2025 Year End Newsletter

Greetings!

As we approach the end of the year, now is an ideal time to review your financial picture and consider key strategies that can help you make the most of recent tax law changes. This newsletter highlights important updates and planning opportunities to keep in mind. Our goal is to ensure you feel informed and confident as you navigate the months ahead.

Our team at Gannon CPA thanks you for your business and wishes you and your family healthy and happy holidays! To a bright 2026!

·  Permanent extension of lower tax rates and brackets: The OBBBA generally makes the tax rates enacted in 2017 in the Tax Cuts and Jobs Act (TCJA) permanent. An additional year of inflation adjustment is added for determining the dollar amounts at which the 12% rate bracket ends and the 22% rate bracket begins.

·      Standard deduction: The nearly doubled standard deduction would be made permanent. Effective for 2025, the amounts are as follows:

• Single & Married Filing Separately (MFS): $15,750 (indexed)
• Head of Household (HoH): $23,625 (indexed)
• Married Filing Jointly (MFJ): $31,500 (indexed)

·      Child Tax Credit: The nonrefundable child tax credit increases to $2,200 per child beginning in 2025 and the credit amount is indexed for inflation. 

·      Estate and gift tax exemption: The increased exemption is made permanent and raised to $15 million per individual ($30 million for married couples) in 2026, indexed for inflation.

·      SALT deduction cap: The state and local tax (SALT) deduction cap is increased to $40,000 per household and would be phased out for taxpayers with modified adjusted gross income (MAGI) over $500,000. In 2030, the deduction will revert to $10,000.

·      Charitable deductions:

• A deduction is added for charitable contributions that starts in 2026 ($1,000 for single filers, $2,000 for joint filers) for individuals that take the standard deduction.
• For those in the 37% tax bracket there is now a slight limit on the charitable deductions for any amounts greater than 0.5% of AGI.

·      Reduced tax on tips: For 2025–2028, there is an above-the-line deduction of $25k created for qualified tips (in certain occupations) subject to income and occupation limitations. This is applied per household and not a deduction available per person.

·     Reduced tax for overtime pay: For 2025–2028, above-the-line deductions of $12,500 ($25,000 for joint filers) are created for overtime premium pay, subject to income and occupation limitations.

·      Senior deduction: For 2025–2028, a $6,000 deduction is available for seniors (age 65+) with income below $75,000 ($150,000 for joint filers).

·      Car loan interest deduction: For 2025–2028, up to $10,000 of interest on loans for U.S.-assembled passenger vehicles may be deducted, subject to income phaseouts. New vehicles only.

·      Gambling Loss Limitation: Beginning in 2026, these losses will only be allowed up to 90% of wagering income.

·  Phaseout for Itemized Deductions: are back for 2026 for taxpayers in the 35%-37% tax brackets.

·      Home mortgage interest and insurance premiums: The $750,000 limit on the treatment of mortgage insurance premiums as qualified residence interest is made permanent. The exclusion of home-equity indebtedness from the definition of qualified residence interest is also now permanent.

·      Casualty loss deduction for personal casualties: The limitation on personal casualty loss deductions is made permanent, however a provision is added to include state-declared disasters.

·      Clean energy and IRS credits: Most clean energy credits from the Inflation Reduction Act (IRA) are terminated in 2026. The residential clean energy credit (solar panels) and the energy efficient home improvement tax credit (insulation, windows, heat pumps and energy audits) remain available through 12/31/2025.

·  Educator Credit: The educator credit for teachers/educators from K-12 is now permanent.

·  Phaseout for Itemized Deductions: Phaseouts are back for 2026 for taxpayers in the 35%-37% tax brackets.

· Expansion of 529 Plans: Additional uses for these funds and a doubling of the amount available annually for K-12 to $20,000.

·    Other deductions and credits: Several other deductions and credits, including the adoption credit, employer-provided childcare credit, paid family and medical leave credit, and education-related benefits are made permanent. 

• With the changes in the SALT tax deduction, it would be beneficial to pay state taxes in before year end.
• For those in higher tax brackets accelerate charitable contributions with no phaseout in 2025.
• There are increased reporting requirements and scrutiny of digital currency transactions. Keep track of your gains/losses and transfers for year end reporting. Brokerage houses of virtual currency will have to report gains/losses to the IRS on Form 1099.
• Maximize your retirement contributions. If you are over 50, you can put more away.
• If you have investments, harvest tax losses.
• Consider harvesting any capital gains that can be realized in the 0% tax bracket (available to lower income filers).
• Maximize your FSA through your company.
• Maximize on an HSA through your company or open your own HSA. (see more about this below). This remains the best tax shelter tool in the IRS code.
• Contribute to a Roth IRA's using the rollover rules if your income is low in 2025 or using the "back door" Roth IRA contribution method.
• Consider 529 Plans, Able or Trump Plans for dependents.
• Review charitable contributions to maximize income tax deductions. Starting in 2025, even those that don't itemize can deduct charitable donations.
• Consider donating appreciated assets that have been held for more than one year, rather than cash.
• Opening and funding a Donor Advised Fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and also the ability to dole out those funds to charities over multiple years.
• Qualified Charitable Distributions (QCDs) are another option for those over 70.5 and especially for those who don’t typically itemize.

