What is the Trump Account?

Starting after July 4th, 2026, you may begin contributing to a Trump Account for eligible children. Here are the rules as we currently know them:

• Annual contribution. Deposit up to $5,000 per year for the benefit of a child under age 18. This will be indexed for inflation after 2027.
• No withdrawals. The funds must remain in the account until January 1st of the year in which the child’s 18th birthday falls. There are very few exceptions, but one is the disbursement of account funds upon the beneficiary’s (child’s) death.
• The investments of the funds in the account are subject to strict rules. You may not place funds in basic bank accounts. An eligible investment is generally a mutual fund or exchange-traded fund (ETF) that tracks an index of primarily U.S. companies.
• Only one account per beneficiary. Each child may only have one account. There’s also a published priority on who can open the account. The order of priority is as follows:

1. 1. Legal guardian
   2. Parents
   3. Adult siblings
   4. Grandparents

• At age 18, the Trump Account ceases to exist. The funds will then roll over or be distributed. Distributions are treated similarly to a traditional IRA.

The benefits of the Trump Account

The idea is that some incentives should start their adult lives with something of value so that the concept of the American Dream remains available to the next generation. To that end, there are incentives that you don’t want to miss:

• $1,000 in free money for new births. For any child born on or after January 1, 2025, through December 31, 2028, your child’s account will receive a $1,000 deposit from the federal government’s pilot program contribution to be invested and grow over time.
• Employer contributions. Regulations allow employers to contribute up to $2,500 per year to their employees’ Trump Accounts. These contributions will not add to the employee’s taxable wages. So stay tuned if your employer is considering adding this benefit.
• $250 in free money for children. 25 million children ages ten and under will receive a $250 gift courtesy of Michael and Susan Dell (Dell Computers) if they live in a zip code with a median income below $150,000.

What to do now

As a new program, details of the Trump Account will continue to evolve, but given the anticipated popularity, it is crucial to do the following right now:

1. Get program announcements. If interested in staying informed, go to www.trumpaccounts.gov and sign up to receive email updates on the program’s status. This should tell you when applications for the accounts are open.
2. Sign up as soon as possible. The IRS notice says you can sign up for the account using IRS Form 4547 or online at www.trumpaccounts.gov. You’ll want to do this as soon as they’re available.
3. Apply for the bonus deposits. You cannot do this yet, but when you can, treat it like buying tickets to a Taylor Swift concert. There will be separate applications to get these deposits. But also stay alert. There may be other philanthropists willing to help the next generation get a head start financially.

To recap

If you wish to take advantage of this new benefit for your kids or grandkids:

• Keep informed
• Set up the account as soon as possible
• Apply for additional account funding as quickly as possible

Contact our RRBB advisors if you have any questions or for more information.

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The overtime pay deduction

From 2025 through 2028, there is a new above-the-line tax deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime compensation. Overtime is the half portion of being paid time-and-a-half as defined by the Fair Labor Standards Act. The benefit begins to phase out when your modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). It phases out by $100 for every $1,000 you exceed the amount. So, the phaseout ranges are $150,000 to $275,000 for single filers and $300,000 to $550,000 for joint returns.

For example, a single taxpayer with $10,000 of overtime pay and MAGI of $170,000 can deduct $8,000 of her overtime pay. $10,000 overtime pay minus $2,000, or ($170,000 – $150,000)/1,000*$100.

To receive the benefit, the following must be true.

