Author: Service2Client

How to Account for Debit Notes

4 min read

What are Debit Notes?With the global digital payments market expected to see north of $20 trillion in transaction value in 2025, according to Statista, business-to-business transactions are undoubtedly going to see some action. Debit notes are one tool that businesses have to record their transactions and corresponding payments. Understanding what debit notes are and how they work is essential for a smooth transaction.

Defining Debit Notes

A debit note is a form that advises a vendor’s customer of any outstanding balances owed. It can either let the customer know of an upcoming invoice or advise them of an outstanding payment. Similarly, customers can use debit notes to document the return of goods that are damaged or otherwise unsatisfactory, including the projected credit for a future order.

Understanding Debit Note Uses

Debit notes are used between commercial entities through transactions that involve the supplier sending the customer goods before payment is made. Although the goods have physically moved and payment hasn’t been remitted until an invoice is sent and ultimately satisfied by the customer, a debit note communicates that the merchant has debited the customer’s ledger.

While it’s primarily used by companies that either produce goods or act as warehouse operators, if a business sublets some of its warehouse space, debit notes can communicate upcoming bills to its commercial tenants, even though it’s not its primary business. They can also be used by businesses to fix invoice mistakes. If overbilling has occurred, a debit note can be used to correct the imbalance.

These documents can provide a window for the customer to send back the goods before payment is submitted. It can be as simple as using a postcard to document the outstanding debt to the buyer. While it’s completely optional and only used by certain businesses, buyers can request one for their own record-keeping purposes. Usually used by commercial or business-to-business entities, a debit note (or credit note) is entered into the business’ accounting records to track amounts due.

It’s important to distinguish the differences between a debit note and a credit note. Debit notes add to the purchaser’s liability and inform the purchaser of their new debt to the vendor. In contrast, credit notes lower the buyer’s liability, permitting the buyer to know the scope and amount of the credit for damaged or unsatisfactory goods.

Another reason a debit note is issued is when an order is modified. Other circumstances might include if goods are damaged during production or in transit before inspection (conducted by the vendor); a buyer declines an order; there is a need to correct an order; or a credit note pays for the bill’s value.

Differences with an Invoice

While a debit note communicates the status of a future payment or adjustment to an order, invoices are more detailed. Invoices include the sales details, goods/services provided, individual unit prices, the complete cost, and the contact information for the seller and buyer.

Illustrating How It Works

Let’s say a business uses its credit line to buy 100,000 widgets from another company at an agreed-upon purchase price of $2 each. The supplier drops off the 100,000 widgets and remits the invoice for $200,000 to the business. However, the business received 20,000 widgets in unsatisfactory condition (damaged, etc.).

When this happens, the purchasing company creates a debit note and sends it to the supplier upon receipt of the damaged 20,000 widgets. This action will lead to an adjustment, debiting the amount owed of $40,000.

In this case, the transactions will be accounted for as follows:

n  Seller debits its accounts receivable by $40,000

n  Buyer will credit its accounts payable for $40,000

While this demonstrates how it works, it also shows that debit notes can be powerful tools for both buyers and sellers.

Conclusion

When it comes to debit notes, businesses and commercial customers of other businesses can leverage this tool to ensure they’re adjusting current and future orders.

The Big Beautiful Bill, Rolling Back Public Television and Radio, and Regulating the Cryptocurrency Industry

4 min read

The Big Beautiful BillOne Big Beautiful Bill Act (HR 1) – Introduced by Rep. Jody Arrington (R-TX) on May 20, this bill passed in the House on May 22, the Senate with changes on July 1, and once again in the House on July 3. Signed into law on July 4, this bill includes the following provisions:

