To assist you in compiling the information necessary to prepare your 2025 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 Internal Revenue Service and State Taxing Authorities are matching information returns submitted by businesses, employers and financial/investment institutions with amounts reported on individual tax returns.  Negligence penalties may be assessed when income is underreported. Please be certain to mail or bring with you all of the following original unstapled form:

1) Dependent information including names, relationship, date of birth and social security numbers (if a dependent is no longer a student please indicate).  Please remember that names and social security numbers must match exactly in order for the dependent to be allowed.  Also be sure to verify and update your contact information.

2) All W-2 forms for wages.

3) All 1099 forms for interest, dividends, sales of securities, pension / IRA distributions, social security benefits, commissions and other income received as well as brokerage statements and realized gain/loss schedules.  If you have a foreign bank account, please list it and all applicable information.  If you took any early distributions from retirement plans, please be sure to provide the details regarding the reason and amount of the distributions.  If any of these distributions were paid back to the retirement plan in full or in part within 60 days, please provide the details. If you made any Roth conversions, please provide the details.  Coding and tax reporting by the investment institutions for these various scenarios are usually very inconsistent.  Congress has been sharply focused on requiring taxpayer reporting of foreign bank/financial accounts and assets for the last several years.  Besides filing the Report of Foreign Bank and Financial Accounts, information may be required to be attached to the taxpayer's income tax return for those assets with aggregate values exceeding specific thresholds.  If applicable, you will be requested to provide additional information. 

NOTE: Form 114 FinCEN (previously known as Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts) (FBAR) must be electronically filed via the BSA E-Filing System.  Our firm can assist you with the preparation and submission of the electronic FBARs; however, the primary responsibility for this filing remains with the taxpayer.  2025 FBAR filings are due April 15, 2026 with a maximum extension for a 6- month period ending October 15, 2026 to file.

4) All notices from corporations, financial institutions or mutual funds that advise of special tax treatment for earnings.

5) Report of tax-exempt interest and dividends received with payer identification.  Please be sure to include any supplemental information received regarding the taxability of this income by state, if applicable.

6) Supporting information (including 1099-K, 1099-MISC & 1099-NEC forms) for business income and expenses.  For business use of your home, please include the square footage of your home used exclusively for business as well as total square footage of your home (this is required information).

7) Copies of closing statements for any real estate, co-op or condominium purchases or sales which occurred during the year and a copy of the Form 1099-B received for gross proceeds.  Please remember to include the acquisition date of the property sold, the original cost and improvements. 

8) All 5498 forms and support for 2025 retirement contributions made to date or anticipated to be made for the 2025 tax year.  Please indicate if you want maximum contribution limits calculated.

9) All 1098 and 1099-MISC forms supporting rental income and expenses.  Please be sure to include details for all improvements made and capital assets purchased including acquisition dates.

10) All Schedule K-1 forms from partnerships, limited liability companies, S corporations, trusts and estates including all supporting literature received including state specific K-1s and transmittal/cover letters. 

11) All 1099-G forms for unemployment and state tax refunds/overpayments issued/received from State Taxing Authorities and Departments of Labor.  These forms are only available online from the applicable Connecticut and New York departments so please be sure to retrieve them. 

12) Adjustments to Income – please be sure to include educator expenses, alimony paid/received, health savings account contributions/distributions and student loan interest paid including all 1098-E forms.  For Health Savings Accounts, please include a statement(s) and 1099 -SA and 5498-SA forms that recap the 2025 activity in order to verify the beginning and ending balances of the account.

13) Real estate and personal property taxes paid – please be sure to include only taxes paid during the calendar year 2025.

14) All 1098 forms for mortgage interest expense deductions - Please identify for each 1098 form if the loan interest paid is for a home mortgage (secured by principal residence or vacation home) or investment activity.  If your total debt exceeds $1 million for home acquisition loans acquired before December 15, 2017, please include the balance of each loan at January 1, 2025 and December 31, 2025.  In addition, please supply the balance of each loan at January 1, 2025 and December 31, 2025 for new home acquisition loans acquired subsequent to December 15, 2017 if the debt exceeds $750,000.

15) Contributions – be careful in reporting your contributions as the IRS is aggressively challenging those which appear to be excessive in dollars and valuation.  Please include supporting documentation for cash contributions with values in excess of $250 and noncash contributions with values that exceed $500 as well as the original costs of noncash items donated.

16) Child/Dependent Care expenses (Form 18) – Please provide the name, address and social security number and/or employer identification number of the providers as this is required.

17) Household Employment taxes including W-2 forms for wages paid and quarterly state unemployment returns filed for the 2025 tax year.

18) A schedule of estimated taxes paid for federal and state income taxes including payments made in January 2026 for the 2025 tax year and payments made in January 2025 for the 2024 tax year.  Please be sure to include the FULL date for each payment made.

19) All W-2G forms for gambling winnings. 

20) HEALTH INSURANCE: Notification received from the provider documenting the existence of health insurance coverage through the Marketplace for 2025 for you, your spouse and/or dependents.  Please provide all Forms 1095-A received for Marketplace insurance as this is required information to prepare your tax return.  Efiled returns without reporting of the issued Form 1095-A will be rejected.

21) Copies of any notices or other communications received during the year from the Internal Revenue Service and State Taxing Authorities.

22) Identity Protection Personal Identification Number – If you have received notification that an IP PIN has been assigned to you and/or your spouse by the IRS, it is imperative that this information be provided to us with your tax documents as you cannot efile your income tax return without it and our firm has no access to this information.  IP PINs can be retrieved online through the IRS website.  If you had one in the past but did not receive a letter for Tax Year 2025 from the IRS, you still have one issued to you so please retrieve via the IRS website before tax filing day arrives.  Please do not wait until the last minute to retrieve this information.  IP PINs are unique for each tax year.

