Here’s an important tax planning strategy that can save you thousands in penalties if you’ve missed estimated tax payments for 2025.

The Penalty Problem

When you don’t make your 2025 estimated tax payments on time, the IRS charges a non-deductible 7 percent penalty that compounds daily.

Because penalties are not deductible, they are considerably more costly than deductible interest.

Simply writing a check today won’t erase the penalties. It only prevents them from growing further. But there is a powerful way to make them disappear entirely.

The One Perfect Solution

By using a retirement account with 60-day rollover provisions, you can eliminate estimated tax penalties instantly. Here’s how:

• Withdraw funds from your IRA, 401(k), or other eligible plan, and direct the custodian to withhold federal income tax.
• Repay the full amount into the retirement account within 60 days using other funds.

The IRS treats the withheld taxes as if they were made evenly across all four estimated tax deadlines. And because you repaid the account within 60 days, the withdrawal is not taxable, and no penalty applies.

Other Options and Pitfalls

If you are age 73 or over, you can use withholding taxes from required minimum distributions (RMDs) to cover both your RMD and your estimated tax needs.

Don’t use a W-2 bonus. It triggers payroll taxes and can reduce your Section 199A deduction—likely more costly (and perhaps far more costly) than the penalty itself.

Beat the OBBBA/TCJA Rules That Punish Dog Breeding Hobbies

Are you involved in a dog breeding business or considering starting one? If so, you are in the IRS’s crosshairs. The IRS has long considered dog breeding to be an activity typically classified as a hobby, rather than a business, for tax purposes.

When it comes to taxes, hobbies are usually tax disasters. Unlike a business, you can’t deduct your hobby expenses from hobby income (or any other income). But you must still report and pay tax on any hobby income you earn. 

On the expense deduction front, there’s one exception. You can deduct your costs of goods sold for each puppy you sell.

Fortunately, a dog breeder can qualify as a business. You can do this even if you lose money in some years (or even in many years). There are two ways to qualify:

1. Profit test. If you earn a profit in three of five years, the IRS must treat your activity as a business.
2. Facts and circumstances test. If you can’t meet the three-of-five-years test, you can still qualify by showing that you engage in breeding with a genuine intent to earn a profit. Your goal doesn’t need to appear reasonable to others, but it must be honest and bona fide.

The IRS reviews nine factors to determine profit motive. Three factors carry the most weight: 

1. Operating in a businesslike manner 
2. Having expertise in dog breeding 
3. Devoting time and effort to the activity
   

To strengthen your case as a business, you should:

• Keep accurate business records
• Market your business consistently
• Consider integrating breeding with related businesses, such as a kennel or grooming service
• Create and follow a business plan
• Commit steady time and effort to breeding

Forming a legal business entity, such as an LLC or a corporation, also reinforces your profit motive.

OBBBA Revives Your Ability to Kill Capital Gains with QOFs

Since 2018, taxpayers have enjoyed significant tax benefits by investing capital gains in Qualified Opportunity Funds (QOFs). QOFs channel money into Qualified Opportunity Zones (QOZs)—government-designated low-income census tracts. Investors have embraced the program, pouring in more than $160 billion.

The program was set to expire in 2026. However, the One Big Beautiful Bill Act (OBBBA) made the program permanent and adjusted the tax benefits.

New Rules Beginning in 2027

Starting in 2027, you can invest in a new set of QOZs that meet stricter low-income standards. Expect about 25 percent fewer QOZs than under the original program. 

Also, in 2027 and 2028, you can invest in the original QOFs and obtain the new QOF treatment. 

When you invest capital gains in a 2027-or-later QOF, within 180 days you unlock four major tax benefits:

1. You avoid tax on your capital gains for five years.
2. You get a 10 percent step-up in basis at the five-year mark, which eliminates 10 percent of your taxable gain.
3. You owe no tax on the appreciation of the QOF, as long as you hold the QOF investment for 10 years before selling.
4. You may keep your investment for up to 30 years and still avoid capital gains tax on any appreciation through the end of that year.
   

