To assist you in compiling the information necessary to prepare your 2024 individual income tax return, we are providing the following list and request you provide information to the best of your ability. In connection with all items of income, if married, please indicate whether the income is the taxpayer, spouse or joint (TSJ). When submitting materials, please include original and/or corrected source documents to ensure we have all copies or at a minimum the most current version (please note the date of changes on the tax documents).

The following is a discussion of the rules applicable to the filing of 2024 individual income taxes and 2025 at this time.

OTHER FEDERAL NEWS -

OTHER FEDERAL NEWS -

The Internal Revenue Service issued IR-2024-85 in November 2024 providing transition relief for third-party settlement organizations (TPSOs – payment apps and online marketplaces) regarding transactions during calendar years 2024 and 2025.  As a result, TPSOs will be required to report transactions when the amount of total payments for those transactions is more than $5,000 in 2024, more than $2,500 in 2025 and more than $600 in calendar year 2026 and after.  Reporting will be done via Form 1099-K.

Beginning January 1, 2024 the Corporate Transparency Act (CTA) required certain “reporting companies” to file a report of “beneficial owners” with FinCEN.  A reporting company is either a 1) domestic reporting company – corporation, limited liability company, limited partnership, or similar entity created by the filing of a document with any state, territory or Indian tribe, or 2) a foreign reporting company – a non-US entity that registers to do business with a US state, territory or Indian tribe.  23 listed exemptions exist for CTA reporting requirements and various reporting dates based on existence of the reporting company.  This is NOT a tax reporting requirement but a reporting requirement.  The rule has been in legal limbo since the onset.  On January 23, 2025 the Supreme Court lifted an injunction related to a case over the act.  However, the FinCEN agency clarified on January 24, 2025 that due to a separate court case with another injunction, reporting remains voluntary at this time.  Obligations to file beneficial ownership information under the Reporting Rule remains suspended at this current date.

CONNECTICUT DEPARTMENT OF REVENUE NEWS –

Reduction in Certain Income Tax Rates:  For tax years beginning January 1, 2024, the 3% rate on the first $10,000 earned by unmarried filers and the first $20,000 by couples will decrease to 2%.  The 5% rate on the next $40,000 earned by unmarried filers and the next $80,000 by couples will decrease to 4.5%.  The benefit will be capped at unmarried filers who earn $150,000 and couples who earn $300,000.

Pass-Through Entity Tax:  Starting with tax years on or after January 1,2024, an entity that elects to pay such tax must give the Commissioner of Revenue Services written notice for each tax year it makes the election and must do so no later than the due date (or extended due date) for filing the return.  For 2024, the entity may elect to file Form CT-PET, Connecticut Pass-Through Entity Tax return, in addition to Form CT-1065/CT-1120SI, Connecticut Composite Income Tax Return, by checking the box at the bottom of the first page of Form CT-1065/CT-1120SI and filing Form CT-PET.  The election is irrevocable and cannot be amended for the year.

Subtraction Modification for Payments Received from the Fallen Officer Fund:  Applicable for tax years beginning January 1, 2024, payments from the Fallen Officer Fund are subtracted from Connecticut adjusted gross income.

Subtraction Modification for Contributions made by taxpayers to ABLE accounts:  For tax years beginning January 1, 2024, the subtraction modification shall not exceed $5,000 per taxable year for single filers and not more than $10,000 per taxable year for joint filers. 

Connecticut Income Tax Subtraction for Pensions and Annuity Income: Beginning with the 2022 tax year, taxpayers with federal AGIs below specified thresholds were allowed to deduct 100% of their qualifying pension and annuity income when calculating their CT AGI.  This modification applies to the extent such income is properly included in the taxpayer’s federal AGI for the taxable year.  For 2024, the deduction applies to taxpayers with federal AGIs below 1) $100,000 for single filers, married filing separately and heads of households and 2) $150,000 for married people filing jointly. 

Certain IRA Distributions: Beginning with the 2023 tax year, taxpayers may deduct a portion of their distributions from individual retirement accounts (IRAs), other than Roth IRAs.  The deduction is 50% for 2024, 75% for 2025 and 100% beginning in 2026.  The qualifying income thresholds for this exemption are the same as those for the pension and annuity exemption described above.

Teachers’ Retirement System (TRS) Income: Taxpayers may deduct 50% of their TRS income.  Those who qualify for the general pension and annuity exemption described above may take either exemption.

Military Retirement Pay: Military retirement pay, is exempt from Connecticut income tax to the extent it is included in federal adjusted gross income, if you are a retired member of the armed forces of the United States or the National Guard (retired military member) or if you are the beneficiary receiving survivor benefits under an option or election made by a deceased retired military member.  Payments received by a former spouse of a retired military member under a final decree of divorce/separation do not qualify for the military retirement pay exclusion.

Limitation of Property Tax Credit: Residents may qualify for a credit up to $300 for property taxes paid on a primary residence or automobile in Connecticut subject to Connecticut adjusted gross income limits and age (65 and over).