  • Makes permanent the income and estate tax provisions passed in the Tax Cuts and Jobs Act of 2017.
  • Increases the annual limit to $7,500 for Dependent Care Flexible Spending Accounts (FSAs), starting in 2026.
  • Makes permanent the ability for employers to offer tax-free student loan repayment assistance up to $5,250 a year, with the cap indexed for inflation.
  • Starting in 2026, new tax-advantaged “Trump Account” savings plans may be opened for eligible children under age 18. The account will receive a one-time $1,000 deposit by the government (for children born in 2025 through 2028) and allow for non-deductible/after-tax contributions of up to $5,000 a year (indexed for inflation). However, note that funds cannot be withdrawn before the beneficiary turns 18, and money withdrawn before age 59½ is subject to both income taxes and a 10 percent penalty (with exceptions for college tuition and a first-time home purchase).
  • While the bill calls for untaxed tips and overtime pay, this tax break will be delivered in the form of a deduction claimed on individual tax returns. For cash or charged tips, up to $25,000; for overtime pay, the deduction is up to $12,500/$25,000 for joint filers. Phase-out deductions will apply to both based on income.
  • Allows up to a $10,000 tax deduction for interest paid on an auto loan used to purchase a qualified vehicle.
  • New tax deduction for seniors age 65+: $6,000 for single filers; $12,000 for joint filers.
  • The bill does not include an extension of the enhanced credits for the Affordable Care Act, scheduled to expire at the end of the year. This is expected to increase average exchange health insurance premiums by 75 percent starting next year.

Relating to consideration of the Senate amendment to the bill (H.R. 4) to rescind certain budget authority proposed to be rescinded in special messages transmitted to the Congress by the president on June 3, in accordance with section 1012(a) of the Congressional Budget and Impoundment Control Act of 1974 (HRes 590) – On July 17, Rep. Virginia Foxx (R-NC) introduced this rescissions bill, which essentially cuts $1 billion from the Corporation for Public Broadcasting (CBP). The CBP is a private, nonprofit corporation that was authorized by Congress in 1967 to be the steward of the federal government’s investment in public broadcasting. The elimination of this federal funding will force many local public radio and television stations to shut down. The legislation, which also rescinds $8 billion from a variety of foreign aid programs, was passed as a House rule that enabled full passage of the rescissions bill due to a provision that avoids a direct vote on the bill. The bill passed in the House on July 18 and does not require approval by the Senate or to be signed into law by the president.

GENIUS Act (S 1582) – Introduced by Sen. Bill Hagerty (R-TN) on May 1, this legislation is designed to regulate the currently unregulated cryptocurrency industry. The Act requires issuers to back stablecoins on at least a $1-to-$1 basis. The bill is intended to set guardrails for the industry via full reserve backing, monthly audits, and anti-money laundering compliance regulations. This bill also enables a wider range of issuers to enter the market, including banks, fintechs, and major retailers. The legislation was passed in the Senate on June 17, the House on July 1,7, and was signed into law on July 18.

Anti-CBDC Surveillance State Act (HR 1919) – Introduced by Rep. Tom Emmer (R-MN) on March 6, this is a companion bill to the Genius Act. It would prohibit Federal Reserve Banks from offering certain products or services directly to individuals and disallow the use of central bank digital currency for monetary policy, among other provisions (CBDC stands for Central Bank Digital Currency). The bill passed in the House on July 17 and currently awaits its fate in the Senate.

Digital Asset Market Clarity Act of 2025 (HR 3633) – Another Genius Act companion bill, the goal of this legislation is to provide a regulatory system by the Securities and Exchange Commission and the Commodity Futures Trading Commission for the sale of digital commodities. The bill was introduced on May 29 by Rep. French Hill (R-AR), passed in the House on July 17, and currently lies with the Senate.

Understanding Depreciation Recapture

3 min read

Understanding Depreciation RecaptureWhen it comes to businesses and asset depreciation, there are many types available, such as straight-line, units of production, double declining balance, and sum of years digits. While these aren’t the only ones, they are available via the IRS code and help businesses reduce their taxable income. However, under certain circumstances, businesses have to be mindful when selling assets for a gain that could cause a tax liability through depreciation recapture.

Understanding Depreciation

Depreciation is defined as the reduction in the value of an asset through wear and tear. It can be a rental property or production equipment. Investors can use depreciation to lower their taxable income. While some companies can depreciate an asset’s value to $0, other companies may determine if an asset has salvage or scrap value when they sell it off to replace it with a more productive asset.

When an asset is sold off and it’s sold for a gain, the Internal Revenue Service considers this depreciation recapture. The IRS makes this determination because it missed the business’ taxable income that was otherwise reduced through depreciation at an earlier point in time.

When a business or investor has had possession of such assets for more than 12 months and it was depreciated to reduce taxable income, taxes may be collected if the asset is sold for a gain. It’s important to note that for assets sold at a loss, depreciation recapture doesn’t apply.

