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Tax tips

One Big Beautiful Bill Act – Tax Provisions for Individuals

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There are indeed some beautiful provisions for individuals in the new tax act.

“Qualified Tips” are Deductible from Income Effective in 2025, taxpayers may deduct tips. Maximum deduction is $25,000. Tips must be received in occupations which appear on the IRS List of Occupations which Receive Tips. The tips must be reported on Form W-2 or 1099. Deduction phased out for taxpayers with Modified Adjusted Gross Income (MAGI) over $150,000.

New Deduction for Overtime Pay Employees may deduct the overtime pay that exceeds their regular rate of pay (the “half” portion of “time and a half”). Overtime must be separately reported on Form W-2 or 1099. Maximum annual deduction is $12,500 ($25,000 for joint filers). Deduction available for itemizing and non-itemizing taxpayers. Effective for 2025. Deduction is phased out for taxpayers with Modified Adjusted Gross Income (MAGI) over $150,000.

Deduction for Seniors Individuals 65 or older may claim an additional $6,000 deduction. Married couples can receive a $12,000 deduction. The deduction is available for itemizing and non-itemizing taxpayers, effective in 2025. Deduction phases out for taxpayers with MAGI between $75,000 -$175,000 ($150,000-$250,000 for joint filers).

Child Tax Credit For 2025, the Child Tax Credit increased from $2,000 per child to $2,200.

Charitable Deduction for Non-Itemizers Charitable deduction for cash gifts up to $1,000 for single filers and $2,000 for joint filers available to non-itemizers. Effective starting 2026.

Interest Deduction for Car Loans Interest paid on a loan for a “qualified” vehicle may be deductible. A qualified vehicle is a new vehicle whose final assembly was in the US. Effective for 2025 for loans originating after Dec. 31, 2024. Maximum deduction is $10,000 and is available for itemizers and non-itemizers. Deduction phases out for taxpayers with AGI over $100,000 ($200,000 for joint filers)

SALT Deduction Increased For 2025, the SALT deduction cap is $40,000. For years 2026 -2029, cap increases 1% a year. Cap phases down if Modified Adjusted Gross Income exceeds $500,000.

529 Plan Expansion The use of 529 plans was expanded effective 2025 and includes curriculum materials, books, test fees, tutoring and educational services for students with disabilities. The K-12 education distribution limit increases from $10,000 to $20,000 per child, starting with distributions made after Jan. 1, 2026.

Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact of these new provisions on your personal situation.

‘Tis the Season- Charitable Deduction Strategies

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The charitable contribution deduction is normally an itemized deduction. The 2022 standard deduction for every filing status is significantly high and there are limits on some itemized deductions — e.g., the deduction for state and local taxes. As a result, many taxpayers can’t itemize. Here are several strategies that can help taxpayers get more tax mileage from their charitable contributions.

Timing Donations With a Donor-Advised Fund
With a donor-advised fund, you make contributions to the fund and instruct how you want your gifts to be disbursed. Contributions to a donor-advised fund are generally tax deductible in the year they are made. If desired, you can put those dollars to use over several years by supporting your favorite charities through your donor-advised fund. You itemize in years you make the contribution and benefit from the high standard deductions in the years you don’t contribute.

Timing Donations by Bunching

Taxpayers can itemize every second or third year and maximize their deductions, by bunching donations. If a married couple’s only non-charitable deduction is $10,000 of state tax, and they donate $15,000 a year, they will take the standard deduction of $25,900 a year for two years, a total of $51,800. If they bunch the contributions into one year and donate $30,000, they take the standard deduction year one and itemize ($30,000 and $10,000) year two, for a total two-year deduction of $65,900. By bunching, they have increased their deduction by $14,100 ($65,900-$51,800).

Donating Appreciated Securities
Many donor-advised funds and public charities accept contributions of publicly traded securities. A donation of highly appreciated securities held more than one year provides a tax deduction for the securities’ fair market value while avoiding the capital gains tax that would be due if the securities were sold.

