Tax Planning Archives - Ullrich Delevati

The One, Big Beautiful Bill Act (OBBBA) contains a major overhaul to an outdated IRS requirement. Beginning with payments made in 2026, the new law raises the threshold for information reporting on certain business payments from $600 to $2,000. Beginning in 2027, the threshold amount will be adjusted for inflation.

The current requirement: $600 threshold

For decades, the IRS has required that businesses file Form 1099-NEC (previously 1099-MISC) for payments made to independent contractors that exceed $600 in a calendar year. This threshold amount has remained unchanged since the 1950s!

The same $600 threshold is in place for Forms 1099-MISC, which businesses file for several types of payments, including prizes, rents and payments to attorneys.

Certain deadlines must be met. A Form 1099-NEC must be filed with the IRS by January 31 of the year following the year in which a payment was made. A copy must be sent to the recipient by the same January 31 deadline.

A Form 1099-MISC must also be provided to a recipient by January 31 of the year following a payment, but unlike Form 1099-NEC, the 1099-MISC deadline for the IRS depends on how it’s submitted. If a business is filing the form on paper, the deadline is February 28. If the form is being submitted electronically, the deadline is March 31.

The new rules raise the bar to $2,000

Under the OBBBA, the threshold increases to $2,000, meaning:

Fewer 1099s will need to be issued and filed.
There will be reduced paperwork and administrative overhead for small businesses.
There will be better alignment with inflation and modern economic realities.

For example, let’s say your business engaged a freelance graphic designer and pays the individual $650 this year. You’ll need to send a 1099-NEC to the designer for calendar year 2025. But if you hire the same individual in 2026, you won’t be required to send a 1099 to the graphic designer or the IRS in 2027 unless the designer earns more than $2,000.

The money is still taxable income

Even if an independent contractor doesn’t receive a 1099-NEC because the amount paid was below the threshold amount, the payment(s) are still considered part of the individual’s gross income. The contractor must report all business income received on his or her tax return, unless an exclusion applies.

In addition, businesses must continue to maintain accurate records of all payments.

There are changes to Form 1099-K, too

The OBBBA also reinstates a higher threshold for Forms 1099-K, used by third-party payment processors. The reporting threshold returns to $20,000 and 200 transactions, rolling back the phased-in lower thresholds that had dropped toward $600 by 2026. This rollback undoes changes from the 2021 American Rescue Plan Act and earlier IRS delay plans.

Simplicity and relief

Raising the threshold will ease the filing burden for millions of businesses, especially small operations that rely on contractors. There will also be less risk that an IRS penalty will be imposed for failing to file a Form 1099 when required. Contact us with any questions about the new rules or your filing requirements.

The qualified business income (QBI) deduction, which became effective in 2018, is a significant tax benefit for many business owners. It allows eligible taxpayers to deduct up to 20% of QBI, not to exceed 20% of taxable income. It can also be claimed for up to 20% of income from qualified real estate investment trust dividends.

With recent changes under the One, Big, Beautiful Bill Act (OBBBA), this powerful deduction is becoming more accessible and beneficial. Most important, the OBBBA makes the QBI deduction permanent. It had been scheduled to end on December 31, 2025.

A closer look

QBI is generally defined as the net amount of qualified income, gain, deduction and loss from a qualified U.S. trade or business. Taxpayers eligible for the deduction include sole proprietors and owners of pass-through entities, such as partnerships, S corporations and limited liability companies that are treated as sole proprietorships, partnerships or S corporations for tax purposes. C corporations aren’t eligible.

Additional limits on the deduction gradually phase in if 2025 taxable income exceeds the applicable threshold — $197,300 or $394,600 for married couples filing joint tax returns. The limits fully apply when 2025 taxable income exceeds $247,300 and $494,600, respectively.

For example, if a taxpayer’s income exceeds the applicable threshold, the deduction starts to become limited to:

50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property, which is the depreciable tangible property (including real estate) owned by a qualified business as of year end and used by the business at any point during the tax year to produce QBI.

