I just finished reading a report on what tax professionals should expect from the Internal Revenue Service (IRS) in the very near and distant future. These changes are coming from the new Trump administration cuts via DOGE. First off, is a 40% planned workforce deduction by May 15. This will affect all parts of the IRS but mainly in audit and tax assistance areas. Second is the closing of over 110 taxpayer assistance centers. These centers help taxpayers file tax returns, answer questions and help in resolving issues. Lastly, the Direct File Program started in 2024 is under review and may not be continued. So, what does the mean for the taxpayers? A smaller workforce means less person-to-person interaction on matters. Any attempt to directly contact a person at the IRS will probably be met with a long time on hold. The IRS will also be using technology to replace a lot of what is being done by a person. Systems will be put into place that will review returns and flag entries that may or may not be “normal”. One should expect to see more correspondence from the IRS from this questioning an item on the return. IRS will push taxpayers to communicate with them via digital platforms like through an IRS account, which we talked about in previous blog post. IRS will also push that more documentation will have to be submitted digitally to work in their systems. Taxpayers will either have to work with the IRS via their platforms or seek out the assistance of a tax professional to help with issues. Tax professionals are also going to have to improve the way they work with the IRS to have an efficient and effective way of communicating. Taxpayers who used the Direct File Program in 2024 may have to find another way to file in 2025 and beyond. They will either have to look at one of the other “free” programs from a third party, buy the tax preparation software or employ a tax professional to prepare their return. With these changes, taxpayers are also going to have to be careful with their documentation of items claimed on the return. Documentation will need to be more real time via dates of transactions and real documents, not estimates. The reduction in the IRS is going to result in headaches, less human interaction, and more reliance on technology

You think planning a wedding ceremony is complicated? Wait till you see the possible tax issues involved. If you are getting married this year, there is a long list of things you need to be aware of and plan for before tying the knot that can have a significant impact on your taxes. And there are a number of tax-related actions you should take as soon as possible after marriage. Considerations Before Marriage Filing Status – For tax purposes, an individual’s filing status is determined on the last day of the tax year. Thus, regardless of when you get married during the year, you and your new spouse will be treated as married for the entire year and, therefore, can no longer file as single individuals or use the head of household status as you may have done prior to this marriage. Your options are to file using the married joint status, combining your incomes and allowed deductions on one return, or to file two separate returns using the married filing separate status. The latter is not the same as the single status you may have used in the past and can include some negative tax implications. Filing separately in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) can additionally be complicated. Also, the terms of a prenuptial agreement, if you have one, can affect your filing status choice. Deductions – The standard deduction for each year is inflation adjusted and for 2025 for a married couple is $30,000 and for a single individual is $15,000. So, if both of you have been filing as single and taking the standard deduction, there is no loss in deductions. However, if in past years one of you had enough deductions to itemize and the other took the standard deduction, after marriage you would either have to take the joint standard deduction or itemize, which might result in a loss of some amount of deductions. There could also be an overall reduction of the standard deduction if one or both of you previously filed as head of household. New Spouse’s Past Liabilities – If your new spouse owes back federal taxes, past state income tax liabilities or past-due child support or has unemployment income debts to a state, the IRS will apply your future joint refunds to pay those debts. If you are not responsible for your spouse’s debt, you are entitled to request your portion of the refund back from the IRS by filing an injured spouse allocation form. Combining Incomes – Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes: Being pushed into a higher tax bracket. Causing capital gains to be taxed at higher rates. Reducing the childcare credit which begins to phase out when your combined incomes (MAGI) reach $400,000. The childcare credit may be reduced if either or both of you have a child and you both work, because a lower percentage of expenses applies as income increases. The possible loss or reduction of the earned income tax credit which applies to lower income individuals. Limiting the deductible IRA amount. Triggering a tax on net investment income that only applies to higher-income taxpayers. Causing Social Security income to be taxed. Reducing or eliminating medical itemized deductions. Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to higher-income taxpayers by filing separately. On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return. Filing as married but separate will generally result in a higher combined income tax for married taxpayers. The tax laws are written to prevent married taxpayers from filing separately to skirt around a limitation that would apply to them if they filed jointly. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple’s Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, the taxable threshold is reduced to zero. Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability. Healthcare Insurance – If either or both of you are obtaining health insurance through a government Marketplace, your combined incomes and change in family size could reduce the amount of the premium tax credit to which you would otherwise be entitled, requiring payback of some or all of the credit applied in advance to reduce your monthly premiums. More complicated yet, if either or both of you are included on your parent’s’ Marketplace policy, those insurance premiums must be allocated from the parents’ return to your return. Spousal IRA – Spousal IRAs are available for married taxpayers who file jointly where one spouse has little or no compensation; the deduction is limited to the smaller of 100% of the employed spouse’s compensation or $7,000 (2025) for the spousal IRA. That permits a combined annual IRA contribution limit of up to $14,000 for 2025. For each spouse age 50 or older, the maximum increases by $1,000. However, the deduction for contributions to both spouses’ IRAs may be limited if either spouse is covered by an employer’s retirement plan. Capital Loss Limitations – When filing as unmarried, each individual can deduct up to $3,000 of capital losses on their tax return for a possible combined total of $6,000, but a married couple is limited to a single $3,000. Impact On Parents’ Returns – If your parents have been claiming either of you as a dependent, they will generally lose that benefit. In addition, if you are in college and qualify for one of the education credits, those credits are only available on the return where your dependency applies. That generally means your parents will not be able to claim the education credits even if they paid the tuition. Impact on State Return – Some states require taxpayers to use the same filing status on their state return as they did on the federal return. When deciding which filing status is more beneficial for you, you should also consider how your state return will be affected. Things To Take Care of After Marriage: Notify the Social Security Administration − Report any name change to the Social Security Administration so that your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. The Social Security Administration provides an online site to accomplish this task. Your income tax refund may be delayed if it is discovered that your name and SSN don’t match at the time your return is filed. Notify the IRS − If you have a new address, you should notify the IRS by sending Form 8822, Change of Address. Notify the U.S. Postal Service − You should also notify the U.S. Postal Service when you move so that any IRS or state tax agency correspondence can be forwarded. Review Your Withholding and Estimated Tax Payments − If both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when preparing your return for the first year of your marriage. On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling the working spouse to reduce their withholding or estimated tax payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season. The IRS provides a W-4 Webpage that provides links to the form and a tax withholding calculator. Notify the Marketplace – If you or your spouse has purchased health insurance through a government Marketplace, you must notify the Marketplace of your change in marital status. If you were included on a parent’s health insurance policy through a Marketplace, then the parent must notify the Marketplace. Failure to notify the Marketplace can create tax-filing problems. If you have any questions about the impact of your new marital status on your taxes, please call this office.

