An important decision to make when filing your individual income tax return is whether to claim the standard deduction or itemize deductions. A change under the One Big Beautiful Bill Act (OBBBA) will make it beneficial for more taxpayers to itemize deductions on their 2025 returns. Specifically, if you paid more than $10,000 in state and local taxes (SALT) last year, you might save tax by itemizing on your 2025 return even if claiming the standard deduction has saved you more tax in recent years.

Claiming the standard deduction vs. itemizing

Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status instead. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.

The OBBBA made permanent and, for 2025, slightly increased the Tax Cuts and Jobs Act’s (TCJA’s) nearly doubled standard deduction for each filing status: $15,750 for single and separate filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. (The new amounts have been adjusted for inflation for 2026 and will continue to be adjusted annually going forward.)

Because of the higher standard deduction and the TCJA’s reduction or elimination of many itemized deductions (mostly made permanent by the OBBBA), many taxpayers who once benefited from itemizing have been better off taking the standard deduction for the last several years. If you’re among those taxpayers and you have significant SALT expenses, OBBBA changes could increase your SALT itemized deduction for 2025 enough that your total itemized deductions may exceed your standard deduction, causing itemizing to make sense once again for you.

Increased limit on the SALT deduction

Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. Historically, eligible SALT expenses were generally 100% deductible on federal income tax returns if an individual itemized deductions. This provided substantial tax savings to many taxpayers in locations with higher income or property tax rates (or higher home values), as well as those who owned both a primary residence and one or more vacation homes.

For 2018 through 2025, the TCJA limited the deduction to $10,000 ($5,000 for married couples filing separately). This SALT cap was scheduled to expire after 2025.

Rather than letting the $10,000 cap expire or immediately making it permanent, the OBBBA temporarily quadrupled the limit. Beginning in 2025, taxpayers can deduct up to $40,000 ($20,000 for married couples filing separately), with 1% increases each subsequent year. The $10,000 cap is scheduled to return in 2030.

The increased SALT cap could lead to major tax savings compared with the $10,000 cap. For example, a married couple filing jointly in the 32% tax bracket with $40,000 in SALT expenses and MAGI below the threshold for the income-based reduction (see below) could save an additional $9,600 in taxes [32% × ($40,000 − $10,000)].

Reduced limit for higher-income taxpayers

While the higher SALT limit is in place, the allowable deduction drops by 30% of the amount by which modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000; when MAGI reaches $600,000, the previous $10,000 cap applies. (These amounts are halved for separate filers.) The MAGI threshold will also increase 1% each year through 2029.

Here’s how the earlier example would be different if the taxpayer’s MAGI exceeded the threshold by $20,000: The cap would be reduced by $6,000 (30% × $20,000), leaving a maximum SALT deduction of $34,000 ($40,000 − $6,000). Even reduced, that’s more than three times what would be permitted under the $10,000 cap. The reduced deduction would still save an additional $7,680 in taxes compared to when the $10,000 cap applied [32% × ($34,000 − $10,000)].

Factoring in other itemized deductions

Depending on your 2025 SALT expenses, MAGI and filing status, your SALT deduction alone might be enough for your itemized deductions to exceed your standard deduction. If it isn’t, you’ll need to review your other potential itemized deductions and see if all of them, in aggregate, will exceed your standard deduction. Other possible itemized deductions include:

Medical expenses. This deduction is limited to the amount of eligible medical expenses that, in aggregate, exceeds 7.5% of adjusted gross income (AGI).

Home mortgage interest. This deduction is available for acquisition debt of up to $750,000. (A $1 million limit still applies to indebtedness incurred on or before December 15, 2017.)

Charitable donations. For 2025, cash donations to qualified charities are generally deductible up to 60% of AGI. (Beginning in 2026, the deduction will also be limited to the amount of eligible donations that, in aggregate, exceeds 0.5% of AGI.)

Noncash donations may also be deductible, but additional requirements and limits apply.

Casualty and theft losses. For 2025, these losses are generally deductible only if they’re due to a disaster declared by the President. (Beginning in 2026, losses due to certain state-declared disasters also will be deductible.) The deduction is limited to the amount of eligible losses that, in aggregate, exceeds 10% of AGI.

Keep in mind that additional rules and limits apply to these deductions.

A return to itemizing?

