Attorney Barbara Weltman: Your Most-Asked 2025 Tax Bill Questions, Answered

Barbara Weltman:
Look, let's face it, employees want career development. This is something that, that's important to them for staying on the job. And so there's, there's a good business reason for it. And the tax benefits to the company are great. And by the way, when you are paying these kinds of benefits, they're not subject to employment tax, so you're getting to deduct the benefit, but you don't have to pay the employment tax on it. So it's not like increasing their compensation, which would trigger more employment tax. And the dollar limit is $5,250. And in the future, it's going to be adjusted for inflation.

Gene Marks:
Yeah, that is great news to hear. Not enough of my clients know about this as well. I think the most important thing that you said throughout all of that is that it does have to be like a formal plan, and it has to be structured and it does have to be applied equally without discrimination across all of your employees. But if that's the case, I mean, it's a great benefit to provide. And although it's 5,250 bucks per employee, you can deduct and they will get not taxed. You know, if you provide these benefits, it doesn't mean you have to spend the entire amount. I mean, you can, you can say the plan is up to $1,000 per employee, but it's a great benefit.

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Welcome to THRIVE, a Paychex Business Podcast. Your blueprint for navigating everything from people to policies to profits. And now your host, Gene Marks.

Gene Marks:
Hey, everybody, it's Gene Marks. And welcome back to another episode of the Paychex THRIVE Podcast. Barbara Weltman is on with me today. Barbara is the founder of Big Ideas for Small Business and the author of the J.K. Lasser's Small Business Taxes. Barbara's a longtime friend, and we did a webinar recently where we dug deep into the tax and spending bill and really kind of focused on taxes rather than spending. And Barbara provided some really great information and insights and advice to help us as business owners leverage all the changes that are going on in the tax world. You can go and view a recording of that webinar if you would like. If you go to go.paychex.com/TaxBill. Not only can you review and view that recording, but you can also enter into a contest to get a copy of Barbara's book, the J.K. Lasser's Small Business Taxes. And that link will also be in our show notes. So, hey, Barbara, let's get to it. First of all, thank you very much for joining me. I appreciate you taking the extra time.

Barbara Weltman:
Pleasure.

Gene Marks:
Good. So we are, we had I don't even know how many 8,000, 10,000 people that were involved in this webinar. It was really a big deal. We got hundreds and hundreds of questions, and we don't have time to like, address all of them, but we kind of summarized the sort of the main themes of certain questions and that's what we're going to go through. That is the topic of this podcast. We're going to, we're going to try and cover some of the things that either needed reinforcing from the webinar, but also, you know, maybe questions that we didn't cover during the webinar. So I've got nine of them. So let's get to it. Okay. The, the first question that came out of the webinar is this for business tax credits involving investments, what businesses apply or is it only for advanced manufacturing? So these are investment tax credits. Talk to us a little bit, recap what those are and maybe we can be more specific.

Barbara Weltman:
Yeah, that, that's... You nailed it. That's kind of it. It's the advanced manufacturing credit. It's not really something that relates to small businesses. I mean, it could, some small businesses could benefit, but the tax credits are not where the changes have been for small business owners for under the One Big Beautiful Bill Act.

Gene Marks:
Okay, that's fine. So, these, I mean, this is for investment in mostly advanced manufacturing facilities, there are credits available, and I guess that's for businesses of all sizes. Am I walking away with that correctly?

Barbara Weltman:
Yes. Yes. There's no... Yes. It was designed primarily for chip manufacturing and there's no size limitation. But let's face it, who's, who's doing that?

Gene Marks:
That's also really true. But I guess the takeaway is, though, is that if you are involved in whatever is called advanced manufacturing, and you're right, it's chip and high-tech manufacturing, there may be some tax credits available for you. And that's something you should be talking to your accountant about. So

Barbara Weltman:
good.

