Account — a government-facilitated investment account designed specifically for children under 18. While the name may grab headlines, the substance is a powerful tool for long-term investing and could reshape how parents save for their children.

Here’s what families (and employers) need to know.

What Is a Trump Account?

A Trump Account is a type of government-supported individual retirement account (IRA) created for minors. It acts like a traditional IRA, but with special rules for young beneficiaries and contributions from parents, employers, and even nonprofits.

Unlike 529 college savings plans or custodial brokerage accounts, Trump Accounts are:

• Simple to open (can be set up by the IRS or parents)

• Restricted to low-cost U.S. stock index funds

• Locked until the child turns 18

• Tax-deferred, and in many cases, tax-exempt

Who Can Open One?

Children under 18 are automatically eligible if they:

• Are U.S. citizens with a Social Security number

• Have no prior Trump Account on file

Accounts can be established:

• Automatically by the IRS

• By parents or guardians

• For newborns under the pilot program (see below)

✅ Contributions allowed:

• Up to $5,000/year (indexed for inflation after 2027)

• No tax deduction for these contributions

• No withdrawals until age 18 (with very few exceptions)

🚫 Not allowed:

• Investments outside of approved low-cost ETFs or mutual funds

• Withdrawals before age 18 (except for death, disability, or rollovers)

What Investments Are Allowed?

Funds in Trump Accounts can only be invested in:

• U.S. equity index mutual funds or ETFs

• Funds with no leverage

• Funds with fees under 0.1%

Think: S&P 500 ETFs, total stock market funds — simple, transparent, and low-cost.

Employer Contributions Allowed

Employers can contribute up to $2,500 per year to a Trump Account for an employee’s child. These contributions:

• Are not taxable to the employee

• Must be made through a compliant “Trump Account Contribution Program”

• Are subject to annual inflation adjustments after 2027

This offers a new way for companies to offer family-forward benefits and support employee retention.

Contributions from Nonprofits or Tribal Governments

Charities, tribal governments, and local/state governments can also contribute through a “general funding contribution” — a kind of matching grant to a class of kids (e.g., all children born in 2026 in a certain ZIP code).

These contributions are not included in taxable income, either for the donor or the child.

The Trump Accounts Pilot Program: $1,000 for Babies

One of the most headline-grabbing features is a $1,000 tax-funded contribution for children born between 2025 and 2028, if their parent opts in. Key facts:

• Parents can elect this benefit via a simple IRS form

• Money is deposited directly into a Trump Account for the newborn

• One-time per child

• Not subject to tax offset, garnishment, or repayment

• Must include the child’s Social Security number

• Program is fully funded through 2034 ($410 million appropriated)

Rollovers and Special Rules

Trump Accounts also support:

• Rollover to ABLE accounts (for children with disabilities)

• Rollover between Trump Accounts

• Refunds of excess contributions, with penalties on the earnings portion

If a child dies before age 18, the account passes to their estate or heir, with regular tax rules applying.

Required Reporting

Account trustees (typically banks or brokers) must report:

• All contributions over $25 (unless from a parent or the government)

• Distributions

• Investment details and balances

This ensures transparency and tracks government-funded contributions.

While the Trump Account name may stir political reactions, the program itself is a serious policy tool for encouraging long-term investment habits, especially among middle- and lower-income families.

If you have young children — or plan to — this account offers a simple, structured way to:

• Build long-term tax-free wealth

• Receive free seed funding if your child is born in 2025–2028

• Encourage low-cost investing from a young age

We’ll keep you posted as more details and IRS guidance are released.

New Deduction for Car Loan Interest: What the “No Tax on Car Loans” Provision Means for You

For many households, the cost of owning a car is one of the largest monthly expenses — and until now, car loan interest hasn’t been tax-deductible for personal vehicles. That’s about to change.

Under the latest tax reform package, the government is offering a new temporary deduction for interest on car loans. Here's what you need to know about this 2025–2028 opportunity.

What’s Changing?

For tax years 2025 through 2028, individuals can deduct up to $10,000 per year in interest paid on a qualifying car loan — even if they don’t itemize deductions.

This is a first-of-its-kind personal interest deduction, aimed at lowering the cost of car ownership for middle-income families.

Who Qualifies?

