Category: Tax

Tax Advantages Through Charitable Giving

Posted on by don@mbn.io

June 19, 2025 | by Atherton & Associates, LLP

Charitable Giving – Strategically Supporting the Causes You Care About

June 19, 2025
From the Emily Ryland, CPA, Senior Tax Associate

Charitable giving is a meaningful way to support the causes you care about and when done strategically, it can also offer valuable tax advantages. With thoughtful planning, charitable contributions can reduce your taxable income, help you avoid capital gains taxes, and even satisfy required minimum distributions (RMDs) in retirement. Understanding how charitable contributions affect your tax situation is key to maximizing both your impact and your deductions.

Tax Deductible Contributions

·       Cash donations are deductible up to 60% of your adjusted gross income (AGI).

·       Non-cash donations, like appreciated stocks or real estate, are generally limited to 30% of AGI, with unused amounts eligible to carry forward for up to five years.

  • To deduct charitable contributions on your tax return, you must itemize your deductions using Schedule A.

·       If your total itemized deductions don’t exceed the standard deduction, you may not receive a tax benefit for your donation.

Qualified Charitable Organizations

  • To claim a tax deduction, your donation must go to a qualified charitable organization.
  • Qualified charities include most religious, educational, and medical institutions, as well as recognized public charities and foundations.

Record Keeping

·       For any cash donation over $250, you’ll need a written acknowledgment from the charity.

·       Non-cash donations over $500 require Form 8283, and high-value gifts may require a qualified appraisal.

Qualified Charitable Distributions (QCDs)

·        For individuals aged 70½ or older, Qualified Charitable Distributions (QCDs) from IRAs provide another powerful giving strategy.

·        Taxpayers can transfer up to $100,000 annually directly from their IRA to a qualified charity.

·        These distributions count toward required minimum distributions (RMDs) but are excluded from taxable income.

Strategic Giving Techniques

·        One of the most tax-efficient ways to give is by donating long-term appreciated assets, such as publicly traded stocks, directly to a qualified charity.

·        This allows you to avoid capital gains taxes while still receiving a deduction for the asset’s full fair market value.

·        Other strategic giving techniques, such as bunching multiple years’ donations to exceed the standard deduction or contributing through a donor-advised fund (DAF) can further enhance tax efficiency.

Action Item

With careful structuring, donors can optimize deductions, reduce taxable income, and maximize the impact of their contributions. Please consult your tax advisor to ensure your 2025 giving strategy aligns with your financial goals.



 

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Retirement Planning and Considerations

Posted on by don@mbn.io

June 12, 2025 | by Atherton & Associates, LLP

Retirement Savings Tools 

June 12, 2025
From the Office of Colton Cummings, Tax Associate

When thinking about retirement, it’s never too early (or too late) to start utilizing the many tools out there to build wealth while maximizing tax savings. While having money in a savings account may generate some interest year over year, there are much more beneficial retirement savings tools available that some may not be aware of.

Health Savings Account (HSA)

  • A Health Savings Account (HSA) is a tax-advantaged savings account that allows individuals to set aside money for qualified medical expenses.
  • This tool can be used not only to generate earnings on contributions made over time, but also to cover qualified medical expenses such as doctor visits, medications, hospital stays, and medical equipment to name a few.
  • Contributions reduce your taxable income, and if distributions are used to cover medical expenses, then these distributions are tax-exempt as well.
  • While there are no income limits, there are contribution limits, and to qualify, you must be covered under a high-deductible health plan (HDHP).

Individual Retirement Accounts – Roth IRAs

  • After Tax Contributions: You contribute after-tax money that you’ve already paid taxes on.
  • Tax-Free Growth: Your investments inside the Roth IRA grow tax-free.
  • Tax-Free Withdrawals: Qualified withdrawals in retirement are tax-free and penalty-free once you reach age 59 ½ and the account has been open for at least five years.
  • Withdraw Contributions Anytime: You can withdraw your contributions at any time, tax-free and without penalty.
  • No Required Minimum Distributions (RMDs): Unlike Traditional IRAs, there are no required minimum distributions from a Roth IRA.
  • Roth IRAs are most effective if you believe that you will have higher income and be placed in a higher tax bracket closer to retirement.

Individual Retirement Accounts – Traditional IRAs

  • Tax Deductible Contributions: Contributions to a Traditional IRA are deductible from your taxable income, potentially reducing your current tax liability.
  • Taxable Withdrawals: A Traditional IRA will grow on a tax-deferred basis and when you withdraw money in retirement, it is taxed as ordinary income.
  • No Income Limits for Opening: Unlike a Roth IRA, there are generally no income limits to opening and contributing to a Traditional IRA.
  • Required Minimum Distributions (RMDs): Generally, you are required to start taking withdrawals from a Traditional IRA at age 73.
  • The Traditional IRA is most effective if you think you will be in a lower tax bracket heading into retirement compared to your current tax bracket.

Action Item
Health Savings Accounts and Individual Retirement Accounts (IRAs) can be beneficial retirement savings tools. Consult your tax advisor to discuss how these accounts could benefit you.    

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Tax Structuring: Choosing the Right Entity Structure for Your Business

Posted on by don@mbn.io

June 05, 2025 | by Atherton & Associates, LLP

Tax Structuring: Entity Choices

June 5, 2025
From the Office of Rodney Prasad, Tax Associate

Choosing the right entity structure for your business is a crucial step in tax planning, as it directly impacts your tax liability, legal obligations, and overall financial success. Here is an overview of common business structures and their tax implications:

Sole Proprietorship:

  • Structure: Owned and operated by a single individual.
  • Taxation: The business is not taxed separately; profits and losses are reported on the owner’s personal tax return (Schedule C).
  • Tax Implications:
    • Pros: Simple and inexpensive to set up, minimal reporting requirements, no corporate business taxes.
    • Cons: Unlimited personal liability (owner is personally responsible for business debts and obligations), difficulty in obtaining business financing, no perpetual existence.
    • Self-Employment Tax: Sole proprietors pay self-employment tax (Social Security and Medicare taxes) on their net earnings.

Partnership

  • Structure: Owned and operated by two or more individuals.
  • Taxation: Partnerships are “pass-through” entities where partners report their share of profits and losses on their individual tax returns.
  • Tax Implications:
    • Pros: Partnerships offer pass-through taxation and are relatively easy to set up.
    • Cons: General partners have unlimited personal liability, and a partnership agreement is required.
    • Self-Employment Tax: General partners are also subject to self-employment taxes.