Identity Theft. We hear about this all the time. It is on TV, on the radio or the internet every day. We think about this being where someone uses your personal information to get a loan, set up a credit card in your name, etc. Did you know that thousands of tax returns are filed every year that are fraudulent. Someone uses another person's social security to file a return, receive a refund and then disappear. Every year we have a client or two who has had their IRS account “hacked” with an identity theft issue. How can you secure your tax filing better? It is called Identity Personal Identification Number (PIN). This is a unique number assigned to you each year by the IRS which must accompany your e-filing of your tax return. Each year, the IRS will send you a notice via mail, with the unique number assigned to you that year. You will need to give it to your tax preparer to file your return. Without the return will be rejected. That notice will also be available in your online account. The first thing you need is an online account with the IRS. We spoke about this in a previous post. You can go to this link to find out more about individual PINs. Get an identity protection PIN | Internal Revenue Service. When you file a joint return with your spouse, both the taxpayer and the spouse should get a PIN. Without that, the return is only 50% secure. We highly encourage our clients to get this PIN to secure their filings each and every year from here on out. If you have any questions, please feel free to contact us.

Today’s world is digital. Everywhere you go now, that person/entity wants you to set up an account online. It is annoying but in many cases, it is necessary and the best way to work with that entity. One of those entities is the Internal Revenue Service (IRS). The IRS is moving to a more digital platform. With the reduction of employees, digital will allow a person to make direct payment of any balance due, see payment history and respond to any notices without waiting on the phone for multiple minutes or hours to talk to someone, who may or may not be fully trained to handle your issue. Issues can be resolved quicker, with less stress. You can set up an individual account with the IRS which will allow you to see the information that the IRS has on you, allows you to make payments, see payment history, create payment plans, request account transcripts, and authorize tax professionals to work with the IRS on your behalf. To learn more about this account, go to Online account for individuals | Internal Revenue Service. You also work with the website ID Me. This site verifies your identity with the government. This is a very important issue (identity) that you must do to set up your IRS account. Not only is this account used by the IRS, it used by the Social Security Administration (SSA) so if you register with SSA you can use an existing ID ME account. We are encouraging all of our clients to set up an account with IRS. This will allow us to request online power of attorney authorization from the client when we have to work with the IRS on the client’s behalf. For those clients with business accounts, you can also set up a business account with the IRS. To learn more about this account go to Business tax account | Internal Revenue Service. Again, we are highly encouraging our business clients to set up one of these accounts. To be better prepared to deal with possible future problems and see what your current status is with IRS and SSA, you need to set up these accounts and share them with us.

