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Generally, scholarships received by degree candidates are tax-free to the extent they’re used for qualified tuition and related expenses.
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If you received tips or overtime pay in 2025, you may be eligible for a new deduction when you file your income tax return.
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Starting in 2026, personal casualty loss deductions will no longer be limited to federally declared disasters.
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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