Amendment to Withholding Provisions Relative to Pension & Annuity Distributions:  New legislation modified the withholding requirements in connection with distributions of certain payments.  Under the new law, mandatory withholding is no longer required, except in limited circumstances.  A recipient may still request that Connecticut income tax be withheld from such distributions.  With regard to lump sum distributions of certain payments, payers remain obligated to withhold from qualified distributions if the distribution is in excess of $5,000 or is more than 50% of the balance of the account from which such distribution is being made from.  This legislation is effective January 1, 2025 to tax years commencing on or after January 1, 2025.

NEW YORK DEPARTMENT OF TAXATION NEWS – 

On December 28, 2018 New York State Department of Taxation issued a Technical Memorandum stating that they decoupled from certain personal income tax IRS changes implemented by TCJA for tax years 2018 and thereafter.  These items include certain itemized deductions, alimony or separate maintenance payments, qualified moving expenses reimbursement and moving expenses, Empire State child tax credit and New York 529 college savings account withdrawals.

New York State’s current maximum tax rate for individuals increased from 8.82% to 9.65% for 2021 – 2027 calendar years.   Two new upper limit tax bracket rates were also created regardless of filing status at 10.3% ($5 million - $25 million) and 10.9% ($25 million and above).  These increases leave New York State with one of the highest marginal state tax rates in the country.

New York itemized deduction limitation for taxpayers whose New York adjusted gross income is over $10 million has been extended through tax year 2029.

New York tax authorities continue to focus on auditing income tax returns filed by non-residents who work for New York employers, and are issuing desk audit notices in an effort to claw back missed tax revenue. 

NEXUS

As many states continue to face substantial budgetary restraints for 2025 and beyond, they are aggressively pursuing revenue collections from residents and nonresidents.  States have continued to expand the definition of nexus – creating activity leading to many taxpayers being required to file state taxes in more states.  With telecommuting and hybrid work situations becoming the norm as a result of the pandemic, many individuals find themselves working in states other than their primary office locations.  Taxpayers need to consider whether their income will be taxed in the state in which they are working as well as the state in which their primary office is located.  Certain states impose a “convenience” rule that sources income to the employer’s office location if an employee is working remotely out of convenience and not out of necessity for the employer.  With telecommuting comes the flexibility to work from any location, not just the state where the individual resides potentially creating a change of residence on a domicile and/or statutory basis. 

Remote work is likely here to stay for the foreseeable future.  As a “hot topic”, it is expected that regulations and guidance will continue to develop and change as both taxpayers and preparers will be looking for additional guidance as released.  The tax impact of remote work and the potential for increased scrutiny and auditing exists.  Analyzing all facts and maintaining detailed records and documentation is critical.  It is recommended that you retain pay stubs as some states do not make allocations on your W2 and this documentation is critical.  If you have an employment change, payroll provider and/or benefit provider change, make sure to access all records before they are no longer available to you.  As of the release of this letter, here are some notable announcements from Connecticut and New York:

Connecticut:

On March 4, 2021, Governor Lamont signed H.B. No.6516, which provided that any Connecticut resident who paid tax to a state that uses a convenience of the employer rule will be allowed a credit against their Connecticut income tax for the paid to the other state on income earned while working remotely from Connecticut. Connecticut explained that these credits only apply to the 2020 tax.  For tax years 2021 - 2023, Connecticut did not issue a change in position on this matter.  Continued guidance is expected on this subject so it is unclear if there might possibly be double taxation of state taxes in the future.  Like New York, Connecticut has been sending out notices challenging credits for taxes paid to other states as well as modifications.

Absence further legislation subsequent to tax year 2021 and as of this date, it appears Connecticut will adhere to the convenience rule for tax year 2024. Residents that work remotely from home for their employer in New York will continue to pay tax to New York on their wages and qualify for the credit for taxes paid to another state on their Connecticut tax return.  Tax experts continue to think it will take several smaller states to form a coalition and take on New York in the courts as they refuse to come to the table for discussions. 

New York:

New York has remained in defense of its “convenience of the employer rule” during the pandemic and beyond.  The rule implies an employee whose primary work location is in New York is subject to New York taxes unless a bona fide office has been established in the employee’s remote location (specific requirements for this as specified by New York have to be fulfilled to qualify).  New York continues to send out notices and audits tax returns of nonresident filers that show a substantial change of income source to New York; we expect that this behavior will continue.  New York has also increased audit focus on resident taxpayers who are taking credit for taxes paid to other states.

For 2024, New York continues to take the same stance outlined in the previous paragraph.  Time will tell if other states will be able to take on New York in court and turn things around.

One year ago, the nation braced for a potential recession marked by elevated inflation, rising interest rates and labor shortages.  Economic uncertainty carried through 2024 with decreasing fears of a major recession due to positive economic indicators; however, the effects of inflation have established a new baseline for pricing.  All of these factors were on minds of taxpayers during the presidential election.  President Trump has made the economy and tax relief key priorities of his agenda.  Key tax-savings provisions of the 2017 Tax Cuts and Job Act (TCJA) are slated to expire at the end of calendar year 2025 barring additional legislation – trillions of dollars are at stake across many of these provisions.  Of particular importance is the unprecedented opportunity to reduce gift, estate and generation-skipping transfer tax exposure in future years by making gifts that use the increased lifetime exemption levels in case they sunset on December 31, 2025 absent legislation. 