Gene Marks:
Okay, that resolves that. Let's talk next about bonus depreciation. And you know, I always, Barbara, I always screw this up. Like people ask me about bonus depreciation and I'm always like, yeah, it's this and that. And I always, I always say like the wrong things. Just tell us first of all, what bonus depreciation is and how it changed with this bill. And then also tell us what types of assets would be eligible for this?

Barbara Weltman:
Sure. Well, typically when you buy an asset that's going to last more than a year, you have to depreciate it over time. But there are certain opportunities to write off the cost up front. And one way is bonus depreciation. Now bonus depreciation years ago was 100% and then the percentage was phasing down. Well, the new law reestablishes the 100% write-off for property placed in service after January 19, 2025. So going forward, we're going to have this 100% write-off. But as you point out, it only applies to property that's eligible. And so that's, that's the big question. And basically, it's any property that has a recovery period of not more than 20 years. And so basically most, most all property, if you will, and off the shelf software, a qualified improvement property, if you're, if you're building out and doing internal changes to a commercial property, this is an opportunity just right off the costs. And for the first time it now applies to a piece of realty, a specific type of realty called qualified production property. And this is basically factories, and again, construction having begun after January 19 of this year. But when would you ever been able to write-off the cost of a building? It's pretty terrific. And so find out the parameters. And I think one of the things you said, Gene, that I think everybody should really listen to is all of the things we're talking about, you really have to know how it could apply to your business, what you need to do, how do cross your T's, dot your I's, and really talk to your tax advisor. We're just giving you some of the broad strokes here, but you got to know what the details are to make sure that you can take advantage of these breaks.

Gene Marks:
That's great advice. And let's also make sure everybody realizes it's like Barbara said, we're back to 100% writing off this property. It's properties that like you said, Barbara usually has a life of less than 20 years. And this could be buildings now, which is, you know, that's a great new thing and it's been made permanent. But those are all good things. But we need to, we need to validate what that property is. We need to again meet with our tax advisor to make sure that we're taking full advantage of this. But it's another great benefit that was provided by this bill. So, great. All right, let's get to the third question now. This has to do with the no tax on tips and overtime. So there are some specifics about this. I'm going to ask you to, I know we talked about it in the webinar, but explain to us the new rules about no tax on tips and the rules on no tax on overtime. And then we're going to kind of, you know, we'll get into some of the specifics of these questions here about the duration and how the deduction works. But first of all, let's recap what that, what the new rule is.

Barbara Weltman:
Okay. Both of these tax breaks are for the workers. They're not for the employers. And so they're both tax deductions that eligible workers will do on their personal tax returns. And they can take the deduction whether or not they itemize. There's a dollar limit that applies and there's an income limit, modified adjusted gross income limit. So if their income is too high, they can't take advantage of the breaks. From the employer perspective, you're still withholding the usual amount on overtime. Nothing changes with that. You're still paying the same employment taxes, the same FICA and such. So that doesn't change. One of the things that will change is reporting on the W2 form. The law wants you to call out these special types of payments. So tips that are reported to an employer, they're supposed to be broken out on the W2, the overtime pay that's supposed to be broken out. We don't have IRS guidance yet on exactly how this is going to be done. It might be a special line for it, or it might just be a new code in the W2 to identify what the payment is. And we probably get guidance shortly on this. I think one of the confusing parts with respect to the overtime is that it only applies to the bonus part of overtime. So it doesn't apply to all of the all that you earn in overtime. So if you're getting $20 an hour and you get $30 in overtime, it's only the $10 of overtime that's that's taken into account for this deduction. Again, it's a great break.

Gene Marks:
So I guess from the employer's takeaway during the year, not a lot has to be done from the paycheck perspective. But once we receive guidance, we will probably have to make some special reporting on the employee's W2. Am I, am I hearing that correct?

Barbara Weltman:
Correct, absolutely. And I think the law is kind of understanding that this is such a quick thing that it applies for 2025, and employers haven't been, don't have their payroll systems necessarily up to date, and know how to do this. So they're only required to do what's reasonable, some reasonable way of reporting this. And as I said, we should expect guidance soon, hopefully soon, on how to handle this.