To claim the deduction:

• The loan must be for a personal-use vehicle

• The vehicle must be brand new (original use starts with the taxpayer)

• The loan must be a first-lien car loan (not a lease or second mortgage)

• The vehicle must be final-assembled in the United States

• You must report the VIN on your tax return

Income Phaseout Applies

The deduction phases out as income increases:

• Full deduction available up to $100,000 modified AGI (or $200,000 for joint filers)

• Reduced by $200 for every $1,000 over the threshold

• Completely phased out at $150,000 MAGI (or $250,000 joint)

Example:
If your joint income is $215,000:

• You’re $15,000 over the threshold

• Your deduction is reduced by $3,000 (15 × $200)

• If you paid $6,000 in car loan interest, you could deduct $3,000

Which Vehicles Are Eligible?

An “applicable passenger vehicle” must:

• Be used for personal purposes (not business or fleet)

• Be a car, SUV, pickup, van, or motorcycle

• Weigh under 14,000 pounds

• Be manufactured for public road use

• Be assembled in the U.S.

• Not be salvage or scrap

Leased vehicles do not qualify, nor do commercial or fleet vehicles.

What About Refinancing?

Refinancing is allowed — but only up to the amount of the original loan. The refinanced loan must still be secured by the same vehicle.

How Is the Deduction Claimed?

• This deduction is above-the-line, meaning you can take it even if you don’t itemize

• You must include the VIN on your return

• The lender will be required to issue an information statement, similar to a mortgage interest form, including:

  • Year, make, and model

  • Loan origination date

  • Interest paid during the year

Lenders Must Comply with New Reporting Rules

Auto lenders will be required to:

• File new IRS Form 109X (specific number TBD)

• Include key loan and vehicle details (VIN, interest, balance, etc.)

• Send a copy to borrowers by January 31 each year

When Does It Start?

• Applies to loans issued after December 31, 2024

• Deduction available for 2025 through 2028

• After 2028, the deduction expires unless Congress renews it

This new deduction is a significant step toward easing the financial burden of car ownership, particularly for working families outside of urban transit systems.

It also rewards the purchase of American-assembled vehicles, adding a subtle manufacturing incentive to the tax code.

Considering a new car purchase in 2025? Let us help you evaluate how much interest you can deduct and whether your vehicle and loan structure will qualify.

Overtime Just Got a Tax Break: What the “No Tax on Overtime” Deduction Means for You

As part of the new tax reform bill, workers clocking in extra hours may be eligible for a brand-new tax deduction starting in 2025. The “No Tax on Overtime” provision introduces a powerful new benefit for middle-class employees who regularly work overtime.

Here’s a clear breakdown of what this new deduction means, how much you can claim, and who qualifies.

What’s Changing?

For the first time, taxpayers can deduct qualified overtime pay from their taxable income. This deduction is available whether or not you itemize, and it applies to compensation that meets the federal definition of overtime under the Fair Labor Standards Act.

How the Deduction Works

• Maximum deduction:

  • $12,500 for individuals

  • $25,000 for married couples filing jointly

• Applies only to overtime compensation — not regular wages, not tips

• Must be reported separately on your W-2 (or equivalent form)

• Available starting with the 2025 tax year

Income Phaseout Applies

The deduction begins to phase out once modified adjusted gross income (MAGI) exceeds:

• $150,000 for single filers

• $300,000 for joint filers

For every $1,000 over the threshold, the deduction is reduced by $100, and it phases out entirely as income increases beyond those levels.

Definition of Qualified Overtime Compensation

To qualify:

• The payment must be overtime pay under the Fair Labor Standards Act (i.e., more than 40 hours per week at 1.5× the regular rate)

• It must be separately reported on your tax documents (e.g., W-2 or 1099)

• Tips do not count toward this deduction (they’re covered under a separate rule)

Important Requirements to Claim the Deduction

• You must provide a valid Social Security number

• If married, you must file jointly to claim the deduction

• The IRS is expected to issue regulations to prevent abuse, such as reclassifying other wages as “overtime” to claim the break

What About Employers and Gig Platforms?

Businesses will be required to separately track and report qualified overtime compensation. This includes:

• Employers issuing W-2s

• Contractors or platforms issuing 1099s

Payroll systems and time-tracking tools may need to be updated before the start of the 2025 tax year to ensure compliance.

When Does It Start?

• Applies to income earned after December 31, 2024

• The deduction is available for four years only: 2025–2028

• IRS will issue withholding guidance to help adjust paycheck tax estimates accordingly

Who Benefits Most?

This provision is especially beneficial for:

• Hourly wage earners in manufacturing, logistics, public safety, healthcare, and retail

• Union workers with significant OT hours

• Families with two working parents in mid-income brackets who often rely on overtime to cover expenses

High-income employees may see limited or no benefit due to the phaseout rules, but middle-income earners could save hundreds or even thousands in taxes annually.

