When is my 2025 return due?

For most individual taxpayers, the deadline to file a 2025 return or an extension is April 15. Individuals living outside the United States and Puerto Rico or serving in the military outside those two locations have until June 15.

When must 2025 W-2s and 1099s be provided to me?

To file your tax return, you need all your Forms W-2 and 1099. February 2 is the deadline for employers to issue 2025 W-2s to employees and, generally, for businesses to issue Forms 1099 to recipients of any 2025 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).

Normally these forms must be furnished by January 31. But this year, that date falls on a Saturday. So the deadline is the next business day, which is Monday, February 2.

If you haven’t received a W-2 or 1099 by the deadline, contact the entity that should have issued it. But remember that if a form is provided to you via mail instead of digitally, February 2 is the postmark deadline. So you might not receive it until several days after that.

Are there benefits to filing early?

One benefit is that if you’re getting a refund, you’ll likely get it sooner. The IRS expects to issue most refunds in less than 21 days from filing, as it has in recent years.

However, it’s possible that the reduced IRS staffing could cause delays during tax season this year. Other factors could also impact refund timing. The IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills.

How can filing early reduce my tax identity theft risk?

Tax identity theft occurs when someone uses your personal information — such as your Social Security number — to file a fraudulent tax return and claim a refund in your name. One of the simplest yet most effective ways to protect yourself from this type of fraud is to file your tax return as early as possible.

The IRS processes returns on a first-come, first-served basis. Once your legitimate return is in the system, thieves will have a tougher time filing a false return under your identity.

What’s the impact of the paper check phaseout for refunds?

As required by Executive Order 14247, the IRS is phasing out paper tax refund checks for individual taxpayers. For the 2025 tax year, the IRS will request banking information on all tax returns when filed to issue refunds via direct deposit or electronic funds transfer (EFT). For taxpayers without bank accounts, options such as prepaid debit cards, digital wallets or limited exceptions will be available.

Direct deposits and EFTs generally speed up refunds. They also avoid the risk that a paper check could be lost, stolen or returned to the IRS as undeliverable.

If I file early and owe tax, will I have to pay it when I file?

Even if you file early, your deadline for paying tax owed is April 15. However, if you didn’t pay enough in withholding and estimated tax payments for 2025 to meet certain rules (or didn’t make estimated tax payments on time), you could still owe penalties and interest. Paying before April 15 may reduce them.

What if I can’t pay my tax bill in full by April 15?

If you don’t pay what you owe by April 15, you’ll likely be subject to penalties and interest even if you met the withholding and estimated tax payment requirements for 2025. You should still file your return on time (or file for an extension) because there are failure-to-file penalties in addition to failure-to-pay penalties.

Paying as much as possible by April 15 will reduce interest and penalties because a smaller amount will be outstanding. Then request an installment payment plan for the rest of the liability.

Under what circumstances can I file for extension?

Generally, anyone is eligible to file an automatic extension to October 15 for individual tax returns; you don’t have to provide a reason why you can’t file on time. But you must file Form 4868 to request the extension by April 15 to avoid being subject to a failure-to-file penalty.

Remember that an extension of time to file your return doesn’t grant you any extension of time to pay your taxes. You should estimate and pay any taxes owed by April 15 to help avoid, or at least minimize, late payment penalties and interest.

What should I do next?

Contact us to answer any other tax filing questions you have or to discuss getting started on your 2025 return. We can prepare your return accurately and on time while helping to ensure you claim all the tax breaks you’re entitled to.

© 2026

The post Tax filing FAQs for individuals first appeared on Lightheart, Sanders and Associates.

1. Postpone invoicing.

If your business uses the cash method of accounting and it would benefit from deferring income to next year, wait until early 2026 to send invoices.

2. Prepay expenses.

A cash-basis business may be able to reduce its 2025 taxes by prepaying certain 2026 expenses — such as lease payments, insurance premiums, utility bills, office supplies and taxes — before the end of the year. Many expenses can be deducted even if paid up to 12 months in advance.

3. Buy equipment.

Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back for assets acquired and placed in service after January 19, 2025. And the Sec. 179 expensing limit has doubled, to $2.5 million for 2025. But remember that the assets must be placed in service by December 31 for you to claim these breaks on your 2025 return.

4. Use credit cards.

What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.

5. Contribute to retirement plans.

If you’re self-employed or own a pass-through business — such as a partnership, S corporation or, generally, a limited liability company — one of the best ways to reduce your 2025 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2025 contributions up until its tax return due date (including extensions).

