The One Big Beautiful Bill Act (OBBBA) makes tip income tax-free. But as with any new tax law, the fine print matters, and some of these details still need clarification.

Here is what you should know.

The basic facts

From January 1, 2025 through December 31, 2028 you can deduct up to $25,000 as a deduction equal to the amount of qualified tips you receive during the year. These tips must be included on IRS approved statements furnished to the individual in order to take advantage of the deduction.

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.

Example: Joanie Tipster, a single filer, with modified adjusted gross income of $155,000 is $5,000 in excess of the limit. So her tip deduction will be reduced by $500 which equals ($5,000/$1,000) x $100.

Qualified Tips

To qualify as a tip:

• The tip must be given in the ordinary course of business
• It must be paid voluntarily
• Is not subject to negotiation
• It is determined by the payer

What business and services qualify?

A list of qualifying business will be published on or before December 31, 2025, however the tax bill specifically mentions the following:

• Food & beverage for consumption, if tips are customary
• Barbering & hair care
• Nail care
• Esthetics (services like Body and Spa Treatments)

Of special note, if you work in a specified service trade or business (SSTB) you MAY NOT take the tip deduction. A SSTB is a type of business that provides services in fields such as health, law, accounting, consulting, and financial services,

The fine print matters

To receive the deduction:

• It must be reported. This means this tip income will ultimately end up on a W-2. This means you must have a valid Social Security number.
• They must be cash. The IRS defines cash to include cash, credit card, debit card, and digital payment tools. This then implies that any non-cash tips and receipt of cyber currencies would not qualify.
• It will still be taxed (somewhat). While you will receive a tip deduction on your tax return, that tip income will still be subject to Social Security and Medicare taxes.
• You must have income. The deduction will reduce your taxable income. But if your taxable income is already at or below zero (because of other tax breaks like the standard deduction) there really is minimal to no benefit for this new deduction.
• If married, file jointly. The benefit does not exist for married filing separately.
• Tip behavior cannot be created. If your employer did not customarily make tips prior to this law, they cannot suddenly start tip behavior to take advantage of the benefit.

What action to take

If you think you may qualify for this deduction, here are some tax tips to consider:

• Get your reporting in order. Remember it’s already mid-year. You’ll need to prove your tips to get this deduction. So start getting your tip records in order, then you can reconcile your tip income with your employer’s reporting of your tips.
• The large-party tip. Many restaurants add an automatic tip when a dinner party is larger. On the surface the bill seems to exclude these tips from the deduction because the tip is no longer voluntary. Until there is clarification, it might make sense to get your employer to consider an alternative practice or figure out how to confirm the voluntary nature of such a tip.
• Your tips are not covered! There are a large number of jobs that regularly receive tips that are not mentioned in the bill. Bell hops, cabbies & uber drivers, and delivery jobs to name a few. Do not lose heart, as the IRS is tasked with figuring out which jobs should be included but won’t have to do so until on or before the end of the year. Hopefully it will be completed within 90 days.
• Cash not reported. If you receive cash but it’s not reported, it can’t be used as a deduction. So do the math for your situation and consider properly recording this tip income.
• Patience is required. There will be clarification of these rules from the IRS within the next 90 days. So even if your tip income is not expressly included as of now, still keep track of it as it could easily make the IRS’s list.

Congress is very aware that there will be the temptation to reclassify taxable income into tip income to take advantage of this law change, so it’s tasking the IRS to develop guidelines to keep this from happening. Stay tuned. There is more to come.

Source: OBBBA of 2025; SEC 70201

With the passage of the One Big Beautiful Bill Act or OBBBA, many of the temporary tax laws set to expire at the end of 2025 have been made permanent. This week’s tip summarizes the changes to several of the more popular deductions and credits, while the tax tips over the next few weeks will cover individual topics to help you understand how the major changes may impact you and your situation.

For individuals

Many temporary tax provisions are made permanent

This includes:

• Tax rates: the higher tax rates expected next year will not occur.
• Higher standard deduction: There is a slight increase in these levels for 2025. They are:
  • $31,500 Joint
  • $23,625 Head of Household
  • $15,750 all others
• Elimination of personal exemptions: This is now permanent
• Elimination of most miscellaneous itemized deductions: The main impact is not being able to deduct unreimbursed business expenses.
• Higher child tax credit: The $2,000 per person is now $2,200 per person in 2025 with the same $200,000 single and $400,000 joint phaseouts.
• Higher estate & gift exemption levels: Permanently raises exemptions to $15 million in 2026 with inflation adjustments thereafter.

