Mark R. Stanhope CPA PC

Say Goodbye to Paper Checks
Beginning Sept. 30, 2025, the federal government will generally no longer issue paper checks, including those for tax refunds, Social Security benefits and more. Also, certain federal agencies, such as the IRS and the Dept. of Labor (DOL), will generally stop accepting payments by paper check. This is part of a program to modernize payments, improve efficiency in processing payments and reduce administrative burdens. Historically, the government stated that checks issued by the Dept. of the Treasury are more likely to be lost, stolen or subject to other forms of fraud.

The IRS will publish detailed guidance for 2025 tax returns before the 2026 filing season begins. Until further notice, taxpayers should continue using existing forms and procedures, including those filing their 2024 returns on extension of a due date prior to Dec. 31, 2025. Contact the office with questions.

Use the Tax Code to Make Business Losses Less Painful
Whether you're operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations.

Qualifying for a Deduction
The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly.

Eligibility for the NOL deduction depends on having deductions for the tax year that exceed your income. The loss generally must be caused by deductions related to your:

Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
Casualty and theft losses from a federally declared disaster, or
Rental property (Schedule E).
The following generally aren't part of the NOL determination:

Capital losses that exceed capital gains,
The exclusion for gains from the sale or exchange of qualified small business stock,
Nonbusiness deductions that exceed nonbusiness income,
The NOL deduction itself, and
The Section 199A qualified business income deduction.
Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren't eligible, but partners and shareholders can calculate individual NOLs using their separate shares of business income and deductions.

Limitations
Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers could carry back NOLs for two years and carry them forward 20 years. They also could apply NOLs against 100% of their taxable income.

The TCJA limits NOL deductions to 80% of taxable income for the year and eliminates the carryback of NOLs (except for certain farming losses). However, it does allow NOLs to be carried forward indefinitely.

If your NOL carryforward is more than your taxable income for the year you carry it to, you may have an NOL carryover. That's the excess of the NOL deduction over your modified taxable income for the carryforward year. If your NOL deduction includes multiple NOLs, you must apply them against your modified taxable income in the same order you incurred them, beginning with the earliest.

A Limit on Excess Business Losses
The TCJA also established an “excess business loss” limitation, effective beginning in 2021. For partnerships or S corporations, this limitation applies at the partner or shareholder level, after applying the outside basis, at-risk and passive activity loss limitations. Under the rule, noncorporate taxpayers' business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2023, that threshold is $289,000, or $578,000 if married filing jointly. For 2024, the thresholds are $305,000 and $610,000, respectively. Remaining losses are treated as an NOL carryforward to the next tax year. That is, you can't fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years beginning before January 1, 2029. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Planning Ahead
The tax rules regarding business losses are complex, especially the interaction between NOLs and other potential tax breaks. Contact the office for help charting the best course forward.

One-Time Thing: IRA to HSA transfer
Did you know you can transfer funds directly from your IRA to a Health Savings Account (HSA) without taxes or penalties? Under current law, you can make one such “qualified HSA funding distribution” during your lifetime.

Typically, if you have an IRA and an HSA, it's a good idea to contribute as much as possible to both to maximize their tax benefits. But if you're hit with high medical expenses and need more balance in your HSA, transferring funds from your IRA may be a solution.

Calling in the Cavalry
An HSA savings account can pay qualified medical expenses with pre-tax dollars. It's generally available to individuals with eligible high-deductible health plans. For 2023, the annual limit on tax-deductible or pre-tax contributions to an HSA is $3,850 for individuals with self-only coverage and $7,750 for individuals with family coverage. If you're 55 or older, the limits are $4,850 and $8,750, respectively. Those same limits apply to an IRA-to-HSA transfer, reduced by any contributions already made to the HSA during the year.

Here's an example illustrating the potential benefits of a qualified HSA funding distribution from an IRA: Joe is 58 years old with a self-only, high-deductible health plan. In 2023, he needs surgery for which he incurs $5,000 in out-of-pocket costs. Joe is strapped for cash, has yet to contribute to his HSA in 2023, and has only $500 left in his HSA, but he has a $50,000 balance in his traditional IRA. Joe may move up to $4,850 from his IRA to his HSA tax and penalty-free.

Considering Other Factors
If you decide to transfer funds from your IRA to your HSA, remember that the distribution must be made directly by the IRA trustee to the HSA trustee, and, again, the transfer counts toward your maximum annual HSA contribution for the year.

Also, funds transferred to the HSA, in this case, aren't tax deductible. But, because the IRA distribution is excluded from your income, the effect is the same (at least for federal tax purposes).

Exploring the Opportunity
IRA-to-HSA transfers are a once-in-a-lifetime opportunity, but they still must be the right move for everyone. Please contact our office to see if this step makes sense in your tax and financial circumstances.

Many itemized deductions eliminated for tax years 2018-2025 and unless congress acts will return 2026. The tax law eliminates itemized deductions for:
▫ Unreimbursed employee expenses, such as mileage (previously deductible
to the extent they exceeded 2% of adjusted gross income)
▫ Tax preparation expenses
▫ Alimony payments (see details)
▫ Investment expenses
▫ Miscellaneous itemized deductions
▫ Moving expenses to move to a new job, and
▫ Personal casualty losses (except for losses associated with special disaster relief legislation).