6. Qualify for the pass-through deduction.

If your business is a sole proprietorship or pass-through entity, you may be able to deduct up to 20% of qualified business income (QBI). But if your 2025 taxable income exceeds $197,300 ($394,600 for married couples filing jointly), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here. Please consult us before implementing them. We can also offer more ideas for reducing your taxes this year and next.

© 2025

The post 6 last-minute tax tips for businesses first appeared on Lightheart, Sanders and Associates.

Higher deduction limit

Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. Historically, eligible SALT expenses were generally 100% deductible on federal income tax returns if an individual itemized deductions. This provided substantial tax savings to many taxpayers in locations with higher income or property tax rates (or higher home values), as well as those who owned both a primary residence and one or more vacation homes.

Beginning in 2018, the Tax Cuts and Jobs Act (TCJA) limited the deduction to $10,000 ($5,000 for married couples filing separately). This SALT cap was scheduled to expire after 2025.

Rather than letting the $10,000 cap expire or immediately making it permanent, the OBBBA temporarily quadruples the limit. Beginning in 2025, taxpayers can deduct up to $40,000 ($20,000 for married couples filing separately), with 1% increases each subsequent year. Then in 2030, the OBBBA reinstates the $10,000 cap.

The increased SALT cap could lead to major tax savings compared with the $10,000 cap. For example, a single taxpayer in the 35% tax bracket with $40,000 in SALT expenses could save an additional $10,500 in taxes [35% × ($40,000 − $10,000)].

Income-based reduction

While the higher limit is in place, it’s reduced for taxpayers with incomes above a certain level. The allowable deduction drops by 30% of the amount by which the modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000; when MAGI reaches $600,000, the previous $10,000 cap applies. (These amounts are halved for separate filers.) The MAGI threshold will also increase 1% each year through 2029.

Here’s how the earlier example would be different if the taxpayer’s MAGI exceeded the threshold: Let’s say MAGI is $550,000, which is $50,000 over the 2025 threshold. The cap would be reduced by $15,000 (30% × $50,000), leaving a maximum SALT deduction of $25,000 ($40,000 − $15,000). Even reduced, that’s more than twice what would be permitted under the $10,000 cap. The reduced deduction would still save an additional $5,250 in taxes [35% × ($25,000 − $10,000) compared to when the $10,000 cap applied.

Itemizing vs. the standard deduction

The SALT deduction is available only to taxpayers who itemize their deductions. The TCJA nearly doubled the standard deduction. As a result of that change and the $10,000 SALT cap, the number of taxpayers who itemize dropped substantially. And, under the OBBBA, the standard deduction is even higher — for 2025, it’s $15,750 for single and separate filers, $23,625 for head of household filers, and $31,500 for married couples filing jointly.

But the higher SALT cap might make it worthwhile for some taxpayers who’ve been claiming the standard deduction post-TCJA to start itemizing again. Consider, for example, a taxpayer who pays high state income tax. If that amount combined with other itemized deductions (generally, certain medical and dental expenses, home mortgage interest, qualified casualty losses, and charitable contributions) exceeds the applicable standard deduction, the taxpayer will save more tax by itemizing.

Year-end strategies

Here are two strategies that might help you maximize your 2025 SALT deduction:

1. Reduce your MAGI. If it’s nearing the threshold that would reduce your deduction or already over it, you can take steps to stay out of the danger zone. For example, you can make or increase pretax retirement plan and Health Savings Account contributions. Likewise, you can avoid moves that increase your MAGI, like Roth IRA conversions, nonrequired traditional retirement plan distributions and asset sales that result in large capital gains.

2. Accelerate property tax deductions. If your SALT expenses are less than $40,000 and your MAGI is below the reduction threshold for 2025, for example, you might prepay your 2026 property tax bill this year. (This assumes the amount has been assessed — you can’t deduct a prepayment based only on your estimate.)

Plan carefully

In your SALT planning, also be aware that SALT expenses aren’t deductible for purposes of the alternative minimum tax (AMT). A large SALT deduction could have the unintended effect of triggering the AMT, particularly after 2025.

Under the right circumstances, the increase to the SALT deduction cap can be a valuable tax saver. But careful planning is essential. Contact us for assistance with maximizing your SALT deduction and other year-end tax planning strategies.