Also, if a taxpayer’s income exceeds the applicable threshold and the QBI is from a “specified service business,” the deduction will be reduced and eventually eliminated. Examples of specified service businesses are those involving investment-type services and most professional practices, including law, health, consulting, performing arts and athletics (but not engineering and architecture).

Even better next year

Under the OBBBA, beginning in 2026, the income ranges over which the wage/property and specified service business limits phase in will widen, potentially allowing larger deductions for some taxpayers. Instead of the distance from the bottom of the range (the threshold) to the top (the amount at which the limit fully applies) being $50,000, or, for joint filers, $100,000, it will be $75,000, or, for joint filers, $150,000. The threshold amounts will continue to be annually adjusted for inflation.

The OBBBA also provides a new minimum deduction of $400 for taxpayers who materially participate in an active trade or business if they have at least $1,000 of QBI from it. The minimum deduction will be annually adjusted for inflation after 2026.

Action steps

With the QBI changes, it may be time to revisit your tax strategies. Certain tax planning moves may increase or decrease your allowable QBI deduction. Contact us to develop strategies that maximize your benefits under the new law.

The One Big Beautiful Bill Act (OBBBA) includes a number of beneficial changes that will help small business taxpayers. Perhaps the biggest and best changes are liberalized rules for depreciating business assets. Here’s what you need to know.

100% bonus depreciation is back

The new law permanently restores 100% first-year depreciation for eligible assets acquired and placed in service after January 19, 2025. The last time 100% bonus depreciation was allowed for eligible assets was in 2022. The deduction percentage was generally reduced to 80% for 2023, 60% for 2024, and 40% for eligible assets placed in service between January 1, 2025, and January 19, 2025.

For certain assets with longer production periods, these percentage cutbacks were delayed by one year. For example, a 60% first-year bonus depreciation rate applies to long-production-period property placed in service between January 1, 2025, and January 19, 2025.

Eligible assets include most depreciable personal property such as equipment, computer hardware and peripherals, commercially available software and certain vehicles. First-year bonus depreciation can also be claimed for real estate qualified improvement property (QIP). This is defined as an improvement to an interior portion of a non-residential building placed in service after the building was initially put into use. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP. They usually must be depreciated over 39 years.

Section 179 first-year depreciation

For eligible assets placed in service in tax years beginning in 2025, the OBBBA increases the maximum amount that can immediately be written off via first-year depreciation (sometimes called expensing) to $2.5 million. This is up from $1.25 million for 2025 before the new law.

A phase-out rule reduces the maximum Sec. 179 deduction if, during the year, you place in service eligible assets in excess of $4 million. This is up from $3.13 million for 2025 before OBBBA was enacted. These increased OBBBA amounts will be adjusted annually for inflation for tax years beginning in 2026.

Eligible assets include the same items that are eligible for bonus depreciation. Sec. 179 deductions can also be claimed for real estate QIP (defined earlier), up to the maximum annual allowance. In addition, Sec. 179 deductions are also allowed for roofs, HVAC equipment, fire protection and alarm systems, and security systems for non-residential real property. Finally, Sec. 179 write-offs can be claimed for depreciable personal property used predominantly in connection with furnishing lodging.

There’s a special limit on Sec. 179 deductions for heavy SUVs used over 50% for business. This means vehicles with gross vehicle weight ratings between 6,001 and 14,000 pounds. For tax years beginning in 2025, the maximum Sec. 179 deduction for a heavy SUV is $31,300.

Strategy: Sec. 179 deductions are subject to a number of limitations that don’t apply to first-year bonus depreciation. In particular, things can get complicated if you operate your business as a partnership, LLC treated as a partnership for tax purposes or an S corporation. The conventional wisdom is to claim 100% first-year bonus depreciation to the extent allowed rather than claiming Sec. 179 deductions for the same assets.

