Running a successful business requires more than delivering great products or services. Behind the scenes, meticulous recordkeeping plays a crucial role in financial health, compliance and tax savings. Good records can mean the difference between successfully defending a deduction and losing valuable tax breaks. A recent U.S. Tax Court decision underscores just how important this is.

Why it matters

The IRS requires all businesses — no matter how small — to maintain records that accurately reflect income, expenses, assets and liabilities. Without these records, it’s nearly impossible to:

• Substantiate tax deductions and credits,
• Track cash flow and profitability,
• Prepare accurate financial statements,
• Monitor the progress of your business,
• Support decisions for financing, and
• Demonstrate compliance during an IRS audit.

In short, strong recordkeeping protects your business, both for operational and tax law purposes.

Taxpayer loses deductions due to insufficient records

In one case, a union power‐line worker also had business interests in a storm response partnership, a salon and a rental property. He claimed significant losses and business expenses on his return for the year in question. Among his claimed deductions were partnership losses and expenses for tools, clothing and travel.

In Tax Court Memo 2025-12, the court disallowed substantial deductions because the taxpayer couldn’t properly substantiate them. Some invoices or receipts were missing or didn’t tie clearly to the business purpose.

For example, with vehicle or travel expenses, the court noted the lack of contemporaneous logs and details that distinguished business vs. personal use. For partnership losses, the taxpayer needed to show his basis in the partnership, but couldn’t provide clear documentation of all his capital contributions.

In addition to denying many of the taxpayer’s deductions, the court upheld an accuracy‐related penalty. This is an extra charge (typically 20% of the underpayment) that can be assessed when a taxpayer makes substantial mistakes on a tax return.

This case isn’t unique. Year after year, businesses lose valuable deductions for the same reason: poor recordkeeping.

Six key practices to protect tax breaks

To avoid costly mistakes, businesses should implement a recordkeeping system that’s both practical and compliant. Here are six best practices to consider:

1. Separate business and personal finances.Open a dedicated business checking account and credit card. Mixing personal and business expenses is one of the fastest ways to create confusion — and attract IRS scrutiny.
2. Maintain contemporaneous records.Document expenses when they occur, not months later. For example, keep mileage logs for business driving and note the purpose of each trip.
3. Use accounting software.Modern accounting platforms (like QuickBooks® or industry-specific tools) streamline recordkeeping. They allow you to categorize expenses, generate reports and integrate with bank accounts to minimize errors.
4. Keep source documents.For example, retain purchase and sale invoices, receipts, bank statements, canceled checks, and credit card bills. Scanning or photographing receipts ensures they won’t fade or get lost. Also, keep copies of Forms 1099-MISC and 1099-NEC. There are also specific employment tax records you must keep.
5. Retain records for the right amount of time.Generally, the IRS recommends keeping records for at least three years. That’s the amount of time that the tax agency can audit a tax return. However, some records (such as payroll tax or property records) should be kept longer. The length of time can be extended to six years if the income is underreported by more than 25%. And if no return is filed or fraud is involved, the IRS can conduct an audit for an indefinite amount of time.
6. Establish internal controls.For businesses with employees, internal checks help ensure the accuracy and integrity of records. Examples of these controls include requiring dual signatures for large expenses and segregating duties so that different employees handle authorization, custody of assets and recordkeeping.

Reliable records are vital

The lesson from the Tax Court case described above is clear: Without reliable records, even legitimate deductions can vanish. Don’t let poor documentation cost your business money. We can help your business:

• Set up a recordkeeping system tailored to your business,
• Learn which expenses are deductible (and how to document them),
• Review its books to catch issues before the IRS does, and
• Manage any IRS challenges to tax deductions.

Contact us to discuss how we can help you establish sound recordkeeping practices and safeguard valuable tax breaks.

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.

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.

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.

The qualified business income (QBI) deduction, which became effective in 2018, is a significant tax benefit for many business owners. It allows eligible taxpayers to deduct up to 20% of QBI, not to exceed 20% of taxable income. It can also be claimed for up to 20% of income from qualified real estate investment trust dividends.