Assets that fall under Section 1250 and Section 1245 of the IRS Code, and what rate the asset is taxed at, depend on how the IRS classifies the asset. Section 1245 taxes filers at ordinary tax rates and applies to personal property such as manufacturing equipment and transportation vehicles. Section 1250 applies to real property such as warehouses, commercial buildings, and rental properties. Taxed at no more than 25 percent, Section 1250 depreciation recapture is indexed according to the filer’s ordinary tax rate.

Calculating Depreciation Recapture

This process looks at the discrepancy between the adjusted cost basis and what the asset sells for. It’s calculated as follows:

  1. Determine the cost paid for the asset, plus additional costs for the asset’s fees
  2. Calculate the asset’s adjusted cost basis. The section looks at both the impact of adding capital improvements to the asset, along with any potential loss accounts.
  3. Is there any loss or gain? Assets sold by a business for a loss, or lower than the adjusted basis, don’t trigger the depreciation recapture. However, if an asset’s sale results in a gain that’s higher than the asset’s adjusted basis, the business incurs a depreciation recapture tax obligation. It’s important to distinguish timelines. For example, if it’s one year or less, it’s short-term. If it’s for more than one year, it’s long-term. 

Illustrating Section 1245 Depreciation Recapture Calculation

As an example, let’s say a company bought a truck for its business needs for $50,000 and owned it for five years. After five years, the company sold it for $30,000.

Accumulated depreciation over the life of the item is $25,000. The adjusted basis is $25,000. The $30,000 sales price, minus the $25,000 adjusted basis, results in a $5,000 gain. With the accumulated depreciation of $25,000 compared to the $5,000 gain, the depreciation recapture is $5,000, which is taxed at ordinary rates.

When it comes to ensuring a business’ tax compliance is adhered to, understanding how depreciation recapture works is one part of the tax code that companies need to understand fully to ensure taxes are filed accurately.

 

How Businesses Can Build Disinformation Resilience

4 min read

What is Disinformation ResilienceThe digital landscape has rapidly advanced, fueled by generative AI and other transformative technologies. Although this has come with great opportunities, it has also introduced new strategic threats. Among these is disinformation. The World Economic Forum classifies misinformation and disinformation as a top global threat alongside conflict and environment in its 2025 global risks report. With generative AI becoming more sophisticated, threat actors (like deepfakes, voice cloning, viral hoaxes and AI-driven scams) are increasing in frequency and precision. Therefore, business leaders need to act fast to build disinformation resilience.

Why Disinformation Matters for Business

Disinformation is the intentional spread of false or misleading information with malicious intent. This is unlike misinformation, which is unintentional and often shared by individuals who believe it’s true. However, both can have serious consequences for a business.

Historically, disinformation mainly targeted political processes or public institutions. Today, this threat has expanded to the corporate world to become a strategic business risk.

For example, a deepfake video of a CEO announcing mass layoffs will likely affect a company’s stock price. While fake reviews – positive or negative – can also sway consumer decisions. A viral tweet might spark public backlash and disrupt operations. In the United States, billions of dollars have already been lost from disinformation created by deepfakes, with the figures expected to rise in the coming years.

Impact of Disinformation on Business Operations

Disinformation impacts a business in various ways, such as:

  • Financial risk – false narratives can manipulate market behavior or stock prices.
  • Reputation and trust – fabricated information can erode customer trust and brand credibility.
  • Internal noise – false information can lead to confusion or the unintentional spread of incorrect content.
  • Operational disruption – false reports may trigger emergency protocols, overreactions or divert resources from core objectives.
  • Regulatory and legal exposure – new laws hold platforms and even companies accountable for hosting or spreading harmful fake content.

Building a Proactive Disinformation Resilience Strategy

To effectively counter disinformation, businesses need a comprehensive strategy that integrates technological solutions, human intelligence, and proactive communication.