Final Thoughts

This deduction sends a clear signal: taxpayers who put in extra hours to support their families shouldn’t be penalized at tax time. If you or your employees earn significant overtime, this is a prime opportunity to reduce your 2025 tax liability.

No Tax on Tips? A New Deduction for Service Workers Explained

In one of the most widely publicized provisions of the new tax reform bill, Congress is introducing a brand-new tax break: a deduction for tips received by workers in service industries. Marketed as a win for middle-class workers, this provision creates real tax savings for employees who earn income primarily through tips — including servers, bartenders, salon professionals, and more.

Let’s break down what’s changing, how the deduction works, and who can benefit.

What Is the New "No Tax on Tips" Deduction?

Starting in 2025, qualifying workers can deduct up to $25,000 in cash tips from their taxable income — even if they don’t itemize deductions.

This new deduction is available to employees in occupations where tipping is customary and regular — a list to be published by the IRS. It applies to tips that are:

• Voluntarily given by customers

• Properly reported on wage statements or IRS Form 4137

• Received in cash or through tip-sharing arrangements

Who Can Claim It?

The deduction is designed for employees in traditional tipped industries, but some self-employed service professionals may also qualify — with some important conditions (more below).

To qualify:

• The tips must come from an occupation that regularly received tips before 2025

• The tips must be voluntary and not subject to negotiation

• The taxpayer must include their Social Security number on the return

• If married, the taxpayer must file jointly to claim the deduction

How Much Can Be Deducted?

• The maximum deduction is $25,000 per year

• A phaseout begins at $150,000 of modified adjusted gross income (MAGI), or $300,000 for joint filers

• For every $1,000 over the threshold, the deduction is reduced by $100

• The deduction cannot exceed actual tip income, and it ends after 2028

Special Rule for Self-Employed Workers

Some service providers (e.g., independent estheticians or mobile hair stylists) may claim this deduction only if their business income — after expenses — exceeds their tip income. This ensures the deduction only applies to genuinely profitable trades or businesses.

New Reporting Requirements for Employers and Payment Platforms

The IRS is introducing updated reporting rules for:

• Employers

• Gig platforms

• Third-party payment processors (like Square or Venmo)

These new rules require a separate accounting of cash tips on income statements and forms like 1099-NEC and 1099-K.

What this means for business owners: If you operate a salon, restaurant, or spa where employees receive tips, your bookkeeping and year-end reporting responsibilities are about to change.

Extension of Tip Credit for Beauty and Spa Services

In a related update, the bill extends the employer tip credit (Section 45B) — previously limited to food and beverage establishments — to include:

• Hair care and barbering

• Nail care

• Esthetics

• Body and spa treatments

What this means for salon and spa owners: You may now qualify for a tax credit on certain tip wages — a significant benefit for businesses in the personal care industry.

Implementation Timeline

• Effective for tax years starting after December 31, 2024

• Applies to tips reported in 2025 through 2028

• Reporting requirements begin in 2025, but a grace period allows employers to estimate tip amounts for the 2025 transition

This is one of the most significant tax changes for workers in the service economy in recent history. While it may be politically symbolic, it’s also very real — and for many, potentially worth thousands of dollars in tax savings each year.

Whether you're an employee in a tipped role or a business owner in food, beauty, or hospitality, this provision demands planning, documentation, and possibly updated payroll systems.

Have questions about how to prepare for this new deduction or whether your business qualifies for the tip credit? We’re here to help. Schedule a review before the end of 2024 to make sure you’re ready to take advantage of this opportunity.

State and Local Tax (SALT) Deduction Cap Gets a Major Overhaul

One of the most contentious parts of the 2017 tax law was the cap placed on state and local tax (SALT) deductions. For years, taxpayers in high-tax states have been limited to deducting only $10,000 in combined state income and property taxes on their federal returns.

Now, under the new tax reform bill, the SALT cap is getting a significant — though temporary — lift, along with a new income-based phaseout. Here's what’s changing, and what it means for your 2025 and beyond tax strategy.

Key Change: The SALT Deduction Cap is Increasing

Starting in tax year 2025, the SALT deduction limit will rise to $40,000 per return (or $20,000 for married individuals filing separately). This new cap will:

• Increase slightly each year through 2029 (indexed for inflation)

• Return to $10,000 in 2030 unless Congress acts again

High Earners Face a Phaseout

The full $40,000 deduction won’t be available to everyone. Starting in 2025, a 30% phaseout will apply for taxpayers with modified adjusted gross income (MAGI) above a threshold:

• $500,000 MAGI in 2025

• $505,000 MAGI in 2026

• Indexed upward by 1% annually through 2029

The phaseout reduces the deduction by 30% of the amount over the income threshold — but it can’t reduce your deduction below $10,000.