Because of government enforcement regulations and fraud prevention initiatives, we are requesting that you include copies of the social security cards for yourself, spouse and dependents.  If you provided us with copies of social security cards in the past, you do not have to provide it again; however, the driver’s license and passports on file must be current.  Also, if you are a new client to the firm, include a copy of the current driver’s license for yourself and your spouse as we are required to input the current information in order to electronically file. If you have any questions, please call our office to verify your information on file.  Please be sure to review and correct, if necessary, the personal and dependent information, including dates of birth. The spelling of names must match the social security cards issued or correspondence from the IRS will be generated.  Returns cannot be filed electronically if discrepancies exist between the tax return and the Social Security Administration.  Refunds will not be issued until the matter is resolved. 

When providing information related to the Sales of Stocks, Securities, Capital Assets & Installment Sales, special care should be taken in providing complete and accurate information, especially acquisition dates and cost. For re-investment programs, such as mutual funds and dividend reinvestment programs, it is necessary to provide all data since initial acquisition unless the fund/broker provides the cost information.  Taxpayers are required to complete Form 8949, Sales and Other Dispositions of Capital Assets, along with Schedule D to report this activity.  Form 8949 captures the detail data of each individual sales transaction in conjunction with cost basis information as reported by your broker/financial institution under reporting regulations.

In order to continue providing quality service on a timely basis, we urge you to collect your information as soon as possible.  If information from a “pass-through” entity such as a partnership, S corporation, limited liability company, trust or estate is the only data you are missing, please send the data you have assembled and forward the missing information as soon as it is available. Please clearly indicate which information is missing.  If we do not receive your complete information by March 20, 2026, we cannot guarantee timely completion of your tax returns for the April 15, 2026 filing deadline.  

Please be sure to include all of your contact information with your package - telephone numbers, fax numbers and email addresses, if applicable and the preferred method of contact.

If you or your spouse worked in New York with your residence outside of New York or you worked in Connecticut with your residence outside of Connecticut, please complete the enclosed Allocation of Wage and Salary Income worksheet.  If you held multiple jobs during the year, please provide a separate allocation schedule for each job.

We appreciate the opportunity to be of service to you. 

One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, introduces sweeping changes to the U.S. tax code affecting individual taxpayers, estate and trusts.  Some provisions are applicable in 2025 with others taking effect starting 2026.  The following is a discussion of the rules applicable to the filing of 2025 individual income taxes and 2026 at this time.

TAX RATES - For 2025 there are seven income tax brackets ranging between 10% and 37% for ordinary income.  The 37% tax bracket is imposed on taxable income over threshold amounts as follows:

●       $751,600 for married taxpayers filing jointly and surviving spouses

●       $375,800 for married taxpayers filing separately

●       $626,350 for heads of households

●       $626,350 for single taxpayers

●       $15,650 for estates and trusts

For 2026, there are still seven brackets and the 37% tax bracket is imposed on taxable income over the following thresholds:

●       $768,700 for married taxpayers filing jointly and surviving spouses

●       $384,350 for married taxpayers filing separately

●       $640,600 for heads of households

●       $640,600 for single taxpayers

●       $16,000 for estates and trusts

Besides the reduction in rates and expansion of the tax brackets, perhaps the biggest change to deductions was the elimination of the personal exemption effective 2018.  This was offset, in part, by the increase in the standard deduction.  For 2025, the standard deduction is $15,750 for single taxpayers, $23,625 for head of household and $31,500 for married couples filing jointly.  For 2026, the standard deduction is $16,100 for single taxpayers, $24,150 for head of household and $32,200 for married filing jointly.

SENIOR BONUS DEDUCTION – OBBBA introduced this new, non-refundable deduction effective 2025 – 2028 designed to offer additional tax relief to individuals who are age 65 and older by the close of the tax year. This new deduction is in addition to the current additional standard deductions for seniors under existing law.  The $6,000 senior deduction is per eligible individual ($12,000 for married couples filing jointly where both spouses are 65 or older).  However, the deduction is subject to a phase-out with modified adjusted gross income over $75,000 for single taxpayers and $150,000 for married couples filing jointly.

TARGETED INCOME TAX RELIEF: THE "NO TAX" DEDUCTIONS – OBBBA introduced a suite of temporary "above-the-line" income tax deductions engineered to offer relief to targeted demographics. These provisions are effective 2025 and scheduled to expire after the 2028 tax year.

1. "No Tax on Tips": Employees and self-employed individuals may deduct qualified tips received in occupations listed by the IRS as customarily and regularly receiving tips that are reported on a Form W-2, Form 1099 or other specified statement.  Maximum annual deduction is $25,000 (for self-employed, deduction may not exceed individual’s net income without regard for the deduction).  Deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $150,000 (Single/Head of Household) or over $300,000 (Married Filing Jointly).
2. "No Tax on Overtime": Deduction is allowed for individuals who receive qualified overtime compensation for the "premium" portion of overtime pay (the amount paid above the standard hourly rate) that is required by the Fair Labor Standards Act (FSLA) and reported on Form W-2, Form 1099 or other specified statement furnished to the individual. Maximum deduction is $12,500 for single taxpayers and $25,000 for married couples filing jointly.  Deduction phases out for taxpayers with MAGI over $150,000 (Single/Head of Household) and over $300,000 (Married Filing Jointly).
3. Car Loan Interest Deduction: Taxpayers can deduct interest paid on loans used to purchase a qualified vehicle (provided for personal use) after December 31, 2024.  The maximum deduction is $10,000 of interest per year and deduction phases out for taxpayers with MAGI over $100,000 (Single/Head of Household) and over $200,000 (Married Filing Jointly).  A qualified vehicle is new, secured by a lien on the vehicle, gross vehicle weight rating of less than 14,000 pounds and has undergone final assembly in the U.S.

STATE AND LOCAL TAX (SALT) DEDUCTION – OBBBA provides significant, temporary relief regarding the SALT cap. For tax years 2025 through 2029, the SALT deduction cap is raised to $40,000 for single and joint filers ($20,000 for married filing separately). The SALT cap increases by 1% each year through 2029 and then returns to $10,000 starting 2030.  The increase is fully phased out for MAGI amounts greater than $600,000 for single and joint filers ($300,000 married filing separately) with phaseout that begins at MAGI exceeding $500,000 for single and joint filers ($250,000 married filing separately).

