NOW TAKING ON NEW CLIENTS FOR TAX PREP: CALL OUR OFFICE AT 301-334-4007 FOR INTAKE
And just like that we are closing in on another year with another tax filing season ahead. We hope that you and your families have had a prosperous year. Tax law has brought us some significant changes this year, and it is time to start thinking about year-end tax planning as well as preparing for the 2026 year ahead.
Please take a few moments to read through this highlight summary of items to consider and please consult with us on any impact regarding your particular situation. This year included the passage of the One Big Beautiful Bill Act (OBBBA) which brought many new changes and extended some past provisions that were already in place. (please note that many of these provisions are subject to specific income limitations which may impact the overall benefit in your situation)
• Marginal Tax Rates – As in years past, planning for your marginal tax rate continues to be the most solid tax planning strategy. In 2025, for singles, the cut-off from the lowest 12% bracket to the 22% bracket is $48,475 of taxable income (income after deductions). For married filers, the cut-off is $96,950 (income after deductions). For income over $626,351 for singles and $751,601 for marrieds, the highest rate bracket remains 37%. Taxpayers whose income exceeds $200K single and $250K married are still liable for an additional 0.9% Medicare tax on wages as well as a 3.8% Net Investment Tax on investment earnings. Keep in mind the brackets are marginal and you benefit from lower rate brackets first.
• Itemized Deductions (2025) – Many taxpayers are now utilizing the $31,500 (married) or $15,750 (single) standard deduction; however, it is now once again very important to accumulate your itemized deductions just in case you can itemize (medical expenses, state, local and property taxes, charitable donations and mortgage interest expense) as there may now be more opportunity to deduct them with the passage of the new tax bill.
• Medical Expenses – Medical expenses (to include long-term care costs) remain deductible subject to the 7.5% of AGI limitation. Health insurance (after-tax), Medicare, and supplemental insurance are included as part of this deduction.
• Taxes (SALT) – State and local income taxes, sales taxes and real estate taxes are deducted up to $40,000 per year, subject to limitation, a major increase over the prior $10,000 limitation – a very beneficial change for many Maryland taxpayers.
• Mortgage Interest – Mortgage interest on a mortgage secured by the principal and/or second residence remains deductible on indebtedness of up to $750,000. ($1,000,000 for homes that were mortgaged prior to 12/16/17 or under binding contract before such date and closed by April 1, 2018).
• Investment Interest – Investment interest expense (i.e., margin interest) remains deductible as an itemized deduction.
• Home Equity Interest – Home equity interest is not deductible unless it can be proven that the debt incurred was used to buy, build or substantially improve your home. If you used the home equity line to pay off credit card bills or buy a vehicle, etc., the interest is not deductible.
• Charitable Donations –In order to benefit from additional charitable donations as an itemized deduction, you may want to consider strategies such as moving two years of charitable giving in to one year, donating appreciated stocks, maximizing non-cash contributions, utilization of qualified RMD donations from your IRA, etc. As part of the OBBBA, there is now a $1,000 (single) and $2,000 (married) deduction for non- itemizers, beginning in 2026 – so recordkeeping is again crucial.
• Child Tax Credit – The child tax credit was not only extended but also increased to $2,200 per child for 2025.
• Tips – A deduction for Tip and Gratuity Income is new and limited to $25,000 per year total for taxpayers that receive tips as a form of compensation. Your W-2 will be used for proof of compensation.
• Overtime – A new deduction exists for Overtime that is received as compensation pursuant to state law. The deduction is for the first $12,500 of overtime pay (subject to certain provisions). No changes are being made to the Form W-2 for 2025, so you will need to provide us a year-end paystub to substantiate overtime compensation received.
• Auto Loan Interest Deduction -A new car loan interest deduction exists for up to a maximum of $10,000 of interest paid during 2025 to purchase a qualified passenger vehicle for personal use with its final assembly in the US. It is important to note that -a VIN # starting with 1, 4 or 5 indicates final assembly in the US.
• Senior Tax Deduction – A new $6,000 senior deduction replaces President Trump’s proposal not to tax Social Security benefits. The deduction applies to taxpayers age 65 or older and is subject to certain income limitations. Social Security benefits remain taxable similar to prior year rules.