Example:
If your MAGI is $550,000 in 2025:

• $50,000 over the $500,000 threshold

• 30% × $50,000 = $15,000 reduction

• SALT cap becomes $40,000 − $15,000 = $25,000

You still get at least $10,000, no matter how high your income goes.

How Modified Adjusted Gross Income (MAGI) is Calculated

MAGI for the SALT deduction phaseout includes:

• Your regular adjusted gross income (AGI)

• + Any excluded income under sections 911 (foreign earned income), 931, or 933

This definition will primarily affect U.S. citizens living abroad or in U.S. territories.

What This Means for You

• If you live in a high-tax state: This is likely a welcome change. More of your property and income taxes will now be deductible, lowering your federal tax bill.

• If you’re a high earner: You’ll benefit more than under the previous $10,000 cap, but not as much as middle- and upper-middle-income earners unless your AGI is below the phaseout threshold.

• If you're in real estate, tech, law, or finance: Pay close attention—this could change year-end tax planning significantly over the next five years.

This update to the SALT deduction cap represents one of the most material tax changes in the bill for high-income individuals and professionals in high-tax states.

It creates meaningful planning opportunities over the next several years — and it raises the stakes for strategic income and deduction timing.

Want to know how much you can expect to deduct in 2025 under the new SALT rules? Or how to plan around the phaseout thresholds? Reach out to our team — we’ll model it out for you.

Tax Relief for Special Circumstances: What the New Bill Means for Gamblers, Families with Disabilities, Students, and Military Members

In this fourth installment of our breakdown of the new tax reform legislation, we’re spotlighting a set of provisions that may not grab headlines—but could make a significant difference for taxpayers in specific situations.

This section of the bill includes targeted tax updates for:

• Gamblers

• Families contributing to ABLE accounts

• Students with discharged loans

• Members of the military and intelligence community

Wagering Losses Will Be Limited

Under prior law, taxpayers could deduct gambling losses up to the amount of gambling winnings. That general rule remains—but now, only 90% of gambling losses will be deductible going forward.

What this means: If you report gambling winnings, you’ll still be able to deduct losses—but only up to 90%, not the full amount. This change applies starting in 2026.

ABLE Accounts Get Expanded Support

ABLE accounts are savings accounts for individuals with disabilities. Several enhancements are being made:

• Higher contribution limits (adjusted based on inflation, now indexed from 1996 instead of 1997)

• Permanent extension of the increased contribution limit beyond 2025

• Savers Credit eligibility: Contributions to ABLE accounts will continue to qualify for the Savers Credit, and the maximum credit increases from $2,000 to $2,100

What this means: ABLE accounts remain a powerful and now more accessible tool for families with disabilities. These updates encourage both saving and financial independence for eligible individuals.

529-to-ABLE Account Rollovers Made Permanent

Families will now be able to permanently roll over funds from 529 college savings plans into ABLE accounts, allowing for more flexible long-term planning if a beneficiary’s needs change.

What this means: If a child with a 529 plan later becomes eligible for an ABLE account, families won’t lose those savings—they can be repurposed tax-free.

Expanded Military Tax Relief for Hazardous Duty Areas

Tax benefits previously available to service members in the Sinai Peninsula are now:

• Made permanent, and

• Expanded to cover active-duty military personnel serving in Kenya, Mali, Burkina Faso, and Chad

What this means: More service members will benefit from exclusions for combat-zone pay and other tax advantages tied to dangerous overseas assignments.

Student Loans Discharged Due to Death or Disability Will Stay Tax-Free

Loan discharges for death or total and permanent disability will continue to be excluded from income, and this exclusion is extended permanently. This applies to both:

• Federal loans

• Private education loans

Note: A valid Social Security number must be reported on the tax return to claim the exclusion.

What this means: Families or individuals dealing with the aftermath of severe disability or loss will not face a surprise tax bill on forgiven student loans.

While these provisions may seem narrow, they offer meaningful financial relief to taxpayers in uniquely vulnerable or high-stress situations—gamblers who report income, families supporting a disabled loved one, students facing medical hardship, and military members serving in dangerous conditions.