LONG TERM CAPITAL GAINS AND QUALIFYING DIVIDENDS TAX RATE – The favorable rate of 0% for taxpayers in the 15% and 20% brackets still exists; however, these rates apply at different thresholds for 2025 and 2026, respectively, as follows:

The 0% tax rate applies to adjusted net capital gains up to $96,700 and $98,900 for joint filers and surviving spouses, $64,750 and $66,200 for heads of household, $48,350 and $49,450 for single filers and married taxpayers filing separately and $3,250 and $3,300 for estates and trusts.

The 15% tax rate applies to adjusted net capital gains over the amount subject to the 0% rate, and up to $600,050 and $613,700 for joint filers, $566,700 and $579,600 for heads of household, $533,400 and $545,500 for single filers, $300,000 and $306,850 for married taxpayers filing separately and $15,900 and $16,250 for estates and trusts; and

The 20% tax rate applies to adjusted net capital gains over $600,050 and $613,700 for joint filers, over $566,700 and $579,600 for heads of household, over $533,400 and $545,500 for single filers, over $300,000 and $306,850 for married taxpayers filing separately and over $15,900 and $16,250 for estates and trusts.

Remaining unchanged from prior years is the 25% rate for unrecaptured Code Sec. 1250 gain, the 28% rate for collectibles and the gain on qualified small business stock equal to its partial exclusion.

Qualified dividends received from domestic corporations and qualified foreign corporations continue to be taxed at the same rates that apply to capital gains.  Certain dividends do not qualify for the reduced rates, including dividends paid by credit unions, mutual insurance companies and farmers’ cooperatives. 

NET INVESTMENT INCOME TAX (NIIT) – An additional Medicare surtax of 3.8% is imposed on the lesser of net investment income (NII) or modified adjusted gross income (MAGI) above a specified threshold.  However, the Medicare surtax is not imposed on income derived from a trade or business, nor from the sale of property used in a trade or business.

NII includes the following investment income reduced by certain investment-related expenses, such as investment interest expense, investment brokerage fees, royalty related expenses, and state and local taxes allocable to items included in net investment income: 

●       Gross income from interest, dividends, annuities, royalties, and rents, provided this income is not derived in the ordinary course of an active trade or business

●       Gross income from a trade or business that is a passive activity

●       Gross income from a trade or business of trading in financial instruments or commodities

●       Gain from the disposition of property, other than property held in an active trade or business

Individuals are subject to the 3.8% NIIT if their MAGI exceed the following thresholds (which are not adjusted for inflation):

●       $250,000 for married taxpayers filing jointly or a qualifying widower with a dependent child

●       $125,000 for married taxpayers filing separately

●       $200,000 for single and head of household taxpayers 

ADDITIONAL HIGHER INCOME MEDICARE TAX - Higher income (HI) individuals continue to be subject to an additional 0.9% HI (Medicare) tax, not to be confused with the 3.8% Medicare surtax on NIIT. The additional Medicare tax means that the portion of wages received in connection with employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately) is subject to a 2.35% Medicare tax rate (normal 1.45% plus additional .9%). The additional Medicare tax also applies to self-employed individuals.  

ALTERNATIVE MINIMUM TAX (AMT) – The increased alternative minimum tax (AMT) exemption amounts for 2025 and 2026 as follows:

●     $137,000 for married taxpayers filing jointly and surviving spouses for 2025 and $140,200 for 2026

●   $88,100 for unmarried taxpayers and heads of household, other than surviving spouses, for 2025 and $90,100 for 2026

●      $68,500 for married taxpayers filing separately for 2025 and $70,100 for 2026

●      $30,700 for estates and trusts for 2025 and $31,400 for 2026

Exemptions for the AMT are phased out as taxpayers reach high levels of alternative minimum taxable income (AMTI). Generally, the exemption amounts are phased out by an amount equal to 25% of the amount by which an individual’s AMTI exceeds a threshold level.  The threshold amounts for calculating the exemption phase-out are adjusted for inflation as follows:

●    $1,252,700 in 2025 and $1,000,000 in 2026 for married taxpayers filing jointly and surviving spouses

●   $626,350 in 2025 and $500,000 in 2026 for unmarried taxpayers and heads of household, other than surviving spouses

●       $626,350 in 2025 and $500,000 in 2026 for married taxpayers filing separately

●       $102,500 in 2025 and $104,800 in 2026 for estates and trusts

For 2025 and 2026, the AMT rates are 26% and 28% on the excess of AMTI over the applicable exemption amount. You should not ignore the possibility of being subject to the AMT as it can negate certain year-end tax strategies; however, tax planning strategies can be used to reduce its impact. As a general rule, taxpayers subject to AMT should accelerate income into AMT years and postpone deductions into non-AMT years.

STOCK LOSSES – Taxpayers should continually review their investments for return and portfolio balance.  They should monitor their investments to take steps necessary to time the recognition of capital gains and losses to minimize their net capital gains tax and maximize the benefit of capital losses.  Remember for tax purposes it is not how much your investments have gone up or down in value but rather how much gain or loss you have realized when an investment is sold since its original purchase date.  The maximum capital loss deduction available to offset ordinary income is $3,000 ($1,500 for married taxpayers filing separately) with the additional capital losses being carried forward until used.  Taxpayers also need to take “wash sale” rules into consideration when generating losses.  The wash sale rule defers use of a tax loss realized upon a sale of stock if the investor repurchases it within 30 days before or after the sale.  Worthless stock also generates an immediate capital loss; however, the rules for “worthless” stocks are very strict.  Stocks and securities must be totally worthless for a taxpayer to take a loss deduction; a mere decrease in value, no matter how great, will not trigger a loss deduction.

DIGITAL ASSETS/CRYPTOCURRENCY – Increased attention remains on digital assets (two examples are cryptocurrency and non-fungible tokens (NFTs)) due to their volatility and the publicized collapse of crypto giant FTX.  Holders of cryptocurrency claim it is a form of currency and fluctuations in value are not taxable.  IRS law defines it as property, like any other investment, where fluctuations in value are subject to gains and losses when realized.  When cryptocurrency is “spent”, exchanged for goods and services, the IRS expects the calculation of gains/losses from the original basis to be recognized.  The IRS continues to escalate attention to this area as it launches broker reporting of cryptocurrency transactions in 2025 via Form 1099-DA, “Digital Asset Proceeds from Broker Transactions” for reporting sales, exchanges or redemptions on Form 8949 and Schedule D.  The 2025 Form 1040 once again will prominently display a required question for Digital Assets activity right under the filing status information: “At any time during 2025, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”  Per IRS instructions, the following actions or transactions in 2025 alone, generally do not require a “Yes” answer: 1) holding a digital asset in a wallet or account, 2) transferring a digital asset from one wallet or account you own or control to another one you own or control, or 3) purchasing digital assets using U.S. currency or other real currency, including through the use of electronic platforms such as PayPal and Venmo.