The challenge facing policymakers in 2025 is a daunting one and the massive price tag associated with extending 2017’s tax cuts could force Congress to seek new tax increases to offset these costs.  As a result, 2025 appears on track to become a year of potential volatility in tax planning.  While changes in tax laws are often drafted to take effect at a future date, there is always a possibility of changes that could become effective immediately upon enactment (or retroactive to the beginning of the year or date of introduction).  It is recommended that attention should be given to legislative changes, as well as political, economic and other factors as they develop and might affect tax policy.  Traditional tax planning, such as accelerating income into years with lower tax rates or deferring deductions into years with higher tax rates, are normally common approaches and should continue to be carefully reviewed and analyzed. 

We appreciate the opportunity to be of service to you.   We wish you and your families good health and best wishes for the New Year!

When you make retail purchases of goods or services in your resident state, you usually pay sales tax to the seller if the sale of such goods or services is subject to sales tax according to the law of your resident state.  The seller in turn remits the sales tax collected to the state taxing authority.  In general, when these same types of goods or services are purchased outside of your resident state, they are subject to "use tax" when the goods are brought into your resident state.

When you make retail purchases of goods or services in your resident state, you usually pay sales tax to the seller if the sale of such goods or services is subject to sales tax according to the law of your resident state.  The seller in turn remits the sales tax collected to the state taxing authority.  In general, when these same types of goods or services are purchased outside of your resident state, they are subject to "use tax" when the goods are brought into your resident state.

Today, with the increase in catalog and online shopping, many taxpayers are buying items out of state, as well as goods that are being imported, that would be subject to tax if they were purchased in their resident state.  The state tax authorities, especially Connecticut and New York, are actively pursuing the collection of this use tax in order to meet budgetary constraints.  In fact, the states, along with the Internal Revenue Service and U.S. Customs, have signed information sharing agreements to help each other collect all outstanding tax money.  Working together, the authorities have many resources available to gather their information.

Keep in mind that the taxing authorities are specifically targeting the purchase of items such as automobiles (and parts), appliances, furniture, jewelry, cameras, computers, electronics, cigarettes and other tobacco products, alcohol, boats, art and antiques.  However, they are also seeking out those taxpayers who are steady catalog and online shoppers not paying sales tax. 

The individual use tax is declared and paid when you file your resident state individual income tax return. 

If all the goods purchased and brought into Connecticut at one time total $25 or less, you do not have to pay Connecticut use tax.  The $25 exemption does not apply to goods shipped or mailed to you.  Connecticut requires that taxpayers separately list any individual item with a purchase price of $300 or more.  When listing this information, you must provide the date of purchase, a description of goods or service, the retailer or service provider and the purchase price.  Items with an individual purchase price under $300 do not have to be listed separately; instead, the total combined purchases must be given to calculate the use tax due. 

The general Connecticut sales and use tax rate for 2024 was 6.35%; however, there are categories with different tax rates from the general rates.  There are too many categories to list for the purposes of this letter; however, there are a few that need to be highlighted.  Specifically, a use tax rate of 7.75% applies to the following: the sale of most motor vehicles exceeding $50,000, the sale of each piece of jewelry exceeding $5,000, the sale of each piece of clothing or pair of footwear exceeding $1,000 and a handbag, luggage, umbrella, wallet or watch exceeding $1,000.

New York provides two options for calculating the use tax due on purchases of less than $1,000 (excluding shipping and handling) each that are not related to a business, rental real estate or royalty activities - the exact calculation method or the sales and use tax chart.  For the exact calculation method, the taxpayer must provide the purchase price, purchase date and jurisdiction of purchase.  The sales and use tax chart is a simple, time-saving method whereby the taxpayer pays use tax based on their federal adjusted gross income according to the chart established by the state.  The exact calculation method must be used on each purchase of $1,000 or more.  For individual items subject to use tax greater than $25,000, the following information must be provided: date item was purchased, description of item purchased, seller’s name and address, delivery address/address of use and purchase price.

Failure to pay use tax may result in the imposition of penalties and interest.  The states are requiring taxpayers to declare an obligation for use tax on their individual income tax returns.  Zero is a valid declaration if you do not have a liability.  If you do not make an entry on the individual use tax line of your resident tax return, you are considered to not have filed a use tax return.

Therefore, when providing your information for payment of use tax, please be sure to specify the following complete information:

1) Details of purchase information as specified by the state thresholds for reporting individual purchases.

2)  Details of purchase information as specified by the special categories in Connecticut.

If you have any questions regarding sales and use tax, please give us a call.  Information is also published on each state's website regarding this subject.

Internal Revenue Service regulations along with the tax authorities of Connecticut, New York and Massachusetts mandate that tax preparers electronically file individual, fiduciary and business income tax returns.  We believe that trends will continue with authorities requiring taxpayers and businesses to electronically file of more information including routine filings, responses, tax returns and tax payments.  Therefore, all 2024 income tax returns filed federally and in the States of Connecticut, New York and Massachusetts are required to be filed using the Federal & State Electronic Filing Program (E-File).  The firm will voluntarily file individual returns electronically in the States of California and New Jersey.  We also reserve the right to electronically file in additional states as deemed appropriate and will encourage this method of filing. 