Gene Marks:
Okay, great. All right. Great answer. All right, let's turn to sales and local tax, or SALT. Obviously a big controversial thing during the whole run up to getting this bill passed and signed. Explain to us how the SALT rules changed under this new legislation. And then somebody did ask about how the alternative minimum tax affects this SALT deduction.

Barbara Weltman:
Sure. Okay. So the SALT tax, SALT stands for state and local taxes. So it's a cap on what you can deduct if you itemize deductions. Now, right now, about 90% of all individuals use the standard deduction. So this doesn't even impact them. It's only for the 10%, but that's still millions and millions and millions of people. What the new law did was raise the SALT cap. So what you can deduct if you itemize your deductions for your state and local taxes, that means income tax, state and local income taxes, or state and local sales taxes. It's one or the other, plus any property taxes that you pay. So those are the taxes that we're talking about. There is an income limit. And the higher deduction, the $40,000 cap, which is now in place, applies only if your income is a certain amount. If it's over that, the cap will be reduced, but it won't be reduced below the old cap, which was $10,000. So that's something to think about. So even if you're above the income limit, you're going to still get some deduction. But you know, you have to think about what that is. Foreign taxes are not part of this. So if you have foreign taxes on your investments or something, that's not part of the SALT cap. That's separate. And you mentioned Gene...

Gene Marks:
All good. How about alternative minimum tax?

Barbara Weltman:
Yeah. Okay. So, for purposes of the alternative minimum tax, which is sort of like a shadow tax system designed to ensure that if you're taking all these write-offs for your regular income taxes, you can at least pay something under this alternative system. For purposes of the AMT, the alternative minimum tax, state and local taxes are not deductible, which means that you kind of have to add it back to your income and potentially it could trigger or increase an AMT liability. What this kind of means is people should get an idea of whether this is something that applies to them, whether they think they're going to be subject to the AMT because it could dictate what they do late in the year, end of year, because there are a lot of incentives. I know if I pay my property taxes, which are due in March, if I pay them in November or December, I'm going to get a discount. And so there's incentive to do that. But if you're subject to the AMT, it might not be a good strategy to pay early or prepay your taxes. Same with your last installment of estimated tax for the year for your state. So again, you want to really kind of get an idea of how this relates to you so that you can formulate your strategies.

Gene Marks:
And I guess the best way to do that, like you and I have been saying since the beginning of this conversation, is you need to work closely with your tax advisor about this and you know, be able to understand where your income is going for the year, potentially adjust your estimated payments accordingly and think ahead as to whether things like the AMT will impact your taxes at the end of the year. So that's good advice. Let's move on to the next. Education assistance. Now we're talking about education assistance plan tax credit, and is there a cap? Tell us a little bit about that.

Barbara Weltman:
Okay. Educational assistance plans are designed to, to allow employers to help employees with education. The employees are not taxed on this benefit. It's a tax-free benefit, but employers get to deduct what they're paying.

Gene Marks:
Good. So I, let me, let me interrupt you if you don't mind.

Barbara Weltman:
It's not a credit.

Gene Marks:
The question was asking about a tax credit. And this is not a tax credit. The education assistance plan is actually a tax deduction.

Barbara Weltman:
Correct.

Gene Marks:
Okay, carry on.

