Healthy Savings: How Tax-smart HSAs Can Benefit Your Small Business and Employees

As a small business owner, managing health care costs for yourself and your employees can be challenging. One effective tool to consider adding is a Health Savings Account (HSA). HSAs offer a range of benefits that can help you save on health care expenses while providing valuable tax advantages. You may already have an HSA. It’s a good time to review how these accounts work because the IRS has announced the relevant inflation-adjusted amounts for 2025.

HSA basics

For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Employees can’t be enrolled in Medicare or claimed on someone else’s tax return.

Here are the key tax benefits:

Contributions that participants make to an HSA are deductible, within limits.
Contributions that employers make aren’t taxed to participants.
Earnings on the funds within an HSA aren’t taxed so the money can accumulate tax-free year after year.
HSA distributions to cover qualified medical expenses aren’t taxed.
Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.

Key 2024 and 2025 amounts

To be eligible for an HSA, an individual must be covered by a “high-deductible health plan.” For 2024, a high-deductible health plan has an annual deductible of at least $1,600 for self-only coverage or at least $3,200 for family coverage. For 2025, these amounts are $1,650 and $3,300, respectively.

For self-only coverage, the 2024 limit on deductible contributions is $4,150. For family coverage, the 2024 limit on deductible contributions is $8,300. For 2025, these amounts are increasing to $4,300 and $8,550, respectively. Additionally, for 2024, annual out-of-pocket expenses for covered benefits can’t exceed $8,050 for self-only coverage or $16,100 for family coverage. For 2025, these amounts are increasing to $8,300 and $16,600.

An individual (and the individual’s covered spouse, as well) who has reached age 55 before the close of the tax year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2024 and 2025 of up to $1,000.

Making contributions for your employees

If an employer contributes to the HSA of an eligible individual, the employer’s contribution is treated as employer-provided coverage for medical expenses under an accident or health plan. It is excludable from an employee’s gross income up to the deduction limitation. There’s no “use-it-or-lose-it” provision, so funds can build for years. An employer that decides to make contributions on its employees’ behalf must generally make similar contributions to the HSAs of all comparable participating employees for that calendar year. If the employer doesn’t make similar contributions, the employer is subject to a 35% tax on the aggregate amount contributed by the employer to HSAs for that period.

Using funds to pay medical expenses

Your employees can take HSA distributions to pay for qualified medical expenses. This generally means expenses that would qualify for the medical expense itemized deduction. They include costs for doctors’ visits, prescriptions, chiropractic care and premiums for long-term care insurance.

The withdrawal is taxable if funds are withdrawn from the HSA for any other reason. Additionally, an extra 20% tax will apply to the withdrawal unless it’s made after age 65 or in the case of death or disability.

As you can see, HSAs offer a flexible option for providing health care coverage, but the rules are somewhat complex. Contact us with questions or if you’d like to discuss offering this benefit to your employees.

Under provisions of the Inflation Reduction Act (IRA), entities traditionally not able to utilize federal income tax credits now have a path to receiving Investment Tax Credit (ITC) benefits similar to their taxpaying counterparts.

Overview of the Tax Credit

Section 48 of the Internal Revenue Code (IRC) provides an investment tax credit for a percentage of the basis of energy property a taxpayer places in service during a tax year. The percentage is generally 6%, increased to 30% if prevailing wage and apprenticeship requirements are met. The percentage may be increased by bonuses related to domestic content, location in an energy community, and location in a low-income community.

Property qualifies as “energy property” if it is of a certain type; if the taxpayer completes the property’s construction, reconstruction, or erection or acquires it as the original user; and if it complies with performance and quality standards in effect at the time of acquisition that have been issued by Treasury after consulting with the Department of Energy. Depreciation or amortization of the energy property is allowable.

Types of property qualifying as energy property include the following:

solar energy equipment used to generate electricity, heat or cool (or provide hot water for use in) a structure, provide solar process heat, or (for property that begins construction before 2025) provide lighting using fiber-optic distributed sunlight and electrochromic glass used to heat or cool
equipment that produces, distributes, or uses energy derived from a geothermal deposit
qualified fuel cell property
microturbine property
combined heat and power system property
qualified small wind energy property
equipment using the ground or groundwater as a thermal energy source
waste energy recovery property
energy storage technology
qualified biogas property
microgrid controllers

Direct Pay Incentives

Tax-exempt entities are eligible to receive payment – referred to commonly as either direct pay or elective pay – equal to the full value of the ITC and its bonus credits after a clean energy project has been placed in service and the requisite filings completed. This new provision from the IRA will allow nonprofit organizations, states, local governments, and Tribal Nations, among others, to receive payment equal to the full value of tax credits for building clean energy projects.

The project must be placed in service before the entity can apply for direct pay reimbursement. Only projects placed in service after the start of the 2023 tax year are eligible.

The eligible entity must also make a pre-filing submission with the IRS through the IRS electronic portal. The IRS will provide a pre-filing registration number, which must be included on the entity’s tax filing. An entity without a registration number is ineligible to receive tax credits. Expect the IRS to take up to 120 days to process the pre-filing registration and to provide a registration number.

To make the elective payment election on the entity’s tax return, the entity must fill out Form 3800 (citing the registration number received through pre-filing) and provide any additional required documentation and underlying source credit forms.

Interaction with Other Available Incentives

Tax-exempt entities may still benefit from the direct pay provisions of the IRA even if a tax-exempt amount is received to partially finance the clean energy projects.

Amounts exempt from taxation under subtitle A of the IRC or otherwise excluded from taxation (such as income from certain grants and forgivable loans) are included in the basis for purposes of computing the credit amount for the property. This inclusion applies when these amounts are used to purchase, construct, reconstruct, erect, or acquire an investment-related credit property. This rule holds true regardless of whether the basis must be reduced (in whole or in part) by such amounts under general tax principles.

However, if an entity receives a grant, forgivable loan, or other income exempt from taxation under subtitle A of the IRC or otherwise excluded from taxation to acquire an investment-related credit property (restricted tax-exempt amount), and the sum of any restricted tax exempt amounts plus the credit determined for that property exceeds the cost of the property, then the amount of the credit is reduced so that the credit plus any restricted tax exempt amounts equals the cost of the investment-related credit property.

For assistance with navigating the qualification for and direct pay of an ITC, please contact us.

As year-end approaches, now is a good time to think about planning moves that may help lower your tax bill for this year and possibly next.

This year’s planning is extremely important as 2025 is almost certain to bring significant tax changes with it.

Yeo & Yeo’s 2024 Year-end Tax Planning Guide provides action items that may help you save tax dollars if you act before year-end. These are just some of the steps that can be taken to save taxes. Not all actions may apply in your particular situation, but you or a family member can likely benefit from many of them.