Qualified Rural Opportunity Funds

The OBBBA also created a new vehicle: the Qualified Rural Opportunity Fund. These funds must invest at least 90 percent of their assets in rural QOZs. If you invest capital gains in one of these funds, you gain a 30 percent step-up in basis after five years.

QOZ 1.0: The Original Program

The original QOZ program remains in effect through 2026. If you invest in 2025 or 2026, you defer tax on your capital gains only until December 31, 2026, when you must pay the tax on your 2026 return. You also lose the five-year, 10 percent step-up in basis.

Still, the most powerful benefit remains: you owe no tax on appreciation if you hold the investment for 10 years. You can even hold it through December 31, 2047, without paying tax on appreciation.

A Word of Caution

Treat QOF investments with care. Before you commit money, make sure you feel confident about the fund’s management team, investment strategy, projected returns, and fees.

OBBBA’s Secret Gift: Bigger Tax Breaks for QCDs from Your IRA

If you’re age 70 1/2 or older, the IRS allows you to make charitable contributions directly from your IRA to approved organizations, such as your church. 

These transfers, known as qualified charitable distributions (QCDs), have become even more powerful under the new One Big Beautiful Bill Act (OBBBA)—and could be one of the most effective ways to give.

How QCDs Work

A QCD allows you to transfer funds directly from your IRA trustee to a qualified charity. The money never touches your hands, and the transfer is wholly excluded from your taxable income. While this means you cannot claim the gift as an itemized deduction, you don’t need to—because avoiding taxation is the best. It’s far better than a 100 percent deduction.

For 2025, the annual QCD limit is $108,000 per person. If both you and your spouse have IRAs, each of you may contribute up to that amount separately.

Tax-Saving Advantages

QCDs provide you with many distinct benefits, including the five below:

1. Lower taxable income. Unlike regular IRA withdrawals, QCDs do not increase your adjusted gross income (AGI) or modified AGI (MAGI). This helps you stay out of higher tax brackets and avoid triggering phaseouts of other deductions and credits.
2. Avoid new OBBBA restrictions. Starting in 2026, the OBBBA reduces itemized charitable deductions by floors and limits tied to income levels. QCDs are exempt from these rules.
3. Meet required minimum distributions (RMDs). If you are age 73 or older, QCDs can count toward your annual RMD, allowing you to satisfy the requirement without adding taxable income.
4. Preserve other tax breaks. By keeping AGI and MAGI lower, QCDs can help you avoid Medicare premium surcharges, the 3.8 percent net investment income tax, and the loss of valuable deductions such as those for state and local taxes.
5. Achieve estate planning benefits. QCDs reduce the size of your taxable estate, potentially lowering future estate tax exposure.
   

Takeaway

If you are charitably inclined and have reached age 70 1/2, QCDs may be your path to give generously and cut your tax bill. The OBBBA makes them even more attractive in 2025 and beyond.

Selling a Term Life Insurance Policy Creates Thorny Tax Issues

Are you considering cashing out your term life insurance policy? Unfortunately, selling a term life policy to investors is nearly impossible unless you are terminally ill and unlikely to outlive the policy.

You do have one potential option: you could name a relative as the beneficiary in exchange for a payment and their agreement to take over all future premium payments.

This type of arrangement creates significant tax consequences:

• Taxable transfer. The IRS will likely treat the transaction as a “transfer for value.” You, as the transferor, must recognize taxable income if the payment you receive exceeds your basis in the policy. Your basis equals the total premiums you paid before the transfer. If you owned the policy for more than one year, you’ll pay tax at long-term capital gains rates.
• Taxable death benefit. If you die while the policy is still in effect, the beneficiary will be required to pay tax on the death benefit. Typically, life insurance proceeds are tax-free. However, in this situation, the beneficiary can exclude only the amount equal to what they paid for the policy, plus any premiums paid after the transfer. The IRS taxes the rest at ordinary income rates.
• No deductible loss. If you outlive the policy and the beneficiary receives nothing, the IRS will not allow a deductible loss.

If you have questions, don’t hesitate to contact me.

