November 2025 Newsletter

Unlocking Tax Savings with Deductions Beyond Itemizing

In the complex world of tax deductions, understanding the distinctions between above-the-line deductions, below-the-line deductions, and standard and itemized deductions is crucial for effective tax planning. Each category serves a distinct purpose within the tax code, impacting how taxable income is calculated and influencing the overall tax liability of individuals.

• Above-the-line deductions, also known as “adjustments to income,” are beneficial as they can be deducted whether a taxpayer chooses to itemize their deductions or uses the standard deduction. The above-the-line deductions are a group of deductions not included as an itemized deduction. In addition, above-the-line deductions reduce a taxpayer’s gross income to produce the Adjusted Gross Income (AGI). A lowered AGI can be critical in determining your eligibility for additional tax credits and deductions, as many tax benefits are either limited or phased out based on AGI thresholds. Here is a more detailed explanation of many of the above-the-line deductions:

1. Foreign Earned Income Exclusion: The Foreign Earned Income Exclusion allows eligible U.S. citizens and resident aliens living and working abroad to exclude a specified amount of foreign earned income from their U.S. federal taxable income. For 2025, the exclusion limit is $130,000 plus a housing exclusion which are taken below-the-line.
2. Educator Expenses: This deduction allows eligible educators, including teachers, instructors, counselors, principals, and aides, to deduct up to $300 of unreimbursed expenses incurred for classroom supplies and professional development courses. This includes books, supplies, computer equipment, and other materials used in the classroom.
3. Health Savings Account (HSA) Contributions: Taxpayers who participate in a high-deductible health plan (HDHP) can contribute to an HSA, which allows for tax-free savings designated for medical expenses. Contributions can be made by the individual or their employer, and the deducted amount helps lower the taxpayer’s AGI.
4. Self-Employed Retirement Plan Contributions: Self-employed individuals can deduct contributions made to retirement plans such as SEP IRAs, SIMPLE IRAs, and qualified plans (like 401(k)s). These contributions reduce taxable income and help self-employed taxpayers save for retirement with potential tax-deferred growth. This deduction is for the retirement plan contributions made for the benefit of the self-employed individual and shouldn’t be confused with the contributions the self-employed individual makes as an employer toward a retirement plan for employees, which would be a business deduction.
5. Self-Employed Health Insurance Premiums: This deduction allows self-employed individuals to deduct health insurance premiums paid for themselves, their spouses, dependents, and any children under age 27, even if the child is not considered a dependent. The deduction is particularly beneficial as it provides relief from high healthcare costs while lowering taxable income.
6. Alimony Payments: For divorce agreements finalized before 2019, the payer can deduct alimony payments made to a former spouse. This deduction is intended to offer tax relief to the paying spouse by decreasing the taxable income. However, under the Tax Cuts and Jobs Act, this deduction is not applicable to divorces finalized after December 31, 2018.
7. Student Loan Interest: This deduction allows borrowers to deduct up to $2,500 of interest paid on qualified student loans used for higher education expenses. The deduction is phased out at higher income levels but provides substantial relief by reducing taxable income for those eligible.
8. IRA Contributions: Taxpayers who contribute to a traditional IRA are allowed a deduction of up to $7,000 ($8,000 if over age 50) per year provided they have earned income of at least as much as the amount contributed. The limit is periodically adjusted for inflation. Contributions to Roth IRAs are not deductible.
9. Military Moving Expenses: Military moving expenses refer to the costs associated with relocating service members due to a permanent change of station (PCS). These expenses can include transportation, lodging, and shipment of personal goods. For active-duty members of the Armed Forces, the unreimbursed costs incurred during a PCS move are deductible. Beginning in 2026 members of the Intelligence Community will also qualify for this deduction.
10. Early Withdrawal Penalty: Taxpayers who incur penalties for early withdrawal of savings, commonly from certificates of deposit (CDs) or similar savings instruments, can deduct these penalties. The deduction offsets the income generated from the withdrawal, reducing overall taxable income.
11. Contributions to Archer MSAs: A Medical Savings Account (MSA) is a tax-advantaged account designed to help individuals save for future medical expenses. These accounts, which were created almost 30 years ago, were intended for self-employed individuals and employees of small businesses. They have generally been supplanted by HSAs, which have less restrictive contribution and broader eligibility rules.
12. Jury Duty Pay Given to Employer: Jury duty pay is taxable, but when the employer continues an employee’s compensation when on jury duty, the employee generally will be required to turn over their jury duty pay to the employer. Without this deduction, the employee would be taxed twice on the jury duty compensation.

• Below-the-line deduction is a term that has been slowly transformed by Congress. It used to predominantly refer to either the standard deduction or the itemized deduction. However, the term has taken on a new meaning as Congress has added deductions that reduce taxable income but not adjusted gross income and are available in addition to whether the taxpayer itemizes deductions or takes the standard deduction. The One Big Beautiful Bill act (OBBBA) has more doubled the number of deductions in this category. Here is a rundown of these deductions.