Next steps

After reviewing the Year-end Tax Guide, reach out to your Yeo & Yeo tax advisor, who can help narrow down the specific actions you can take and tailor a tax plan unique to your current personal and business situation.

Together we can:

Identify tax strategies and advise you on which tax-saving moves to make.
Evaluate tax planning scenarios.
Determine how we can help.

We will continue to monitor tax changes and share information as it becomes available. Visit our Tax Resource Center for the latest tax insights, useful links, and access to our Online Tax Guide.

A federal district court judge has struck down the Biden administration’s new rule regarding the salary threshold for determining whether certain employees are exempt from federal overtime pay requirements. The first phase of the rule took effect for most employers in July 2024 and affects executive, administrative and professional (EAP) employees.

With a Republican administration poised to take control of the U.S. Department of Labor (DOL), the court’s ruling may sound the death knell for the rule. Here’s what the ruling means for employers.

The rejected rule

Under the Fair Labor Standards Act (FLSA), nonexempt workers are entitled to overtime pay at 1.5 times their regular pay rate for hours worked per week that exceed 40. EAP employees are exempt from the overtime requirement if they satisfy three tests:

Salary basis test. An employee is paid a predetermined and fixed salary that isn’t subject to reduction due to variations in the quality or quantity of his or her work.

Salary level test. The salary isn’t less than a specific amount or threshold.

Duties test. An employee primarily performs executive, administrative or professional duties.

The new rule focused on the salary level test and increased the threshold in two steps. The first step occurred on July 1, 2024, when most salaried workers earning less than $844 per week or $43,888 per year became eligible for overtime (up from $684 per week or $35,568 per year). The second step was scheduled to kick in on January 1, 2025, when the salary threshold would have increased to $1,128 per week or $58,656 per year.

In addition, the rule raised the total compensation requirement for highly compensated employees (HCEs), who are subject to a more relaxed duties test than employees earning less. HCEs need only “customarily and regularly” perform at least one of the duties of an exempt EAP employee instead of primarily performing such duties.

As of July 1, 2024, this less restrictive test applied to HCEs who perform office or nonmanual work and earn total compensation (including bonuses, commissions and certain benefits) of at least $132,964 per year (up from $107,432). It would have risen to $151,164 on January 1, 2025.

The rule also established a mechanism to update the salary thresholds every three years, based on current earnings data from the most recent available four quarters of data from the U.S. Bureau of Labor Statistics. However, the DOL could temporarily delay a scheduled update when warranted by unforeseen economic or other conditions.

The court’s ruling

In June 2024, the U.S. District Court for the Eastern District of Texas temporarily blocked the rule as far as its application to the State of Texas as an employer — so on an extremely limited basis — while it considered the state’s underlying legal challenge to the rules (State of Texas v. U.S. Dep’t of Labor). Multiple business groups joined Texas and asked the court to vacate the rule entirely.

On November 15, 2024, the court did just that. It found that the new rule exceeded the DOL’s authority to define terms because the EAP exemption requires that an employee’s status turn on duties, not salary — and the new rule impermissibly made salary predominate over duties. The court also found the automatic updating mechanism exceeded the DOL’s authority.

Notably, the court cited the U.S. Supreme Court’s recent decision overturning the doctrine known as “Chevron deference.” Under the doctrine, which had been in effect for decades, courts deferred to “permissible” agency interpretations of the laws they administer. The high court’s ruling empowers courts to reject agency rules more easily.

Employer response

As a result of the court’s ruling, the salary thresholds for EAP employees and HCEs return to their earlier levels: $684 per week or $35,568 per year for the former and $107,432 for the latter. On its face, that’s good news for employers. However, many businesses have started making moves in response to the new rule. For example, employers may have reclassified some employees as nonexempt, increased salaries to retain exempt status for others or reduced salaries to offset new overtime pay. Now what?

Of course, the DOL could appeal the ruling, which could make employers reluctant to institute any immediate changes. An appeal would be heard by the conservative Fifth Circuit Court of Appeals, which has repeatedly ruled against the Biden administration.

The best predictor of what’s to come may be the treatment of a similar DOL rule issued by President Obama’s administration. A court invalidated the rule in November 2016 in a ruling that was appealed while Obama was still in office. The DOL under President Trump’s first administration withdrew the appeal and issued the revised and less expansive rule that took effect in 2019.

Regardless, bear in mind that exempt employees also must satisfy the applicable duties test, whatever the salary threshold. An employee whose salary exceeds the threshold but doesn’t primarily engage in the applicable duties isn’t exempt from the overtime requirements.

Proceed with caution

Employers that roll back changes in status or salary increases that were implemented in anticipation of the new rule may find that employees — or their attorneys — begin to question whether their duties warrant an exemption. Even if employees don’t pursue litigation, rollbacks must be weighed against the impact on employee morale in a competitive job market. The best course will vary by employer, and legal advice is strongly encouraged. We’ll keep you updated on the latest news regarding the ruling.

How much can you and your employees contribute to your 401(k)s or other retirement plans next year? In Notice 2024-80, the IRS recently announced cost-of-living adjustments that apply to the dollar limitations for retirement plans, as well as other qualified plans, for 2025. With inflation easing, the amounts aren’t increasing as much as in recent years.

401(k) plans

The 2025 contribution limit for employees who participate in 401(k) plans will increase to $23,500 (up from $23,000 in 2024). This contribution amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.

The catch-up contribution limit for employees age 50 or over who participate in 401(k) plans and the other plans mentioned above will remain $7,500 (the same as in 2024). However, under the SECURE 2.0 law, specific individuals can save more with catch-up contributions beginning in 2025. The new catch-up contribution amount for taxpayers who are age 60, 61, 62 or 63 will be $11,250.

Therefore, participants in 401(k) plans who are 50 or older can contribute up to $31,000 in 2025. Those who are age 60, 61, 62 or 63 can contribute up to $34,750.

SEP plans and defined contribution plans

The limitation for defined contribution plans, including a Simplified Employee Pension (SEP) plan, will increase from $69,000 to $70,000 in 2025. To participate in a SEP, an eligible employee must receive at least a certain amount of compensation for the year. That amount will remain $750 in 2025.

SIMPLE plans

The deferral limit to a SIMPLE plan will increase to $16,500 in 2025 (up from $16,000 in 2024). The catch-up contribution limit for employees who are age 50 or over and participate in SIMPLE plans will remain $3,500. However, SIMPLE catch-up contributions for employees who are age 60, 61, 62 or 63 will be higher under a change made by SECURE 2.0. Beginning in 2025, they will be $5,250.

Therefore, participants in SIMPLE plans who are 50 or older can contribute $20,000 in 2025. Those who are age 60, 61, 62 or 63 can contribute up to $21,750.