If you plan to buy equipment, furniture, computers, or other personal property for your business, the recently enacted One Big Beautiful Bill Act (OBBBA) delivers great news. You can now deduct the full cost of such property in a single year—without limit.

For manufacturers, the OBBBA goes even further by creating a new 100 percent deduction for factories and other production-related real estate.

100 Percent Bonus Depreciation Returns

Bonus depreciation lets you deduct a property’s cost in the year you place it in service, instead of spreading the deduction over several years. You can apply it to most personal business property, off-the-shelf software, and land improvements such as landscaping.

The OBBBA increases bonus depreciation to 100 percent for property acquired and placed in service on or after January 20, 2025. Previously, bonus depreciation had dropped to 60 percent in 2024 and fell to 40 percent from January 1 through January 19. The new law makes the 100 percent deduction permanent.

This change makes bonus depreciation the primary method for deducting personal property. You may deduct the entire cost of a qualifying property in one year if you use it exclusively for business. The only exception is listed property, primarily passenger automobiles, which remain subject to an annual cap of $8,000.

There is no overall limit on bonus depreciation deductions, even if they create a loss. You can carry unused deductions forward to future years. If you prefer not to use bonus depreciation, you must opt out for the entire class of assets.

Enhanced Section 179 Deduction

Section 179 expensing overlaps with bonus depreciation but comes with annual limits. The OBBBA raised the Section 179 limit to $2.5 million for 2025, with a phaseout beginning at $4 million of property placed in service.

Because of the new, permanent 100 percent bonus depreciation, most businesses will rely less on Section 179. Unlike bonus depreciation, Section 179 

• requires business use of at least 51 percent, 
• cannot create a loss, and 
• carries annual caps.

However, Section 179 allows you to pick and choose specific assets to expense, which can be beneficial for planning purposes.

New Deduction for Qualified Production Property

The OBBBA also created a temporary 100 percent deduction for real property used in manufacturing tangible goods, such as factories, refining halls, and assembly lines. 

Typically, businesses depreciate such property over a period of 39 years. 

Now, you may deduct the entire cost in one year if you build the property between January 20, 2025, and December 31, 2028, and place it in service by January 1, 2031. Specific existing property may also qualify if it was not in service as qualified production property between January 1, 2021, and May 12, 2025.

OBBBA: No Tax on Overtime? Not Really, but We’ll Take It!

Do you regularly earn overtime pay? If so, the One Big Beautiful Bill Act may help lower your federal income tax bill.

New Overtime Deduction

Before 2025, the IRS taxed every dollar of your overtime pay as ordinary income. Beginning this year (2025) and continuing through 2028, the OBBBA allows a new temporary deduction for qualified overtime income:

• Up to $12,500 each year for single filers
• Up to $25,000 each year for married joint-filers

This deduction applies whether or not you itemize deductions.

What Counts as Qualified Overtime Income

Qualified overtime income includes only the extra pay you earn for overtime hours—generally, the portion above your regular hourly rate under the Fair Labor Standards Act. For example, if your regular rate is $25 per hour and you receive $37.50 for overtime, the extra $12.50 per hour counts as qualified overtime income.

Important: This deduction does not reduce your adjusted gross income (AGI). It also does not exempt your overtime pay from payroll taxes or, in many cases, state and local taxes.

Income Phaseouts

The deduction begins to phase out when your modified adjusted gross income (MAGI) exceeds

• $150,000 for single filers, or
• $300,000 for married joint-filers.

The deduction decreases by $100 for every $1,000 of income above these thresholds. Phaseout ends at $275,000 for single filers and $550,000 for joint filers.

Because these thresholds are high, most overtime earners will qualify for the full deduction.

Key Restrictions and Requirements

• You must file jointly to claim the $25,000 married joint-filer deduction.
• You must include your valid Social Security number on your tax return.
• Your employer must report your qualified overtime income on your W-2 or another IRS-specified statement.
• Business owners cannot pay themselves “overtime” to claim the deduction, since overtime law excludes owners who actively manage their corporations.