Limited Liability Company (LLC)

  • Structure: A hybrid structure.
  • Taxation: LLCs can choose their tax structure. By default, they are taxed as sole proprietorships or partnerships but can elect to be taxed as corporations.
  • Tax Implications:
    • Pros: LLCs provide limited personal liability and flexible management and tax structures, while avoiding corporate business taxes (unless elected as a C Corporation).
    • Cons: They are not federally recognized and may not be recognized outside of the U.S.
    • Self-Employment Tax: Members generally pay self-employment tax on their share of income.

C Corporation

  • Structure: A separate legal entity from its owners.
  • Taxation: C Corporations pay corporate income tax, and dividends are taxed again at the individual level (double taxation).
  • Tax Implications:
    • Pros: C Corporations offer strong liability protection, have no limit on the number of shareholders, are preferred for raising capital, and have perpetual existence. 
    • Cons: They face double taxation and are more complex and expensive to maintain. 

S Corporation

  • Structure: A type of corporation that avoids the double taxation of a C Corporation.
  • Taxation: S Corporations are “pass-through” entities, passing profits and losses to owners’ personal income.
  • Tax Implications:
    • Pros: S Corporations provide limited liability, pass-through taxation, perpetual existence, and avoid corporate  business taxes.
    • Cons: They have restrictions on the number and type of shareholders and stricter qualification standards.

Action Item
When deciding which to choose from, it is important to look at tax obligations and the advantages and disadvantages of each business form. Please reach out to your tax advisor to discuss which business entity would be the best fit for you. 

 

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Key Tariff Strategies for Future-Proofing Your Business

Posted on by don@mbn.io

May 28, 2025 | by Atherton & Associates, LLP

The global trade environment has become increasingly complex due to recent announcements of universal tariff increases and heightened reciprocal rates for certain countries. While the media often highlights the political angles of these changes, businesses must take practical steps to avoid costly pitfalls. Tariffs can alter operating costs, disrupt supply chains, and affect pricing strategies—regardless of a company’s size or industry. Building a proactive plan to address these challenges can make all the difference in maintaining profitability and future-proofing your business.

This article explores what tariffs mean, why they matter, and how you can respond with a forward-looking mindset. By implementing the right strategies today, you can boost your resilience against shifting trade policies in the years to come.

Understanding Tariffs and Their Scope

Tariffs are government-imposed taxes on imported goods. When U.S. businesses import items from overseas—whether raw materials, components, or finished products—they typically pay these taxes at the point of entry. The specific rates vary depending on how a product is classified, its country of origin, and the overall trade climate. Some tariffs are calculated as a percentage of the product’s value (an ad valorem tariff), while others are a fixed fee per unit (a specific tariff).

In the United States, tariffs are not administered by the Internal Revenue Service or the Treasury Department. Rather, they fall under the Department of Homeland Security’s Customs and Border Protection. Its role includes collecting duties, enforcing compliance with customs regulations, and responding to evolving trade policies. Governments impose tariffs for multiple reasons, including generating revenue, protecting domestic industries, and regulating imported goods.

The Impact of Tariffs on Businesses

Although large multinational corporations are often in the spotlight, the scope of tariff impact extends to businesses of all sizes. A company’s reliance on imports, existing contractual obligations, and market dynamics can determine how hard these tax changes hit. There are several key areas of concern:

Supply Chain Challenges. Tariffs can make originally cost-effective supply chains suddenly more expensive. If your business depends on overseas producers, shifting trade rules may leave you scrambling for domestic or alternative international sources. This uncertainty can throw off inventory management, especially if certain products are subject to steep import taxes.

Pricing Adjustments. Higher costs from tariffs might compel you to adjust your pricing strategy. Businesses must decide whether to absorb the added expense—risking margins—or pass it on to customers. Small and medium-sized enterprises in particular may find it difficult to shoulder these added costs, so a carefully crafted approach to raising prices can help preserve customer goodwill.

Financial Reporting Implications. When you’re recalculating cost of goods sold, tariff expenses cannot be overlooked. Accurately attributing these additional fees to your product costs is vital for precise financial reporting and to maintain a realistic picture of profit margins. If your business is publicly traded, transparent reporting on the implications of tariffs is often expected by stakeholders.

Special Considerations for Small Businesses. Smaller companies may feel a disproportionate impact because they often operate on narrower profit margins. Moreover, many small businesses rely on strong, enduring relationships with overseas suppliers, which can be costly to shift or rebuild elsewhere. For certain organizations, adjusting product lines or seeking new supply channels may be necessary to sustain operations in the face of changing tariffs.

Key Strategies for Future-Proofing Against Tariffs

Though trade policies can change quickly, there are several approaches that businesses can adopt to navigate uncertainty and remain resilient. By implementing these strategies, you position your organization to adapt as conditions evolve:

1. Review and Update Existing Contracts and Agreements. Take a fresh look at your current supplier and vendor contracts. Some agreements include provisions that address sudden shifts in tariffs, allowing for renegotiation or flexibility in purchase commitments. You might find “force majeure” clauses or language specific to tariff escalation. Checking these details early can provide a roadmap for making adjustments without facing heavy penalties.

2. Assess Alternative Sourcing and Supply Chain Diversification. If tariffs substantially increase costs, investigate options in lower-tariff jurisdictions or even domestic alternatives. Although moving production or finding new suppliers can be disruptive, in some cases it may be more cost-effective in the long run. Even for businesses that remain dependent on certain imports, diversifying the supply chain to include multiple sources reduces vulnerability to tariff hikes in any one region.

3. Cost Management and Pricing Strategy. Calculating the overall financial impact of tariffs can help guide your decisions on product pricing. Some companies opt for transparent “tariff surcharges” so customers and partners understand these added costs arise from external factors. Striking the right balance between profitability and customer loyalty can be challenging, but a phased or clearly labeled price adjustment can make it more palatable.

4. Leverage Duty Exemptions and Relief Programs. You might qualify for exemptions under trade agreements such as the USMCA if your imports meet specific origin criteria. Duty drawback programs can also offer a rebate if you import goods but subsequently export them. Additionally, operating within a Foreign Trade Zone (FTZ) may allow you to defer or reduce some of your duties until the goods leave the zone. Staying informed about legislative updates and special exemption windows can result in significant savings.

5. Implement Robust Scenario Planning and Compliance Tools. Technology can be a powerful ally in uncertain times. By using predictive analytics or supply chain management software, you can model multiple tariff scenarios and evaluate where costs might spike. This ensures you’re ready to pivot quickly if conditions worsen. The right software can also aid in compliance, reducing the risk of fines for misclassifying products under the Harmonized Tariff Schedule.

6. Seek Expert Guidance. Tariff regulations are highly nuanced, with shifting deadlines and complex definitions. Enlisting a professional who understands international tax policies, supply chain logistics, and customs regulations can be invaluable. An expert may identify hidden cost-saving measures or clarify potential liabilities you hadn’t considered. Act early, before new rules or deadlines take effect, to avoid last-minute scrambling.