Other Changes

• Above the line charitable contributions: Starting in 2026, you can deduct $1,000 of charitable contributions if single or $2,000 if filing jointly. This is available to you whether you use the standard deduction or itemize your deductions. There is also the introduction of a .5% floor for itemizing charitable contributions.
• SALT limit moves up: The itemized deduction limit for taxes (commonly known as SALT) increases from $10,000 to $40,000 through 2029 with an income phaseout of $500,000.
• The AMT stays high…but: The Alternative Minimum Tax retains the higher exemption amounts, but the phaseouts revert to 2018 levels starting in 2026. This will not impact many, but if it does you need to be prepared.
• Itemized deduction phaseout returns in 2026 for some taxpayers: The Pease limit that previously reduced up to 80% of your itemized deductions is not in play for 2025, but a revised version for top income earners will impact 2026 and beyond.
• Elimination of many energy credits: This includes the credit for purchasing electric vehicles after September, 30, 2025 and elimination of many residential energy efficient purchase credits at the end of 2025. So plan accordingly.

And several items completely new for 2025 thru 2028!

• Tax-free tips: Up to $25,000 of tips may be deducted for those working in traditionally tipped industries.
• Tax-free overtime pay: Up to $12,500 for single and $25,000 for joint filers of the premium portion of compensation is now tax-free.

Both the tip income and overtime benefits phase out when Adjusted Gross Income exceeds $150,000 or $300,000 for joint filers.

• New senior $6,000 deduction: This benefit is for both itemizers and non-itemizers and phases out when modified AGI exceeds $75,000.
• New Trump accounts: An account for each child born from the beginning of 2025 through the end of 2028 will be pre-funded with $1,000. There are IRA-style accounts available for those born outside these years, but they are not funded.

For Businesses

• The Qualified Business Income deduction, commonly, known as QBI or Section 199A, is now permanent. Further, there is also a minimum $400 deduction benefit for taxpayers who have at least $1,000 of qualified business income.
• Higher SALT: Good new for flow through entities is the increase of the ceiling for taxes as an itemized deduction from $10,000 to $40,000 through 2029, making it less important to pay your business taxes on state tax returns. But if you do, the popular technique called PTET is still available.
• Fewer 1099s: There will be fewer 1099s in the future since the minimum reporting threshold is moved from $600 to $2,000 for the Form 1099-NEC and many other 1099s. Plus the back and forth confusion on who needs to issue and receive Form 1099-Ks for third-party billing purposes moves up from $600 to $20,000 and 200 transactions, making this filing headache for most taxpayers go away.
• Capital purchase benefits. The ability to expense capital purchases retains its options with 100% bonus deprecation through 2029 and expansive Section 179 deductions of up to $2.5 million of qualified property.
• Expense R&D. Research and Development expenditures can now be written off versus amortizing the costs over five years. There is even the ability to apply these new rules retroactively to 2022, so it makes sense to review your situation.
• C corporation tax unchanged. Equally important is what was not in the bill. The C corporation tax rate did not increase as many had feared, nor was the rate lowered.

This is a lot to cover in a single tax tip. So the tips over the next several weeks will focus on individual topics to help you navigate how these changes may impact your situation.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites.
All rights reserved.

With the dramatic increase in identity theft, now is a great time to remind yourself of the basics to reduce the risk of having your Social Security number (SSN) stolen. Here are some ideas.

Remember to periodically check your credit score with the major agencies to ensure your data has not been compromised. Once stolen, it’s often difficult to get a new SSN issued.

Your tax bill has come and gone with you still owing money because you’re a little strapped for cash. Or maybe you’re considering alternative payment options for your upcoming quarterly estimated tax payment. There’s also noise out of Washington, D.C. that checks will no longer be accepted. Whatever the case, the IRS continues to make credit card payments an option for you to pay your taxes. Here’s what you need to know about using credit cards when considering this option to pay your tax bill.

What you need to know

The IRS has contracted with several credit card merchants to offer credit cards as a method of payment. Why not? Most of us are used to paying for merchandise from groceries to sweaters with our credit card. Ah, but there’s a catch. Stores (called merchants by the credit card companies) pay a fee that is split between the merchant’s credit card bank, the transaction processor, and your credit card company for each transaction. This fee, known as an interchange fee, is not going to be paid by the IRS. You must pay it.