Making Qualified Charitable Distributions 
A qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD).
To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. Up to $100,000 may be transferred annually per spouse.

Charge Year-end Donations to a Credit Card

Donations charged to a credit card before the end of the year count for that year. This is true even if the credit card bill isn’t paid until the next year. In other words, credit card contributions are deductible in the year the charge is entered into the system.

Each individual’s tax situation is different. Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact on your personal situation.

 

Year-End Tax Tips for Charitable Donations

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Charitable Deductions Strategies 

The deduction for charitable contributions is normally an itemized deduction. The standard deductions for every filing status are significantly higher under the Tax Cuts and Jobs Act of 2017. And since there are new limits on some itemized deductions — e.g., the deduction for state and local taxes — and others have been outright eliminated, many taxpayers are less likely to benefit from itemizing. Here are several strategies that could help taxpayers get better tax mileage from their donations.

Timing Donations With a Donor-Advised Fund

With a donor-advised fund, you make a contribution (or series of contributions) to the fund and recommend how you would like your gifts to be disbursed. Contributions to a donor-advised fund are generally tax deductible in the year they are made. By funding a donor-advised fund in a year you expect to itemize your deductions could provide a tax advantage. If desired, you could then put those dollars to use over several years by supporting your favorite charities through your donor-advised fund. You can itemize in years in which you make the contribution to a donor-advised and take advantage of the high standard deductions in the years in which you don’t contribute.

Donating Appreciated Securities

Many donor-advised funds and other public charities accept contributions of publicly traded stock or other securities. A donation of highly appreciated securities held more than one year provides a potential tax deduction for the securities’ fair market value while also avoiding the capital gains tax that would be due if the securities were sold. Note that itemized deductions for contributions of appreciated securities are generally limited to 30% of AGI.

Making Qualified Charitable Distributions After Age 70½

A qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD).

To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. (Contributions to donor-advised funds are not eligible.) Up to $100,000 may be transferred annually per spouse.

New for 2021!  Charitable Deduction for individuals who don’t itemize

The law now permits individuals who don’t itemize to claim a limited deduction on their 2021 federal income tax returns for cash contributions. These individuals can claim a deduction of up to $600 for cash contributions make to charities in 2021. Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual’s volunteer services.

Each individual’s tax situation is different. Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact on your personal situation.

 

 

 

Tax Tips for Newly Married Couples

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Checklist of tax and financial items for newly married couples:

Withholding – Newly-wed couples should consider changing their withholding. They should give their employers a new Form W-4, Employee’s Withholding Allowance. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax.

They can use the IRS withholding estimator on www.irs.gov to help complete a new Form W-4.

Name and Address Change – When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on your tax return must match what is on file at the SSA. To update information, taxpayers should file Form SS-5, Application for a Social Security Card, available at www.ssa.gov . If marriage includes a change of address, one should inform the IRS by sending Form 8822, Change of Address, available at www.irs.gov.

Filing Status – Married couples can file their federal income taxes jointly or separately each year. Usually, married filing joint is more beneficial, however couples should calculate the tax both ways to see which works best. If a couple is married as of Dec. 31, they are married for the whole year for tax purposes.

Prenuptial Planning – Part of the 2017 massive tax bill was the elimination of taxable and deductible alimony—which was in the tax code since the 1940s! As a result, prenuptials were turned on their heads unless they permitted a change for tax law changes. It is wise today for the pre-nuptial agreement to allow for changes in the tax treatment of alimony. Attorneys and their clients may consider wording which triggers changes automatically in the event of substantive changes in the tax treatment of alimony. Finally, not all states with an income tax follow the federal law. State tax law needs to be considered also. Litigation Support Partner, Jeff Urbach, works closely with divorce attorneys who can assist you with pre-nuptial agreements.