1. 199A pass-through deduction: The Section 199A pass-through deduction for 2025 offers a tax benefit to non-C corporation business owners. It allows a deduction generally equal to 20% of qualified business income (QBI) from various pass-through business activities, such as sole proprietorships, partnerships, S-corporations, rentals, farms, REITs, and publicly traded partnerships. Recent updates under the OBBBA 2025 legislation make this deduction permanent starting in 2026 and introduce a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from active trades or businesses in which they materially participate.
2. Disaster related deductions: Disaster-related deductions generally refer to casualty loss deductions that taxpayers can claim for damages or losses caused by federally declared disasters. These deductions are designed to help individuals and businesses alleviate financial burdens resulting from events like hurricanes, earthquakes, or floods. Disaster-related losses from federally declared disasters can be claimed as qualified disaster losses, which offer unique tax advantages. These losses can be deducted in addition to your standard or itemized deductions, without having to itemize other deductions on your tax return.
3. Senior Deduction: The OBBBA, has added a temporary senior deduction for years 2025 through 2028. This deduction is $6,000 for eligible single filers aged 65 and over and $12,000 for married couples filing jointly where both spouses are 65 or older. The deduction phases when AGI reaches $150,000 for married joint filers or $75,000 for others. It does not take the place of the additional standard deduction allowed to those age 65 and older.
4. Non-itemizer charitable deduction: The non-itemizer charitable deduction created by the One Big Beautiful Bill (OBBB) is available for tax years beginning in 2026. This deduction is permitted for substantiated cash only donations with a maximum deduction of$1,000 for single filers and $2,000 for married couples filing jointly. Donations to donor-advised funds and non-operating private foundations do not qualify for this deduction.
5. Car Loan Interest Deduction: The One Big Beautiful Bill Act (OBBBA) added a car loan interest deduction temporarily available for tax years 2025 through 2028. The vehicle must be new and for personal use. It must have a final assembly in the United States. The loan must be secured by the vehicle and originated after December 31, 2024. The maximum annual deduction is $10,000. The deduction begins to phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) over $100,000 for single filers and $200,000 for joint filers.
6. Tips Deduction: The OBBBA tips deduction is temporary and available for the tax years 2025 through 2028. The deductible tips are limited to $25,000 annually per tax return. To be eligible, tips must have been received in an occupation that customarily and regularly received tips before December 31, 2024. The IRS is scheduled to publish a list of qualifying occupations. The deduction reduces federal income tax, but tips are still subject to Social Security and Medicare taxes (FICA). In addition, the deduction is reduced for higher-income earners, starting at a Modified Adjusted Gross Income (MAGI) of $150,000 for single filers and $300,000 for those married filing jointly.
7. Overtime Pay Deduction: Another provision in the OBBBA is an overtime pay deduction available for tax years 2025 through 2028. The maximum annual deduction is $12,500 for single filers and $25,000 for married couples filing jointly. Only the premium portion of overtime pay is deductible. For “time-and-a-half” pay, this is the “half” that exceeds your regular rate. To be eligible, the taxpayer must be a W-2 employee, and the overtime must be required by the Fair Labor Standards Act (FLSA). The deduction begins to phase out for taxpayers with a modified AGI over $150,000 for single filers or $300,000 for joint filers.

In conclusion, while itemizing deductions often garners much attention, it is essential to recognize that numerous deductions remain available even if you don’t itemize. These can significantly impact your taxable income, offering opportunities for tax savings across various situations. Whether it’s deductions for student loan interest, educator expenses, or certain retirement plan contributions, being informed about these avenues can make a substantial difference come tax season. For taxpayers, the choice between taking the standard deduction or itemizing deductions is pivotal. The standard deduction for 2025, which was enhanced by the OBBBA, is set at $15,750 for single filers, $31,500 for married couples filing jointly, and $23,625 for heads of household. Meanwhile, itemized deductions cover areas such as medical expenses, property taxes, mortgage interest, and charitable donations. Choosing the optimal path—whether sticking with the simplicity of the standard deduction or delving into the details with itemized deductions—depends on your specific financial picture. Whichever route you take, maximizing your allowable deductions ensures that you keep more of what you earn. Contact this office with questions.

When Your S-Corp Investment Tanks: Can You Write It Off — and When?

You’ve lost money — now you’re wondering if you can at least get a tax break for it. You believed in your business. You invested in an S-corporation — maybe as a founder, maybe as an early investor — and now things have gone south. The company’s struggling, cash is gone, optimism’s fading. You’re staring at your tax return and wondering: “Can I just write this off and move on?” It’s one of the most common questions we hear from entrepreneurs and investors. And like most tax questions, the answer is: it depends — but only on facts, not feelings.Step 1: Understand what “worthless” really means For tax purposes, your investment isn’t worthless just because business is bad. The IRS has a strict definition: a stock (including your S-corp shares) is worthless only when it has no current or potential future value. That means:

• The corporation has stopped operating,
• It has no remaining assets,
• There’s no plan or potential to resume operations, and
• Shareholders have no realistic chance of getting anything back.

In other words, the company has to be dead, not just in a coma. If your S-corp is limping along — maybe taking small contracts, maybe keeping the bank account open — the IRS still sees value, even if it’s tiny. Until it’s truly gone, there’s no deduction. Step 2: The IRS wants proof — not vibes You can’t just say, “It’s worthless.” You have to show it. The IRS looks for what they call identifiable events — things that prove your stock no longer has value. Examples include:

• Formal dissolution or liquidation filed with the state
• Bankruptcy where liabilities exceed assets, and no plan exists to reorganize
• Foreclosure or sale of all assets
• Official closure of operations with no future business activity
• Statements or legal documents confirming equity holders won’t recover anything

Those are concrete, documentable events. What doesn’t count?

• You “feel” the company’s done.
• You haven’t gotten updates in a while.
• It’s been unprofitable for years but still technically open.

