Large stock market gains in recent years, coupled with some significant volatility in 2026, have left many investors with portfolios that are out of balance with their desired asset allocation. If you haven’t rebalanced recently, it may be time to do so. But you also must consider the tax implications. Careful planning can minimize the tax cost of rebalancing.

What does rebalancing mean?

When you built your investment portfolio, you took several factors into account, such as your performance goals, risk tolerance and age, to arrive at an allocation across asset classes (such as money market funds, stocks and bonds) and subcategories (such as small-cap vs. mid-cap vs. large-cap U.S stocks and U.S. Treasury vs. municipal bonds). When one asset class (or subcategory) outperforms, it will become a larger portion of your portfolio than your original asset allocation. This situation can potentially increase your risk and cause your portfolio to no longer align with your goals.

To keep your asset allocation in alignment, monitor your portfolio regularly and rebalance it as needed. Rebalancing involves selling some investments in classes that have become overweighted, usually appreciated stocks and mutual fund shares. You then reinvest the proceeds in other asset classes to help achieve your desired allocation. But the gain you recognize from selling appreciated investments will be currently taxable — unless the investments are held in tax-advantaged retirement accounts, such as 401(k)s and IRAs.

Taxable brokerage accounts

When you file your tax return, your recognized capital gains for the year are netted against your recognized capital losses. If your gains in your taxable accounts exceed your losses, you have a net capital gain.

If a net capital gain is from investments held for more than a year, it will be taxed at the federal long-term gains rate. Most individuals will pay 15%, but, depending on your income, the rate could be 0% or 20%. Also depending on your income, you may owe the 3.8% net investment income tax (NIIT) on all or part of your net long-term gain. Depending on your state, you might owe state income tax, too.

If you have a net capital gain from investments held for one year or less, it will be taxed at the short-term gains rate. This is your ordinary federal income tax rate, which may be as high as 37%. You may also owe the NIIT on all or part of your net short-term gain. And, again, you might owe state income tax.

If losses in your taxable accounts for the year exceed your gains, you have a net capital loss. You can deduct the loss against up to $3,000 of ordinary income ($1,500 if you’re married and file separately). Any remaining net capital loss is carried over to next year.

Tax-advantaged retirement accounts

If you sell assets held in a tax-advantaged retirement account, the resulting gains and losses affect your account balance. But they have no tax impact until you start taking withdrawals.

If it’s a non-Roth account, the taxable portion of withdrawals (generally any amount attributable to appreciation or to contributions that were pretax or deductible) will be taxed at your ordinary federal income tax rate. Depending on your state, you may also owe state income tax.

If it’s a Roth account, qualified withdrawals will generally be income-tax-free for federal purposes. This includes withdrawals attributable to appreciation.

Tax-smart strategies

If you have both taxable and tax-advantaged accounts, consider them together when rebalancing your portfolio. For example, let’s say your overall portfolio across brokerage and retirement accounts has become overweighted in large-cap U.S. stocks. You can save taxes for the current year if you sell some of this appreciated stock from a retirement account because the gain won’t be taxed.

Sometimes selling appreciated assets in a taxable brokerage account will be necessary to achieve rebalancing goals. In this case, look to see if there are also assets in that account (or another taxable account) that you can sell at a loss. The recognized loss can offset some or all of your capital gains on the appreciated assets you sell. Remember that selling assets at a loss in your tax-advantaged retirement account won’t provide a current-year tax loss.

If you need to sell appreciated assets in a brokerage account and you won’t be able to recognize enough losses to offset your gains, try to sell assets you’ve held more than one year. That way, the gain will be taxed at your lower long-term gains rate.

Rebalancing involves not only selling assets in classes that have become overweighted but also using the proceeds to buy assets in classes that have become underweighted. As you invest in new assets, consider which assets make more sense to hold in taxable vs. tax-advantaged accounts.

It generally makes sense to hold the investments you think will generate the highest long-term returns in a Roth account, because you can eventually take the resulting income and gains out free of federal income taxes. And if you do a lot of short-term trading that would generate high-taxed short-term gains in a taxable brokerage firm account, it makes sense to do the trading in a tax-advantaged retirement account.

