Key Takeaways
- Rules waive "SSTB" rule, for now.
- How the overtime deduction works.
- The $200,000 bartender.
- Trump to pitch ACA tax credit two-year deal.
- Handbags and tax evasion.
- D.B. Cooper Day.
Wealth Transition Update! Tune in tomorrow for a free webinar featuring Devin Hecht, director of the Eide Bailly Wealth Transition Services team. Topics will include the increased opportunities for income tax planning under OBBBA, the use of non-grantor trusts, trust flexibility, and portability planning. No charge, 1 hour CPE available. November 25, 1:00 p.m. Central Time. Register here.
IRS Loosens Rules for Workers to Claim ‘No Tax on Tips’ Deductions - Ashlea Ebeling and Richard Rubin, Wall Street Journal:
The IRS earlier this year put out a list of dozens of jobs where tipped income would qualify for the deduction. But the law also has an important restriction. It says workers in a “specified service trade or business,” or SSTB, including health, law, performing arts and athletics, can’t claim the break.
The SSTB limit depends on the business of the employer, so a self-employed piano player might not qualify for the deduction while a piano player employed by a hotel would.
The new IRS guidance says the SSTB restriction won’t be enforced until the first year after final regulations are released.
Workers Get a Break With Qualified Tips Relief for 2025 - Trevor Sikes, Tax Notes ($):
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The notice clarifies that an employee may calculate the amount of qualified tips by using (1) the amount of Social Security tips in box 7 on their Form W-2; (2) the amount of tips reported by their employer on Form 4070, “Employee’s Report of Tips to Employer”; or (3) the amount of their employer’s voluntarily reported cash tips in box 14 on their Form W-2.
An employee may also include any amount on line 4 of the Form 4137, “Social Security and Medicare Tax On Unreported Tip Income,” filed with their 2025 income return.
The IRS guidance includes this (my emphasis):
It's good that the tax law is finally cutting a break for America's hard-working $200,000-per-year bartenders.
IRS clarifies how employees can claim 2025 tip and overtime deductions - Martha Waggoner, The Tax Adviser:
Generally, the FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half their regular rate of pay for all hours worked over 40 in a workweek. However, the law includes exemptions
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In a third abridged example, an employer pays overtime at a rate of two times an employee’s regular rate of pay. One employee was paid $20,000 in overtime and her last pay stub shows overtime of $20,000 was paid in 2025. For purposes of determining the amount of qualified overtime compensation received in tax year 2025, she may include $5,000 ($20,000 divided by 4).
There will be so many mistakes made in claiming this.
Implementation of OBBBA Deductions for Tips and Overtime Compensation on 2025 Individual Return - Ed Zollars, Current Federal Tax Developments:
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The fundamental requirement for claiming these deductions remains the substantiation of eligibility and amount. Taxpayers must maintain adequate books and records to satisfy the requirements under 26 CFR Section 6001-1. This includes retaining Forms 4070 (or equivalent reports), daily tip logs, payroll statements, earnings statements, and any separate statements provided by the employer or payor regarding tips or overtime.
A Trump ACA Tax Credit Compromise?
White House to pitch a Trump Obamacare extension with limits - Benjamin Guggenheim, Politico:
The proposal would mark President Donald Trump’s foray into Capitol Hill negotiations over how to address health care premium spikes set to hit Affordable Care Act enrollees if Congress lets the premium subsidies expire.
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The planned eligibility cap would limit the subsidies to individuals with income up to 700 percent of the federal poverty line —aligning with what a bipartisan group of senators have been discussing separately, according to a fourth person granted anonymity to share knowledge of the negotiations.
Enrollees would also pay a minimum premium payment — a nod to concerns from conservatives that millions of Americans pay nothing in premiums while being unaware they are enrolled in ACA insurance plans.
Bipartisan Group Keeps Up Push for ACA Tax Credit Extension - Katie Lobosco, Tax Notes ($):
The new bipartisan legislation would extend the enhanced premium tax credit through 2027 and implement a new eligibility income cap so that the subsidy phases out for four-person households earning between $200,000 and $300,000.
Bipartisan Obamacare Tax Credit Extension Bill Emerges in House - Erin Durkin and Maeve Sheehey, Bloomberg ($):
Enrollees making at or above 600% of the federal poverty would be on the hook to cover more of their premiums.
Capitol Hill Recap: The Growing Divide on Health Care - Alex Parker, Eide Bailly:
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Despite the stark rhetorical divide, there are areas of potential agreement—but in this environment and with a compressed timeline, it could be difficult to put together any kind of workable compromise.
