New 2026 mileage rates

The 2025 mileage rates for reference

Check out last year’s blog post on the 2025 mileage rates for more information!

Additional notes to consider

• These rates apply to gas-, electric-, hybrid-electric-, and diesel-powered vehicles
• You cannot claim mileage as an itemized deduction as an employee if you do not receive reimbursements for travel expenses
• Claiming a mileage deduction for moving expenses is not allowed unless you are an active member of the Armed Forces and must move to a new permanent duty station

Remember to properly document your mileage to receive full credit for the miles you drive. To learn more about how these rates affect you and read the IRS announcement on the updates, visit the IRS website. Contact our RRBB advisors if you have any questions.

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1. Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so.
2. Form 1099-K planning. Consider labeling business and personal accounts separately on platforms like Venmo and PayPal. Mixing funds could cause reporting errors, especially as platforms enhance their 1099-K tracking capabilities.
3. Prepare for overtime and tip headaches. While 2025 is a transition year before the tax-free tip and overtime income must be reported on reformatted W-2s and 1099s, your employees still need to prove their deduction! So be prepared to track both tips and overtime pay from your payroll system.
4. Shifting income and expenses. Consider accelerating income or deferring earnings, based on profit projections.
5. Separation of expenses. Review business accounts to ensure there are no personal expenses. Reimburse the business for any expenses discovered during this review.
6. Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit.
7. Fixed asset planning. Section 179, or bonus depreciation, is a great planning tool for expensing versus traditional depreciation. If using Section 179, the qualified assets must be placed in service before year-end.
8. Leveraging business meals. Business meals with clients or customers are 50% deductible. Retain the necessary receipts and documentation that note when the meal took place, who attended, and the business purpose on each receipt.
9. Charitable opportunities. Consider any last-minute deductible philanthropic giving, including long-term capital gain stocks.
10. Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline in a home office can be challenging, using a cell phone for business purposes can be deductible.
11. Inventory review. You must also review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction.
12. Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs.
13. Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full-year earnings. Then make your 2025 4th quarter estimated tax payment by January 15, 2026.

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The main benefits of S corporations

• Self-employment tax savings. As a sole proprietor, you must pay a 15.3% self-employment tax (which includes Social Security and Medicare) on your entire income. However, with an S corporation, you can split your income into two parts: a reasonable salary and distributions. A reasonable salary is subject to self-employment taxes, while distributions are subject to income taxes but not self-employment taxes.
• Pass-through taxation. Similar to sole proprietorships, S corporations are considered pass-through entities. This means that the business itself doesn’t pay income taxes. Instead, profits and losses pass through the business to the owner’s personal tax return. Profits of a C corporation, on the other hand, are taxed twice. This occurs once at the entity level and again on the owner’s tax return.
• Legal protection. If there is a risk of possible legal action, an S corporation can potentially help protect your personal assets from your business assets. For example, this can be especially helpful if you are in the contractor trade and the customer makes a claim against the fulfillment of your contract.

Trade-offs to consider

While transitioning from a sole proprietor to an S corporation can undoubtedly result in significant tax savings, there are a few trade-offs to consider. Most of the trade-offs are regarding administrative requirements and potential costs, including:

• Running payroll. Even if you’re the only employee, you’ll need to set up payroll and withhold taxes. Many business owners utilize a payroll service to manage this process.
• Separate tax filing. Your business will now need to file a Form 1120-S tax return with a March 15th due date in addition to your personal tax return.
• Accountants or bookkeepers are typically used. Most S corporation owners work with professionals to handle bookkeeping and tax filings.
• Reasonable salary requirement. The IRS expects owners to pay themselves a fair market wage. Underpaying yourself to avoid taxes can lead to penalties.
• State-level requirements. Some states impose minimum franchise taxes or annual fees on corporations and LLCs, regardless of their income.

When to switch from sole proprietor to an s-corp

Switching to an S corp generally becomes worth considering when your net income (after expenses) is in the range of $75,000 to $100,000 or more per year. For example, assume you earn $120,000 in net income as a consultant. As a sole proprietor, you’d pay self-employment tax on the full amount, about $18,000. As an S corp, if you pay yourself a reasonable salary of $60,000, you’d only pay payroll taxes on that amount, roughly $9,200. The remaining $60,000 in profit would be subject to income taxes but not payroll taxes. That’s a potential tax savings of nearly $9,000 per year.