First-year depreciation for qualified production property

The OBBBA allows additional 100% first-year depreciation for qualified production property (QPP) in the year it’s placed in service. QPP is non-residential real estate, such as a building, that’s used as an integral part of a qualified production activity, such as the manufacturing, production, or refining of tangible personal property. Before the new law, non-residential buildings generally had to be depreciated over 39 years.

QPP doesn’t include any part of non-residential real property that’s used for offices, administrative services, lodging, parking, sales or research activities, software development, engineering activities and other functions unrelated to the manufacturing, production or refining of tangible personal property.

The favorable new 100% first-year depreciation deal is available for QPP when the construction begins after January 19, 2025, and before 2029. The property must be placed in service in the U.S. or a U.S. possession before 2031.

Take another look

These are only some of the business provisions in the new law. We can help you take advantage of tax breaks that are beneficial in your situation for 2025 and future years.

The One, Big, Beautiful Bill Act (OBBBA) was signed into law on July 4. The new law includes a number of favorable changes that will affect small business taxpayers, and some unfavorable changes too. Here’s a quick summary of some of the most important provisions.

First-year bonus depreciation

The OBBBA permanently restores the 100% first-year depreciation deduction for eligible assets acquired after January 19, 2025. This is up from the 40% bonus depreciation rate for most eligible assets before the OBBBA.

First-year depreciation for qualified production property

The law allows additional 100% first-year depreciation for the tax basis of qualified production property, which generally means nonresidential real property used in manufacturing. This favorable deal applies to qualified production property when the construction begins after January 19, 2025, and before 2029. The property must be placed in service in the United States or one of its possessions.

Section 179 expensing

For eligible assets placed in service in taxable years beginning in 2025, the OBBBA increases the maximum amount that can be immediately written off to $2.5 million (up from $1.25 million before the new law). A phase-out rule reduces the maximum deduction if, during the year, the taxpayer places in service eligible assets in excess of $4 million (up from $3.13 million). These amounts will be adjusted annually for inflation starting in 2026.

R&E expenditures

The OBBBA allows taxpayers to immediately deduct eligible domestic research and experimental expenditures that are paid or incurred beginning in 2025 (reduced by any credit claimed for those expenses for increasing research activities). Before the law was enacted, those expenditures had to be amortized over five years. Small business taxpayers can generally apply the new immediate deduction rule retroactively to tax years beginning after 2021. Taxpayers that made R&E expenditures from 2022–2024 can elect to write off the remaining unamortized amount of those expenditures over a one- or two-year period starting with the first taxable year, beginning in 2025.

Business interest expense

For tax years after 2024, the OBBBA permanently restores a more favorable limitation rule for determining the amount of deductible business interest expense. Specifically, the law increases the cap on the business interest deduction by excluding depreciation, amortization and depletion when calculating the taxpayer’s adjusted taxable income (ATI) for the year. This change generally increases ATI, allowing taxpayers to deduct more business interest expense.

Qualified small business stock

Eligible gains from selling qualified small business stock (QSBS) can be 100% tax-free thanks to a gain exclusion rule. However, the stock must be held for at least five years and other eligibility rules apply. The new law liberalizes the eligibility rules and allows a 50% gain exclusion for QSBS that’s held for at least three years, a 75% gain exclusion for QSBS held for at least four years, and a 100% gain exclusion for QSBS held for at least five years. These favorable changes generally apply to QSBS issued after July 4, 2025.

Excess business losses

The OBBBA makes permanent an unfavorable provision that disallows excess business losses incurred by noncorporate taxpayers. Before the new law, this provision was scheduled to expire after 2028.

Paid family and medical leave

The law makes permanent the employer credit for paid family and medical leave (FML). It allows employers to claim credits for paid FML insurance premiums or wages and makes other changes. Before the OBBBA, the credit was set to expire after 2025.

