When deciding on the best structure for your business, one option to consider is a C corporation. This entity offers several advantages and disadvantages that may significantly affect your business operations and financial health. Here’s a detailed look at the pros and cons of operating as a C corporation.

Tax implications

A C corporation allows the business to be treated and taxed separately from you as the principal owner. The corporate tax rate is currently 21%, which is lower than the highest noncorporate tax rate of 37%.

One of the primary disadvantages of a C corporation is double taxation. The corporation’s profits are taxed at the corporate level and then any dividends distributed to shareholders are taxed again at the individual level. This can result in a higher overall tax burden than other business structures. However, since most of the corporate earnings will be attributable to your efforts as an employee, the risk of double taxation is minimal since the corporation can deduct all reasonable salary that it pays to you.

Because the corporation is taxed as a separate entity, all items of income, credit, loss and deduction are computed at the entity level when arriving at corporate taxable income or loss. One potential disadvantage to a C corporation for a new business is that losses are trapped at the entity level and, thus, generally can’t be deducted by the owners. However, if you expect to generate profits in year one, this might not be a problem.

Liability protection

One of the most significant advantages of a C corporation is the limited liability protection it offers. Shareholders aren’t personally liable for the corporation’s debts and liabilities. This means personal assets are generally protected if the business faces legal issues or bankruptcy.

Complying with requirements

To ensure that a corporation is treated as a separate entity, it’s important to observe various formalities required by your state. These include:

• Filing articles of incorporation,
• Adopting bylaws,
• Electing a board of directors,
• Holding organizational meetings, and
• Keeping minutes of meetings.

Complying with these requirements and maintaining an adequate capital structure will ensure you don’t inadvertently risk personal liability for the business’s debts.

Fringe benefits

A C corporation can also be used to provide fringe benefits and fund qualified pension plans on a tax-favored basis. Subject to certain limits, the corporation can deduct the cost of a variety of benefits such as health insurance and group life insurance without adverse tax consequences to you. Similarly, contributions to qualified pension plans are usually deductible but aren’t currently taxable to you.

Raising capital

A C corporation also gives you considerable flexibility in raising capital from outside investors. A C corporation can have multiple classes of stock — each with different rights and preferences that can be tailored to fit your needs and those of potential investors. Also, if you decide to raise capital through debt, interest paid by the corporation is deductible.

The right fit

Although the C corporation form of business could be appropriate for you at this time, you may be able to change the corporation from a C corporation to an S corporation in the future, if S status is more appropriate at that time. This change will ordinarily be tax-free, except that built-in gain on the corporate assets may be subject to tax if the assets are disposed of by the corporation within 10 years of the change.

This is only a brief overview of the pros and cons of being a C corporation. Contact us if you have questions or would like to explore the best choice of entity for your business.

There are two tax breaks that help eligible parents offset the expenses of adopting a child. In 2025, adoptive parents may be able to claim a credit against their federal tax for up to $17,280 of “qualified adoption expenses” for each child. This is up from $16,810 in 2024. A tax credit is a dollar-for-dollar reduction of tax.

Also, adoptive parents may be able to exclude from an employee’s gross income up to $17,280 in 2025 ($16,810 in 2024) of qualified expenses paid by an employer under an adoption assistance program. Both the credit and the exclusion are phased out if the parents’ income exceeds certain limits detailed below.

Parents can claim both a credit and an exclusion for the expenses of adopting a child. But they can’t claim both a credit and an exclusion for the same expenses.

Which expenses qualify?

To be eligible for the credit or the exclusion, the expenses must be “qualified adoption expenses.” These are the reasonable and necessary adoption fees, attorneys’ fees, court fees, travel expenses (including meals and lodging), and other costs directly related to the legal adoption of an “eligible child.”

Qualified expenses don’t include those incurred when adopting a spouse’s child or arranging a surrogate parent. They also don’t include expenses that violate state or federal law or those paid using funds received from a government program. Expenses reimbursed by an employer don’t qualify for the credit, but benefits provided by an employer under an adoption assistance program may be eligible for the exclusion.

Expenses related to an unsuccessful attempt to adopt a child may qualify. Expenses connected with a foreign adoption (the child isn’t a U.S. citizen or resident) qualify only if the child is adopted.