Those don’t meet the standard of worthlessness.

Step 3: Timing is everything — the deduction only counts once You only get to claim the deduction once — and it has to be in the year your investment becomes truly worthless. If you take it too early, the IRS can deny it. If you take it too late, you may lose it. So the challenge is pinpointing the right year. This is where a tax professional can help you document the facts: when operations ceased, when assets were liquidated, and when there was no longer any realistic chance of recovery. It’s part art, part accounting, and all about the paper trail.

Step 4: You can only deduct what you actually have basis for Even when a stock becomes worthless, you can’t deduct more than your basis. Your basis includes: What you invested (cash or property), plus Your share of any S-corp income, minus Any prior losses or distributions you’ve already taken. So, if your basis has already been reduced to zero by previous losses, you can’t deduct more — even if you emotionally feel like you lost everything. That’s why it’s crucial to track your basis over time. It determines what you can deduct now and what must wait.

Step 5: What if you also lent money to the S-corp? Many owners not only invest in stock — they also loan money to their corporation. When the business fails, those loans might not be repaid. In that case, you may be able to claim a bad debt deduction — but only if the loan was legitimate (documented, interest-bearing, etc.) and not a disguised capital contribution. Here’s the difference:

• Genuine loans→ potentially deductible as business or nonbusiness bad debt
• Extra investments or informal loans→ likely treated as equity, not deductible until the stock is worthless

Again, documentation wins here.

Step 6: What if the company comes back from the dead? It happens. A buyer steps in, the brand revives, or some assets are recovered. If you already deducted the loss and the investment later regains value, the IRS says that the recovery is taxable income in the year it comes back. You don’t amend your old return — you just recognize new income. So it’s not the end of the world, but it is a reason to be conservative about declaring a total loss too early.

Step 7: Worthless stock vs. capital loss — what’s the difference? When an S-corp investment becomes worthless, it’s treated as if you sold your stock for $0 on the last day of the tax year. That means it’s generally a capital loss, reported on Schedule D. However, if your losses flowed through on the S-corp K-1 before the business folded, those may have already been deducted (to the extent of your basis) on Schedule E. That’s why it’s crucial to coordinate:

• K-1 losses reduce basis as they happen
• Worthless stock deduction takes care of what’s left when the company finally dies

Handled correctly, you can often time these to minimize tax impact over multiple years.

Step 8: Why planning ahead can save you thousands There’s a reason smart investors and business owners talk to their tax professional before writing off an investment:

• The timing can change your tax bracket impact.
• Your capital loss carryforwards may already be maxed out.
• Loan vs. equity treatment may affect whether you get an ordinary or capital loss.
• Basis calculations can prevent over-claiming and penalties later.

Planning before you pull the trigger can turn a financial loss into a strategic tax opportunity — while keeping you safely on the right side of the IRS.

Real talk: This isn’t about “getting away with” anything Writing off an S-corp investment isn’t a loophole. It’s not creative accounting. It’s about claiming a legitimate loss, at the right time, with the right evidence. There’s no gray area if you document it properly and stay aligned with IRS guidance. The risk comes when people guess. So before you try to “zero it out,” let’s talk through the facts — your investment, your basis, your documentation — and decide the right year and approach.

Let’s plan your next step Thinking about writing off your S-corp investment? Don’t make that call alone. Our team helps investors and small business owners determine:

• Whether their stock or loan is truly worthless
• How to calculate and substantiate their basis
• When to time the deduction for maximum tax benefit
• What to expect if the business ever revives

Let’s take a closer look at your situation — before the IRS does. Contact our team to plan ahead.

Why Cash Flow Planning Gets Harder as You Grow

Growth Feels Great—Until It Doesn’t At first, running your business feels simple: money comes in, bills go out, and if there’s something left over, you’re doing fine. Then growth happens. More clients. Bigger projects. Higher payroll. Maybe even a second location. Suddenly, cash doesn’t flow the way it used to. You’re booking record sales, but your bank balance looks… thin. You’re working harder than ever, yet the pressure to make next week’s payments feels heavier. Welcome to the paradox of growth: the bigger your business gets, the tighter cash flow can feel.

Why Growing Businesses Feel Cash-Poor It’s not bad management—it’s math. As revenue grows, so do:

• Accounts receivable: Clients take longer to pay larger invoices.
• Inventory or project costs: You spend cash weeks (or months) before you earn it back.
• Payroll: Growth usually means more people—and payroll hits like clockwork, even when customer payments don’t.
• Taxes: Higher profits mean higher estimated payments that pull cash out of your account quarterly.

Growth stretches the timing gap between money going out and money coming in. Without a system to monitor and forecast it, you’re flying blind.

The Shift: From Bookkeeping to Cash Flow Strategy Most small businesses start with simple bookkeeping: track what you earned, record what you spent, file the taxes. But once you grow, you need something more—cash flow management that looks ahead, not just backward. That’s where financial professionals make all the difference. They can help you:

• Forecast inflows and outflows weeks or months in advance.
• Spot cash gaps early—and plan around them.
• Build reserves for seasonality or growth spurts.
• Model “what-if” scenarios (new hires, equipment purchases, expansions) before you commit.

In other words, they help you turn growth from a guessing game into a system.

Real-World Example: The Busy-but-Broke Dilemma One of our clients doubled revenue in a year—then almost ran out of cash. Why? Every big new contract required more up-front costs and staff before payments arrived. Once we mapped cash flow month by month, they saw the problem clearly. With a few tweaks—changing invoice terms, adjusting payroll timing, and setting up a short-term credit line—they moved from panic to predictability. The revenue didn’t change. The system did.