Other plan limits

The IRS also announced that in 2025:

The limitation on the annual benefit under a defined benefit plan will increase from $275,000 to $280,000.
The dollar limitation concerning the definition of “key employee” in a top-heavy plan will increase from $220,000 to $230,000.
The limitation used in the definition of “highly compensated employee” will increase from $155,000 to $160,000.

IRA contributions

The 2025 limit on annual contributions to an individual IRA will remain $7,000 (the same as 2024). The IRA catch-up contribution limit for individuals age 50 or older isn’t subject to an annual cost-of-living adjustment and will remain $1,000.

Plan ahead

The contribution amounts will make it easier for you and your employees to save a significant amount in your retirement plans in 2025. Contact us if you have questions about your tax-advantaged retirement plan or want to explore other retirement plan options.

You’re not alone if you’re confused about the federal tax treatment of business-related meal and entertainment expenses. The rules have changed in recent years. Let’s take a look at what you can deduct in 2024.

Current law

The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. That means, for example, that you can’t deduct any part of the cost of taking clients out for a round of golf or to a football game.

You can still generally deduct 50% of the cost of food and beverages when they’re business-related or consumed during business-related entertainment.

Allowable food and beverage costs

IRS regulations clarify that food and beverages are all related items whether they’re characterized as meals, snacks, etc. Food and beverage costs include sales tax, delivery fees and tips.

To be 50% deductible, food and beverages consumed in conjunction with an entertainment activity must: be purchased separately from the entertainment or be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages. You can deduct 50% of the approximate reasonable value if they aren’t purchased separately.

Other rules

Per IRS regulations, no 50% deduction for the cost of business meals is allowed unless:

The meal isn’t lavish or extravagant under the circumstances.
You (as the taxpayer) or an employee is present at the meal.
The meal is provided to you or a business associate.

Who are business associates? They’re people with whom you reasonably expect to conduct business — such as established or prospective customers, clients, suppliers, employees or partners.

IRS regulations make it clear that you can deduct 50% of the cost of a business-related meal for yourself — for example, because you’re working late at night.

Traveling on business

Per IRS regulations, the general rule is that you can still deduct 50% of the cost of meals while traveling on business. The longstanding rules for substantiating meal expenses still apply. Message: keep receipts.

IRS regulations also reiterate the longstanding general rule that no deductions are allowed for meal expenses incurred for spouses, dependents, or other individuals accompanying you on business travel. (This is also true for spouses and dependents accompanying an officer or employee on a business trip.)

The exception is when the expenses would otherwise be deductible. For example, meal expenses for your spouse are deductible if he or she works at your company and accompanies you on a business trip for legitimate business reasons.

100% deductions in certain situations

IRS regulations confirm that some longstanding favorable exceptions for meal and entertainment expenses still apply. For example, your business can deduct 100% of the cost of:

Food, beverage, and entertainment incurred for recreational, social, or similar activities that are primarily for the benefit of all employees (for example, at a company holiday party);
Food, beverages, and entertainment available to the general public (for example, free food and music you provide at a promotional event open to the public);
Food, beverages and entertainment sold to customers for full value;
Amounts that are reported as taxable compensation to recipient employees; and
Meals and entertainment that are reported as taxable income to a non-employee recipient on a Form 1099 (for example, a customer wins a dinner cruise for ten valued at $750 at a sales presentation).

In addition, a restaurant or catering business can deduct 100% of the cost of food and beverages purchased to provide meals to paying customers and consumed at the worksite by employees who work in the restaurant or catering business.

Bottom line

Business-related meal deductions can be valuable, but the rules can be complex. Contact us if you have questions or want more information.

A chart of accounts is the foundation of accurate financial reporting, so it needs to be set up correctly. A disorganized chart or one that lumps transactions into broad, undefined “buckets” of data can make it difficult for management to evaluate financial performance and identify unmet customer needs — or open the door to accounting errors and fraud. Here’s some guidance on how to create a robust chart that’s right for your situation.

Why it matters

A chart of accounts is a structured list of general ledger accounts that are used to record and organize financial transactions. An organized chart simplifies the preparation of tax returns and financial statements that comply with formal accounting standards, such as U.S. Generally Accepted Accounting Principles.

Additionally, a detailed chart provides insight into profitability and asset management. It can help you identify financial and operational areas in need of improvement and make better-informed strategic decisions.

In turn, these insights can help you communicate with stakeholders, such as lenders and potential investors, about your business’s financial performance. This can be useful, for example, when applying for new loans, seeking additional capital contributions or selling your business.

Numbering and naming conventions

Essentially, the chart of accounts mirrors the financial statements; it includes major balance sheet and income statement accounts. Each account is assigned a unique identification number and an account name.

The following sequence is customarily used for account numbering:

1000-1999 for assets, such as cash on hand, undeposited funds, accounts receivable, equipment, machinery, vehicles, real estate and inventory,
2000-2999 for liabilities, including accounts payable, accrued expenses and outstanding loans,
3000-3999 for equity, for example, retained earnings and capital accounts,
4000-4999 for revenue, such as contract revenue, change order revenue, reimbursements and retainage, and
5000-5999 for expenses, for instance, materials, labor, payroll and benefits, rent, utilities, equipment leasing, marketing, insurance, depreciation, and administrative costs.

Subcategories are generally created for key accounts within each main category. For example, current assets could start at 1100, fixed assets at 1200 and other assets at 1300. As your business grows or its reporting needs change, you might add more accounts within a range.

Following best practices

There’s no one-size-fits-all format for the chart of accounts. The appropriate structure will depend on the number, nature and complexity of your company’s financial transactions. Most companies start with industry-specific templates provided by their accounting software packages. Then, they customize those templates to fit the company’s needs.

When setting up your chart, consider these best practices:

Leave space between account numbers to accommodate business growth,
Use simple, easy-to-understand naming conventions,
Add a description for each account to help accounting personnel enter transactions into the correct general ledger account,
Select the correct account type (asset, liability, etc.) to facilitate financial statement and tax return preparation, and
Review the chart at year end and make any necessary adjustments.

A simple chart of accounts might work initially, but more complexity may be needed as your company evolves. For example, management might want to track results by department, project or region. This may require additional account segments or layers to allow for segmentation in reporting. A new business line might also require changes to an existing chart. More complex charts are common in certain industries, such as health care or construction.

For more information

Setting up a chart of accounts isn’t a one-off task that produces a template you can use forever. Contact us for help setting up a new chart of accounts or reviewing an existing one. Our experienced accounting and bookkeeping professionals can help you capture the relevant information your business needs to succeed.