Internal Revenue Service regulations along with the tax authorities of Connecticut, New York and Massachusetts mandate that tax preparers electronically file individual, fiduciary and business income tax returns.  We believe that trends will continue with authorities requiring taxpayers and businesses to electronically file of more information including routine filings, responses, tax returns and tax payments.  Therefore, all 2024 income tax returns filed federally and in the States of Connecticut, New York and Massachusetts are required to be filed using the Federal & State Electronic Filing Program (E-File).  The firm will voluntarily file individual returns electronically in the States of California and New Jersey.  We also reserve the right to electronically file in additional states as deemed appropriate and will encourage this method of filing. 

Our firm has informed you of the regulations and mandates for electronic filing.  However, the decision as to whether your income tax returns will be electronically filed or not rests with you, the taxpayer.  If you choose not to file electronically, we will inform you of the necessary procedures that need to be followed for “opting out.”

 Electronic filing offers the following benefits:

i. Allows the Revenue Departments to process returns quickly and accurately, saving tax dollars.

ii. Taxpayers who have a return with a balance due can file their return early and choose to make payment anytime on or before April 15, 2025.

iii. Taxpayers who file returns with refunds receive those refunds faster especially if the refund is directly deposited into their bank account. 

iv. Electronically filed returns receive an acknowledgment of receipt from the Internal Revenue Service and the applicable State Tax Authority and are verified to be mathematically correct, eliminating data entry errors and lost or misplaced mail.

If we did not prepare your returns for 2023, we will need copies of your driver’s licenses and social security cards or passports for you and your family members. 

How does this affect the process of preparing your 2024 income tax returns?

The actual preparation process of your return does not change.  However, the administration, review process and completion of the returns will be affected.  The following is an overview of how the electronic filing process will work.

1) Taxpayers should forward complete information for the preparation of their 2024 income tax returns including all supporting documentation.  Regulations for electronic filing require that our firm maintain copies of the social security cards and driver's licenses for yourself, your spouse and all dependents claimed on the 2024 tax return.  NOTE:  If you provided this information to us last year regarding the preparation of your 2023 tax return, you do not have to provide it again.  However, the driver’s license and passports on file must be current.  Please call our office to verify your information on file if you have any questions.

2) Electronic filing provides various methods for payment and receipt of your refunds.  Payments can be made by 1) paper check, 2) credit card (a convenience fee will be charged by the processing company used by tax authorities) and 3) direct debit out of a designated account.  Refunds can be issued by 1) paper check, 2) application of all or a portion to the 2025 tax year and 3) direct deposit into designated account(s) – see NOTE below.  Returns filed electronically can be filed early but payment not made until a later date designated by you whether payment is by check, credit card or direct debit until April 15, 2025.  After that date, payment is due with filing.  When submitting the information to prepare your tax return, please indicate to us how you would like to handle payments and/or refunds and return it with the information to prepare your tax return.  If you desire to use direct deposit or direct debit, please enclose a voided check so we have complete account information and the financial institution routing transit number.  It is the taxpayer’s responsibility to provide proper banking information and to verify that the payments have been withdrawn from the designated account.  Please allow enough time when scheduling payments to be made directly from accounts.  If problems with payment by direct debit are encountered, taxpayers need to have enough time available for a paper check to be submitted on a time. 

NOTE:  Generally, if you do not elect direct deposit, the State of Connecticut will issue refunds by paper check; however, they are encouraging direct deposit.  Direct deposit will NOT be available for first time Connecticut filers.  IRS and the State of New York are offering the option for receipt of refunds by direct deposit or paper check.    

WARNING: It is suggested that refunds on joint tax returns should only be directly deposited into joint bank accounts.  The federal banking regulations, as applied by each bank, may not accept a joint refund into an individual account; our firm has no knowledge of how your bank will handle this matter.  Also, be aware that refunds will be retained, not issued or decreased for any of the following: 1) delinquent federal taxes, 2) delinquent state taxes, 3) delinquent student loans, 4) delinquent spousal and/or child support, 5) delinquent state unemployment compensation debts and 6) debts owed to other state and/or federal agencies.

3) Once your return has been prepared, our firm will forward a "Review Copy" to you.  This review copy can be sent electronically using access through a portal system for your protection or by hard copy (either mail or you can pick it up at our office).  Please let us know the delivery method for the "Review Copy" on the bottom of the enclosed engagement letter which should be submitted with your tax information.

4) If you review the return and are in agreement with the return as prepared, the taxpayer(s) will need to sign Form 8879, IRS e-file Signature Authorization, Form TR-579-IT New York State e-file Signature Authorization, Form FTB 8879 California e-file Signature Authorization, Form M-8453, Massachusetts e-file Signature Authorization, as applicable, and any additional efile form(s) as necessary and included in your "Review Copy" package.  Connecticut and New Jersey accept the federal signature on Form 8879.  Tax returns cannot be filed electronically until our firm is in receipt of the signature authorization forms signed by the taxpayer(s).  We can accept the signed forms electronically. 

5) If you review the return and are NOT in agreement with the return as prepared, please call our office to discuss the questions/issues.  If necessary, a new "Review Copy" and signature authorization forms will be prepared.  Please remember that the only way electronically filed tax returns can be changed is by amending the returns.  Therefore, it is imperative that you are in complete agreement with the returns before returning the signature authorization forms to us. 