Bottom Line Growth brings opportunity—but it also brings complexity. What used to fit on a spreadsheet now needs structure, foresight, and strategy. If your business is growing fast but cash feels tight, it’s time to move beyond basic bookkeeping.

Contact our firm today to build a cash flow plan that grows as smart as you do.

IRS Shifts to Paperless Refunds: What This Might Mean for You

Article Highlights:

• Executive Order
• The Impetus Behind the Transition
• Challenges Facing Unbanked Taxpayers
• Proposed Solutions and Alternatives

In a move set to redefine the refund process, the Internal Revenue Service (IRS), in collaboration with the U.S. Department of Treasury, has announced the gradual phasing out of paper tax refund checks starting September 30, 2025, as mandated by Executive Order 14247. This transition to electronic refunds marks a significant shift aimed at modernizing the system to enhance efficiency and security. However, it brings with it a complex set of challenges, especially for individuals who are unbanked or underbanked. Here, we delve into what this means for taxpayers and explore the options available for those without access to traditional banking services.

The Impetus Behind the Transition The transition to electronic refunds is based on several compelling advantages. Compared to paper checks, electronic payments are over 16 times less likely to be lost, stolen, or delayed, offering a more secure method for taxpayers to receive their refunds. Faster IRS processing times also mean that electronic refunds can be issued in less than 21 days if the returns are filed electronically and there are no issues, as opposed to the several weeks it can take for non-electronic payments. Additionally, the cost benefits are significant. Electronic payments reduce the costs associated with printing and mailing checks, thus allowing the Treasury to allocate resources more efficiently. During the 2025 tax season, a substantial 93% of federal tax refunds were already processed through direct deposit, indicating broad acceptance and feasibility of going paperless for the majority. This was accomplished because these taxpayers included their banking information on the tax returns they filed.

Challenges Facing Unbanked Taxpayers Despite these benefits, the transition presents distinct challenges for the approximately 7% of recipients who still depend on paper checks. For many, especially those without current banking services, this shift necessitates urgent attention to viable alternatives such as prepaid debit cards and digital wallets. The American Bar Association (ABA) has voiced concerns regarding the rapid timeline of this transition, cautioning that un- and underbanked individuals may face unforeseen difficulties. The ABA has recommended that steps be taken to expand access to basic banking services and to educate the public on the potential risks associated with prepaid cards, which can sometimes incur higher fees and offer less consumer protection. Moreover, the Tax Law Center has highlighted that prepaid cards, while a solution, might not be the most efficient option due to the nature of annual tax refunds in contrast to monthly benefits traditionally paid via prepaid methods. They stressed the need for careful implementation to avoid costs potentially outweighing the benefits.

Proposed Solutions and Alternatives To address these challenges, several recommendations and initiatives can help bridge the gap for those without a banking presence:

1. Prepaid Debit Cards: These cards offer an immediate solution that doesn’t require a traditional bank account. However, taxpayers should be aware of any associated fees and the process for reissuing cards for annual tax refunds.
2. Digital Wallets: Services such as PayPal and mobile banking apps are viable options for receiving electronic payments. These platforms can be accessed with minimal initial setup, offering an alternative to bank accounts.
3. BankOn Initiative: This program aims to provide low- or no-cost banking services to underserved communities. Taxpayers are encouraged to explore accounts certified by the BankOn initiative which feature low fees and no minimum balance requirements.
4. FDIC’s GetBanked Resources: Taxpayers can visit the FDIC’s GetBanked website for guidance on opening a simple bank account. Many institutions offer accounts with nominal fees and requirements, which can be an excellent start for those new to banking.
5. International Considerations: For taxpayers abroad, the current policy restricts direct deposits into foreign bank accounts. While advocacy continues for changes to allow international ACH transfers, relying on existing accounts within the U.S. remains a suggested pathway.

The IRS’s move to paperless refunds is both a forward-looking initiative and a logistical challenge, particularly for unbanked populations. The transition’s success hinges on making sure all taxpayers are adequately informed and have access to alternative financial services. By exploring and promoting viable solutions, taxpayers can mitigate potential disruptions in their refund process and embrace the efficiency of electronic payments. This change will not affect taxpayer’s already receiving paperless refunds. Contact this office with questions.

Understanding the Taxation of Lawsuit Settlements: What Taxpayers Need to Know

Article Highlights:

• Tax Treatment of Settlement Proceeds o Personal Physical Injuries or Physical Sickness o Emotional Distress or Mental Anguish o Lost Wages or Lost Profits o Punitive Damages o Business Damages o Interest and Property Settlements
• Deductibility of Attorney Fees and Its Impact o General Rule on Deductibility o Impact of Fees on Settlement Proceeds o Exceptions o Business Settlements
• Strategic Considerations for Taxpayers o Detailed Records o Settlement Structuring o Estimated Tax Payments

Receiving proceeds from a lawsuit settlement can significantly impact your financial situation, and understanding the tax implications is crucial for effective financial planning. The Internal Revenue Service (IRS) provides comprehensive guidelines on how to determine the taxability of different components of a settlement, which can include compensation for physical injuries, emotional distress, lost wages, attorney fees, and more. This article explores these aspects, emphasizing the tax treatment and the deductibility of attorney fees, ultimately influencing the net settlement proceeds received by taxpayers.