  1. Awareness and Training
    Employees are a great asset and at the same time can be a potential vulnerability. Therefore, all employees from frontline staff to C-suite should be aware of how disinformation works, know red flags, and be empowered to verify suspicious content. They should frequently undergo comprehensive training programs that focus on digital literacy, critical thinking, and fact-checking techniques.
  2. Monitoring and Detection Tools
    Early detection is crucial. It requires advanced monitoring tools that deploy AI-powered social listening, threat intelligence platforms, and real-time deepfake detection systems that analyze image, video, and audio content. Combining these tools with automated alerts enables a swift response before a false narrative spreads.
  3. Robust Internal Protocols
    Develop and enforce clear escalation protocols for suspected disinformation. These should detail a chain of command, verification steps, and PR responses. Employees must know whom to alert and how to safeguard systems quickly.
  4. Platform and Partnership Engagement
    Collaborate with social platforms, fact checkers, and cybersecurity firms to detect and report false content. This will also help build relationships with journalists and analysis firms to enable faster content removal and more credible public debunking.
  5. Trust-First Content Strategies
    Deploy blue-check verified accounts, metadata authentication, digital signature,s and watermarking. A business also may consistently share authentic updates, reinforce company values, and build a track record of transparency to strengthen stakeholder trust.

Policy and Regulatory Landscape

Governments worldwide are recognizing the gravity of this threat. New laws are emerging globally to hold platforms accountable and to protect individuals and businesses.

One example is the Take It Down Act, signed into law on May 19, 2025, which mandates the removal of non-consensual deepfakes. This sets a legal precedent for holding platforms responsible for hosting synthetic media that harms individuals or businesses.

Other legal frameworks are evolving globally with a focus on developing fact-checking and AI-usage policies. Businesses must stay informed of the latest regulations and ensure their internal policies are compliant.

Future Proofing with AI and Collaboration

While generative AI can be used wrongly, it is also a powerful tool in real-time detection and content verification. Since the fight against disinformation is a continuous journey of adaptation and vigilance, businesses must:

  • Integrate advanced detection systems into their security stack
  • Standardize watermarking across distributed content
  • Engage in multi-stakeholder alliances across industries and governments to share insights and define best practices

Conclusion

In an era where false information spreads faster than the truth, disinformation is no longer just a public concern but also a serious business risk. The threat landscape is evolving fast with deepfake scams and coordinated smear campaigns; hence, corporate strategy must evolve, too. Businesses have to build disinformation resilience through proactive systems, employee awareness, trusted communication channels, and ongoing vigilance.

Preventing AI Deepfakes, Deterring Fentanyl and Foreign Aggression, and Strengthening Small Businesses

4 min read

Preventing AI Deepfakes, Deterring Fentanyl and Foreign Aggression, and Strengthening Small BusinessesHALT Fentanyl Act (S 331) – On Jan. 30, Sen. Bill Cassidy (R-LA) introduced this bipartisan act in order to close a loophole that allowed clandestine drug manufacturers to evade illegal drug laws by altering the chemical composition of fentanyl. The legislation permanently classifies all versions of fentanyl as a Schedule I substance, much like heroin and LSD. The bill passed in the Senate on March 14 and in the House on June 12. It currently awaits the president’s signature for enactment.

TAKE IT DOWN Act (S 146) – This legislation was signed into law on May 19. Introduced by Sen. Ted Cruz (R-TX) on Jan. 16, the bipartisan bill authorizes the internet removal of visual depictions, generated by AI, of intimate acts of identifiable people without their consent.

No Tax on Tips Act (S 129) – Introduced by Sen. Ted Cruz (R-TX) on Jan. 16, this is a stand-alone bill that features the popular provision to provide a $25,000 deduction to non-itemized tax filers who work in common industries where cash tips represent a portion of their income. Note that Social Security and Medicare taxes (FICA) would still be deducted from those tips. The bill passed in the Senate on May 20 and currently lies in the House, where it conflicts with the current House-passed budget reconciliation bill being debated in the Senate.

Rescissions Act of 2025 (HR 4) – This bill would give Congressional consent to rescind previously approved funding for various government agencies and programs, in alignment with the president’s agenda, including USAID and the Public Broadcasting System (PBS). The bill was introduced on June 6 by Rep. Steve Scalise (R-LA), passed in the House on June 12, and currently lies with the Senate.

Connecting Small Businesses with Career and Technical Education Graduates Act of 2025 (HR 1672) – This act is designed to amend the Small Business Act to require that information relating to graduates of career and technical education programs be relayed to small business and women’s business development centers. The goal is to enable hiring of more graduates of career and technical education programs by small businesses. Introduced on Feb. 26 by Rep. Roger Williams (R-TX), this bill passed in the House on June 3 and is under consideration in the Senate.