• You must have a valid, work-eligible Social Security number
• The overtime is to be designated on a W-2 (or a 1099 in the case of contract labor overtime)
• If married, you must file a joint tax return

5 tax tips to maximize the benefit

1. Track your overtime hours. This mid-year’s law change requires some historical research back to the beginning of the year. Get your payroll records and calculate your historical overtime hours and pay. You will need this to ensure that you receive credit for all your overtime pay.
2. Employers are in a jam. They must report these overtime hours on a W-2 or similar form. But the form does not yet have the overtime reporting mechanism. So what to do? Congress has established a reporting transition rule for 2025, and the IRS will release approved alternative reporting. This makes tracking your own overtime pay even more important, as it could become complicated in 2025.
3. Keep overtime, overtime. Congress is tasking the IRS and Treasury to implement controls to prevent work from being reclassified as overtime. You’ll want to ensure your overtime work is paid correctly and recorded, given the additional tax benefit.
4. Review your withholdings. With this additional deduction, you may be over-withholding your federal tax. Now is an excellent time for a review.
5. Pay attention to your state. Every state will need to determine whether it follows the new federal rules. Some will, some won’t, so stay alert.

Contact our RRBB advisors if you have any questions.

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Deductions, credits, and more

Parents get a permanent increase to the child tax credit. The child tax credit increases to $2,200 (up from $2,000) and is now permanent. The refundable portion stays at $1,700, with future adjustments tied to inflation. If your adjusted gross income will approach $200,000 (single) or $400,000 (married), look for ways to reduce your income to avoid phasing out the credit. Strategies like contributing more to retirement accounts, health savings accounts, or flexible spending accounts can help keep you below the limit and maintain your eligibility for the full credit.

Adoption tax credit. $5,000 of the $17,280 adoption tax credit in 2025 is now refundable, even for families with little or no income tax liability. To take full advantage of the nonrefundable portion of the credit (up to $12,280), you’ll need to have a tax liability. Consider delaying certain deductions. Otherwise, if possible, shift taxable income into the year you claim the credit so you can take advantage of the non-refundable portion of the credit. However, remember that the credit starts to phase out at an income of $259,190.

Trump accounts. Each child born between January 1, 2025, and December 31, 2028, will receive a $1,000 tax-advantaged investment account at birth. Parents, grandparents, and qualified organizations can contribute up to $5,000 per year until the year before the child turns 18. Funds can be withdrawn starting the year the child turns 18. There are still many unanswered questions about this new account and its related tax break. There are also other, and potentially better, options to save for your child, including Roth IRAs. While we await further clarification, consider using alternative tax-free or tax-advantaged accounts for your child.

Education loans and plans

Student loan cancellation is tax-free. Forgiveness of student loans due to death or permanent disability is now permanently excluded from taxable income. Review disability paperwork for accuracy and ensure it is completed and submitted through the appropriate loan service office or the Department of Education’s Total and Permanent Disability discharge process. If you’re a parent borrower (such as with a PLUS loan), consider including this tax benefit in your estate or disability planning discussions.

529 Education Plans. The annual limit for K–12 tuition withdrawals doubles to $20,000 per student beginning in 2026. These funds can now also cover books, tutoring, online materials, homeschool costs, and educational therapies for children with disabilities. You can also use 529s for post-secondary teaching certifications and trade programs. While contributions to a 529 plan aren’t deductible on your federal tax return, you can front-load up to five years’ worth of the annual gift tax exclusion into a single year. The 2025 exclusion is $19,000, so you can contribute up to $95,000 (5 x $19,000) to a 529 plan per beneficiary (up to $190,000 if married).

As always, please don’t hesitate to contact our RRBB advisors if you have any questions.

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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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Observations

1. Annual deficit spending remains a consistent problem. No matter where you fall on the political spectrum, annual deficits cannot be sustained. Fortunately, the yearly deficit of $1.694 trillion is lower than the pandemic deficit of $3.129 trillion in FY 2020. Regardless, it must still be repaid. The most significant spending category continues to be social programs, which include Social Security, Medicare, and retirement benefits (62% of all outlays).
2. Government borrowing costs more. With interest rates rising over the past couple of years, several developments have occurred. First, those who save are now being rewarded for this financial behavior with higher interest rates on their savings. However, this interest rate increase is now costing borrowers more, and the government is one of the largest borrowers. Fully 11% of outflows pay interest on the debt. This represents an increase from 5% in 2020. That means an additional 6% of government spending is not available to address current needs, compared to just three years ago.
3. Solutions to money problems are the same for everyone. When you have a money problem, you either bring in more money, spend less, or do some combination of the two. The same is true for our federal government.