Employer-provided child care

Starting in 2026, the OBBBA increases the percentage of qualified child care expenses that can be taken into account for purposes of claiming the credit for employer-provided child care. The credit for qualified expenses is increased from 25% to 40% (50% for eligible small businesses). The maximum credit is increased from $150,000 to $500,000 per year ($600,000 for eligible small businesses). After 2026, these amounts will be adjusted annually for inflation.

Termination of clean-energy tax incentives

The OBBBA terminates a host of energy-related business tax incentives including:

The qualified commercial clean vehicle credit, effective after September 30, 2025.
The alternative fuel vehicle refueling property credit, effective after June 30, 2026.
The energy efficient commercial buildings deduction, effective for property the construction of which begins after June 30, 2026.
The new energy efficient home credit, effective for homes sold or rented after June 30, 2026.
The clean hydrogen production credit, effective after December 31, 2027.
The sustainable aviation fuel credit, effective after September 30, 2025.

More to come

In the coming months, the IRS will likely issue guidance on these and other provisions in the new law. We’ll keep you updated, but don’t hesitate to contact us for assistance in your situation.

The U.S. Census Bureau reports there were nearly 447,000 new business applications in May of 2025. The bureau measures this by tracking the number of businesses applying for an Employer Identification Number.

If you’re one of the entrepreneurs, you may not know that many of the expenses incurred by start-ups can’t currently be deducted on your tax return. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.

How to treat expenses for tax purposes

If you’re starting or planning to launch a new business, here are three rules to keep in mind:

Start-up costs include those incurred or paid while creating an active trade or business or investigating the creation or acquisition of one.
Under the tax code, taxpayers can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t go very far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
No deductions, including amortization deductions, are allowed until the year when “active conduct” of your new business begins. Generally, this means the year when the business has all the necessary components in place to start generating revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity with the intention of earning a profit? Was the taxpayer regularly and actively involved? And did the activity actually begin?

Expenses that qualify

In general, start-up expenses are those you incur to:

Investigate the creation or acquisition of a business,
Create a business, or
Engage in a for-profit activity in anticipation of that activity becoming an active business.

To qualify for the limited deduction, an expense must also be one that would be deductible if incurred after the business began. One example is money you spend analyzing potential markets for a new product or service.

To be eligible as an “organization expense,” an expense must be related to establishing a corporation or partnership. Some examples of these expenses are legal and accounting fees for services related to organizing a new business, and filing fees paid to the state of incorporation.

Plan now

If you have start-up expenses you’d like to deduct this year, you need to decide whether to take the election described above. Recordkeeping is critical. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.

If you’re claiming deductions for business meals or vehicle expenses, expect the IRS to closely review them. In some cases, taxpayers have incomplete documentation or try to create records months (or years) later. In doing so, they fail to meet the strict substantiation requirements set forth under tax law. Tax auditors are adept at rooting out inconsistencies, omissions and errors in taxpayers’ records, as illustrated by one recent U.S. Tax Court case. (T.C. Memo. 2024-82)

Facts of the case

The taxpayer operated a software installation, training and consulting business. She claimed substantial deductions for several tax years. The IRS disallowed many of the deductions and the U.S. Tax Court agreed. Here’s a rundown of some of the disallowed expenses and the reasons why they couldn’t be deducted:

Meals and entertainment. The business owner deducted nearly $9,000 for meal expenses in one tax year and testified the amount was for “working lunches” with the “person she worked for and the developer.” As documentation, she submitted bank statements. The court noted that “bank statements alone do not substantiate the ‘business purpose of the expense’ or the ‘business relationship’ between petitioner and the individuals with whom she dined.” It added: “The cost of eating lunch during the workday is not — without more — a deductible business expense.”

Supplies. The taxpayer deducted more than $17,000 for supplies purchased during two tax years. She testified that these included “desks, monitors, office equipment, paper, printers, [and] anything that was pertinent to the business itself.” To substantiate her reported expenses, the taxpayer submitted receipts from office supply stores. However, the receipts were dated later than the tax years in question, and they covered (among other things) purchases of soda dispensers and gift cards. The court noted that “some of these purchases appear personal” and all were made after she terminated her consulting business.