Tax Treatment of Settlement Proceeds The tax treatment of settlement proceeds hinges on the nature of the underlying claim. Understanding these categories will help you see what needs to be included in the wording of the claim and settlement, and ultimately how much will be reportable in your taxable income:

1. Personal Physical Injuries or Physical Sickness: Proceeds received from a settlement due to personal physical injuries or physical sickness are generally non-taxable. However, if you previously deducted medical expenses related to these injuries and received a tax benefit, that portion becomes taxable. This amount is reported as other income on the Form 1040.
2. Emotional Distress or Mental Anguish: Payments received for emotional distress or mental anguish are taxable unless they arise directly from a physical injury or sickness. If they do not originate from a physical condition, the taxable amount can be reduced by the medical expenses associated with emotional distress if such expenses were not previously deducted or were deducted without a tax benefit.
3. Lost Wages or Lost Profits: Settlements that cover lost wages, such as those from employment-related lawsuits (e.g., wrongful termination or discrimination), are taxable as wages and are subject to employment taxes. They should be reported on Line 1a of Form 1040. Similarly, settlements for lost business profits are subject to self-employment tax, since they are considered business income.
4. Punitive Damages: Punitive damages are financial compensation awarded to a plaintiff in a lawsuit that goes beyond what is necessary to compensate for losses. They are intended to punish the defendant for egregious or wrongful conduct and to deter similar actions in the future. These damages are distinguished from compensatory damages, which are meant solely to compensate the injured party for actual losses or harm suffered.Punitive damages are always taxable because they are considered a form of income under the Internal Revenue Code. The tax treatment aligns with the principle that these damages are not compensating for any physical injury or loss but rather serve as a financial penalty against the defendant. Since they are not linked to any personal injury or health condition, they do not fall under the non-taxable category typically afforded to damages received due to personal physical injuries or sickness and taxed as other income on the 1040.
5. Business Damages: Business settlements can arise from various disputes related to business operations, and their tax treatment can have significant implications. The tax treatment of a business settlement depends on the origin of the claim. Settlements typically fall into categories such as compensation for lost profits, damages to business reputation, or recovery of capital.
6. Compensatory Damages – If the settlement compensates for lost profits, it is generally taxable as ordinary income. These are treated as income because they are effectively replacing income the business would have otherwise earned.
7. Punitive Damages – Punitive damages are taxable. They are intended to punish the defendant rather than compensate the plaintiff for any loss, and thus they are considered a windfall to the plaintiff.
8. Capital Recoveries – Settlements that compensate for the destruction or damage to a capital asset, such as business-related real estate or equipment, might reduce the asset’s basis rather than be taxed as income. If it exceeds the adjusted basis of the asset, the remainder may be a capital gain.
9. Interest and Property Settlements: Interest accrued on any settlement, even if the settlement proceeds aren’t taxable, is generally taxable as interest income. Meanwhile, settlements for the loss of property value that do not exceed the property’s adjusted basis are not taxable. However, any excess over the adjusted basis becomes taxable.

Deductibility of Attorney Fees and Its Impact Legal fees can significantly impact the net proceeds of a settlement. Whether attorney fees are deductible can alter the tax obligations associated with a settlement:

• General Rule on Deductibility: Attorney fees incurred in securing a taxable personal settlement are generally not deductible.
• Impact of Fees on Settlement Proceeds: If attorney fees are deducted from the award, the entire amount may still be required to be reported as income. For instance, if you receive a $100,000 settlement and pay $40,000 in attorney fees, you might still need to report the full $100,000 as income, regardless of netting only $60,000.
• Exceptions: Some specific settlements might allow the deduction of attorney fees directly against the income, especially in discrimination or whistleblower lawsuits. In such cases, the deduction is allowed “above the line,” i.e., without having to itemize deductions, thus reducing adjusted gross income (AGI).
• Business Settlements: In the case of a business settlement, attorney fees may be treated in different ways, depending primarily on the nature of the legal matter involved and whether the expenses can be directly tied to the production or collection of taxable income or the management, conservation, or maintenance of property held for the production of income. Here’s a general overview:
• Deductible Expenses – If the attorney fees are ordinary and necessary expenses for managing, conserving, maintaining income-producing property, or for producing or collecting taxable income, they may be deductible. For instance, legal fees paid for advice on business operations, resolving tax issues, or performance under contracts related to income are generally deductible.
• Capital Expenses – Attorney fees that are paid to acquire a business asset, or are otherwise related to the acquisition, cannot be deducted immediately. Instead, they are considered capital expenses and are added to the basis of the asset. For example, legal fees for drafting or reviewing contracts for acquiring real estate or equipment would be capitalized and depreciated over the IRS-assigned life of the asset.
• Settlements Involving Nondeductible Expenses – In cases where the legal fees relate to settlements of a personal nature or non-deductible penalties, such fees are not deductible.
• Mixed-Use Expenses – If legal fees are incurred for both personal and business purposes, the fees must be allocated between deductible and non-deductible expenses based on the predominant purpose.

Strategic Considerations for Taxpayers Given these tax complexities, taxpayers should consider several strategies:

• Detailed Records: Maintain comprehensive documentation of all elements of the settlement and any deductions claimed (such as medical expenses related to emotional distress), which can be crucial if questioned by the IRS.
• Settlement Structuring: When negotiating settlements, understanding and influencing how allocations are determined (e.g., more towards physical injuries than punitive damages) can have substantial tax implications.
• Estimated Tax Payments: If the settlement significantly increases taxable income, taxpayers might need to make estimated tax payments to avoid underpayment penalties.

