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Payroll Tax Implications of New Tax Breaks on Tips and Overtime

Before the One Big Beautiful Bill Act (OBBBA), tip income and overtime income were fully taxable for federal income tax purposes. The new law changes that.

Tip income deduction

For 2025–2028, the OBBBA creates a new temporary federal income tax deduction that can offset up to $25,000 of annual qualified tip income. It begins to phase out when modified adjusted gross income (MAGI) is more than $150,000 ($300,000 for married joint filers).

The deduction is available if a worker receives qualified tips in an occupation that’s designated by the IRS as one where tips are customary. However, the U.S. Treasury Department recently released a draft list of occupations it proposes to receive the tax break and there are some surprising jobs on the list, including plumbers, electricians, home heating / air conditioning mechanics and installers, digital content creators, and home movers.

Employees and self-employed individuals who work in certain trades or businesses are ineligible for the tip deduction. These include health, law, accounting, financial services, investment management and more.

Qualified tips can be paid by customers in cash or with credit cards or given to workers through tip-sharing arrangements. The deduction can be claimed […]

By Linkenheimer LLP|2025-09-09T16:10:50+00:00September 9th, 2025|1099, deduction, New Tax Laws|0 Comments

New Rules Could Boost Your R&E Tax Savings in 2025

A major tax change is here for businesses with research and experimental (R&E) expenses. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) reinstated the immediate deduction for U.S.-based R&E expenses, reversing rules under the Tax Cuts and Jobs Act (TCJA) that required businesses to capitalize and amortize these costs over five years (15 years for research performed outside the United States).

Making the most of R&E tax-saving opportunities

The immediate domestic R&E expense deduction generally is available beginning with eligible 2025 expenses. It can substantially reduce your taxable income, but there are strategies you can employ to make the most of R&E tax-saving opportunities:

Apply the changes retroactively. If you qualify as a small business (average annual gross receipts of $31 million or less for the last three years), you can file amended returns for 2022, 2023 and/or 2024 to claim the immediate R&E expense deduction and potentially receive a tax refund for those years. The amended returns must be filed by July 4, 2026.

Accelerate remaining deductions. Whatever the size of your business, if you began to amortize and capitalize R&E expenses in 2022, 2023 and/or 2024, you can deduct the remaining amount either on […]

By Linkenheimer LLP|2025-09-08T19:36:59+00:00September 8th, 2025|deduction, New Tax Laws, research credit, tax implications|0 Comments

Business Meals — What’s Still on the Menu After 2025

Starting in 2026, the tax treatment of business meals changes dramatically. Under the Tax Cuts and Jobs Act (TCJA), employer-provided meals for the “convenience of the employer” including de minimis fringe benefit were limited to a 50% deduction. Unlike many other provisions that were extended or made permanent by the One Big, Beautiful Bill Act (OBBBA), this one wasn’t renewed. That means beginning in 2026, the deduction for these meals drops all the way to 0% at the federal level.

In plain terms: that stack of takeout boxes in the breakroom may keep your team happy, but it won’t trim your tax bill.

The big change: convenience meals lose their bite

Currently, meals provided by employers for their convenience and de minimis fringe benefit “meals” such as coffee, sodas, doughnuts etc.— qualify for a 50% deduction. Beginning in 2026, those expenses will no longer be deductible for federal tax purposes.

The exceptions: The restaurant industry can continue deducting employee meal expenses for kitchen and waitstaff and Crews of certain commercial vessels, oil platform/drilling rig workers, and of certain fishing vessels and processing facilities can continue to be 50% deductible.

California doesn’t play by the same rules

Here’s where things get tricky: California […]

By Linkenheimer LLP|2025-08-25T19:29:58+00:00August 20th, 2025|business, deduction, New Tax Laws|0 Comments

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

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 […]

By Linkenheimer LLP|2025-08-05T14:15:17+00:00August 5th, 2025|business, deduction, deductions, New Tax Laws, News|0 Comments

Tax Court Denies Charitable Contribution Deduction for Lack of Substantiation

Why Your Charitable Receipts Need More Than Just a Signature

When was the last time you actually read the receipt from that donation drop-off? If you’re like most folks, you probably grabbed it and called it a day. Well, John Henry Besaw’s recent Tax Court case (TC Summary Opinion 2025-7) might make you think twice about that approach.

Besaw claimed $6,760 in noncash charitable contributions on his 2019 return, attaching Form 8283 with donee names and general descriptions – but crucially, no dates or values for the donated items. When the IRS disallowed the deduction for insufficient substantiation, Besaw scrambled. He provided receipts, but they were blank regarding specific item descriptions and values. He even submitted non-contemporaneous “reconstructed” documents detailing his donations. Special Trial Judge Leyden wasn’t impressed, noting that Treasury Regulation 1.170A-13 mandates receipts must include “a reasonably sufficient description of the donated property.” The Court ruled in favor of the IRS, upholding the disallowance of the entire deduction (though Besaw dodged accuracy-related penalties under IRC Section 6662(a) – small victories, right?).

How to Stay Out of Trouble

Finish […]

By Linkenheimer LLP|2025-07-29T16:12:52+00:00July 29th, 2025|charity, deduction, deductions|0 Comments