Home office expenses. Over two years, the taxpayer deducted $21,393 for the business use of a home office. But the court ruled that she “failed to prove that the ‘focal point’ of her software consulting business was her home.” At trial, she testified that she was required to be on site at a client’s office much of the time. In addition, she didn’t supply evidence to establish how much time she worked from home or what (if any) portion of her residence was used exclusively for business purposes.

Other expenses the court disallowed included attorney’s fees, utilities, hotel stays and vehicle expenses. In all cases, the taxpayer didn’t substantiate with adequate records or sufficient evidence that the expenses were related to her business.

Best practices

This case exemplifies why it’s critical to maintain meticulous records to support business expense deductions. Here’s a list of DOs and DON’Ts to help meet the strict IRS and tax law substantiation requirements for these items:

DO keep detailed, accurate records. For example, for each business meal, record the amount, date, place, business purpose, and the business relationship of any person you dine with. If you have employees whom you reimburse for meals, travel and vehicle expenses, make sure they’re complying with all the rules.

DON’T reconstruct expense logs at year end or wait until you receive a notice from the IRS. Take a moment to record the details in a log or diary or on a receipt at the time of an event or soon after. Require employees to submit weekly or monthly expense reports.

DO respect the fine line between personal and business expenses. Be careful about combining business and pleasure. Your business checking account and credit cards shouldn’t be used for personal expenses.

DON’T be surprised if the IRS asks you to prove your deductions. Vehicle, travel, meal and home office expenses are attention magnets. Be prepared for a challenge.

Stand up to scrutiny

With organization and our guidance, your tax records can stand up to IRS inspection. There may be other ways to substantiate your deductions. In addition, there may be a way to estimate certain deductions (called “the Cohan rule”), if your records are lost due to a fire, theft, flood or other disaster.

The treatment of research and experimental (R&E) expenses is a high-stakes topic for U.S. businesses, especially small to midsize companies focused on innovation. As the tax code currently stands, the deductibility of these expenses is limited, leading to financial strain for companies that used to be able to expense them immediately. But proposed legislation dubbed The One, Big, Beautiful Bill could drastically change that. Here’s what you need to know.

R&E expenses must currently be capitalized

Before 2022, under Section 174 of the Internal Revenue Code, taxpayers could deduct R&E expenses in the year they were incurred. This treatment encouraged investment in innovation, as companies could realize a current tax benefit for eligible costs.

However, beginning in 2022, the Tax Cuts and Jobs Act (TCJA) changed the rules. Under the law, R&E expenses must be capitalized and amortized over five years for domestic activities and 15 years for foreign activities. This means businesses can’t take an immediate deduction for their research spending.

The practical impact on businesses

Startups, tech firms and manufacturers, in particular, have reported significant tax hikes, even in years when they operated at a loss. The shift from immediate expensing to amortization has created cash flow issues for innovation-heavy firms and complicated tax reporting and long-term forecasting.

Lobbying groups, tax professionals and industry associations have been pushing for a reversal of the TCJA’s Sec. 174 provisions since they took effect.

What’s in The One, Big, Beautiful Bill?

The One, Big, Beautiful Bill is a comprehensive tax and spending package that narrowly passed in the U.S. House in May. It contains a provision that would restore the immediate deductibility of R&E expenses, among other tax measures.

Specifically, it would allow taxpayers to immediately deduct domestic R&E expenditures paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030. This provision would also make other changes to the deduction.

If enacted, the bill would provide a lifeline to many businesses burdened by the amortization requirement — especially those in high-growth, innovation-focused sectors.

Legislative outlook and next steps

Passage of the current version of The One, Big, Beautiful Bill remains uncertain. The bill is now being debated in the U.S. Senate and senators have indicated they’d like to make changes to some of the provisions. If the bill is revised, it will have to go back to the House for another vote before it can be signed into law by President Trump.