As 2024 winds to a close, employers need to strategize about various issues for the next calendar year. One of them is compensation — specifically, how to handle pay raises.

In its 2024-2025 Salary Budget Survey, compensation management platform provider Payscale analyzed 1,550 submissions from employees at various organizational levels in the United States and Canada. The survey found that U.S. employers plan to increase their salary budgets by 3.5% in 2025 (slightly down from 3.6% in 2024).

If your organization, like many, now prioritizes pay equity and transparency, make sure you’ve thoroughly considered all the factors that go into finding the right approach to raises.

Standardized criteria

How employers determine and communicate raises and other compensation adjustments can affect employee morale and performance. For this reason alone, consider developing and communicating standardized sets of criteria to determine pay raises for specific positions or job groupings within your organization. (If you already do this, be sure to regularly review and revise the criteria as necessary.)

By standardizing criteria, you’re less likely to wind up with significant variations in compensation among employees who perform identical or similar jobs. You’ll also help ensure that, as much as possible, pay fairly reflects performance.

In addition, standardized criteria can reduce the perception of, and opportunity for, bias. Even if untrue, the mere perception of pay inequity can dampen morale, increase turnover and damage your employer brand with job candidates.

Goals, longevity or both

Even with established standardized criteria for raises, many employers still grapple with whether to also base pay increases on annual performance goals or longevity.

The latter is the more traditional approach. The idea is that, generally, employees’ experience with the organization reflects dedication, consistency and high-quality contributions. In addition, using raises to reward loyalty may help reduce turnover.

However, in developing their compensation philosophies, many employers have decided that longevity doesn’t automatically correlate with high-value employees. In addition, relying on tenure alone to determine raises can lead to paying bloated salaries to staff members who don’t always develop their skill sets to match their organizations’ changing needs.

For these reasons, and perhaps others, many employers now tie employees’ raises to mutually agreed-on performance goals. If you decide to take this route or are already doing so, be sure goals are clearly communicated, measurable and challenging yet attainable.

Of course, many organizations look at both longevity and performance when determining raises. Whatever approach you choose, ensure your compensation philosophy and policies comply with all applicable laws and regulations. Consult a qualified attorney as necessary.

Schedule of increases

Although many employers issue raises during or immediately after annual performance reviews, other schedules can make sense. For example, if a position typically experiences high turnover, you might boost retention by offering new hires a modest increase after only several months. No matter what the schedule is, let new employees know when they can expect their first review and opportunity for a raise.

You also should have an established policy for interacting with staff members who ask for raises outside the regular schedule. Some employers assess these requests on a case-by-case basis, while others flatly prohibit them. If a raise isn’t feasible and you want to retain the worker, look for nonfinancial incentives that might resolve the situation, such as a change in job title or more flexible working hours.

Compensation complexity

There’s no doubt about it; compensation has gotten complex. Every employer needs to find a competitive, equitable and transparent approach to paying their employees. Contact us for help capturing and analyzing your organization’s compensation costs, including the impact of annual or more regular raises.

There are many benefits of including a revocable trust in your estate plan. This trust type allows you to minimize probate expenses, keep your financial affairs private and provide for the management of your assets in the event you become incapacitated. Importantly, they offer flexibility: You’re free to amend the terms of the trust or even revoke it altogether at any time.

If you’re married, you and your spouse must decide whether to use a joint trust or separate trusts. The right choice depends on your financial and family circumstances, applicable state law, and other factors.

Maintaining a joint trust is simpler

If you’re comfortable with your spouse inheriting your combined assets (and vice versa), a joint trust can be less complex to set up and administer than separate trusts. Funding the trust is a simple matter of transferring assets into it and avoids the need to divide assets between two separate trusts.

In addition, during your lifetimes, you and your spouse have equal control over the trust’s assets, which can make it easier to manage and conduct transactions involving the assets. On the other hand, separate trusts may be the way to go for spouses who aren’t comfortable sharing control of their combined assets.

Separate trusts may provide greater asset protection

If shielding assets from creditors is a concern, separate trusts usually offer greater protection. With a joint trust, if a creditor obtains a judgment against one spouse, all trust assets may be at risk. A spouse’s trust is generally protected from the other spouse’s creditors.

Also, when one spouse dies, his or her trust becomes irrevocable, making it more difficult for creditors of either spouse to reach the trust assets. Keep in mind that the degree of asset protection a trust provides depends on the type of debt involved, applicable state law and the existence of a prenuptial agreement.

Factor in taxes

For most couples today, federal gift and estate taxes aren’t a concern. This is because they enjoy a combined gift and estate tax exemption of more than $27 million in 2024 and 2025.

However, if a couple’s wealth exceeds the exemption amount, or if they live in a state where an estate or inheritance tax kicks in at lower asset levels, separate trusts offer greater opportunities to avoid or minimize these taxes. For example, some states have exemption amounts as low as $1 million or $2 million. In these states, separate trusts can be used to make the most of each spouse’s exemption amount and minimize exposure to death taxes.

It’s also important to consider income tax. As previously mentioned, when one spouse dies, his or her trust becomes irrevocable. That means filing tax returns for the trust each year and, to the extent trust income is accumulated in the trust, paying tax at significantly higher trust tax rates.

A joint trust remains revocable after the first spouse’s death (it doesn’t become irrevocable until both spouses have passed). In this case, income is taxed to the surviving spouse at his or her individual tax rate.

Review the pros and cons

Joint and separate trusts each have advantages and disadvantages. Contact us to determine which is right for you. We’d be pleased to review your circumstances and help you make a final decision.

When start-ups launch, their focus is often on tightly controlling expenses. Most need to establish a brand and some semblance of stability before funding anything other than essential operating activities.

For companies that make it past that tenuous initial stage, there comes a time when they must loosen up the purse strings and start investing in, among other things, their employees. One way to do so is to sponsor a retirement plan. Offering this fringe benefit lets staff know the business cares about them and their financial futures.

Has your company reached this point? Or is it almost there? If so, let’s review three of the most popular plan types that growing businesses should consider.

1. Traditional 401(k) plans

These are available to any employer with one or more employees. Under the plan, participants are given accounts that they own. This means their contributions are immediately vested, and they retain ownership even if they leave their jobs. Participants typically contribute via pretax payroll deductions, which reduce their taxable income. Distributions, however, are taxable.

For 2025, 401(k) participants can contribute up to $23,500 (up from $23,000 in 2024). Those age 50 or older by the end of the year can make additional “catch-up” contributions of $7,500 (the same amount as in 2024). Your business may also opt to contribute to participants’ accounts under a vesting schedule of your choosing. In 2025, the total combined limit for employee and employer contributions is $70,000. Within limits, your company can deduct contributions made on behalf of eligible employees.