6) Once we receive your completed signature authorization forms (EFile Forms), our firm will electronically submit your Federal, Connecticut, Massachusetts, New York, New Jersey and/or California income tax returns.  Income tax returns for all other states will be filed on paper at this time unless we deem it appropriate to electronically file in the other state(s).  Once we receive acknowledgement that your electronically filed returns have been accepted by the taxing authorities, we will forward a complete package to you which will include the following documents: 1) your original information if it has not already been returned with your review copy, 2) 2024 payment vouchers to taxing authorities, if necessary, 3) 2024 income tax returns for other states to be filed by paper, if necessary, 4) 2025 estimated tax payments, if necessary, 5) a copy of the 2024 individual return electronic transmission history and acceptance notification, and 6) a final signed copy of your electronically filed 2024 Federal and state income tax returns, if requested.  Please include on the bottom of the enclosed engagement letter how you would like to receive this complete package. Any payments for taxes due to tax authorities should be filed using certified mail, return receipt requested.

Some extensions for filing 2024 tax returns must be filed electronically as paper is no longer an acceptable filing method.  Therefore, taxpayers must allow enough time for completing this process.  Please contact our office by Friday, March 21, 2025 if you will need to file extensions for the 2024 tax year.

We ask for your continued cooperation in implementing income tax return preparation and filing requirements.  If you have any questions, please give us a call.

About 830,000 taxpayers are having their tax refunds held up due to the move away from paper checks and Democratic leadership on the House Ways and Means Committee is seeking information on what the IRS is doing to expedite the issuance of those refunds.

About 830,000 taxpayers are having their tax refunds held up due to the move away from paper checks and Democratic leadership on the House Ways and Means Committee is seeking information on what the IRS is doing to expedite the issuance of those refunds.

House Ways and Means Subcommittee on Worker and Family Support Ranking Member Danny Davis (D-Ill.) and Subcommittee on Oversight Ranking Member Terri Sewell (D-Ala.), in a March 9, 2026, letter to IRS Acting Commissioner Scott Bessent, noted that to date 530,000 notices have been sent to individual taxpayers who did not include bank account information on their tax returns and are planning to send another 300,000 notices this week.

“As a result of President Trump’s Executive Order 14247 mandating electronic payments of tax refunds, these taxpayers could face more than a 10-week delay (over 2.5 months) in receiving their refunds by paper check,” the letter states, adding a National Taxpayer Advocate citation stating that more than 10 million individual taxpayers received their refunds by check.

They continued: “Having reviewed the IRS notice and called the IRS phone lines, we learned that there is no simple process for these taxpayers to request an immediate release of their refund by paper check without waiting at least 10 weeks. Effectively, the President, unilaterally through his Executive Order, is causing undue hardship on millions of Americans by delaying their paper refunds for months. This delay is not mandated by the Internal Revenue Code.”

The ranking members ask Bessent a series of questions, including how IRS taxpayers without an online account can apply for a paper check and immediate release of funds; how many notices have been sent and are expected to be released; how many tax payers have exceptions have been successfully filed; and how many paper checks have been mailed to date.

The representatives asked for answers by March 23, 2026.

By Gregory Twachtman, Washington News Editor

The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2026 and the lease inclusion amounts for business vehicles first leased in 2026.

The IRS has issued the luxury car depreciation limits for business vehicles placed in service in 2026 and the lease inclusion amounts for business vehicles first leased in 2026.

Luxury Passenger Car Depreciation Caps

The luxury car depreciation caps for a passenger car placed in service in 2026 limit annual depreciation deductions to:

• $12,300 for the first year without bonus depreciation
• $20,300 for the first year with bonus depreciation
• $19,800 for the second year
• $11,900 for the third year
• $7,160 for the fourth through sixth year

Depreciation Caps for SUVs, Trucks and Vans

The luxury car depreciation caps for a sport utility vehicle, truck, or van placed in service in 2026 are:

• $12,300 for the first year without bonus depreciation
• $20,300 for the first year with bonus depreciation
• $19,800 for the second year
• $11,900 for the third year
• $7,160 for the fourth through sixth year

Excess Depreciation on Luxury Vehicles

If depreciation exceeds the annual cap, the excess depreciation is deducted beginning in the year after the vehicle’s regular depreciation period ends.

The annual cap for this excess depreciation is:

• $7,160 for passenger cars and
• $7,160 for SUVS, trucks, and vans.

Lease Inclusion Amounts for Cars, SUVs, Trucks and Vans

If a vehicle is first leased in 2026, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:

• $62,000 for a passenger car, or
• $62,000 for an SUV, truck or van.

The 2026 lease inclusion tables provide the lease inclusion amounts for each year of the lease.

The lease inclusion amount results in a permanent reduction in the taxpayer’s deduction for the lease payments.

Vehicles Exempt from Depreciation Caps and Lease Inclusion Amounts

The depreciation caps and lease inclusion amounts do not apply to:

• cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
• SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds.

So taxpayers who want to avoid these limits should "think big."