However, it offers hope that lawmakers recognize the challenges businesses face and may be willing to act. If enacted, the bill could restore financial flexibility to innovators across the country, encouraging a new wave of research, development and economic growth.

Stay tuned, and contact us if you have questions about how these potential changes may affect your business.

The IRS recently released the 2026 inflation-adjusted amounts for Health Savings Accounts (HSAs). Employees will be able to save a modest amount more in their HSAs next year.

HSA basics

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high-deductible health plan” (HDHP). In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation adjustments for next year

In Revenue Procedure 2025-19, the IRS released the 2026 inflation-adjusted figures for contributions to HSAs. For calendar year 2026, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $4,400. For an individual with family coverage, the amount will be $8,750. These are up from $4,300 and $8,550, respectively, in 2025.

There’s an additional $1,000 “catch-up” contribution amount for those age 55 or older in 2026 (and 2025).

An HDHP is generally a plan with an annual deductible that isn’t less than $1,700 for self-only coverage and $3,400 for family coverage in 2026 (up from $1,650 and $3,300, respectively, in 2025). In addition, in 2026, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $8,500 for self-only coverage and $17,000 for family coverage. In 2025, these amounts are $8,300 and $16,600, respectively.

Advantages of HSAs

There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax-free year after year and can be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable” — it stays with an account holder if he or she changes employers or leaves the workforce. Contact us if you have questions about HSAs at your business.

For federal income tax purposes, the general rule is that rental real estate losses are passive activity losses (PALs). An individual taxpayer can generally deduct PALs only to the extent of passive income from other sources, if any. For example, if you have positive taxable income from other rental properties, that generally counts as passive income. You can use PALs to offset passive income from other sources, which amounts to being able to currently deduct them.

Unfortunately, many rental property owners have little or no passive income in most years. Excess rental real estate PALs for the year (PALs that you cannot currently deduct because you don’t have enough passive income) are suspended and carried forward to future years. You can deduct suspended PALs when you finally have enough passive income or when you sell the properties that generated the PALs.

Exception for professionals

Thankfully, there’s a big exception to the general rule that you must have positive passive income to currently deduct rental losses. If you qualify for the exception, a rental real estate loss can be classified as a non-passive loss that can usually be deducted currently.

This exception allows qualifying individual taxpayers to currently deduct rental losses even if they have no passive income. To be eligible for the real estate professional exception:

You must spend more than 750 hours during the year delivering personal services in real estate activities in which you materially participate, and
Those hours must be more than half the time you spend delivering personal services (in other words, working) during the year.

If you can clear these hurdles, you qualify as a real estate professional. The next step is determining if you have one or more rental properties in which you materially participate. If you do, losses from those properties are treated as non-passive losses that you can generally deduct in the current year. Here’s how to pass the three easiest material participation tests for a rental real estate activity:

Spend more than 500 hours on the activity during the year.
Spend more than 100 hours on the activity during the year and make sure no other individual spends more time than you.
Make sure the time you spend on the activity during the year constitutes substantially all the time spent by all individuals.

If you don’t qualify

Obviously, not everyone can pass the tests to be a real estate professional. Thankfully, some other exceptions may potentially allow you to treat rental real estate losses as currently deductible non-passive losses. These include the:

Small landlord exception. If you qualify for this exception, you can treat up to $25,000 of rental real estate loses as non-passive. You must own at least 10% of the property generating the loss and actively participate with respect to that property. Properties owned via limited partnerships don’t qualify for this exception. To pass the active participation test, you don’t need to do anything more than exercise management control over the property in question. This could include approving tenants and leases or authorizing maintenance and repairs. Be aware that this exception is phased out between adjusted gross incomes (AGIs) of $100,000 and $150,000.

Seven-day average rental period exception. When the average rental period for a property is seven days or less, the activity is treated as a business activity. If you can pass one of the material participation tests, losses from the activity are non-passive.