Each of these changes begins in 2026, and several are made permanent. If any of these apply to you or your family, now is the time to revisit your financial and tax planning strategies.

Changes to Deductions and Employee Benefits

In the latest installment of our series on the new tax reform package, we’re breaking down several key updates that will affect employees, educators, and taxpayers who itemize deductions.

These provisions focus on miscellaneous deductions, fringe benefits, and moving expense rules — all of which are set to change starting in the 2026 tax year.

Most Miscellaneous Itemized Deductions Are Gone for Good — Except One

The temporary suspension of most miscellaneous itemized deductions (such as unreimbursed employee expenses and tax prep fees) will now be made permanent.

However, there's one important exception: educator expenses will now be fully deductible under a revised rule that expands eligibility.

What’s changing:

• Eligible expenses now include a broader range of instructional supplies and activities.

• Coaches and interscholastic sports administrators are now included.

• The previous dollar cap is removed when these expenses are claimed as miscellaneous deductions (though other rules still apply).

Why it matters: This is a welcome change for teachers and school staff who routinely spend personal funds on classroom needs. For other taxpayers, it confirms that most unreimbursed W-2 expenses remain non-deductible.

Itemized Deductions Will Be Capped for High-Income Taxpayers

A modified version of the “Pease limitation” is back. Under the new rule, itemized deductions will be reduced by 2/37 of the lesser of:

• Your total itemized deductions, or

• Your taxable income above the top 37% tax bracket threshold

This limitation applies after all other deduction limits and does not affect the Qualified Business Income (QBI) deduction.

Why it matters: High earners may no longer receive the full benefit of their charitable contributions, state and local tax (SALT) deductions, or mortgage interest. Tax planning at higher income levels will need to account for this haircut.

Qualified Transportation Fringe Benefits Updated

The bill eliminates certain lesser-used transportation benefits, including:

• Bicycle commuting reimbursements

• Some exclusions for parking and transit that had been restricted under prior law

However, commuter transit and parking benefits remain tax-free up to applicable limits (adjusted annually for inflation).

Why it matters: For employers offering transportation benefits, the rules are now streamlined. For employees, common pre-tax parking and transit benefits remain intact.

Moving Expense Deduction Narrowed — With a New Exception

The moving expense deduction and exclusion for employer-provided moving assistance, which had been suspended for most taxpayers since 2018, will remain suspended indefinitely.

However, a new exception is being added for:

• Civilian employees of the intelligence community, who will now be treated similarly to military members when relocating due to work assignments

Why it matters: For most employees, moving expenses remain nondeductible. But federal intelligence personnel gain a new tax benefit that aligns with military relocation treatment.

Key Takeaways

• Educators, including coaches and non-classroom staff, gain expanded access to deductions for out-of-pocket expenses.

• High-income earners may see reduced value from itemized deductions.

• Employers offering transportation benefits should review current plan designs for compliance.

• Moving expense deductions remain limited, but one new exception is added for intelligence community employees.

All of these changes take effect starting January 1, 2026, but early awareness helps with 2025 year-end planning and benefit design for employers.

If you’re unsure how these changes affect your deductions or benefit programs, our team is here to help. Stay tuned as we continue unpacking the rest of the tax bill in plain English.

Estate, AMT, and Mortgage Tax Rules Are Changing

As we continue our breakdown of the new tax legislation, several provisions in the next section of the “One Big Beautiful Bill” affect estate planning, mortgage deductions, disaster losses, and the alternative minimum tax. While some of these updates are technical, they carry significant implications for families, homeowners, and individuals with larger estates or business income.

Here’s a closer look at what’s changing starting in 2026.

Estate and Gift Tax Exemption Increased to $15 Million

The estate and gift tax exemption—previously scheduled to revert to approximately $6 million per individual in 2026—will now be permanently set at $15 million per person.

What this means: High-net-worth individuals and business owners now have a much larger window to transfer wealth tax-free. Estate planning strategies, especially those involving trusts, lifetime gifts, or business succession, should be revisited in light of this change.

Alternative Minimum Tax (AMT) Relief for High Earners

The AMT exemption amounts and phaseout thresholds, which were temporarily increased in 2017, are being extended beyond 2025. Additionally, the bill:

• Adjusts the income levels at which AMT begins to phase out

• Increases the phaseout rate from 25% to 50%, which accelerates the reduction of the exemption as income increases

• Applies a new inflation indexing method for these thresholds

What this means: While fewer taxpayers will be subject to AMT thanks to the higher exemption levels, high-income individuals with significant deductions or incentive stock options should continue to review potential AMT exposure annually.