In conclusion, the taxation of lawsuit settlements is complex, with potential for both taxable and non-taxable components. Taxpayers should carefully evaluate the elements of their settlements, understand the tax implications, and take proactive steps to manage tax liabilities. By doing so, they can navigate the complexities of litigation-related tax obligations and maximize their financial outcomes post-settlement. Due to the intricate nature of the tax laws surrounding settlements, it may be appropriate to consult with this office prior to agreeing to a settlement so you understand the tax ramifications as they will impact your tax return.

Cash Flow vs. Profit: The Hidden Reason Healthy Businesses Struggle

When a “Good Year” Still Feels Tight You finally have a year where sales are up and the books show a profit—yet your bank account feels like it missed the memo. You’re working harder than ever, but cash seems to disappear the moment it hits your account. If that sounds familiar, you’re not doing anything wrong—you’re just bumping into one of the most common challenges in business: confusing profit with cash flow. Profit tells you how your business looks on paper. Cash flow shows how your business feels in real life. And while both matter, only one pays the bills.

The Real-World Disconnect Here’s where the confusion usually starts: You invoice a client for $20,000 in December. On your profit and loss statement, that sale boosts your year-end numbers. But if the client doesn’t pay until February, that profit doesn’t do much to help you cover January’s rent, payroll, or taxes. Or imagine a landscaping company that buys $15,000 of equipment in spring to prepare for summer jobs. On paper, the expense is spread out over time—but in reality, that cash leaves your account today. The result? You’re profitable on paper but short on cash in practice.

Why This Happens to So Many Business Owners Cash flow issues aren’t a sign of failure—they’re often a natural part of growth. When your business scales, so do your expenses, payment cycles, and timing gaps between money in and money out. The biggest triggers include:

• Delayed payments: Clients pay on their schedule, not yours.
• Seasonal swings: Slow months still have fixed costs.
• Inventory or supply purchases: You pay upfront, earn later.
• Tax surprises: Profit may be taxable long before the cash arrives.

Without planning for those timing gaps, even healthy businesses can feel like they’re running on empty. Turning Chaos Into Control This is where working with a trusted financial professional can make all the difference. They can help you:

• Forecast cash flow so you see slowdowns before they happen.
• Smooth out seasonality by building cash reserves during strong months.
• Review expenses strategically to make sure growth doesn’t outpace available cash.

Even simple steps—like syncing invoicing and bill-paying schedules or setting aside a percentage of each payment for future expenses—can dramatically reduce stress and improve stability.

Bottom Line Profit is your scoreboard. Cash flow is your oxygen.

You need both to survive—and thrive. If your business feels profitable on paper but tight in the bank, you’re not alone.

Contact our firm today for guidance on building a cash flow plan that keeps your business strong through every season.

Tax Advantages of Qualified Charitable Distributions (QCDs)

Article Highlights:

• Understanding QCDs
• How QCDs Work
• Tax Benefits of QCDs
• Not Just for High-Income Taxpayers
• The IRA Contribution Trap
• Strategic Considerations

Qualified Charitable Distributions (QCDs) are a highly effective tool in the tax planning toolkit, particularly for retirees who must take Required Minimum Distributions (RMDs) from their Individual Retirement Accounts (IRAs). By directing a portion or all of an RMD directly to a charity, taxpayers can potentially reduce their taxable income significantly, yielding multiple tax advantages. Understanding QCDs A QCD is a transfer of funds from an individual’s IRA, payable directly to a qualified charity. These distributions can be counted toward satisfying your RMD for the year, up to an inflation adjusted maximum amount. QCDs were first introduced as a temporary provision in 2006, but since then have become a permanent feature of the tax code. How QCDs Work For a distribution to be considered a QCD, it must meet specific criteria:

• Eligible Accounts: The funds must come from a traditional IRA, and the account holder must be at least 70½ years old at the time of the donation. Distributions cannot be from SEP or SIMPLE IRAs. The QCD can come from a Roth IRA only if it is a non-taxable distribution.
• Direct Transfer Requirement: The funds must be transferred directly from the IRA custodian to the qualified charity.
• Qualified Charitable Organization: The recipient must be a 501(c)(3) organization, and the donor is responsible for obtaining an acknowledgment letter from the organization under the same documentation rules as if claiming an itemized deduction for a charitable donation. Generally, private foundations, donor-advised funds, or supporting organizations do not qualify. However, the SECURE 2.0 Act allows a one-time $50,000 distribution to certain charitable structures, including charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. The $50,000 maximum lifetime distribution amount is adjusted for inflation, and for 2025 is $54,000.

Tax Benefits of QCDs

1. Income Reduction: Since a QCD is not taxable, it does not increase the Adjusted Gross Income (AGI). This characteristic can be beneficial in several ways beyond just avoiding income taxes on the RMD.
2. Enhancing Income-Limited Tax Benefits: Lower AGI means potentially enhanced eligibility for other tax benefits and credits that are income-limited. Here are a few examples:
   • Social Security Taxation: By not increasing your AGI, QCDs can help maintain lower-taxed tiers of Social Security benefits.
   • Medicare Premiums: Medicare Part B and Part D premiums are determined by AGI. By keeping this figure low through QCDs, you can avoid higher Medicare premiums.
   • Itemized Deductions Threshold: A lower AGI level can help with thresholds that apply to itemized deductions, thereby increasing their value.
3. Same Benefit as Charitable Contributions, Plus More: Normally, when a taxpayer makes a charitable contribution and itemizes deductions, that amount reduces taxable income. However, a QCD provides the same benefit of a charitable deduction without having to itemize, while also lowering the AGI. This is an advantage for taxpayers who take the standard deduction.