Taxpayers who adopt a child with special needs are deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expenses for the adoption to $17,280 in 2025 ($16,810 in 2024). They can take the adoption credit or exclude employer adoption assistance up to that amount, whether or not they had those actual expenses.

Who is an eligible child? 

An eligible child is under age 18 at the time you pay a qualified expense. A child who turns 18 during the year is eligible for the part of the year he or she is under age 18. A person who is physically or mentally incapable of caring for him- or herself is eligible, regardless of age.

A special needs child refers to one whom the state has determined can’t or shouldn’t be returned to his or her parents and who can’t be reasonably placed with adoptive parents without assistance because of a specific factor or condition. Only a child who is a citizen or resident of the U.S. is included in this category.

What are the phaseout amounts? 

The credit allowed in 2025 begins to phase out for taxpayers with adjusted gross incomes (AGIs) over $259,190 ($252,150 for 2024) and is eliminated when AGIs reach $299,190 ($292,150 in 2024).

Note: The adoption credit isn’t “refundable.” So, if the sum of your refundable credits (including any adoption credit) for the year exceeds your tax liability, the excess amount isn’t refunded to you. In other words, you can only claim the credit up to the amount of your tax liability.

Need help unlocking tax relief?

Contact us with any questions. We can help ensure you get the full benefit of the tax savings available to adoptive parents.

Medicare health insurance premiums can add up to big bucks — especially if you’re upper-income, married, and you and your spouse both pay premiums. Read on to understand how taxes fit in.

Premiums for Part B coverage 

Medicare Part B coverage is commonly called Medicare medical insurance. Part B mainly covers doctors’ visits and outpatient services. Eligible individuals must pay monthly premiums for this benefit. Medicare is generally for people 65 or older. It’s also available earlier to some people with disabilities, and those with end-stage renal disease and ALS.

The monthly premium for the current year depends on your modified adjusted gross income (MAGI), as reported on your Form 1040 for two years earlier. MAGI is the adjusted gross income (AGI) number on your Form 1040 plus any tax-exempt interest income.

For 2025, most individuals will pay the base monthly Part B premium of $185 per covered person.

Higher-income individuals must pay a surcharge on top of the base premium. For 2025, a surcharge applies if you: 1) filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year or 2) filed jointly for 2023 and reported MAGI above $212,000 for that year.

For 2025, Part B monthly premiums, including surcharges if applicable, for each covered individual can be found on this web page.

Part B premiums, including any surcharges, are withheld from your Social Security benefit payments and are shown on the annual Form SSA-1099 sent to you by the Social Security Administration (SSA).

Premiums for Part D drug coverage

Medicare Part D is private prescription drug coverage. Base premiums vary depending on the plan. Higher-income individuals must pay a surcharge on top of the base premium.

For 2025, surcharges apply to those who: 1) filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year or 2) filed a joint return for 2023 and reported MAGI above $212,000. You can find the 2025 monthly Part D surcharges for each covered person on this web page.

You pay the base Part D premium, which depends on the private insurance company plan you select, to the insurance company. Any surcharge will be withheld from your Social Security benefit payments and reflected on the annual Form SSA-1099 sent to you by the SSA.

Deducting Medicare premiums

You may be able to combine premiums for Medicare insurance with other qualifying health care expenses to claim an itemized medical expense deduction. Your deduction equals total qualifying expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).

Your 2024 tax return and 2026 Medicare premiums 

Decisions reflected on your 2024 Form 1040 can affect your 2024 MAGI and, in turn, your 2026 Medicare health insurance premiums. This issue is especially relevant if you’re self-employed or an owner of a pass-through business entity (LLC, partnership or S corporation) because you have more opportunities to micro-manage your 2024 MAGI at tax return time. For example, you may choose to make bigger or smaller deductible contributions to a self-employed retirement plan and maximize or minimize depreciation deductions for business assets.

While your 2026 Medicare health insurance premiums may seem to be an issue in the distant future, 2026 will be here before you know it.

Optimize your situation

As you can see, Medicare health insurance premiums can add up. In addition, what you do on your yet-to-be-filed 2024 tax return can impact your 2026 premiums. We can help you make the best decisions to optimize your overall situation.

You’re not alone if you’re confused about the federal tax treatment of business-related meal and entertainment expenses. The rules have changed in recent years. Let’s take a look at what you can deduct in 2024.