If you have high SALT expenses but have been claiming the standard deduction in recent years, it’s time to revisit itemizing. A return to itemizing on your 2025 return might save you tax. If you’ve already been itemizing, a larger SALT deduction could also increase your tax savings, perhaps significantly, depending on your SALT expenses, MAGI, filing status and tax bracket.

We can assess the impact of the SALT limit increase — and other OBBBA changes — on your tax situation and help ensure you claim all the tax breaks you’re entitled to on your 2025 return. Contact us to set up an appointment.

A new year brings many new tax-related figures for businesses. Here’s an overview of key figures for 2026. Be aware that exceptions or additional rules or limits may apply.

Depreciation-related tax breaks

• Bonus depreciation: 100%
• Section 179 expensing limit: $2.56 million
• Section 179 phaseout threshold: $4.09 million

Qualified retirement plan limits

• 401(k), 403(b) and 457 plan deferrals: $24,500
• 401(k), 403(b) and 457 plan catch-up contributions for those age 50 or older: $8,000
• 401(k), 403(b) and 457 plan additional catch-up contributions for those age 60, 61, 62 or 63: $3,250
• SIMPLE deferrals: $17,000
• SIMPLE catch-up contributions for those age 50 or older: $4,000
• SIMPLE additional catch-up contributions for those age 60, 61, 62 or 63: $1,250
• Contributions to defined contribution plans: $72,000
• Annual benefit limit for defined benefit plans: $290,000
• Compensation defining highly compensated employee: $160,000
• Compensation defining key employee (officer) in a top-heavy plan: $235,000
• Compensation triggering Simplified Employee Pension contribution requirement: $800

Other benefits limits

• Health Savings Account (HSA) contributions: $4,400 for individuals, $8,750 for family coverage
• Health Flexible Spending Account (FSA) contributions: $3,400
• Health FSA rollover: $680
• Child and dependent care FSA contributions: $7,500
• Employer contributions to Trump account: $2,500
• Monthly commuter highway vehicle and transit pass: $340
• Monthly qualified parking: $340

Miscellaneous business-related limits

• Income range over which the Section 199A qualified business income deduction limitations phase in: $201,750 – $276,750 (double those amounts for married couples filing jointly)
• Threshold for the excess business loss limitation: $256,000 (double that amount for joint filers) — note that this is a reduction from 2025
• Limitation on the use of the cash method of accounting: $32 million (also affects other tax items, such as the exemption from the 30% interest expense deduction limit)

 

Planning for 2026

We can help you factor these changes and others into your 2026 tax planning. Contact us to get started.

If your business does contract-based work, you know that change orders are a fact of life. This holds true regardless of whether you provide construction, engineering, information technology, manufacturing or other custom services.

Although change orders are inherently disruptive and stressful, they’re also often prime opportunities to increase project revenue and go the extra mile for customers. The key is to follow disciplined accounting practices so you capture the extra revenue without compromising your company’s financial position or the reliability of your financial statements.

Track the numbers

As you may have experienced, a customer’s needs or preferences can change after the contract is signed but before work is complete — or even before it begins. To keep projects on schedule, many contractors begin out-of-scope work before a change order is approved. But failing to properly track and account for the associated costs and revenue can distort your financial results.

For example, suppose you record costs attributable to a change order in total incurred job costs to date. But you don’t make a corresponding adjustment to the total contract price and total estimated contract costs. To a lender or surety, this may indicate excessive underbillings.

On the other hand, let’s say you increase the total contract price to account for out-of-scope work but are unable to obtain approval for the change order. In such an instance, there’s a distinct risk of profit fade — when a contractor’s expected profit on a project decreases over time as actual costs rise or anticipated revenue fails to materialize. This can shake the confidence of financial statement users such as lenders, sureties and investors.

Check the contract

Most business contracts include some form of change order language. Unfortunately, many contractors fail to follow the precise terms of those agreements when a customer requests or demands a change. The exact verbiage will vary, but change orders generally fall into three categories:

1. Approved. For this category, it’s typically appropriate to adjust incurred costs, total estimated costs and the total contract price. Depending on the contract’s change order provisions, this may increase your estimated gross profit.
2. Unpriced. If the parties agree on the scope of work but defer price negotiations, the accounting treatment depends on the probability that the contractor will recover its costs. If improbable, change order costs are treated as costs of contract performance in the period during which they’re incurred — and the contract price is not adjusted. As a result, estimated gross profit decreases.

