October 2025 Newsletter

Enhanced SALT Tax Break Will Help Many Homeowners

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, will allow more taxpayers to fully deduct their state and local tax (SALT) expenses (including property tax). Here are the details.

SALT Deduction Expanded

Under the Tax Cuts and Jobs Act, the itemized deduction for SALT was limited to $10,000 ($5,000 for married individuals who file separately) beginning in 2018.

This limitation negatively affected taxpayers living in locations with high state income tax rates and those who pay high property taxes because:

• They live in a high-property-tax jurisdiction,
• They live in a location with high property values,
• They own an expensive home, or
• They own both a primary residence and one or more vacation homes.

Under the OBBBA, for 2025 through 2029, the SALT deduction limit increases from $10,000 to $40,000 (or $20,000 for separate filers) with 1% annual inflation adjustments. So, for 2026, the cap will be $40,400 ($20,200 for separate filers).

But unless Congress takes further action, the SALT deduction limit is scheduled to revert to the prior-law limit of $10,000 ($5,000 for separate filers) in 2030.

Note: Several states have established SALT deduction workarounds for pass-through entities. These workarounds aren’t addressed or limited by the OBBBA.

Smaller Benefit for Some Taxpayers

Under the OBBBA, for 2025, the higher SALT limit begins to be reduced for taxpayers with modified adjusted gross income (MAGI) over $500,000 ($250,000 for separate filers). These thresholds will also be increased by 1% annually for 2026 through 2029.

When a taxpayer’s MAGI exceeds the applicable threshold, the otherwise allowable SALT deduction limitation is reduced by 30% of MAGI above the threshold, but not below $10,000 ($5,000 for separate filers). Here’s an example: Greg and Tina are a married couple who file jointly and live in a high-tax state. For 2025, their combined SALT expenses are $60,000. Their MAGI is $550,000 for 2025, which is $50,000 above the applicable threshold. Therefore, their SALT deduction for 2025 is limited to $25,000 [$40,000 minus (30% times $50,000)].

Because of the 30% reduction, the expanded SALT deduction doesn’t benefit taxpayers with MAGI at or above $600,000 ($300,000 for separate filers).

Deducting State and Local Income vs. Sales Tax

The SALT deduction continues to be available for property taxes plus the total state and local income taxes or the total of all sales taxes. Choosing to deduct sales taxes is a helpful option if you owe little or nothing for state and local income taxes or you made a major purchase that causes your sales tax to exceed your state and local income tax.

If you opt to deduct sales tax, you don’t have to save all of your receipts for the year and manually calculate your sales tax; you can use the IRS Sales Tax Calculator on the IRS website to determine the amount of sales tax you can claim. (It includes the ability to add actual sales tax paid on certain big-ticket items, such as a car.)

Start Planning Now

If you have high SALT expenses, to get the maximum benefit from the increased deduction limit, you need to plan carefully between now and year end. For example, you may want to take steps to keep your MAGI under the reduction threshold. Or you might want to accelerate property tax payments into 2025. Contact the office for help determining the right strategy for your specific situation.

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2 Important Changes for Businesses under the New Tax Law

The One Big Beautiful Bill Act (OBBBA) introduces a range of tax changes that will impact businesses. Many provisions set to expire this year are now being extended or made permanent. Below is a snapshot of two important changes to help you with tax planning in the fourth quarter of 2025 and going forward.

How the Deduction for R&E Expenses Has Changed

Under the Tax Cuts and Jobs Act (TCJA), businesses had to amortize deductions for Section 174 research and experimentation (R&E) costs over five years for expenses incurred in the United States or 15 years for those incurred abroad. This provision used a mid-year rule that effectively stretched write-offs over six years. The OBBBA changes that by permanently allowing full, immediate deductions for domestic R&E expenses starting in the 2025 tax year. Foreign R&E expenses will still be amortized over 15 years.

In addition, the OBBBA lets “small businesses” (in 2025, those with average annual gross receipts of $31 million or less for the past three years) claim R&E deductions retroactively to 2022. A business of any size with domestic R&E costs from 2022 to 2024 can choose to speed up the remaining deductions for those years over a one- or two-year period.

How the Business Interest Deduction Has Changed

Generally, the TCJA limited business interest deductions to 30% of the taxpayer’s adjusted taxable income (ATI) for the year. Before the OBBBA, ATI generally referred to earnings before interest and taxes. For tax years beginning after December 31, 2024, the OBBBA increases the cap on the business interest deduction by excluding depreciation, amortization and depletion when calculating ATI. This change typically increases ATI, allowing taxpayers to deduct more business interest expense.

But it’s important to note that, in 2025, taxpayers with average annual gross receipts for the last three years that don’t exceed $31 million are exempt from the interest deduction limitation.

Rethink Tax Planning

For business owners, the OBBBA helps resolve tax planning uncertainty. Keep in mind, these are just two of the key changes for businesses in this tax legislation.

Contact the office to discuss the full range of tax provisions covered by the new law. We can help you optimize any extended or new provisions that are relevant to your situation and reduce your tax obligations for 2025 and beyond.