ROTH IRA CONVERSIONS - Modified gross income limitations applicable to Roth IRA conversions were repealed and 2010 was the first year in which a taxpayer could convert all or part of their traditional retirement accounts to a Roth account, regardless of income, age or filing status.  A conversion is a taxable transfer and is taxable in the year of conversion.  Taxes are paid on the funds you convert in order to secure tax-free withdrawals in the future as well as several other benefits, including no required minimum distributions in the future. 

IRA & ROTH IRA CONTRIBUTIONS – The maximum contribution is $7,000 for 2025 and $7,500 for 2026 provided you have at least $7,500 of wage, salary or net self-employment earnings.  An additional “catch-up” contribution of $1,000 is allowed for taxpayers over 50 years of age by the end of the tax year for 2025 and $1,100 for 2026.  There is no age limit for making contributions to a traditional or Roth IRA as long as you have earned income.  Remember that IRA and Roth IRA contributions for the 2025 tax year can be made up to April 15, 2026.

401K AND 403B CONTRIBUTIONS - The annual limit on employee elective deferrals to these plans for 2025 is $23,500 and $24,500 for 2026. The maximum “catch-up” contribution to a 401K and 403B plan for taxpayers over 50 years of age by the end of the tax year is an additional $7,500 for 2025 and $8,000 for 2026.  Under the provisions of the SECURE 2.0 Act of 2022 and if your plan allows, a higher catch-up contribution limit of $11,250 applies for 2025 and 2026 for participants aged 60 – 63 by end of the tax year. 

RETIREMENT PLANS - The SECURE Act primarily intended to encourage savings for retirement, though not entirely favorable to taxpayers. Most provisions took effect January 1, 2020. In addition to the above, the SECURE 2.0 Act of 2022 was part of the 2023 Omnibus Bill recently signed into law at the end of 2022. Among the key retirement provisions in these Acts and current changes are:

●    The age requirement to begin taking RMDs (required minimum distributions) increased from age 72 to age 73 starting on January 1, 2023 (with respect to individuals who attain age 72 after December 31, 2022 and age 73 before January 1, 2033) and then to age 75 on January 1, 2033 (with respect to individuals who attain age 74 after December 31, 2032). In addition, the penalty for not taking an RMD (including an inherited IRA RMD) is 25%, and in some cases to 10% if the failure is corrected timely. 

●    An exemption from the 10% tax penalty on early retirement account withdrawals of up to $5,000 within one year of the birth of a child or an adoption becoming final.

●    Elimination of the “stretch” RMD provisions that have permitted beneficiaries of inherited retirement accounts to spread the distributions over their life expectancies.  Now beneficiaries of inherited IRAs are required to withdraw all funds in the IRA no later than December 31^st of the tenth full calendar year following the death of the individual whom you inherited the IRA.  However, there are some exceptions whereby certain types of inherited IRA beneficiaries can still utilize the “stretch IRA”.

●    Effective 2024 there are no RMDs for Roth IRAs.  Now with SECURE 2.0 Roth 401k accounts won’t be subject to the RMD rules either before the account holder dies.  However, an exception applies to RMDs required before 2024 but not required to be paid until January 1, 2024 or later.

●    As of 2024, an emergency distribution up to $1,000 per year from their retirement account for emergency purposes (unforeseeable or immediate financial needs relating to personal or family emergency expenses) without having to pay the 10% tax penalty for early withdrawal if they are under the age of 59 1/2.  If you choose not to repay the distribution within a certain time, you will not be allowed to take another emergency distribution for 3 years.

● Beginning 2025, SECURE Act 2.0 requires employers to automatically enroll eligible participants into 401k and 403b plans at a rate of at least 3% but not more than 10% with an opt out provision. 

●    Beginning in 2024, beneficiaries of 529 college savings accounts are permitted to rollover unused dollars (up to $35,000) over their lifetime from their 529 account to a Roth IRA tax and penalty free account under certain conditions including being subject to Roth IRA annual limits and the 529 account being open for more than 15 years.

CHILD TAX CREDIT (CTC) – The amount of the credit through 2025 is $2,200 per qualifying child up to age 17 and will be indexed for inflation in 2026.  The credit is subject to phase-out at MAGI levels of $400,000 for joint filers and $200,000 for all other returns.  A portion of the CTC is refundable for 2025 up to a maximum of $1,700 per child.

CHILD DEPENDENT CARE (CDC) CREDIT – Beginning 2022, this credit became nonrefundable and is subject to limit based on the taxpayer’s tax liability.  For 2025 and 2026, the maximum amount of qualifying expenses to which the credit may be applied is $3,000 for individuals with one qualifying child or dependent or $6,000 for individuals with two or more qualifying children or dependents. Generally, the qualifying child has to be under age 13.  The credit percentage is 35% (50% for 2026) up to adjusted gross income (AGI) of $15,000 subject to the maximum credit amounts.  The percentage decreases by one percentage point for each $2,000 (or fraction thereof) of additional AGI until it’s reduced to 20% (which applies at AGI over $43,000). 

EDUCATION INCENTIVES – The following are education incentives which exist under current law:

American Opportunity Tax Credit: The American Opportunity Tax Credit (AOTC) was made permanent by the 2015 PATH Act and was not changed by the Tax Cuts and Jobs Act of 2017 (TCJA).  This $2,500 maximum credit per eligible student is subject to the higher income phase-out ranges of $80,000 to $90,000 for single filers ($160,000 to $180,000 for joint filers) and contains a 40% refundable credit component.  The eligibility extension to the first four years of post-secondary education contains an inclusion for text books and course materials as eligible expenses. The Lifetime Learning Credit was also retained for up to $2,000 per tax return (not per student) for a max of 20% of the first $10,000 in qualified expenses for any year of higher education, including graduate and job skills courses.

