Meeting Purpose

Review year-end tax planning strategies for individuals and businesses.

Key Takeaways

• Accelerate Deductions: Pull 2026 expenses into 2025 to offset high profits. Use bonus depreciation to expense fixed assets (e.g., computers) in the year they are put into service.
• Optimize Retirement: Select a plan based on funding goals. A 401k allows higher contributions ($31k+ for 50+) than a SIMPLE IRA ($20k+ for 50+) but requires a Third-Party Administrator (TPA).
• Leverage S-Corp Status: Elect S-Corp status to reduce self-employment tax on profits. This also enables a 20% Qualified Business Income (QBI) deduction on profit.
• Use Tax-Free Income Rules: Rent your residence for <15 days/year (the "Augusta Rule") for tax-free income. Fund an HSA with pre-tax dollars to cover medical expenses.

Topics

Tax Rate Fundamentals

• Marginal Rate: The tax rate on your last dollar of income.
• Effective Rate: Your actual total tax paid divided by your taxable income.
  • Example: A taxpayer with $100k income and a 22% marginal rate may have a 13.2% effective rate due to lower-bracket income.

Health & Medical Expense Strategies

• S-Corp Health Insurance Deduction: For individual plans, the S-Corp must reimburse the owner, and the premium amount must be added to the owner's W-2. This creates a compensation deduction offset by a 1040 adjustment.
• Health Savings Account (HSA):
  • Eligibility: Requires a high-deductible health plan.
  • Mechanism: Pre-tax contributions fund a tax-free account for medical expenses.
  • Contribution Limits: $4,300 (individual), $8,300 (family), with a catch-up for those 55+.

Retirement Plan Optimization

• Plan Selection Factors: Funding goals, employee count, Roth option need, and vesting rules.
• Plan Comparison:
  • 401k: Higher contribution limits, Roth option, but requires a TPA for compliance testing.
  • SIMPLE IRA: Simpler, for businesses <100 employees, but no Roth option.
  • SEP IRA: For self-employed/small businesses; max contribution is 25% of wages.
  • Solo 401k: For self-employed with no employees.
  • Defined Benefit Plan: For high earners near retirement; allows large catch-up contributions ($300k+).
• New Plan Setup: A 2025 retirement plan can be established before year-end. A plan set up in 2026 can still be funded for 2025, but it loses 401k eligibility.

Business & Personal Tax Moves

• Accelerate Deductions: Pull 2026 expenses into 2025 to offset high 2025 profits.
• Bonus Depreciation: Use this rule to expense fixed assets (e.g., computers) in the year they are put into service, not over their useful life.
• Entity Structure: Consider an S-Corp election to reduce self-employment tax on profits.
• QBI Deduction: Maximize this 20% deduction on qualified business income.
• Charitable Contributions:
  • 2025: Accelerate 2026 contributions into 2025 to ensure you can itemize.
  • 2026: A new rule allows non-itemizers to deduct up to $1,000 (individual) or $2,000 (MFJ) in contributions.

Next Steps

• Kenny & Kenny P.C.: Email [email protected] for the retirement plan comparison chart.
• Attendees:
  • Review year-end financials to identify opportunities for accelerated deductions.
  • Evaluate retirement plan options based on funding goals.
• Consider an S-Corp election if current tax structure is inefficient.