Archives for December 2025

2026 Business Tax Limits and Key Financial Updates Every Company Should Know

Ken Botwinick, CPA | 12/30/2025

As 2026 begins, business owners and financial leaders need to be aware of several important tax figures that impact deductions, benefits, retirement plans, and overall tax strategy. Understanding these updated limits can help you make smarter planning decisions and avoid surprises at tax time. Below is an overview of the most relevant 2026 business tax thresholds and contribution limits. Keep in mind that specific rules, exceptions, and eligibility requirements may apply depending on your situation.

Depreciation and Business Investment Incentives

Businesses purchasing equipment, technology, or other qualifying assets in 2026 may benefit from the following depreciation-related provisions:

Bonus Depreciation: 100%
Section 179 Deduction Limit: $2.56 million
Section 179 Phase-Out Threshold: $4.09 million

These provisions may provide significant cash-flow advantages for companies investing in expansion, modernization, or capital equipment.

Qualified Retirement Plan Contribution Limits

Helping employees save for retirement remains a strong tax-advantaged strategy. For 2026, the limits include:

401(k), 403(b), and 457 Plan Deferrals: $24,500
Catch-Up Contribution (Age 50+): $8,000
Additional Catch-Up (Ages 60–63): $3,250
SIMPLE IRA Deferrals: $17,000
SIMPLE IRA Catch-Up (Age 50+): $4,000
Additional SIMPLE Catch-Up (Ages 60–63): $1,250
Defined Contribution Plan Limit: $72,000
Defined Benefit Plan Annual Benefit Limit: $290,000
Highly Compensated Employee Compensation Threshold: $160,000
Key Employee (Top-Heavy Plan) Compensation Threshold: $235,000
Compensation Trigger for SEP Contributions: $800

These adjustments can impact benefit plan design, nondiscrimination testing, and executive compensation planning.

Health and Fringe Benefit Contribution Limits

Health and wellness benefits continue to offer meaningful tax savings for both employers and employees:

Health Savings Account (HSA) Contributions: $4,400 for individual coverage, $8,750 for family coverage
Health Flexible Spending Account (FSA) Contributions: $3,400
FSA Carryover Allowance: $680
Dependent Care FSA Contribution Limit: $7,500
Monthly Commuter and Transit Benefit: $340
Monthly Qualified Parking Benefit: $340

Some benefit programs may have additional eligibility or plan-specific requirements that businesses should review carefully with their advisors.

Other Key Business-Related Tax Thresholds

Section 199A Qualified Business Income Deduction Phase-In Range: $201,750 – $276,750 (double for joint filers)
Excess Business Loss Limitation Threshold: $256,000 (double for joint filers)
Gross Receipts Threshold for Use of Cash Accounting Method: $32 million

This threshold also affects related rules, including certain interest expense deduction limitations.

Why These 2026 Tax Changes Matter for Your Business

These updated figures can influence:

Capital investment decisions
Retirement and benefits planning
Tax deductions and cash-flow strategy
Entity structure and compensation planning
Long-term financial projections

Proactive tax planning is essential, especially in a year with evolving thresholds, potential legislative adjustments, and increased IRS enforcement activity.

Plan Ahead for 2026 With Expert Tax Guidance

The right strategy can help your business maximize deductions, reduce tax exposure, and remain compliant with complex IRS rules. The professionals at Botwinick & Co. can help you evaluate how these 2026 tax changes apply to your business and develop a forward-looking plan tailored to your goals.

Contact us today to get started on your 2026 tax planning.

How to Protect Your S Corporation Status and Avoid Costly IRS Pitfalls

Ken Botwinick, CPA | 12/23/2025

An S corporation offers business owners a powerful combination of tax efficiency and liability protection. However, this favorable tax status comes with strict IRS requirements. Even an unintentional mistake can trigger an S corporation termination, leading to unexpected taxes and administrative headaches. Understanding how to maintain compliance is essential to preserving these benefits.

Why S Corporations Are So Valuable

An S corporation combines the best features of two business structures:

Liability protection: Like a C corporation, shareholders are generally not personally responsible for corporate debts and obligations.
Pass-through taxation: Similar to a partnership, income and losses pass directly to shareholders and are reported on individual tax returns, avoiding corporate-level taxation.

This structure helps eliminate double taxation, which occurs in C corporations when profits are taxed at both the corporate and shareholder levels.

Meeting the IRS Requirements for S Corporation Status

To elect S corporation status, all shareholders must file IRS Form 2553. Beyond making the election, the corporation must continue to meet specific eligibility requirements, including:

Being a U.S.-based (domestic) corporation
Having no more than 100 shareholders (with certain family members counted as one)
Issuing only one class of stock (differences in voting rights are allowed)
Limiting ownership to eligible shareholders
Avoiding classification as an ineligible business, such as certain financial institutions or insurance companies

Who Can Be a Shareholder?

