If you received tips or overtime pay in 2025, you may be eligible for a new deduction when you file your income tax return.
Continue readingCan You Claim a Tax Deduction for Tips or Overtime Income?
More Taxpayers May Qualify for the Casualty Loss Deduction
Starting in 2026, personal casualty loss deductions will no longer be limited to federally declared disasters.
Continue readingHow Does the New Tax Deduction for Car Loan Interest Work?
Generally personal interest expense isn’t deductible. You might be able to deduct your car loan interest, but various rules and limits apply.
Continue readingSeniors May Be Eligible for a New Deduction
For 2025 through 2028, individuals age 65 and older may be able to claim a new senior deduction of up to $6,000, subject to income-based phaseouts.
Continue readingThe QBI Deduction: Good News for Eligible Business Owners
If you’re a small business owner or you’re self-employed, there are changes on the tax front. The Section 199A qualified business income (QBI) deduction, a powerful tax-saving opportunity since 2018, was initially set to expire in 2025. But the recent enactment of the One Big Beautiful Bill Act (OBBBA) means it’s not only here to stay, it’s also been modified.
What Is the QBI Deduction?
This tax break allows eligible business owners to deduct up to 20% of their QBI from their taxable income. It applies to owners of pass-through entities, including S corporations, partnerships and, usually, LLCs, as well as sole proprietors.
QBI typically includes net business income but excludes investment capital gains and losses, dividends, interest income, owner wages, and guaranteed payments to partners or LLC members. And, you don’t need to itemize deductions to claim this deduction.
How Income Affects QBI Eligibility
While the full 20% deduction is available to many, it’s subject to certain limits that phase in based on taxable income and other factors. Your tax advisor can help with this.
If your business is a specified service trade or business (SSTB), your deduction reduces gradually as your income increases beyond the threshold, $197,300 ($394,600 if you’re married filing jointly) for 2025. If your income exceeds the top of the income range, $247,300 ($494,600 if you’re filing jointly) for 2025, you lose the deduction entirely.
SSTBs include professions like law, medicine, accounting, financial planning and consulting, but not engineering or architecture.
Non-SSTBs face other limitations. If their income exceeds the top of the range, their deduction can’t exceed the greater of their share of:
- 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
- The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.
If their income falls within the range, these limits apply only partially. If the rules and thresholds seem daunting, lean on us.
Better News for 2026 and Beyond
Here’s what pass-through business owners can look forward to:
- The top of the income range for the additional limits increases from $50,000 above the threshold to $75,000 above the threshold (from $100,000 to $150,000 for joint filers).
- A new minimum QBI deduction of $400 is introduced for taxpayers earning at least $1,000 in QBI, provided they materially participate in the business.
As a result of these changes, more business owners will be eligible for the deduction in 2026 and beyond, and some owners’ deductions will increase.
Bottom Line
The QBI deduction can significantly reduce your tax bill. With the deduction now made permanent and set to improve in 2026, it’s worth revisiting your tax strategy with the help of a qualified advisor. Contact the office to ensure you’re making the most of this valuable opportunity.
408-252-1800
Photo by Matt_Moloney from Freerange Stock
Combine a Business Outing with Tax Breaks
Summer is here, and you may be planning a picnic or other outing for your employees. When doing so, keep tax deductions in mind. Most entertainment expenses aren’t deductible, and business meals are generally subject to a 50% deduction limit. But, you may be able to deduct 100% of employee party costs. The event must be for your entire staff and not be “lavish or extravagant.” Deductible costs include food, beverages, live music and venue rentals.
Detailed invoicing and recordkeeping are a must. Before sending out invitations, contact the office about maximizing your tax deduction.
408-252-1800
Photo by Rob_Bye from Freerange Stock.
Who Can Take the Home Office Deduction?
Working from home isn’t new, especially for self-employed people. But during the height of the pandemic, millions of jobs were moved from employers’ premises to employees’ private homes. Many continue working from home and wonder if they qualify for the home office tax deduction.
The short answer is: Only if you’re self-employed. As a result of a Tax Cuts and Jobs Act (TCJA) provision that eliminated the ability to claim miscellaneous itemized deductions for unreimbursed employee expenses, employees can no longer deduct home office expenses. (This TCJA provision is scheduled to expire after 2025, so this deduction may be restored.)
Even if you’re self-employed, the rules are strict to qualify for the home office deduction. Here’s a rundown.
Who’s Eligible?
You can deduct your home office expenses if you’re self-employed, your home office space is used exclusively for business, and you meet any of these three tests:
1. Your home office is your principal place of business.
This means your home office is regularly used to conduct most of your business. This requires meeting one of two tests: the “management or administrative activities test,” where the office is used for tasks and meets specific criteria, or the “relative importance test,” where the home office is the most critical location for conducting your business.
2. Your home office is where you meet customers.
To pass this test, you must regularly use your home office to meet or deal with patients, clients or customers who must physically visit the office.
3. Your home office is in a separate structure.
This applies to an office used regularly for business located in an individual, unattached structure on the same property as your home. For example, this could be an unattached garage, artist’s studio or workshop.
You may also be able to deduct the expenses of specific storage. Suppose you’re selling products at retail or wholesale, and your home is your sole fixed business location. In that case, you can deduct home expenses allocable to space you use to store inventory or product samples.
What Can Be Deducted?
If you’re eligible, you can deduct “direct” home office expenses, such as painting, repairs and depreciation for office furniture. “Indirect” costs, like the portion of utilities, insurance, depreciation, mortgage interest, real estate taxes and casualty losses attributable to your office space, are also deductible.