OBBBA: How Itemizers Can Win

The One Big Beautiful Bill Act includes several permanent changes that directly affect taxpayers who itemize deductions. Some provisions take away opportunities, while others preserve valuable tax breaks. Here’s what you need to know—and how you can plan to win.

Permanent Repeal of Miscellaneous Itemized Deductions

The Tax Cuts and Jobs Act (TCJA) suspended miscellaneous itemized deductions for 2018-2025. The OBBBA makes that suspension permanent.

This means you can no longer deduct unreimbursed employee business expenses, investment expenses, or other items previously subject to the 2 percent AGI floor. If you incur employee business expenses, the solution is straightforward: have your corporation reimburse you so the expense gets properly deducted.

Itemized Deductions That Remain

Many important deductions remain available. You may still claim

• mortgage interest;
• state and local taxes (SALT);
• charitable contributions;
• medical expenses, including health insurance premiums; and
• personal casualty and theft losses.

These deductions continue to appear on Schedule A of Form 1040, subject to existing limits.

New Limits for High-Income Taxpayers

Starting in 2026, high-income taxpayers in the 37 percent bracket face a new reduction in itemized deductions. The OBBBA caps the benefit of itemized deductions at no more than 35 percent of their value.

For example:

• If your taxable income barely crosses into the 37 percent bracket, your deductions will be reduced modestly.
• If you have significant income, your deductions may be reduced or even eliminated.

In short, the higher your income is above the 37 percent threshold, the greater the haircut on your itemized deductions.

Planning Strategies

To protect your deductions, use these strategies:

• Avoid unreimbursed employee expenses by arranging corporate reimbursements.
• Monitor your taxable income to reduce the risk of crossing into the 37 percent bracket. For 2025, this threshold starts at $626,350 for single filers and $751,600 for joint filers (adjusted annually for inflation).

Takeaway

The OBBBA reshapes itemized deductions for the long term. While some opportunities have disappeared, key deductions remain, and planning strategies still exist to maximize your tax benefit. By structuring expenses properly and managing taxable income, you can continue to win under the new rules.

OBBBA Enhances Tax Breaks for Qualified Small Business Stock

Do you own stock in a high-growth small business? Or are you a founder, an investor, or an employee of one? If so, you need to understand how the One Big Beautiful Bill Act expands the tax benefits of qualified small business stock (QSBS).

What QSBS Is

“QSBS” refers to stock issued by regular C corporations. When the corporation and the shareholder meet specific requirements, QSBS owners can avoid federal tax on most or all of their gains when they sell the stock. This can mean tax-free profits worth tens of millions of dollars.

Which Companies Qualify

Not all businesses may issue QSBS. The law excludes certain industries, including finance, insurance, farming, professional services (such as law, accounting, and consulting), and hospitality. Additionally, only smaller companies are eligible. Previously, a company could not exceed $50 million in total assets when issuing QSBS. The OBBBA raises that cap to $75 million, giving larger businesses access to this powerful tax benefit.

New Holding Period Rules

You must hold QSBS for a minimum period before you can exclude gains from tax. The five-year requirement remains in place for the full 100 percent tax exclusion. However, the OBBBA introduces new flexibility for OBBBA-qualified QSBS: you can now receive partial exclusions if you hold stock for only three or four years.

Higher Exclusion Limits

Before the OBBBA, the law allowed you to exclude from tax the greater of $10 million or 10 times your basis in the stock. The OBBBA increases the dollar limit to $15 million while keeping the 10-times-basis rule. This change delivers another significant win for QSBS owners.

Effective Date

All these enhancements apply to QSBS issued on or after July 5. Together, they represent the most significant upgrade to QSBS benefits in more than a decade. For many investors, these rules could transform successful small business investments into tax-free windfalls.

Example. Suppose you invest $100,000 in QSBS shares in 2026 and sell them in 2031 for $1.1 million. Because you held the stock for five years, you can exclude your $1 million gain from federal tax. This saves you from paying both the 20 percent federal long-term capital gains tax and the 3.8 percent net investment income tax—$238,000 in tax savings.