Securing Strength Amid Trade Shifts

From increased costs and inventory disruptions to the financial complexities of assigning tariff-related expenses, tariff regulations create pressure points across the entire business landscape. The most resilient organizations are those that move now, assessing vulnerabilities, rewriting contracts, and diversifying their sourcing setups. Thoughtful planning—backed by professional expertise—can turn tariff upheavals into opportunities for renewed efficiency and stronger partnerships.

Acting with a sense of urgency could be the difference between sinking or swimming in our new tariff trade environment. With the right strategies in place and expert advice at your side, you can protect your bottom line and secure success amid ongoing changes in tariff policy.

 

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Client Alert: Major Federal Tax Reform Heads to Senate

Posted on by don@mbn.io

May 27, 2025 | by Atherton & Associates, LLP

Client Alert
House Passes ‘One Big Beautiful Bill’: Key Tax Provisions and Next Steps

May 27, 2025
From the Office of Jackie Howell, CPA, Tax Partner

On May 22, 2025, the U.S. House of Representatives narrowly passed the “One Big Beautiful Bill,” a comprehensive tax and spending package championed by President Trump. The bill now advances to the Senate, where further deliberations are anticipated.

Highlights for Individual Taxpayers

  • Permanent Extension of 2017 Tax Cuts: Permanently adopts the modified federal income tax brackets and reduced rates established by the TCJA, with an inflation adjustment for all brackets except the top 37% bracket.

  • Enhanced Standard Deduction: Makes the expanded TCJA standard deduction permanent, temporarily boosting the standard deduction by $2,000 for joint filers, $1,500 for head of household, and $1,000 for all other taxpayers from 2025 through the end of 2028.

  • Child Tax Credit: Increases and adjusts the credit for inflation, benefiting over 40 million families. From 2025 to 2028, the maximum credit temporarily increases to $2,500.

  • Tax Exemptions: Eliminates federal income tax on tips, overtime pay, and car loan interest for vehicles assembled in the U.S.

Key Business Provisions

  • Qualified Business Income (QBI) Deduction: Increases the deduction to 23% for pass-through entities.

  • Interest Expense Limitation: Increases the cap on business interest deductibility by allowing depreciation, amortization, and depletion to be excluded from adjusted taxable income, effective from 2025 to 2029.

  • Bonus Depreciation: Restores 100% bonus depreciation for qualified property acquired from 2025 through 2029.

  • Research and Development: Allows immediate expensing of domestic R&D costs from 2025 through 2029.

  • Excess Business Loss Limitation: Permanently extends the limitation on excess business losses for noncorporate taxpayers, allowing any unused losses to carry forward to the subsequent year. However, the losses will be taken into account in the computation of the excess business loss for that subsequent year.

Additional Measures

  • SALT Deduction Cap: Permanently raises the state and local tax (SALT) deduction cap to $40,000 with a phased reduction beginning at $250,000 for single filers and $500,000 for joint filers.

  • Senior Deduction: Adds a $4,000 deduction for seniors (65+) from 2025 to 2028, with income caps of $75,000 (single) and $150,000 (joint).

  • Border Security and Defense: Allocates significant funding for border enforcement and national defense initiatives.

  • Social Program Adjustments: Implements stricter work requirements for Medicaid and reduces funding for certain programs.

  • Estate and Gift Tax: Permanently raises the exemption to $15 million, adjusted for inflation.

Fiscal Considerations
The Congressional Budget Office estimates the bill will increase the federal deficit by $3.8 trillion over the next decade. Market reactions have included concerns over rising Treasury yields and potential impacts on the bond market.

Next Steps
The Senate will now consider the bill, with debates expected on various provisions, including the AI regulation moratorium and social program adjustments. Revisions are likely before any final enactment.

Action Items
If the bills passes in the Senate, taxpayers and business owners should consult with their tax advisors to assess how these proposed changes may impact their financial planning and tax strategies.

This alert is for informational purposes only and does not constitute tax or legal advice. Please consult your CPA or tax advisor for personalized guidance.

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What you need to know before applying for an SBA loan

Posted on by don@mbn.io

May 14, 2025 | by Atherton & Associates, LLP

For many entrepreneurs, an SBA loan is the gateway to launching or acquiring a business—but it’s not as simple as filling out an application. From choosing the right loan type to preparing a lender-ready financial package, success hinges on preparation and financial clarity.

Whether you’re purchasing an existing business or launching a new venture, knowing what to expect can mean the difference between approval and costly delays.

Understanding SBA loan options

The SBA doesn’t lend directly. Instead, it guarantees loans issued by private lenders—such as banks, credit unions, and nonprofit intermediaries—to reduce risk and increase access to capital. Because loans are delivered through these private institutions, terms, underwriting practices, and processing times can vary depending on the lender, the borrower, and the specific loan structure.

What follows is a general overview of some of the most common SBA loan programs. This isn’t an exhaustive list, and it’s important to note that eligibility or documentation requirements may vary depending on your lender or use of funds. All SBA terms and programs are subject to change. Always check with the SBA or your lender for the latest requirements.

Before evaluating which SBA loan might be right for you, make sure your business meets the core eligibility criteria that apply across most SBA loan programs.

  • Size standards: Your business must qualify as a “small business” based on your industry classification under the North American Industry Classification System (NAICS). The SBA uses your six-digit NAICS code to determine size limits, either by annual revenue or employee count.
  • Business structure: Your business must be organized for profit and operate in the U.S. or its territories. Nonprofits, certain passive real estate investors, and businesses engaged in illegal activity (even if legal under state law) are ineligible. Franchises and affiliated entities may be eligible but must meet SBA affiliation rules and, in some cases, receive SBA approval.
  • Credit elsewhere: SBA applicants must show they are unable to obtain credit on reasonable terms without the SBA guarantee. This does not require a formal loan denial, but lenders must certify that comparable financing is not otherwise available under conventional terms.
  • Repayment ability: Applicants must demonstrate they can repay the loan through business cash flow, have a sound purpose for the loan, and are willing to submit personal and business credit histories—even if the business is newly acquired or recently formed.

With these foundational requirements met, the next step is identifying which SBA loan program aligns with your goals.

SBA 7(a) loans

The SBA 7(a) loan program is the most popular and versatile, used for purposes including business acquisitions, working capital, equipment purchases, debt refinancing, and real estate (when it’s a secondary purpose).

There are several subtypes within the 7(a) umbrella:

Standard 7(a)

The standard 7(a) loan can fund up to $5 million. It’s frequently used for business acquisitions, where borrowers are typically required to provide a 10% equity injection, though lenders may require more depending on experience, risk profile, or collateral.