Look beyond current tax consequences

Despite the significant impact taxes can have, don’t make investment decisions — including those related to rebalancing your portfolio — based primarily on current-year tax consequences. You should also consider investment goals, time horizon, risk tolerance, investment-specific factors, fees and the long-term tax consequences. If you have questions or would like more information about investment portfolio rebalancing, contact us.

The post Tax Mitigation Strategies When Rebalancing Your Investment Portfolio first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

A new tax-advantaged way to help children build up savings for the future was created by the One Big Beautiful Bill Act (OBBBA): Trump Accounts (TAs). Under a pilot program, you can make an election to set up a TA for your U.S. citizen child born in 2025 through 2028 and the federal government will fund the account with $1,000 of free money. But older children also are eligible for TAs as long as they have a Social Security number and are under 18 at the end of the tax year; they just aren’t eligible for the $1,000 government contribution.

Getting started

One way to set up a TA is to file Form 4547, “Trump Account Election(s),” along with your 2025 federal income tax return. But the form doesn’t have to be filed with a tax return; it can be filed anytime through an online portal that is expected to be available this summer.

After July 3, 2026, you and any other individual, such as a grandparent, can begin making annual TA contributions of up to a combined limit of $5,000 (adjusted for inflation starting in 2028) until the year your child turns 18.

The $1,000 government contribution doesn’t count against the annual limit. So, if your child is born this year, up to $5,000 could be contributed to his or her TA in 2026 on top of the $1,000 from the government.

Other contributions

Employers can set up a TA contribution program. After July 3, 2026, employers can contribute and deduct up to $2,500 annually (adjusted for inflation starting in 2028) to a TA for an eligible under-age-18 employee or an employee’s eligible under-age-18 dependent. (Employers can’t contribute more than $2,500 per employee, even if an employee has multiple eligible dependents.) These contributions count against the $5,000 annual contribution limit. Employer contributions are excluded from the employee’s taxable income.

State, local or tribal governments and tax-exempt 501(c)(3) organizations can also make tax-free contributions to TAs under rules to be established by the IRS. These qualified general contributions aren’t subject to the $5,000 annual contribution limit and must be provided to all children within a qualified group, as defined.

Tax treatment and other requirements

Contributions aren’t deductible for individual contributors, but the account earnings can grow tax-deferred as long as they’re in the account. Generally, no distributions can be taken from the TA before the year your child turns 18.

Until the year your child turns 18, the account can invest only in certain eligible investments. These are mutual funds or exchange traded funds that 1) track a qualified index, 2) don’t use leverage, 3) don’t charge fees of more than 0.1% of the invested balance, and 4) meet other criteria that may be set by the IRS.

After age 18

In the year your child turns 18, the TA will transition into a traditional IRA. It will become subject to the familiar federal income tax rules governing traditional IRA contributions and distributions.

So, your child will have to have earned income to make any further contributions to the account. But those contributions will be deductible if he or she is eligible, and the higher IRA annual contribution limit will apply.

Also starting with the year your child turns 18, distributions can be taken. But the distributions will generally be at least partially taxable, and IRA early withdrawal penalties could also apply. So it’s best to leave the account untouched so that it can continue to grow tax-deferred.

Weighing your options

If your child is eligible for the $1,000 government contribution, you’ll want to set up a TA to at least get this free money and take advantage of the tax-deferred growth on it. And it can be an even more powerful savings tool if you also make contributions.

Say you put $5,000 a year into your child’s TA for the first 17 years of his or her life after collecting the $1,000 of free money from the government in Year 1. If the account earns 5% annually, it will be worth about $138,000 by the time your child turns 18. Say your child leaves the money invested in what’s now a traditional IRA until age 65. If the account continues to earn 5%, it will grow to almost $1.44 million. Once your child starts having earned income, he or she can make additional contributions to what is now a traditional IRA and have an even bigger account balance at retirement.

However, before making TA contributions, consider whether other tax-advantaged savings options might better achieve your goals. For example, if you want to build up funds for your child’s education, contributing to a Section 529 savings plan may be a better fit. Distributions used to pay qualified education expenses will be tax-free, and some or all of any remaining balance after your child graduates can eventually be converted to a Roth IRA, with tax-free distributions.

Learn more

TAs are worth considering, especially if you can afford to make significant annual contributions. If you have questions about TAs or want more information about other tax-advantaged savings options to benefit your children — or grandchildren — contact us.

The post How the New Trump Accounts for Children Will Work first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

If you own a business or are self-employed and haven’t already set up a tax-advantaged retirement plan, consider establishing one before you file your 2025 tax return. If you choose a Simplified Employee Pension (SEP), you’ll be able make deductible 2025 contributions to it, saving you taxes. Not only is the SEP deadline favorable, but SEPs are easy to set up and the contribution limits are generous. If you have employees, you’ll generally have to include them in the SEP and make contributions on their behalf, which are also deductible.

Deadlines in 2026 for 2025

A SEP can be established as late as the due date (including extensions) of the business’s income tax return for the tax year for which the SEP is to first apply. For example:

• A calendar-year partnership or S corporation has until March 16, 2026, to establish a SEP for 2025 (September 15, 2026, if the return is extended).
• A calendar-year sole proprietor or C corporation has until April 15, 2026 (October 15, 2026, if the return is extended) because of their later filing deadlines.

The deadlines for limited liability companies (LLCs) depend on the tax treatment the LLC has elected. The business has until these same deadlines to make 2025 contributions and still claim a deduction on its 2025 return.

Simple setup

A SEP is established by completing and signing the very simple Form 5305-SEP, “Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement.” Form 5305-SEP isn’t filed with the IRS, but it should be maintained as part of the business’s permanent tax records. A copy of Form 5305-SEP must be given to each employee covered by the SEP, along with a disclosure statement.

You’ll then make deductible contributions to your SEP account, called a “SEP-IRA,” and, if you have employees, to each eligible employee’s SEP-IRA. Employee accounts are immediately 100% vested. Your contributions on behalf of employees will be excluded from their taxable income. When SEP distributions are taken, likely in retirement, they’ll be taxable.

Discretionary, potentially large contributions

Contributions to SEPs are discretionary. You, as the business owner, can decide what amount of contribution to make each year. But be aware that, if your business has employees other than yourself, contributions must be made for all eligible employees using the same percentage of compensation as for yourself.

For 2025, the maximum contribution that can be made to a SEP is 25% of compensation (or approximately 20% of net self-employed income) of up to $350,000, subject to a contribution cap of $70,000. (The 2026 limits are $360,000 and $72,000, respectively.)

Right for you?

While SEPs are much simpler than most other tax-advantaged retirement plans, they’re subject to additional rules and limits beyond what’s discussed here. To learn more, contact us. We can help you determine whether a SEP is right for you and, if so, assist you with setting it up — and maximizing your 2025 tax savings.

The post There’s Still Time to Set Up a SEP and Reduce Your 2025 Taxes first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Normally, businesses must furnish certain information returns to workers and submit them to the federal government by January 31. But this year, that date falls on a Saturday. So the deadline is the next business day, which happens to be Groundhog Day: February 2, 2026.

W-2s for employees

By February 2, employers must furnish and/or file these 2025 forms:

Form W-2, Wage and Tax Statement. Form W-2 shows the wages paid and taxes withheld for the year for each employee. It must be furnished to employees and filed with the Social Security Administration (SSA). The IRS notes that “because employees’ Social Security and Medicare benefits are computed based on information on Form W-2, it’s very important to prepare Form W-2 correctly and timely.”

Form W-3, Transmittal of Wage and Tax Statements. Anyone required to file Form W-2 must also file Form W-3 to transmit Copy A of Form W-2 to the SSA. The totals for amounts reported on related employment tax forms (Form 941, Form 943, Form 944 or Schedule H) for the year should agree with the amounts reported on Form W-3.

1099-NECs for independent contractors

The February 2 deadline also applies to Form 1099-NEC, Nonemployee Compensation. This form generally must be furnished to independent contractors and filed with the IRS if the following conditions are met:

• You made a payment to someone who wasn’t your employee,
• The payment was for services in the course of your trade or business,
• The payment was to an individual, partnership, estate, or, in some cases, a corporation, and
• You made total payments of at least $600 to the recipient during the year.

You may have heard that the One Big Beautiful Bill Act, signed into law in 2025, increased the threshold to $2,000. That change goes into effect for payments made this year (that will be reported on the 2026 1099-NECs you’ll furnish and file in early 2027). The threshold will be annually adjusted for inflation beginning in 2027.

Other forms

Your business may also have to furnish a Form 1099-MISC to each person to whom you made certain payments for rent, medical expenses, prizes and awards, attorney’s services, and more. The deadline for furnishing Forms 1099-MISC to recipients is also February 2.

The deadline for submitting these forms to the IRS depends on the filing method. If you’re filing on paper, the 2026 deadline is March 2 (because the normal February 28 deadline falls on a Saturday this year). If you’re filing them electronically, the deadline is March 31.

Furnish and file on time

When the IRS requires you to “furnish” a form to a recipient, it can be done in person, electronically or by first-class mail to the recipient’s last known address. If 2025 W-2 or 1099-NEC forms are mailed, they must be postmarked by February 2.

Don’t cast a shadow over tax filing season by missing the Groundhog Day deadline. Failing to meet applicable deadlines (or include the correct information on the forms) may result in penalties. Contact us with any questions about Form W-2, Form 1099-NEC or other tax forms and the applicable filing requirements. We’d be happy to answer them and help you stay in compliance.

The post Is Your Business Ready for the Tax Deadline That’s on Groundhog Day This Year? first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

The IRS is opening the filing season for 2025 individual income tax returns on January 26. This is about the same time as when the agency began accepting and processing 2024 tax year returns last year, despite IRS staffing having been significantly reduced since then. Here are answers to some FAQs about filing.

When is my 2025 return due?

For most individual taxpayers, the deadline to file a 2025 return or an extension is April 15. Individuals living outside the United States and Puerto Rico or serving in the military outside those two locations have until June 15.

When must 2025 W-2s and 1099s be provided to me?

To file your tax return, you need all your Forms W-2 and 1099. February 2 is the deadline for employers to issue 2025 W-2s to employees and, generally, for businesses to issue Forms 1099 to recipients of any 2025 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).

Normally these forms must be furnished by January 31. But this year, that date falls on a Saturday. So the deadline is the next business day, which is Monday, February 2.

If you haven’t received a W-2 or 1099 by the deadline, contact the entity that should have issued it. But remember that if a form is provided to you via mail instead of digitally, February 2 is the postmark deadline. So you might not receive it until several days after that.

Are there benefits to filing early?

One benefit is that if you’re getting a refund, you’ll likely get it sooner. The IRS expects to issue most refunds in less than 21 days from filing, as it has in recent years.

However, it’s possible that the reduced IRS staffing could cause delays during tax season this year. Other factors could also impact refund timing. The IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills.

How can filing early reduce my tax identity theft risk?

Tax identity theft occurs when someone uses your personal information — such as your Social Security number — to file a fraudulent tax return and claim a refund in your name. One of the simplest yet most effective ways to protect yourself from this type of fraud is to file your tax return as early as possible.

The IRS processes returns on a first-come, first-served basis. Once your legitimate return is in the system, thieves will have a tougher time filing a false return under your identity.

What’s the impact of the paper check phaseout for refunds?

As required by Executive Order 14247, the IRS is phasing out paper tax refund checks for individual taxpayers. For the 2025 tax year, the IRS will request banking information on all tax returns when filed to issue refunds via direct deposit or electronic funds transfer (EFT). For taxpayers without bank accounts, options such as prepaid debit cards, digital wallets or limited exceptions will be available.

Direct deposits and EFTs generally speed up refunds. They also avoid the risk that a paper check could be lost, stolen or returned to the IRS as undeliverable.

If I file early and owe tax, will I have to pay it when I file?

Even if you file early, your deadline for paying tax owed is April 15. However, if you didn’t pay enough in withholding and estimated tax payments for 2025 to meet certain rules (or didn’t make estimated tax payments on time), you could still owe penalties and interest. Paying before April 15 may reduce them.

What if I can’t pay my tax bill in full by April 15?

If you don’t pay what you owe by April 15, you’ll likely be subject to penalties and interest even if you met the withholding and estimated tax payment requirements for 2025. You should still file your return on time (or file for an extension) because there are failure-to-file penalties in addition to failure-to-pay penalties.

Paying as much as possible by April 15 will reduce interest and penalties because a smaller amount will be outstanding. Then request an installment payment plan for the rest of the liability.

Under what circumstances can I file for extension?

Generally, anyone is eligible to file an automatic extension to October 15 for individual tax returns; you don’t have to provide a reason why you can’t file on time. But you must file Form 4868 to request the extension by April 15 to avoid being subject to a failure-to-file penalty.

Remember that an extension of time to file your return doesn’t grant you any extension of time to pay your taxes. You should estimate and pay any taxes owed by April 15 to help avoid, or at least minimize, late payment penalties and interest.

What should I do next?

Contact us to answer any other tax filing questions you have or to discuss getting started on your 2025 return. We can prepare your return accurately and on time while helping to ensure you claim all the tax breaks you’re entitled to.

The post Tax Filing FAQs for Individuals first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

With 2025 in the rear view mirror and the tax filing deadline on the road ahead, it’s a good time for businesses to start gathering information about their deductible expenses for 2025. But what’s deductible (and what’s not) might not be as clear-cut as you think.

Most business deductions aren’t specifically listed in the Internal Revenue Code (IRC). The general rule is what’s stated in the first sentence of IRC Section 162, that you can write off “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” In addition, you must be able to substantiate the expenses.

Ordinary and necessary

In general, an expense is ordinary if it’s considered common or customary in the particular trade or business. For example, a landscaping company’s costs for fuel and routine maintenance on its lawn equipment would typically qualify as ordinary expenses because such costs are customary for that type of business.

A necessary expense is defined as one that’s helpful or appropriate. For instance, a retail store that invests in security cameras may be able to operate without them, but the expense is helpful for reducing theft and protecting employees and customers.

To be deductible, an expense must be both ordinary and necessary. An ordinary expense may be unnecessary because the amount isn’t reasonable in relation to the business purpose. For example, let’s say a construction business upgrades to premium, top-of-the-line tools when standard professional-grade tools already meet job requirements. Tool purchases are ordinary, but excessive upgrades may be unreasonable and, thus, unnecessary.

Cases in point

The IRS and courts don’t always agree with taxpayers about what qualifies as a deductible business expense. Often substantiation is the primary issue. Sometimes the question hinges not on the expense itself, but on whether the taxpayer was actually operating a trade or business.

For example, the U.S. Tax Court denied deductions claimed by an engineering firm owner for the value of his own time spent developing a program. Self-performed labor isn’t “paid or incurred,” the court noted. Therefore, it’s not deductible. The court disallowed other deductions due to insufficient records and lack of a clear business purpose.

In another case, a taxpayer engaged in real estate activities. His business expense deductions were denied by the Tax Court. The court ruled that the activities didn’t constitute an active trade or business. Instead, the real estate was held for investment purposes. In addition, the deductions weren’t substantiated because adequate records weren’t kept. The taxpayer appealed. The U.S. Court of Appeals for the Ninth Circuit agreed with the Tax Court. The court ruled the taxpayer “failed to provide sufficient evidence of his claimed deductions.”

What can you deduct for 2025?

Determining the deductibility of business expenses can be complicated, and proper substantiation is critical. We can help you determine what you can deduct on your 2025 tax return. Contact us for assistance.

The post Not All “Business” Expenses Are Tax Deductible first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Did you know there’s a tax-advantaged way to save for the expenses of a person with a disability that’s similar to saving for college expenses with a Section 529 plan? Achieving a Better Life Experience (ABLE) accounts can help fund qualified disability expenses for an eligible beneficiary. The SECURE 2.0 Act, signed into law in 2022, made changes that will allow more people to be eligible for ABLE accounts beginning in 2026. The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, has made certain enhancements to them permanent.

The benefits

ABLE accounts can be created by eligible individuals to support themselves, by family members to support their dependents, or by guardians for the benefit of the individuals for whom they’re responsible. Anyone can contribute to an ABLE account.

The OBBBA made permanent the ability of the designated beneficiary to claim the saver’s credit for contributions he or she makes to his or her ABLE account. The maximum saver’s credit for an individual for 2025 and 2026 is $1,000.

While contributions aren’t tax-deductible, the funds in the account are invested and grow tax-deferred. Distributions used to pay eligible expenses are tax-free. (If distributions are used for nonqualified expenses, the portion of the distribution that represents earnings on the account is subject to income tax — plus a 10% penalty.)

Having an ABLE account generally won’t affect the beneficiary’s eligibility for the government benefits to which he or she is entitled. ABLE accounts have no impact on Social Security Disability Insurance (SSDI) payments or Medicaid eligibility.

However, ABLE account balances in excess of $100,000 are counted toward the Supplemental Security Income (SSI) program’s $2,000 individual resource limit. Therefore, an individual’s SSI benefits are suspended, but not terminated, when his or her ABLE account balance exceeds $102,000 (assuming the individual has no other assets). In addition, distributions from an ABLE account to pay housing expenses count toward the SSI income limit.

Expanded eligibility

Eligible individuals must be blind or disabled. For 2025 and prior years, the individual must have become so before turning age 26. But under SECURE 2.0, this age increases to 46 beginning on January 1, 2026.

To be eligible, individuals generally must be entitled to benefits under the SSI or SSDI programs. Alternatively, individuals can become eligible if a disability certificate is filed with the IRS.

Qualified expenses

Distributions from an ABLE account are tax-free if used to pay for expenses that maintain or improve the beneficiary’s health, independence or quality of life. These expenses include:

• Education,
• Housing,
• Transportation,
• Health and wellness,
• Assistive technology, and
• Personal support services.

Employment support expenses also qualify.

Setting up an account

Like 529 plans, ABLE accounts are established under state programs, and there are many choices. An account may be opened under the program of a state other than the one where the individual resides (as long as the state allows out-of-state participants). The funds in an account can be invested in a variety of options, and the account’s investment directions can be changed up to twice a year.

Be aware that an eligible individual can have only one ABLE account. Also, there’s an annual contribution limit of $19,000 for 2025 and $20,000 for 2026. The OBBBA made permanent the ability to roll over 529 plan funds to an ABLE account without penalty, as long as the ABLE account is owned by the beneficiary of the 529 plan or a member of the beneficiary’s family. Such rolled-over amounts count toward the annual contribution limit.

However, if the beneficiary works, he or she can also contribute part, or all, of his or her income to the account. (This additional contribution is limited to the poverty-line amount for a one-person household.)

A new opportunity

If you or someone in your family became disabled or blind after turning 26 but before age 46, the expansion of ABLE account eligibility in 2026 provides a new opportunity for tax-advantaged savings. To learn more about the tax benefits and other financial considerations, contact us.

The post More Individuals With Disabilities Will Be Eligible for Tax-Advantaged ABLE Accounts in 2026 first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

If your business has employees or uses independent contractors, you have associated annual information reporting obligations. The One Big Beautiful Bill Act (OBBBA) makes changes impacting these rules, but not for the 2025 tax year.

Tips and overtime income

For 2025 through 2028, the OBBBA creates new deductions for employees who receive qualified tips income or qualified overtime income. Importantly, these breaks aren’t income exclusions. Therefore, federal payroll taxes and federal income tax withholding rules still apply to this income. Also, qualified tips and qualified overtime may still be fully taxable for state and local income tax purposes where applicable.

The issue for employers and payroll management firms is reporting qualified tips and qualified overtime amounts so eligible workers can claim their rightful federal income tax deductions. In August, the IRS 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, the 2025 versions of Form W-2, Forms 1099, Form 941 and other payroll-related forms and returns aren’t being changed.

In November, the IRS issued guidance on how taxpayers who’ve received tips or overtime in 2025 can determine their eligibility and calculate their deductions, considering that employers and others aren’t required to provide information reporting specific to qualified tips income or qualified overtime income for the 2025 tax year.

Employers and payroll management firms may voluntarily report 2025 qualified tips in Box 14 (“Other”) of Form W-2 or a separate statement. Those that pay overtime, at minimum, should be prepared to answer employee questions about whether they’re considered to be Fair Labor Standards Act employees and thus potentially eligible for the qualified overtime deduction for 2025.

Eligible occupations for the tips deduction

In September 2025, the IRS released proposed regulations that include a list of dozens of occupations that are eligible for the OBBBA deduction for qualified tips income. Eligible occupations have been given a three-digit code to be used by employers for information return purposes.

Eligible occupations are grouped into eight categories: beverage and food service, entertainment and events, hospitality and guest services, home services, personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery.

Draft 2026 Form W-2

In September 2025, the IRS also released a draft of the 2026 Form W-2. The draft form incorporates changes to support the new employer reporting requirements for employee deductions for qualified tips income and qualified overtime income, as well as employer contributions to Trump accounts (which will become available in 2026 to provide a tax-advantaged savings opportunity for children).

For Box 12 of the draft form, new codes are provided for the following:

• “TA” to report employer contributions to Trump accounts,
• “TP” to report the total amount of an employee’s qualified tips income, and
• “TT” to report the total amount of an employee’s qualified overtime income.

Box 14b has been added for employers to report the occupation of an employee who receives qualified tips income.

Eased information return rules

While the deductions for qualified tips and overtime will add to the information reporting requirements for businesses, the OBBBA also provides some reporting relief. This relief also starts with the 2026 tax year.

Businesses generally must report on annual information returns, such as Form 1099-MISC, payments made during the year that equal or exceed the threshold for rents, royalties, premiums, annuities, remuneration, emoluments, or other fixed or determinable gains, profits, and income. In addition, businesses that receive business services generally must report on annual information returns, such as Form 1099-NEC, payments made during the year for services rendered that equal or exceed the statutory threshold.

For many years, the threshold for Forms 1099-MISC and 1099-NEC has been $600. Effective for payments made after 2025, the OBBBA increases the reporting threshold to $2,000, with inflation adjustments for payments made after 2026. This change will impact information returns that should be filed in early 2027 to report affected 2026 payments.

Stay up to date

Additional guidance on reporting requirements for qualified tips income and qualified overtime income is expected, and eventually final 2026 information reporting forms will be released. Contact us to keep up to date on developments and what you need to do to ensure your business is compliant with evolving reporting requirements.

The post Significant Changes to Information Reporting Go Into Effect for the 2026 Tax Year first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

The One Big Beautiful Bill Act (OBBBA) allows 100% first-year depreciation for nonresidential real estate that’s classified as qualified production property (QPP). This new break is different from the first-year bonus depreciation that’s available for assets such as tangible property with a recovery period of 20 years or less and qualified improvement property with a 15-year recovery period. Normally, nonresidential buildings must be depreciated over 39 years.

What is QPP?

The statutory definition of QPP is a bit complicated:

• QPP is the portion of any nonresidential real estate that’s used by the taxpayer (your business) as an integral part of a qualified production activity.
• A qualified production activity is the manufacturing, production or refining of a qualified product.
• A qualified product is any tangible personal property that isn’t a food or beverage prepared in the same building as a retail establishment in which the property is sold. (So a restaurant building can’t be QPP.)

In addition, an activity doesn’t constitute manufacturing, production or refining of a qualified product unless the activity results in a substantial transformation of the property comprising the product.

To sum up these rules, QPP generally means factory buildings. But additional rules apply.

Meeting the placed-in-service rules

QPP 100% first-year depreciation is available for property whose construction begins after January 19, 2025, and before 2029. The property generally must be placed in service in the United States or a U.S. possession before 2031. In addition, the original use of the property generally must commence with the taxpayer.

There’s an exception to the original-use rule. The QPP deduction can be claimed for a previously used nonresidential building that:

1. Is acquired by the taxpayer after January 19, 2025, and before 2029,
2. Wasn’t used in a qualified production activity between January 1, 2021, and May 12, 2025,
3. Wasn’t used by the taxpayer before being acquired,
4. Is used by the taxpayer as an integral part of a qualified production activity, and
5. Is placed in service in the United States or a U.S. possession before 2031.

Also, the IRS can extend the before-2031 placed-in-service deadline for property that otherwise meets the requirements to be QPP if an Act of God (as defined) prevents the taxpayer from placing the property in service before the deadline.

Pitfalls to watch out for

While potentially valuable, 100% first-year deprecation for QPP isn’t without pitfalls:

Leased-out buildings. To be QPP, the building must be used by the taxpayer for a qualified production activity. So, if you’re the lessor of a building, you can’t treat it as QPP even if it’s used by a lessee for a qualified production activity.

Nonqualified activities. You can’t treat as QPP any area of a building that’s used for offices, administrative services, lodging, parking, sales activities, research activities, software development, engineering activities or other functions unrelated to the manufacturing, production or refining of tangible personal property.

Ordinary income recapture rule. If at any time during the 10-year period beginning on the date that QPP is placed in service the property ceases to be used for a qualified production activity, an ordinary income depreciation recapture rule will apply.

IRS guidance expected

QPP 100% first-year depreciation can be a valuable tax break if you have eligible property. However, it could be challenging to identify and allocate costs to portions of buildings that are used only for nonqualifying activities or for several activities, not all of which are qualifying activities. Also, once made, the election can’t be revoked without IRS consent. IRS guidance on this new deduction is expected. Contact us with questions and to learn about the latest developments.

The post New Deduction for QPP Can Save Significant Taxes for Manufacturers and Similar Businesses first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Thoughtful business gifts are a great way to show appreciation to customers and employees. They can also deliver tax benefits when handled correctly. Unfortunately, the IRS limits most business gift deductions to $25 per person per year, a cap that hasn’t changed since 1962. Still, with careful planning and good recordkeeping, you may be able to maximize your deductions.

When the $25 rule doesn’t apply

Several exceptions to the $25-per-person rule can help you deduct more of your gift expenses:

Gifts to businesses. The $25 limit applies only to gifts made directly or indirectly to an individual. Gifts given to a company for use in its business — such as an industry reference book or office equipment — are fully deductible because they serve a business purpose. However, if the gift primarily benefits a specific individual at that company, the $25 limit applies.

Gifts to married couples. When both spouses have a business relationship with you and the gift is for both of them, the limit generally doubles to $50.

Incidental costs. The expenses of personalizing, packaging, insuring or mailing a gift don’t count toward the $25 limit and are fully deductible.

Employee gifts. Cash or cash-equivalent gifts (such as gift cards) are treated as taxable wages and generally are deductible as compensation. However, noncash, low-cost items — like company-branded merchandise, small holiday gifts, or occasional meals and parties — can qualify as nontaxable “de minimis” fringe benefits. These are deductible to the business and tax-free to the employee.

How entertainment gifts are treated now

Under the Tax Cuts and Jobs Act, most entertainment expenses are no longer deductible. This includes tickets to sporting events, concerts and other entertainment, even when related to business. However, if you give event tickets as a gift and don’t attend yourself, you may be able to classify the cost as a business gift, subject to the $25 limit and any applicable exceptions.

Note that meals provided during an entertainment event may still be 50% deductible if they’re separately stated on the invoice.

Why good recordkeeping matters

To claim the full deductions you’re entitled to, document your gifts properly. Record each gift’s description, cost, date and business purpose and the relationship of the recipient to your business. Digital records are acceptable — such as accounting notes or CRM entries — as long as they clearly support the deduction.

Track qualifying expenses separately in your books. That way they can be easily identified.

Make your business gifts count

A little knowledge and planning can go a long way toward ensuring your business gifts are both meaningful and tax-smart. If you’d like help reviewing your company’s gift-giving policies or want to confirm how the deduction rules apply to your situation, contact our office. We’ll help your business keep compliant with tax law while you show appreciation to your customers and employees.

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