Rev. Proc. 2026-15

The IRS has released guidance on the withdrawal of an election to be an excepted trade or business for the Code Sec. 163(j) business interest limitation for the 2022, 2023, and 2024 tax year. The election is made by filing an amended income tax return, amended Form 1065, or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitation. The withdrawal allows a taxpayer to make depreciation adjustments or a late election not to deduct the additional first-year depreciation (bonus depreciation) for certain property in light of recent legislative changes. 

The IRS has released guidance on the withdrawal of an election to be an excepted trade or business for the Code Sec. 163(j) business interest limitation for the 2022, 2023, and 2024 tax year. The election is made by filing an amended income tax return, amended Form 1065, or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitation. The withdrawal allows a taxpayer to make depreciation adjustments or a late election not to deduct the additional first-year depreciation (bonus depreciation) for certain property in light of recent legislative changes. Guidance is also provided on the early election or revocation of a controlled foreign corporation (CFC) CFC group election.

Background

A taxpayer’s deduction of business interest expenses paid or incurred for the tax year is generally limited under section 163(j) to the taxpayer’s business interest income for that year and 30 percent of the taxpayer’s adjusted taxable income (ATI). The deduction limit does not apply to certain excepted businesses, including an electing real property trade or business, electing farming business, or regulated utility trade or business.

The election applies to the current tax year and all subsequent tax years. The election is irrevocable but may automatically terminate in certain circumstances. An electing real property trade or business or electing farming business that elects out of the section 163(j) limit must depreciate certain property using alternative depreciation system (ADS) and as a result cannot claim bonus depreciation for that property.

Election Withdrawal

An election to be an excepted trade or business for the section 163(j) business interest limit may be withdrawn for the 2022, 2023, and 2024 tax year. The withdrawal is made by attaching a statement to the taxpayer’s amended income tax return, amended Form 1065 , or administrative adjustment request (AAR) on or before October 15, 2026, or applicable statute of limitations per the IRS guidance.

A taxpayer that receives an amended Schedule K-1 as a result of an amended return or Form 1065 should similarly file an amended return, amended Form 1065, or AAR with a similar attached statement. If a taxpayer withdraws an election, the taxpayer will be treated as if the election had never been made.

Depreciation Adjustments

A taxpayer that is withdrawing an excepted trade or business interest election under section 163(j) must determine its depreciation deduction and basis for the property that is affected by the withdrawn election in accordance with Code Sec. 168. A taxpayer that makes the withdrawals may make a late election under Code Sec. 168(k)(7) to opt certain property out of bonus depreciation on the same amended Federal income tax return, amended Form 1065, or AAR filed for withdrawing the section 163(j) excepted trade or business election.

CFC Group Election

A taxpayer that is a designated U.S. person may revoke or make a CFC group election without regard to the 60-month limitation of § 1.163(j)-7(e)(5)(ii) for the first specified period of a specified group beginning after December 31, 2024. A taxpayer that chooses to revoke the election or make a new election must follow all procedures specified in the regulation other than the 60-month limit. In addition, the 60-month limitation applies to subsequent specified periods.

Rev. Proc. 2026-17

Internal Revenue Service CEO Frank Bisignano highlighted the early successes of the tax provisions in the One Big Beautiful Bill Act before the House Ways and Means Committee while defending or deflecting critical commentary from the panel’s Democratic representatives.

Internal Revenue Service CEO Frank Bisignano highlighted the early successes of the tax provisions in the One Big Beautiful Bill Act before the House Ways and Means Committee while defending or deflecting critical commentary from the panel’s Democratic representatives.

In his opening statement during the March 4, 2026, hearing, Bisignano noted that the tax benefit to individuals under these provisions is “estimated to be $220 billion,” noting key aspects like the no tax on tips, no tax on overtime, and the Trump accounts helping to pave the way to the benefits.

He also highlighted the growth of 43 percent in usage of online tools, which he said is coinciding with a decrease in demand for phone service.

“Our goal is for taxpayers is our transformational efforts to create a seamless customer experience where taxpayers can interact with the IRS with the same ease they expect from the private sector,” Bisignano told the committee.

Bisignano during the hearing framed AI simply as a tool in the technology toolbox and stated that he didn’t simply want to “modernize” IRS systems because all that does is lead to future obsolescence, but framed information technology upgrades as “transforming” the systems to be able to evolve with technology, which “will increase compliance and increase simplification.”

He was put on the defensive on the subject of audit rates, with questions suggesting that the agency is not doing its job in terms of auditing high income and other wealthy taxpayers, which will lead to a greater tax gap.

Bisignano tried to interject that there was a $2 billion settlement reached but was not given an opportunity to expand upon the circumstances around the recovery, as Rep. Mike Thompson (D-Ca.) noted that “fewer audits of wealthy tax cheats and more scrutiny of working families” doesn’t build “trust among the American taxpayers.”

In answering a separate question regarding audit rates, he pushed back on the increase or decrease in audit rates, testifying that there has never been a standard audit rate that has been proven to be the right number and it could be more or less than where things are at now.

Bisignano defended the cutting of the National Treasury Employees Union contract, stating that by statute, federal employees already have “greater benefits that any union in the world can provide for their people,” including pay, health, and other benefits that are guaranteed by law. “So they are losing nothing,” he said.

He also defended the elimination of the Direct File program, citing its lack of utilization and its costs to operate the program, while promoting Free File as “well-received” and a well-used and trusted program.