The processing fee

The fee paid by you for paying your tax bill with a credit card is called a convenience fee by the IRS and the credit card processors. The fee is based on a percent of the amount charged from 1.75% to 1.85% with a minimum fee of $2.50 or more. For example, using Pay 1040 Corporation’s credit card transaction fee of 1.75% with a $2.50 minimum fee, and a tax bill of:

• $150.00 would cost you $2.63.
• $1,000.00 would cost you $17.50.

But don’t forget, if you don’t pay your credit card balance in full you must also include the interest cost of the loan you’re taking out courtesy of the credit card company. This incremental interest could be as high as 25%!

The good news. You can use any of the four major credit cards to pay your taxes: Visa, Mastercard, American Express, or Discover. In addition, you can earn miles and points if you use a rewards credit card.

The bad news. This payment method adds an expense to your tax bill. Plus, you are limited to the number of payments you can make using this method to two per year.

Better alternatives

Remember, if you are considering paying your taxes with your credit card and you carry a balance from month to month you are really taking out a loan to pay your taxes. Using this perspective:

Get a better loan somewhere else. Perhaps a short-term loan from a bank or credit union makes more sense. Consider borrowing the money from a family member. If you create the proper loan documentation, it might be a good way for that family member to earn a nice interest rate.

Consider borrowing from Uncle Sam. There are installment payment plans available for qualified taxpayers. While there is a set up fee, the monthly interest charged by the government is typically much lower than that charged by credit card companies.

Use planning to your advantage. Create a plan to pay for next year’s tax obligation throughout the year to avoid a repeat of needing funds to pay your tax bill. This may cause some hardship, but saving a little bit more each week through payroll withholdings is usually more manageable for most of us versus a big tax bite in April.

While paying your tax bill with a credit card is often one of the most expensive ways to pay your taxes, it’s vastly less expensive than paying high penalties and interest on unpaid taxes.

With the pending tariffs and turbulent markets, the last thing on most taxpayers minds is tax planning. But in the midst of all this turmoil is the potential for tax saving activity available to those willing to plan accordingly. Here is what you need to know.

In a turbulent market, transferring securities during a dip in the market can save a bunch in taxes. So if part of your retirement plan is to balance your funds between pre-tax and after-tax obligations, now might be time to act.

• Recall that traditional IRA accounts, 401(k) and similar accounts must pay income tax upon fund withdrawal. Whereas Roth IRA and Roth 401(k) accounts use pre-tax dollars and there is no tax on future earnings as long as the funds are in the account for five years.
• There’s no limit to the amount you can convert from a traditional IRA, or 401(k) into a Roth IRA.
• Remember that unless Congress acts, the tax rates are going up next year.
• And the old ability to reconvert stocks from a Roth back into a traditional IRA or 401(k) is no longer possible.

So a set of stocks once worth $100,000 but are now valued at $70,000 can be converted now with $30,000 less in taxable income. If you are planning on holding the stock and you believe it will recover in the long run, you have a tax savings opportunity. Plus the future appreciation will no longer be taxed!

This tax savings idea is not for everyone. The stocks could decline further, creating an opportunity cost. So if considering this tax tip, it should be managed in conjunction with the appropriate planning and investment expertise. But if you were considering a balance of your retirement funds between taxable and tax-free sources, you may have a tax planning opportunity at the door step.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this web page. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does Willis & Jurasek have any control over, or responsibility for, the content of any such Websites.
All rights reserved.

For some reason, some believe it’s better to receive than to give when it comes to filing taxes. While that may help your savings account, it’s not always a great idea. Here’s why.

You are the bank. You are giving the IRS an interest-free loan. And now with higher interest rates, you could be giving away a lot of earned interest on that overpayment to the government.

Debt costs a lot. Consider lowering your withholdings throughout the year and using the extra money to pay down your debt. Even better, the benefit of paying down a home loan in the early years of a mortgage can yield tremendous savings!

IRS identity theft is common. The longer you have your money in the hands of the IRS, the higher the chance some unsavory character is going to try to get it for themselves. Should this happen to you, the IRS will fix the problem, but it is typically taking two years according to a recent taxpayer advocate report. In the meantime, there is paperwork and hurdles to overcome while your refund is delayed.