If it’s probable that you’ll recover the costs through a contract price adjustment, you can either:

• Defer revenue recognition until you and the customer have agreed on the change in contract price, or
• Treat them as costs of contract performance in the period incurred and increase the contract price to the extent of the costs incurred (resulting in no immediate change to estimated gross profit).

To determine whether recovery is probable, assess the customer’s profile and financial history. Also, draw on your past experience in negotiating change orders and other factors. If you’ll likely raise the contract price by an amount that exceeds the costs incurred (increasing estimated gross profit), you may recognize more revenue only when it’s highly probable that a significant reversal of that revenue won’t occur.

3. Unapproved. Treat these as claims. Recognize additional contract revenue only if, under the applicable accounting rules, it’s probable the claim will generate such revenue, and you can reliably estimate the amount.

Ask for assistance

Change orders can support revenue growth and strengthen customer relationships — but only when managed and accounted for correctly. Without disciplined tracking and a clear understanding of the accounting rules, you risk misstated financials, profit fade, and strained relationships with customers and other stakeholders. We can help you evaluate and refine your business’s change order procedures and ensure your financial statements accurately reflect the economics of your projects.

You likely have a lot of things to do between now and the end of the year, such as holiday shopping, donating to your favorite charities and planning get-togethers with family and friends. For older taxpayers with one or more tax-advantaged retirement accounts, as well as younger taxpayers who’ve inherited such an account, there may be one more thing that’s critical to check off the to-do list before year end: Take required minimum distributions (RMDs).

Why is it important to take RMDs on time?

When applicable, RMDs usually must be taken by December 31. If you don’t comply, you can owe a penalty equal to 25% of the amount you should have withdrawn but didn’t.

If the failure is corrected in a “timely” manner, the penalty drops to 10%. But even 10% isn’t insignificant. So it’s best to take RMDs on time to avoid the penalty.

Who’s subject to RMDs?

After you reach age 73, you generally must take annual RMDs from your traditional (non-Roth):

• IRAs, and
• Defined contribution plans, such as 401(k) plans (unless you’re still an employee and not a 5%-or-greater shareholder of the employer sponsoring the plan).

An RMD deferral is available in the initial year, but then you’ll have to take two RMDs the next year.

If you’ve inherited a retirement plan, whether you need to take RMDs depends on various factors, such as when you inherited the account, whether the deceased had begun taking RMDs before death and your relationship to the deceased. When the RMD rules do apply to inherited accounts, they generally apply to both traditional and Roth accounts. If you’ve inherited a retirement plan and aren’t sure whether you must take an RMD this year, contact us.

Should you withdraw more than required?

Taking no more than your RMD generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) reduce or eliminate the benefits of other tax breaks with income-based limits, such as the new $6,000 deduction for seniors.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT because the thresholds for that tax are based on MAGI.

Do you have to take any RMDs in 2025?

The RMD rules can be confusing, especially if you’ve inherited a retirement account. If you’re subject to RMDs, it’s also important to accurately calculate your 2025 RMD. We can help ensure you’re in compliance. Please contact us today.

Year-round tax planning generally produces the best results, but there are some steps you can still take in December to lower your 2025 taxes. Here are six to consider:

1. Postpone invoicing. If your business uses the cash method of accounting and it would benefit from deferring income to next year, wait until early 2026 to send invoices.
2. Prepay expenses. A cash-basis business may be able to reduce its 2025 taxes by prepaying certain 2026 expenses — such as lease payments, insurance premiums, utility bills, office supplies and taxes — before the end of the year. Many expenses can be deducted even if paid up to 12 months in advance.
3. Buy equipment. Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back for assets acquired and placed in service after January 19, 2025. And the Sec. 179 expensing limit has doubled, to $2.5 million for 2025. But remember that the assets must be placed in service by December 31 for you to claim these breaks on your 2025 return.
4. Use credit cards. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.
5. Contribute to retirement plans. If you’re self-employed or own a pass-through business — such as a partnership, S corporation or, generally, a limited liability company — one of the best ways to reduce your 2025 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2025 contributions up until its tax return due date (including extensions).
6. Qualify for the pass-through deduction. If your business is a sole proprietorship or pass-through entity, you may be able to deduct up to 20% of qualified business income (QBI). But if your 2025 taxable income exceeds $197,300 ($394,600 for married couples filing jointly), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here. Please consult us before implementing them. We can also offer more ideas for reducing your taxes this year and next.