With recent changes under the One Big Beautiful Bill Act (OBBBA), this powerful deduction is becoming more accessible and beneficial. Most important, the OBBBA makes the QBI deduction permanent. It had been scheduled to end on December 31, 2025.

A closer look

QBI is generally defined as the net amount of qualified income, gain, deduction and loss from a qualified U.S. trade or business. Taxpayers eligible for the deduction include sole proprietors and owners of pass-through entities, such as partnerships, S corporations and limited liability companies that are treated as sole proprietorships, partnerships or S corporations for tax purposes. C corporations aren’t eligible.

Additional limits on the deduction gradually phase in if 2025 taxable income exceeds the applicable threshold — $197,300 or $394,600 for married couples filing joint tax returns. The limits fully apply when 2025 taxable income exceeds $247,300 and $494,600, respectively.

For example, if a taxpayer’s income exceeds the applicable threshold, the deduction starts to become limited to:

• 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
• The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property, which is the depreciable tangible property (including real estate) owned by a qualified business as of year end and used by the business at any point during the tax year to produce QBI.

Also, if a taxpayer’s income exceeds the applicable threshold and the QBI is from a “specified service business,” the deduction will be reduced and eventually eliminated. Examples of specified service businesses are those involving investment-type services and most professional practices, including law, health, consulting, performing arts and athletics (but not engineering and architecture).

Even better next year

Under the OBBBA, beginning in 2026, the income ranges over which the wage/property and specified service business limits phase in will widen, potentially allowing larger deductions for some taxpayers. Instead of the distance from the bottom of the range (the threshold) to the top (the amount at which the limit fully applies) being $50,000, or, for joint filers, $100,000, it will be $75,000, or, for joint filers, $150,000. The threshold amounts will continue to be annually adjusted for inflation.

The OBBBA also provides a new minimum deduction of $400 for taxpayers who materially participate in an active trade or business if they have at least $1,000 of QBI from it. The minimum deduction will be annually adjusted for inflation after 2026.

Action steps

With the QBI changes, it may be time to revisit your tax strategies. Certain tax planning moves may increase or decrease your allowable QBI deduction. Contact us to develop strategies that maximize your benefits under the new law.

If you make quarterly estimated tax payments, the amount you owe may be affected by the One Big Beautiful Bill Act (OBBBA). The law, which was enacted on July 4, 2025, introduces new deductions, credits and tax provisions that could shift your income tax liability this year.

Tax basics

Federal estimated tax payments are designed to ensure that certain individuals pay their fair share of taxes throughout the year.

If you don’t have enough federal tax withheld from your paychecks and other payments, you may have to make estimated tax payments. This is the case if you receive interest, dividends, self-employment income, capital gains, a pension or other income that’s not covered by withholding.

Individuals generally must pay 25% of a “required annual payment” by April 15, June 15, September 15, and January 15 of the following year, to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day.

The third installment for 2025 is due on Monday, September 15. Payments are made using Form 1040-ES.

Amount to be paid

The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year’s return was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld from their paychecks by their employers. Those who make estimated tax payments generally do so in four installments. After determining the required annual payment, divide that number by four and make four equal payments by the due dates.

But you may be able to use the annualized income method to make smaller payments. This method is useful to people whose income flow isn’t uniform over the year, perhaps because of a seasonal business. For example, if your income comes exclusively from a business operated in a resort area during June, July and August, no estimated payment is required before September 15.

The underpayment penalty

If you don’t make the required payments, you may be subject to an underpayment penalty. The penalty equals the product of the interest rate charged by the IRS on deficiencies times the amount of the underpayment for the period of the underpayment.

However, the underpayment penalty doesn’t apply to you if:

• The total tax shown on your return is less than $1,000 after subtracting withholding tax paid;
• You had no tax liability for the preceding year, you were a U.S. citizen or resident for that entire year, and that period was 12 months;
• For the fourth (January 15) installment, you file your return by that January 31 and pay your tax in full; or
• You’re a farmer or fisherman and pay your entire estimated tax by January 15 or pay your entire tax and file your tax return by March 2, 2026.