Bisignano avoided any discussion regarding the IRS turning over taxpayer information to the Department of Homeland Security without proper authorization, noting that litigation on this issue was still ongoing. He confirmed that so far, no one has been fired or disciplined for this unauthorized information transmission.

He also would not commit to opening any of the closed Taxpayer Assistance Centers, noting that the current centers were experiencing increased activity, although he did add that there were no plans to close any of the existing centers.

Adoption Credit Update

Bisignano told the committee that the IRS will be implementing a provision that for tax year 2025, carry forward amounts of the adoption credit for prior years are refundable up to $5,000 per qualifying child, “and the IRS is implementing this policy as expeditiously as possible without disrupting the current filing season.”

He said there is will be information on this published “very soon” and that taxpayers “should continue to claim the credit as directed by the current tax forms and instructions during the tax season, since the IRS is pursuing post-filing remedies to solve this issue.”

By Gregory Twachtman, Washington News Editor

The IRS has finalized regulations to include unmarked vehicles used by firefighters, members of rescue squads, or ambulance crews in the list of “qualified nonpersonal use vehicles” exempt from the IRC §274(d) substantiation requirements. The final rule adopts, with only minor, non-substantive changes, the text of the proposed regulations (NPRM REG-106595- 22) issued on December 3, 2024. The amendments ensure that specially equipped unmarked vehicles are subject to the same tax treatment as other emergency vehicles used by first responders.

The IRS has finalized regulations to include unmarked vehicles used by firefighters, members of rescue squads, or ambulance crews in the list of “qualified nonpersonal use vehicles” exempt from the IRC §274(d) substantiation requirements. The final rule adopts, with only minor, non-substantive changes, the text of the proposed regulations (NPRM REG-106595- 22) issued on December 3, 2024. The amendments ensure that specially equipped unmarked vehicles are subject to the same tax treatment as other emergency vehicles used by first responders.

Qualified Nonpersonal Use Vehicles

IRC §274(d) requires that taxpayers satisfy additional substantiation requirements when claiming certain business deductions including the business use of an automobile or other means of transportation. A qualified nonpersonal use vehicle is any vehicle that, by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes. Reg. §1.274-5(k)(2)(ii) provides a list of such vehicles, which includes, in part: ambulances; clearly marked police, fire, public safety officer vehicles; and unmarked police vehicles.

Unmarked Emergency Vehicles

Recently, some municipalities have been providing unmarked vehicles to these first responders as a response to an increase in incidents of vandalism and harassment. These unmarked vehicles are typically equipped with special equipment such as lights and sirens, medical emergency equipment, communication radios, and personal protective equipment. Most fire and emergency response departments retain the title to these unmarked vehicles and have policies that limit the use of the vehicles for personal purposes.

The intent and use of these unmarked vehicles meet the definition of qualified nonpersonal vehicles provided in IRC §274(i). However, prior to the amendments, fire and emergency response departments had to substantiate the time the first responders spent using these unmarked vehicles for work related purposes. Personal use of these vehicles, no matter how minute, was required to be included in that employee’s income.

In addition to adding unmarked rescue to the list of qualified nonpersonal use vehicles provided in Reg. §1.274-5(k)(2)(ii), the amendments add Reg. §1.274-5(k)(7) which provides the definitions for “unmarked firefighter, rescue squad or ambulance crew vehicles”, “firefighter,” and “member of a rescue squad or ambulance crew.”

The amendments apply to tax years beginning on or after the date the final regulations are published in the Federal Register. However, taxpayers may rely on the guidance provided in the proposed regulations until that date.

T.D. 10043

Proposed regulations under Code Sec. 530A, providing guidance on making an election to open a Trump account, and under Code Sec. 6434, relating to the Trump account contribution pilot program, have been issued. Comments are requested and should be submitted via the Federal eRulemaking Portal (indicate IRS and REG-117270-25 for comments related to Code Sec. 530A or IRS and REG-117002-25 for comments related to Code Sec. 6434). The proposed regulations are proposed to apply on or after January 1, 2026.

Proposed regulations under Code Sec. 530A, providing guidance on making an election to open a Trump account, and under Code Sec. 6434, relating to the Trump account contribution pilot program, have been issued. Comments are requested and should be submitted via the Federal eRulemaking Portal (indicate IRS and REG-117270-25 for comments related to Code Sec. 530A or IRS and REG-117002-25 for comments related to Code Sec. 6434). The proposed regulations are proposed to apply on or after January 1, 2026.

Background

Code Sec. 530A, as added by the One Big Beautiful Bill Act (P.L. 119-21) provides for the creation of a Trump account for an eligible individual. A Trump account is subject to certain special rules that do not apply to other types of individual retirement accounts during the growth period, which is the period that begins when an initial Trump account is established and ends on December 31st of the year in which the account beneficiary of the initial Trump account reaches the age of 17. Proposed regulations on the special rules that apply during and after the growth period are reserved and will be proposed at a later date.

In addition, Code Sec. 6434 was added, which provides for a one-time $1,000 pilot program contribution to the Trump account of an eligible child with respect to whom an election is made. The qualifications to be an eligible child are less restrictive than those to be an eligible individual. Finally, Code Sec. 128 allows for employer contributions to a Trump account of an employee or a dependent of an employee. These contributions must be made in accordance with the rules of a Code Sec. 128(c) Trump account contribution program. Guidance on this section is expected to be released in the future.