Marriage after Divorce? If a couple divorces and doesn’t change their wills, NJ statute dictates the outcome. Divorce revokes any dispositions of property made between former spouses prior to divorce. Will provisions leaving property to former spouse have no effect and property passes to next beneficiary named in will. After divorce, and especially before remarriage, one should consult with an elder law attorney. We work closely with many competent estate attorneys whom we can recommend.

Retirement Accounts – If a former spouse was named as the beneficiary of a qualified retirement plan, this will remain intact despite a divorce. After divorce, and especially before remarriage, one should review the beneficiary designations of all retirement accounts.

Everyone’s tax and financial situation is different. Please contact a tax professional at Urbach & Avraham, CPAs about your tax options. Look before you leap!

 

Year End Tax Planning

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Tax planning in the weeks before year-end allows you to take advantage of strategies that might reduce your income tax obligation.

Tax Savings

Capitalize on Winners
Your investments are a good starting point for implementing tax-saving strategies. You can benefit from favorable tax rates on long-term capital gains by selling and taking profits on appreciated securities you’ve held longer than one year. Long-term gains are currently taxed at a maximum rate of 15% for most taxpayers and 20% for taxpayers with taxable income of over $434,550 ($488,850 for joint filers) in 2019.
Cut Your Tax Bite With Losers
Investments that have lost value and have consistently underperformed a benchmark over time may be perfect sell candidates, particularly if you’re not confident of a turnaround. By selling your losers, you can use your losses to offset gains on appreciated securities you’ve sold. Capital losses are fully deductible to offset capital gains and up to $3,000 of ordinary income each year ($1,500 if married filing separately). Any losses that you can’t deduct for 2019 can be carried over for deduction in future years, subject to the same limits.
Don’t make taxes your only reason for selling an investment. Many different factors should be considered when selling securities, including how the sale of a specific investment would affect your overall portfolio.
Curb Surtax Exposure
The 3.8% surtax on net investment income (NIIT) is a relatively new wrinkle for higher income taxpayers. The surtax comes into play when an individual filer’s modified adjusted gross income (AGI) is more than $200,000 ($250,000 on a joint return or $125,000 if married filing separately). The NIIT applies to the lesser of net investment income or the amount by which modified AGI exceeds the threshold. For purposes of the surtax, net investment income includes taxable interest, dividends, annuities, royalties, rents, net capital gain, and income from passive trade or business activities. The surtax doesn’t apply to municipal bond interest or distributions from tax-deferred retirement plans.
Several planning moves are available that may help reduce your exposure to the surtax. These include:
• Maximizing contributions to your employer’s qualified retirement plan. For 2019, you can contribute up to $19,000, plus an additional catch-up amount of $6,000 if you’re age 50 or older and your plan allows. Pretax contributions to a tax-qualified plan reduce your taxable income.
• Contributing to a traditional individual retirement account (IRA). Contributions are tax deductible if neither you nor your spouse actively participates in an employer-sponsored retirement plan. For 2019, the contribution limit is $6,000 ($7,000 with catch-up contribution- for individuals over age 50).
• Investing in tax-free municipal bonds. Be cautious, however, about investing in private activity municipal bonds, which can increase your exposure to the alternative minimum tax (AMT).
• Deferring capital gains through the use of installment sales. The installment method lets you defer taxes on the sale of certain property by recognizing profit over more than one tax year.

As everyone’s situation is different, please contact one of our tax professionals at Urbach & Avraham, CPAs, to discuss your personal circumstances

Choice of Business Entity

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When you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.

Sole Proprietorship

This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased. You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.

Limited Liability Company

If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). A one-member LLC is considered to be a “disregarded entity” by the IRS. Usually, income is taxed to the owners individually on Form Schedule C- Business Income (part of Form 1040), and earnings are subject to self-employment taxes. Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.

An LLC can make an election to be taxed as a corporation or a partnership by filing IRS Form 8832- Entity Classification Election.

Corporation

A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed. If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.

Partnership

In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.

Summary

There is no right or wrong entity. The question is which one is correct for your company, needs and circumstances. Call us for a consultation to help you select the appropriate entity form for your business and family.