In addition, the IRS may waive the penalty if the failure was due to casualty, disaster or other unusual circumstances, and it would be inequitable to impose the penalty. The penalty can also be waived for reasonable cause during the first two years after you retire (and reach age 62) or become disabled.

OBBBA highlights

Several provisions of the OBBBA could directly affect quarterly estimated tax payments because they change how much tax some individuals will ultimately owe for the year. For example, the law introduces a temporary (2025 through 2028) additional $6,000 deduction for seniors, which can lower taxable income. It creates new deductions for overtime pay, tips and auto loan interest — available even if you don’t itemize — which can meaningfully reduce estimated liabilities. The bill also increases the state and local tax deduction cap for certain taxpayers and temporarily enhances the Child Tax Credit. Because these deductions and credits apply during the tax year rather than after, they can reduce your quarterly payment obligations mid-year, making it important to recalculate estimates to avoid overpayment or underpayment penalties.

Seek guidance now

Contact us if you need help figuring out your estimated tax payments or have other questions about how the rules apply to you.

Under current federal income tax rules, so-called personal interest expense generally can’t be deducted. One big exception is qualified residence interest or home mortgage interest, which can be deducted, subject to some limitations, if you itemize deductions on your tax return.

The One Big Beautiful Bill Act (OBBBA) adds another exception for eligible car loan interest. In tax law language, the new deduction is called qualified passenger vehicle loan interest. Are you eligible? Here are the rules.

“No tax” isn’t an accurate description

If you could deduct all your car loan interest, you’d be paying it with pre-tax dollars rather than with post-tax dollars — meaning after you paid your federal income tax bill. The new deduction has been called “no tax on car loan interest,” but that’s not really accurate. Here’s a more precise explanation.

The OBBBA allows eligible individuals — including those who don’t itemize — a temporary new deduction for some or all of the interest paid on some loans. The loans must be taken out to purchase a qualifying passenger vehicle.

Specifically, for 2025 through 2028, up to $10,000 of car loan interest can potentially be deducted each year. The loan must be taken out after 2024 and must be a first lien secured by the vehicle, which is used for personal purposes. Leased vehicles don’t qualify. So far, this may sound good, but not all buyers will qualify for the new deduction because of the limitations and restrictions summarized below.

Income-based phaseout rule

The deduction is phased out starting at $100,000 of modified adjusted gross income (MAGI) or $200,000 for married joint-filing couples. If your MAGI is above the applicable threshold, the amount that you can deduct (subject to the $10,000 limit) is reduced by $200 for each $1,000 of excess MAGI. So, for an unmarried individual, the deduction is completely phased out when MAGI reaches $150,000. For married joint filers, the deduction is completely phased out when MAGI reaches $250,000.

Qualifying vehicles

To qualify for the new deduction, the vehicle must be a car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. It must be manufactured primarily for use on public streets, roads and highways, and it must be new (meaning the original use begins with you). The “final assembly” of the vehicle must occur in the United States. You must report the vehicle identification number (VIN) on your tax return. Vehicles assembled in America have a special number in the VIN to signify that.

Meeting the requirements

In the law, the definition of final assembly is convoluted. The law states: “Final assembly means the process by which a manufacturer produces a vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.”

Another requirement is that your car loan lender must file an information return with the IRS that shows the amount of interest paid during the year on your qualified car loan.

Refinanced loans

If an original qualified car loan is refinanced, the new loan will be a qualified loan as long as: 1) the new loan is secured by a first lien on the eligible vehicle and 2) the initial balance of the new loan doesn’t exceed the ending balance of the original loan.

Ineligible loans

Interest on the following types of loans doesn’t qualify for the new deduction:

• Loans to finance fleet sales,
• Loans to buy a vehicle not used for personal purposes,
• Loans to buy a vehicle with a salvage title or a vehicle intended to be used for scrap or parts,
• Loans from certain related parties, and
• Any lease financing.

