Ronald J. Cappuccio J.D., LL.M. (Tax)

Are You a Multistate Resident? Protect Yourself from Double Taxation

2026-05-03T16:52:01Z

Are You a Multistate Resident? Protect Yourself from Double Taxation

Many people mistakenly believe that U.S. law protects them from being taxed by more than one state on the same income. The reality is far more concerning: neither the U.S. Constitution nor federal law prevents multiple states from imposing income tax on the same earnings. This means your hard-earned income could be at risk. While some states offer tax credits to help avoid double taxation, these safeguards are far from guaranteed. If you maintain residences in more than one state, understanding your risks and taking action is not just wise—it's essential to protect your financial well-being.

Domicile compared to Residence

If you are "domiciled" in a state, you are subject to that state's income tax on your worldwide income—regardless of where you spend most of your time. Domicile is defined as your "true, fixed, permanent home," the place to which you intend to return whenever you are away. Critically, your domicile does not change—even if you spend minimal time there—until you take deliberate, documented steps to establish domicile elsewhere. Failing to proactively manage your domicile status can lead to unexpected tax bills and costly disputes. Residency is determined by the amount of time you spend in a state. Typically, you are considered a resident if you maintain a "permanent place of abode" and spend a threshold number of days—often at least 183 days per year—in that state. Many states aggressively tax residents on their worldwide income, regardless of where their official domicile may be. If you are not vigilant in tracking your days and managing your ties to each state, you could easily find yourself facing tax liability in more than one jurisdiction.

Remote Work

Most states now aggressively tax remote workers who provide services for companies within their borders—even when those workers never physically set foot in the state. For example, if you live in Florida (which has no state income tax) but work remotely for a New Jersey-based employer, that employer must withhold New Jersey income tax from your wages. This means you are required to file a Non-Resident Income Tax Return and pay New Jersey taxes, potentially erasing the tax advantages of living in a no-tax state. The situation becomes even more alarming if you live in a high-income-tax state like Hawaii (with a top rate of 11%) and work remotely for a New Jersey employer. In this scenario, you could be subject to both New Jersey and Hawaii state income taxes, with a combined rate exceeding 20%. Without careful planning, you could lose a significant portion of your income to double taxation—a costly mistake that can and should be avoided.

Potential Solution

Consider another example: You live in State A but work in State B. Due to a long commute, you maintain an apartment in State B near your office and return home to State A only on weekends. State A taxes you as a domiciliary, while State B considers you a resident and taxes you as well. If neither state offers a credit for taxes paid to the other, your income is taxed twice—potentially devastating your finances. This double taxation is not just a bureaucratic inconvenience; it is a real threat to your wealth and financial security. To protect yourself from double taxation, one powerful strategy is to avoid maintaining a permanent place of abode in State B. While State B may still tax income earned from work performed there, it generally cannot reach income from other sources, such as investments located in State A. Proactive planning like this can make the difference between safeguarding your income and paying unnecessary taxes.

Minimize Unnecessary Taxes

This example highlights just one way double taxation can surprise individuals who divide their time between multiple states. Because state tax laws vary and are highly fact-specific, expert guidance is not just helpful—it is indispensable. I aggressively advocate for my clients, thoroughly researching applicable state laws and developing customized strategies that protect their wealth and minimize unnecessary tax exposure. Take action now to ensure you are not paying more than you have to pay. Please call me at (856) 665-2121. RJC May 3, 2026

AI communications are not privileged

2026-04-22T17:00:59Z

AI communications are not privileged

AI research by businesses and clients lacks legal protection—exposing sensitive information to discovery.

A recent court ruling makes one fact undeniable: using AI for legal research provides no shield of privilege, even when clients intend this work for counsel. Because general AI platforms offer no true expectation of privacy, anything you submit may be obtained by opposing parties as easily as any other unprotected document. Relying on AI for legal research can put your strategy—and your case—at risk. Only your attorney can guarantee AI research remains protected by privilege. Do not expose your confidential legal strategy—let a licensed professional safeguard your interests. In summary: If you value confidentiality and want to protect your legal rights, entrust all AI-related legal research to your attorney. Only then is your information secure, privileged, and shielded from your adversaries. If clients attempt to conduct AI research themselves, they risk compromising their own case—virtually handing sensitive information to the opposition. The stakes could not be higher.

Landmark Court Ruling: Attorney-client privilege lost when clients use AI for legal research

On February 17, 2026, Judge Jed S. Rakoff of the Southern District of New York issued a landmark decision with far-reaching consequences: written exchanges between a criminal defendant and a generative AI platform are not protected by attorney-client privilege or the work-product doctrine. United States v. Heppner, Case No. 1:25-cr-00503-JSR (S.D.N.Y. Feb. 17, 2026). This precedent should serve as a clear warning for all clients and businesses.

Explanation of the case

After receiving a grand-jury subpoena, Heppner used Anthropic’s Claude AI to generate written analyses of potential defense strategies—believing these would remain private. In reality, large language models like Claude, ChatGPT, and Google Gemini often use user queries to expand their knowledge base, and unless the highest-level, most secure subscription is used, any information entered may become publicly accessible. The risk: your legal strategy could end up in the hands of your adversaries. The defendant later shared those AI-generated documents with counsel. The government sought a ruling that the materials were not privileged.

AI research conducted by a client—rather than by their attorney—is not protected by privilege

The court determined that the AI documents failed to meet the elements of the attorney-client privilege: communications between client and attorney, intended to be confidential, and made for the purpose of obtaining legal advice. The Heppner court focused on four key factors: AI platforms are not attorneys. The court emphasized that the AI documents were “not communications between Heppner and his counsel” and that “Claude is not an attorney.” Because discussions of legal issues with non-attorneys are not privileged, that fact alone was dispositive. Privilege depends on a “trusting human relationship” with a licensed professional owing fiduciary duties—and no such relationship exists with an AI platform, according to Judge Rakoff. There is zero guarantee of confidentiality. The court found the defendant had no legitimate expectation of privacy with Claude, whose privacy policy explicitly allows collection of user data, use for AI training, and disclosure—even to government authorities. Entrusting confidential legal research to an AI platform is tantamount to publishing it.

Simply giving AI research to counsel does not make it privileged

Crucially, the court ruled that forwarding AI-generated work to your attorney after the fact does not make it privileged. Privilege must exist at the time of creation. Once exposed, your information is vulnerable—and cannot be made confidential by later legal review. Any privilege is instantly lost the moment confidential information is shared with an AI platform—just as if you had disclosed it to a random third party. Unlike with email or secure file-sharing servers, there is no reasonable expectation of privacy. The consequence is stark: privileged information becomes fair game for discovery. The work-product doctrine does not protect interactions with AI platforms. The court similarly rejected the defendant’s argument that the information shared with Claude was covered by the work-product doctrine, which protects materials prepared “by or at the behest of counsel in anticipation of litigation.” Even assuming that the AI documents were created in anticipation of litigation, they still failed the doctrine’s core requirement: They were not prepared “by or at the behest of counsel.” Rather, they were prepared by the defendant “on his own volition,” and they did not reflect counsel’s strategy when they were created. The court’s ruling adheres to the general rule that the work-product doctrine exists to protect lawyers’ mental processes. RJC - April 22, 2026

Understanding Taxes and Empoyee Discounts – How to save Money.

2026-04-05T22:16:34Z

Understanding the Tax Implications of Employee Discounts: What You and Your Business Team Need to Know

This might be a typical notice to an employee:

Question: Our leadership team is excited to finally offer employee discounts on our quality products—a decision that reflects our commitment to both our current team and future hires. By providing these discounts, we show our appreciation, boost morale, and make our company an even more attractive place to work. As we roll out this benefit, we want everyone to clearly understand the tax implications, so our team can enjoy these rewards with confidence. Will our staff owe taxes on these discounts? Answer: Offering employee discounts is a powerful way to recognize hard work and build loyalty. It not only saves money for your team, but also makes them feel valued and respected. Sometimes, these discounts can even extend to family members, amplifying the sense of community. However, to ensure everyone fully enjoys this benefit, it’s important to understand when these discounts may be considered taxable income and require withholding.’’

These are the Tax Rules:

Who Qualifies for This Valuable Benefit?

Generally, employee discounts are a special benefit (fringe benefit) and can be enjoyed tax-free if: The discount on products isn’t more than the company’s gross profit percentage for those products, or The discount on services isn’t more than 20% off the regular price, so you get meaningful savings without extra tax worries. If the discount meets one of those rules, family members can also benefit—depending on their relationship to the employee. According to the IRS, "employee" means:

Current employees,
Retired and disabled employees,
Spouses and dependents of employees, and
Surviving spouses of employees.

Please Note: Only those who are considered employees under these rules can get this tax-free employee discount.

What About Other Family Members?