Many companies’ plans now have Roth 401(k) features. This means participants can choose to make some contributions with compensation that’s already been taxed. The upside is that qualified distributions are tax-free.

Establishing a 401(k) plan typically requires, among other steps, adopting a written plan and arranging a trust fund for plan assets. Annually, employers must file Form 5500 and perform discrimination testing to ensure the plan doesn’t favor highly compensated employees. However, with a “safe harbor” 401(k), the plan isn’t subject to discrimination testing. There are also several other 401(k) variations worth considering.

2. SEP-IRAs

If choosing a 401(k) plan and administering it seems a bit overwhelming, there are simpler options. Case in point: Simplified Employee Pension Individual Retirement Accounts (SEP-IRAs). Businesses of any size can establish a plan to offer these accounts by completing Form 5305-SEP, “Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement.” But there’s no annual filing requirement.

From there, you set up and wholly fund a SEP-IRA for each participant. Employer contributions immediately vest with participants, who own their respective accounts. What’s nice is you can decide each year whether and how much to contribute. In 2025, contribution limits will be 25% of an employee’s compensation, up to $70,000 (up from $69,000 in 2024).

3. SIMPLE IRAs

Another less complex approach is sponsoring Savings Incentive Match Plan for Employees (SIMPLE) IRAs. However, only businesses with 100 or fewer employees can offer them.

Like SEP-IRAs, these are accounts you set up for each participant. They may choose to contribute to their SIMPLE IRAs but don’t have to. Employer contributions are required, but you can opt to either:

Match employee contributions up to 3% of compensation, which can be reduced to as low as 1% in two of five years, or
Make a 2% nonelective contribution, including to employees who don’t contribute.

Participants are immediately 100% vested in contributions, whether those funds come from you or their own paychecks. The contribution limit in 2025 will be $16,500 (up from $16,000 in 2024).

Many options

To be clear, these are but three options among many different retirement plan types that growing businesses can sponsor for their employees. Our firm can help you weigh the pros and cons of all of them, including forecasting the costs involved and understanding the tax implications.

On November 15, 2024, a federal court struck down the Department of Labor (DOL) rule that raised the salary threshold for executive, administrative, and professional employees to be exempt from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA). This nationwide ruling affects all businesses and nullifies:

The July 1, 2024, increase from $684 per week to $844 per week.
The January 1, 2025, planned increase to $1,128 per week.
Future automatic increases every three years starting July 1, 2027.

What should employers do?

Salary Adjustments: Employers who raised salaries to meet the July 1 threshold or in anticipation of the January 1 increase may revert to previous pay rates but should consider employee morale.
Reclassification: Workers reclassified as nonexempt under the 2024 rule may be switched back to exempt if they meet the duties test, with advance notice where required.

This ruling offers a chance to review employee classifications and job duties. Yeo & Yeo’s HR Advisory and Payroll Solutions Groups can help you navigate these changes. Contact us.

As the end of the year draws near, savvy taxpayers look for ways to reduce their tax bills. This year, the sense of urgency is higher for many because of some critical factors.

Indeed, many of the Tax Cuts and Jobs Act provisions are set to expire at the end of 2025, absent congressional action. However, with President-Elect Donald Trump set to take power in 2025 and a unified GOP Congress, the chances have greatly improved that many provisions will be extended or made permanent. With these factors in mind, here are tax-related strategies to consider before year end.

Bunching itemized deductions

For 2024, the standard deduction is $29,200 for married couples filing jointly, $14,600 for single filers, and $21,900 for heads of households. “Bunching” various itemized deductions into the same tax year can offer a pathway to generating itemized deductions that exceed the standard deduction.

For example, you can claim an itemized deduction for medical and dental expenses that are greater than 7.5% of your adjusted gross income (AGI). Suppose you’re planning to have a procedure in January that will come with significant costs not covered by insurance. In that case, you may want to schedule it before year end if it’ll push you over the standard deduction when combined with other itemized deductions.

Making charitable contributions

Charitable contributions can be a useful vehicle for bunching. Donating appreciated assets can be especially lucrative. You avoid capital gains tax on the appreciation and, if applicable, the net investment income tax (NIIT).

Another attractive option for taxpayers age 70½ or older is making a qualified charitable distribution (QCD) from a retirement account that has required minimum distributions (RMDs). For 2024, eligible taxpayers can contribute as much as $105,000 (adjusted annually for inflation) to qualified charities. This removes the distribution from taxable income and counts as an RMD. It doesn’t, however, qualify for the charitable deduction. You can also make a one-time QCD of $53,000 in 2024 (adjusted annually for inflation) through a charitable remainder trust or a charitable gift annuity.

Leveraging maximum contribution limits

Maximizing contributions to your retirement and healthcare-related accounts can reduce your taxable income now and grow funds you can tap later. The 2024 maximum contributions are:

$23,000 ($30,500 if age 50 or older) for 401(k) plans.
$7,000 ($8,000 if age 50 or older) for traditional IRAs.
$4,150 for individual coverage and $8,300 for family coverage, plus an extra $1,000 catch-up contribution for those age 55 or older for Health Savings Accounts.

Also keep in mind that, beginning in 2024, contributing to 529 plans is more appealing because you can transfer unused amounts to a beneficiary’s Roth IRA (subject to certain limits and requirements).

Harvesting losses

Although the stock market has clocked record highs this year, you might find some losers in your portfolio. These are investments now valued below your cost basis. By selling them before year end, you can offset capital gains. Losses that are greater than your gains for the year can offset up to $3,000 of ordinary income, with any balance carried forward.

Just remember the “wash rule.” It prohibits deducting a loss if you buy a “substantially similar” investment within 30 days — before or after — the sale date.

Converting an IRA to a Roth IRA

Roth IRA conversions are always worth considering. The usual downside is that you must pay income tax on the amount you transfer from a traditional IRA to a Roth. If you expect your income tax rate to increase in 2026, the tax hit could be less now than down the road.

Regardless, the converted funds will grow tax-free in the Roth, and you can take qualified distributions without incurring tax after you’ve had the account for five years. Moreover, unlike other retirement accounts, Roth IRAs carry no RMD obligations.

In addition, Roth accounts allow tax- and penalty-free withdrawals at any time for certain milestone expenses. For example, you can take a distribution for a first-time home purchase (up to $10,000), qualified birth or adoption expenses (up to $5,000 per child) or qualified higher education expenses (no limit).

Timing your income and expenses

The general timing strategy is to defer income into 2025 and accelerate deductible expenses into 2024, assuming you won’t be in a higher tax bracket next year. This strategy can reduce your taxable income and possibly help boost tax benefits that can be reduced based on your income, such as IRA contributions and student loan deductions.

