Not all married couples earn dual incomes. For example, during the course of a marriage, one spouse may leave the workforce to care for a family member or tend to his or her own health issues. Regardless of why you left and whether it’s temporary or long-term, you might still want to save for retirement while your spouse continues working. 

The good news is you can do just that with a “spousal” IRA — which, among other requirements, must be set up in the nonworking spouse’s name. Even better, you generally have until April 15, 2026, to make eligible IRA contributions for 2025. In some situations, these contributions can reduce taxable income when filing your 2025 joint return. Let’s dive into what you and your working spouse need to know.

Rules for Nonworking Spouses

For the 2025 tax year, a nonworking spouse can potentially make a deductible traditional IRA contribution of up to $7,000 ($8,000 for individuals who were age 50 or older as of December 31, 2025). However, to make a spousal IRA contribution, you must meet two requirements:

1. You and your spouse must file a joint return.
2. Your combined earned income must at least equal the sum of your and your spouse’s combined contributions.

But here’s where it gets a bit tricky. If your working spouse participates in a qualified retirement plan through a job or self-employment, the deductibility of your spousal IRA contribution is phased out for the 2025 tax year between joint modified adjusted gross income (MAGI) of $236,000 to $246,000. Contact your tax advisor for help calculating MAGI for this purpose.

If your working spouse is not covered by a qualified retirement plan through a job or self-employment, you — as the nonworking spouse — can make a deductible traditional IRA contribution. In this situation, there are no limitations on your joint MAGI.

For instance, say you’re a stay-at-home parent who’s 40 years old. You and your spouse file jointly, and your joint MAGI is $230,000 for 2025. All income comes from your spouse’s employer, which sponsors a qualified retirement plan that your spouse participates in, but you don’t. In this scenario, for the 2025 tax year, you can make a deductible contribution of up to $7,000 to a traditional spousal IRA because your joint MAGI is below the $236,000 deduction phaseout threshold, and your spouse supplies the requisite earned income.

Alternatively, under the same circumstances, let’s say your joint 2025 MAGI is $250,000. In this case, you can’t make a deductible contribution to a traditional spousal IRA because your joint MAGI exceeds the $246,000 deduction phaseout ceiling. However, you can make a nondeductible contribution regardless of how high your joint MAGI might be.

Rules for Working Spouses

Now let’s look at things from your working spouse’s perspective. If neither you nor your partner participates in a qualified retirement plan through a job or self-employment, your working spouse can make a deductible contribution of up to $7,000 for the 2025 tax year to a traditional IRA set up in his or her name. The limit increases to $8,000 if your spouse was age 50 or older as of December 31, 2025. The only limitation is that you must together have enough earned income to at least match the combined amount of your contributions. All the requisite earned income can come from the working spouse.

On the other hand, say your working spouse does participate in a qualified retirement plan. In this case, his or her ability to make a deductible traditional IRA contribution for the 2025 tax year is phased out between joint MAGI of $126,000 and $146,000.

Hypothetical Examples

Timothy and Tamara are joint filers who turned 40 in 2025. The couple has a joint MAGI of $175,000 for 2025. All the couple’s income comes from Tamara’s employer, which sponsors a qualified retirement plan that she participates in, but Timothy doesn’t participate in a plan. For the 2025 tax year, Tamara, the working spouse, can’t make a deductible traditional IRA contribution because the couple’s joint MAGI exceeds the applicable deduction phaseout ceiling ($146,000). However, she can make a nondeductible contribution to a traditional IRA.

As the nonworking spouse, Timothy can make a deductible contribution of up to $7,000 to an eligible traditional spousal IRA. Why? Because the couple’s joint MAGI is below the deduction phaseout threshold for nonworking spouses ($236,000).

Here’s a different example: Addie, a 35-year-old nonworking spouse, and Adam, her 40-year-old working spouse, have a joint MAGI of $800,000 for 2025. Neither Addie nor Adam participates in a qualified retirement plan. Despite the couple’s high joint MAGI, they can each make a deductible traditional IRA contribution of up to $7,000 for the 2025 tax year.

Roth IRA Contributions

Tax deductibility isn’t an issue with Roth IRA contributions. You make those contributions with after-tax dollars, and you’re subject to the same annual contribution limits as those for traditional IRAs. The Roth IRA tax advantage is at the back end. You can withdraw all your Roth account earnings — along with the sum of your annual contributions — tax-free after age 59½ as long as you’ve had at least one Roth IRA open for more than five years. Withdrawals that pass these tests are called “qualified Roth distributions.”

However, eligibility to contribute to a Roth IRA for the 2025 tax year is phased out between MAGI of $236,000 to $246,000 for joint filers. Also, you must have enough earned income to at least match the combined amount of Roth contributions made by you and your spouse. Again, all the earned income can come from one working spouse. Roth IRA contribution eligibility doesn’t depend on whether you or your spouse participates in a qualified retirement plan.