Lenders are generally required to secure loans over $25,000 in accordance with their internal policies, and loans above $350,000 must be collateralized to the maximum extent possible, though a lack of collateral is not an automatic disqualifier.

Loan terms can extend up to 10 years for working capital or equipment and up to 25 years for real estate components.

The SBA guarantees 85% of the loan amount for loans up to $150,000 and 75% for loans above that. This guarantee protects the lender—not the borrower—but makes financing more accessible.

7(a) small loan

The SBA 7(a) Small Loan program offers financing up to $500,000, with a more automated underwriting process. It’s well-suited for smaller expansions, working capital infusions, or modest acquisitions. While structurally similar to the standard 7(a), it features reduced documentation and faster processing.

SBA express loans

SBA express loans are also capped at $500,000 but offer expedited decisions. The SBA provides a response to the lender within 36 hours, which can speed up – but not guarantee – faster funding decisions. These loans are often used for short-term working capital, equipment purchases, or revolving lines of credit, which can have terms of up to 10 years. The trade-off is that the SBA guarantees only 50% of the loan, which may result in more conservative underwriting or higher interest rates.

SBA 504 Loans

If you’re purchasing real estate or major equipment, an SBA 504 loan may offer more favorable terms than a 7(a). This loan is structured in three parts: a private lender covers 50%, a Certified Development Company (CDC) provides 40%, and the borrower contributes 10%. For startups or special-use properties (e.g., hotels, gas stations), the borrower’s contribution may increase to 15–20%.

504 loans can only be used for fixed asset investments—such as buying or renovating owner-occupied real estate or purchasing long-life equipment. They cannot be used for working capital, inventory, or debt refinancing. Terms are typically 10, 20, or 25 years, with fixed interest rates on the CDC portion.

To qualify, the borrower must occupy at least 51% of an existing building (or 60% of a new construction project), with plans to occupy 80% over time. Passive real estate investment is not allowed.

SBA Microloans

The SBA Microloan program is designed for startups and very small businesses that may not qualify for larger financing. Loans are capped at $50,000, with the average loan amount around $15,000. They are administered by nonprofit, community-based lenders that receive SBA funding and set their own underwriting criteria. These lenders often serve specific regions or business populations.

Funds can be used for working capital, inventory, equipment, or basic startup expenses—but not for real estate purchases or refinancing. Terms are up to six years, and most lenders require a personal guarantee, some collateral, and a detailed plan for use of funds. Because underwriting is handled locally, requirements may vary between intermediaries.

Can you combine or layer SBA loan types?

In some cases, combining SBA loan types can be a strategic way to match your financing structure to your business goals – particularly if you’re acquiring both a business and the real estate it occupies. However, some lenders may not be willing or able to process concurrent SBA loans, so early coordination is crucial.

For example, if your project totals $2.8 million, with $1.8 million for real estate and $1 million for the business acquisition and working capital, you might use a 504 loan for the property and a 7(a) loan for the business. This allows you to leverage the long-term, fixed-rate terms of the 504 loan for the real estate and the flexibility of the 7(a) loan for inventory, goodwill, and staff-related costs.

Collateral is typically aligned with the loan structure—real estate secures the 504 loan, while business assets and a personal guarantee secure the 7(a).

Keep in mind that combining loans increases the importance of repayment capacity. Lenders will assess your Debt Service Coverage Ratio (DSCR), and a minimum of 1.25 is generally required—meaning the business should generate 25% more in annual cash flow than its combined loan payments.

Also, the total SBA 7(a) loan amount is capped at $5 million. The SBA guarantee can cover up to 75-85% of that, meaning the maximum guaranteed portion is $3.75 million for larger loans.

Key documentation lenders expect

Applying for an SBA loan requires a thorough, well-organized financial package. Here’s what lenders will typically request:

  • A well-crafted business plan – lenders want to understand how your business will operate, make money, and why it’s positioned for long-term success.
  • Tax returns – typically three years of personal and business tax returns.
  • Personal Financial Statement (SBA Form 413) – this document lists all of your assets, liabilities, income, and obligations. It’s typically required for all owners with 20% or more equity.
  • Business Financial Statements – for acquisitions of existing businesses, expect to provide the last three years of profit and loss statements, balance sheets, and cash flow statements. Lenders will generally look for a DSCR of 1.25 or higher.
  • A Current Debt Schedule – a breakdown of all outstanding business debts, including payment amounts, terms, and remaining balances.
  • Loan Application Form (SBA Form 1919) – covers basic information about your ownership structure, affiliates, existing debt, and legal history. This is also generally required for all owners with 20% or more equity.

If you’re buying an existing business, lenders may also request a copy of your purchase agreement or letter of intent, a formal valuation or appraisal, and historical financials and tax returns from the seller.

Due diligence matters

One of the most common reasons SBA loan applications stall—or fail altogether—is incomplete, inconsistent, or poorly prepared documentation. Many borrowers underestimate just how rigorous the review process can be.

A CPA can help structure your loan package in a way that speaks directly to lender expectations. For example, a Quality of Earnings (QoE) review can help confirm that a business’s reported earnings are not only accurate but also sustainable.

Similarly, cash flow projections are critical—especially for startups or businesses undergoing a transition. Lenders typically want to see 12 to 24 months of forecasts that are grounded in realistic assumptions.

And pre-due diligence reviews can uncover financial risks that might otherwise derail a deal. Whether it’s inconsistencies in seller financials, unexplained liabilities, or customer concentration issues, identifying these risks early gives borrowers the opportunity to renegotiate deal terms—or walk away from a transaction that may not be as solid as it seems.

Preparation is a strategy

An SBA loan isn’t just a form to fill out—it’s a comprehensive process that rewards preparation, transparency, and credibility. A CPA can help anticipate lender concerns, ensure you have the right documentation, and increase your chances for funding success.

If you’re planning to start or buy a business, don’t wait until after your loan application is submitted to get expert support. Reach out for more personalized guidance.

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1031 Exchanges: what qualifies and where investors get tripped up

Posted on by don@mbn.io

April 01, 2025 | by Atherton & Associates, LLP

If you’re thinking about selling investment real estate, you’ve probably heard someone say, “Just do a 1031 exchange—you won’t pay any tax.” That’s partially accurate but also an oversimplification.

The IRS does allow you to defer capital gains taxes on the sale of certain property, but the rules around Section 1031 exchanges are a bit more nuanced than most people realize. And getting it wrong—especially on what qualifies—can result in unexpected tax liability.

What is a 1031 exchange?

In short, a 1031 exchange lets you sell one piece of investment or business-use real estate and defer the capital gains taxes by rolling the proceeds into another qualifying property. It’s named after Section 1031 of the Internal Revenue Code, and it’s been around in some form for over 100 years.