Court Blocks IRS Data Sharing for Immigration Enforcement
Judge blocks IRS from sharing data with DHS for immigration enforcement - Jacob Bogage, Washington Post:
DHS Access to IRS Taxpayer Info Blocked in Federal Court - Tristan Navera, Bloomberg ($):
Judge Colleen Kollar-Kotelly of the US District Court for the District of Columbia granted a preliminary injunction that the groups sought in response to DHS accessing data on large numbers of Americans. She further stayed the agreement signed between the IRS and Immigration and Customs Enforcement, which is part of DHS, that allowed information sharing.
The judge also ordered the IRS to inform the court in advance of any disclosures of taxpayer information it deems lawful.
IRS Mass Address Sharing Likely Violated Tax Code, Court Holds - Nathan Richman, Tax Notes ($):
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Also by November 24, the order directs Treasury Secretary and acting IRS Commissioner Scott Bessent to notify Department of Homeland Security Secretary Kristi Noem and acting ICE Director Todd M. Lyons that they must restrict access to the 47,000 taxpayer addresses already disclosed and potentially return the data. She ordered Bessent to file ICE’s and DHS’s responses to both communications.
Stock Buyback Regs Go Final With Taxpayer-Friendly Changes
Final Buyback Regs Are Good News for M&A Transactions, Too - Chandra Wallace, Tax Notes ($):
The final regulations (T.D. 10037) released November 21 take a different approach in several areas from the proposed regulations (REG-115710-22) issued in April 2024. The new rules will take effect November 24.
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The changes appear to reflect a narrower view by Treasury of the intended scope of the buyback tax, more limited to transactions that are economically similar to traditional stock buybacks, according to Kiggen. That narrowing “will be welcome news to acquisitive taxpayers,” he said.
Blogs and Bits
Tax Breaks: The Thanksgiving With Taxes, Tips And Tariffs On The Side Edition - Kelly Phillips Erb (Forbes). "Even the most protectionist tariffs can’t spur production of items that can’t be easily produced or grown in the U.S.—like coffee and bananas."
Congress Should Let the Work Opportunity Tax Credit Expire - Jack Salmon, The Unseen and The Unsaid. "What it does is shift billions of dollars away from taxpayers to a narrow slice of corporate America."
Taxpayers Can't Claim Theft Loss for Bad Investment - Parker Tax Pro Library. "The Tax Court held that taxpayers who invested in a Turks and Caicos gaming company were not entitled to claim a $2 million theft loss deduction after the company failed to complete an airport casino project that was the primary purpose of the taxpayers' investment."
California Expands Tax Exemption For Golden State Wildfire Victims - Robert Wood, Forbes. "Sadly, the federal exclusion will sunset at the end of this year, unless it is extended. In contrast, the California exclusion will apply through the end of 2030 for most taxpayers."
If It's Not Watches, It's Handbags
California political consultant and former public official charged with conspiracy to commit fraud and obstruct justice, false statements, and tax crimes - IRS (emphasis added, defendant name omitted):
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According to court documents, between February 2022 and September 2024, Defendant conspired with others to divert approximately $225,000 in funds from a dormant political campaign to an associate’s personal use. Collectively, they funneled the money through various business entities and disguised it as pay for what was, in reality, a no-show job.
The indictment also alleges that Defendant conspired with a business associate to create false, backdated contracts after receiving a civil subpoena in January 2024 from the U.S. Attorney’s Office regarding Paycheck Protection Program (PPP) loans made to Defendant’s business.
Defendant also subscribed to false tax returns claiming more than $1 million in business deductions for what were actually personal and nondeductible expenditures, such as private jet travel, luxury hotel stays, home furnishings, and designer handbags, as well as deductions for no-show jobs for friends and family.
When questioned by FBI agents in connection with ongoing investigations into the diversion of campaign funds, the backdated contracts, and allegations of public corruption, Defendant made false statements to the agents regarding each of those topics.
Maybe designer handbags are the female tax evasion counterpart to men's fancy watches.
What day is it?
It's D.B. Cooper Day, observing the 1971 hijacking of a Boeing 727 in which the hijacker parachuted out of a Boeing 707 somewhere over rural Washingtons state. He was never caught, though some of his ransom money turned up. I'm not sure how to observe this holiday, but I won't be jumping out a perfectly good airplane anytime soon.
Make a habit of sustained success.