30-day average rental period exception. The activity is treated as a business activity when the average rental period for a property is 30 days or less and significant personal services are provided to customers by or on behalf of you as the property owner. If you can pass one of the material participation tests, losses from the activity are non-passive.

Utilize all tax breaks

As you can see, various taxpayer-friendly rules apply to owners of rental real estate, including the exceptions to the PAL rules covered here. We can help you take advantage of all available rental real estate tax breaks.

Staying compliant with payroll tax laws is crucial for small businesses. Mistakes can lead to fines, strained employee relationships and even legal consequences. Below are six quick tips to help you stay on track.

1. Maintain organized records

Accurate recordkeeping is the backbone of payroll tax compliance. Track the hours worked, wages paid and all taxes withheld. Organizing your documentation makes it easier to verify that you’re withholding and remitting the correct amounts. If you ever face an IRS or state tax inquiry, having clear, detailed records will save time and reduce stress.

2. Understand federal withholding

Federal income tax. Employees complete Form W-4 so you can determine how much federal income tax to withhold. The amounts can be calculated using IRS tax tables.
FICA taxes (Social Security and Medicare). Your business is responsible for withholding a set percentage from each employee’s wages for Social Security and Medicare, and you must match that amount as an employer. The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee (12.4% total). Taxpayers only pay Social Security tax up to a wage base limit. For 2025, the wage base limit is $176,100. The current rate for Medicare tax is 1.45% for the employer and 1.45% for the employee (2.9% total). There’s no wage base limit for Medicare tax. All wages are subject to it.

3. Don’t overlook employer contributions

Depending on your state and industry, you may need to contribute additional taxes beyond those withheld from employee paychecks.

Federal Unemployment Tax Act (FUTA) tax. Employers pay FUTA tax to fund unemployment benefits.
State unemployment insurance. Requirements vary by state, so consult your state’s labor department for details. You can also find more resources at the U.S. Department of Labor.

4. Adhere to filing and deposit deadlines

Deposit schedules. Your deposit frequency for federal taxes (monthly or semi-weekly) depends on the total amount of taxes withheld. Missing a deadline can lead to penalties and interest charges.
Quarterly and annual filings. You must submit forms like the 941 (filed quarterly) and the 940 (filed annually for FUTA tax) on time, with any tax due.

Under the Trust Fund Recovery Penalty, a “responsible person” who willfully fails to withhold or deposit employment taxes can be held personally liable for a steep penalty. The penalty is equal to the full amount of the unpaid trust fund tax, plus interest. For this purpose, a responsible person can be an owner, officer, partner or employee with authority over the funds of the business.

5. Stay current with regulatory changes

Tax laws are never static. The IRS and state agencies update requirements frequently, and new legislation can introduce additional obligations. A proactive approach helps you adjust payroll systems or processes in anticipation of changes, rather than scrambling at the last minute.

6. Seek professional advice

No matter how meticulous your business is, payroll taxes can be complex. We can provide guidance specific to your industry and location. We can help you select the right payroll system, calculate employee tax withholding, navigate multi-state filing requirements and more. In short, we can help ensure that every aspect of your payroll is set up correctly.

Older Posts

The New Law Includes a Game-Changer for Business Payment Reporting

The QBI Deduction and What’s New in the One, Big, Beautiful Bill Act

The New Law Includes Favorable Changes for Depreciating Eligible Assets

Significant Business Tax Provisions in the One, Big, Beautiful Bill Act

Startup Costs and Taxes: What You Need to Know Before Filing

DOs and DON’Ts to Help Protect Your Business Expense Deductions

The One, Big, Beautiful Bill Could Change the Deductibility of R&E Expenses

The IRS Recently Announced 2026 Amounts for Health Savings Accounts

Are You a Tax-Favored Real Estate Professional?

Six Essential Tips for Small Business Payroll Tax Compliance

The New Law Includes a Game-Changer for Business Payment Reporting

The QBI Deduction and What’s New in the One, Big, Beautiful Bill Act

The New Law Includes Favorable Changes for Depreciating Eligible Assets

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