If you’ll likely land in a higher tax bracket in the near future, you may want to flip the general strategy. You can accelerate income into 2024 by, for example, realizing deferred compensation and capital gains, executing a Roth conversion, or exercising stock options.

Don’t delay

With the potential for major tax changes on the horizon, now is the time to take measures to protect your bottom line. We can help you make the right moves for 2024 and beyond.

If you own a growing, unincorporated small business, you may be concerned about high self-employment (SE) tax bills. The SE tax is how Social Security and Medicare taxes are collected from self-employed individuals like you.

SE tax basics

The maximum 15.3% SE tax rate hits the first $168,600 of your 2024 net SE income. The 15.3% rate is comprised of the 12.4% rate for the Social Security tax component plus the 2.9% rate for the Medicare tax component. For 2025, the maximum 15.3% SE tax rate will hit the first $176,100 of your net SE income.

Above those thresholds, the SE tax’s 12.4% Social Security tax component goes away, but the 2.9% Medicare tax component continues for all income.

How high can your SE tax bill go? Maybe a lot higher than you think. The real culprit is the 12.4% Social Security tax component of the SE tax, because the Social Security tax ceiling keeps getting higher every year.

To calculate your SE tax bill, take the taxable income from your self-employed activity or activities (usually from Schedule C of Form 1040) and multiply by 0.9235. The result is your net SE income. If it’s $168,600 or less for 2024, multiply the amount by 15.3% to get your SE tax. If the total is more than $168,600 for 2024, multiply $168,600 by 12.4% and the total amount by 2.9% and add the results. This is your SE tax.

Example: For 2024, you expect your sole proprietorship to generate net SE income of $200,000. Your SE tax bill will be $26,706 (12.4% × $168,600) + (2.9% × $200,000). That’s a lot!

Projected tax ceilings for 2026–2033

The current Social Security tax on your net SE income is expensive enough, but it will only worsen in future years. That’s because your business income will likely grow, and the Social Security tax ceiling will continue to increase based on annual inflation adjustments.

The latest Social Security Administration (SSA) projections (from May 2024) for the Social Security tax ceilings for 2026–2033 are:

2026 – $181,800
2027 – $188,100
2028 – $195,900
2029 – $204,000
2030 – $213,600
2031 – $222,900
2032 – $232,500
2033 – $242,700

Could these estimated ceilings get worse? Absolutely, because the SSA projections sometimes undershoot the actual final numbers. For instance, the 2025 ceiling was projected to be $174,900 just last May, but the final number turned out to be $176,100. But let’s say the projected numbers play out. If so, the 2033 SE tax hit on $242,700 of net SE income will be a whopping $37,133 (15.3% × $242,700).

Disconnect between tax ceiling and benefit increases

Don’t think that Social Security tax ceiling increases are linked to annual Social Security benefit increases. Common sense dictates that they should be connected, but they aren’t. For example, the 2024 Social Security tax ceiling is 5.24% higher than the 2023 ceiling, but benefits for Social Security recipients went up by only 3.2% in 2024 compared to 2023. The 2025 Social Security tax ceiling is 4.45% higher than the 2024 ceiling, but benefits are going up by only 2.5% for 2025 compared to 2024.

The reason is that different inflation measures are used for the two calculations. The increase in the Social Security tax ceiling is based on the increase in average wages, while the increase in benefits is based on a measure of general inflation.

S corporation strategy

While your SE tax bills can be high and will probably get even higher in future years, there may be potential ways to cut them to more manageable levels. For instance, you could start running your business as an S corporation. Then, you can pay yourself a reasonably modest salary while distributing most or all of the remaining corporate cash flow to yourself. That way, only your salary would be subject to Social Security and Medicare taxes. Contact us if you have questions or want more information about the SE tax and ways to manage it.

As year end closes in and you prepare for 2025, Yeo & Yeo’s Payroll Solutions Group would like to inform you of important payroll updates that will affect you and your employees next year.

Our 2025 Payroll Planning Brief includes several payroll changes that take effect in the coming year and items to consider before year end. Most notably, beginning February 21, 2025, almost all businesses and organizations operating in Michigan will be subject to new minimum wage and paid sick time requirements. Learn more about the Improved Workforce Opportunity Wage Act (IWOWA) and Earned Sick Time Act (ESTA) changes on Yeo & Yeo’s resource page.

Note: On November 7, two bills were introduced in the Michigan House to amend both IWOWA and ESTA. With the legislative session ending on December 16, swift action on these bills is expected, which would revamp what is currently in place.

Watch Yeo & Yeo’s website and future eAlerts for new developments.

Need guidance on closing 2024, preparing for 2025 payroll, or meeting payroll deadlines? Contact the payroll professionals at Yeo & Yeo.

Download 2025 Payroll Planning Brief

If you’re charitably inclined and itemize deductions, you may be entitled to deduct charitable donations. The key word is “may” because there are requirements you must meet. One such requirement is the need to substantiate charitable gifts with proper documentation that will satisfy the IRS. Indeed, a charitable gift may be legitimate, but if the taxpayer fails to substantiate it properly, the deduction may be lost.

Making cash donations

Cash donations, regardless of the amount, must be substantiated with one of the following:

Bank records. These can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements.

Written communication. This can be in the form of a letter or email from the charitable organization, showing the donee’s name, the contribution date and the amount. A blank pledge card furnished by the donee isn’t sufficient.

In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgment (CWA) from the donee that details the following:

The contribution amount, and
A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.

You can use a single document to meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.

Making noncash donations

You must substantiate noncash donations of less than $250 with a receipt from the donee showing the donee’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements depending on the size of the donation:

Donations of $250 to $500 require a CWA.
Donations over $500 but not more than $5,000 require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property, its fair market value and the method of determining that value.
Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and complete Section B of Form 8283 (signed by the appraiser and the donee). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or any donation valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.

Additional rules may apply to certain types of property, such as vehicles, clothing, household items or securities.

The rules are complex

The regulations on substantiating charitable donations are complex, and one mistake can cause you to lose valuable tax deductions. When in doubt, contact us to ensure you follow all the rules correctly.

President-elect Donald Trump will return to the White House in 2025 — a year that already was expected to see significant activity on the federal tax front. A projected unified GOP Congress is poised to help him notch early legislative tax victories. (Republicans have won back a majority in the U.S. Senate and retained a majority in the U.S. House of Representatives.) The most obvious legislative win will likely be the extension and expansion of Trump’s signature 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA).

While Trump didn’t issue detailed tax policies during the campaign, he briefly proposed several measures on the trail that could be included in a TCJA update or other law. Let’s take a closer look at what might be on the table for business and individual taxpayers in 2025 and beyond.

The TCJA’s ticking clock

The TCJA brought wide-ranging changes to the federal tax landscape, including:

A 21% corporate income tax rate,
Lower marginal tax rates for individuals,
A higher standard deduction,
The doubling of the Child Tax Credit for some parents,
The creation of a qualified business income deduction for pass-through entities, and
The doubling of the federal gift and estate tax exemption.

Although most of the corporate provisions are permanent, many TCJA provisions regarding individual taxes, as well as the doubled gift and estate tax exemption, are scheduled to expire at the end of 2025. Trump has endorsed extending those tax breaks. The nonpartisan Congressional Budget Office has estimated that the 10-year cost of permanently extending the expiring provisions will ring in at $4.6 trillion.

Additional proposals affecting business taxes

During the campaign, Trump proposed several tax changes that businesses would welcome. For example, he would further reduce the corporate tax rate, to 15%, for companies that make their products in the United States.

He also has called for two changes that may have bipartisan support. Trump would allow companies to immediately expense their research and experimentation costs, rather than capitalize and amortize them, and return to 100% first-year bonus depreciation for qualifying capital investments. Under the TCJA, the allowable first-year bonus deduction is 60% for 2024, and for 2025 it’s slated to be 40%. Without congressional action, it will drop to zero in 2027.

In addition, Trump has spoken of doubling the ceiling on the Sec. 179 expensing deduction for small businesses’ qualifying investments in equipment. The TCJA permanently capped the deduction at $1 million, adjusted annually for inflation ($1.22 million for 2024). The deduction is subject to a phaseout when the cost of qualifying purchases exceeds $2.5 million ($3.05 million for 2024, adjusted for inflation).

Additional proposals affecting individual taxes

One TCJA provision that Trump has expressed second thoughts about is the $10,000 cap on the state and local tax deduction. The cap, which hits taxpayers hardest in states with high property taxes, is set to expire after 2025. Congress could just let it expire or even terminate it early, depending on how quickly lawmakers can move tax legislation.

A TCJA expansion or additional legislation could incorporate Trump’s promises to eliminate taxes on tips for restaurant and hospitality workers. (It’s unclear if he was referring only to federal income taxes or also payroll taxes.) Without limitations, such a provision could benefit individuals who restructure their compensation to reduce their tax bills by, for example, classifying bonuses as tips.

Trump has also proposed excluding overtime pay and Social Security payments from taxation. It’s worth noting that a Trump administration may reduce the number of employees eligible for overtime. And exempting Social Security benefits would shrink the funding for both that program and Medicare. In addition, the president-elect has proposed a new deduction for interest on car loans for vehicles manufactured in the United States and a reduction in taxes for Americans living abroad.

Trump also said he’d consider making police officers, firefighters, active duty military members and veterans exempt from paying federal taxes. And in a social media post, he wrote that if he won, hurricane victims could deduct the cost of a home generator, retroactive to September 1, 2024.

The threat of tariffs

Trump has repeatedly pledged to impose a baseline tariff of 10% on imported goods, with a 60% tariff on imports from China and possibly a higher tariff on imports from Mexico. Taxpayers likely will face higher prices as a result.

Although Trump routinely claims that the exporting countries will bear the cost of the tariffs, history suggests otherwise. The more common scenario is that U.S. companies that buy imported goods pass the tariffs along to their customers, opening the door for their competitors that don’t purchase imports to similarly raise their prices. Some major U.S. companies and the National Retail Federation have already warned that if Trump’s tariff proposals come to fruition, higher prices on many products may follow.

Rollback of the IRA

The GOP has had the Inflation Reduction Act (IRA) in its crosshairs since the law first passed with zero Republican votes. Trump has vowed to cut unspent funds allocated for the IRA’s tax incentives for clean energy projects. He also may want to eliminate the business and individual tax credits going forward.

But a significant number of clean energy manufacturing projects that rely on the credits are planned or underway in Republican districts and states, which could give the GOP pause. In fact, a group of Republican legislators signed a letter to Speaker of the House Mike Johnson this past August, opposing a full repeal of the IRA. Trump could instead advocate for keeping some of the tax credits or restricting them, for example, through tighter eligibility requirements.

Stay tuned

While it’s always dicey to assume that candidates can deliver on big campaign promises, one thing is certain — 2025 will be a critical year for tax legislation. In addition to the issues discussed above, so-called “tax extenders” for various temporary business and individual tax provisions will come up for debate. We’ll keep you apprised of the developments that could affect your tax liability.

Properly prepared financial statements provide a wealth of information about your company. But the operative words there are “properly prepared.” Classifying information accurately isn’t always easy — especially as the business grows and its financial transactions become more complex.

Case in point: your statement of cash flows. Customarily, it shows the sources (money entering) and uses (money exiting) of cash. That may sound simple enough, but optimally classifying different cash flows can be complicated.

Under U.S. Generally Accepted Accounting Principles (GAAP), statements of cash flows are typically organized into three sections: 1) cash flows from operating activities, 2) cash flows from investing activities, and 3) cash flows from financing activities. Let’s take a closer look at each.

Operating activities

This section of the statement of cash flows usually starts with accrual-basis net income. Then, it’s adjusted for items related to normal business operations. Examples include income taxes; stock-based compensation; gains or losses on asset sales; and net changes in accounts receivable, inventory, prepaid assets, accrued expenses and payables.

The cash flows from operating activities section is also adjusted for depreciation and amortization. These noncash expenses reflect wear and tear on equipment and other fixed assets.

The bottom of the section shows the cash used in producing and delivering goods or providing services. Several successive years of negative operating cash flows can signal that a business is struggling and may be headed toward liquidation or a forced sale.

Investing activities

If your company buys or sells property, equipment or marketable securities, such transactions should show up in the cash flows from investing activities section. It reveals whether a business is reinvesting in its future operations — or divesting assets for emergency funds.

Business acquisitions and disposals are generally reported in this section, too. However, contingent payments from an acquisition are classified as cash flows from investing activities only if they’re paid soon after the acquisition date. Later contingent payments are classified as financing outflows. Any payment over the liability is classified as an operations outflow.

Financing activities

This third section of the statement of cash flows shows your company’s ability to obtain funds from either debt from lenders or equity from investors. It includes new loan proceeds, principal repayments, dividends paid, issuances of securities or bonds, additional capital contributions by owners, and stock repurchases.

Noncash transactions are reported in a separate schedule at the bottom of the statement of cash flows or in a narrative footnote disclosure. For example, suppose a business buys equipment using loan proceeds. In such a case, the transaction would typically appear at the bottom of the statement rather than as a cash outflow from investing activities and an inflow from financing activities.

Other examples of noncash financing transactions are:

Issuing stock to pay off long-term debt, and
Converting preferred stock to common stock.

In those two instances and others, no cash changes hands. Nonetheless, financial statement users, such as investors and lenders, want to know about and understand these transactions.

Help is available

As you can see, deciding how to classify some transactions to comply with GAAP can be tricky. Whenever confusion or uncertainty arises, give us a call. We can work with you and your accounting team to make the best decision. We can also help you improve your financial reporting in other ways.

Financial statements help managers, lenders and investors evaluate a company’s financial performance. But they tell only part of the story — and they might not reveal financial distress until it’s too late, especially for companies that issue only annual reports. So it’s critical to watch for these five common warning signs indicating a company may be struggling to make ends meet:

1. Financial reporting delays. Late financial statements may signal unqualified accounting personnel, inadequate recordkeeping or even fraud. In some cases, the company’s controller or CFO may be reluctant to show uninformed owners how severe the situation has become. Or management may procrastinate over concerns that lenders will call loans or refuse to waive covenant violations.

2. High employee turnover. Employees, who are often the first to recognize problems, may abandon ship when they’re aware of financial distress. In particular, stock options motivate employees to leave the company before their options lose additional value. Turnover is especially problematic when it involves hard-to-replace executives because it can have a ripple effect that lowers morale for the remaining staff.

3. Fixed asset auctions. Healthy companies routinely invest in new equipment and upgrades. However, struggling companies may sell fixed assets to boost operating cash flow. Auctions bridge temporary cash shortages and help purge a company of idle or outdated equipment. Unfortunately, they don’t always work as intended. Auctioning equipment compromises a company’s ability to generate future income, especially if management liquidates valuable operating assets at fire-sale prices.

4. Questionable accounting practices. When business owners try to hide deteriorating performance, they often devise creative accounting strategies to increase sales and profits. For example, a company may engage in above- or below-market, related-party transactions. Management might also make aggressive accounting estimates to overstate asset values or earnings.

5. Frequent or haphazard loan requests. Maxed-out credit lines and frequent new loan applications may indicate something’s awry. Each time a company asks for loan proceeds, it should have a detailed plan for how management will use the funds. When cash is tight and loan requests are denied, stressed business owners may become desperate. For instance, they might take on debt with unfavorable terms or use their personal credit cards to fund their companies’ working capital needs.

Be on the lookout

Company insiders are usually better equipped to notice these distress signals sooner than outside stakeholders. However, ongoing due diligence can help. For instance, if you have a financial interest in a particular company, consider reviewing news stories for recent developments, following the company and key employees on social media, scheduling quarterly meetings with management, and visiting facilities that are publicly accessible (such as retail stores and job sites). A lender or franchisor who suspects a company’s performance is deteriorating may even request an agreed-upon procedures engagement that targets perceived weaknesses and recommends possible improvements. Contact us for more information.

The outcome of the November 5 election is likely to significantly impact taxes. Many provisions in President-elect Donald Trump’s signature tax legislation from his first time in the White House, the Tax Cuts and Jobs Act (TCJA), are scheduled to expire at the end of 2025. Now, there’s a better chance that most provisions will be extended.

This is especially true as Republicans have won back a majority in the U.S. Senate. As of this writing, Republicans have 52 seats, with a few seats yet to be called, so their majority could grow. The balance of power in the U.S. House of Representatives remains up in the air, with quite a few seats yet to be called.

In addition to the TCJA, the former and future president has suggested many other tax law changes during his campaign. Here’s a brief overview of some potential tax law changes:

Expiring provisions of the TCJA. Examples of expiring provisions include lower individual tax rates, an increased standard deduction, and a higher gift and estate tax exemption. The president-elect would like to make the TCJA’s individual and estate tax cuts permanent. He’s also indicated that he’s open to revisiting the TCJA’s $10,000 limit on the state and local tax deduction.

Business taxation. President-elect Trump has proposed decreasing the corporate tax rate from its current 21% to 20% (or even lower for companies making products in America). He’d also like to expand the Section 174 deduction for research and development expenditures.

Individual taxable income. The president-elect has proposed eliminating income and payroll taxes on tips for restaurant and hospitality workers, and excluding overtime pay and Social Security benefits from taxation.

Housing incentives. President-elect Trump has alluded to possible tax incentives for first-time homebuyers but without specifics. The Republican platform calls for reducing mortgage rates by slashing inflation, cutting regulations and opening parts of federal lands to new home construction.

Tariffs. The president-elect has called for higher tariffs on imports, suggesting a baseline tariff of 10%, with a 60% tariff on imports from China. (In speeches, he’s proposed a 100% tariff on certain imported cars.)

Which extensions and proposals will actually come to fruition will depend on a variety of factors. For example, Congress has to pass tax bills before the president can sign them into law. If you have questions on how these potential changes may affect your overall tax liability, please contact us.

The IRS has issued its 2025 inflation-adjusted contribution amounts for retirement plans in Notice 2024-80. Many retirement-plan-related limits will increase for 2025 — but less than in prior years. Thus, depending on the type of plan you have, you may have limited opportunities to increase your retirement savings.

Type of limitation	2024 limit	2025 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans	$23,000	$23,500
Annual benefit limit for defined benefit plans	$275,000	$280,000
Contributions to defined contribution plans	$69,000	$70,000
Contributions to SIMPLEs	$16,000	$16,500
Contributions to traditional and Roth IRAs	$7,000	$7,000
Catch-up contributions to 401(k), 403(b) and 457 plans for those age 50 or older	$7,500	$7,500
Catch-up contributions to 401(k), 403(b) and 457 plans for those age 60, 61, 62 or 63*	N/A	$11,250
Catch-up contributions to SIMPLE plans for those age 50 or older	$3,500	$3,500
Catch-up contributions to SIMPLE plans for those age 60, 61, 62 or 63*	N/A	$5,250
Catch-up contributions to IRAs for those age 50 or older	$1,000	$1,000
Compensation for benefit purposes for qualified plans and SEPs	$345,000	$350,000
Minimum compensation for SEP coverage	$750	$750
Highly compensated employee threshold	$155,000	$160,000

* A change that takes effect in 2025 under SECURE 2.0

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2025:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
- For a spouse who participates, the 2025 phaseout range limits will increase by $3,000, to $126,000–$146,000.
- For a spouse who doesn’t participate, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2025 phaseout range limits will increase by $2,000, to $79,000–$89,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,000 contribution limit for 2025 (plus $1,000 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
For single and head-of-household taxpayers, the 2025 phaseout range limits will increase by $4,000, to $150,000–$165,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for traditional and Roth IRAs.)

Revisit your retirement plan

To better ensure that your retirement plans remain on track, consider these 2025 inflation-adjusted contribution limits. We can help you review your plans and make any necessary modifications.