You could fund something else. Instead of money being parked at the IRS, you could be investing in your retirement or funding a Health Savings Account to pay for medical expenses in pre-tax dollars! So in addition to saving money, you could also be lowering your tax bill!

So you received a refund. Congratulations. Now you have an opportunity to make tax tips work for you.

Before you file away your tax return and all its related records, now is the time to make a final review of the material. This can be in either paper or digital form as long as you know where it is, it’s securely stored, and you feel it will meet the requirements of substantiation. Here are some tips:

The checklist

Use this checklist to help your record keeping. At a minimum, your records should include the following;

• A copy of your signed tax return and all supporting documents sent with your tax filing
• Copies of any worksheets that support your tax filing
• Canceled checks of deducted items
• Record of digital payment(s) and timing if using electronic payment systems
• Receipts supporting deducted items
• Bank statements
• Investment statements
• Form W-2s
• Form 1099s (all form types)
• Form 1095s (to support having valid health insurance)
• Mortgage statements (including annual interest paid and Form 1098)
• Form K-1 for partnerships, LLCs, or S Corporations
• Credit card statements
• Copies of any major purchases or sales (example: home closing documentation)
• Mileage logs for business, charitable and medical transportation
• Proper documentation for business meals and cell phone use
• Receipts for any charitable donations (both cash and non-cash donations)
• Support for all your itemized deductions
• Child care receipts and reporting
• Educational expenses
• Substantiation for value of large donations of property
• Proof of fair market value for any inherited items of value

Capital improvements

Now is also a good time to review your capital improvement files. Capital improvements are payments made to improve the value of your home, secondary residence, or other high value property/equipment. These records are needed to support your calculation of value and gain/loss when you sell your property. Consider creating a spreadsheet that recaps each of these expenditures.

When to toss

Don’t toss old records too soon. The typical rule is to retain federal tax records for as long as they may be needed. This is usually the later of 3 years after the filing due date or when you actually file your tax return. But be careful, state rules can differ and if your income is understated by more than 25%, the look back timeframe for a potential audit increases to 6 years. Finally, remember to keep records of fixed assets as long as you own them plus three years.

Most of us go through life without being concerned with, or ever checking on, our Social Security records. We assume the money deducted each payday and an equal amount paid in by our employer is applied properly to this valuable retirement benefit.

Ignoring is problematic

The Social Security Administration (SSA) is being inundated with fraudulent W-2s and 1099s, and doesn’t have the ability to catch them all. This is creating a high degree of reporting errors, even when a tax return is not filed by identity thieves! In addition, the SSA and your employer occasionally have their own errors. Unfortunately, the only way these problems are caught is if YOU catch them. Waiting until retirement may be too late to correct an error made 10 or 20 years back. Common problems created by these errors and their impact are:

Incorrect amounts. If the SSA does not receive a W-2 wage statement from an employer, you will not see credit for these earnings. Since your Social Security retirement check amount averages your lifetime earnings, if you have earnings that are missing, your retirement check will be permanently lower!

Missing the correct length of time. In addition to receiving credit for earnings, you also need to work 40 quarters or 10 years to be fully eligible for retirement benefits. These missing earnings reports reduce your number of working quarters. Mess up here and you may not qualify for benefits at all!

The three-year correction time limit. Per the SSA, an earnings record can be corrected at any time up to three years, three months, and 15 days after the year in which the wages were paid or the self-employment income was derived. While there are exceptions for fraud and obvious clerical errors, why risk the hassle by not finding errors and fixing them when they happen?

Action to take

Thankfully, it is now easier to confirm the accuracy of your account by going to www.ssa.gov and using the SSA’s online tool that allows you to review your historic earnings statements.

To use the tool, you will need to go through a signup process that includes many safety measures to ensure your identity is protected. This is usually done using a tool called ID.me and will require a valid ID and a way to take a photo of yourself and your ID.

Once you log in, review your statement for any errors. If you see an error, takes steps to immediately correct it. You can do this by contacting the SSA:

Telephone:

1.800.772.1213

By mail:

Social Security Administration Office of Earnings Operations

PO Box 33026

Baltimore, MD 21290-3026

Since you may have just completed last year’s tax filing, now is a great time to get in the habit of reviewing your Social Security records. It is your future.