CEASE Act of 2025 (H 2987) – Introduced on April 24 by Rep. Robert Bresnahan (R-PA), this legislation would limit (to 16) the number of for-profit small business lending companies (SBLCs) that can offer small business loans without further Congressional approval. America’s Credit Unions support the act because they say the SBA has in the past expanded the SBLC license pool without “sufficient guardrails” to regulate fintech lenders, which have been disproportionately associated with fraudulent loans. The bill passed in the House on June 5 and is now in the Senate.

7(a) Loan Agent Oversight Act (HR 1804) – This bill requires the SBA’s Office of Credit Risk Management to provide Congress with an annual report on SBA 7(a) loans generated through loan agent activity. Specifically, the report would collect and analyze the necessary data to ensure oversight for fraudulent loans, default rates, and risk analysis of SBLC loan agents. The bill was introduced by Rep. Tim Moore (R-NC) on March 3 and passed in the House on June 3. It now lies with the Senate.

American Entrepreneurs First Act of 2025 (HR 2966) – On June 6, the House passed this bill, designed to require SBA loan applicants to provide citizenship status documentation. It was introduced by Rep. Beth Van Duyne (R-TX) on April 17 and is currently under consideration in the Senate.

DETERRENCE Act (S 1136) – Introduced by Sen. Margaret Hassan (D-NH) on March 26, this bipartisan bill would step up criminal penalties for federal crimes funded, conducted, or perpetrated in concert with foreign governments. The acronym stands for “Deterring External Threats and Ensuring Robust Responses to Egregious and Nefarious Criminal Endeavors,” and includes crimes such as murder, kidnapping, or threatening violence against certain present and former federal officials or their families. The act passed in the Senate on June 10 and is under consideration in the House.

One Big Beautiful Bill Act: Part 2 – What the New Tax Law Means for Your Business

2 min read

Part 2

OBBBA for businessesIn this second part of our two-part series on the One Big Beautiful Bill Act (OBBBA), we examine the legislation’s impact on businesses, trusts, and estates. In addition, we will look at its overall economic impact.

Estate Tax Changes

The federal estate tax exemption receives a significant boost under OBBBA. Previously set to go back to pre-TCJA levels at the end of 2025, the exemption is now permanent. For 2026, the exclusion is $15 million per person, adjusted for inflation annually. This represents a substantial increase from the 2025 exemption of $13.99 million per person.

Business Tax Benefits

OBBBA extends several key business tax provisions that were set to expire, ensuring continued tax relief for various business structures.

Pass-Through Entities benefit significantly from the permanent extension of the Section 199A deduction. This 20 percent deduction on business income that applies to LLCs, S corporations, and sole proprietorships was scheduled to expire at the end of 2025. The House’s proposed increase to 23 percent didn’t make the final cut.

Depreciation rules become more favorable permanently. The 100 percent bonus depreciation provision, which was phasing out, is now permanent. Additionally, the Section 179 expensing limit jumps to $2.5 million and begins to get phased out at $4 million.

Research and Development expenses can now be fully expensed for domestic R&D activities, replacing the previous requirement to amortize costs.

Employee Retention Credit Reforms

The pandemic-era Employee Retention Credit faces significant restrictions. Unpaid claims submitted after Jan. 31, 2024, are prohibited from receiving refunds. The legislation also introduces penalties for ERC mill promoters and extends the statute of limitations to six years.

Conclusion

This legislation represents a significant commitment to extending business-friendly tax policies while substantially increasing the federal debt burden. For businesses and high net-worth individuals, OBBBA provides long-term tax planning certainty by making temporary provisions permanent.

Navigating Worker Classification: The Critical Difference Between Employees and Independent Contractors

4 min read

Difference Between Employees and Independent ContractorsRunning a small business often means working with a mix of people: some full-time staff, part-time helpers, seasonal workers or project-based contractors. While this flexibility helps manage costs and workload, it creates a crucial decision point that many business owners underestimate: properly classifying each worker.

The stakes couldn’t be higher. Companies like FedEx have paid nearly half a billion dollars for getting this wrong, and even tech giants like Microsoft and Lyft have faced costly legal battles over worker misclassification.

Why Classification Matters More Than You Think

The difference between an employee and an independent contractor goes far beyond semantics; it fundamentally changes your legal and financial obligations.