Barbara Weltman:
Correct. It's just a tax deduction. There are education credits for individuals, personal education credits, American opportunity credit, lifetime learning credit. But that, that has nothing to do with this. This is a completely different animal. Employers must have a written plan to do this. And the plan can cover education costs, doesn't have to be job-related. It could be any kind of education costs and could be tuition and books and fees and that kind of thing. Employers can set their own standards. Do you have to get an A or a B in the course to be reimbursed for, you know, that kind of thing. But... And the plans can cover employee repayment of student loans. So whether the employers pay the loans directly or reimburse employees for these costs, same dollar limit will apply. The plan can't be discriminatory meaning that it can't favor the owner and the owner's family. And so very, very small businesses, it's not practical to use this kind of plan because of that rule. But for, for any kind of modest-sized business, this is a great incentive because let's face it, employees want career development. This is something that, that's important to them for staying on the job. And so there's, there's a good business reason for it. And the tax benefits to the company are great. And by the way, when you are paying these kinds of benefits, they're not subject to employment tax. So you're getting to deduct the benefit, but you don't have to pay the employment tax on it. So it's not like increasing their compensation, which would trigger more employment tax. And the dollar limit is $5,250. And in the future, it's going to be adjusted for inflation.

Gene Marks:
Yeah, that is great news to hear. Not enough of my clients know about this as well. I think the most important thing that you said throughout all of that is that it does have to be like a formal plan and it has to be structured and it does have to be applied equally without discrimination across all of your employees. But if that's the case, I mean, it's a great benefit to provide. And although it's 5,250 bucks per employee, you can deduct, and they will get not taxed. You know, if you provide these benefits, it doesn't mean you have to spend the entire amount. I mean, you can, you can say the plan is up to $1,000 per employee, but it is, it's a great benefit. Yeah. And it helps them, it can help them personally grow. They want to take a class in origami. If that's allowed by your plan, good for them. Or it can be something specific to the job that again is up to the employer to decide. But I think it's a great, it's a great thing. And the new thing is this year is that it's going to be indexed for inflation. So, it's going to be going up because it's been at 5,250 forever, you know. Okay, let's go to the next one. So this is another little known benefit that, you know, I wish my clients knew more of and we have to work to get them to do that. It's about the family leave credit. So first of all, I'd like you to explain to our audience what the family leave credit is and then the question is, does it apply only to employers who are subject to the Family Medical Leave Act or can any size business take advantage of this, of this family leave credit? And then another question is whether or not this credit, does it work if the state pays for the leave? So hopefully you can address these questions about the family. But let's start with what it is.

Barbara Weltman:
Sure. Okay, so there is a federal law as you referred to Family and Medical Leave Act, which requires unpaid leave to employees based on their personal or family needs up to a certain amount. And for employers, I believe it's 50 or more employees. You're subject to the law. A couple of states have mandatory paid leave. Let me take that first and then I'll flip back to the details of the credit. If I looked at the states and the states have employee-funded leave where they withhold from employees to cover the cost of their paid leave. And so, if employees are paying for their leave, essentially, employers will not be able to get this credit. Okay. So, the point of the credit is to incentivize business employers to offer paid leave. And it's for a business of any size. So, you don't have to be subject to the Family Medical Leave Act to take advantage of this credit. And again, it's a great way to support your staff. And going forward with the change in the law, if you are a company that uses insurance to offer this paid leave, you can now use those premiums as the basis of the credit. So, it's really, it's really a good, it's a good change. And the credit had been scheduled to expire at the end of 2025, but now it's permanent and now we have it. Now we know it. And I think, I think, Gene, to your point, you said many people don't know about the credit. And I think partly because when these things are temporary, people might not pay attention, but now that they're permanent, I think, I think we'll see more attention to them.

Gene Marks:
Yeah, I totally agree with you. And just to make sure that we're clear, this was asked of the question and I was always kind of foggy about it. This applies to all employers, right? I mean, even if you have less than 50 employees, if you're not even subject to the family medical leave acting, if you do provide some form of paid leave when somebody has to take time off for certain things, having a kid or you know, you know, illness of a family member, then you're still eligible for this credit. Is that correct?

Barbara Weltman:
Correct. Correct.