Important: Be aware that the $7,000 contribution limit ($8,000 if you were age 50 or older as of December 31, 2025) is the combined limit for traditional IRA contributions (whether deductible or not) and Roth IRA contributions for the 2025 tax year. So, if you contribute the maximum to a Roth IRA, you can’t contribute anything to a traditional IRA. If you contribute the maximum to a traditional IRA, you can’t contribute anything to a Roth IRA.

If your joint MAGI is too high to make a deductible traditional IRA contribution, but low enough to make a Roth contribution, it’s often better to make a Roth contribution rather than a nondeductible traditional IRA contribution. The reason: You can withdraw accumulated Roth account earnings as tax-free qualified distributions — assuming you pass the qualified distribution tests. In contrast, earnings that accumulate in a traditional IRA, including one funded solely with nondeductible contributions, are fully taxable when withdrawn.

Even if your joint MAGI permits making deductible traditional IRA contributions, you may still want to consider making Roth IRA contributions, depending on your current and expected future tax bracket. After all, a Roth IRA features future tax-free withdrawals while a traditional IRA only sets you up for future taxable withdrawals.

Beneficial Decisions

Leaving the workforce doesn’t mean you have to stop saving for retirement. However, as you can see, the rules for contributing to traditional and Roth IRAs can be complex depending on your situation. For best results, work closely with your tax advisor to make decisions that achieve your retirement goals and optimize your tax outcomes.

Traditional IRA Contributions When Both Spouses Work

What are the limits on traditional IRA contributions if both you and your spouse work? If both spouses participate in qualified retirement plans, the $126,000 to $146,000 joint modified adjusted gross income (MAGI) deduction phaseout range applies to both spouses for the 2025 tax year.

For example, suppose you and your spouse both work and participate in qualified retirement plans. If your joint MAGI was $150,000 for 2025, neither you nor your spouse can make a deductible traditional IRA contribution for the 2025 tax year, because your joint MAGI exceeds the ceiling of the deduction phaseout range ($146,000).

However, if your joint MAGI was $126,000 or below, you can make a deductible contribution of up to $7,000 for the 2025 tax year ($8,000 if you were age 50 or older as of December 31, 2025). The same is true for your spouse.

What if you and your spouse work, but only one of you participates in a qualified retirement plan? In that case, the participating spouse’s ability to make a deductible traditional IRA contribution for the 2025 tax year is subject to the $126,000 to $146,000 joint MAGI deduction phaseout range. Meanwhile, the nonparticipating spouse falls within the $236,000 to $246,000 deduction phaseout range.

Let’s say you and your spouse both work, but only your spouse participates in a qualified retirement plan. Your joint MAGI is $230,000 for 2025. Here, your spouse can’t make a deductible traditional IRA contribution for the 2025 tax year because your joint MAGI exceeds the applicable $146,000 deduction phaseout ceiling. However, your spouse can make a nondeductible contribution of up to $7,000 ($8,000 if he or she was age 50 or older as of December 31, 2025).

Meanwhile, you can make a deductible contribution because your joint MAGI is below the $236,000 floor for the deductible contribution phaseout range that applies to a working spouse who doesn’t participate in a tax-favored retirement plan. In fact, you can contribute and deduct up to $7,000 ($8,000 if you were age 50 or older as of December 31, 2025).

Proper preparation can make your 2025 tax filing process faster, more accurate, and significantly less stressful. Gathering and organizing the right information before contacting your accountant helps ensure nothing is overlooked and can often reduce preparation time and costs. Below is a practical guide to the key documents and details you should have ready as tax season approaches.

Essential Documents to Gather

Personal Information

Make sure you have accurate identification and payment details for everyone included on your return:

• Social Security numbers or Tax Identification Numbers for you, your spouse, and dependents
• Dates of birth for all individuals listed on the return
• Documentation of estimated federal and state tax payments, including, for each:
  • Amount paid
  • Date paid

Income Records

Compile documentation for all sources of income received during the year, including:

• W-2 forms for wages and salaries
• 1099 forms such as:
  • 1099-NEC or 1099-MISC for self-employment or contract work
  • 1099-INT and 1099-DIV for interest and dividends
  • 1099-R for retirement distributions
  • 1099-G for unemployment income
  • 1099-K for third-party payment platforms
• Records for other income, including stock or cryptocurrency sales, rental income, gambling winnings, and alimony received

Deduction and Credit Information

Having proper documentation helps ensure you receive every deduction and credit you are entitled to:

• 1098 forms, including:
  • Mortgage interest statements
  • Student loan interest statements
  • Tuition statements
• Itemized deduction information, including:
  • Medical and dental expenses
  • Real estate and motor vehicle property taxes, showing amounts actually paid and the dates paid.
• Childcare expenses, including amounts paid and the provider’s tax identification number

Business and Self-Employed Records

If you are self-employed or own a business, additional preparation is essential:

• Year-end profit and loss statements and balance sheets
• Records supporting business expenses such as rent, utilities, supplies, and travel
• Detailed mileage logs for business vehicles

Prior-Year Tax Returns

Keep copies of your most recent filings available, including your 2023 and 2024 federal and state tax returns. These provide valuable reference points and help ensure consistency year over year.

Final Checklist Before Submitting Your Information

Before sending documents to your accountant, take a few final steps:

• Verify personal details, including your current address, phone number, and banking information for direct deposit
• Include copies of any IRS or state notices received during the year
• Use a secure client portal whenever possible to protect sensitive information
• Be ready to discuss major life events such as marriage, divorce, birth of a child, home purchases, or other significant changes that occurred during 2025

Stay Organized and Save Time

Keeping documents organized, clearly labeled, and stored securely can streamline the tax preparation process and reduce follow-up questions. A little preparation now can lead to faster filing, improved accuracy, and greater peace of mind throughout tax season.

If you have questions or would like professional assistance with your tax preparation, planning, or audit needs, contact Beers, Hamerman, Cohen & Burger, PC. Our experienced team is committed to providing personalized, reliable service to help individuals and businesses navigate an ever-changing tax landscape with confidence.

Do you regularly donate to charity? In the past, you may have derived generous tax benefits for your contributions without much forethought. Or perhaps you didn’t bother to consider potential write-offs before donating because you assumed you wouldn’t be eligible. In either case, you should know that some of the charitable deduction rules have changed for 2026.

Under the One Big Beautiful Bill Act (OBBBA), enacted last year, there are new obstacles for some donors and new tax-saving opportunities for others. Much depends on whether you itemize deductions or claim the standard deduction on your individual federal income tax return.

Basic Guidelines

Within certain limits, you can potentially deduct contributions made to qualified charitable organizations if you adhere to IRS recordkeeping requirements. You must, for example, substantiate cash contributions with a receipt, bank record, payroll record or similar documentation. And you must substantiate those of $250 or more with a written acknowledgement from the charity. Also, you need to obtain such documents by the earlier of the date you file the return or the due date (including extensions).

Generally, your deduction for cash contributions to public charities can’t exceed 60% of your adjusted gross income (AGI). You may carry forward any remainder for up to five years. The Tax Cuts and Jobs Act (TCJA), enacted in 2017, raised the limit from 50% of AGI to 60% for 2018 through 2025. And the OBBBA permanently extends this higher ceiling. (We’ll discuss the new law’s impact in further detail below.)

Other special rules apply to gifts of property, and the percentage-of-AGI limits are often lower than for cash gifts — such as 30% for certain appreciated property gifts to public charities. Generally, any excess may be carried forward up to five years. If you claim a deduction for donations of noncash property over $5,000, you usually must obtain a qualified appraisal and attach IRS Form 8283 to your return. You can’t simply value the donated property yourself.

But here’s the kicker: For 2025 and most previous tax years, charitable donations are deductible only if you itemize deductions on your tax return. Itemizing saves taxes when your total allowable itemized deductions — including charitable contributions — exceed the applicable standard deduction. However, because of the TCJA’s changes, including a significant increase in the various standard deduction amounts, fewer individuals itemize today.

New Law’s Impact

This is where the OBBBA adds a few twists and turns that go into effect beginning with 2026 returns that will be filed in 2027. For starters, it installs a new floor on charitable deductions for itemizers, effectively reducing their annual write-offs. But the OBBBA also provides new tax incentives for nonitemizers. These developments may significantly impact your 2026 donation strategies. Here’s how it breaks down for both groups:

Itemizers face stricter limits. First, charitable donations are deductible only to the extent that, in total, they exceed 0.5% of your AGI. This operates like the 7.5%-of-AGI floor for medical expense deductions. So, if your AGI is $100,000, and you donate $5,000 during the year, your deduction is reduced to $4,500. You may be able to carry forward disallowed amounts, but the rules are complex, and the floor can continue to limit what’s deductible in later years.

In addition, the OBBBA reduces the benefit of itemized deductions — including charitable deductions — for high-income taxpayers. Beginning in 2026, the benefit for those in the top 37% tax bracket will generally be as if they were in the 35% bracket. For example, if you’re in the 37% bracket and have $10,000 in charitable deductions after exceeding the AGI floor, the deductions will save you $3,500 in taxes rather than $3,700 in taxes.

For 2026, this applies only to 1) single filers and heads of household with taxable income above $640,600, 2) married couples filing jointly with taxable income above $768,700 and 3) married individuals filing separately with taxable income above $384,350.

Nonitemizers get a permanent deduction. Beginning in 2026, taxpayers can deduct up to $1,000 in cash contributions to qualified public charities, or $2,000 for joint filers. The definition of “cash contribution” may be broader than you think. It includes gifts made by debit or credit card, check, electronic bank transfer, online payment platform, and payroll deduction.

Unlike the charitable deduction for itemizers, these write-offs have no floor. However, gifts to donor-advised funds or private foundations aren’t eligible. Also, donations exceeding the $1,000/$2,000 limit can’t be carried forward.

Practical Approach

So, how can you lay the groundwork for a viable charitable giving tax strategy this year? Begin by discussing with your tax advisor whether it will likely make sense for you to itemize on your 2026 or 2027 returns. Absent extenuating circumstances, plan to make donations in the year in which you’ll receive the maximum tax benefit.

For instance, if you don’t expect to itemize for 2026 but do expect to for 2027, you might “bunch” cash donations into 2026 up to the $1,000/$2,000 limit (whichever applies to you) because your 2026 standard deduction won’t be reduced by 0.5% of your AGI. However, if you’re planning a large property gift, you might defer that donation to 2027, when you can potentially claim an itemized deduction for it.

Helping Hand

Be aware that other rules affecting charitable donation deductions may apply. For example, if you donate property to an eligible charity, how the charity uses the property may impact the amount of your deduction. Work closely with your tax advisor to ensure compliance with all applicable rules. With a helping hand, you can develop a strategy under current law that maximizes the tax benefits for your situation.

New Boundaries for C Corporation Donations

If you’re a shareholder in a C corporation that intends to donate to charity this year, be sure to catch up on the latest tax law developments. The One Big Beautiful Bill Act (OBBBA) creates new boundaries.

Under previous law, deductions for C corporations were limited to 10% of the company’s taxable income. Any excess could generally be carried forward for up to five years. So, if a small C corporation earned $1 million in 2025 and donated $120,000, the deduction would be limited to $100,000, and $20,000 could be carried forward to 2026.

However, things become slightly more complicated under the OBBBA. For tax years beginning in 2026 or later, the new law imposes — for the first time ever — a 1% of taxable income floor on charitable deductions for C corporations. Donations are deductible only to the extent that, in total, they exceed the 1% floor. Note that the 10% deduction ceiling isn’t going away; the two thresholds work in tandem.

If a C corporation’s contributions exceed the 10% ceiling, it may generally carry forward the excess. What’s more, under the OBBBA rules, the amount disallowed by the 1% floor may also be carried forward. But if the corporation’s contributions don’t exceed the 10% ceiling, carryovers generally aren’t allowed.

Additionally, C corporations may be eligible for other charitable tax breaks for certain donations. For example, they may claim an enhanced deduction for donations of inventory to a public charity if the items are specifically used for the care of the “ill, needy, or infants,” according to the IRS. Consult your tax advisor for more information and assistance.

Yesterday, we were proud to celebrate Partner, Shari Elias, at the 2025 CTCPA Women’s Awards Luncheon, an event that honors female CPAs and accounting professionals who are making meaningful contributions to their organizations, communities, and the accounting profession as a whole.

The CTCPA Women’s Awards recognize leaders who exemplify excellence, dedication, and impact. Shari’s recognition reflects her ongoing commitment to her clients, her colleagues, and the profession, as well as her leadership and influence within the accounting community. Her work continues to inspire those around her and reinforces the importance of mentorship, integrity, and professional growth.

As part of the award ceremony, a video highlighting Shari’s career, achievements, and professional journey was shared with attendees. We invite you to learn more about Shari and view the video featured during the luncheon by clicking the link below:

https://www.ctcpas.org/ctcpawomen2026sharielias

Please join us in congratulating Shari on this well-deserved recognition. We are honored to celebrate her accomplishments and proud to have her as a leader within our firm.

The One Big Beautiful Bill Act (OBBBA) establishes new individual federal income tax deductions for qualified income from tips and overtime. Although the OBBBA wasn’t signed into law until July 4, 2025, these new deductions were effectively made retroactive to January 1, 2025.

The IRS has announced it won’t issue revised information reporting forms for tax year 2025. That means workers and their tax advisors will have to determine the amount of eligible tips or overtime pay they received last year. On the bright side, the IRS did issue guidance in November on how to do so. If you’re someone who gets tips or works overtime, read on for some helpful background about claiming the new deductions on your 2025 return.

Tip Deduction Basics

Let’s start with tips. For tax years 2025 through 2028, the OBBBA established a new deduction that can potentially offset up to $25,000 of qualified tip income annually. And you don’t need to itemize to claim it.

Customers can pay eligible tips in cash, by credit card or through a tip-sharing arrangement. However, the deduction is available only if you receive tips in an occupation that the IRS has designated as customarily receiving such income. In September 2025, the IRS released proposed regulations that list dozens of occupations that qualify for the deduction, grouped into eight categories:

1. Beverage and food services,
2. Entertainment and events,
3. Hospitality and guest services,
4. Home services,
5. Personal services,
6. Personal appearance and wellness,
7. Recreation and instruction, and
8. Transportation and delivery.

For self-employed individuals, the deduction can’t exceed your net income — calculated before the deduction — from the same trade or business in which you earn the tips. If you’re married, you must file jointly with your spouse to claim the write-off.

Remember, you must first report your tip income to the IRS on your individual return. Then you can claim the deduction if you qualify. It’s important to understand that this tax break isn’t an income exclusion. Medicare tax will apply to your tip income, and Social Security tax usually will, too. Also, such income may still be fully taxable for state and local income tax purposes.

Tip Deduction Phaseout

The tip deduction that would otherwise be allowed up to the $25,000 limit begins to phase out when your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if you’re married and file jointly. The deduction phases out in $100 increments for each $1,000 of MAGI, or a portion thereof, exceeding the applicable threshold. In this context, MAGI consists of your regular AGI plus certain tax-free offshore income that you probably don’t have.

Reporting Tip Income

You must also report tip income to your employer. IRS Publication 531, “Reporting Tip Income,” explains how to track and report your tips. But consult your tax advisor for help setting up a tailored, comprehensive employer-reporting approach. Your employer should withhold Social Security and Medicare taxes from the reported amount and include the reported amount on your Form W-2.

Important: If you received tips in 2025 that you didn’t report to your employer, or if your W-2 shows allocated tips that exceed what you reported, you must report the additional tip income on your tax return. You’ll also need to use Form 4137 to calculate and pay the employee share of Social Security and Medicare taxes. Consult your tax advisor for assistance.

Calculating Tip Deductions

Bear in mind that, for 2025, employers aren’t required to report qualified tip income amounts to workers. So, you may have to work with your tax advisor to do so. The IRS guidance includes examples of how to determine the amount of qualified tip income you received last year. Here are some adapted versions:

Server with accurately reported tips. Ann is a restaurant server whose W-2 shows she received $18,000 in tips, from which her employer withheld Social Security tax. The withholding was accurate, and Ann received no additional tips, so she didn’t need to complete Form 4137. The $18,000 counts as qualified tip income for purposes of calculating her deduction.

Bartender with additional tips. Bob, a bartender, reported $20,000 in tips to his employer. However, he also received $4,000 in unreported tips. So, he worked with his tax advisor to complete Form 4137, which was filed with his 2025 return. The $24,000 ($20,000 + $4,000) counts as qualified tip income for purposes of calculating Bob’s deduction.

Self-employed travel guide with complications. Dex is a self-employed travel guide who operates his business as a sole proprietorship. In 2025, he received $7,000 in tips from customers, paid through a third-party settlement organization (TPSO).

The TPSO sent Dex a Form 1099-K, showing $55,000 of total payments for 2025. His 1099-K doesn’t itemize his tips, but Dex kept a log showing the dates, customer names and tip amounts. Because of this thorough documentation, he can count the $7,000 as qualified tip income for purposes of calculating his deduction.

Overtime Deduction Basics

Now let’s move on to the new overtime deduction. Before the OBBBA, overtime income was fully taxable for federal income tax purposes. For the 2025 through 2028 tax years, the OBBBA established a new deduction that can offset up to $12,500 of qualified overtime income annually ($25,000 for joint filers). You can claim the deduction whether or not you itemize, but if you’re married, you must file a joint return with your spouse to claim the write-off.

All the points we mentioned above about tip income apply to overtime income. You’re required to report it and can claim the new deduction only if you qualify. The deduction isn’t an income exclusion; Social Security tax may apply, and Medicare tax will for sure. Also, overtime income may be fully taxable for state or local tax purposes.

Defining Qualified Overtime

Qualified overtime income is defined as extra compensation paid in compliance with the Fair Labor Standards Act (FLSA). The law generally requires time-and-a-half pay for worktime exceeding 40 hours in a workweek. We’ll call extra hourly amounts “overtime premiums.”

Qualified overtime income doesn’t include overtime premiums paid to FLSA-exempt employees, such as executives. It also excludes overtime premiums not required by the FLSA but mandated by state law or under certain contracts (for example, union-negotiated collective bargaining agreements). In other words, the overtime deduction is unavailable to employees who aren’t subject to the FLSA’s overtime pay requirements.

For instance, let’s say you worked 20 hours of overtime in the most recent pay period. Under the FLSA, you were paid $37.50 per hour for overtime compared to your regular hourly rate of $25. In this scenario, your overtime premium is $12.50 per overtime hour ($37.50 – $25), and your qualified overtime income for the period is $250 (20 × $12.50).

Overtime Phaseout

The overtime deduction that would otherwise be allowed up to the $12,500/$25,000 limit begins to phase out when MAGI exceeds $150,000 ($300,000 for joint filers). Like the tip deduction, the overtime deduction phases out in $100 increments for each $1,000 of MAGI, or a portion thereof, exceeding the applicable threshold.

For example, say you’re a single filer for 2025 with $20,000 in qualified overtime income from your regular job as a cable technician. But your MAGI is $175,000 thanks to a profitable side gig, which is $25,000 above the applicable threshold ($175,000 – $150,000). Under the phaseout, your overtime deduction can’t exceed $10,000 [$12,500 – (25 × $100)].

Or let’s say you’re a joint filer for 2025 with $30,000 of qualified overtime income from your tech support job. However, your MAGI is $400,000, which is $100,000 above the applicable threshold ($400,000 – $300,000). Under the phaseout, your overtime deduction can’t exceed $15,000 [$25,000 – (100 × $100)].

Calculating Overtime Deductions

Although your employer must include overtime pay as taxable income on your W-2, it’s not required to separately report your qualified overtime income for 2025. However, some employers may voluntarily notify employees of their total amounts of overtime income. If you’d like to pursue the deduction but your employer doesn’t provide the necessary information, consider requesting it. Or you can ask your tax advisor for help with the number-crunching.

In the event you don’t receive a separate accounting of your 2025 qualified overtime income, you must make a reasonable effort to determine whether you’re an FLSA-covered employee. Generally, this simply entails asking the appropriate person in your organization, such as an HR staff member. As mentioned, if you’re exempt from the FLSA’s requirements, you can’t claim the overtime deduction.

The recently issued IRS guidance includes examples for determining the amount of qualified overtime income received in 2025. Here are two adapted versions:

1. Abe’s two alternate realities. In a perfect world, Abe receives a statement from his employer showing that he was paid $5,000 in “FLSA overtime premium” during the year. He and his tax advisor can simply apply the $5,000 when calculating his 2025 overtime deduction.

In a less-perfect world, Abe’s employer issues a year-end statement showing total overtime pay of $15,000 in 2025, which includes his overtime premium plus his regular hourly wage for overtime hours. In this case, the overtime amount reported to Abe represents all the time-and-a-half pay for his overtime hours. To determine his qualified overtime income, Abe must divide $15,000 by three, yielding $5,000.

2. Bella’s generous employer. Bella works for an organization that pays overtime at twice the regular hourly rate, so her overtime premium equals 100% of regular pay. In 2025, Bella’s year-end pay stub shows she received $20,000 of overtime pay at the double pay rate. Because half of that amount represents the allowable overtime premium for deduction purposes, Bella’s qualified overtime income is $10,000 ($20,000 ÷ 2).

Valuable Opportunities One slight downside to the new tip and overtime deductions is that they’re not “above the line,” so they won’t reduce your AGI. The lower your AGI, the better, because it increases your odds of qualifying for various income-sensitive tax breaks. Nonetheless, the deductions are valuable tax-saving opportunities well worth pursuing under the right circumstances. If you believe you’re eligible for either or both, discuss the matter with your tax advisor.

Workers’ compensation is designed to help people who have been hurt on the job get back on their feet. However, it’s also an area that is ripe for potential abuse.

No matter what form it takes, workers’ comp fraud hurts everyone. Insurers pay billions of dollars a year in fake claims. Businesses also pay an higher insurance premiums and incur other costs such as:

• Production delays,
• Extra pay for employees working longer hours,
• Retraining, and
• Replacing equipment.

Employees suffer if they must put in longer hours or if companies reduce annual raises because of higher insurance premiums. Even consumers pay because higher costs are likely to translate into higher prices.

For all these reasons, it’s important to be on the lookout for workers’ comp fraud at your company.

The most common scheme is the phony workplace injury that’s later discovered when the employee is caught doing heavy lifting at home or seen working for another employer while collecting benefits.

While it is important to be alert to possible fraudulent claims, it is far more important to prevent them from happening in the first place. Let employees know that in most states, workers’ compensation claim fraud is a crime. Punishment varies from state to state but can include prison time and fines. According to the Coalition Against Insurance Fraud, there are several other ways to help combat workers’ comp fraud at your company:

• Verify carefully the references and background information of potential hires.
• Publicize your company’s workers’ compensation policy to all your employees, and provide them with updates at least once a year.
• Educate supervisors on how injuries decrease productivity and how workers’ comp costs affect the bottom line.
• Display fraud awareness posters and the National Insurance Crime Bureau’s hotline number, along with any hotline mechanisms from your state.
• Work with your insurer to set up a safety-management program that can help eliminate safety problems.
• Contact your insurer’s special investigation crimes unit immediately if you suspect a fraudulent claim and you have evidence or witnesses to back up your suspicion.
• Pay attention to employee complaints and concerns about their working conditions. The strongest predictor of fraud is a chronically disgruntled work force.

In the first episode of their new podcast, Senior Tax Manager, Christopher Ficocelli and Tax Manager Daniel Horvath discuss key year-end tax planning considerations for clients as the calendar year comes to a close.

Many tax strategies must be implemented before year-end to be effective. This episode highlights timely ideas that may help individuals and business owners plan proactively and avoid last-minute surprises.

🎧 We invite you to listen and contact our team to discuss how these strategies may apply to your specific situation.

https://open.spotify.com/episode/0oqWMBe8YBgglAhlXP527h?si=qonNPeqQTyy7m73fL1nqFQ

The IRS has issued new guidance regarding Trump Accounts, including the release of Notice on Trump Accounts, draft Form 4547, and related draft instructions. As this new program continues to take shape, staying informed will be essential for families and advisors preparing for its implementation.

To help taxpayers and practitioners monitor developments, the IRS has also introduced a new resource outlining a timeline of released guidance, along with key insights into how the program is expected to function once effective.

Overview of Trump Accounts

Trump Accounts are designed to support long-term savings for eligible children, with federal “seed” contributions initiating each account. While final regulations are still forthcoming, the IRS has signaled several important features and planning considerations.

Program Availability

The Trump Account program is expected to become available in mid-2026, with federal contributions scheduled to begin on July 4, 2026.

Eligibility is limited to:

Eligible Beneficiaries

Eligibility for Trump Accounts is limited to children who have not yet reached age 18 by the end of the calendar year and who have a valid Social Security Number. Each qualifying child may have only one funded Trump Account.

Account Setup

Accounts will be established by an authorized individual, which may include:

• A parent
• A legal guardian
• An adult sibling
• A grandparent

The authorized individual will serve as the trustee during the child’s minority, overseeing the account throughout its designated “growth period.”

Setup will be completed using IRS Form 4547 or via an expected online portal, according to the draft instructions released in December 2025.

Planning Considerations

As with any federally funded savings program, there are potential planning opportunities.

Once the initial governmental seed money is deposited, families may want to evaluate the benefits of completing a 100% trustee-to-trustee transfer to a qualified financial institution of their choosing. This strategy may provide greater flexibility in managing the account, depending on final regulations and custodial options.

Advisors should monitor forthcoming regulatory updates to ensure proper handling and compliance once transfers are permitted.

What Comes Next?

The IRS has announced a notice of intent to issue regulations interpreting Section 530A, which governs Trump Accounts. Final instructions for Form 4547 and updated rules for account administration are expected as we approach the program’s launch.

Our firm will continue to review new releases as they become available and provide timely updates to keep you informed.

The qualified business income (QBI) deduction was a centerpiece of the Tax Cuts and Jobs Act, which went into effect in 2018. Initially, it was only available through 2025, but the write-off was made permanent in a law enacted on July 4, 2025, and it’s available to eligible individuals.

The QBI deduction can be up to 20% of:

• QBI earned from a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for federal income tax purposes, plus,
• QBI from a pass-through business entity, meaning a partnership, an LLC that’s treated as a partnership for federal income tax purposes or an S corporation.

Pass-through businesses report their federal income tax items to their owners, who then take them into account on their owner-level returns. The QBI deduction, when allowed, is then written off at the owner level, and it can potentially be a big tax-saver.

Deduction Basics

QBI means qualified income and gains from an eligible business reduced by related deductions and losses. According to the IRS, QBI from a business is reduced by:

1. The allocable deduction for a contribution to a self-employed retirement plan,
2. The allocable deduction for 50% of your self-employment tax bill, and
3. The allocable deduction for self-employed health insurance premiums.

Income from the business of being an employee doesn’t count as QBI. The same is true of guaranteed payments received by a partner or an LLC member treated as a partner for tax purposes for services rendered to a partnership or LLC (often called partner salaries). Salary collected by an S corporation shareholder-employee does not count as QBI, nor does salary collected by a C corporation shareholder-employee.

On your Form 1040, the QBI deduction doesn’t reduce adjusted gross income (AGI). In effect, it’s treated the same as an allowable itemized deduction.

Unfortunately, the QBI deduction also doesn’t reduce your net earnings from self-employment for purposes of the self-employment tax nor does it reduce your net investment income for purposes of the 3.8% net investment income tax (NIIT) that can hit higher-income individuals.

Deduction Limitations

At higher income levels, unfavorable QBI deduction limitations come into play. For 2025, the limitations begin to phase in when taxable income (calculated before any QBI deduction) exceeds $201,750 ($403,500 if you’re a married joint filer). These amounts are up from $197,300 and $394,600, respectively, in 2025.