Not Just for High-Income Taxpayers There’s a common misconception that QCDs primarily benefit high-income taxpayers because of the significant annual limit, which is $108,000 in 2025 due to inflation adjustments from the original $100,000 maximum. However, QCDs can be utilized by any eligible taxpayer meeting the age requirement to lower their taxable income and improve their tax situation. Even small donations can leverage the benefits associated with reduced AGI targets. For a married couple, the annual limit applies to each spouse who has an IRA.

The IRA Contribution Trap While QCDs can be incredibly beneficial, it’s essential to be aware of the so-called “IRA Contribution Trap.” This issue arises because the Internal Revenue Service (IRS) treats any deductible IRA contributions made after age 70½ as a reduction in the allowable QCD amount. For instance:

• If you contribute $6,000 to your IRA after age 70½, and simultaneously, you intend to make a $10,000 QCD, only $4,000 of that QCD will qualify for the exclusion. This rule reduces the intended tax benefit of the QCD.

Understanding this catch is crucial for retirees who are still working and might continue contributing to their IRAs while also planning to make QCDs.

Strategic Considerations Taxpayers should consider the timing and structure of QCDs, especially in years where they may face other significant income events. Planning your QCDs in conjunction with other taxable events can help maintain lower AGI levels, thus optimizing the overall financial benefits. For example, if a taxpayer anticipates a substantial capital gain or receives a large payment from another source, a well-timed QCD can offset the income increase, helping to manage the AGI.

Conclusion Qualified Charitable Distributions are not merely a tool for philanthropic endeavors; they are a powerful strategy for managing taxable income and maintaining eligibility for other tax-related benefits. By understanding how QCDs work, taxpayers can strategically plan their charitable giving while maximizing their tax advantages. In summary, QCDs offer multi-faceted benefits, including income reduction, enhancement of other tax benefits, and a simplified way to execute charitable giving. Whether you are making small donations or using the full annual limit, incorporating QCDs into your tax strategy can have far-reaching results that benefit your finances and the organizations you choose to support. If you are retired and planning a significant contribution to your place of worship or another charitable organization, such as a donation to your faith community’s building fund, it would be prudent to explore the option of a Qualified Charitable Distribution (QCD). Please contact our office for personalized assistance in evaluating how a QCD might benefit your specific situation.

Penalties That Can Wreck Your Finances

The IRS Doesn’t Send Thank-You Notes—Just Penalty Notices You file a little late. You miss an estimated payment. You hire a remote employee in another state and forget to register for payroll taxes there. No big deal, right? The IRS and state agencies think otherwise. They don’t send gentle reminders—they send bills with penalties and interest that grow by the day. For many small business owners and self-employed taxpayers, penalties are the silent budget killer: they sneak in quietly and take a bite out of your cash flow when you least expect it.

The Penalties That Hurt the Most Here are the most common ones we see every year:

• Late filing penalties: Miss a filing deadline—even by a day—and the IRS can charge 5% of the unpaid tax per month, up to 25%.
• Late payment penalties: File on time but pay late? That’s another 0.5% per month until it’s paid in full.
• Underpayment of estimated taxes: If you’re self-employed or have fluctuating income and don’t pay enough quarterly, expect penalties—even if you pay everything by year-end.
• Payroll tax penalties: These are the most dangerous. Missing deposits or filing errors when you have employees can trigger cascading IRS and state penalties. The government treats withheld taxes as trust funds—money you’re holding for them.
•  State nexus issues: Hire a remote worker or start selling into a new state? Congratulations, you may now owe payroll or sales tax filings there, too. Ignore it, and you’ll rack up penalties before you even realize you’re on the hook.

The Ripple Effect of Penalties A single missed filing doesn’t just cost money—it creates a domino effect. One small penalty can trigger interest, garnished refunds, and notices that take months to clear up. For business owners, it can even derail financing or create issues when selling the company. And because most penalties compound monthly, waiting to fix them only makes things worse.

How to Stay Out of Penalty Trouble Here’s what separates those who stay penalty-free from those who don’t:

• System, not memory. Automate filing reminders and payments—never rely on remembering.
• Estimate, don’t guess. Work with a tax professional to calculate quarterly payments accurately.
• Centralize payroll compliance. If you’ve gone remote, make sure your payroll provider (or advisor) is registered in every state where your team works.
•  Address notices fast. The longer they sit unopened, the harder they are to fix.

Penalties are preventable—but only if you have systems in place before something slips.

Bottom Line Tax and payroll penalties are like leaks in your financial roof: small at first, but they get expensive fast if you ignore them. If you’ve received a notice—or you just want to avoid one—contact our firm today. We can help you identify risks, resolve existing penalties, and build a system that keeps them from coming back.

