Remon Ibrahim CPA

IRS Issues Additional Guidance for "No Tax on Tips" Deduction
The One Big Beautiful Bill Act (OBBBA) specifies that only tips separately reported on a year-end tax document like a W-2 or 1099 form qualify for the new “no tax on tips” deduction. However, the current versions of those forms do not necessarily allow for reporting that complies with the OBBBA requirement. Therefore, the IRS will allow eligible tipped employees and self-employed people to use alternative methods to figure the deduction for 2025.

Under these special, temporary rules, qualifying tip recipients may be able to use any of the following as the basis for their deduction:

Tips shown in box 7 of Form W-2 (Social Security tips)
Tips properly reported to an employer, even if the tips do not separately appear on a W-2 form
Tips recorded separately in detailed records of self-employment income, even if the tips are not specifically reported on a Form 1099
If you are eligible to claim the “no tax on tips” deduction, the maximum annual deduction is $25,000, subject to income limits, with a phase-out range beginning at a modified adjusted gross income (MAGI) of $150,000 for individuals, or $300,000 for joint filers

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Preparation for the Upcoming Tax Filing Season

The filing season for 2023 tax returns will soon be upon us. A little advance preparation can prevent stressful tax time surprises. Here are some important steps you can take now to set yourself up for worry-free tax filing:

If your name changed in 2023, report the change to the Social Security Administration (link below) as soon as possible, preferably before the end of the year.
Locate your bank account information, including both your account number and the bank routing number, so you can receive your tax refund by direct deposit.
Watch for year-end income statements, especially in late January and early February. These statements may include W-2 forms, along with 1099-NEC, 1099-MISC, 1099-INT, 1099-G, and other 1099 forms. Note that some of these forms may come by mail, while others may be sent to you electronically. Keep all of the forms together and organized.
Organize records for tax deductions and credits. These records may include Form 1095-A (Health Insurance Marketplace Statement), tuition statements (Form 1098-T), medical bills, mortgage interest statements, and home energy improvement or clean vehicle receipts or invoices.
Waiting until the last minute to try to assemble these documents can lead to missing the filing deadline, so start early.

IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator
Social Security Administration (SSA): https://www.ssa.gov/


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Tax Withholding Estimator | Internal Revenue Service Check your W-4 tax withholding with the IRS Tax Withholding Estimator. See how your withholding affects your refund, paycheck or tax due.