• Trump Accounts – Under the OBBBA, new Trump Accounts can be opened in 2026 for children born after January 1, 2025 and include $1,000 in seed money.
• IRS Identity Theft – Identity theft, fraud and scams continue to be at an all-time high. More and more taxpayers are being issued a 6-digit IP PIN number to help mitigate identify theft. If you receive an IP PIN in January via the mail, please ensure that you provide it to us for filing purposes or the return will reject. Also, you can voluntarily register for an IPIN at www.irs.gov.
• Alimony – For divorces that finalized after December 31, 2018, alimony is no longer a tax deduction to the payor and is no longer taxable to the payee.
• Estate Tax and Gift Tax – The federal gift and estate tax exemption is currently set at $13.99 million per person in 2025. The annual gift tax exclusion is $19,000 per year per donee. Gifts in excess of this amount require an annual gift tax filing with the IRS due April 15. Portability between spouses continues to exist and provides that any unused exemption can be transferred to a surviving spouse but it is not automatic and must be elected on a timely filed estate tax return.
• Required Minimum Distributions on IRAs – Owners of Traditional IRA’s are not required to take a mandatory distribution until Age 73 (formerly age 70.5).
• Qualified Charitable Gifting from IRA – IRA owners that are eligible to take a RMD may also make tax-free qualified distributions to a charity directly from their IRA. This is a key planning point under the current tax law as itemized deductions are harder to achieve and can be a great planning opportunity. The charitable donation must be made directly through the investment advisor and can be utilized beginning at age 70.5. The maximum donation amount is $105,000 via QCD.
• Capital Gains and Qualified Dividends – There remains a huge opportunity for the federal 0% capital gain. This is open to you if you are in the 10% or 12% tax bracket. The 15% rate on both long-term capital gains and qualified dividends remains in effect if you are in the 22% bracket or above. There is
still a higher 20% capital gain rate for taxpayers in the highest tax brackets.
• Health Savings Accounts (H.S.A.) – Consider having a H.S.A. if you have a high deductible health insurance policy ($1,650 or more for singles and $3,300 for families) for 2025. This can provide beneficial deductions for your out-of-pocket medical expenses. The 2025 contribution limits are $4,300 for singles and $8,500 for a family. Contributions must be made by April 15, 2026. Catch-up contributions of up to $1,000 per year are allowed for folks age 55 or older. People enrolled in Medicare can’t contribute to H.S.A’s.
• Conversions to Roth IRAs – Once again for 2025, traditional IRAs can be converted to Roth IRAs without earnings restrictions. This can be a very solid strategy if you have excess room in the 12% (and even the 22% or 24%) tax bracket to absorb the conversion. If you expect your tax rate to be higher in retirement than the rate you will pay on the conversion, this can be very advantageous.
• Medicare Part B Premium Increase – Monthly Medicare Part B Premiums for 2026 will be $202.90 per month.
• Solo 401k Plan – If you are self-employed with no employees a “Solo 401-k” can give you the ability to defer up to $70,000 of income per year in 2025. The plan must be in place no later than October 1st to be utilized in a calendar year.
• Section 529 – College Savings Plan Contributions must be made by 12/31/25. Consider a one-time gift of up to $95,000 to a 529 plan for college education for grandchildren. A new rule now allows up to a $35,000 rollover from a 529 plan to a Roth IRA for a beneficiary if the 529 plan is not necessary for college expenses.
• Foreign Bank Accounts – If you have any bank accounts located in foreign countries, make sure that you are reporting this to us annually as separate reporting of these accounts is required and penalties for non-compliance are very significant.
SELECTED BUSINESS ITEMS FOR 2025
• Asset Purchases – Bonus Depreciation – The new OBBBA provisions allow for 100% bonus depreciation for assets purchased after January 19, 2025. The provision had dropped to 60% prior to the change. This applies to the cost of assets with useful lives of 20 years or less that are put into service
during 2025. This includes: machinery, equipment, land improvements and some farm structures. Leasehold improvements to commercial building interiors can be eligible as well as manufacturing facilities. Please note that for state tax this may not apply depending upon the state (Maryland being one of them).