The key concept here is “like-kind.” You’re exchanging one like-kind property for another.

Importantly, the IRS requires that a third-party intermediary facilitate the exchange process. This entity is called a qualified intermediary (QI), and it plays a role in nearly all exchanges.

What types of property qualify?

Under current law, only real property qualifies for a 1031 exchange. That’s a change from pre-2018 rules—before then, certain personal property (like equipment or aircraft) could be exchanged, too. The Tax Cuts and Jobs Act (TCJA) narrowed it to real estate only (IRC §1031(a)(1)).

Now, eligible real property can include:

  • Commercial buildings
  • Rental properties (residential or mixed-use)
  • Raw land
  • Industrial facilities
  • Retail centers
  • Oil, gas, and mineral interests, in certain circumstances

Even long-term leasehold interests (typically 30 years or more) may qualify in some cases.

It’s also worth noting: the properties don’t have to be the same type. You can exchange raw land for an apartment complex or a strip mall for a warehouse. As long as both are held for investment or business use, the IRS generally treats them as like-kind (Treas. Reg. §1.1031(a)-1(b)).

What doesn’t qualify?

Several categories of property are ineligible for 1031 treatment. These include:

  • Property held primarily for resale (think fix-and-flip properties or land held for development and quick turnover)
  • Primary residences
  • Second homes or vacation homes, unless they meet strict rental and use requirements
  • Foreign property (U.S. property must be exchanged for U.S. property only)

Additionally, personal-use items such as vehicles, equipment, or artwork are excluded from eligibility under the current rules, regardless of how they are used in a business context.

Vacation rentals: a common gray area

Vacation homes used for both rental and personal purposes can fall into a gray area. The IRS has provided a safe harbor under Revenue Procedure 2008-16 that allows some vacation rentals to qualify, but strict requirements apply:

  • The property must be rented for at least 14 days per year;
  • Personal use must be limited to 14 days or 10% of the rental days, whichever is greater;
  • The taxpayer must meet these criteria for at least two years before and after the exchange.

If these thresholds aren’t met, the property is unlikely to qualify under 1031 rules.

Timing rules

Even if your properties qualify, the timeline rules are strict:

  • You have 45 days from the sale of your relinquished property to identify a replacement property.
  • You have 180 days to close on the replacement.

And yes, these timelines run concurrently. Day 180 doesn’t reset after Day 45—it’s all from the date of the first sale.

If either deadline is missed, the exchange fails, and the gain becomes taxable.

Intent matters

Although not explicitly stated in the statute, intent is a critical factor. The IRS and courts often evaluate whether the property was truly acquired for investment or business use.

For instance, if a taxpayer acquires a replacement property and sells it within a few months, the IRS may challenge the exchange based on a lack of investment intent. Similarly, attempting to exchange into a personal residence may raise concerns unless the property is held as a rental for a significant period first.

There’s no statutory holding period, but retaining the replacement property for at least one year is generally considered a prudent guideline.

The role of the qualified intermediary

Many taxpayers are surprised to learn that they cannot take direct possession of the sale proceeds in a 1031 exchange—not even temporarily. If you receive the funds, even for a day, the IRS considers the exchange invalid, and the gain becomes taxable.

That’s where the qualified intermediary comes in.

A QI—sometimes referred to as an exchange accommodator or facilitator—holds the proceeds from the sale of your relinquished property in escrow until they are used to purchase the replacement property. The QI may also prepare the necessary exchange documentation, ensure compliance with IRS regulations, and help manage the strict timeline requirements.

Why is a QI necessary?

Because IRS rules explicitly prohibit the taxpayer from having constructive receipt of the funds. Even if you never deposit the check, routing the proceeds through your own attorney or escrow agent can disqualify the exchange if not structured properly.

Clients often ask why this intermediary is necessary and why it comes with an out-of-pocket cost. The reality is that the QI is not just a formality—it’s a critical safeguard in keeping the exchange compliant. While fees vary, the cost is generally modest relative to the tax deferral benefit.

Advanced exchange options

Sometimes, your situation just doesn’t line up neatly with the typical 1031 exchange timeline or structure. Fortunately, there are more flexible options—but they come with extra complexity.

Reverse exchanges: buy first, sell later

In a standard exchange, the relinquished property is sold first. But what happens if you identify the ideal replacement property before you’ve finalized the sale?

That’s where a reverse exchange becomes useful. In this structure, a qualified intermediary—through an Exchange Accommodation Titleholder (EAT)—temporarily holds title to either the relinquished or replacement property during the transaction.

The 45-day and 180-day deadlines still apply, but in reverse sequence. This allows more flexibility in timing, but adds cost and complexity. Financing can also be more challenging, since the EAT holds legal title to the property during part of the exchange process.

Still, it’s a valuable tool when market timing doesn’t cooperate.

Build-to-suit exchanges: customize your replacement property

If the replacement property requires significant renovation—or if you intend to build on undeveloped land—you might consider a build-to-suit exchange, also known as an improvement exchange.

This structure allows exchange proceeds to be used for construction or renovation before the taxpayer takes legal title. Again, the intermediary (via an EAT) holds title during the build-out phase.

However, all improvements must be completed within the 180-day exchange window, and ownership must be formally transferred to the taxpayer within that period. If improvements are incomplete, only the value of what’s been completed by day 180 can be counted toward deferral.

These exchanges take careful planning and close coordination between your CPA, your intermediary, and your builder.

Laddering exchanges: long-term planning for real estate investors

Many experienced investors use laddering as a long-term strategy. Essentially, you start with one property, exchange into a larger or better-performing one, then do it again. And again. Each time, you defer the gain and build more equity.

Eventually, you may decide to cash out and recognize the gain (hopefully in a lower-tax year). Or, you may hold the final property until death—in which case your heirs get a step-up in basis, and the deferred gain essentially disappears.

It’s a long-game strategy, but it’s one that many successful investors use to build wealth and reduce taxes along the way.

A 1031 exchange can be a powerful tax strategy—if you get the details right

A well-structured exchange can preserve capital and open the door to better investment opportunities. But it’s not a DIY strategy. The rules around property type, timing, and use all require careful execution.

If you’re considering a sale or contemplating a new investment, we strongly recommend discussing your options with a tax advisor early in the process. We can help you weigh your options, identify potential roadblocks, and structure the exchange in a way that actually works.

For personalized guidance, please contact our office.