Student Loan Interest Deduction: The maximum $2,500 deduction allowed for interest paid on a student loan used for higher education is gradually reduced if your modified adjusted gross income during 2025 is between $85,000 for single/head of household filers and $170,000 for joint filers.  This figure will continue to be adjusted each year for inflation. 

Coverdell Education Savings Accounts (ESAs): Total contributions for the beneficiary of this account (under age 18) cannot exceed $2,000 in any year no matter how many accounts have been established.  Full contribution limits begin to be phased out at MAGI of $95,000 for single filers and $190,000 for joint filers.  Contributions to a Coverdell ESA are not deductible but amounts deposited in the account grow tax free until distributed. 

Employer-Provided Education Assistance: For tax year 2025 employees are allowed to exclude from gross income and wages up to $5,250 in annual educational assistance provided under an employer's nondiscriminatory "educational assistance plan."  Starting in 2026, the cap will be adjusted annually for inflation. 

Scholarship Programs: An amount received as a qualified scholarship and used for qualified tuition and related expenses is excludable from income.  The exclusion does not apply to any portion of the amount received which represents payment for teaching, research, or other services by the student as a required condition for receiving the qualified scholarship.  However, scholarship recipients with obligatory service requirements under the National Health Service Corps Scholarship Program and the Armed Forces Scholarship Program can exclude from income qualified tuition and related expenses as well as amounts that represent payment for services.

Section 529 Accounts:  Expanded potential usage of 529 plans to include elementary and secondary school tuition for public, private and religious schools increased up to $20,000 per year per student effective 2026 ($10,000 for 2025).  Effective July 2025 eligible K-12 expenses include tuition, books and supplies, tutoring, curriculum, fees and educational therapies.  Overall rules and benefits vary by state so it is important to check the recognition of 529 fund use on a state level.  For example, New York allows for withdrawal of the 529 funds but requires the taxpayer to give back any NY state tax deduction or credit claimed for the original contribution and requires NY state tax on the earnings portion of the withdrawal.

MEDICAL EXPENSE THRESHOLD - For 2025 and 2026, a deduction is allowed for expenses paid during the tax year for the medical care of the taxpayer, the taxpayer’s spouse and the taxpayer’s dependents to the extent the expenses exceed 7.5% of adjusted gross income.

CHARITABLE GIVING –

●    Congress has long used the tax laws to encourage charitable giving and for many individuals, charitable giving is also a part of their year-end tax strategy. The 2015 PATH Act made permanent the popular charitable giving incentive with tax-free IRA distributions to public charities by individuals age 70 1/2 and older up to a maximum of $108,000 per qualified taxpayer per year for 2025. Individuals taking this option cannot claim a deduction for the charitable gift as the distribution is not claimed as income.  Beginning 2026, the qualified charitable distribution will increase to $111,000.   

● Congress tightened the rules for substantiation requirements for charitable contributions effective August 17, 2006.  The IRS will not allow charitable deductions, regardless of the amount, without proper documentation. Contributions of $250 or more must be substantiated by a written acknowledgement from the donee organization; the acknowledgement must include the date of the donation, amount of cash or a description of property donated and a description and good faith estimate of the value of any goods or services received in exchange for the contribution.  If the donor does not receive a written acknowledgment from a charitable organization, it is the donor’s responsibility to obtain it in order to claim the charitable contribution.  Contributions under $250 must be substantiated by cancelled checks, bank records or receipts from the donee organization.  If it would be impracticable to obtain a receipt, the donor must maintain reliable written records. 

●  Just like the rules for cash gifts, the rules for substantiating deductions for donations of clothing and household items (i.e., furniture, furnishings, electronics, appliances) were tightened after August 17, 2006 and will only be allowed if the property is in “good used condition or better”.  Donors must have a written acknowledgement from the charity documenting the donation date, description of property donated, a description and good faith estimate of the value of any goods or services received in exchange for the contribution and a valuation/qualified appraisal of the property donated, if applicable.  A deduction for the noncash goods will be allowed, without regard to condition, only if a qualified appraisal is attached to the return for each single item or group of similar items over $5,000.  We recommend that pictures be taken of any noncash goods that are donated as it will be helpful in supporting the deduction.

Taxpayers donating vehicles (i.e., car, truck, boat, and aircraft) to a charity valued over $500 must obtain from the charity and attach to the tax return Form 1098-C and/or a written acknowledgment of the contribution.  The donation amount is usually limited to the gross proceeds from the sale of the vehicle by the charity.

Gifting of appreciated securities for making charitable contributions continues to be a significant alternative instead of using cash.  In this manner, the appreciated value will not be taxed, low-cost basis stock is removed from your portfolio/estate and the fair-market value of the security will be used as the charitable contribution.

Individual taxpayers are allowed a deduction for cash contributions to public charities up to 60% of adjusted gross income (AGI) and 30% of AGI for noncash contributions (i.e. appreciated stock) with a five-year carryforward. Donations to private foundations face stricter deduction limits of 30% of AGI for cash and 20% of AGI for long term appreciated securities.

IRS has been aggressively reviewing and challenging charitable donations in response to these new substantiation requirements.  It is expected that this trend will continue.  The burden of proof will be on the taxpayer so it is imperative that good records and supporting documentation is maintained.

OBBBA CHANGE EFFECTIVE 2026: The Impact on Deductions and Charitable Giving: Tax legislation starting 2026 will fundamentally alter how itemized deductions, specifically charitable contributions, are treated. The new rules introduce two major limitations: 1) a floor on deductible charitable contributions for itemizers equal to 0.5% of Adjusted Gross Income (AGI) floor and 2) overall limitation on itemized deductions as they are reduced by 2/37 of the lesser of either total itemized deductions or taxable income (without considering itemized deductions) that exceeds the 35% rate bracket (this limitation will also affect trusts and estates).  The tax benefit for all itemized deductions will be capped at 35% which means high-income earners in brackets above 35% will see their deduction savings calculated at this lower rate, directly reducing their potential tax relief.  In years when the .5% limit applies, a taxpayer will generate at least $1 of excess charitable contributions to preserve a carryforward of the disallowed amount.