When someone is your employee, you must:

  • Withhold income taxes, Social Security, and Medicare taxes
  • Pay the employer portion of Social Security and Medicare taxes
  • Potentially provide benefits like health insurance and retirement plans
  • Consider offering stock options or other incentive programs
  • Pay severance or unemployment compensation when appropriate
  • Comply with wage and overtime requirements

When someone is an independent contractor, you:

  • Simply pay them for their work
  • Issue a 1099-NEC form at year-end
  • Have no tax withholding obligations
  • Owe no employment benefits
  • Face no severance obligations

The Control Test: Your North Star for Classification

The Internal Revenue Service uses one primary principle: control. The more control you exercise over how, when, and where work gets done, the more likely that person is your employee.

Think of it this way: if you’re micromanaging the work process, you’re probably dealing with an employee. If you’re only concerned with the end result, you’re likely working with a contractor. The 20 factors identified by the IRS in Revenue Ruling 87-41 can be found in full here.

The IRS Three-Factor Framework

Rather than getting lost in complicated checklists, focus on these three core areas:

1. Behavioral Control – Do you dictate not just what work gets done, but how it’s performed? Employees typically receive training, follow company procedures, and work within established systems. Contractors bring their own methods and expertise.

2. Financial Control – Who controls the business aspects of the work? Independent contractors typically:

  • Invest in their own tools and equipment
  • Handle their own business expenses
  • Have multiple clients or income sources
  • Set their own rates and payment terms

3. Relationship Type – What does your working relationship look like? Employee relationships typically feature:

  • Written employment contracts
  • Ongoing work arrangements
  • Benefits packages
  • Work that’s central to your business operations

Beyond Taxes: The Broader Impact

Worker classification affects more than your tax bill. The Department of Labor’s 2024 updates to the Fair Labor Standards Act mean misclassification can trigger wage and overtime violations. State labor departments are also cracking down, with some states presuming workers are employees unless proven otherwise.

When Things Go Wrong: Your Options

If you realize you’ve made a mistake, don’t panic. You have several paths forward:

  • Get an Official Determination: File Form SS-8 with the IRS for an official ruling on a worker’s status. While it takes at least six months, you’ll have certainty going forward.
  • Claim Safe Harbor Protection: If you had a reasonable basis for your classification and treated similar workers consistently, you may qualify for tax relief under Section 530.
  • Use the Voluntary Settlement Program: The IRS Voluntary Classification Settlement Program lets you reclassify workers prospectively while receiving some tax relief.

The Bottom Line

Your worker classification isn’t just an administrative detail – it’s a fundamental business decision with major financial implications. When in doubt, err on the side of caution or consult with employment law and tax professionals.

The cost of getting expert advice upfront is minimal compared to the potential cost of getting it wrong.

One Big Beautiful Bill Act: Part 1 – What the New Tax Law Means for You

4 min read

Part 1

The One Big Beautiful Bill Act (OBBBA) passed the House on July 3 and was signed into law by President Trump. This comprehensive legislation makes several expiring tax cuts from the 2017 Tax Cuts and Jobs Act permanent while at the same time introducing several temporary provisions through 2028. In this two-part series, we will look at what the OBBBA means for taxpayers. In Part 1, we examine the impact on individual taxpayers; Part 2 will cover the Act’s impact on businesses, trusts, and estates.

Making TCJA Provisions Permanent

The bill primarily focuses on extending individual tax benefits sunsetting after 2025 since business tax benefits from the 2017 TCJA were already made permanent.

Income Tax Rates and Brackets: The current seven-bracket system is becoming permanent, with the highest rate staying at 37 percent.

Standard Deduction: The doubled standard deduction amounts are now permanent. For tax year 2025, this means individuals get $15,000, married couples filing jointly receive $30,000, and heads of household get $22,500.

Child Tax Credit: The credit increases from $2,000 to $2,200 per child, with future inflation adjustments. The credit remains subject to phase-outs beginning at $400,000 for joint filers and $200,000 for other taxpayers.

Alternative Minimum Tax (AMT): The TCJA increases to AMT exemptions are made permanent with inflation adjustments. For 2025, single filers get an $88,100 exemption that phases out at $626,350, while married couples filing jointly receive $137,000 that phases out at $1,252,700.

Changes to Deductions

State and Local Tax (SALT) Deductions: The current $10,000 cap on state and local tax deductions is raised temporarily to $40,000 with 1 percent annual increases through 2029. After that, it reverts to $10,000 in 2030. High earners with modified adjusted gross income in excess of $500,000 face a phase-down of this benefit.