Eligible S corporation shareholders generally include:

U.S. individuals
Estates
Certain qualifying trusts, including Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs)

Partnerships, corporations, and nonresident aliens are not permitted shareholders. A single ineligible shareholder can automatically terminate S corporation status.

Common Triggers for Inadvertent S Corporation Termination

S corporation status is often lost unintentionally. To reduce this risk, business owners should take proactive steps such as:

Regularly reviewing shareholder lists to confirm eligibility
Closely examining trust ownership and ensuring QSST or ESBT elections are filed on time
Including protective language in buy-sell agreements to prevent transfers to ineligible owners
Monitoring trusts that temporarily qualify as shareholders, such as grantor or testamentary trusts, which generally lose eligibility after two years unless corrective action is taken

Another frequent issue is accidentally creating a second class of stock. This can happen if distributions are not made proportionally to ownership interests.

The Consequences of Losing S Corporation Status

If an S corporation election is terminated, the business may be treated as a C corporation for tax purposes. This change can result in higher tax liabilities, loss of pass-through benefits, and increased compliance costs.

While it may be possible to request retroactive relief from the IRS, the process can be expensive, time-consuming, and uncertain. Prevention is almost always the better strategy.

Stay Proactive and Protect Your Tax Benefits

Maintaining S corporation status requires ongoing attention, not a one-time election. Regular reviews, proper documentation, and professional guidance can help safeguard your business from costly mistakes.

If you have questions about S corporation compliance or want to ensure your business remains in good standing, consult with a qualified tax advisor who understands the complexities of S corporation regulations.

Major Information Reporting Changes Begin with the 2026 Tax Year

Ken Botwinick, CPA | 12/17/2025

Businesses that employ workers or engage independent contractors have ongoing federal information reporting responsibilities. While the One Big Beautiful Bill Act (OBBBA) introduces meaningful changes to these requirements, most of the new reporting rules will not take effect until the 2026 tax year. Understanding what applies now—and what’s coming next—is essential for proper planning and compliance.

Below is a clear breakdown of the upcoming reporting changes, how they affect employers and payroll providers, and what businesses should prepare for as the rules evolve.

New Deductions for Tips and Overtime Income

For tax years 2025 through 2028, the OBBBA introduces new deductions for employees who earn qualified tips income or qualified overtime income. These deductions are intended to reduce federal income tax liability for eligible workers—but they are not exclusions from income.

This distinction is important. Even though employees may be entitled to federal income tax deductions, the following still apply:

Federal payroll taxes remain in effect
Federal income tax withholding rules continue to apply
State and local income taxes may still fully tax this income

As a result, employers and payroll processors face new challenges around identifying, tracking, and reporting this income so employees can properly claim their deductions.

No Federal Reporting Changes for the 2025 Tax Year

In August 2025, the IRS confirmed that there would be no OBBBA-related changes to federal payroll and information reporting forms for the 2025 tax year. This means that:

Form W-2 remains unchanged for 2025
Forms 1099 (including 1099-NEC and 1099-MISC) remain unchanged
Form 941 and payroll tax filings are unchanged
Federal income tax withholding tables are unchanged

Employers are not required to separately report qualified tips or overtime income for 2025.

Later in November 2025, the IRS issued guidance for employees explaining how they can determine eligibility and calculate their deductions for qualified tips or overtime income—even though employers are not required to provide specific reporting for that year.

Voluntary Reporting Options for Employers in 2025

Although not required, employers and payroll service providers may voluntarily assist employees by reporting qualified tips income for 2025 in Box 14 (“Other”) of Form W-2 or by providing a separate written statement.

Employers that pay overtime should also be prepared to answer employee questions regarding eligibility. In particular, employees must generally qualify as Fair Labor Standards Act (FLSA) employees to claim the overtime deduction.

IRS Identifies Eligible Occupations for Tips Deduction

In September 2025, the IRS released proposed regulations identifying dozens of occupations eligible for the qualified tips income deduction. Each eligible occupation has been assigned a three-digit occupation code that will be used for future information reporting.

The eligible occupations fall into eight primary categories:

Beverage and food service
Entertainment and events
Hospitality and guest services
Home services
Personal services
Personal appearance and wellness
Recreation and instruction
Transportation and delivery

These classifications will play a key role in employer reporting beginning with the 2026 tax year.