Switching from a sole proprietor to an S corp can offer real tax advantages, but it’s not a one-size-fits-all solution. It’s generally best practice to review your situation annually to ensure proper organization of your business. Contact our RRBB advisors for more information, if you have any questions, or are ready to take the next step.

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SALT deduction increase requires planning

The itemized deduction limit for taxes, commonly known as SALT, available to those who itemize their deductions on personal tax returns, moves from $10,000 to $40,000 through 2029. The bill also confirms the ability for businesses that are flow-through entities (to pay their business tax on their personal tax return as a sole proprietor or through a K-1) to pay their tax directly on a state tax return (otherwise known as PTET).

This change now requires some planning. Therefore, we recommend that you review the impact of this change on your business’s taxable income. The SALT increase may change your decision to pay your business taxes directly to a state that is leveraging the PTET process.

Forecasting your business tax obligation

The qualified business deduction (QBI) is now permanent with the current legislation. Without the change, this deduction was going to end in 2026. When you combine this change with the unchanged C-Corporation tax rate of 21%, it presents a bit of certainty in the tax horizon for businesses. So, with much of the uncertainty in business tax rates now resolved, it might be a good time to review your entity choice.

Additionally, the continuation of expense options for capital purchases is something to consider. 100% bonus depreciation and expansive amounts for Section 179 expensing of capital purchases provide a helpful way to manage your business’s tax obligations. Please contact our RRBB advisors to discuss forecasting, compliance, and other provisions from the new tax bill that may affect your business.

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Form 1099 compliance

The reporting threshold for Form 1099-NEC and 1099-MISC moves from $600 to $2,000 after December 31, 2025. This threshold is to be indexed for inflation starting in 2027. Prepare to update your accounting software to track vendor payments against the $2,000 threshold. This avoids unnecessary 1099 preparation and aligns with the new requirement. Although the reporting threshold is now higher, it’s still a good practice to collect W-9 forms from all vendors and contractors before issuing payments. This ensures you’re ready if payments exceed the threshold.

For Form 1099-K, the $600 reporting threshold, scheduled to take effect in 2026, is rolled back to the old threshold of $20,000, along with the dual requirement of 200 or more transactions. So, don’t rely solely on receiving a 1099-K to report income. Many businesses won’t meet the new reporting threshold but are still legally required to report every dollar earned. If your transaction count is high, however, be aware of how quickly you might approach the 200 transaction mark. Also, consider labeling business and personal accounts separately on platforms like Venmo and PayPal. Mixing funds could cause reporting errors, especially as platforms enhance their 1099-K tracking capabilities.

Deductions for small businesses

The Qualified Business Income (QBI) deduction of 20% is now permanent. There’s also a minimum deduction of $400 for taxpayers who have at least $1,000 of qualified business income. Most independent contractors and gig workers who receive Form 1099 are eligible for the QBI deduction. However, suppose your business is classified as a Specified Service Trade or Business (businesses in health, law, accounting, financial services, and others). In that case, this tax break begins to phase out when your income exceeds $197,300 (single) or $394,600 (married) in 2025.

In addition, businesses can use the Section 179 deduction to write off up to $2.5 million of qualifying property in 2025, up from $1.25 million under the previous law. If you’d rather use bonus depreciation, the ability to write off 100% of qualified property is reinstated as of January 19, 2025, through the end of 2029. Businesses can often use both Section 179 and bonus deductions in the same year. Section 179 is generally applied first, followed by bonus depreciation for any remaining balance. However, remember that this deduction only pertains to the timing of the deduction, not the total amount of the deduction.

These are some of the new tax bill’s provisions that will affect most businesses across the U.S. Please contact our RRBB advisors to discuss compliance and other provisions from the new tax bill affecting small businesses.