Current law

The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. That means, for example, that you can’t deduct any part of the cost of taking clients out for a round of golf or to a football game.

You can still generally deduct 50% of the cost of food and beverages when they’re business-related or consumed during business-related entertainment.

Allowable food and beverage costs

IRS regulations clarify that food and beverages are all related items whether they’re characterized as meals, snacks, etc. Food and beverage costs include sales tax, delivery fees and tips.

To be 50% deductible, food and beverages consumed in conjunction with an entertainment activity must: be purchased separately from the entertainment or be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages. You can deduct 50% of the approximate reasonable value if they aren’t purchased separately.

Other rules

Per IRS regulations, no 50% deduction for the cost of business meals is allowed unless:

1. The meal isn’t lavish or extravagant under the circumstances.

2. You (as the taxpayer) or an employee is present at the meal.

3. The meal is provided to you or a business associate.

Who are business associates? They’re people with whom you reasonably expect to conduct business — such as established or prospective customers, clients, suppliers, employees or partners.

IRS regulations make it clear that you can deduct 50% of the cost of a business-related meal for yourself — for example, because you’re working late at night.

Traveling on business

Per IRS regulations, the general rule is that you can still deduct 50% of the cost of meals while traveling on business. The longstanding rules for substantiating meal expenses still apply. Message: keep receipts.

IRS regulations also reiterate the longstanding general rule that no deductions are allowed for meal expenses incurred for spouses, dependents, or other individuals accompanying you on business travel. (This is also true for spouses and dependents accompanying an officer or employee on a business trip.)

The exception is when the expenses would otherwise be deductible. For example, meal expenses for your spouse are deductible if he or she works at your company and accompanies you on a business trip for legitimate business reasons.

100% deductions in certain situations

IRS regulations confirm that some longstanding favorable exceptions for meal and entertainment expenses still apply. For example, your business can deduct 100% of the cost of:

• Food, beverage, and entertainment incurred for recreational, social, or similar activities that are primarily for the benefit of all employees (for example, at a company holiday party);
• Food, beverages, and entertainment available to the general public (for example, free food and music you provide at a promotional event open to the public);
• Food, beverages and entertainment sold to customers for full value;
• Amounts that are reported as taxable compensation to recipient employees; and
• Meals and entertainment that are reported as taxable income to a non-employee recipient on a Form 1099 (for example, a customer wins a dinner cruise for ten valued at $750 at a sales presentation).

In addition, a restaurant or catering business can deduct 100% of the cost of food and beverages purchased to provide meals to paying customers and consumed at the worksite by employees who work in the restaurant or catering business.

Bottom line

Business-related meal deductions can be valuable, but the rules can be complex. Contact us if you have questions or want more information.

If you’ve reached age 70½, you can make cash donations directly from your IRA to IRS-approved charities. These qualified charitable distributions (QCDs) may help you gain tax advantages.

QCD basics

QCDs can be made from your traditional IRA(s) free of federal income tax. In contrast, other traditional IRA distributions are wholly or partially taxable, depending on whether you’ve made nondeductible contributions over the years.

Unlike regular charitable donations, you can’t claim itemized deductions for QCDs. That’s OK because the tax-free treatment of QCDs equates to a 100% deduction.

To be a QCD, an IRA distribution must meet the following requirements:

1. It can’t occur before you’re age 70½.
2. It must meet the normal tax-law requirements for a 100% deductible charitable donation.
3. It must be a distribution that would otherwise be taxable.

New provision 

Under the SECURE 2.0 Act, the annual QCD limit is now adjusted for inflation. In 2024, the limit is $105,000, up from $100,000 last year. In 2025, it will jump again to $108,000.

If both you and your spouse have IRAs set up in your respective names, each of you is entitled to a separate QCD limit. If you inherited an IRA from the deceased original account owner, you can make a QCD with the inherited account if you’ve reached age 70½.

Tax-saving advantages

QCDs have at least five tax-saving advantages:

1. They aren’t included in your adjusted gross income (AGI). That lowers the odds that you’ll be affected by unfavorable AGI-based rules or hit with the 3.8% net investment income tax on your investment income.

