Many taxpayers don’t feel the need to keep home improvement records, thinking the potential gain when they sell their home will never exceed the amount of the tax code’s exclusion for home gains explained as follows. Under the current version of the tax code, you are allowed to exclude from your income up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you owned and lived in it for at least 2 years (24 months) of the 5 years before the sale. You also cannot have previously taken a home-sale exclusion within the 2 years immediately preceding the sale. There is no limit on the number of times you can use the exclusion if you meet these time requirements; however, extenuating circumstances can reduce the amount of the exclusion. The home-sale gain exclusion only applies to your main home, not to a second home or a rental property. As noted above, you must have used and owned the home for 2 out of the 5 years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences, and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for 2 out of the 5 years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000. If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis or other unforeseen events. Another rule extends the 5-year period to account for the deployment of military members and certain other government employees. Please call this office if you have not met the 2 out of 5 rule to see if you qualify for a reduced exclusion. But what if your home sale gain is more than the home sale exclusion? Then it is in your best interests to have kept home improvement records, since the costs of improvements can be added to your purchase price of the home to be used in determining the gain. So keeping the receipts for the improvements, even if only in a folder or a shoe box, may be useful in the future when you sell your home. Here are some situations when having home improvement records could save taxes: The home is owned for a long period of time, and the combination of appreciation in value due to inflation and improvements exceeds the exclusion amount. The home is converted to a rental property, and the cost and improvements of the home are needed to establish the depreciable basis of the property. The home is converted to a second residence, and the exclusion might not apply to the sale. You suffer a casualty loss and retain the home after making repairs. The home is sold before meeting the 2-year use and ownership requirements. The home only qualifies for a reduced exclusion because the home is sold before meeting the 2-year use and ownership requirements. One spouse retains the home after a divorce and is only entitled to a $250,000 exclusion instead of the $500,000 exclusion available to married couples. There are future tax law changes that could affect the exclusion amounts. Everyone hates to keep records but consider the consequences if you have a gain and a portion of it cannot be excluded. You will be hit with capital gains (CG), and there is a good chance the CG tax rate will be higher than normal simply because the gain pushed you into a higher CG tax bracket. Before deciding not to keep records, carefully consider the potential of having a gain more than the exclusion amount. Home improvements include just about anything that will increase the value of the home, from big ticket items like remodeling a kitchen, adding another room or a swimming pool, and landscaping to smaller items like ceiling fans. But there are some home improvements that cannot be included in the cost of home improvements, or may be only partly included. Examples are items which qualify for tax credits such as home solar, home energy efficient improvements or those that qualify for a tax deduction such as handicap improvements. In addition, the costs of general maintenance or repairs, such as fixing leaks, painting (interior or exterior), and replacing broken hardware do not count as improvements. If you have questions related to the home gain exclusion or questions about how keeping home improvement records might directly affect you, please give this office a call.

With the signing of the One Big Beautiful Bill Act (OBBBA) many of the environmental credits that were in place and set to expire sometime in the future have now been moved up in their expiration dates. Below is a list of the credits set to expire and when they are to expire. Expiring after September 30, 2025 • Previously Owned Clean Vehicle Credit • Clean Vehicle Credit • Qualified Commercial Clean Vehicle Credit • Alternative Fuel Vehicle Refueling Property Credit To claim credit before the expiration date, you must purchase/install and have title to the property. Expiring after December 31, 2025 • Energy Efficient Home Improvement Credit • Solar Energy Credit • New Home Energy Efficient Home Credit To claim credit before the expiration date, the property must be installed, be functional and if necessary, approved by local agencies before the expiration date. If you have any questions about any of these credits, please contact your tax advisor or call us to discuss.

Hiring for the summer?
That’s exciting—until the IRS gets involved. While onboarding interns or part-time help sounds simple enough, summer hiring is one of the most common ways small business owners get tripped up on payroll, compliance, and classification. And yes, even a single misstep—like putting a W-2 employee on a 1099 “just for the summer”—can cost you big. Let’s Clear This Up: Not Everyone’s a Contractor You’re not alone if you’ve ever said: “We’re just paying them a flat rate—it’s easier that way.”
“They’re only here for 10 weeks.”
“They’re a student; it’s not really a job-job.” Here’s the hard truth:
If you control when, where, and how someone works—you’re probably supposed to issue a W-2. The IRS doesn’t care if it’s part-time, seasonal, freelance, or “just a favor.” If they look like an employee, they are one—and they want to see payroll taxes, not contractor payments. Need the official word? See IRS guidelines on worker classification Interns? Yes, They Usually Count Too. Many businesses think unpaid internships are a gray area. But unless it’s tied to a formal educational program with no expectation of compensation, the Department of Labor may classify your intern as an employee. That means: Minimum wage laws apply You may owe payroll taxes Workers’ comp coverage could be required Rule of thumb: If they’re contributing to your business, they probably need to be on payroll. Don’t Miss Out on This: The Work Opportunity Tax Credit (WOTC) Here’s some good news: If you’re hiring people from certain target groups—like veterans, long-term unemployed, or summer youth employees—you might qualify for the WOTC, which can reduce your federal income tax liability by up to $2,400 per qualifying hire. But: You have to apply before hiring The paperwork needs to be filed with your state agency Most businesses never realize they’re eligible More info? Explore the WOTC program here Other Things to Nail Down (Before Your First Payday) Set up correct federal and state withholding Ensure you have an active payroll system (manual payments often miss required filings) Collect and retain Form I-9s and W-4s Check if local labor laws require sick leave or additional reporting for part-time workers Know if you need to pay overtime—even if it’s “just for the summer” The Bottom Line: Don’t Wing Payroll We get it—your focus is on growing your business, keeping clients happy, and getting help in the door. But ignoring payroll compliance (even for “just a few weeks”) can lead to: Penalties for misclassification Missed tax credits State audits Unhappy former employees filing claims you didn’t see coming Need a Hand Sorting It Out? Call Us Before You Hire We’ve helped hundreds of small business owners set up summer payroll the right way—without overcomplicating things or drowning in red tape. If you’re planning to bring on part-time, seasonal, or intern help in the next few weeks, let’s talk.
 We’ll help you stay compliant, minimize tax risk, and maybe even find some credits you didn’t know existed. Contact our office before you run that first paycheck—we’ll help you do it right from the start.

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/