Also beginning in 2026, taxpayers who claim the standard deduction may deduct cash donations to public charities up to $1,000 for single filers and $2,000 for joint filers.  Gifts made to donor advised funds, private foundations or supporting organizations do not qualify for this new universal deduction.

EDUCATOR EXPENSES – A grade K-12 teacher, instructor, counselor, or aide in a school for at least 900 hours during a school year is eligible to claim an above-the-line deduction up to $300 for qualified expenses for 2025 and 2026 (up to $600 on a joint return if both spouses qualify as educators) paid out-of-pocket during the year. Qualified expenses include educator expenses, professional development courses, books, supplies, classroom materials, computer equipment and software and personal protective items.

BONUS DEPRECIATION & SECTION 179 BUSINESS EXPENSING ELECTIONS –

Bonus Depreciation: OBBBA reinstated 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.  This allows businesses to deduct the entire cost of eligible assets in the year they are placed in service – boosting short-term cash flow and reducing taxable income.  Prior to OBBBA the 100% expense deduction was scheduled phase-down by 20% per year started 2023 and end at 20% in 2026, after which the provision was set to expire.  Unlike regular depreciation, where half-year and mid-quarter conventions may apply, a taxpayer is entitled to the full bonus depreciation level based on when the asset is purchased. Therefore, year-end placed in service strategies provide immediate “cash discount” for qualifying purchases, even when considering finance costs.  An enticing provision under the law allows qualified property that has been used (i.e., the original use does not have to originate with the purchaser) to be eligible for bonus depreciation.  A taxpayer may elect out of bonus depreciation with respect to any class of property placed in service during the tax year. Although this election may be factored into a year-end strategy, a final decision on making it is not required until the tax return is filed. Bonus depreciation is not a preference item for alternative minimum tax.

Code Sec. 179 Expensing: Provisions made the enhanced Section 179 expense deduction for taxpayers (other than estates, trusts or certain non-corporate lessors) that elect to treat the cost of qualifying property (generally defined as depreciable tangible property that is purchased for use in an active trade or business) as an expense rather than a capital expenditure. Thus, the current Section 179-dollar cap for 2025 and 2026 is $1,250,000 and $2,560,000, respectively, with an overall investment limitation of $3,130,000 and $4,090,000, respectively.

BUSINESS MEALS –For 2025 the limitation is 50% deductibility on qualifying business-related meals with clients, business associates, while traveling and meals on-site for the employer’s convenience.  Beginning 2026 employer provided meals for convenience are generally no longer deductible except if sold a fair market value to an employee in a cafeteria.

BUSINESS MEALS –For 2025 the limitation is 50% deductibility on qualifying business-related meals with clients, business associates, while traveling and meals on-site for the employer’s convenience.  Beginning 2026 employer provided meals for convenience are generally no longer deductible except if sold a fair market value to an employee in a cafeteria.

AUTOMOBILE MILEAGE RATE - Many taxpayers use the standard mileage rates to help simplify their recordkeeping. Using the business standard mileage rate takes the place of deducting the applicable business percentage of the actual costs of your vehicle such as maintenance, repairs, gas, insurance, license and registration fees.  If you choose to use the actual expense method to calculate your business vehicle deduction, you must maintain very careful records by keeping track of the actual costs during the year to maintain and run your vehicle.  One of the most important tools is a mileage log book that details date, miles driven, location and purpose for the vehicle during the calendar year.  Our office can help you compare the benefits of using the business standard mileage rate or the actual expense method.

Business standard mileage rate: The business standard mileage rate for 2025 is 70.0 cents per mile. The mileage rate will be 72.5 cent per mile for 2026.

Medical/Moving standard mileage rate: The medical/moving standard mileage rate for 2025 is 21.00 cent per mile and 2026 is 20.5 cents per mile.  The deduction for moving expenses was eliminated beginning 2018 except for members of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.

Charitable standard mileage rate:   Taxpayers who itemize deductions may be able to claim a deduction for miles driven in service of a charitable organization. The standard mileage rate for charitable miles as determined by IRS for 2025 and 2026 is 14.00 cents per mile.

COLLEGE SAVINGS PROGRAMS/PLANS – Connecticut allows a deduction from federal adjusted gross income for contributions made into a CT higher education trust fund (CHET).  New York allows a deduction from federal adjusted gross income for contributions into a New York 529 college savings plan.  The maximum deduction in each state is $5,000 for a single taxpayer and $10,000 for married filing joint.  However, Connecticut allows contributions in excess of these limits to be carried forward for five years while New York does not allow any carry forward.

GREEN ENERGY TRANSITION: REPEAL AND REPLACE – The OBBBA significantly altered the landscape of energy tax credits in the U.S., impacting eligibility and incentives for clean energy projects.

● Electric Vehicle (EV) Credits: The Clean Vehicle Credit (Sec 30D) and related credits are repealed for vehicles acquired after September 30, 2025. Taxpayers must take physical delivery of an eligible model before this date to claim the credit.

●     Residential Energy Credits: The credits for energy-efficient home improvements (i.e. windows, doors, insulation, HVAC systems, boilers, etc) and residential clean energy (solar and geothermal) terminate for property placed in service after December 31, 2025.  Systems must be placed in service by year-end to qualify.

THE NEW TRUMP ACCOUNT – Recent legislation allows parents, guardians and other authorized individuals to elect to establish a new type of individual retirement account, called a Trump Account, for the exclusive benefit of certain children.  The new-tax advantaged savings vehicle is designed to build long-term wealth for children under 18.  The accounts will initially be eligible for after-tax contributions of up to $5,000 a year until the beneficiary reaches age 18.  Earnings can grow tax free and eligible withdrawals (i.e. education, first time home purchase, starting a business) will generally be taxed at the beneficiary’s income tax rate.  However, withdrawals are generally prohibited until the beneficiary reaches age 18, at which point the account will need to be converted to an IRA.   The account features a pilot program contribution of $1,000 for children born between January 1, 2025 and December 31, 2028, who are U.S. Citizens with a valid Social Security number.  Elections can be made on Form 4547 which can be filed at the same time as the authorized individual’s 2025 income tax return or through an online portal that will be available by summer 2026.  The account allows for an annual non-deductible contribution cap of $5,000 from family members, friends and permits tax-free employer matches up to $2,500 which at this time it is understood to be included in the $5,000 cap. Funds will be invested in a diversified portfolio of low-cost index funds designed to maximize long-term growth while minimizing risk.