More to come

With recent tax changes, the impact on the deficit is sure to become more problematic, especially if interest rates remain high. None of this situation will improve until the will to reduce the debt is on everyone’s mind. And that is why it is a legal mandate for the IRS to publish this chart in the Form 1040 instructions so that all taxpayers receive an update on the situation at least once a year. As always, please don’t hesitate to contact our RRBB advisors if you have any questions.

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How the One Big Beautiful Bill Act affects individuals

Many temporary tax provisions are made permanent, including:

• Tax rates: The higher tax rates expected next year will not occur
• Higher standard deduction: There is a slight increase in these levels for 2025
  • $31,500 Joint
  • $23,625 Head of Household
  • $15,750 All Others
• Elimination of personal exemptions: This is now permanent.
• Elimination of most miscellaneous itemized deductions: The primary impact is the loss of deducting unreimbursed business expenses.
• Higher child tax credit: The $2,000 per person is now $2,200 per person in 2025, with the same $200,000 single and $400,000 joint phaseouts.
• Higher estate and gift exemption levels: Permanently raises exemptions to $15 million in 2026 with inflation adjustments thereafter.

The One Big Beautiful Bill Act also impacts businesses

• The Qualified Business Income deduction. What is commonly known as QBI or Section 199A is now permanent. Further, there is also a minimum $400 deduction benefit for taxpayers who have at least $1,000 of qualified business income.
• Higher SALT. Good news for flow-through entities is the increase of the ceiling for taxes as an itemized deduction from $10,000 to $40,000 through 2029, making it less important to pay your business taxes on state tax returns. But if you do, the popular technique called PTET is still available.
• Fewer 1099s. In the future, there will be fewer 1099s, as the minimum reporting threshold for the Form 1099-NEC and many other 1099 forms increases from $600 to $2,000. Additionally, the threshold for determining who needs to issue and receive Form 1099-Ks for third-party billing purposes increases from $600 to $20,000. It also increases from 200 transactions to 200. This alleviates the filing headache for most taxpayers.
• Capital purchase benefits. The ability to expense capital purchases remains available with 100% bonus depreciation through 2029 and expansive Section 179 deductions of up to $2.5 million for qualified property.
• Expense R&D. Research and development expenditures can now be written off, rather than amortized over five years. There is even the ability to apply these new rules retroactively to 2022.
• C corporation tax unchanged. Equally important is what was not in the bill. The C corporation tax rate remained unchanged.

Other changes you should know

• Above-the-line charitable contributions: Starting in 2026, you can deduct $1,000 of charitable contributions if single or $2,000 if filing jointly. This is available to you whether you use the standard deduction or itemize your deductions. There is also the introduction of a .5% floor for itemizing charitable contributions.
• SALT limit increases: The itemized deduction limit for taxes (commonly known as SALT) rises from $10,000 to $40,000 through 2029, with an income phase-out of $500,000.
• The AMT stays high: The Alternative Minimum Tax retains the higher exemption amounts, but the phaseouts revert to 2018 levels starting in 2026. This will not impact many, but if it does, preparation is key.
• Itemized deduction phaseout returns: The Pease limit, which previously reduced up to 80% of your itemized deductions, is not in effect for 2025. However, a revised version specifically for top income earners will take effect in 2026 and beyond.
• Elimination of many energy credits: This includes the credit for purchasing electric vehicles after September 30, 2025, and the elimination of many residential energy efficiency purchase credits at the end of 2025.

What’s new?

Several items are entirely new for 2025 through 2028.

• Tax-free tips: Up to $25,000 of tips may be deducted for those working in traditionally tipped industries.
• Tax-free overtime pay: Up to $12,500 for single and $25,000 for joint filers of the premium portion of compensation is now tax-free.

Both the tip income and overtime benefits phase out when adjusted gross income exceeds $150,000 or $300,000 for joint filers.