© 2025

The post The 2025 SALT deduction cap increase might save you substantial taxes first appeared on Lightheart, Sanders and Associates.

How capital losses work

As capital assets, stocks produce capital gains or losses when they’re sold. Your capital gains and losses for the year must be netted against one another in a specific order based on whether they’re short-term (held one year or less) or long-term (held for more than one year).

If, after netting, you have short-term or long-term losses (or both), you can use them to offset up to $3,000 of ordinary income ($1,500 for married taxpayers filing separately). Any loss in excess of this limit is carried forward to later years until all of it is either offset against capital gains or deducted against ordinary income in those years, subject to the $3,000 limit. If you have both net short-term and net long-term losses, the net short-term losses are used to offset ordinary income before the net long-term losses.

If you’ve realized capital gains from stock or other asset sales during the year, consider selling some of your losing positions to offset the gains. A good tax strategy is to sell enough losing stock to shelter your earlier gains and generate a $3,000 loss since this is the maximum loss that can be used to offset ordinary income each year.

Implications of the wash sale rule

If you believe that a stock you own will recover but want to sell now to lock in a tax loss, be aware of the wash sale rule. Under it, if you sell stock at a loss and buy substantially identical stock within the 30-day period before or after the sale date, you can’t claim the loss for tax purposes. In order to claim the loss, you must buy the new shares outside of the period that begins 30 days before and ends 30 days after the sale of the loss stock.

When stock is worth nothing

In some cases, a stock you own may have become completely worthless. If so, you can claim a loss equal to your basis in the stock, which is generally what you paid for it. The stock is treated as though it had been sold on the last day of the tax year. This date is important because it affects whether your capital loss is short-term or long-term.

Stock shares become worthless when they have no liquidation value. That’s because the corporation’s liabilities exceed its assets and have no potential value and the business has no reasonable hope of becoming profitable. A stock can be worthless even if the corporation hasn’t declared bankruptcy. Conversely, a stock may still have value even after a bankruptcy filing, if the corporation continues operating and the stock continues trading.

You may not discover that a stock has become worthless until after you’ve filed your tax return for the year of worthlessness. In that case, you can amend your return for that year to claim a credit or refund due to the loss. You can do this for seven years from the date your original return was due, or two years from the date you paid the tax, whichever is later.

Maximize the tax benefits

As you can see, deducting stock losses or worthless stock on your tax return can be complex. Therefore, it’s important to maintain thorough documentation. We can help maximize the benefits. Keep in mind that other rules may apply. Let us know if you have any questions.

© 2025

The post Turning stock downturns into tax advantages first appeared on Lightheart, Sanders and Associates.

Individual Tax Provisions

The bill makes permanent the existing TCJA tax brackets and standard deduction levels. Taxpayers will continue to file under the current rates, with no scheduled sunset. In addition, the standard deduction is increased further for taxpayers age 65 and older—an additional $6,000 for single filers and $12,000 for married couples filing jointly. This enhancement applies for tax years 2025 through 2028.

The cap on the state and local tax (SALT) deduction is raised to $40,000 for individuals with adjusted gross income (AGI) below $500,000. For taxpayers with income above that threshold, the cap phases out, and the original $10,000 limit returns beginning in 2030 unless extended by future legislation.

New deductions have been introduced for specific categories of earned income. For tax years 2025 through 2028, individuals may deduct up to $25,000 in tip income. Additionally, all overtime wages are fully deductible, provided they are reported on W-2 forms. These deductions are subject to verification through employer reporting.

The Child Tax Credit is increased to between $2,200 and $2,500 per qualifying child, indexed for inflation. This expanded credit is in place through 2028.

Business and Investment Provisions

For businesses, the 20% qualified business income deduction under IRC Section 199A is made permanent. This provision applies to eligible income from sole proprietorships, partnerships, S corporations, and certain trusts and estates.

Rules governing Qualified Small Business Stock (QSBS) have been updated. The maximum asset threshold to qualify for QSBS treatment is raised to $75 million. Capital gain exclusions are now tied to the holding period: 50% exclusion after three years, 75% after four years, and 100% after five years. These changes are intended to expand access to preferential gain treatment for startup investors and small business owners.

The bill also restores 100% bonus depreciation for eligible property, including new manufacturing facilities. The requirement to amortize research and development expenses under prior law is repealed, allowing businesses to immediately deduct qualifying R&D costs.