OBBBA Cheats Gamblers—Taxes Fictional Income

Do you like to gamble? If so, Congress has some bad news for you.

The One Big Beautiful Bill Act limits how much you can deduct for gambling losses starting in 2026. Both casual and professional gamblers may deduct only 90 percent of their losses against their winnings. The remaining 10 percent of losses disappear permanently—you can’t use them in future years.

Congress added this last-minute change to the OBBBA, which could significantly impact gamblers.

What This Means for You

Right now, gamblers may deduct losses only up to the amount of their winnings. Casual gamblers may deduct losses only if they itemize personal deductions. Beginning in 2026, you won’t even deduct all your losses.

This rule could force you to pay tax on “fictional income”—money you never really earned. For example, if you win $10,000 and lose $10,000 in 2026, you’ll report $10,000 in gambling income but deduct only $9,000 in losses. That leaves you with $1,000 in taxable income, even though you broke even.

Current Efforts to Reverse the Law

Gamblers across the country have expressed outrage, and lawmakers have already introduced three bills to eliminate this 10 percent haircut. Whether Congress will act remains uncertain.

What You Should Do Now

Regardless of what happens in Congress, you need accurate records of your gambling activity. Keep detailed records of your wins and losses, especially losses.

Track your gambling by session, not by individual bet. At year’s end, add up all winning sessions separately from all losing sessions.

Don’t rely on casino win/loss statements—they often inflate winnings and underreport losses.

If you have questions, don’t hesitate to contact me.

It can cost you a bundle if you misclassify a worker as an independent contractor instead of an employee for federal employment tax purposes.

The IRS can make you pay back payroll taxes plus penalties—in some cases, these can equal 40 percent of gross payroll or more. That’s the bad news.

The good news: hiring firms have a “get out of jail free” card—the Section 530 safe harbor. 

If your company qualifies for Section 530 relief, the IRS can’t impose assessments or penalties for worker misclassification, and you may continue to treat the class of workers involved as independent contractors for employment tax purposes. This is so even if you should have classified the workers as employees under the regular IRS common law test.

Sounds great. What’s the catch? The catch is that it can be hard for a hiring firm to qualify for Section 530.

You must satisfy three requirements to qualify for Section 530 relief:

1. You must have filed all required Form 1099-NEC returns (or other required information returns) for the workers involved.
2. You must have treated all workers doing substantially similar work consistently as independent contractors.
3. You must have a reasonable basis for treating the workers as independent contractors, such as a legal case, prior IRS audit, or long-standing practice in the industry.

For the first time in 40 years, the IRS has issued a new revenue procedure updating how it should apply Section 530. Unfortunately, the new procedure can make it harder for hiring firms to qualify for Section 530 relief.

The IRS says that in making its determination of whether a hiring firm has a reasonable basis for classifying its workers as independent contractors, it may consider whether the firm treated the workers involved as employees for non-tax purposes, such as for federal or state labor law or for state unemployment insurance or workers’ compensation insurance coverage. 

This can be problematic for hiring firms because there are various reasons why a firm might treat a worker as an employee for non-tax purposes—reasons that have nothing to do with whether the firm reasonably believed the worker qualified as an independent contractor for IRS purposes.

The IRS’s new approach makes it more important than ever for hiring firms that use independent contractors to plan ahead to ensure that they qualify for Section 530 relief. Hiring firms must document that they qualify for relief when they classify the workers as independent contractors. You can’t wait until you are audited, and the IRS questions your worker classification practices, to think about Section 530. 

Protect Yourself: Digitize Tax Receipts

When it comes to IRS audits, one of the most common reasons taxpayers lose deductions is the lack of proper documentation. 

While your credit card or bank statements prove you spent money, they don’t show what you purchased. Without supporting receipts or invoices, these records are considered “naked”—and during an audit, that’s a problem.

To fully protect your deductions, especially for business-related expenses such as meals, travel, vehicle use, and gifts, you need to keep receipts that document five key facts: the date, the amount, the place, the business purpose, and the business relationship. The best way to do this is by capturing digital copies of your receipts.