General Requirements and Election to Open an Account

A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. An individual can only have one Trump account containing funds in existence at a time. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A (b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.

An election to open an account can be made by either an authorized individual or by the Secretary. If a pilot program contribution election is made at the same as the election to open the initial account, the authorized individual would be the individual authorized to make (and making) the pilot program contribution election. If a pilot contribution program election is not being made, Prop. Reg. §1.530A-1(c)(1)(i)(B) provides an ordering rule to determine who the authorized individual is. In order of priority, the authorized individual would be a legal guardian, parent, adult sibling, or grandparent of the eligible individual. The election to open an initial Trump account is made on or before December 31st of the calendar year in which the eligible individual attains age 18. The election is made on Form 4547 or through an electronic application or webpage made available by the Secretary.

Contribution Pilot Program

A pilot program election with respect to an eligible child must be made by a pilot program-electing individual so that the Secretary can make the $1,000 pilot program contribution into the Trump account of en eligible child. An eligible child is a pilot program-electing individual's anticipated qualifying child, as defined in Code Sec. 152(c), for the tax year of the pilot program-electing individual in which the pilot program election is made; is born in 2025, 2026, 2027, or 2028; is a U.S. citizen; has been issued a social security number; and with respect to which no prior pilot program election has been made by any individual and processed by the Secretary.

A pilot program election is made with respect to the eligible child's "special taxable year" (defined in Prop. Reg. §301.6434-1(c)(1)), instead of with respect to any calendar based tax year for the eligible child's federal income tax liability. Once an election is processed, the eligible child is treated as making a $1,000 payment against a federal income tax liability for the eligible child's special taxable year, resulting in a $1,000 overpayment. The overpayment is then refunded by the Secretary as a pilot program contribution to the eligible child's Trump account. The overpayment is not refunded unless the eligible child has an established Trump account.

An election may be made on the day that a child becomes eligible, and the last day to make the election is December 31st of the calendar year in which the eligible child attains age 17. In addition, only the first pilot program contribution election processed by the IRS will result in a $1,000 contribution to the eligible child's Trump account. The pilot program contribution election is made on Form 4547.

Proposed Regulations, NPRM REG-117270-25

Proposed Regulations, NPRM REG-117002-25

IR 2026-31

IR 2026-33

The IRS expects to delay the applicability date of proposed regulations on required minimum distributions (RMDs) until the distribution calendar year that would begin 6 months after the date the regulations are finalized. Specifically, the announcement relates to proposed amendments of Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23 .

The IRS expects to delay the applicability date of proposed regulations on required minimum distributions (RMDs) until the distribution calendar year that would begin 6 months after the date the regulations are finalized. Specifically, the announcement relates to proposed amendments of Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23 .

Background

Prior to this announcement, provisions under NPRM REG–103529–23 (2024) were proposed to apply for determining RMDs for calendar years beginning on or after January 1, 2025. This ensured the provisions would begin to apply at the same time as final regulations under T.D. 10001 (2024).

Following a request for comments, concerns included difficulty to implement many provisions of future final regulations in a timely manner if the January 1, 2025, applicability date were to be retained in future final regulations.

Future Final Regulations

The IRS expects future final regulations that would amend Reg. §§1.401(a)(9)-4, 1.401(a)(9)-5, and 1.401(a)(9)-6, issued pursuant to NPRM REG–103529–23, to apply to determine RMDs for the distribution calendar year that would begin no earlier than six months after the date that any future final regulations would be issued in the Federal Register. For periods before the applicability date of such future final regulations, taxpayers must continue to apply a reasonable, good-faith interpretation.

Announcement 2026-7

The IRS has issued a waiver for individuals who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in certain foreign countries prevented them from fulfilling the requirements for the 2025 tax year. Qualified individuals may elect to exclude from gross income their foreign earned income and to exclude or deduct the housing cost amount.

The IRS has issued a waiver for individuals who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in certain foreign countries prevented them from fulfilling the requirements for the 2025 tax year. Qualified individuals may elect to exclude from gross income their foreign earned income and to exclude or deduct the housing cost amount.

Relief Provided

The IRS, in consultation with the Secretary of State, has determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the following countries, effective from the dates specified: (1) Haiti – January 1, 2025; (2) Ukraine – January 1, 2025; (3) Democratic Republic of the Congo – January 28, 2025; (4) South Sudan – March 7, 2025; (5) Iraq – June 11, 2025; (6) Lebanon – June 22, 2025; and (7) Mali – October 30, 2025. An individual who left any of these countries on or after the respective dates will be treated as a qualified individual for the period during which the individual was a bona fide resident of, or was present in, the country. To qualify for relief, an individual must establish that, but for these adverse conditions, they would have met the requirements of Code Sec. 911(d)(1). Additionally, the waiver does not apply to individuals who first established residency or were physically present in any of these countries after the respective dates listed above. Taxpayers seeking guidance on how to claim this exclusion or file an amended return should refer to the Foreign Earned Income Exclusion section at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion or contact a local IRS office.

Rev. Proc. 2026-16