• New senior $6,000 deduction: This benefit is for both itemizers and non-itemizers and phases out when modified AGI exceeds $75,000.
• New Trump accounts: An account will be established for each child born from January 1, 2025, through December 31, 2028, and will be pre-funded with $1,000. There are IRA-style accounts available for those born outside these years, but they are not funded.

Stay up-to-date with RRBB

This is a lot to cover in a single blog post. Over the next several weeks, our blog will focus on individual topics to help you navigate how the One Big Beautiful Bill Act. We hope to help you understand how the significant changes may impact you and your situation. In the meantime, feel free to contact our RRBB advisors if you have any questions.

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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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What we do know

• Tax brackets and rates. The seven tax rates remain unchanged, while the income subject to each rate got a slight bump. After a 5.4% increase in 2024, an additional 2.8% increase in income is subject to each tax rate in 2025. This means more of your income will be subject to a lower tax rate.
• Higher retirement plan limits. The amount you can contribute to a 401(k) in 2025 is $23,500, up from $23,000 in 2024. The 401(k) catch-up contribution limit in 2025 stays at $7,500 if you are between 50 and 59 and 64+. New in 2025, if you are ages 60 to 63, the catch-up contribution limit increases to $11,250. The annual contribution threshold for IRAs remains at $7,000, as does the IRA catch-up contribution limit of $1,000.
• New cryptocurrency reporting rules. New reporting rules in effect as of January 1, 2025, mean you’ll need to be more vigilant with tracking your cryptocurrency transactions and complying with the IRS’s digital asset rules. Brokers of digital assets, including cryptocurrency exchanges, custodial services, and specific payment processors, must report sales and exchanges of digital assets to the IRS starting in 2025. Your digital asset transactions will be summarized annually on a new Form 1099-DA. This new reporting of digital asset transactions will be similar to existing reporting for traditional securities such as stocks and bonds.

2025 tax law changes

• The 1099-K reporting threshold. If you use third-party payment processors like Venmo or sell tickets on apps like SeatGeek, you’re more likely to receive a tax form for your activity that will also be sent to the IRS. The required limit to report your activity was $5,000 in 2024. In 2025, this threshold will be lowered to $2,500 and reduced in 2026 to $600.
• Uncertainty over TCJA provisions. There has been discussion about extending and/or making many provisions in the Tax Cuts and Jobs Act (TCJA) of 2017 permanent. Most provisions are scheduled to expire at the end of 2025, so we will pay attention to any forthcoming legislation that could change this tax landscape.
• Proposed decrease in corporate tax rates. There is also discussion about lowering the corporate tax rate from its current level of 21% and the effective corporate tax rate from 21% to 15% for domestic manufacturers.

Stay tuned for continuing updates on any tax changes as events unfold in 2025. If you have any questions, please contact our RRBB advisors.

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In his proposed budget for fiscal year 2025, President Biden has included several tax provisions. These will impact individuals, families, businesses, and corporate taxpayers. While the Republican Party still controls the U.S. House of Representatives, most of these proposals have little chance of passing. But, depending on how the elections in November go, they may breathe fresh life. Below is a summary of the leading tax provisions found in the budget that will impact individuals.

Tax provisions for individuals

Biden is against prolonging tax breaks for individuals earning more than $400,000 annually. However, he stands by his pledge not to raise taxes on filers earning less than that amount. Among the following, his proposed budget will impact:

• Tax rates. The plan would restore the highest individual marginal income tax rate to 39.6%, as before the TCJA, for taxpayers earning more than $400,000 ($450,000 for joint filers).
• Net investment income tax (NIIT). Any pass-through business revenue not otherwise subject to the NIIT or self-employment tax would be included in the NIIT on income over $400,000. Additionally, the budget would raise the NIIT rate (on investment income over $400,000) to 5% and the supplementary Medicare tax rate (on profits over $400,000).
• Taxes on capital gains. Capital gains would be subject to ordinary income tax rates rather than the highest capital gains rate of 20% for individuals whose taxable income exceeds $1 million. Moreover, a $5 million exemption would be from unrealized gains upon death ($10 million for married couples).
• Child Tax Credit (CTC). The plan would raise the maximum age to 17 through 2025 and increase the maximum per-child credit to $3,600 for qualifying children under six and $3,000 for all other qualifying children. In addition, it would create a “presumptive eligibility” idea, roll out an advance monthly payment mechanism, and permanently make the CTC entirely refundable.
• Premium tax credits (PTCs). Biden would extend the IRA’s health insurance subsidy program to taxpayers earning more than 400% of the federal poverty level and lower the minimum contribution required to be eligible for premium tax credits (PTCs).
• Estate and gift taxes. The plan would abolish several estate and gift tax breaks that benefit the rich and lower their overall tax burden. For instance, a new annual gift tax exclusion would apply to some transfers. Under this exclusion, a donor’s transfers over $50,000 in a single year would be taxable, even if the total gifts made to each recipient fell below the $18,000 annual gift exclusion threshold in 2024.

There will be tax reforms

Some or all of these tax provisions for individuals may not be in the final version. However, new tax legislation is almost inevitable in the next year or two. According to the timeline, many important TCJA provisions would expire after 2025 if Congress does not take action. Likely, lengthy tax discussions and negotiations will soon take center stage. For the most recent updates, contact our RRBB advisors. To know how this will impact your business, check out part one of this two-part blog series.

© 2024

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In his budget proposal for fiscal year 2025, President Biden includes several tax measures that will impact businesses and corporate taxpayers. While the Republican Party still controls the U.S. House of Representatives, most of these proposals have little chance of passing. However, depending on how the November elections go, they may breathe fresh life. Below is a summary of the significant tax provisions in the budget that may affect businesses.

Tax provisions for businesses

Many of the adjustments in the budget proposal that may impact the tax landscape for corporations are ones that Biden has previously supported. Among the most noteworthy are:

1. Corporation tax rates. Under this plan, the tax rate for C corporations would rise from 21% to 28%. This is still less than the 35% rate in place before the Tax Cuts and Jobs Act (TCJA). The proposed modifications would increase the effective global intangible low-taxed income (GILTI) rate to 21% from the current rate of 14%. The corporation’s alternative minimum tax rate would also increase from 15% to 21%.
2. Executive compensation. Biden suggests expanding to privately held C firms the present cap on the deductibility of compensation exceeding $1 million for specific CEOs in publicly owned C corporations. A new aggregation rule would regard each controlled group member as a single employer to identify covered executives.
3. Excess business loss (EBL) limit. In addition to an inflation-adjusted threshold (for 2024, $305,000 or $610,000 if filing jointly), noncorporate taxpayers under the TCJA may use their business losses to offset only business-related income or gain. The plan would classify EBLs carried forward from the previous year as current-year business losses instead of net operating loss deductions and make this limitation permanent.
4. Stock buyback excise tax. The Inflation Reduction Act (IRA) reduced the tax treatment gap between buybacks and dividends by imposing a 1% excise tax on the fair market value when firms repurchase their stock. As proposed, the tax would increase fourfold to 4%. Additionally, it would expand the tax to cover certain corporate affiliates’ purchases of applicable foreign corporations.
5. Like-kind exchanges. Real estate owners can postpone paying taxes when they trade their holdings for “like-kind” real estate. The plan would provide the deferral of gain for real property like-kind exchanges up to $500,000 per taxpayer ($1 million for joint filers) annually. (Assets of other kinds wouldn’t qualify.) A taxpayer would record excess like-kind gains in the year that they transfer the real estate.

There will be tax reforms in one form or another

Even if these provisions are not in the final version, new tax legislation will almost be inevitable in the next year or two. According to the timeline, many important TCJA provisions would expire after 2025 if Congress does not take action. Likely, lengthy tax discussions and negotiations will soon take center stage. For the most recent updates, contact our RRBB advisors. In the meantime, keep an eye out for part two of this two-part blog series.

© 2024

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