Planning Considerations

Taxpayers with earned income from tips or overtime should review their withholding and estimated tax payments in light of the new deductions. Seniors may benefit from increased standard deduction thresholds and should consider their eligibility. Business owners should evaluate the impact of permanent Section 199A treatment, revised QSBS rules, and changes to expensing and depreciation.

These provisions take effect beginning with the 2025 tax year. Further direction and clarification of the provisions of the Bill will be forthcoming and we will post updates to the blog (or future blogs) as additional information, clarification and guidance becomes available. For assistance with tax planning or compliance under the new law, please contact our office.

The post The One Big Beautiful Bill Explained: What It Means for Your Business and Personal Taxes first appeared on Lightheart, Sanders and Associates.

What Makes a Donation Tax Deductible?

To qualify for a deduction, your donation must be made to a qualified organization as recognized by the IRS. This includes religious institutions, nonprofit educational groups, public charities, charitable hospitals and medical research facilities, government entities (when the gift is for public purposes), and other 501(c)(3) organizations. Common examples include food banks, shelters, museums, and community foundations. To confirm whether an organization qualifies, you can use the IRS’s Tax Exempt Organization Search tool. It’s important to note that donations made directly to individuals, political campaigns, or social clubs do not qualify for tax deductions.

Types of Deductible Donations

The IRS allows deductions for a variety of donation types, including cash, property, and certain expenses. Cash donations are the most straightforward and include money given by check, credit card, or digital payment apps. Property donations can include household items, clothing, vehicles, real estate, or even stocks and securities. You can also deduct out-of-pocket expenses directly related to volunteer work, such as mileage or the cost of supplies, but you cannot deduct the value of your time or services.

When donating non-cash items, the IRS requires that the items be in good used condition or better. The fair market value of these items is generally deductible, which means the price the item would sell for on the open market. For example, if you donate a used couch that could reasonably sell for $200 in a thrift store, you can deduct that amount. However, if you’re donating something of significant value—say, artwork or jewelry—you may need to obtain a qualified appraisal to substantiate the deduction.

Documentation and Reporting Requirements

Proper documentation is essential when claiming charitable deductions. For any donation under $250, you’ll need a bank record or written communication from the charity confirming the amount and date. For donations of $250 or more, you must obtain a written acknowledgment from the charity that includes the amount of the donation and a statement on whether you received any goods or services in exchange. For non-cash donations over $500, you’ll need to complete Form 8283 and include it with your tax return. If the value of non-cash contributions exceeds $5,000, you must also obtain a qualified appraisal and attach a signed summary to your return.

Using Retirement Distributions for Charitable Giving

If you’re age 70½ or older, you can make a Qualified Charitable Distribution (QCD) directly from your IRA to a qualified charitable organization. This strategy allows you to donate up to $100,000 per year ($200,000 for married couples if both spouses qualify) without counting the distribution as taxable income. In addition to supporting a worthy cause, this can be especially beneficial for retirees who do not itemize deductions, as the tax benefit comes from reducing your taxable income—not from claiming a deduction.

QCDs also count toward your required minimum distribution (RMD) if you’re 73 or older, which means you can satisfy RMD requirements without increasing your taxable income. To qualify, the distribution must be made directly from your IRA custodian to the charitable organization. Note that QCDs are not available from 401(k)s or other employer-sponsored plans unless the funds are first rolled into an IRA.

This is a powerful tool for tax-efficient giving, especially for those looking to reduce the impact of RMDs or manage their taxable income in retirement.

Annual Deduction Limits

Charitable deductions are generally limited to a percentage of your adjusted gross income (AGI), depending on the type of donation and the recipient organization. For cash donations to public charities, you can deduct up to 60% of your AGI. Donations of appreciated assets, like stocks, are typically limited to 30% of AGI. Donations to certain private foundations may be limited to 20% to 30% of AGI, depending on the circumstances. If your contributions exceed these limits, the IRS allows you to carry forward the excess and deduct it over the next five years.

For example, if your AGI is $100,000 and you donate $70,000 in cash to a public charity, only $60,000 will be deductible this year under the 60% limit. The remaining $10,000 can be carried forward and deducted in a future tax year.

Standard Deduction vs. Itemizing

It’s important to remember that charitable contributions are only deductible if you itemize your deductions on Schedule A of your tax return. If you take the standard deduction—which for 2025 is $15,000 for single filers and $30,000 for married couples filing jointly—you cannot also deduct charitable donations. For heads of household, the 2025 standard deduction is $22,500. As a result, some taxpayers choose to “bundle” charitable giving into one year to exceed the standard deduction threshold and maximize the tax benefit.