Charitable Deductions: Starting in 2026, taxpayers who don’t itemize can claim an above-the-line deduction for charitable contributions up to $1,000 ($2,000 for married filing jointly). Those who itemize face new limits on deductions with modified carryover rules. The 60 percent contribution limit for cash gifts to qualified charities becomes permanent.

Mortgage Interest: The lower mortgage interest deduction cap of $750,000 (down from the previous $1 million) is made permanent. Interest on home equity debt unrelated to home improvements remains non-deductible.

What’s Eliminated: Several deductions are permanently eliminated, including personal exemptions (which remain at zero), miscellaneous itemized deductions subject to the 2 percent floor (unreimbursed employee expenses, tax preparation fees), and casualty and theft loss deductions except for federal disasters.

New Temporary Provisions (2025-2028)

Senior Deduction: Taxpayers over 65 can claim an additional $6,000 deduction, available whether they itemize or take the standard deduction. This phases out for joint filers earning $150,000 to $350,000 and other taxpayers earning $75,000 to $175,000. According to the White House, this provision will increase the percentage of seniors not paying tax on Social Security benefits from 64 percent to 88 percent.

No Tax on Tips: Workers in traditionally tipped industries who don’t itemize can deduct up to $25,000 of reported tips. This federal income tax deduction doesn’t affect state taxes or payroll taxes for Social Security and Medicare. High earners making over $160,000 are excluded, and the deduction applies to both cash and credit card tips.

No Tax on Overtime: A deduction for qualified overtime pay up to $12,500 ($25,000 for married filing jointly) is available for non-itemizers. This phases out for taxpayers with income over $150,000 ($300,000 for married filing jointly) and disappears entirely at $275,000 for single filers.

Auto Loan Interest: Interest on loans for U.S.-assembled cars becomes deductible up to $10,000, but only for vehicles assembled domestically. The deduction phases out for individuals earning over $100,000 (single) or $200,000 (married filing jointly). Campers and RVs are excluded.

Trump Accounts: New tax-advantaged accounts benefit children under 8. Parents can contribute up to $5,000 annually (adjusted for inflation), with funds locked until the child turns 18. Withdrawals for college, first-time home purchases, or starting a business are taxed at favorable capital gains rates. The government will deposit $1,000 for qualifying U.S. citizen children born between Dec. 31, 2024, and Jan. 1, 2029, with no income limits.

Additional Provisions

529 Education Plans: Tax-free distributions can now cover K-12 expenses at private and religious schools, plus additional qualified higher education expenses, including “postsecondary credentialing expenses.”

Pease Limitations: The previous caps on itemized deductions for high earners are permanently eliminated, replaced by a 35-cent-per-dollar limit on itemized deductions.

Gambling Losses: The ability to deduct gambling losses and related expenses is made permanent, but losses are limited to 90 percent of gains from the taxable year.

Looking Ahead and Conclusion

Tax professionals will be busy helping clients navigate these changes and identify new planning opportunities. The legislation creates a complex mix of permanent and temporary provisions that will require careful tax planning, particularly as the temporary provisions expire after 2028. Taxpayers should consult with tax professionals to understand how these changes affect their specific situations and develop appropriate strategies.

Examining Differences Between Liquidity And Solvency

3 min read

Differences Between Liquidity and SolvencyLiquidity looks at how well a company can handle paying wages, inventory, and lending repayments via measuring its cash or quasi-cash levels. Put another way, it looks at the health of a company’s cash flow to satisfy short-term financial obligations.

It’s important to be mindful of different sectors and what’s normal or healthy based on the time of year. For example, retail and manufacturing feature functionally focused companies, which means seasonality impacts their dynamic working capital requirements.

1. Current Ratio

The current ratio looks at the ratio of current assets divided by current liabilities. It measures how well a company is projected to pay its present obligations. If the result is 1.0 to 3.0, it’s considered financially well. However, if it’s higher than 3.0, suboptimal asset utilization may be incurred by the company, with a lower than industry average suggesting financial concern. It’s calculated as follows:

Current Ratio = Current Assets/Current Liabilities

The resulting current ratio can signal many things. For a growing current ratio, debt could be growing or cash levels falling. When the current ratio is falling, but not too low, and it’s a smooth downward trend, it can indicate the company is getting more efficient at moving inventory, collecting invoices, and reducing debt levels.