If a discount is given to a family member who doesn’t qualify—like a sibling or parent—the employee will need to pay tax on that benefit. To help your team get the most from this program, it’s smart to make sure everyone knows which relatives can use the discounts tax-free. For example, let’s say an accounting firm gives employees a 20% discount on tax return services that normally cost $500. If an employee’s cousin uses the discount, the $100 saved becomes taxable income for the employee. Focusing discounts on qualifying family members lets everyone enjoy the maximum benefit with no tax surprises. If you decide to extend discounts further, clear communication ensures employees can make the best decisions for their families and finances. Also, if the discount exceeds the allowed amount (the gross profit percentage for products or 20% for services), the excess is taxable. For example, if the accounting firm offers a 30% discount to an employee’s spouse, 20% is tax-free, but the extra 10% ($50) is taxable income.

Why Employee Discounts Can Transform Your Workplace

Employee discounts can boost morale, increase loyalty, and make your business stand out as an employer of choice. By offering these savings, you send a clear message: you value your people and want to reward their commitment. Taking a moment to review the tax rules now ensures your team enjoys these benefits to the fullest and avoids any unexpected surprises. Partnering with your tax attorney can help you communicate clearly, protect your business, and keep everyone focused on what matters most—your people.

If you have questions, please call Ron Cappuccio at 856-665-2121. Together, we can make sure your business stands out, your team feels appreciated, and everyone enjoys the full benefits of your employee discount program—with total peace of mind about taxes.

RJC - 4/5/2026

What the ‘Step-Up Basis’ Tax Rules Mean for Your Family

2026-03-08T17:05:59Z

What the 'Step-Up Basis' Tax Rules Mean for Your Family

When you plan for what happens to your things after you die, it is important to understand how taxes might affect what your family receives. If you know the tax rules, you can help your family avoid paying more taxes than they need to.

Requirement for Executors

Sometimes, if you are in charge of someone's estate, you have to tell the person who gets the property how much it is worth. This usually happens if you have to file a special tax form for the estate.

The Basics of Basis

When you buy something, your "basis" is how much you paid for it. This can also include additional costs such as sales tax or delivery fees. If you get property from someone who has died, the amount used for taxes is usually figured out in one of these ways: The fair market value (FMV) of the property at the date of the individual's death. The FMV on the alternate valuation date if the executor or personal representative for the estate chooses to use alternate valuation. There are special valuation methods and rules for real property used in farming, closely held businesses, and qualified conservation easements.

Step Up, Step Down

The 'step-up basis' rule means that when you inherit something, its value for taxes is usually what it was worth when the person died. For example, if your grandfather bought stock for $500 a long time ago and it is worth $5 million when he dies, you only pay taxes based on the $5 million, not the small amount he paid. The fair market value basis rules apply to inherited property that's includible in the deceased's gross estate, whether or not a federal estate tax return was filed. Those rules also apply to property inherited from foreign persons, who aren't subject to U.S. estate tax. The rules apply to the inherited portion of property owned by the inheriting taxpayer jointly with the deceased, but not the portion of jointly held property that the inheriting taxpayer owned before his inheritance. The fair market value basis rules also don't apply to fiduciaries' reinvestments of estate assets. If you know these rules, you can help your family avoid big tax bills. For example, if your grandfather, instead of dying owning the stock, decided to make a gift of it in honor of his 100th birthday, the "step-up" in basis (from $500 to $5 million) would be lost. Property that has gone up in value acquired by gift is subject to the "carryover" basis rules: The donee takes the same basis the donor had in it (just $500), plus a portion of any gift tax the donor pays. A "step-down," rather than a "step-up," occurs when a decedent dies owning property that has declined in value. In that case, the basis is reduced to the date-of-death value. Proper planning calls for seeking to avoid this loss of basis. In this case, however, giving the property away before death will not preserve the basis: When property which has gone down in value is the subject of a gift, the donee must take the date of gift value as his or her basis (for purposes of determining his loss on a later sale). The best idea for property that has declined in value, therefore, is for the owner to sell it before death so he can enjoy the tax benefits of the loss. Although the above discussion refers to the date-of-death value, the value differs in some cases. Where the decedent's executor makes the alternate valuation election, then the basis will be determined as of the date six months after the date of death (or, if the property is distributed or otherwise disposed of by the estate within the six-month period, the date of distribution or other disposition).

The problem with giving a low basis lifetime gift, including your house

Some people think about putting their house in a trust. But if you do this, you might lose a tax break that lets you avoid paying taxes on up to $250,000 (or $500,000 for a couple) when you sell your home. If you give away property that has increased in value, the person who receives it might have to pay more in taxes. It is smart to talk to a tax expert before giving away valuable things.

Deathbed Maneuvers

One strategy considered by some taxpayers is to pass property through a decedent to attempt to inflate basis under the fair market value basis rules. For example, let's say you own stock with a $1,000 basis and $20,000 value. You go to your 97-year-old grandmother and arrange the following: You gift the stock to your grandmother, who takes it with your $1,000 basis. Then, your grandmother dies, leaving the stock back to you in her will. You regain ownership, but now with the basis stepped up to its $20,000 date-of-death value. However, under a rule to prevent this result, if your grandmother dies within a year of your gift, you still retain your original ($1,000) basis. The result is the same if, instead of leaving the stock to you, your grandmother leaves the stock to your spouse. Knowing about basis can help you make better choices for your family's future. If you want help with your estate plan, you can call Ronald J. Cappuccio, J.D., LL.M. (Tax), Counsellor At Law, at (856) 665-2121 to talk about your situation.

IRS Audit Warnings—And How To Stay Safe

2026-02-22T23:38:46Z

IRS Audit Warnings—And How To Stay Safe Receiving a letter from the IRS requesting additional documentation or initiating an audit can be stressful for anyone. As soon as you receive the letter, call Ronald J Cappuccio, J.D., LL.M. (Tax) at (856) 665-2121. Don't call the IRS. Let me deal with the IRS. Nothing you say to the IRS can help your case! While most taxpayers are not audited, certain factors can increase the likelihood of drawing extra scrutiny from the IRS. By understanding these audit triggers and proactively addressing them, you can approach tax season with greater confidence and peace of mind.

1. Missing or Unreported Income

The Risk: While your primary employer withholds taxes and reports your wages to the IRS, income from freelance work, rental properties, or investments may not be automatically reported. Failing to disclose these additional earnings increases your risk of an IRS inquiry. The IRS receives copies of your 1099s and other informational forms. Omitting income that the IRS already knows about will almost certainly lead to increased scrutiny of your tax return. 2. Dramatic Income Fluctuations The Risk: Significant fluctuations in your annual income can prompt the IRS to question the accuracy of your reported earnings—especially for self-employed individuals or business owners. Substantial changes in reported income may raise suspicions that certain earnings were overlooked or omitted. How To Stay Safe: If your income has varied significantly, provide a clear explanation on your tax return. For instance, note any lost clients, time off, or other relevant circumstances. Many tax software programs allow you to include explanatory notes directly for the IRS, which can help preempt questions. 3. Persistent Business Losses The Risk: New businesses may incur losses initially, but the IRS expects to see eventual profitability. Consistently reporting business losses can prompt the IRS to classify your business as a hobby rather than a legitimate enterprise, potentially disallowing valuable deductions. How To Stay Safe: Maintain comprehensive records and receipts for at least seven years. Demonstrate efforts to operate profitably and document any strategies for business improvement. Evidence of your intent to run a bona fide business is crucial if questioned by the IRS. 4. Questionable or Outsized Deductions The Risk: Claiming substantial tax deductions that appear disproportionate to your reported income is a major red flag for the IRS and may trigger an audit. Big Charitable Donations: The IRS compares your charitable contributions to those of similar taxpayers. Excessively large claims or exceeding deductibility limits can prompt further investigation. Rental Property Losses: You may only deduct rental losses if you actively participate in managing the property and your income falls within allowable thresholds. Home Office Deductions: This deduction is generally reserved for self-employed individuals whose principal place of business is their home. Regular employees are typically ineligible. How To Stay Safe: Retain detailed documentation for every deduction you claim, especially significant ones. Digital copies of receipts and supporting records ensure you can substantiate your claims if audited. 5. Undervalued Estate Assets The Risk: The IRS scrutinizes estate tax filings, particularly when assets appear to be significantly undervalued. Understating asset values can lead to severe penalties and additional taxes. How To Stay Safe: For high-value assets like real estate or artwork, obtain professional appraisals and retain all supporting documentation. Independent valuations can protect you if the IRS questions your reported values. The Bottom Line: You're Ultimately Responsible Even if you engage a tax professional, ultimate responsibility for your return rests with you. Carefully review all tax forms before signing to ensure accuracy and completeness. By following these recommendations, you can minimize your chances of an IRS audit and be better prepared if one occurs. Diligent recordkeeping and strict compliance with tax regulations will enable you to navigate any audit process with greater ease.

Key Point: The most effective way to avoid issues with the IRS is to be thorough and transparent in your reporting, maintain organized records, and seek professional help from Ronald J Cappuccio, J.D., LL.M. (Tax) at (856) 665-2121. Proactive advice can prevent complications that are far more difficult to resolve after the fact.

Final 2025 Year-End Tax Planning

2025-12-14T22:49:54Z

Final 2025 Year-End Tax Planning

The year 2025 is coming to a close, and there are still a few opportunities for year-end tax planning. It's important to note that state and local tax deductions (SALT) are set to increase significantly. President Trump's tax bill, passed by Congress in July, raises the annual deduction limit from $10,000 to $30,000. As a result, many individuals living in high-tax states such as New Jersey, New York, and California will now have the option to utilize the standard deduction. Please note that the increased standard deduction lowers your taxable income but does not affect your adjusted gross income (AGI). As a result, many deductions related to AGI, as well as certain additional taxes like the Medicare surtax and the Obama 3.8% surtax on investment income, are calculated based on AGI rather than taxable income.

Qualified Business Income Deduction

The Section 199A deduction applies to pass-through entities, including LLCs taxed as sole proprietorships and partnerships. This deduction allows owners to deduct up to 20% of their business income, based on wages paid to employees. It was introduced as part of the 2017 Trump tax reform. However, this deduction is available only to certain businesses and is subject to an income limit based on Adjusted Gross Income (AGI), not taxable income. For joint filers, the AGI limit for the deduction is $494,600 in 2025, which increases to $553,500 in 2026. As a result, it may be beneficial to claim income in 2025 while increasing expenses to maximize the deduction. Roth IRA conversions Roth IRA conversions are generally a good strategy. However, converting a traditional IRA to a Roth IRA increases your Adjusted Gross Income (AGI), which can impact various tax deductions and lead to higher taxes. It's essential to evaluate the implications of a Roth conversion and consult with your tax lawyer to perform the necessary calculations. One advantage to consider is the higher standard deduction; the $30,000 standard deduction may help offset some of the income generated by the conversion to a Roth IRA. This is an essential factor to keep in mind. 529 Withdrawals 529 plans for educational savings allow for tax-free withdrawals for a variety of expenses incurred after the passage of the Trump tax bill on July 4. In addition to expanding the uses of 529 plans for K-12 education, eligible expenses now include books, standardized tests such as the SAT, LSAT, and MCAT, as well as the materials needed to prepare for these tests. Individual tutoring for these exams is also covered. The total expenditure for 2025 must be $10,000 or less, which will increase to $20,000 in 2026. Deductions 2025 and 2026 It’s interesting to note that there is still an opportunity to make deductions for SEP IRAs, IRAs, and health savings accounts after December 31, 2025. These deductions can be applied until the filing of the 1040 tax return on April 15, 2026. This means that if a business has not made contributions to the SEP IRA, it may still be possible to deduct 2025 contributions using funds from 2026. Many professional tax preparers can create hypothetical scenarios to analyze the impact on various taxes and deductions. Conclusion Although it is late in the year, there are still opportunities to take advantage of tax benefits for 2025. If you have any questions, please call me at 856-665-2121. RJC -12/14/2025

2025 Tax Savings for Businesses to do Now!

2025-11-29T19:17:43Z

2025 Year-End Small Business Tax Saving Tips

There is still time for small businesses and their owners to implement strategies to save on taxes for 2025. Traditional strategies remain effective, but the One Big Beautiful Bill Act (OBBBA) introduces several changes that can also help reduce federal income tax obligations for small businesses and their owners in 2025. Here are year-end tax planning tips to consider.

1. Manage Pass-Through Entity Income

Federal income tax rates are crucial for sole proprietorships and pass-through entities, such as: - Single-member LLCs - Partnerships - LLCs taxed as partnerships - S corporations In these cases, taxable income is reported on the owners' personal tax returns. If you expect to be in the same or a lower tax bracket in 2026, consider deferring taxable income to next year and accelerating deductible expenses this year. This can postpone part of your 2025 tax liability and potentially lead to permanent tax savings if your tax bracket decreases. Cash Basis Businesses A.Lower 2025 Income i. Income Typically, cash-basis businesses don't need to report income until they actually receive cash or checks, whether in hand or through the mail. To take advantage of this guideline, consider delaying the sending of some invoices to customers until just before the end of the year. However, this strategy should be applied only to customers with a reliable history of timely payments. ii. Expenses Cash-basis businesses can reduce taxable income for the current year by: a. Charging recurring expenses to a credit card at year-end, allowing 2025 deductions even if paid in 2026. b. Mailing checks for expenses a few days before year-end. You can deduct these expenses in the year the checks are mailed, regardless of when they are cashed. c. Prepaying certain expenses. You can deduct these in the year paid if the benefit doesn't extend beyond 12 months or the end of the next tax year. Note: These timing strategies may also reduce your qualified business income (QBI) deduction and other tax breaks. Consult your tax lawyer to find the best approach for your situation. B. Accelerate Income into 2025 If you anticipate being in a higher tax bracket next year, consider taking a different approach. Try to accelerate your income for this year, and postpone any deductible expenses until 2026. This way, a larger portion of your income will be taxed at this year's lower rate instead of next year's higher rate. 2. Maximize the QBI Deduction The OBBBA permanently allows a deduction for Qualified Business Income (QBI) from pass-through business entities, up to 20%, with restrictions at higher income levels. You can also claim this deduction on qualified dividends from real estate investment trusts (REITs) and income from publicly traded partnerships. To optimize your deduction, manage your taxable income by considering strategies like harvesting capital losses and delaying Roth IRA conversions. Be cautious, as certain decisions, such as significant first-year depreciation deductions or large retirement plan contributions, can reduce your allowable QBI deduction. It's best to consult with your tax lawyer and tax preparer for informed guidance. 3. Buy Fixed Assets Suppose you're planning to purchase machinery, equipment, or computer systems. In that case, you may write off most or all of the purchase price on your 2025 tax return if placed in service by December 31, 2025. The OBBBA reinstates 100% first-year bonus depreciation for eligible assets acquired and placed in service after January 19, 2025, up from 40%. Eligible assets include most new and used tangible property with a recovery period of 20 years or less, such as: - Office furniture and equipment - Computer hardware and peripherals - Commercially available software - Certain vehicles (vehicles over 6,000 pounds GVWR and used over 50% for business qualify for 100% bonus depreciation) You can also claim first-year bonus depreciation for qualified improvement property (QIP) related to nonresidential buildings, excluding costs for building enlargements, elevators, escalators, or structural framework, which depreciate over 39 years. Most tangible, depreciable business assets—such as off-the-shelf software and qualified improvement property (QIP)—qualify for a separate first-year tax benefit known as the Section 179 deduction. Section 179 expensing is also applicable for: - Roofs, HVAC equipment, fire protection and alarm systems, and security systems for nonresidential real property. - Depreciable personal property predominantly used in connection with furnishing lodging. For qualifying property placed in service in 2025, the OBBBA increases the Section 179 expensing limit to $2.5 million (up from $1.25 million for 2025 before the new law). A phase-out rule reduces the maximum Section 179 deduction when qualifying asset purchases exceed $4 million (up from $3.13 million for 2025 before the new law). Additionally, there is a special limitation on Section 179 deductions for heavy SUVs used more than 50% for business. This limitation applies to vehicles with Gross Vehicle Weight Ratings (GVWRs) between 6,001 and 14,000 pounds. For tax years beginning in 2025, the maximum Section 179 deduction for a heavy SUV is $31,300. It is important to note that Section 179 deductions are subject to several limitations that do not apply to first-year bonus depreciation, particularly for S corporations, partnerships, and LLCs treated as partnerships for tax purposes. Conventional wisdom suggests claiming the allowable 100% first-year bonus depreciation deduction instead of Section 179 deductions for the same assets. Most tangible depreciable business assets (including off-the-shelf software and QIP) also qualify for a separate first-year tax break: the Section 179 deduction. For qualifying property placed in service in 2025, the OBBBA increases the Sec. 179 expensing limit to $2.5 million (up from $1.25 million for 2025 before the new law). A phase-out rule reduces the maximum Sec. 179 deduction when qualifying asset purchases exceed $4 million (up from $3.13 million for 2025 before the new law). There's also a special limitation on Sec. 179 deductions for heavy SUVs used over 50% for business. The limitation applies to vehicles with GVWRs between 6,001 and 14,000 pounds. For tax years beginning in 2025, the maximum Sec. 179 deduction for a heavy SUV is $31,300. Important: Sec. 179 deductions are subject to several limitations that don't apply to first-year bonus depreciation, especially for S corporations, partnerships, and LLCs treated as partnerships for tax purposes. The conventional wisdom is to claim the allowable 100% first-year bonus depreciation deduction rather than the Sec. 179 deductions for the same assets. 4. Place Your New Factory in Service The OBBBA allows businesses to claim an additional 100% first-year depreciation for qualified production property (QPP). This refers to nonresidential real estate, such as a factory building, that's used as an integral part of a qualified production activity, such as the manufacturing, production, or refining of tangible personal property. Before the OBBBA, these buildings were generally depreciated over 39 years. QPP doesn't include any part of nonresidential real property that's used for: Offices, Administrative services, Lodging, Parking, Sales activities, Research activities, Software development, Engineering activities, or Other functions unrelated to the manufacturing, production, or refining of tangible personal property. To qualify for this new break, construction of QPP must begin after January 19, 2025, and before January 1, 2029. The property must be placed in service in the United States or a U.S. possession, generally before 2031. Suppose you began constructing an eligible building after January 19, 2025, and are nearing completion. In that case, you should do what you can to complete it and place it in service by December 31, 2025. That would make you eligible to claim QPP 100% first-year depreciation on your 2025 return. 5. Establish a Tax-Favored Retirement Plan If your business doesn't already have a tax-favored retirement plan, consider establishing one. Current rules allow significant annual deductible contributions. For example, suppose you are self-employed and set up a Simplified Employee Pension (SEP) IRA. In that case, you can contribute up to 25% of your net self-employment income. If you work for your own corporation, you can contribute up to 25% of your salary, with a maximum contribution limit of $70,000 for 2025. This could save someone in the 32% tax bracket $22,400 (32% of $70,000). Other retirement plan options include 401(k)s, Solo 401(k)s, defined benefit pension plans, and SIMPLE IRAs, which may offer larger deductible contributions depending on your situation. You can adopt and fund a tax-favored retirement plan (except SIMPLE IRAs) by the due date of your federal income tax return, including extensions. For instance, if Tim, who operates a sole proprietorship, files for an extension for his 2025 return due on October 15, 2026, and establishes a SEP IRA by that date, he can deduct contributions on his 2025 return. Note: To make a SIMPLE IRA contribution for 2025, the plan must be set up by October 1, 2025. Consult your tax lawyer for more details on small business retirement plans, especially if you have employees, as you may need to contribute on their behalf. 6. Invest in R&E Activities Before the OBBBA, research and experimental (R&E) expenditures were amortized over 5 years in the U.S. and 15 years outside the U.S. Starting in 2025, businesses can immediately deduct eligible domestic R&E expenditures, while those conducted abroad must still be amortized over 15 years. The R&E deduction must be reduced by any credits claimed for increasing research activities related to those expenditures. Taxpayers with R&E expenditures from 2022 to 2024 can choose to write off remaining unamortized amounts over one or two years, starting in 2025. Eligible small businesses (averaging $31 million or less in annual gross receipts for the past three years) can retroactively apply the immediate deduction rule to taxable years after 2021. For more details on these elections and their impact on year-end planning, consult your tax lawyer. Do not wait to plan! Act quickly to reduce your 2025 taxes. The OBBBA simplifies year-end planning for businesses through 2028 and enhances certain tax breaks. Please call me at (856) 665-2121 to explore strategies and last-minute moves that can benefit you. Ron Cappuccio -11/29/2025