Strategic Giving Considerations

To make the most of your charitable contributions, consider giving appreciated assets like stock instead of cash. This allows you to avoid paying capital gains tax while still deducting the full fair market value. Donor-advised funds are another powerful tool for strategic giving: they allow you to make a lump-sum contribution and receive an immediate tax deduction, while distributing the funds to charities over time. Planning your giving this way can help you stay within deduction limits and align your generosity with your overall financial goals.

Final Thoughts

Charitable giving is a meaningful and rewarding way to support causes you care about—and with the right planning, it can also reduce your tax liability. By understanding what qualifies, keeping proper documentation, and being aware of annual limits, you can ensure that your generosity pays off in more ways than one. If you’re making large or complex donations, it’s always a good idea to consult a tax professional to ensure you’re maximizing your benefits while staying compliant with IRS rules.

The post Understanding Charitable Donations and Tax Deductions: What You Can (and Can’t) Deduct first appeared on Lightheart, Sanders and Associates.

Here’s how we’ll determine if you can itemize or not for 2024 when we prepare your return.

Standard deduction amounts

The basic standard deduction allowances for 2024 are:

1. $14,600 if you’re single or use married filing separate status,
2. $29,200 if you’re married and file jointly, and
3. $21,900 if you’re a head of household.

Additional standard deduction allowances apply if you’re age 65 or older or blind. For 2024, the extra allowances are $1,550 for a married taxpayer age 65 or older or blind and $1,950 for an unmarried taxpayer age 65 or older or blind.

For 2025, the basic standard deduction allowances are $15,000, $30,000 and $22,500, respectively. The additional allowances are $1,600 and $2,000, respectively.

Don’t assume

Suppose you think your total itemizable deductions for 2024 will be close to your standard deduction allowance. In that case, spend some extra time looking at all your expenditures to make sure you’re not missing some itemized deduction items. In other words, don’t reflexively assume you can’t itemize for 2024 just because you didn’t for 2023.

In addition to charitable contributions, consider the following key expenses:

Mortgage interest. Check the 2024 Form 1098 for the exact amount of mortgage interest expense you paid. You can generally deduct interest on up to $750,000 of home acquisition debt that’s secured by your primary residence and one other residence, such as a vacation home. If you use married filing separate status, the limit is $375,000. If you took out a home equity loan and used the proceeds to buy or improve your primary residence or a second residence, that counts as home acquisition debt as long as it doesn’t put you over the $750,000/$375,000 limit.

State and local taxes. Add up the state and local income and property taxes you paid in 2024. If you have a mortgage, property taxes will be shown on the Form 1098 you receive from the lender. The maximum amount you can deduct for all state and local taxes combined is $10,000, or $5,000 if you use married filing separate status.

Instead of deducting state and local income taxes, you can choose to deduct general state and local sales taxes. Making that choice may pay off if you paid nothing or not much for state and local income taxes. You can use one of two methods to quantify your deduction for state and local sales taxes. Assuming you have the necessary records, you can deduct the actual amount of sales taxes you paid in 2024. Alternatively, you can opt to claim a sales tax deduction based on an IRS table. The optional deduction allowance is based on the state where you reside, your filing status, your income and the number of your dependents. If you use the IRS table, you can add actual sales tax amounts for certain big-ticket items to the amount from the table. These items include:

1. Cars, trucks, SUVs and vans,
2. Boats and aircraft,
3. Motorcycles and off-road vehicles,
4. Motor homes, mobile homes or prefab homes, and
5. Materials to build or renovate a home.

Medical expenses. You can deduct qualified medical expenses you paid for 2024 to the extent they exceed 7.5% of your adjusted gross income. If you paid qualified expenses for a dependent relative, such as an elderly parent you support, include those expenses in your total. To deduct a dependent’s expenses, you must pay them yourself. You can’t count expenses that you simply reimburse your dependent person for. Eligible expenses also include qualified long-term care insurance premiums, subject to age-based limits.

Claim all deductions you’re eligible for

Gather all your records, and we’ll run the numbers when we prepare your tax return. Contact us if you have questions or want more information on this or any other tax subject.

© 2025

The post Can I itemize deductions on my tax return? first appeared on Lightheart, Sanders and Associates.