2. Quick Ratio or Acid Test

This is determined by taking the current assets and deducting inventory from them. Once that’s calculated, that number is divided by current liabilities. By looking at the business’ on-demand liquid assets without factoring in inventory, it’s calculated as follows:

Quick Ratio or Acid Test = (Current Assets – Inventory)/Current Liabilities

Resulting calculations above or equal to 1.0 show a company’s stable short-term fiscal health. It’s important to be mindful that a very high result can indicate there’s idle cash that’s not being reinvested, distributed to shareholders, or otherwise put to better use.

Defining Solvency

Solvency refers to the ability of a business’ complete assets to satisfy its complete long-term financial obligations and loan repayments. It’s especially helpful when the business is analyzed internally or externally to determine if the business can survive and thrive during challenging economic times (industry-specific or macro challenges). It helps determine the company’s creditworthiness, whether it’s a good bet for an investment, and/or the risk for companies to take on additional debt. It looks at not only the debt on the company’s financial statements, but also how it relates to equity, tangible assets, and EBITDA.

Debt to Equity

This measures how a company relies on debt versus its equity. It’s used when comparing one company against its industry competitors and how the company’s own ratio has trended over time. Looking at companies within the same industry, companies with a higher ratio indicate a riskier financial situation. Similarly, a ratio that’s too low can indicate a business not using debt to expand its operations effectively.

While liquidity and solvency are different, they are complementary for both owners and managers, along with external parties such as investors analyzing for the next potential investment.

6 Reasons for Mid-Year Tax Planning

3 min read

Mid-Year Tax PlanningRight smack dab in the middle of summer might seem like the worst time to think about your taxes, but it’s actually the perfect time. Here’s what taking a pause in July allows you to do.

Get Organized

Do you have all your receipts? Are your records up to date? Did you move, get married, or change your name? If so, you’ll need to notify the IRS. In fact, you can create an individual IRS online account to look at your tax records, manage communication preferences, make payments, and more.

Take a Financial Snapshot

When was the last time you looked at your checking, savings or investments to see if you’re where you want to be? If you take the time now, you can start with January and analyze the big picture. You can see if you’re happy with the growth of your investments and discover where you can make adjustments. Taking time to do this now will pay off in the long run.

Examine Your Paycheck

Are your earnings correct? Are you withholding enough taxes? As mentioned at the top, any big life event (divorce, having a child, buying a home) can affect your taxes. If you need help, the IRS has a Tax Withholding Estimator that can help you figure out your income tax, credits, adjustments, and more. If you need to change anything, the Estimator will show you how to update your withholding with your employer or direct you to where you can submit a new W-4. Taking time to review could help you avoid an unwanted large tax bill and/or penalty come tax season.

Double-Check Deductions and Credits

Are you maximizing these? Early planning allows you to identify and leverage available deductions and credits, reducing your taxable income and potentially increasing your tax refund. 

Increase Your 401K Contribution

Are you happy with your contribution? Can you increase it and still make ends meet? When you contribute more from each paycheck, you’ll decrease your taxable income for the year. Since employers usually have matching programs, it’s a great way to get free money and build your nest egg. Make sure you’re in it if your company offers this.

Convert a Traditional IRA to a Roth IRA

If you think you’ll be in a higher tax bracket when you’re in retirement, converting a traditional IRA into a Roth IRA is one way to reduce your tax payments in the long run. Here’s how it works. The money you contribute to a Roth IRA is taxed the moment you contribute, unlike a traditional IRA, which is taxed at the moment of withdrawal. When you convert to a Roth IRA, you’ll be paying taxes at your current rate instead of the (probably) higher tax rate in the future. Translated: You’ll pay taxes up front, which might be a big savings. Finally, Roth IRAs are not subject to the same Required Minimum Distributions as traditional IRAs are. That means more freedom when you want it most – when you retire.

Getting a handle on your finances by being proactive now gives you a great opportunity to take a breath, assess, and change direction if you need to. If anything, it will help prevent stress and scrambling in tax season. It’s safe to say that nobody wants that.

Sources

https://fsa1.com/why-its-smart-to-start-tax-planning-in-july/

Mid-Year Tax Checkup