Trump Accounts will become available in 2026; however, the first contribution to the account cannot be made until after July 4, 2026.  At this time, it is understood that contributions won’t affect the contribution limits on other tax-advantage retirement accounts.  At this time, it is not clear who will open the account and where it will be held.

HEALTH CARE REFORM - The Affordable Care Act (ACA) brought a sea of change to our traditional image of health insurance.  Taxpayers and employers will continue to weigh the benefits and costs of obtaining coverage in a public marketplace or a private insurance exchange for themselves and their employees.  Small businesses may be eligible for a tax credit to help pay for health insurance.  Individuals may qualify for a premium assistance tax credit, which is refundable and payable in advance, to offset the cost of coverage.  Those who obtained insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which will explain their coverage and detail any premium tax credit they received in advance.

Individuals with flexible spending accounts (FSAs) and similar arrangements should take a look at their annual spending habits and project how they will use these tax favored funds in the future.  The maximum salary reduction contribution to an FSA is $3,300 for 2025 and $3,400 for 2026.  Adjusted for inflation, the annual limitation on deductible contributions to health savings accounts (HSAs) for an individual with self-only coverage under a high-deductible health plan (HDHP) is $4,300 for 2025 and $4,400 for 2026; $8,550 for 2025 and $8,750 in 2026 for family coverage. The HSA catch up contributions for age 55 or older is $1,000 for 2025 and 2026 for both single and family coverage.

GIFT TAXES – Slow and steady estate planning can yield dramatic results - take advantage of the annual gift giving limits to reduce your income and estate tax liabilities. For 2025 and 2026 the annual exclusion remains at $19,000 (married couples may gift up to $38,000 per person).  Remember that if you gift stock, the recipient of the gift takes over the donor’s cost basis and holding period for the security; therefore, the donor needs to provide the recipient with this information.  Current Federal and Connecticut legislation has the per person lifetime estate and gift tax exemption at $13,990,000 for 2025 and $15,000,000 for 2026.  It is anticipated that the exemption amount will be indexed annually for inflation.  Direct payments of educational expenses to a qualified institution for family members, or other beneficiaries, is not treated as a gift for tax purposes and does not count against the annual exclusion amount or the lifetime exemption.

ESTATE TAX REFORM – With the passage of OBBBA, the scheduled reductions in exemption amounts was eliminated and the exclusion is now fixed at a higher level which offers some certainty for long-term planning unless and until a future Congress passes a bill that again overhauls tax law.  The federal gift, estate and GST tax rates remain unchanged, with a top marginal rate of 40% for 2025 and 2026 despite the increase in the per person estate tax exemption to $13,990,000 and $15,000,000 respectively. The portability election and step up of basis election remain as part of the tax law. Portability allows the second spouse to have the benefit of the deceased spouse’s unused portion of the exemption even if the second spouse dies when a lower exemption is in effect.  
With the exemption set at this high, permanent level, the "use it or lose it" urgency that previously motivated large lifetime gifting has largely been abated for many taxpayers.  Consequently, the superior strategy may now pivot from aggressive gifting to basis management. This involves retaining assets within the estate to ensure they receive a step-up in basis at death under IRC Section 1014. This strategy effectively eliminates or substantially reduces capital gains tax liability for the heirs upon the eventual sale of the asset.

AUTOMATIC REFUND REDUCTIONS - With the number of information sharing acts signed by federal and state taxing authorities as well as other organizations, please be aware that refunds could be automatically reduced for the following matters: delinquent federal taxes, delinquent state taxes, back spousal and/or child support and delinquent non-tax federal debts such as student loans and repayment of unemployment compensation.  If the Department of Treasury’s Financial Management System (FMS), which disburses IRS refunds, offsets the refund for a delinquent amount (correctly or incorrectly), they will send a letter to the taxpayer explaining the reduction and giving the taxpayer the right to challenge the offset.  See the “Overview of Electronic Filing Process” letter that describes the federal government push to stop issuing paper checks and issuing all tax refunds electronically.

MAILING & RECORDKEEPING OF TAX PAYMENTS AND TAX RETURNS - See the “Overview of Electronic Filing Process” letter that describes the federal government encouragement to make all payments through electronic systems.  As of December 24, 2025, the USPS added a new section to its Domestic Mail Manual that formally defines what a postmark is and when it applies.  The official postmark date reflects the first automated processing operation at a USPS facility, not the date mail was dropped at a post office or mailbox or the date from a mailing machine.  Manual postmarks obtained at the post office or certificates of mailing will be support of timely mailing.  When mailing tax returns or payments to federal and state taxing authorities, we advise the use of registered or certified mail to prove timely filing.  We also recommend that you make copies of the checks before mailing for your records and maintain records for proof of mailing.  The IRS has stated that other than direct proof of actual delivery, a mail receipt would be the only evidence of the timely delivery of tax documents.  It is also a good practice to make sure that you have good copies of the front and the back of the check images (where available) once your payments clear the bank in case you have to present this information at a later date.  The IRS, as well as many state taxing authorities, are providing options to make direct payments electronically via direct links and established account log ins; therefore, you may want to consider making estimated tax payments and paying notices via these methods in the future.  Please keep in mind that as electronic systems of filing continue to be required, manpower at the federal and state taxing authorities will continue to decline causing longer delays in resolution of matters and placing the burden of proof on the taxpayer.  With the staff shortages and remote work environment, these delays have only increased.