Conclusion

According to various reports, most American car buyers rely on loans to finance their purchases. So, the ability to deduct car loan interest is something that many taxpayers would be happy about. That said, many buyers won’t qualify for the new deduction. It’s off limits for high-income purchasers, used vehicle buyers and those who buy foreign imports. Contact us with any questions.

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.

The alternative minimum tax (AMT) is a separate federal income tax system that bears some resemblance to the regular federal income tax system. The difference is that the individual AMT system taxes certain types of income that are tax-free under the regular system. It also disallows some deductions that are allowed under the regular system. If the AMT exceeds your regular tax bill, you owe the larger AMT amount.

Tax law changes

The Tax Cuts and Jobs Act (TCJA) made the individual alternative minimum tax (AMT) rules more taxpayer-friendly for 2018-2025 and significantly reduced the odds that you’ll owe the AMT for those years. But the new One Big Beautiful Bill Act (OBBBA) contains mixed news about your AMT exposure.

AMT rates

The maximum AMT rate is “only” 28% versus the 37% maximum regular federal income tax rate. At first glance, it may seem counterintuitive that anyone would worry about paying AMT. However, while the top AMT rate is lower, it applies to a much larger taxable base with fewer deductions and credits. That’s why people in certain situations still need to worry about it.

For 2025, the maximum 28% AMT rate kicks in when your taxable income, calculated under the AMT rules, exceeds an inflation-adjusted threshold of $239,100 for married joint-filing couples or $119,550 for other taxpayers. Below these thresholds, the AMT rate is 26%.

AMT exemptions

Under the AMT rules, you’re allowed an inflation-adjusted AMT exemption — effectively a deduction — in calculating your alternative minimum taxable income. The TCJA significantly increased the exemption amounts for 2018-2025. The OBBBA made the TCJA increased exemption amounts permanent, with annual inflation adjustments.

For 2025, the exemption amounts are $88,100 for unmarried individuals, $137,000 married joint-filing couples, and $68,500 for married individuals who file separate returns.

Exemption phase-out rule

At high levels of alternative minimum taxable income, your AMT exemption is phased out, which increases the odds that you’ll owe the tax. The TCJA dramatically increased the phase-out thresholds to levels where most taxpayers are unaffected by the phase-out rule. For 2025, the exemption begins to be phased out when alternative minimum taxable income exceeds $626,350 or $1,252,700 for a married joint-filing couple. For 2018-2025, the applicable exemption is reduced by 25% of the excess of your alternative minimum taxable income over the applicable phase-out threshold.

Mixed news in the OBBBA

Starting in 2026, the OBBBA makes the $500,000 and $1 million exemption phase-out threshold permanent. That’s the good news.

The bad news: Starting in 2026, the new law resets the exemption phase-out thresholds to $500,000 and $1 million with annual inflation adjustments for 2026 and beyond. So for 2026, these phase-out thresholds will be lower than the higher thresholds that apply for 2025. More bad news: Starting in 2026, the OBBBA increases the exemption phase-out percentage from 25% to 50%.

Bottom line: For 2026 and beyond, AMT exemptions for higher-income taxpayers can be phased out faster. That means more taxpayers may owe the AMT for 2026 and beyond.

AMT risk factors

Various interacting factors make it difficult to pinpoint exactly who’ll be hit by the AMT and who’ll dodge it. Here are five implications and risk factors.

1. Substantial income from capital gains or other sources. When you have high income, from whatever sources, it can cause your AMT exemption to be partially or completely phased out. That increases the odds that you’ll owe the AMT.
2. Itemized state and local tax (SALT) deductions. You can’t deduct SALT expenses under the AMT rules. This can hurt those living in high-tax states.
3. Exercise of incentive stock options (ISOs). When you exercise an ISO, the bargain element (the difference between the market value of the shares on the exercise date and your ISO exercise price) doesn’t count as income under the regular tax rules, but it counts as income under the AMT rules.
4. Standard deductions. Standard deductions are disallowed under the AMT rules.
5. Private activity bond interest income. This category of interest income is tax-free for regular tax purposes but taxable under the AMT rules.