If your income exceeds the applicable phased-in number, your QBI deduction is limited to the greater of: 1) your share of 50% of W-2 wages paid to employees during the tax year and properly allocable to QBI, or 2) the sum of your share of 25% of such W-2 wages plus your share of 2.5% of the unadjusted basis immediately upon acquisition (UBIA) of qualified property.

The limitation based on the UBIA of qualified property is intended to benefit capital-intensive businesses like manufacturing or hotel operations. Qualified property means depreciable tangible property (including real estate) that’s owned by a qualified business and used by that business for the production of QBI. The UBIA of qualified property generally equals its original cost when it was first put to use in your business.

Finally, your QBI deduction can’t exceed 20% of your taxable income calculated before any QBI deduction and before any net capital gain amount (net long-term capital gains in excess of net short-term capital losses plus qualified dividends).

Unfavorable Rules for Specified Service Trades or Businesses

If your operation is a specified service trade or business (SSTB), QBI deductions begin to be phased out when your taxable income (calculated before any QBI deduction) exceeds an applicable threshold. See the right-hand box for what counts as an SSTB.

Bottom Line: If your taxable income exceeds the applicable complete phase-out number, you’re not allowed to claim any QBI deduction based on income from any SSTB.

Aggregating Businesses

Aggregating businesses can allow an individual with taxable income high enough to be affected by the limitations based on W-2 wages and the UBIA of qualified property to claim a bigger QBI deduction than if the businesses were considered separately.

For example, say you are a high-income individual who owns an interest in one business with lots of QBI but little or no W-2 wages and an interest in a second business with minimal QBI but lots of W-2 wages. Aggregating the two businesses can result in a healthy QBI deduction while keeping them separate could result in a lower deduction or maybe no deduction. However, you must pass tests set forth in IRS regulations to be allowed to aggregate businesses.

Key Point: You can’t aggregate a SSTB with any other business, including another SSTB.

Maximize the Benefits

The QBI deduction rules are explained in detail in IRS regulations that are lengthy and complex.  Your tax professional can advise you on how to get the best QBI deduction results and the best overall federal tax results in your specific circumstances.

Connecticut has enacted a new First-Time Home Buyer Savings Program designed to help residents save for homeownership while offering meaningful tax incentives to individuals and employers. The program was established under Act 25-1 (H.B. 8002), passed during the November 2025 Special Session, and becomes effective January 1, 2026.

Overview of the Program

Beginning with the 2027 tax year, eligible Connecticut residents will be able to deduct qualified contributions, interest, and certain withdrawals from a designated First-Time Home Buyer Savings Account. Additionally, employers who contribute to their employees’ accounts may qualify for a new business tax credit.

The program is intended to support first-time home buyers amid rising housing costs and encourage employers to participate in helping their workforce achieve homeownership.

Key Tax Benefits for Individuals

Individuals who open and contribute to a First-Time Home Buyer Savings Account may begin claiming tax deductions in the 2027 tax year. However, the program allows the 2027 deduction to include eligible contributions made as early as the 2026 tax year.

To qualify, account holders must meet federal adjusted gross income (AGI) limits:

• Single filers: AGI below $125,000
• Joint filers: AGI below $250,000

Eligible individuals may deduct:

• Annual contributions to the account, up to $2,500 for single filers or $5,000 for joint filers
• Accrued interest earned on the account
• Qualified withdrawals used by the account holder/beneficiary to pay or reimburse eligible first-time home buyer costs

Employer Tax Credits

Starting in the 2027 tax or income year, employers may receive a corporate business tax or personal income tax credit (excluding withholding tax) when they contribute to their employees’ First-Time Home Buyer Savings Accounts.

• The credit equals 10% of employer contributions,
• Capped at $2,500 per employee per year

This incentive provides employers an opportunity to support employee financial well-being while also benefiting from a state tax credit.

When Benefits Begin

Although the program is effective January 1, 2026, both deductions and credits first apply in the 2027 tax year. Importantly, contributions made in the 2026 tax or income year may still be counted toward the 2027 deduction or credit.

What This Means for Connecticut Residents and Employers

The First-Time Home Buyer Savings Program represents a significant step in supporting future homeowners and strengthening Connecticut’s workforce benefits landscape.

Individuals planning to purchase their first home can begin contributing to these accounts as early as 2026 to maximize future deductions. Employers may also wish to consider incorporating contributions into their benefits packages starting in 2026 to take full advantage of the 2027 credit.

Our team at Beers, Hamerman, Cohen & Burger, P.C. is available to help individuals and employers evaluate eligibility and plan ahead for these new opportunities. If you have questions about how this program may impact your tax planning, please contact us.