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Be a prepared business owner

Stick to a reconciliation schedule. Know how much cash you have in your bank account at any given time. Sticking to a consistent bank reconciliation schedule can help. Conventional wisdom suggests reconciling your bank account with bills paid and revenue received once a month, but you now have the ability to reconcile your cash daily. Perpetual reconciliation is easier to do if your business has fewer transactions. It may seem excessive, but with the right team in place, you can be ready for any unexpected challenge.

Create a 12-month rolling forecast. This exercise projects cash out over a twelve-month period. Each new month, you drop the prior month and add another month from the previous year. This type of forecast will reflect the ebbs and flows of cash throughout the year and identify times that you’ll need more money, so when a surprise bill shows up, you know exactly how it will impact your ability to pay it. If you experience lean months, consider establishing a line of credit with your bank to be prepared for any unexpected expenses.

Build an emergency fund. Getting a surprise business expense isn’t a matter of if it will happen but when. Consider setting aside money each month into an emergency fund for use only in the event of a significant expense. A longer-term goal could be to save enough money to cover three to six months of operating expenses.

Avoid surprise business expenses

Partner with a business advisor. Even small businesses sometimes require assistance in managing their cash flow and avoiding unexpected expenses. Please contact our RRBB advisors if you have any questions about organizing your business’s cash flow and preparing for surprises.

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1. Select the proper accounting method

There are two different methods for recording transactions: cash basis and accrual basis. The cash-basis method generally records a transaction when there is a payment, while the accrual-basis method books the transaction upon delivery of the good or service. Cash basis is easier to track and a helpful option for smaller businesses and sole proprietors. Larger businesses that buy from vendors on account (accounts payable) generally use accrual-basis accounting.

Selecting the proper method affects any related financial transactions and the display of your financial statements. A correct approach will also consider outside factors, including IRS rules (businesses with more than $25 million in gross receipts must use the accrual basis), bank covenants, and industry standards. You can always change your choice, but you must remember to report it properly to the IRS.

2. Create an account structure that fits the company

Every business’s bookkeeping system includes a chart of accounts. These accounts sort the business’s transaction data into six meaningful groups:

1. Assets
2. Liabilities
3. Equity
4. Income
5. Cost of goods sold
6. Other expenses

Each group will often have numerous accounts and sub-accounts associated with it. Having the right mix of accounts, created and grouped in an organized fashion, will help you properly classify transactions and prepare usable financial statements. The proper account structure for your company will mesh with your specific information needs to keep good business records.

3. Enter accurate and timely transactions

Your data’s value depends on the record of each transaction being correct and on time. Entering transactions in the wrong account can cause significant issues down the road. Delays in financial reporting can hide problems that need immediate attention. Some transactions are relatively straightforward, and some are more complex (like payroll, accruals, and deferrals).

It’s essential to have someone who understands both your business and the accounting rules to enter your transactions promptly. In addition, a good month-end close process that involves reviewing each account will help you identify and correct mistakes from the initial entries.

4. Establish financial statements for decision-making

The main financial statements are the income statement (income – expenses = gross profit), the balance sheet (assets – liabilities = equity), and the cash flow statement. Each statement has a specific purpose:

• Income statement. The income statement shows company performance for a select period of time, typically monthly, with a full-year summary. It restarts at the end of each year.
• Balance sheet. The balance sheet displays a company’s overall health on a specific date. It is perpetual, which means it doesn’t end until the business is closed or sold. It includes one line that summarizes the current year and prior year results from the income statement.
• Statement of cash flow. This statement summarizes the inflows and outflows of cash. It ensures you know whether you have enough money and the pattern of your cash position over time.

If properly executed, your bookkeeping system will create accurate financial statements that can be used to make key financial decisions. Feel free to contact our RRBB advisors with any questions on how to keep good business records.

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1. FICA (Federal Insurance Contributions Act): Tax used to fund Social Security and Medicare programs
2. FUTA (Federal Unemployment Tax Act): Employers pay this federal tax to provide unemployment benefits to laid-off workers
3. SUTA (State Unemployment Tax Act): Taxes collected by state governments that finance each state’s unemployment insurance fund

Unemployment taxes for businesses

The FUTA calculation. The federal unemployment tax rate is 6% on the first $7,000 of each employee’s income, regardless of where the company does business. In addition, employers who pay their state’s SUTA taxes on time can receive a maximum credit of 5.4%, reducing the FUTA rate to 0.6%. The calculations also exclude certain employee benefits, such as employer contributions to health plans, pensions, and group life insurance premiums.

SUTA taxes are more complicated. Tax rates and taxable thresholds (known as wage bases) vary from state to state, industry to industry, and business to business. For example, the first $54,300 of an employee’s salary in Oregon is taxed under SUTA. However, in Arkansas, that threshold is $7,000. In Oregon, a new employer is taxed at a rate of 2.4%, but more established businesses in that state have rates ranging from 0.9% to 5.4%. Meanwhile, the tax rate in Arkansas can range from 0.1% to 5.0%. Another factor affecting your SUTA tax liability includes the business’s history of on-time payments to the state insurance fund. The number of former employees receiving unemployment benefits can also affect it.

How to reduce your SUTA and FUTA tax bills

• Hire cautiously. If you employ someone who doesn’t work out, you could have additional unemployment claims and a higher SUTA tax rate.
• Train vigorously. To increase productivity and reduce turnover, target your investment in continuing education. Keep employees happy and loyal. Again, high turnover leads to unemployment claims, which leads to more significant SUTA tax bills.
• Terminate judiciously. If you must reduce personnel, consider offering severance or outplacement benefits to terminated employees. The sooner they return to the job market, the fewer unemployment claims are in your company’s SUTA tax calculation.
• Dispute carefully. Take the time to verify the accuracy of unemployment claims, as bogus representations by former workers can drive up your SUTA taxes. If an employee was fired for gross misconduct, thus disqualifying him or her from collecting unemployment, there must be substantial documentation to support the termination.
• Pay regularly. Under federal guidelines, employers who make their SUTA contributions on time can reduce the amount of FUTA taxes by up to 90%.

Remember, you do not need to navigate the complications of filing your business taxes. They can be complex and easily overlooked when you add sales and income taxes. Contact our RRBB advisors if you have any questions or need assistance.

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What is the BOI reporting deadline?

Required filing of beneficial owner information (BOI) on FinCEN.gov continues its roller coaster judicial journey. On November 29, 2023, FinCEN declared that it was changing the beneficial ownership information (BOI) reporting guidelines. Reporting organizations were initially given 30 days or one year from the implementation date (January 1, 2024) to fulfill their reporting obligations. Reporting companies then had one year, ninety days, or thirty days from the effective date of January 1, 2024, to meet the reporting obligations.

Then, on December 26, 2024, the requirement to file was officially on hold, pending further judicial review. The injunction to halt the filing requirement was overturned, leaving your business until January 13, 2025, to file your report. That ruling was then suspended and is now on again with the new reporting deadline of March 21, 2025.

Should you file the report for your business?

Per the notice:

Notably, in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.

According to the current ruling, all reporting companies must file by March 21, 2025, if they have not done so already. Here is a link to the announcement: FinCEN Announcment. For more information about beneficial owner information and the Corporate Transparency Act, visit our original blog post: “Businesses: Do you have to comply with the new corporate transparency reporting rules?” or contact our RRBB advisors.

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The new mileage rates for travel are now set for 2025. The standard business mileage rate increases by 3 cents to 70.0 cents per mile. The medical and moving mileage rates stay at 21 cents per mile. For charitable work, the rates remain unchanged at 14 cents per mile.

New mileage rates for 2025

Here are the rates from 2024 for your reference:

Additional information to note

• These rates apply to gas, electric, hybrid-electric, and diesel-powered vehicles.
• You cannot claim mileage as an itemized deduction as an employee if you aren’t reimbursed for travel expenses.
• Claiming a mileage deduction for moving expenses is prohibited unless you are an active Armed Forces member and are ordered to move to a new permanent duty station.

Remember to properly document your mileage to receive full credit for the miles you drive. To learn more about how these rates affect you and read the IRS announcement on the updates, visit the IRS website. Contact our RRBB advisors if you have any questions.

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