Mortgage Interest Deduction Extended (With a Twist)

The bill keeps the current cap on mortgage interest deduction (up to $750,000 of mortgage debt) beyond 2025. It also reinstates a provision allowing mortgage insurance premiums to be treated as deductible interest.

What this means: Homeowners—especially first-time buyers with smaller down payments—can once again deduct mortgage insurance premiums, which can provide meaningful tax savings.

Casualty Loss Deduction Expanded to State-Declared Disasters

Previously, personal casualty losses were only deductible if they occurred in federally declared disaster areas. The bill now expands this deduction to include State-declared disasters as well.

Covered events now include:

• Hurricanes, tornadoes, fires, floods, earthquakes, and more

• Disasters declared by a Governor or the D.C. Mayor, not just the President

What this means: Taxpayers affected by disasters that don’t meet federal criteria may now still be eligible to deduct their losses. This is especially helpful in states prone to wildfires, flooding, or severe storms.

Key Takeaways

• Estate planning needs to be re-evaluated. The higher exemption could change the urgency or structure of planned wealth transfers.

• AMT changes offer relief, but vigilance is still required. Business owners and high-income earners should continue to assess exposure annually.

• Homeowners gain back a useful deduction for mortgage insurance premiums.

• Disaster relief becomes more accessible, even for events not federally recognized.

These changes go into effect starting in 2026, but now is the time to plan. Whether you're managing generational wealth, navigating the housing market, or recovering from a disaster, these updates can affect your bottom line.

Our firm is here to help you understand how the evolving tax code applies to your specific situation. Stay tuned as we continue reviewing additional provisions.

Tax Relief is Getting Real: What Chapter 1 of the New Tax Bill Means for Families, Seniors, and Small Businesses

Congress has introduced a sweeping tax reform package—unofficially dubbed the “One Big Beautiful Bill”—and the first chapter delivers major updates that could significantly impact many of our clients, particularly middle-income households and small business owners.

Here’s a breakdown of the key provisions in Chapter 1 and what they mean in practice:

Extension of Lower Individual Tax Rates

The tax brackets introduced in the 2017 Tax Cuts and Jobs Act were set to expire after 2025. This bill makes those reduced rates permanent. In addition, the inflation adjustments to bracket thresholds have been clarified to ensure gradual changes over time without pushing taxpayers into higher brackets too quickly.

What this means: You’ll continue to benefit from today’s lower tax rates beyond 2025—no sudden rate jumps are expected.

Increase in the Standard Deduction

Beginning in tax year 2025, the standard deduction will increase as follows:

• Single filers: from $12,000 to $15,750

• Married filing jointly: from $18,000 to $23,625

What this means: More of your income will be shielded from tax, reducing your overall tax liability—even if you don’t itemize deductions.

New Senior Deduction

The bill introduces a temporary additional deduction of $6,000 for taxpayers age 65 and older (up to $12,000 for couples filing jointly, if both are over 65). This provision is currently scheduled to expire after 2028.

However, this deduction phases out for individuals with adjusted gross income above $75,000 ($150,000 for joint filers) and requires valid Social Security numbers to claim.

What this means: Retirees with moderate incomes may see meaningful tax savings over the next few years.

Expansion of the Child Tax Credit

Starting in 2025, the Child Tax Credit will increase from $2,000 to $2,200 per qualifying child. The refundable portion of the credit (currently capped at $1,400) will be adjusted annually for inflation.

As before, taxpayers must include valid Social Security numbers for both the parent and the child to qualify.

What this means: Families with children will see modest but meaningful increases in tax credits—especially important given inflation pressures.

Enhancements to the Qualified Business Income (QBI) Deduction

Two key improvements have been made to the QBI deduction under Section 199A:

• The phase-in thresholds for income limitations will increase from $100,000 to $150,000 for joint filers (and from $50,000 to $75,000 for others).

• A new minimum deduction of $400 is introduced for active business owners with at least $1,000 in qualified business income, even if they wouldn’t otherwise qualify under the regular formula.

What this means: This is a win for small business owners, freelancers, and self-employed taxpayers. Even modest business income may now qualify for some level of deduction.

Final Thoughts

These changes reflect a continued focus on middle-income taxpayers, families with children, seniors, and small business owners. Many provisions previously scheduled to sunset are now being extended or expanded—and several take effect as early as the 2025 tax year.

If you’re wondering how these provisions might affect your individual or business tax situation, now is the time to start planning.