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FinCEN’s new BOI filing deadline: Implications for small businesses

Posted on by don@mbn.io

February 26, 2025 | by Atherton & Associates, LLP

Small business owners tracking their compliance obligations now have a new date to mark on their calendars: the Financial Crimes Enforcement Network (FinCEN) has announced March 21 as the revised deadline for most entities that must file Beneficial Ownership Information (BOI) reports under the Corporate Transparency Act (CTA). This announcement follows a series of legal challenges that briefly halted the filing requirement, only for the courts to lift the injunctions and revive the law. Below is a detailed overview of how the CTA and its BOI reporting rules affect small businesses, along with steps to prepare for compliance.

Understanding the Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI)

The Corporate Transparency Act was passed to bolster anti-money-laundering measures in the United States by collecting specific information about the real people who ultimately own or control certain small businesses. Although large entities usually have existing disclosure obligations, the CTA extends these requirements to smaller corporations, limited liability companies (LLCs), and similar structures. The goal is to prevent criminal actors from hiding their financial dealings behind corporate veils. However, small businesses find themselves at the heart of the CTA’s mandates, often due to limited awareness or resources to keep up with new federal filing obligations.

Under the CTA’s rules, these businesses must submit Beneficial Ownership Information directly to FinCEN, disclosing details about each beneficial owner. The CTA aims to make it more difficult for criminals to exploit shell companies, but it also places an administrative burden on many small businesses that have never before faced such federal disclosure requirements. Meanwhile, ongoing legal and legislative developments continue to shape the CTA’s enforcement timeline.

Recent Legal Developments and the New Filing Deadline

Background on Delays and Injunctions

The path to the current March 21 filing deadline was anything but straightforward. After the CTA became law, FinCEN initially set filing obligations to begin in early 2025 for most existing small businesses. However, in the wake of legal challenges filed in federal courts, injunctions paused the collection of BOI. The central argument in these lawsuits revolved around the reach of federal authority over small businesses, as well as concerns about potential privacy violations.

For a period, these injunctions meant that intended deadlines—such as January 13—were no longer in effect and businesses remained in limbo. The legal situation changed dramatically when courts lifted these injunctions, most recently through a case that granted a stay of a nationwide block on the CTA’s BOI reporting requirements. As soon as that final injunction was lifted, FinCEN reestablished a compliance window for BOI filings and pushed the overarching deadline to March 21. This new date applies to businesses that originally needed to file by early 2025 but were affected by the litigation delays. For entities created or registered on or after February 18, 2025, they must file their BOI report within 30 days of formation or registration.

Exceptions & Later Deadlines

Although March 21 applies broadly to the majority of small businesses, some entities have different timelines. If a company had already received a filing extension because of disaster relief or other circumstances, that later deadline remains valid. Businesses, for example, with an April 2025 extension should keep their previously assigned due date. Likewise, FinCEN has signaled it may further revise the deadlines if it determines that businesses need more time or if compliance can be prioritized towards higher-risk scenarios. Over the next 30 days, FinCEN will assess how to handle specific categories of small businesses that it believes pose lower short-term security risks.

Which Businesses Must File

Defining “Reporting Companies”

The CTA casts a wide net to cover most U.S.-based corporations, limited liability companies, and other similar entities formed by filing paperwork with a state authority. Many of these entities have fewer than 20 employees and might have minimal financial activity. Nonetheless, the law presumes these small businesses are potential vehicles for illicit financial activity if their ownership structures are not transparent.

There are exceptions. Sole proprietorships and general partnerships that have not registered with a state typically do not need to file, as they are not formed through the same formal processes as corporations or LLCs. Additionally, certain larger or more heavily regulated entities, such as publicly traded companies, generally already have robust disclosure frameworks and are outside the CTA’s BOI requirements.

Required Information

Reporting companies must disclose identification details for each “beneficial owner.” A beneficial owner is any individual who exercises substantial control or owns at least 25% of the business. The submitted information typically includes the individual’s full legal name, date of birth, current residential or business address, and a unique identifier (such as a passport or driver’s license number).

Additionally, for new entities formed on or after January 1, 2024, the CTA introduces the concept of “company applicants.” These are individuals directly responsible for filing the formation documents with a state, such as articles of incorporation. This provision expands the scope of required disclosures beyond just owners, aiming to identify those who set up new legal entities.

Steps Small Businesses Should Take Now

Gathering Documentation

Because the CTA calls for specific personal details, small business owners should begin by identifying all individuals who qualify as beneficial owners and confirming the accuracy of their information. Businesses that have multiple owners across various locations may find it takes time to collect the necessary residential or business addresses, dates of birth, and identifying document numbers. Having this data in one secure repository can streamline the filing process and reduce the chance of errors.

Even if there is a possibility that the filing deadline might shift, it’s wise to secure the documents well in advance. Proper planning will also help you recognize if your business structure creates any ambiguity regarding who holds “substantial control.” The sooner those questions are clarified, the easier it will be to submit correct information in case FinCEN issues any new guidance before March 21.

Filing the BOI Report

FinCEN provides an online system at BOIefiling.FinCEN.gov for submitting the required information. The agency does not impose any filing fee on businesses that choose to file directly through this platform, although some third-party service providers charge fees for assistance or on behalf of their clients. Businesses should be aware that they can handle the process themselves at no additional cost, especially if they have a straightforward ownership structure.

With the new March 21 deadline in mind, small business owners should file promptly once they have verified all details. For those that have obtained an extension beyond March, continue to observe the specific later filing date. Keep in mind that FinCEN has set a 30-day window in which it may further adjust deadlines. If you have formed a new entity but have yet to file, clarify whether you fall into any special categories that might extend your reporting date.

Potential Consequences of Non-Compliance

The CTA enforces its rules with considerable penalties designed to encourage timely, accurate reporting. Willfully failing to file a BOI report or submitting false information can lead to a fine of ~$606 per day, up to a maximum of $10,000, and the possibility of up to two years in prison.

Moreover, disclosing or using beneficial ownership information without proper authorization carries similarly severe punishments. FinCEN’s aim is to tighten anti-money-laundering compliance, and the agency has signaled an increased focus on ensuring that small entities do not slip through the cracks. Even if your business appears low-key with minimal revenue, you should not assume the CTA will overlook it. The high stakes highlight the importance of understanding the requirements and submitting information accurately and on time.

Upcoming Changes and Possible Relief

FinCEN’s Plans to Amend Reporting Rules

Although FinCEN is currently expecting businesses to meet the March 21 deadline (or a later extension date if granted), it has committed to reviewing its procedures within a 30-day window. One element of that review is determining whether smaller and lower-risk entities should have more relaxed reporting standards or extended deadlines. In the meantime, FinCEN wants to prioritize obtaining BOI from higher-risk companies that could pose national security concerns.

The potential revisions might include streamlined forms, reduced data entry requirements, or elongated timelines for businesses that have limited risk exposure. However, small businesses should remain prepared for the filing date at hand and not assume these potential modifications will relieve the compliance burden altogether.