What Are Retained Earnings?

Retained earnings represent the portion of a company’s net income that isn’t paid out as dividends. These funds are vital for a business’s long-term success and growth. Rather than taking on debt or seeking external investments, companies use retained earnings to finance expansion, develop new products, or build a financial cushion. They form an essential part of a company’s equity, playing a crucial role in its overall growth strategy.

How Are Retained Earnings Calculated?

Calculating retained earnings is straightforward, using this formula:

Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividends

Here’s an example:

Beginning Retained Earnings: $100,000

Net Income (Profit): $50,000

Dividends Paid: $20,000

Calculation:

$100,000 (beginning retained earnings) + $50,000 (net income) – $20,000 (dividends) = $130,000 (ending retained earnings)

Why Do Retained Earnings Matter?

Retained earnings provide insight into a company’s ability to grow, manage debt, and weather financial challenges. Here’s why they’re important:

• Funding Growth: Instead of taking on debt or seeking external investments, a company can use retained earnings to fund expansion, R&D, or acquisitions.
• Debt Reduction: Retained earnings can be used to pay off debt, improving financial stability and reducing interest expenses.
• Dividend Flexibility: A strong retained earnings balance allows companies to pay dividends to shareholders in the future, making the business attractive to investors.
• Financial Cushion: They act as a safety net during tough times, helping companies navigate unexpected expenses or economic downturns.
• Investor Confidence: A growing retained earnings balance signals to investors that the company is well-managed, profitable, and poised for continued success.

What Negative Retained Earnings Can Tell You

While positive retained earnings are a strong indicator of profitability and healthy financial management, negative retained earnings can raise red flags. Here are some potential causes:

• Poor Business Performance: If a company isn’t generating enough revenue to cover its costs, it can lead to negative retained earnings.
• Aggressive Growth Strategies: Rapid expansion or heavy reinvestment may result in short-term losses, which can temporarily drive retained earnings into negative territory.
• Dividend Over-Payout: Paying out more dividends than the company can afford can deplete retained earnings.
• Economic or Industry Challenges: External factors like recessions or sector-specific struggles can hurt profitability.
• Over-Reliance on Debt: Using debt, especially lines of credit, to cover operational losses rather than addressing underlying issues can worsen financial health.

The Bottom Line: Navigating Negative Retained Earnings

A negative retained earnings balance isn’t always a bad sign—it depends on the context. A growing company might experience temporary negative retained earnings due to strategic investments or a period of heavy reinvestment. However, if negative retained earnings persist, especially when paired with rising debt, it may signal deeper financial trouble.

If your company is facing this situation, it’s crucial to carefully assess the underlying causes. While reinvesting profits to fuel growth is common, misusing debt or continuously paying high dividends without sufficient profits can lead to a downward financial spiral.

Want to ensure your company is on the right financial path? Contact our team today for expert guidance on managing and interpreting your financials.

The post Decoding Retained Earnings: What Your Profits (or Losses) Reveal first appeared on Lightheart, Sanders and Associates.

The process of calculating rates

The 3-cent increase from the 2024 rate goes along with the recent price of gas. On January 17, 2025, the national average price of a gallon of regular gas was $3.11, compared with $3.08 a year earlier, according to AAA Fuel Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.

Standard rate or real expenses

Businesses can generally deduct the actual expenses attributable to business use of a vehicle. These include gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

When you can’t use the standard rate

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2025 — or claiming 2024 expenses on your 2024 income tax return.

© 2025

The post The standard business mileage rate increased in 2025 first appeared on Lightheart, Sanders and Associates.

What Is a 1099 Form?

A 1099 form is an IRS tax document used to report various types of non-employment income to the IRS. As a business owner, you’ll often use it to report payments made to independent contractors, freelancers, and other non-employee workers for their services.

There are many types of 1099 forms, but the one most relevant to small businesses is the 1099-NEC (Non-Employee Compensation). This form is issued to report payments of $600 or more made to a non-employee during the year. In some cases, you might also use 1099-MISC to report other types of payments like rents, prizes, awards, or legal settlements.

When Are 1099s Required?