Recently I came across a professional article about an old subject. Proper documentation. It was just a good reminder of a basic requirement for claiming deductions and expenses for returns. First off, the burden of proof for all deductions and expenses falls on the taxpayer. It is not the IRS job to disprove any deductions and expenses claimed, initially. Once the taxpayer submits proper documentation or evidence for a deduction/expense, then it becomes the IRS’s responsibility to disprove it. When providing proof of documentation, it must be organized such that one can know that it is the related deduction/expense. A tax court case in 2024 involved the taxpayer’s providing photocopies of bills, receipts and handwritten notes, as a group, along with a spreadsheet for one group of the expenses claiming they represented the deductions/expenses on his return. The copies were not grouped by the deductions/expenses or totaled to show the amount claimed. The court called it “the Shoebox Method”. For those of you too young to know what this is, us, old timers, use to see clients bring in a shoebox full of paid bills/receipts in a shoebox and give it to us to process. For some we call it the dashboard method because all the receipts are kept on the dashboard of the taxpayer’s truck until needed. The spreadsheet itself was brought into question as it contained in its listing transactions that no documentation could be found on. Also, transactions were doubled from the original receipt and the credit card receipt. After that, individual transactions were questioned when it appeared that no clients/customers were involved in the meetings. So, the spreadsheet was not credible. So, to summarize, when you want to claim a deduction or expense then you must have a document that supports the claim and then those related documents must be grouped together and totaled to properly substantiate the claim.

TRYING TO SAVE MONEY WHEN CHOOSING A CPA COULD BE THE WORST DECISION YOU’VE EVER MADE! The new year is here and now is the time when most, especially if they are business owners, start getting serious about closing out last year and getting ready for meetings with their CPA. It’s also a good reason to ask yourself- did I hire this person to do my taxes because they were cheap or because they were good? There are two things in life you don’t want to scrimp on when hiring a professional; one is your doctor and the other is your CPA and when choosing any professional there are usually three considerations: Good Fast Cheap But here’s the catch: You can usually only have two.

Like your physical health, the stakes are too high to cut corners or gamble when it comes to your business health Choose wrong and simple financial errors could lead to missed opportunities, tax penalties, or cash flow crises that could derail your business. So, this year, ask yourself the following questions. What’s the long-term cost of going fast and cheap and getting this wrong? Am I focused on quick and easy fixes over long term, sustainable solutions? In selecting a CPA partner, how much value do I place on accuracy and expertise? Is it enough to invest in it?
 If you are building something for you and your families future, consider hiring a CPA that will take care of your business now while preparing you for the future. Have a tax or financial planning question? Contact Steven Brewer & Company at (812)-883-6938 or go to https://www.stevenbrewercpa.com/



How to maximize your relationship with your CPA!

Filing your taxes for 2024 can be made easier by getting ready now. Another year winds down and another tax return needs to be filed. So, as we move toward the end of the year, we would like to offer a few reminders to individuals that have business operations. First, make sure you have filed the newly required Beneficial Ownership Interest (BOI) form by December 31, 2024. With the growth of sales over the internet, you may need to track out of state sales totals for reporting.
 
 Secondly, as year-end payroll reporting nears, don’t forget the following annual payroll reporting requirements. These include: Employee personal use of company vehicles, Employer paid health insurance for employees for W-2 purposes, Employer paid health savings account deposits for W-2 purposes Employer paid childcare expenses for W-2 purposes, Employer paid education plans and term life insurance for W-2 purposes, Employer contributions to employee pension plans. As we go into 2025, we are all uncertain of what new tax rules will apply in 2025. So you may want to consider deferring major equipment purchases and building repairs or improvements until next year unless you are able to specifically discuss how this may affect your business. In addition, you may want to consider postponing new tax elections or setting up new entities until, with your CPA, have a better understanding of what new tax laws will be introduced in 2025.
 