Multiple Side Hustles, One Big Tax Headache

The Rise of the Multi-Hustler Economy Welcome to the new normal—where a single paycheck is no longer the goal. Gen Z entrepreneurs are monetizing everything from TikTok sponsorships to Etsy crafts to freelance design work. It’s creative, empowering, and often more lucrative than traditional 9-to-5 jobs. But come tax season? Things get messy fast. Each platform—Shopify, Venmo, Upwork, or TikTok—has its own reporting rules, and the IRS expects you to track every dollar of income and every deductible expense. Miss a 1099-K here or a quarterly tax payment there, and suddenly your side hustle success turns into a tax-time nightmare. Where Side Hustlers Get Tripped Up Here are the biggest pitfalls we see every year:

• Missing Estimated Tax Payments: When you work for yourself, no one’s withholding taxes for you. If you earn more than $1,000 in untaxed income, you may need to make quarterly estimated payments. Miss them, and penalties add up quickly.
• Mixing Personal and Business Finances: Running payments through your personal Venmo or debit card might feel convenient—but it’s a bookkeeping nightmare. The IRS expects a clean separation of income and expenses if you are audited.
• Ignoring Entity Selection: As income grows, staying a sole proprietor might not be the smartest move. The right business structure (like an LLC or S corp) can reduce taxes and protect personal assets.
• Overlooking Deductible Expenses: Creators and freelancers often forget that expenses like software, internet, phone bills, or even part of your home office can be tax-deductible. Tracking these properly can make a big difference in what you owe.

How to Stay Out of Trouble (and Keep More of What You Earn) Managing multiple income streams doesn’t have to mean chaos. Here’s how to keep things organized and stress-free:

1. Open a dedicated business bank account to separate your income and expenses.
2. Use accounting software or hire a bookkeeper—even part-time—to track transactions.
3. Set aside 25—30% of your income for taxes so you’re never caught off guard.
4. Consult a tax professional early, especially if you’re earning across multiple platforms. They can help you plan ahead, estimate quarterly payments, and choose the best entity structure for your goals.

Bottom Line Multiple side hustles can mean multiple opportunities—but also multiple chances for tax mistakes. With the right systems (and the right advice), you can keep your finances clean, stay compliant, and make your hustle actually pay off.

Need help organizing your side hustle income or planning for taxes? Contact our firm today to get personalized guidance

2025 Year-End QuickBooks® Tasks to Tackle Before January Hits

As the leaves turn and we all begin to look ahead to 2026, small businesses and accountants know that closing the books on one year correctly sets the tone for the next. With evolving tax rules and new QuickBooks® Online (QBO) features rolling out, here are key tasks to prioritize before December 31 to streamline your 2025 tax season.

1. Reconcile All Bank & Credit Card Accounts Don’t leave loose ends. In Settings > Chart of Accounts > Reconcile, match every account to its statement, confirm ending balances, and address transactions in the Undeposited Funds or Uncategorized buckets. QBO’s tools now flag unreconciled items to prevent surprises later.

2. Review Customer & Vendor Balances Run aging reports: Accounts Receivable Aging and Accounts Payable Aging. Send statements to customers with outstanding invoices. If bills are overdue or uncollectible, consider writing them off (using proper accounting judgment). Also, check vendor balances for missed entries.

3. Finalize Year-End Reports Generate and review your Profit & Loss, Balance Sheet, and Trial Balance reports with the full-year date range. Look for anomalies like negative balances or unusually large entries. Use filters by class or location to spot odd variances.

4. Handle 1099 & Contractor Tracking Ensure that all contractors are properly flagged for 1099-NEC or 1099-MISC. In QBO, go to Expenses → Vendors → Prepare 1099s and confirm addresses, W-9s, and payments. Missing data now can lead to IRS headaches in January.

5. Make Final Adjustments & Close the Books This includes depreciation, amortization, bad debt adjustments, owner draws, and retained earnings transfers. Confirm your fiscal year settings under Settings→ Advanced so QBO knows which period is ending. After adjustments, “close your books” to prevent inadvertent changes.

6. Update Payroll & Employee Records Especially important if you use QuickBooks® Online Payroll. Before year-end:

• Run your final payroll for the year, including bonuses and commissions
• Confirm all benefits, fringe payments, and retirement contributions are correctly recorded
• Review and update employee info (addresses, SSNs, W-4 changes)
• Preview and correct W-2 forms before filing

7. Leverage New QuickBooks® Features & Automations In 2025, QuickBooks® rolled out enhancements to automation, categorization rules, and interface improvements. If you haven’t opted into these features, now’s the time—especially for firms using QuickBooks® Online Accountant to manage multiple clients. Bonus tip:Use QBO’s cash-flow projection tools or run a “budget vs. actual” to spot expected gaps. If 2025 had unexpected expenses or lower revenue, consider setting aside reserves or adjusting estimated tax payments early. Don’t treat year-end as a scramble. By reconciling accounts, verifying balances, completing tax forms, updating payroll, and using QuickBooks®’s latest tools, you position your business for a smoother 2026. A little diligence now pays dividends later.

November 2025 Individual Due Dates

November 10 – Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during October 2025, you are required to report them to your employer on IRS Form 4070 no later than November 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

Weekends & Holidays: If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions: Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations

IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

November 2025 Business Due Dates

November 10 – Social Security, Medicare and Withheld Income Tax File Form 941 for the third quarter of 2025. This due date applies only if you deposited the tax for the quarter in full and on time.

November 17 – Social Security, Medicare and Withheld Income Tax If you are an employer and the monthly deposit rules apply, November 17 is the due date for you to make your deposit of Social Security, Medicare, and withheld income tax for October 2025. This is also the due date for the nonpayroll withholding deposit for October 2025 if the monthly deposit rule applies.

Weekends & Holidays: If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions: Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations

IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations