In late September, the Treasury Department presented a list of preliminarily-approved occupations that will qualify for the new federal tax-free tip income provision on 2025 tax returns.

Here is what you need to know.

Background

As part of the One Big Beautiful Bill Act (OBBBA), qualifying tip income will not be subject to federal income tax from 2025 through 2028. The benefit is limited to $25,000. There is an income limit of $150,000 for single filers and $300,000 for joint filers. (This income limit is modified adjusted gross income, including the tips.) The deduction amount is reduced (but not lower than zero) by $100 for each $1,000 in excess of these amounts.

With the passage of the One Big Beautiful Bill Act (OBBB Act) many who took a standard deduction may now need to consider a potential change to itemizing. If this could be you, it is better to know this now, when you can still take tax advantage of your situation.

The Change:

In 2024 you could only take a maximum of $10,000 as an itemized deduction on Schedule A for taxes of any kind. To make matters worse, this limit was the same for single filers and married filing joint taxpayers, making it one of the most severe marriage penalties in the tax code. So many taxpayers who typically itemized deductions, often found themselves taking the standard deduction.

But effective for tax years 2025 thru 2029, this limit of tax deductions is increasing to $40,000. This will result in many individuals once again itemizing their deductions.

🚨 California Expands Retirement Plan Mandate — Action needed by December 31, 2025

California has expanded its retirement mandate to the smallest employers. If you have even one W-2 employee (other than the owner or owner’s spouse) and do not sponsor a qualified plan, you must either (a) adopt a private plan (e.g., 401(k), SIMPLE IRA) or (b) register for CalSavers by December 31, 2025.

Penalties for non-compliance: $250 per eligible employee if you remain non-compliant 90+ days after notice, plus an additional $500 per eligible employee at 180+ days. Those add up quickly.

The IRS doesn’t care how exciting your rodeo belt buckle is… they care whether you’re engaged in the activity with the actual intent to make a profit.

If it’s a business, losses are deductible.

If it’s a hobby, deductions are limited and can’t create a net loss against other income.

After filing your taxes, you may start wondering...

Where is my refund?

The answer depends on how you filed your return:

• E-Filing will have your refund faster... your refund should be issued between two and three weeks.
• If paper filing via US Mail, this process will slow down the refund... your refund will be received in approximately six to eight weeks of filing a paper return. In the last 2 years, the process has been considerably lower.

You can check on the status of your refund by clicking on the links below.

Many of our clients that have applied for The Employee Retention Tax Credit (ERTC) ask about the taxability of the refunds received.

Quick Answer: Yes, the ERTC refund is taxable.

The IRS has taken the position that the income is taxable in the tax year/tax period to which the credit applies.

The ERTC refunds relate back to 2020 or 2021. These amounts will be received in later years and are to be included as income on the respective prior year return. This process will require amended returns for the entity and any shareholders/partners. This will result in tax due for in the amended tax year. Since this tax will now be deemed late, the IRS will impose Interest and Penalties.

Good News — sort of... There is a process to apply for a penalty waiver with the IRS, but unfortunately it is a manual one.

What’s Actually Happening, no benefit cuts have been announced.

Retirees and beneficiaries will continue to receive their monthly checks. Administrative reshuffling is underway. Some Social Security offices are being consolidated or reorganized, but this does not affect the benefit amounts people receive. The Trust Fund challenge remains.

There's still time to act!

At the end of each year there are a number of things to consider that may have a positive impact on your tax obligation. Here is a list of ideas that may be worth a quick review while there is still time. And especially this year with recent tax law changes.