 Next are a few year-end tax credits that might be valuable: 1. There is a new credit for smaller businesses who set up their first pension plan in 2024. This credit can, in many instances, completely offset the costs of setting up the plan as well as offset some or all of the employer’s plan contributions. 2. Some businesses may greatly benefit from the fuel tax credit. The Fuel Tax Credit is allowed for Federal highway tax paid for fuel used off-highway in a business such as pumps, generators, compressors, tractors, trucks used in lots, landscapers, farmers, grass cutters, tree trimmers, helicopters, crop-dusting and many more business applications. At over 18 cents per gallon this can be a huge credit! Start a Special File that updates your information to have ready: This includes: 1. Has there been a change in ownership this year? If so, provide new owner identification information, dates and percentages. 2. Have you opened or closed any locations this year-if so, please provide that information with the physical address. 3. Provide a list of information about your owners email addresses and cell phone numbers. Finally, do you have a website? If so, what is your website address: ___________________. Additionally, make sure you have considered sales and income tax registration, collection and filing requirements in other states. Last thing for filing normal year end information needed for filing 2024: 1. __ Copies of any new bank loans obtained during the year 2. __ Copies of any new leases signed during the year 3. __ List by date, amount and individual of any new investments made into the company this year by the owners 4. __ Copies of any federal or state tax correspondence received during the year 5. __ Copies of any equipment purchase invoices over $1,000 6. __ Loan payoffs, by loan number, of all business loans at December 31 7. __ Copies of your year-end bank reconciliation(s) and bank statements 8. __ 12/31/24 Year End Balances of: Accounts Receivable $___________ Cost of Inventory on Hand $________ Accounts Payable $ ______________ Unpaid 941 Deposit for December $__________ Unpaid State(s) Withholding deposits for December $_______________ Unpaid Sales tax for December $_____________ Unpaid wages earned through 12/31/23 $__________ 9. __ The enclosed engagement letter needs to be signed and returned 10. __ Year-end summary of business activity-back up, online access or hard copy (Accounting software back-up, trial balance, etc.) 11. __ Sales breakdown by state and city if applicable (Call us to determine) 12. __ Copies of all 4 quarters Form 941, and 2023 W-2’s issued to employees 13. __ All Forms 1099-K, 1099-NEC and 1099-Misc received Filling in the amounts above represents your company’s amounts as requested and should be compiled prior to your first meeting with your CPA.
 
 Have questions? Make your 2024 tax filings easier this year. Simply fill out the information above and have it ready. Have any questions? Give us a call at 812-883-6938 to set an appointment and bring in this information and start 2025 off ahead. 


I have heard many times; business owners say that making contributions to charitable organizations gets them a tax deduction. They can save more money in their business by doing this. Well, the true answer is not what they want to hear. For most of the businesses in the US, the answer is NO. Why not, you say? I gave money for business purposes to a charity. It should count for the same deduction as office supplies or wages. It does not. There are three main business entities in the US. Sole proprietorships (single owner), partnerships (two or more owners) and corporations (small and large). Of course, you have the LLC (limited liability company) which can be any of those three. The issue is that under sole proprietorships, partnerships and s-corporations (one of the two types of corporations), charitable contributions are considered pass-through items. Pass through items is not deducted to arrive at the net income or loss of the business. They are passed through or down from the business to its owners. The owners then take the deduction on their personal return just like if they had made the contribution themselves. For a c-corporation (the other type of corporation), the charitable contribution is deductible to a point but that is because a c-corporation is a standalone, tax paying business. Ok, so I will take the pass-through contribution off my personal taxes then, you say. Well maybe and maybe not. In 2018 we had a major tax change which doubled the standard deduction and eliminated personal deductions. When doing a tax return, you reach a certain point in preparation where you can deduct the HIGHER of your standard deduction or the total itemized deductions you have. Itemized deductions include out of pocket medical expenses above certain amounts, personal taxes paid, mortgage interest and charitable contributions. The problem is the standard deductions more than doubled in 2018 to almost $25,000 for a family ($12,500 for single) and have been going up each year since. Most people who did have higher itemized deductions under the prior to 2018 rules found out they did not itemize in 2018 and after. With the low interest rates, it is very hard for taxpayers to qualify for itemized deductions. So those pass through charitable contributions do not effect your return if you do not itemize. What can you do? First off, pick one or two organizations to support locally. Talk to them about sponsorships of programs, events, etc. and what “advertising” opportunities your business can have. I am not talking about your company name on a giving board in the lobby. Here is an example from me. I buy a sponsorship package each year for an organization for a large dinner and auction fundraiser. In return I do receive a dinner ticket and merchandise, which I reduce my cost by. What I get is that the organization places my company name in the program brochure, with my logo. They also have a continuous, rolling slide presentation of all sponsors going all night for the businesses who bought sponsorships. Now do I take 100% of the remaining cost as advertising? No, more like 80% which I classify as Advertising! The remaining 20% goes to charitable contributions. So that 80% of the remaining cost is advertising, which is now deducted as a business expense to determine net income or loss. So, I went from a nondeductible charity expense to a partially deductible business expense. As always you need to discuss things like this with your tax advisor or preparer. If you do not have one, please call our office for an in-office, ZOOM or phone meeting to discuss your entire tax situation.