Congressional Action

While the judicial arena has seen various challenges to the CTA, Congress is also weighing in with proposed legislation. One pending bill, known as HR736, aims to push the filing deadline for most companies to January 1, 2026. This would offer a significant reprieve for small businesses scrambling to gather ownership details. Another measure, the Repealing Big Brother Overreach Act, seeks to eliminate the reporting requirements entirely, arguing that the CTA places unnecessary burdens on small businesses.

Neither piece of legislation has become law, and their future remains uncertain. Whether or not they pass, small businesses must abide by the CTA as it presently stands. Some owners are hopeful that a legislative solution might reduce complexity or extend timelines, while others remain skeptical that any meaningful relief will arrive before the current March 21 deadline.

Best Practices for Compliance Preparation

With the CTA deadline approaching, businesses can adopt a few best practices to navigate the requirements effectively:

Act Early: Even though the possibility of extensions exists, gathering information and filing sooner rather than later helps reduce the risk of missing deadlines.

Monitor Official Channels: Keep an eye on FinCEN’s announcements and official guidance, particularly as it evaluates the need for further deadline extensions or modifications. Any postponements or amendments will likely be publicized promptly.

Seek Professional Guidance: Although many small businesses can file on their own, complex ownership structures, multi-state operations, or partial foreign ownership might require advice from an accountant or attorney. Engaging with professional services firms can ensure compliance and help you respond quickly to any changes.

As deadlines and legal rulings shift around the Corporate Transparency Act, one thing remains clear: small businesses shoulder significant responsibilities for disclosing ownership information. The March 21 deadline is now the central focus for most small entities, yet the CTA’s enforcement landscape remains fluid. If you own or manage a small business, preparation is essential. Compile accurate information about your beneficial owners, stay informed about any last-minute changes from FinCEN, and be mindful of potential legislative or judicial developments on the horizon. Though the CTA adds new tasks to your to-do list, prompt action and careful attention to detail will go a long way toward fulfilling your obligations and avoiding penalties.

This article is intended for general informational purposes only. It does not constitute legal advice or a substitute for legal or professional counsel. Businesses should consult qualified professionals to ensure compliance with the Corporate Transparency Act, FinCEN regulations, and any other relevant state or federal laws.

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Choosing between donor-advised funds and private foundations

Posted on by don@mbn.io

February 11, 2025 | by Atherton & Associates, LLP

Charitable giving allows individuals and families to create a lasting impact, aligning wealth with deeply held values. While donating directly to a nonprofit is straightforward, structured giving vehicles like donor-advised funds and private foundations offer advantages that go beyond convenience.

For most, donor-advised funds (DAFs) provide the ideal blend of simplicity, flexibility, and tax efficiency. Yet some families take things further by establishing private foundations, trading simplicity for greater control and versatility. Understanding the differences between these two vehicles can help you determine which best aligns with your financial goals and charitable ambitions.

When a donor-advised fund makes sense

Donor-advised funds (DAFs) are ideal for those seeking a low-maintenance way to manage their charitable contributions. A DAF, set up through a sponsoring organization, allows donors to make an immediate tax-deductible contribution while retaining the ability to recommend grants to public charities over time. The administrative burden – legal filings, compliance, and reporting – is handled entirely by the sponsoring organization. Additionally, donations may be made from the fund anonymously.

However, it’s important to note that sponsoring organizations establish their own policies, which can affect how a DAF operates. These organizations may enforce minimum donation requirements to open a fund, set rules around the types of assets they accept, charge fees for the management of the assets, and impose minimum grant distributions. While most sponsors readily accept cash contributions, more complex assets like real estate or private business interests may be rejected. They also reserve the final authority over fund distributions and investment decisions.

Tax benefits

Cash contributions to DAFs can be deducted up to 60% of adjusted gross income (AGI). Contributions of appreciated assets, such as publicly traded stocks or real estate held for more than one year, are deductible at their fair market value, up to 30% of AGI. These percentage limits apply separately; however, the total amount you can deduct in a single tax year cannot exceed 60% of your AGI. So, if you make both cash and appreciated asset contributions in the same year, your combined deductions are subject to the 60% AGI ceiling.

If contributions in any given year exceed the AGI limits for deductions, the IRS allows donors to carry forward the excess for up to five subsequent tax years.

Why some families choose private foundations

For families with significant resources and complex philanthropic ambitions, private foundations provide an appealing alternative to DAFs. While DAFs are simple and cost-effective, private foundations offer unparalleled control, flexibility, and opportunities to build a lasting legacy.

Typically established as 501(c)(3) organizations, private foundations enable families to make tax-deductible contributions, invest those funds, and use the returns to support charitable initiatives.

Control and flexibility

One of the greatest advantages of private foundations is the control they provide over charitable activities. Donors can decide how assets are invested, which organizations receive grants, and the specific terms of their giving. Unlike DAFs, which restrict grants to qualified public charities, private foundations can also fund scholarships, assist individuals in need, or support international and non-charitable initiatives within IRS guidelines. For instance, foundations can make program-related investments, allocate funds toward administrative costs, and engage in advocacy or public awareness efforts, provided they align with IRS rules and support the foundation’s charitable mission.

Private foundations also offer flexibility in the types of assets they can accept. Families can contribute cash, publicly traded stock, real estate, or even private business interests – options that may be limited or unavailable with some DAFs, depending on the rules of the sponsoring organization.

Another distinguishing feature is that a foundation can operate in one of two ways: as a non-operating foundation, primarily granting funds to other organizations, or as an operating foundation, directly running its charitable programs. If priorities change, a private foundation can be converted into a DAF; however, the reverse is not possible, as contributions to a DAF are irrevocable.

Donors also have the freedom to appoint their own board members, ensuring that governance reflects their values. This autonomy makes private foundations an ideal choice for those who want to maintain long-term oversight. While federal law doesn’t impose restrictions regarding board members, it’s worth noting that some states may require a minimum number of board members and encourage having at least one independent, non-family member on the board to strengthen governance.

Family involvement

For many families, private foundations serve as a means to engage multiple generations. Unlike DAFs, which typically limit family participation to naming successor advisors, private foundations allow children and grandchildren to take on active roles as board members or staff.

In some cases, foundations provide heirs with roles that serve as a philanthropic alternative to traditional employment. For instance, a family foundation might employ a grandchild to oversee grantmaking initiatives or manage day-to-day operations, helping families make an impact while developing leadership skills. Family members may even receive compensation for legitimate roles within the foundation. And future generations can continue operating the foundation long after the original donor’s passing, ensuring the legacy remains intact.