As a small business owner, you’ll need to issue a 1099-NEC form if you meet the following criteria:

1. The payment was made to a non-employee: This could be a freelancer, contractor, or anyone who performed work for you but is not classified as an employee.
2. The payment was made in the course of your business: Personal payments do not require a 1099.
3. Payments totaled $600 or more in a year: If you paid $600 or more to a contractor over the course of the year, you’re required to issue a 1099.
4. The payment was made via cash, check, ACH, or similar means: Payments made via credit card or third-party payment processors like PayPal or Venmo generally do not require a 1099. These are reported separately by the payment processor on a 1099-K.

Important Deadlines

• January 31: Send the completed 1099-NEC form to your contractors and file a copy with the IRS. If you miss the deadline, you may be subject to penalties.
• February 28 (or March 31 if filing electronically): This is the filing deadline for other types of 1099 forms, like the 1099-MISC.

Step-by-Step Guide to Filing 1099 Forms

1. Collect W-9 Forms: To make the process easier, request a completed W-9 form from every contractor before you pay them. This form provides the contractor’s name, address, and taxpayer identification number, which are all necessary for filing 1099s.
2. Complete the 1099-NEC Form: Using the information from the contractor’s W-9, fill out the 1099-NEC with:

• • Your business’s name and EIN
  • The contractor’s name, address, and TIN
  • The total amount paid during the year

1. Send the 1099-NEC to the Contractor: By January 31, mail or electronically deliver a copy of the 1099-NEC form to each contractor.
2. Submit the Form to the IRS: You can file the 1099-NEC form either electronically through the IRS FIRE (Filing Information Returns Electronically) system or by mailing a paper copy to the IRS. Filing electronically is generally faster and provides immediate confirmation.

What Are the Penalties for Failing to File?

The IRS imposes penalties for failing to issue or file 1099 forms on time. These penalties can range from $50 to $290 per form, depending on how late you file, with a maximum penalty of over $500,000 for small businesses. To avoid penalties, it’s best to file on time and ensure all information is accurate.

Tips for Managing 1099s for Your Small Business

1. Use Accounting Software: Many accounting software programs offer 1099 tracking and filing tools that can simplify the process.
2. Stay Organized: Keep track of payments made to contractors throughout the year. This will make it easier to identify who needs a 1099 and how much you paid them.
3. Verify Contractor Information: Collect W-9s early and review the information for accuracy. Errors on 1099s can lead to processing delays and potential fines.
4. Consult a Tax Professional: Tax regulations are complex, and a tax professional can help ensure you’re filing accurately and taking advantage of any tax benefits for your business.

Final Thoughts

Filing 1099 forms may seem tedious, but it’s a crucial part of running a compliant business. Staying on top of 1099 requirements not only avoids potential penalties but also helps build strong, professional relationships with contractors and freelancers by showing that you’re handling tax matters responsibly. By understanding these 1099 basics, you can simplify your tax season and keep your business running smoothly.

The post Understanding 1099 Forms for Small Businesses: A Complete Guide first appeared on Lightheart, Sanders and Associates.

As an entrepreneur or small business owner, managing your finances can be overwhelming, but one principle can make a world of difference: separating your personal and business expenses. While it may seem like a minor detail, keeping these accounts distinct is vital to protecting your finances, maintaining legal compliance, and simplifying your bookkeeping. Here’s why separating personal and business expenses should be a top priority and tips on how to do it effectively.

1. Legal Protection (Especially for Limited Liability)

   If you operate as a corporation, LLC, or other limited liability entity, separating personal and business expenses is essential for protecting your personal assets. Mixing your personal funds with business transactions could lead to what’s called “piercing the corporate veil,” where a court decides that your business and personal finances are indistinguishable, exposing you to personal liability. By keeping a clear line between your finances, you strengthen your legal protections.

2. Easier Tax Filing and Audits

   One of the greatest advantages of separating your expenses is simplifying tax season. The IRS (or equivalent tax authorities) requires a clear distinction between personal and business finances, and commingling these expenses could lead to complex filings or even trigger an audit. Having dedicated business accounts ensures that your tax-deductible expenses are easier to track and helps avoid red flags for potential audits.

3. Accurate Financial Health and Insights

   Separating business from personal expenses enables you to accurately assess your company’s financial health. Without a clear breakdown, understanding if your business is profitable or struggling can be difficult. Accurate bookkeeping, which is easier with separate accounts, gives you reliable data on revenue, expenses, and cash flow, empowering you to make informed decisions and better plan for growth.

4. Improved Bookkeeping and Reduced Errors

   Commingling expenses can make bookkeeping messy and increase the chance of mistakes, such as missing deductions or misreporting income. With separate accounts, you streamline your record-keeping, making it easier to keep track of business income, expenses, and liabilities. It also simplifies working with accountants, as there’s a clear distinction between which expenses are personal and which are business-related.