Business Travel with your Spouse

2025-10-11T21:37:34Z

Traveling for Business with Your Spouse

Taking your spouse along on a business trip is a way to combine work with pleasure. However, while your own necessary expenses are generally tax-deductible, this is not necessarily the case for the costs associated with having your spouse travel with you. The travel expenses for your spouse are only deductible if they meet strict IRS criteria. In many cases, the deduction may be limited or not permitted at all.

Does your spouse work for the Company?

Suppose your spouse is a legitimate employee of the Company and holds a position with actual responsibilities. In that case, this meets the first IRS requirement. Your spouse must fill a vital role within the business, making it necessary for them to travel with you. Simply assisting with business tasks during the trip is not enough for the expenses to qualify as deductible. For instance, taking notes, organizing files, and keeping you on schedule do not count as valid business reasons. Generally, if your spouse’s presence is solely to help host business dinners or other social events, their expenses cannot be deducted. There is one exception to these strict rules. If you have a critical medical condition that requires your spouse to accompany you on a trip, their costs may be deductible. In this case, you must provide proper documentation of your health condition with medical records. If your spouse plays a necessary role in your business, the costs of their travel for business purposes are generally tax-deductible. This includes expenses such as airfare, lodging, meals, and incidental costs like dry cleaning or phone calls. Be sure to follow the standard regulations for business travel when you're away from home.

What If Your Spouse Isn’t on the Payroll?