INCREASED REPORTING PROVISIONS ARE IN EFFECT AIMED AT COMPLIANCE AND REVENUE GENERATION - Banks and other processors of merchant payment cards are required to report a merchant’s annual gross payment card receipts to the IRS along with the merchant’s EIN #.  The law also requires reporting of third-party network transactions such as ones used by online retailers.  Expanded information reporting will continue to assist the IRS in increasing the compliance among merchants.  We have also seen an increased emphasis by IRS and state taxing authorities on enforcement of tax provisions.  Additionally, the Treasury Department and state taxing authorities have stated that increased enforcement, electronic submission and information reporting/matching systems are targeted at raising revenue.  The Joint Committee on Taxation estimates that digital asset reporting alone (via Form 1099-DA effective beginning 2025) will increase revenue by $28 billion over 10 years after implementation.

In response to broker reporting changes, the IRS introduced Form 8949 Sales and other Dispositions of Capital Assets in 2011.  Form 8949 is used to list all capital gain and loss transactions previously reported on Schedule D of Form 1040.  The subtotals from Form 8949 are then carried over to Schedule D where realized gain or loss is calculated in the aggregate.  Accurate reporting and matching of data from taxpayer return to that reported by the brokers directly to the IRS is the key compliance focus and purpose of this form.

Foreign Compliance Activities:  Foreign Account Tax Compliance Act (FATCA) dominated international news beginning in 2014 and continues today.  Along with FACTA, the U.S. has been expanding its tax treaties and information agreements with foreign jurisdictions to encourage greater transparency and authorities are getting tighter with compliance efforts.  IRS continues to emphasize FACTA compliance, especially for high-value foreign assets, accounts and individuals.  IRS is increasing use of data analytics to compare foreign bank reports with taxpayer filings.  Any mismatch may trigger an automatic compliance inquiry letter.  FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR), reporting for tax year 2025 is due by April 15, 2026 with an automatic 6-month extension available until October 15, 2026. The IRS has extended certain FACTA Compliance relief provisions for foreign financial institution (FFIS) through 2027. This relief reduces immediate penalties for FFIs that demonstrate a good-faith effort to comply with FACTA requirements, allowing time for banks to implement required systems and reporting processes. The IRS is also evaluating how digital assets held abroad may fit under FACTA rules in future updates.  While not yet mandatory, crypto investors should closely monitor these developments.

Identity Theft:  Tax fraud and identity theft have become a growing problem over the years.  Further initiatives continue to be taken by the industry to combat identity theft issues for taxpayers throughout the country.  IRS has joint efforts with various state taxing authorities and tax preparation software companies to create a security plan to safeguard taxpayer information.  Taxpayers who have experienced identity theft issues or who have been issued IP PIN numbers are required to have this IP PIN input by tax preparers when submitting their return for electronic filing.  Without the IP PIN, efiled returns will be rejected.  These numbers are unique by tax year and it is the responsibility of the taxpayer to supply the tax preparer with this information.  Tax preparers are also required to input the current driver’s license state identification number, issue date and expiration date for ALL taxpayers prior to e-filing without exception.

OTHER FEDERAL NEWS - 

OBBBA changed reporting thresholds for Form 1099-K (for payment card and third-party network transactions), Form 1099-MISC (for payments not covered by other 1099 forms) and Form 1099-NEC (for nonemployee compensation).  The reporting threshold for Form 1099-K returns the 2011 filing threshold of$20,000 and 200 transactions.  The reporting threshold for Form 1099-MISC and Form 1099-NEC is $600 for tax year 2025.  The reporting threshold will increase to $2,000 for tax year 2026 and for 2027 and subsequent years, the threshold will be adjusted for inflation.  Bottom line is the new reporting thresholds should reduce administrative burdens for many individuals and businesses; however, it does not release taxpayers from the reporting of income up to these threshold levels.

Effective March 2, 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim rule the removed the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.  All entities created in the United States and their beneficial owners will be exempt from reporting BOI to FinCEN.  Foreign entities that meet the definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under specified deadlines.  This is NOT a tax reporting requirement but a reporting requirement. 

CONNECTICUT DEPARTMENT OF REVENUE NEWS –

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 2026, the entity may elect to file optional for 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.

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 2025, 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 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 paid directly by the Connecticut Teachers’ Retirement Board.  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). Single filers earning up to $49,500 and joint filers earning up to $70,500 would qualify for the full credit with a phase out for higher incomes.

Modification to Withholding Requirements Relative to Pension & Annuity Distributions:  New legislation suspended the income tax withholding requirement on “lump sum distributions” from certain accounts that was initially enacted in 2024.  The requirement is suspended from July 1, 2025 through December 31, 2026. However, legislation requires payers of lump sum distributions to continue to withhold taxes from these distributions if the payee has requested withholding.   

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 the Tax Cuts and Jobs Act 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.

On November 17, 2025 an emergency bill passed in Washington, DC axing key tax breaks touted in the OBBBA whereby the District of Columbia decoupled from federal tax provisions.  States are not required to conform to all federal tax provisions.  Trump’s mega tax package is causing havoc on state budgets.  Other states with similar moves are Colorado, Illinois, Maine, Maryland, Rhode Island, Virginia and New York.  Currently New York has stated that it will continue to tax tips and overtime pay despite the federal tax break.

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.  In 2025, New York State will prohibit itemized deductions for charitable contributions for residents with an adjusted gross income over $10 million.

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 2026 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.  It remains 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. 

OBBBA reshaped tax compliance and planning and presents a range of new challenges and opportunities to consider for 2026 and beyond.  With its passage, Congress extended many of the provisions contained in the Tax Cuts and Jobs Act of 2017 that were set to expire at the end of 2025, in many instances with modifications touching many aspects of the tax code for various sectors.  The OBBBA also introduced new deductions, along with phaseouts for higher-income taxpayers, including new deductions for workers, seniors, enhanced credit for families, gain deferrals and exclusions for investors, immediate tax deductions for businesses and permanent extension of the gift and estate tax exclusion.

While we do not expect major new tax legislation in 2026, nothing is certain of course.  There may be attempts to expand the SALT deduction and with certainty there will be the correction of technical deficiencies and unintended consequences of OBBBA.  States will continue to face challenges in meeting their budget constraints and it is expected that they will implement a number of changes to their existing tax codes.  We continue to monitor and study changing tax legislation and IRS guidance on enacted legislation.  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!