5. Professional Image and Credibility

   If you’re using personal accounts to pay for business transactions, it can appear unprofessional to clients, vendors, and investors. By handling finances through business accounts, you create a sense of legitimacy and credibility. Your business will appear organized and established, which can be especially important when building relationships or seeking financing.

Tips to Keep Personal and Business Expenses Separate

1. Open a Dedicated Business Bank Account

2. Use a Separate Dedicated Business Credit Card

3. Set Up a Consistent Pay Structure for Owners

4. Track Business Mileage Separately for Personal Vehicle Usage

5. Keep a Paper Trail for Every Business Expense

6. Invest in Accounting Software

Summary: Separate Finances, Stronger Business

Keeping personal and business expenses separate is a simple yet crucial practice that protects your assets, simplifies taxes, and promotes financial clarity. By establishing dedicated accounts, implementing clear boundaries, and maintaining accurate records, you set your business up for long-term success and make financial management far less stressful. Start today to build a sustainable, credible, and organized foundation for your business journey.

The post Why Keeping Personal and Business Expenses Separate Is Crucial for Your Success first appeared on Lightheart, Sanders and Associates.

One of the first planning steps is to ascertain whether you’ll take the standard deduction or itemize deductions for 2024. You may not itemize because of the high 2024 standard deduction amounts ($29,200 for joint filers, $14,600 for singles and married couples filing separately, and $21,900 for heads of household). Also, many itemized deductions have been reduced or suspended under current law.

If you do itemize, you can deduct medical expenses that exceed 7.5% of adjusted gross income (AGI), state and local taxes up to $10,000, charitable contributions, and mortgage interest on a restricted amount of debt, but these deductions won’t save taxes unless they’re more than your standard deduction.

The benefits of bunching

You may be able to work around these deduction restrictions by applying a “bunching” strategy to pull or push discretionary medical expenses and charitable contributions into the year where they’ll do some tax good. For example, if you can itemize deductions for this year but not next, you may want to make two years’ worth of charitable contributions this year.

Here are some other ideas to consider:

1. Postpone income until 2025 and accelerate deductions into 2024 if doing so enables you to claim larger tax breaks for 2024 that are phased out over various levels of AGI. These include deductible IRA contributions, the Child Tax Credit, education tax credits and student loan interest deductions. Postponing income also may be desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. However, in some cases, it may pay to accelerate income into 2024 — for example, if you expect to be in a higher tax bracket next year.
2. Contribute as much as you can to your retirement account, such as a 401(k) plan or IRA, which can reduce your taxable income.
3. High-income individuals must be careful of the 3.8% net investment income tax (NIIT) on certain unearned income. The surtax is 3.8% of the lesser of: 1) net investment income (NII), or 2) the excess of modified AGI (MAGI) over a threshold amount. That amount is $250,000 for joint filers or surviving spouses, $125,000 for married individuals filing separately and $200,000 for others. As year end nears, the approach taken to minimize or eliminate the 3.8% surtax depends on your estimated MAGI and NII for the year. Keep in mind that NII doesn’t include distributions from IRAs or most retirement plans.
4. Sell investments that are underperforming to offset gains from other assets.
5. If you’re age 73 or older, take required minimum distributions from retirement accounts to avoid penalties.
6. Spend any remaining money in a tax-advantaged flexible spending account before December 31 because the account may have a “use it or lose it” feature.
7. It could be advantageous to arrange with your employer to defer, until early 2025, a bonus that may be coming your way.
8. If you’re age 70½ or older by the end of 2024, consider making 2024 charitable donations via qualified charitable distributions from a traditional IRA — especially if you don’t itemize deductions. These distributions are made directly to charities from your IRA and the contribution amount isn’t included in your gross income or deductible on your return.
9. Make gifts sheltered by the annual gift tax exclusion before year end. In 2024, the exclusion applies to gifts of up to $18,000 made to each recipient. These transfers may save your family taxes if income-earning property is given to relatives in lower income tax brackets who aren’t subject to the kiddie tax.

These are just some of the year-end strategies that may help reduce your taxes. Reach out to us to tailor a plan that works best for you.

© 2024

The post Make year-end tax planning moves before it’s too late! first appeared on Lightheart, Sanders and Associates.