Tax benefits

Private foundations offer tax advantages, though the deductibility limits for contributions are lower than those for DAFs. Donors can deduct up to 30% of AGI for cash contributions and up to 20% of AGI for donations of appreciated assets, such as real estate or stock. Keep in mind that the total deduction cannot exceed 30% AGI in a single tax year, even if you contribute both cash and appreciated assets. If your total contribution exceeds these limits, the unused portion of the deduction can be carried forward for five additional tax years.

One notable advantage of private foundations is their ability to accept illiquid or hard-to-value assets, such as privately held stock, real estate, or artwork. Donating these assets often allows families to avoid capital gains taxes on their appreciation while enabling the foundation to manage or liquidate them strategically.

Private foundations also offer advanced financial planning opportunities that DAFs do not. For example, families anticipating a significant financial windfall, such as selling a business, can pre-fund a private foundation. By doing so, they secure an immediate tax deduction while retaining the flexibility to distribute the funds to charitable causes over time.

The difference in deductibility limits between private foundations and DAFs reflects how the IRS categorizes these vehicles. Contributions to DAFs are more deductible because distributions are limited to entities that directly serve public needs. Private foundations, by contrast, allow for greater donor control and flexibility, including funding activities that extend beyond traditional public charities. Because private foundations often lack the public accountability of DAFs and can be entirely controlled by a single individual or family, the IRS imposes tighter deduction limits to mitigate the potential for abuse and ensure that the public benefit justifies the tax advantages.

Legacy building and estate planning

For families with wealth that exceeds their generational needs, private foundations provide a structured way to steward that wealth for the public good.

Contributions are not only removed from the donor’s taxable estate but also provide the foundation with assets that can be strategically invested, generating returns to sustain charitable activities indefinitely. Families can employ future generations, involving them as board members or staff to carry on the foundation’s mission. This structure allows wealth to remain within the family’s purview, enabling them to dictate how the money serves the public rather than relying on the government to allocate those funds through taxes.

In essence, establishing a private foundation reflects a donor’s decision to direct wealth toward causes they care about most while ensuring that family members remain involved in purposeful, values-driven work for generations to come.

Potential downsides

Despite their many advantages, private foundations require significant resources and effort to establish and maintain. The process involves creating a legal structure, appointing a board of directors, and complying with complex reporting and regulatory requirements. Foundations must file annual tax returns and adhere to strict rules governing grantmaking and investment oversight.

The IRS requires private foundations to distribute at least 5% of their net assets annually and significant penalties can apply if distribution requirements are not met. However, grants and certain expenses qualify toward this requirement.

Managing a foundation is also time-intensive, requiring due diligence, compliance, and oversight. Larger foundations may require professional staff, including accountants, lawyers, and grant managers, to handle these responsibilities effectively.

Dissolving a private foundation can also be more complex. If a family decides they no longer wish to continue the foundation, the remaining assets must be distributed to a qualified charitable organization, and the process often involves detailed planning and administrative oversight. Unlike a DAF, where the sponsoring organization handles the liquidation of funds and ensures compliance, the dissolution of a private foundation requires direct involvement from the board or other responsible individuals.

The bottom line: aligning your philanthropic vision with the right tool

Both donor-advised funds and private foundations provide pathways to make a meaningful difference. Choosing the right vehicle depends on your financial goals, philanthropic ambitions, and desired level of involvement. It’s also important to recognize that your needs and priorities may evolve over time. A donor-advised fund might serve your family well for many years, while a significant wealth event could prompt you to consider establishing a foundation for greater control.

If you’d like expert guidance to determine which option aligns with your values and legacy, contact our office today. We’re here to help you create a lasting impact.

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Posted in Tax

2025 Federal Payroll Tax Changes

Posted on by don@mbn.io

February 04, 2025 | by Atherton & Associates, LLP

The start of 2025 brings important federal payroll tax and withholding changes that every employer needs to understand. From updates to Social Security wage limits to adjustments in retirement contributions and tax withholding rates, these changes directly impact payroll management and compliance. 

To help you stay ahead, we’ve outlined the most significant federal updates for the new tax year and what they mean for your business.

Social Security Tax Withholding

The Social Security tax wage base has increased to $176,100 for 2025. Both employees and employers will continue to contribute at a rate of 6.2% on wages up to this threshold. This adjustment raises the maximum Social Security tax withheld from wages to $10,918.20 for the year. Medicare tax remains unchanged at 1.45% for both employees and employers, applicable to all wages without a cap. Additionally, an extra 0.9% Medicare tax is imposed on individuals earning over $200,000 annually; employers are not required to match this additional tax. 

Federal Income Tax Withholding

The IRS has released the inflation-adjusted federal income tax brackets for 2025. For single filers, the standard deduction increases to $15,000, while married couples filing jointly see an increase to $30,000. 

Although the marginal tax rates remain unchanged, inflation adjustments have shifted the income thresholds that determine which tax rates apply.

Tax rate

Single filers

Married filing jointly

10%

$0 to $11,925

0 to $23,850

12%

$11,926 to $48,475

$23,851 to $96,950

22%

$48,476 to $103,350

$96,951 to $206,700

24%

$103,351 to $197,300

$206,701 to $394,600

32%

$197,301 to $250,525

$394,601 to $501,050

35%

$250,526 to $626,350

$501,051 to $751,600

37%

$626,451 or more

$751,601 or more

Federal Unemployment Tax Act (FUTA)

The FUTA taxable wage base remains at $7,000 per employee for 2025. The standard FUTA tax rate is 6.0%; however, most employers are eligible for a 5.4% credit for timely state unemployment tax payments, resulting in an effective rate of 0.6%. 

Retirement Contribution Limits

For 2025, the contribution limit for employees participating in 401(k), 403(b), and most 457 plans increases to $23,500. The catch-up contribution limit for employees aged 50 and over remains at $7,500. Notably, under the SECURE 2.0 Act, individuals aged 60 to 63 are eligible for a higher catch-up contribution limit of $11,250. 

Health Flexible Spending Arrangements (FSAs)

The annual contribution limit for health FSAs increases to $3,300 for 2025. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $660. 

Additional Considerations

Employers are reminded to obtain updated Forms W-4 from employees to accurately reflect any changes in filing status or personal exemptions. Additionally, the federal minimum wage remains at $7.25 per hour; however, employers should verify if state or local minimum wage rates have changed to ensure compliance. 

Navigating payroll tax changes can be time-consuming, but you don’t have to do it alone. Our team can help you stay compliant in the face of evolving tax regulations. If you have questions about how these 2025 updates affect your business, contact our office today. We’re here to provide the personalized guidance you need to keep your payroll processes running smoothly.

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Call us at (209) 577-4800 or fill out the form below and we’ll contact you to discuss your specific situation.

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