Gene Marks:
Good. Okay, that is great. So, yeah, so again, take away from that for all you guys that are watching or listening, is that this is, you know, it's basically the government basically trying to say to you, if you do give your employees unpaid leave, pay for a little bit and we'll help you out if you pay for it. And I think it's a great, you know, it's another great benefit that you can be providing to your employees. So I like it. All right, two more questions to go. This question came up from one of the, you know, one of the participants of the webinar. Are there provisions of the law impacting S corporations? And if so, what are some of the changes that can be expected? You know, as a part of that, they saying, can an S corporation terminate to become a C corporation and still qualify for the qualified... The QSBS, which I think they're referring to the pass-through. Right? Legislation. So, talk to us a little bit about that.

Barbara Weltman:
Okay. Well, there were no really direct changes to S corporations. In other words, the same requirements to be an S corporation to make your election and such. What I think this person is talking about is the exclusion for the sale of qualified small business stock. And that only applies to qualified small business stock. Right. And that only applies to a C corporation. So, the question was raised, well, if I'm an S corporation now, can I terminate and be a C corporation and take advantage of this exclusion, which potentially could mean 100% of your capital gains on the sale of the stock is tax-free. And the answer is yes, you can terminate, but any stock that you got before the termination won't qualify. So, you can terminate and issue stock, and going forward, that stock potentially could qualify, but you can't convert that stock into qualified, the preexisting stock, into qualified small business stock.

Gene Marks:
Great. All right, that's excellent. All right, Barbara, last question. You've been doing great and this has been super helpful to me as well when I talk to my clients. So, the final question has to do with meals. What are the changes to deductions or expensing related to meals? Can someone explain those? Were there any changes?

Barbara Weltman:
Okay, so, so basically the basic rule is, is 50% of the cost of meals. So when you're traveling on business, going out of town or, or entertaining clients in town and customers and taking them out to lunch, 50% of the cost is deductible. And those rules have not changed for 2025. Going forward in 2026, certain meal costs will no longer be 50% deductible. They won't be deductible at all. And these costs include, like the cost of food that you provide in the break room that won't be deductible anymore. So snacks, forget that. You have to look. Certain kinds of meal costs in your eating facilities for businesses, that won't be deductible anymore either. They did introduce 100% deduction for the cost of meals on commercial fishing boats and oil rigs. So very limited for businesses. But, you know, that's the change in the meal rules for 2025.

Gene Marks:
All right. That is fair enough. I think it's actually really important to point out I'm thinking of a couple clients of mine. They do, you know, bring in food for their employees. They do have food like snacks, coffee, whatever in their break rooms, and I don't think they're aware that that's not deductible. I'm pretty sure they're just putting that through their general office expenses and taking a deduction for it and sounds like...

Barbara Weltman:
Well, I'll be curious to know how people are going to handle it going forward. So right now it's supposed to be 50% deductible. We'll see how it gets buried going forward.

Gene Marks:
Yeah. Yeah, that's fair enough. Well, Barbara, this has been great information. I really appreciate you taking the time to share with us and answer these questions. Everybody Barbara Weltman is the founder of Big Ideas for Small Business and she's also the author of the J.K. Lasser's Small Business Taxes book, which is the fantastic and a book that I buy every year to keep me up to date. She does a great job with it. This is all coming from a webinar that we did together just recently where we dug into the all the changes, the tax changes in the Tax and Spending Bill that passed at the beginning of July 2025. If you'd like to look at that webinar, you can go to go.paychex.com/TaxBill. And there's an on demand recording for that webinar. And you can also enter a contest to get a free copy of Barbara's book, J.K. Lasser's Small Business Taxes, which is well worth it. So, Barbara, I'm sure you'll be back. We'll be talking taxes. I think we should talk taxes again between now and the end of the year. It's a, you know, and honestly, I realize that I'm a CPA, so it's kind of like near and dear to my heart, but geez, taxes are one of our biggest business expenses for all of our clients and it should be something you and I should be helping the small business community continue to stay on top of and you do a great job at that. So, thank you so much for your time.

Barbara Weltman:
Well, thank you.

Gene Marks:
Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit payx.me/ThriveTopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR, payroll, benefits or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx. That's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive. I'm your host, Gene Marks, and thanks for joining us. Till next time, take care.

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