Determine your status

The TCJA significantly reduced the odds that you’ll owe the AMT. But the OBBBA increases the odds for some taxpayers, thanks to unfavorable changes to the AMT exemption rules that will take effect in 2026. Don’t assume you’re exempt from AMT — especially if you have some of the risk factors outlined above. Contact us to determine your current status after the OBBBA changes take effect.

The One Big Beautiful Bill Act (OBBBA) includes a number of beneficial changes that will help small business taxpayers. Perhaps the biggest and best changes are liberalized rules for depreciating business assets. Here’s what you need to know.

100% bonus depreciation is back

The new law permanently restores 100% first-year depreciation for eligible assets acquired and placed in service after January 19, 2025. The last time 100% bonus depreciation was allowed for eligible assets was in 2022. The deduction percentage was generally reduced to 80% for 2023, 60% for 2024, and 40% for eligible assets placed in service between January 1, 2025, and January 19, 2025.

For certain assets with longer production periods, these percentage cutbacks were delayed by one year. For example, a 60% first-year bonus depreciation rate applies to long-production-period property placed in service between January 1, 2025, and January 19, 2025.

Eligible assets include most depreciable personal property such as equipment, computer hardware and peripherals, commercially available software and certain vehicles. First-year bonus depreciation can also be claimed for real estate qualified improvement property (QIP). This is defined as an improvement to an interior portion of a non-residential building placed in service after the building was initially put into use. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP. They usually must be depreciated over 39 years.

Section 179 first-year depreciation

For eligible assets placed in service in tax years beginning in 2025, the OBBBA increases the maximum amount that can immediately be written off via first-year depreciation (sometimes called expensing) to $2.5 million. This is up from $1.25 million for 2025 before the new law.

A phase-out rule reduces the maximum Sec. 179 deduction if, during the year, you place in service eligible assets in excess of $4 million. This is up from $3.13 million for 2025 before OBBBA was enacted. These increased OBBBA amounts will be adjusted annually for inflation for tax years beginning in 2026.

Eligible assets include the same items that are eligible for bonus depreciation. Sec. 179 deductions can also be claimed for real estate QIP (defined earlier), up to the maximum annual allowance. In addition, Sec. 179 deductions are also allowed for roofs, HVAC equipment, fire protection and alarm systems, and security systems for non-residential real property. Finally, Sec. 179 write-offs can be claimed for depreciable personal property used predominantly in connection with furnishing lodging.

There’s a special limit on Sec. 179 deductions for heavy SUVs used over 50% for business. This means vehicles with gross vehicle weight ratings between 6,001 and 14,000 pounds. For tax years beginning in 2025, the maximum Sec. 179 deduction for a heavy SUV is $31,300.

Strategy: Sec. 179 deductions are subject to a number of limitations that don’t apply to first-year bonus depreciation. In particular, things can get complicated if you operate your business as a partnership, LLC treated as a partnership for tax purposes or an S corporation. The conventional wisdom is to claim 100% first-year bonus depreciation to the extent allowed rather than claiming Sec. 179 deductions for the same assets.

First-year depreciation for qualified production property

The OBBBA allows additional 100% first-year depreciation for qualified production property (QPP) in the year it’s placed in service. QPP is non-residential real estate, such as a building, that’s used as an integral part of a qualified production activity, such as the manufacturing, production, or refining of tangible personal property. Before the new law, non-residential buildings generally had to be depreciated over 39 years.

QPP doesn’t include any part of non-residential real property that’s used for offices, administrative services, lodging, parking, sales or research activities, software development, engineering activities and other functions unrelated to the manufacturing, production or refining of tangible personal property.

The favorable new 100% first-year depreciation deal is available for QPP when the construction begins after January 19, 2025, and before 2029. The property must be placed in service in the U.S. or a U.S. possession before 2031.

Take another look

These are only some of the business provisions in the new law. We can help you take advantage of tax breaks that are beneficial in your situation for 2025 and future years.