If your spouse doesn’t qualify as a bona fide employee, you can still deduct the expenses that you would have incurred if you had traveled alone. Typically, the costs of traveling alone can account for more than 50% of the total travel expenses. For example, a single room might cost $200, while a double room costs $220. Under IRS rules, only the additional $20 for double occupancy would be disallowed. Be sure to request documentation from your hotel showing both the single and double occupancy rates, and retain this information with your tax records. If you fly to your destination, your airfare is deductible, even if you extend your trip for leisure purposes. However, your spouse’s airfare cannot be deducted. On the other hand, if you travel by car, the presence of your spouse does not increase the driving expenses to your destination. Therefore, the costs associated with driving—whether you own the car or rent one—are deductible.

Mixed-Purpose Travel

Whether you are traveling alone or with your spouse, you may choose to add extra days for sightseeing. However, all costs incurred during these additional days are nondeductible. For example, if you are traveling by car and take a detour to visit friends, adding an extra 100 miles to your trip, you can still deduct the costs that are necessary for business. It's important to allocate expenses between business and leisure. If the total cost of your trip, excluding the extra days or miles, is $2,000, and the final total costs amount to $2,500, you can deduct $2,000 from the total expense. On the other hand, if your trip is primarily for personal reasons—regardless of whether you are traveling alone or with someone—the entire cost of the trip is considered a nondeductible personal expense. However, if you incur expenses that are directly related to your business during the journey, such as going out of your way to deliver a product to a client, that portion of the trip may be deductible. Be sure to record your mileage and any other related costs for your tax records.

Make your Business Plans Clear Before you Travel.

Deducting travel expenses for your spouse can be challenging, as the IRS generally assumes these expenses are not deductible. It's important to carefully document your costs as they arise. Before finalizing your travel plans, consult your tax lawyer to ensure you meet the requirements for deductibility. RJC - 10.11.2025

IRS is Now Closed During Government Shutdown!

2025-10-09T16:58:29Z

IRS Funding Ended - Closed Now During Shutdown!

The IRS has shut down most operations and closed most offices due to the government shutdown. The official notice of the IRS is: https://www.irs.gov/newsroom/irs-employee-emergency-news Most IRS employees will be furloughed until the funding restarts. This means audit activity, collection activity, and meetings and responses with taxpayers and their tax lawyers are suspended until operations resume. IRS counsel handling US Tax Court cases will continue to work and be paid, and these cases will be tried as usual. RJC October 9, 2025

Gamblers pay more Income Tax Under New Law

2025-10-07T01:27:21Z

Gamblers get Reduced Loss Deductions - and Phantom Income

Phantom Income Because only 90% of Gambling Losses are Deductible.

What is "Phantom Income"? It refers to Taxable Income that you have to report, even though you did not receive cash for that income. Starting in 2026, gamblers will encounter this issue due to new tax laws that reduce the amount of loss deductions they can claim.

Currently, gambling winnings and losses can completely offset each other. For example, if you have $100,000 in winnings and $100,000 in losses, you do not have any taxable income. However, beginning in 2026, you will only be able to deduct 90% of your gambling losses against your winnings. In the same scenario, if you win $100,000 and only have a $90,000 deductible loss, you will still appear to have $10,000 of taxable income, despite the actual loss of $100,000. This situation results in what is known as "Phantom Income."

Basic Gambling Income Tax Rules

A. Amateur Gambler

Until 2026, amateur gamblers may claim the gambling loss deduction only: i. If they itemize deductions on Schedule A of their 1040; ii. The deductions are limited to the amount of winnings. If you itemize deductions, not if you claim the standard deduction; iii. Non-direct gambling expenses (hotels, airfare, meals) are not deductible; iv. Excess losses can not be carried to the following year. B. Gambling Professionals Gambling professionals’ activities are classified as a trade or business. Winnings and losses should be reported on Schedule C. Reasonable non-direct gambling expenses, such as hotels, airfare, and meals, can be deducted if they are ordinary and necessary to generate income.

The IRS Audits Gamblers

During audits, the IRS frequently questions deductions for gambling losses. To strengthen your claims, it's essential to maintain a diary or similar records. In addition to the casino's annual reports, keeping copies of every receipt can be beneficial. Periodically scanning these documents will help you stay organized and up to date. For instance, maintaining a record of lottery ticket purchases—documenting dates, winnings, and losses—will be valuable if you face an IRS audit. Keeping these records up to date will help demonstrate that they are genuine and not created retroactively.

High Stakes Amateurs and Professionals are Stuck

Frequent gamblers and those who play for high stakes will be particularly affected, as their winnings and losses can be substantial. Professional gamblers often experience "phantom income," making them easy targets for scrutiny from the IRS. It would not be surprising if casinos and the organized gaming industry engage in intense lobbying efforts in Congress to reverse this new tax law