Draft 2026 Form W-2 Reflects New Reporting Requirements

Also in September 2025, the IRS released a draft version of the 2026 Form W-2, which incorporates several new reporting elements required under the OBBBA.

The draft form includes new Box 12 codes for:

TA – Employer contributions to Trump accounts
TP – Total qualified tips income
TT – Total qualified overtime income

In addition, a new Box 14b has been added to report the occupation of employees who receive qualified tips income.

Trump accounts—another OBBBA initiative—will become available in 2026 and are designed to provide tax-advantaged savings opportunities for children. Employer contributions to these accounts will now require formal reporting.

Higher 1099 Reporting Thresholds Starting in 2026

While the OBBBA adds new reporting requirements related to tips and overtime, it also provides meaningful relief for businesses by easing certain information return thresholds.

Historically, businesses have been required to file Forms 1099-MISC and 1099-NEC for payments of $600 or more made during the year.

Effective for payments made after December 31, 2025, the OBBBA increases this reporting threshold to $2,000. The threshold will also be adjusted for inflation for payments made after 2026.

This change affects:

Rent payments
Royalties
Service payments to independent contractors
Other reportable fixed or determinable income

The increased threshold will first apply to 2026 payments, which are reported on information returns filed in early 2027.

What Businesses Should Do Now

Although most changes do not take effect until 2026, proactive planning is essential. Employers should:

Review payroll and reporting systems for upcoming changes
Monitor IRS guidance on qualified tips and overtime income
Prepare for new W-2 reporting codes and occupation disclosures
Update internal policies and employee communications

Additional IRS guidance is expected, along with final versions of 2026 reporting forms. Staying informed will help prevent compliance issues and unnecessary penalties.

Stay Compliant with Expert Guidance from Botwinick & Company

The information reporting landscape is changing, and the OBBBA introduces both new obligations and new opportunities for businesses. Navigating these changes requires careful attention to IRS guidance, payroll procedures, and tax planning strategies.

Botwinick & Company helps businesses stay compliant, informed, and prepared as tax laws evolve. If you have questions about upcoming reporting requirements or how these changes may impact your business, contact our team today for trusted guidance.

New OBBBA Law Expands Business Interest Expense Deductions Starting in 2025

Ken Botwinick, CPA | 12/09/2025

Businesses that pay or accrue interest can generally deduct those expenses for federal tax purposes—but long-standing IRS limitations have often restricted how much interest a company can write off each year. With the introduction of the One Big Beautiful Bill Act (OBBBA), key changes are coming in 2025 that may allow many businesses to claim larger deductions and improve cash flow.

Understanding the Business Interest Expense Limitation

Under current law, the annual deduction for business interest expense is generally capped at 30% of the taxpayer’s adjusted taxable income (ATI). This rule applies to individuals with business income, partnerships, LLCs taxed as partnerships, S corporations, and C corporations. Any interest expense that exceeds the limitation is not lost—it is carried forward to future tax years.

The IRS defines business interest expense as interest paid or accrued on debt properly allocable to a trade or business. For partnerships, LLCs taxed as partnerships, and S corporations, the interest-deduction limitation is applied first at the entity level and then again at the individual owner level. These additional layers of review can make compliance particularly complex.

Importantly, this limitation applies before the passive activity loss (PAL) rules, at-risk rules, and excess business loss rules. However, the limitation is generally applied after tax rules that capitalize, defer, or disallow interest under other federal provisions.

What’s Changing Under the OBBBA?

The new OBBBA legislation significantly broadens what taxpayers can deduct by revising how ATI is calculated and expanding the definition of floor plan financing.

1. ATI Will Be Calculated Using an EBITDA Approach

For tax years beginning in 2025 and beyond, ATI must be computed before depreciation, amortization, and depletion. This aligns ATI more closely with the financial concept of EBITDA—earnings before interest, taxes, depreciation, and amortization.

By increasing ATI, the OBBBA effectively raises the 30% limitation amount, giving many businesses the ability to deduct more of their interest expense each year.

2. Expanded Definition of Floor Plan Financing

Also beginning in 2025, the OBBBA expands the definition of floor plan financing to include loans used to finance:

Trailers designed for temporary living quarters
Campers intended for recreational or seasonal use
Units that can be towed by or attached to motor vehicles

Businesses in these industries may see a meaningful increase in deductible interest expenses as a result.

Exceptions to the Limitation Rules

Some businesses are already exempt from the business interest expense limitation based on size or industry. These exemptions will remain under the OBBBA.