Fortunately, it’s now easier than ever. Using your smartphone, you can snap a photo of your receipt and store it securely using apps such as Shoeboxed, Expensify, Zoho Expense, and others. These tools often let you add notes, categorize expenses, and sync directly with accounting software like QuickBooks or FreshBooks.

Why go digital? Paper receipts fade—especially those printed on thermal paper. Digitizing them ensures they’re legible and accessible when needed, whether for year-end tax preparation or an unexpected audit.

Taking a few seconds now to scan or photograph each receipt can save you time, stress, and potential lost deductions later.

Avoid Unwanted Partnership Tax Status: Elect Out

If you’re involved in a real estate or investment venture with one or more other parties—perhaps co-owning property or collaborating on a business project—you might think you’re simply sharing ownership. 

But the IRS may see it differently. Without proper precautions, your arrangement could be classified as a partnership for federal tax purposes, triggering filing requirements and potential penalties you weren’t expecting.

Why It Matters

Under IRS rules, many informal joint ventures—such as syndicates, pools, and unincorporated business arrangements—can be treated as partnerships, even without a legal partnership agreement. 

This could mean:

• You would need to file Form 1065 annually.
• You would have to issue Schedule K-1s to all co-owners.
• You might lose eligibility for Section 1031 like-kind exchanges.
• You could incur potential IRS penalties of up to $255 a month per partner, limited to 12 months.

Fortunately, if your situation qualifies, you can elect out of partnership status and avoid these headaches.

How to Elect Out

The IRS allows co-owners of certain investments—such as real estate or oil and gas ventures—to opt out by filing a “blank” Form 1065 with specific details and a formal election statement. This proactive step ensures each owner can independently report income and deductions on their return, often using Schedule E or Schedule F of Form 1040.

Take Action Now

Failing to file a partnership return when required can be costly.

Greed or Goodwill? Your Motive Makes a Scam Loss Deductible

Scams are incredibly common. 

According to recent Federal Trade Commission data, consumers reported losing more than $12.5 billion to fraud in 2024. They reported losing more money to investment scams—$5.7 billion—than any other category. Older people are particularly prone to being scammed. 

If you’re the victim of a scam, can you deduct your losses as a theft loss? In the past, you often could because losses due to fraud and larceny were deductible theft losses subject to certain limits.

All this changed in 2017 when Congress enacted the Tax Cuts and Jobs Act (TCJA). The TCJA added a new provision to the tax code, providing that from 2017 to 2025, personal theft losses are deductible only if they are attributable to a federally declared disaster. This means almost all theft losses are not deductible at all during these years.

But all is not necessarily lost for fraud victims. Thefts involving business property and those involving transactions entered into for profit are deductible without the need for a disaster. Thefts arising from for-profit activities are deductible as a miscellaneous itemized deduction on Schedule A, not subject to the 2 percent of adjusted gross income floor.

Thus, if you’re the victim of a scam, you can get a theft loss deduction if it arose from a for-profit transaction.

The IRS chief counsel has provided helpful guidance explaining when common scams are deductible. The scams clarified involve victims transferring money from their IRA and non-IRA accounts to scammers, typically overseas.

The IRS chief counsel advised that losses due to compromised account scams, “pig butchering” investment scams, and phishing scams are deductible because the victims of these scams all have a profit motive: earning more investment returns or safeguarding IRA and non-IRA accounts established to earn a profit.

On the other hand, losses due to romance scams or fake kidnapping scams are not deductible as theft losses because the victims voluntarily transferred their money to the scammers out of mistaken love or intending to protect loved ones—which are not profit motives. Their losses were non-deductible personal theft losses.

In short, losses due to scams that rely on the victim’s greed are deductible. Losses from scams that count on the victim’s love or desire to help others are not deductible. 

This seems ridiculous, but it is the natural result of the very harsh rule established by the TCJA, which states that personal theft losses are never deductible. The IRS chief counsel tries to ameliorate the harshness of this rule by taking a relatively liberal view of what constitutes a transaction entered into for profit.