Alternatively, you can use the simplified method to calculate the deduction. Under this method, you can deduct $5 per square foot for up to 300 square feet (maximum of $1,500 per year). Although you won’t be able to depreciate the portion of your home that’s used as an office, you can claim mortgage interest, property taxes and casualty losses as itemized deductions on Schedule A to the extent otherwise allowable, without needing to apportion them between personal and business use of your home.
If your home office is your principal place of business, transportation costs between your home and other work locations are deductible rather than considered nondeductible commuting expenses.
It’s Complicated
Determining whether you qualify for the home office deduction and, if you do, the deduction amount can be complicated. Contact the office to discuss your situation.
408-252-1800
Photo by Matt_Moloney from Freerange Stock.
Deductions vs. Credits
Many taxpayers are unclear on the difference between deductions vs. credits. Both can be powerful tax-saving tools. Here’s how they each work:
Deductions lower a taxpayer’s taxable income before the tax is calculated. For instance, on an individual return, you can either claim the standard deduction or itemize deductions, depending on which option reduces your taxable income more.
Credits directly reduce the tax due, dollar-for-dollar. As a result, credits are more valuable than deductions of the same dollar amount. Some credits, such as the Child Tax Credit, are partially or fully refundable, meaning that if the credit exceeds the tax owed, the taxpayer may receive some or all of the difference as a refund.
If you have additional questions or are interested in tax services, don’t hesitate to contact our office.
408-252-1800
Updated Guide to Robust Depreciation Write-offs for Your Business
Tax-saving benefits are generally available when your business puts newly acquired qualifying assets into service. Under Section 179 of the tax code, companies can take substantial depreciation deductions, subject to various limits adjusted annually for inflation.
Another potential write-off is for first-year bonus depreciation. Like the Sec. 179 deduction, bonus depreciation is subject to limits that change annually. But the limits are going down rather than up. And under the Tax Cuts and Jobs Act, bonus depreciation is scheduled to disappear after 2026.
Basics You Need to Know
Most tangible depreciable assets, such as equipment, furniture and fixtures, computer hardware, and some software, qualify for the Sec.179 deduction in the year you purchase and place them in service. Vehicles also qualify, but they’re subject to additional limitations.
For tax years beginning in 2025, the Sec. 179 deduction maxes out at $1.25 million and begins to phase out when total qualifying assets exceed $3.13 million (up from $1.22 million and $3.05 million, respectively, for 2024).
For qualifying assets placed in service in 2025, first-year bonus depreciation drops to 40% (from 60% in 2024). This figure is scheduled to drop to 20% for 2026 and to be eliminated in 2027. However, Congress may restore it to 100% before then.
How Income Affects Your Deduction
Under tax law, a Sec. 179 deduction can’t result in an overall business taxable loss. So, the deduction is limited to your net aggregate taxable income from all your companies. This includes wages and other compensation, your net business income, net proceeds from selling business assets, and possibly net rental income.
If the business income limitation reduces your Sec. 179 deduction, you can carry forward the disallowed amount or use first-year bonus depreciation. Unlike Sec. 179, bonus depreciation isn’t subject to dollar limits or phaseouts.
Sec. 179 Deductions, First-Year Bonus Depreciation or Both?
You may still be undecided about the best tax-saving strategy for assets you purchased and placed in service in 2024. Here’s an example that combines two methods:
In 2024, a calendar-tax-year C corporation purchased and placed in service $500,000 of assets that qualify for the Sec. 179 deduction and first-year bonus depreciation. However, due to the taxable income limitation, the company’s Sec. 179 deduction is limited to $300,000, which can be claimed on the corporation’s federal income tax return.
The company can deduct 60% of the remaining $200,000 using first-year bonus depreciation ($500,000 minus $300,000). So, the write-offs for the year include 1) a Sec. 179 deduction of $300,000 and 2) $120,000 of bonus depreciation (60% of $200,000). Thus, the company achieves $420,000 in write-offs on its 2024 tax return, leaving only $80,000 to depreciate in future tax years. (Note: If the business income limitation didn’t apply, the company could have written off the entire amount under the Sec. 179 deduction rules because its asset additions were below the phaseout threshold.)
Don’t Go It Alone
Depending on the details, you may have a robust depreciation deduction for 2024 and possibly depreciation to carry forward in 2025. However, maximizing the benefits of both depreciation methods can be complex. And it might adversely affect your company’s eligibility for certain other deductions, such as the Section 199A qualified business income deduction for eligible pass-through businesses. So, don’t go it alone.
Contact the office for help devising the optimal tax strategy for your business and staying atop the latest tax law developments.
408-252-1800
Photo by Wixphoto.com from Freerange Stock.
Not Every Disaster Allows for a Casualty Loss Tax Deduction
Many Americans have become victims of natural disasters in 2024. Wherever you live, unexpected disasters may cause damage to your home or personal property, creating a “personal casualty loss.” This is defined as damage from a sudden, unexpected or unusual event, such as a hurricane, tornado, flood, earthquake, fire, act of vandalism or terrorist attack. You can deduct personal casualty losses only if you itemize on your tax return and, through 2025, only if the loss results from a federally declared disaster. There is, however, an exception to the latter rule. Suppose you have personal casualty gains because your insurance proceeds exceed the tax basis of the damaged or destroyed property. In that case, you can deduct personal casualty losses that aren’t due to a federally declared disaster up to the amount of your personal casualty gains.
In some cases taxpayers can deduct a casualty loss on the tax return for the preceding year and claim a refund. You may be able to file an amended return if you’ve already filed the relevant return.
Need help? Contact the office with your questions.
408-252-1800
Photo by Roman Castillo: https://www.pexels.com/photo/car-driving-in-rain-17679501/