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Tax Breaks for Medical Expenses

Depending on your situation, you may be able to claim certain medical expenses as deductions on your tax return. However, you must itemize deductions, and having enough expenses to qualify can be challenging. Here are five tips to keep in mind:

1. Consider “bunching” expenses. You can only deduct unreimbursed medical costs that exceed 7.5% of your adjusted gross income (AGI). If your 2025 itemized deductions will be higher than your standard deduction, consider moving or “bunching” nonurgent medical procedures and other controllable expenses into the same year. This strategy may help you surpass the 7.5% threshold and maximize your deduction.
2. Include insurance premiums. Premiums can add up to thousands of dollars annually, even if you pay only part of the cost yourself. (But first check that they aren’t already coming out of your paycheck pretax.) Long-term care insurance premiums also qualify, subject to age-based limits.
3. Claim travel costs for medical care. For 2025, you can deduct travel expenses for medical treatment, including taxi fares, public transit, or 21 cents per mile (plus tolls and parking) if driving. Be sure to carefully document your mileage.
4. Time certain medical purchases strategically. Qualifying expenses that you may be able to time include eyeglasses, hearing aids, specific dental work, and prescription drugs (including insulin). However, over-the-counter items, such as aspirin and vitamins and federally illegal treatments (for example, medical marijuana) aren’t deductible, even if allowed by state law.
5. Don’t overlook smoking-cessation and weight-loss programs. You can deduct costs for smoking-cessation programs and prescribed medications to reduce nicotine withdrawal, but not over-the-counter gum or patches. Weight-loss programs qualify if prescribed to treat a physician-diagnosed disease. Deductible costs include program fees and meeting charges, but not the cost of diet food.

If you still have questions, see IRS Publication 502 for complete details, or contact the office for personalized guidance.

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Can Your Business Benefit from the WOTC?

Employers who hire new workers may qualify for a tax benefit, but they shouldn’t wait too long. The Work Opportunity Tax Credit (WOTC) is a valuable federal tax credit that incentivizes employers to hire from certain targeted groups that face employment barriers. But it will expire after 2025 unless Congress acts to extend it.

Targeted groups include qualified veterans, recipients of certain aid programs, ex-felons and qualified long-term unemployment recipients. Employers must file a form with their state workforce agency to prescreen and certify individuals they wish to hire.

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Say Goodbye to Paper Checks

Beginning Sept. 30, 2025, the federal government will generally no longer issue paper checks, including those for tax refunds, Social Security benefits and more. Also, certain federal agencies, such as the IRS and the Dept. of Labor (DOL), will generally stop accepting payments by paper check. This is part of a program to modernize payments, improve efficiency in processing payments and reduce administrative burdens. Historically, the government stated that checks issued by the Dept. of the Treasury are more likely to be lost, stolen or subject to other forms of fraud.

The IRS will publish detailed guidance for 2025 tax returns before the 2026 filing season begins. Until further notice, taxpayers should continue using existing forms and procedures, including those filing their 2024 returns on extension of a due date prior to Dec. 31, 2025. Contact the office with questions.

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Dependent Care Flexible Spending Accounts for Your Business

Employers seeking to offer family-friendly benefits may want to consider flexible spending accounts (FSAs) for dependent care. These FSAs let employees make pre-tax contributions through payroll withholding to help cover eligible expenses. Because of the major tax bill enacted on July 4, 2025, the annual contribution limit, currently $5,000, will rise to $7,500 in 2026.

FSA contributions reduce employees’ income tax and payroll tax and employers’ payroll tax. Withdrawals used to pay qualified expenses are tax-free. These include expenses for care for a child under age 13 or another dependent unable to care for themselves due to physical or mental limitations. Contact the office with questions.

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Do You Sell Products? QuickBooks Can Help You Manage Inventory

If your business sells products, you already know how critical it is to accurately monitor stock levels. Stay balanced, and you’ll avoid running out of bestsellers and not tie up cash in items that sit on shelves.

You may have a general feel for what’s selling just by filling orders, but instincts aren’t enough. You need real data so that you’ll know when to reorder, when to discount and when to discontinue slow movers.

QuickBooks can take much of the guesswork out of inventory management. It:

• Allows you to create detailed records for your items,
• Updates quantities automatically and alerts you when stock is low, and
• Provides specialized reports that show you exactly where things stand.

Getting Ready

Before you begin adding inventory, check that QuickBooks is set up properly. Open to the Edit menu, select Preferences, and choose Items & Inventory. If you’re the administrator, click the Company Preferences tab to see your options here.

Make sure the option Inventory and purchase orders are active is checked. If your version supports sales and purchase orders, select the settings that make sense for your workflow. We recommend checking Warn if not enough inventory to sell and choosing When the quantity I want to sell exceeds Quantity Available so committed items aren’t oversold.

Creating Product Records

Even if your inventory is small, build a thorough record for every item. That way, you always know what you have without hunting for it. Running short on stock during an order could mean losing a customer to a competitor.

To create a record, open the Lists menu. Select Item List, then click the drop-down next to Item and choose New. In the new window, select Inventory Part as the Type so QuickBooks knows to track quantities. If you assemble products with multiple parts, setup is more complex. Contact the office for guidance.

Built-In Safeguards

What if you try to sell more than you actually have? QuickBooks will stop you. Two safeguards apply: QuickBooks displays a warning on the invoice and you can run the Inventory Stock Status by Item report for a real-time snapshot (Reports | Inventory).

QuickBooks does a solid job of handling standard inventory tracking, but you’re still responsible for reviewing reports and adjusting buying decisions. Reports like Sales by Item Detail can help.

10 Tips for Managing Inventory

• Keep your storage area well-organized. Use labels where you can.
• Make your product records in QuickBooks as thorough as possible.
• Monitor stock levels closely to avoid tying up cash or running out.
• Set a realistic reorder point and account for shipping times.
• Do a full inventory count annually; spot-check regularly.
• Cultivate preferred vendors; volume discounts may follow.
• Minimize the number of vendors to streamline purchasing.
• Use reports to track sales flow; forecast needs as best you can.
• Have a backup vendor for each product to reduce supply risk.
• Design a smart storage system for faster order fulfillment.

If your business grows beyond the capabilities of QuickBooks Pro or Premier, consider a more advanced inventory solution. Contact the office to discuss options.

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