Small Business Exemption

Businesses with average annual gross receipts below a certain threshold are exempt from the interest limitation rules. These thresholds are:

$31 million for tax years beginning in 2025
$32 million for tax years beginning in 2026

Other Exempt Business Types

Electing real property businesses that agree to use longer depreciation periods
Electing farming businesses that also agree to slower depreciation
Businesses that provide certain public utility services, including electricity, water, gas, steam, and sewage disposal, when rates are set by a qualifying regulatory authority

Real property and farming businesses considering an election to opt out of the limitation must carefully weigh the benefits. While opting out may allow larger interest deductions now, it also requires using longer depreciation schedules—which delays write-offs for certain assets.

How These Changes May Affect Your Business

The revised rules under the OBBBA could provide substantial tax relief for many businesses, particularly capital-intensive industries and companies that rely heavily on financing. However, the interaction between ATI calculations, entity-level rules, owner-level rules, and other federal tax provisions makes the analysis far from straightforward.

Proper planning is key. Evaluating whether your business will benefit may require reviewing projections, entity structure, prior-year carryforwards, and depreciation elections.

Need Guidance? Botwinick & Company Can Help

The business interest expense rules—especially with the upcoming OBBBA changes—are complex and highly situation-specific. Our tax professionals at Botwinick & Company can help you understand how the new law affects your business, evaluate your options, and implement the most tax-efficient strategy.

Contact us today for expert tax planning and guidance tailored to your business.

6 Smart Year-End Tax Moves Businesses Should Make Before 2026

Ken Botwinick, CPA | 12/05/2025

Effective tax planning is a year-round discipline, but December still offers valuable opportunities to reduce your 2025 tax bill. With several favorable provisions reinstated under the One Big Beautiful Bill Act, strategic action now can deliver meaningful savings when you file next year. Below are six last-minute steps business owners should consider as the year draws to a close.

1. Delay Sending Invoices if You Use Cash-Basis Accounting

Cash-basis businesses can manage taxable income by controlling the timing of when revenue is received. If pushing income into the next tax year would be beneficial, consider delaying December invoicing until early 2026. This can help lower your 2025 taxable income while keeping cash flow predictable.

2. Prepay 2026 Business Expenses Before Year-End

If your business reports on a cash basis, prepaying certain expenses is a simple way to secure additional deductions for 2025. Eligible costs may include:

Rent or lease payments
Insurance premiums
Utility bills
Office supplies
State and local taxes

In many cases, the IRS allows deductions for expenses paid up to 12 months in advance, as long as they are ordinary and necessary for your business.

3. Invest in Equipment to Leverage Bonus Depreciation and Section 179

For companies planning equipment purchases, 2025 is an advantageous year. Under the One Big Beautiful Bill Act:

100% bonus depreciation is restored for qualifying assets acquired and placed in service after January 19, 2025.
Section 179 expensing has doubled, allowing businesses to deduct up to $2.5 million in qualifying asset purchases for 2025.

To claim these benefits on your 2025 return, equipment must be placed in service no later than December 31, 2025. This can include machinery, vehicles, technology, and other fixed assets.

4. Use a Business Credit Card to Secure Deductions Now

If you want to prepay expenses or purchase equipment but don’t want to strain cash flow, using a business credit card can help. Expenses charged on a credit card are generally deductible in the year the charge is made, even if you pay the bill in early 2026. This can be a valuable strategy for year-end tax optimization.

5. Increase Retirement Plan Contributions to Reduce Taxable Income

For self-employed individuals and owners of pass-through entities — including S corporations, partnerships, and most LLCs — boosting retirement plan contributions remains one of the most effective ways to cut taxable income.

Most plans require contributions by year-end, but SEP IRA contributions can typically be made up until the business’s tax filing deadline (including extensions). Maximizing contributions not only lowers taxes but also strengthens long-term financial security.

6. Plan Ahead to Preserve the 20% Pass-Through Deduction

Owners of sole proprietorships and pass-through businesses may qualify for a 20% qualified business income (QBI) deduction. However, the full deduction begins to phase out when taxable income exceeds:

$197,300 for single filers
$394,600 for married couples filing jointly

If you anticipate income approaching these thresholds, consider strategies to keep your taxable income within limits — such as increasing retirement contributions or adjusting year-end compensation. Staying under the threshold can help you preserve the full QBI deduction.

Get Tailored Year-End Tax Guidance from Botwinick & Co.

Each of these strategies comes with rules, restrictions, and eligibility requirements that vary by business and tax structure. Before acting, it’s important to consult with a qualified tax professional.

Botwinick & Co. can help you:

Evaluate which year-end strategies align with your financial goals
Identify additional planning opportunities for 2025 and beyond
Ensure compliance with the latest tax law changes, including OBBBA provisions

If you’re looking to reduce your tax burden while strengthening your financial strategy, our team is here to guide you every step of the way.