• Section 179 Expensing Deduction – For 2025, you may be able to expense up to $2,500,000 of qualifying property placed in service – new or used. The amount phases out as you exceed $4,000,000 in total assets placed in service during the year. Buyers of certain SUVs/trucks weighing between 6,000-14,000 lbs can deduct up to $31,300 through this election. Important note: to qualify for a Section 179 election, the asset must be placed in service by December 31 – with no exceptions.
• Consider Hiring Family – If you decide to hire family members, pay a reasonable salary for the work actually performed. You may be able to provide tax-deductible fringe benefits as well as save on payroll taxes. This strategy can be beneficial to shift income to lower tax brackets.
• Qualified Business Income Deduction(QBI) – The OBBBA extended the QBI deduction for qualifying businesses allowing a deduction of 20% of the net taxable profits of the business as a deduction. This provision has been made permanent and is subject to certain limitations dependent upon profession.
• State Tax Pass-Through-Entity (PTE) Deduction – State pass-through entities (partnerships and S- Corporations) are eligible to make their estimated tax payments through the entity rather than at the individual level to utilize them as a federal tax deduction for the business even with the increased SALT
limitation.
• Retirement Plans – Consider setting up a retirement plan for your business – Simple IRA, SEPs, 401(k)s – There are many options that can create significant tax liability savings. In certain cases, up to $70,000 of income can be sheltered from taxation through these plans via profit sharing, employer matching, etc..
PLANNING IDEAS:
You may be able to reduce your taxes by controlling the payment of deductible
expenses and the timing of the collection of income. Several strategies to consider may include:
• State and Local Taxes – With the ease of the SALT limitation, pay all state and local income taxes (4th Qtr Estimated Payments) and full-year real estate taxes prior to the end of the year (by 12/31/25). Postmark validation required.
• Maximize your contributions to employer-sponsored retirement plans and IRAs – this can be very tax beneficial from a deduction standpoint.
• Education – It may be beneficial to pay 2026 tuition in 2025 to take advantage of the American Opportunity Tax Credit worth up to $2,500 per student to cover the cost of tuition, fees and course materials paid during the taxable year. Form 1098-T is required from the college for the tax filing – typically the student has access to this through the college website – we must receive this form.
• Charitable Donations. Make year-end donations to qualified charitable organizations. Use your credit card or mail your check as late as December 31.
• Please contact us to see if you have a capital-loss carry-forward from 2024 and make your investment advisor aware of it before year-end for utilization of losses against capital gain income. This can be a key planning strategy.
• Keep good mileage logs. The 2025 standard mileage rate for business is 70 cents per mile. Please provide us with copies of your mileage logs for our records as the IRS is requesting these on a frequent basis and requires a sufficient log be kept.
• Plan Beneficiaries – review your retirement plan and life insurance beneficiaries to ensure that no changes are necessary – VERY IMPORTANT ANNUALLY.
*NOTE: IF YOU ARE OVER AGE 50, YOU ARE ELIGIBLE TO CONTRIBUTE ADDITIONAL CATCHUP AMOUNTS DEPENDENT ON THE TYPE OF PLAN– PLEASE CALL FOR DETAILS.
DELAYED TAX REFUNDS – There has been a significant increase in time delays in getting federal and state tax refunds in recent years with the complications of identity theft, Maryland PTE and more. Please know that we are as anxious as you to obtain your refund but in most circumstances it is completely out of our control. Although we are glad to try and assist we may not be able to produce instantaneous results.
DELAYED TAX SEASON – Due to the implementation of the OBBBA and required form changes along with the government shutdown, we anticipate a potential delay in the potential start of filing season for 2025. There are many changes and complex rules to adopt which will take significant time to implement. Patience will be key this tax season.
EXTENSIONS – Just a reminder that an extension provides an extension of time to file a return but not an extension of time to pay the necessary tax due. With the increasing complexity of tax law and delay in receiving the necessary documents, more and more extensions have become necessary to allow for accurate preparation of returns.
We wish you a very Happy New Year ahead! Tax organizers will be mailed out to current clients in early January. We are looking forward to seeing you again this year and will continue to offer the opportunity to do meetings by way of telephone and/or virtually along with in-person.
Yours very truly,
All of us at Boal and Associates CPAs