• While the the Massachusetts "Passthrough Entity Level Tax" is still a way to deduct state taxes, the increase in the allowance for up to $40,000 in state taxes deductible on the federal individual tax returns may eliminate the need to pay the PTE. Evaluation should be considered to see which method is best.
• Accelerated write offs remain an important tax too for purchases of machinery, equipment and leasehold improvements.
• If you are able to hire your children, you may be able to pay them up to the standard deduction for the current year federal income tax free. Amounts would be $15,750 for 2025. Please note, however, that you must have documentation of their hours and the tasks they performed.
• Increase owner's salary in order to maximize the 20% business deduction.

With the failure of several companies in the digital currency space; this is a reminder that these items remain unregulated for the most part and remain risky investments.

Digital assets are defined under the U.S. tax code as any digital representation of value that may function as a medium of exchange, a unit of account and/or a store of value.

Digital assets may include virtual currencies such as Bitcoin and Ether, Stablecoins such as Tether and USD Coin (USDC) and non-fungible tokens (NFTs). NFTs being the new "hot item" on the market.

The sale or exchange of any of these assets have tax consequences or at the minimum disclosure on your tax returns. The virtual currencies, the use of such currencies to pay for goods or services or holding such currencies as an investment, generally require some level of reporting on your tax returns. The IRS continues to increase its scrutiny in this area. The IRS has increased year-end reporting to on these items, so be on the lookout for those reports from your digital wallets and investments for your tax returns.

Streamline your bookkeeping operations with our exceptional accounting solutions, transition of your accounting department seamlessly to the cloud and begin utilizing automation (AI).

The benefits of going to the cloud include:

• Automate processes that save time and money in the office
• Eliminate routine data entry
• No more writing and mailing checks
• Accessibility - anywhere, anytime productivity and flexibility
• Increased collaboration with your accountant and staff
• Better internal controls 
• Save time and money by not processing paper
• Business continuity - auto backup of cloud information 
• Automatic software upgrades
• Scalable and more efficient
• Simplified PC, server and network maintenance

We have evaluated some amazing programs that will automate your accounting and save time in your office. If you are interested please contact us.

• Make use of annual exclusion gifts of $19,000 per donee, $38,000 per married couple.
• Capitalize on the unlimited gift exemption for direct payment of tuition and medical expenses.
• Consider intra-family loans and opportunities to leverage the current high-interest-rate environment.
• Review lifetime gift and GST gifting opportunities to use additional applicable exclusion and exemption amounts.

With the implementation of the new law regarding the taxability of tips and the elimination of tax on overtime, there will be some complexities in 2025. Currently, there is no requirement for employers to separately report these amounts on the W-2. For most employees, overtime pay will likely need to be determined using the final pay stub of the year. Additionally, there will be no designated W-2 box for “qualified tips,” so employers will need to rely on employees’ own reporting and interpretation of these amounts.

Effective September 30, 2025 there is a mandate to phase out paper checks issued by the IRS. Additional guidance will be issued during the filing season. Be prepared to provide bank information in order to comply with this new rule. In addition the IRS is strongly recommending paying electronically wherever possible.

This is a new IRA-type account designed for children under age 18. These accounts will not be available until July 2026. There are five types of contributions that may be made to these accounts:

Eligible Contribution Sources:

1. Federal Pilot Program Grant: A $1,000 government-funded contribution for children born between 12/31/2024 and 1/1/2029.
2. QGC – 501(c)(3) Donations
3. Employer Contributions: Up to $2,500 annually; not taxable to the employee under Section 128.
4. Qualified Rollovers
5. Other Contributions: These are the only contributions that carry basis and anyone can make them.

Account Rules (Birth to Age 18):

• Initial government contribution of $1,000 at account opening.
• Investments must be limited to eligible investment options.
• No distributions are allowed before age 18.
• Contributions are not tax-deductible.
• A trustee is required (most likely a bank or investment firm), and reporting will differ from standard IRS reporting.
• There is a separate annual contribution limit of $5,000.
• Only one Trump Account per individual is permitted.

Additional Notes:

• Contributions from items 3–5 are subject to the $5,000 annual limit.
• Contributions from items 1 and 2 are not subject to any annual limit.
• Basis must be tracked for future distributions.

Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, changes in residency, and significant planned expenditures (real estate purchases, college tuition payments, etc.).

• Update pre-tax and Roth contributions to retirement accounts for 2025.
• Review your various insurance policies and confirm whether the amount of coverage and deductibles are still adequate.
• Review beneficiary designations with your custodian and update, as necessary.
• Confirm that you have spent or have a plan to spend the entire balance in your Flexible Spending Accounts and set 2025 contribution amounts.
• Review your investment portfolio and target asset allocation. Confirm whether you are within the targeted ranges for each asset class as recent market performance could have caused allocations to drift dramatically.
• Review any scheduled 4th quarter estimated tax payments and assess any liquidity needs.
• Consider an additional tax payment or increase in tax withholdings to eliminate a penalty.
• Evaluate progress towards financial goals.
• Plan for for IRA and 401(k) required minimum distributions in 2025 and beyond.

Use the below links to pay your estimated tax payments.

SCANNING

If you regularly scan documents to the portal, we have found that the following settings make the scan most legible:

DPI of 300

Black & White print

PDF

If you want to take pictures with your phone, this app converts the pages from JPG to a PDF. It is offered by Microsoft and available on all phones and tablets.

Quickbooks Online App-if you are not using the app in order to scan in receipts, you are missing out. After scanning in the receipts, you can categorize and the receipt is contained with your books for easy access.