2. They always deliver a tax benefit, while “regular” charitable donations might not. The Tax Cuts and Jobs Act significantly increased standard deduction amounts, and you only get a tax benefit from a charitable donation if your total itemizable deductions exceed your standard deduction. Also, deductions for “regular” charitable donations can’t exceed 60% of your AGI. QCDs are exempt from that limitation.

3. For 2024 and 2025, you’re subject to the IRA required minimum distribution (RMD) rules if you turn 73 during the year or are older. RMD amounts will be fully or partially taxable depending on whether you made any nondeductible contributions over the years. QCDs made from your traditional IRA(s) count as RMDs. That means you can donate all or part of your annual RMD amount — up to the applicable annual QCD limit — that you’d otherwise be forced to receive and pay taxes on. In effect, you can replace taxable RMDs with tax-free QCDs.

4. Say you own one or more traditional IRAs to which you’ve made nondeductible contributions over the years. Your IRA balances consist partly of a taxable layer (from deductible contributions and account earnings) and partly of a nontaxable layer (from nondeductible contributions). Any QCDs are treated as coming first from the taxable layer but they’re tax-free. Any nontaxable amounts are left behind in your IRA(s). Later, you or your heirs can withdraw the nontaxable amounts tax-free.

5. They decrease your taxable estate. However, that’s not a concern for most folks with today’s large federal estate tax exemption ($13.61 million in 2024 and $13.99 million in 2025).

Act before year end

The QCD strategy is a tax-smart opportunity for many people. It’s especially beneficial for seniors with charitable inclinations and more IRA money than they need for retirement. Contact us if you have questions or want assistance with QCDs.

The Inflation Reduction Act (IRA), enacted in 2022, created several tax credits aimed at promoting clean energy. You may want to take advantage of them before it’s too late.

On the campaign trail, President-Elect Donald Trump pledged to “terminate” the law and “rescind all unspent funds.” Rescinding all or part of the law would require action from Congress and is possible when Republicans take control of both chambers in January. The credits weren’t scheduled to expire for many years, but they may be repealed in 2025 with the changes in Washington.

If you’ve been thinking about making any of the following eligible purchases, you may want to do it before December 31.

1. Home energy efficiency improvements

Homeowners can benefit from several tax credits for making energy-efficient upgrades to their homes. These include:

• Energy Efficient Home Improvement Credit: This credit covers 30% of the cost of eligible home improvements, such as installing energy-efficient windows, doors, and insulation, up to a maximum of $1,200 this year. There’s also a credit of up to $2,000 for qualified heat pumps, water heaters, biomass stoves or biomass boilers.
• Residential Clean Energy Credit: This credit is available for installing solar panels, wind turbines, geothermal heat pumps, and other renewable energy systems. It covers 30% of the cost.
• Energy Efficient Property Credit: For those investing in clean energy for their homes, this credit offers a significant incentive. It covers 30% of the cost of installing solar water heaters and other renewable energy sources.

2. Clean vehicle tax credit

One of the most notable IRA provisions is the clean vehicle tax credit. If you purchase a new electric vehicle (EV) or fuel cell vehicle (FCV), you may qualify for a tax credit of up to $7,500. The credit for a pre-owned clean vehicle can be up to $4,000. To be eligible, the vehicle must meet specific criteria, including price caps and income limits for the buyer.

The credit can be claimed when you file your tax return. Alternatively, you can transfer it to an eligible dealer when you buy a vehicle, which effectively reduces the vehicle’s purchase price by the credit amount.

3. Electric Vehicle Charging Equipment Credit

If you install an EV charging station at your home, you can claim a credit of 30% of the cost, up to $1,000. This credit is designed to encourage the adoption of electric vehicles by making it more affordable to charge at home.

Act now

These are only some of the tax breaks in the IRA that may reduce your federal tax bill while promoting clean energy.

IRS data has shown that the tax breaks are popular. For example, in 2023 (the first year available), approximately 750,000 taxpayers claimed the credit for rooftop solar panels. Keep in mind that a tax credit is more valuable than a tax deduction. A credit directly reduces the amount of tax you owe, dollar for dollar, while a deduction reduces your taxable income, which is the amount subject to tax.

So, act now if you want to take advantage of these credits. There may also be state or local utility incentives. Contact us before making a large purchase to check if it’s eligible.

Employee stock options remain a potentially valuable asset for employees who receive them. For example, many Silicon Valley millionaires got rich (or semi-rich) from exercising stock options when they worked for start-up companies or fast-growing enterprises.

We’ll explain what you need to know about the federal income and employment tax rules for employer-issued nonqualified stock options (NQSOs).

Tax planning objectives 

You’ll eventually sell shares you acquire by exercising an NQSO, hopefully for a healthy profit. When you do, your tax planning objectives will be to:

1. Have most or all of that profit taxed at lower long-term capital gain rates.

2. Postpone paying taxes for as long as possible.

Tax results when acquiring and selling shares

NQSOs aren’t subject to any tax-law restrictions, but they also confer no special tax advantages. That said, you can get positive tax results with advance planning.

When you exercise an NQSO, the bargain element (difference between market value and exercise price) is treated as ordinary compensation income — the same as a bonus payment. That bargain element will be reported as additional taxable compensation income on Form W-2 for the year of exercise, which you get from your employer.

Your tax basis in NQSO shares equals the market price on the exercise date. Any subsequent appreciation is capital gain taxed when you sell the shares. You have a capital loss if you sell shares for less than the market price on the exercise date.

Let’s look at an example

On December 1, 2023, you were granted an NQSO to buy 2,000 shares of company stock at $25 per share. On April 1, 2024, you exercised the option when the stock was trading at $34 per share. On May 15, 2025, the shares are trading at $52 per share, and you cash in. Assume you paid 2024 federal income tax on the $18,000 bargain element (2,000 shares × $9 bargain element) at the 24% rate for a tax of $4,320 (24% × $18,000).

Your per-share tax basis in the option stock is $34, and your holding period began on April 2, 2024. When you sell on May 15, 2025, for $52 per share, you trigger a $36,000 taxable gain (2,000 shares × $18 per-share difference between the $52 sale price and $34 basis). Assume the tax on your long-term capital gain is $5,400 (15% × $36,000).

You net an after-tax profit of $44,280 when all is said and done. Here’s the calculation: Sales proceeds of $104,000 (2,000 shares × $52) minus exercise price of $50,000 (2,000 shares × $25) minus $5,400 capital gains tax on the sale of the option shares minus $4,320 tax upon exercise.

Since the bargain element is treated as ordinary compensation income, the income is subject to federal income tax, Social Security and Medicare tax withholding.

Key point: To keep things simple, the example above assumes you don’t owe the 3.8% net investment income tax on your stock sale gain or any state income tax.

Conventional wisdom and risk-free strategies

If you had exercised earlier in 2024 when the stock was worth less than $34 per share, you could have cut your 2024 tax bill and increased the amount taxed later at the lower long-term capital gain rates. That’s the conventional wisdom strategy for NQSOs.

The risk-free strategy for NQSOs is to hold them until the earlier of 1) the date you want to sell the underlying shares for a profit or 2) the date the options will expire. If the latter date applies and the options are in-the-money on the expiration date, you can exercise and immediately sell. This won’t minimize the tax, but it eliminates any economic risk. If your options are underwater, you can simply allow them to expire with no harm done.

Maximize your profit

NQSOs can be a valuable perk, and you may be able to benefit from lower long-term capital gain tax rates on part (maybe a big part) of your profit. If you have questions or want more information about NQSOs, consult with us.

As a business owner, you may travel to visit customers, attend conferences, check on vendors and for other purposes. Understanding which travel expenses are tax deductible can significantly affect your bottom line. Properly managing travel costs can help ensure compliance and maximize your tax savings.

Your tax home

Eligible taxpayers can deduct the ordinary and necessary expenses of business travel when away from their “tax homes.” Ordinary means common and accepted in the industry. Necessary means helpful and appropriate for the business. Expenses aren’t deductible if they’re for personal purposes, lavish or extravagant. That doesn’t mean you can’t fly first class or stay in luxury hotels. But you’ll need to show that expenses were reasonable.

Your tax home isn’t necessarily where you maintain your family home. Instead, it refers to the city or general area where your principal place of business is located. (Special rules apply to taxpayers with several places of business or no regular place of business.)

Generally, you’re considered to be traveling away from home if your duties require you to be away from your tax home for substantially longer than an ordinary day’s work and you need to get sleep or rest to meet work demands. This includes temporary work assignments. However, you aren’t permitted to deduct travel expenses in connection with an indefinite work assignment (more than a year) or one that’s realistically expected to last more than a year.

Deductible expenses

Assuming you meet these requirements, common deductible business travel expenses include:

• Air, train or bus fare to the destination, plus baggage fees,
• Car rental expenses or the cost of using your vehicle, plus tolls and parking,
• Transportation while at the destination, such as taxis or rideshares between the airport and hotel, and to and from work locations,
• Lodging,
• Tips paid to hotel or restaurant workers, and
• Dry cleaning / laundry.

Meal expenses are generally 50% deductible. This includes meals eaten alone. It also includes meals with others if they’re provided to business contacts, serve an ordinary and necessary business purpose, and aren’t lavish or extravagant.

Claiming deductions

Self-employed people can deduct travel expenses on Schedule C. Employees currently aren’t permitted to deduct unreimbursed business expenses, including travel expenses.

However, businesses may deduct employees’ travel expenses to the extent they provide advances or reimbursements or pay the expenses directly. Advances or reimbursements are excluded from wages (and aren’t subject to income or payroll taxes) if they’re made according to an “accountable plan.” In this case, the expenses must have a business purpose, and employees must substantiate expenses and pay back any excess advances or reimbursements.

Mixing business and pleasure

If you take a trip in the United States primarily for business, but also take some time for personal activities, you’re still permitted to deduct the total cost of airfare or other transportation to and from the destination. However, lodging and meals are only deductible for the business portion of your trip. Generally, a trip is primarily for business if you spend more time on business activities than on personal activities.

Recordkeeping

To deduct business travel expenses, you must substantiate them with adequate records — receipts, canceled checks and bills — that show the amount, date, place and nature of each expense. Receipts aren’t required for non-lodging expenses less than $75, but these expenses must still be documented in an expense report. Keep in mind that an employer may have its own substantiation policies that are stricter than the IRS requirements.

If you use your car or a company car for business travel, you can deduct your actual costs or the standard mileage rate.

For lodging, meals and incidental expenses (M&IE) — such as small fees or tips — employers can use the alternative per-diem method to simplify expense tracking. Self-employed individuals can use this method for M&IE, but not for lodging.

Under this method, taxpayers use the federal lodging and M&IE per-diem rates for the travel destination to determine reimbursement or deduction amounts. This avoids the need to keep receipts to substantiate actual costs. However, it’s still necessary to document the time, place and nature of expenses.

There’s also an optional high-low substantiation method that allows a taxpayer to use two per-diem rates for business travel: one for designated high-cost localities and a lower rate for other localities.

Turn to us

The business travel deduction rules can be complicated. In addition, there are special rules for international travel and travel with your spouse or other family members. If you’re uncertain about the tax treatment of your expenses, contact us.

When you think about tax deductions for vehicle-related expenses, business driving may come to mind. However, businesses aren’t the only taxpayers that can deduct driving expenses on their returns. Individuals may also be able to deduct them in certain circumstances. Unfortunately, under current law, you may be unable to deduct as much as you could years ago.

How the TCJA changed deductions

For years before 2018, miles driven for business, moving, medical and charitable purposes were potentially deductible. For 2018 through 2025, business and moving miles are deductible only in much more limited circumstances. The changes resulted from the Tax Cuts and Jobs Act (TCJA), which could also affect your tax benefit from medical and charitable miles.

Before 2018, if you were an employee, you potentially could deduct business mileage not reimbursed by your employer as a miscellaneous itemized deduction. The deduction was subject to a 2% of adjusted gross income (AGI) floor, meaning that mileage was deductible only to the extent that your total miscellaneous itemized deductions for the year exceeded 2% of your AGI. However, for 2018 through 2025, you can’t deduct the mileage regardless of your AGI. Why? The TCJA suspends all miscellaneous itemized deductions subject to the 2% floor.

If you’re self-employed, business mileage can still be deducted from self-employment income. It’s not subject to the 2% floor and is still deductible for 2018 through 2025, as long as it otherwise qualifies.

Medical and moving

Miles driven for a work-related move before 2018 were generally deductible “above the line” (itemizing wasn’t required to claim the deduction). However, for 2018 through 2025, under the TCJA, moving expenses are deductible only for active-duty military members.

If you itemize, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. For example, you can include in medical expenses the amounts paid when you use a car to travel to doctors’ appointments. For 2024, medical expenses are deductible to the extent they exceed 7.5% of your AGI.

The limits for deducting expenses for charitable miles driven are set by law and don’t change yearly based on inflation. But keep in mind that the charitable driving deduction can only be claimed if you itemize. For 2018 through 2025, the standard deduction has nearly doubled, so not as many taxpayers are itemizing. Depending on your total itemized deductions, you might be better off claiming the standard deduction, in which case you’ll get no tax benefit from your charitable miles (or from your medical miles, even if you exceed the AGI floor).

Rates depend on the trip

Rather than keeping track of your actual vehicle expenses, you can use a standard mileage rate to compute your deductions. The 2024 rates vary depending on the purpose:

• Business, 67 cents per mile.
• Medical, 21 cents per mile.
• Moving for active-duty military, 21 cents per mile.
• Charitable, 14 cents per mile.

In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls. There are also substantiation requirements, which include tracking miles driven.

We can answer any questions 

Do you have questions about deducting vehicle-related expenses? Contact us. We can help you with your tax planning.

Let’s say you have an unincorporated sideline activity that you consider a business. Perhaps you offer photography services, create custom artwork or sell handmade items online. Will the IRS agree that your venture is a business, not a hobby? It’s an essential question for tax purposes.

If the expenses from an activity exceed the revenues, you have a net loss. You may think you can deduct that loss on your personal federal income tax return with no questions asked. Not so fast! The IRS often claims that money-losing sidelines are hobbies rather than businesses — and the federal income tax rules for hobbies aren’t in your favor.

TCJA made tax rules worse

Old rules: Before the TCJA rules kicked in in 2018, if an activity was deemed to be a not-for-profit hobby, you had to report all the revenue on your Form 1040. You could deduct hobby-related expenses, such as itemized deductions for allocable home mortgage interest and property taxes. Other hobby-related expenses — up to the amount of revenue from the hobby — could potentially be written off. You had to treat those other outlays as miscellaneous itemized expenses that you could only deduct to the extent they exceeded 2% of your adjusted gross income (AGI).

Current rules: For 2018 through 2025, the TCJA suspends write-offs for miscellaneous itemized deduction items previously subject to the 2%-of-AGI deduction threshold. That change wipes all deductions for hobby-related expenses, except for expenses you can write off in any event (such as itemized deductions for allocable mortgage interest and property taxes). So, under current law, you can’t deduct any hobby-related expenses. As was the case before the TCJA, you must still report 100% of hobby-related income on your Form 1040. So, you’ll be taxed on all the income even if the activity loses money.

Determine if your activity is a business

Now you understand why for-profit business status is more beneficial than hobby status. The next step is determining if your money-losing activity is a hobby or a business.

There are two statutory safe-harbor rules for determining if you have a for-profit business:

• An activity is presumed to be a for-profit business if it produces positive taxable income in at least three out of every five years. You can deduct losses from the other years because they’re considered business losses.
• A horse racing, breeding, training or showing activity is presumed to be a for-profit business if it produces positive taxable income in at least two out of every seven years.

If you don’t qualify for one of the safe-harbor rules, you may still be able to treat the activity as a for-profit business and rightfully deduct the losses. You must demonstrate an honest intent to make a profit. Here are some of the factors that can prove (or disprove) such intent:

• You conduct the activity in a business-like manner by keeping good records.
• You have expertise in the activity or hire advisers who do.
• You spend enough time to help show the activity is a business.
• There’s an expectation of asset appreciation.
• You’ve had success in other ventures, which indicates business acumen.
• The history and magnitude of income and losses from the activity help show it’s a business. Losses caused by unusual events are more justifiable than ongoing losses that only a hobbyist would endure.
• If you’re wealthy, it may look like you can afford to absorb ongoing losses, which may indicate a hobby.
• If the activity has elements of personal pleasure, it may appear to be a hobby.

Don’t be discouraged

On the bright side, the U.S. Tax Court has, over the years, concluded that a number of pleasurable activities could be classified as for-profit business ventures rather than tax-disfavored hobbies. We may be able to help you create documentation to prove that your money-losing activity is actually a for-profit business that hasn’t paid off yet.