Month: September 2025

Understanding IRS Schedule A Itemized Deductions Under the OBBB Act

Preface: “The precise point at which a tax deduction becomes a ‘loophole’ or a tax incentive becomes a ‘subsidy for special interests’ is one of the great mysteries of politics.” – John Sununu

Understanding IRS Schedule A Itemized Deductions Under the OBBB Act

When filing taxes, taxpayers can choose between the standard deduction or itemized deductions on IRS Schedule A. The One Big Beautiful Bill (OBBB) Act, signed into law in 2025, made several important updates that impact itemized deductions for individuals. Below is a breakdown of the key changes and how they may affect your tax return.

State and Local Tax (SALT) Deduction Limit

      • From 2025 through 2029, the SALT deduction limit increases to $40,000 ($20,000 if married filing separately).
      • In 2025, the limit starts at $40,000 ($20,000 separate). It rises slightly each year by 1% until 2029.
      • However, the benefit phases out for high-income taxpayers:
        • If your modified adjusted gross income (AGI) exceeds $500,000 ($250,000 if separate), your deduction limit is reduced.
        • The reduction equals 30% of the excess income above the threshold, with at least a $10,000 ($5,000 if separate) reduction.
      • After 2029, the limit returns to $10,000 ($5,000 if separate) in 2030.

Home Mortgage Interest Deduction

      • The home mortgage interest deduction rules from the Tax Cuts and Jobs Act (TCJA) are made permanent.
      • You can deduct interest on up to $750,000 of acquisition debt ($375,000 if married filing separately).
      • The suspension of interest deductions on home equity debt also remains permanent.

Car Loan Interest Deduction

      • Typically, personal loan interest is not deductible.
      • Under the OBBB Act, for 2025–2028, you can deduct up to $10,000 per year of interest on loans for U.S.-assembled passenger vehicles.
      • The deduction phases out for taxpayers with AGI over $100,000 ($200,000 for joint filers).
      • Important: This deduction applies even if you don’t itemize.

Charitable Contribution Deductions

      • Starting in 2026, non-itemizers can deduct up to $1,000 ($2,000 for joint filers) of cash charitable contributions.
      • For those who itemize, a new 0.5% floor applies: your allowable deduction is reduced by 0.5% of your contribution base.
      • Example: If your contribution base is $100,000, $500 would be subtracted from your allowable deduction.

Personal Casualty and Theft Loss Deduction

      • Under the OBBB Act, the rules limiting deductions to federally declared disasters are made permanent.
      • The law expands this to include state-declared disasters such as floods, fires, or explosions recognized by a governor.
      • Losses tied to qualified disasters between 2019 and September 2025 are also covered.

Gambling Losses

      • Gambling losses can only offset gambling winnings.
      • The OBBB Act introduces a new restriction: starting after 2025, only 90% of wagering losses are deductible, and this deduction is limited to the amount of gains.
      • Example: If you win $10,000 and have $12,000 in losses, you can deduct only $9,000.

Moving Expenses

      • The TCJA suspended most moving expense deductions, and the OBBB Act makes this permanent.
      • Only active-duty military members and intelligence community employees (and their families) qualify for moving expense deductions or reimbursements.

Miscellaneous Itemized Deductions

      • The suspension of miscellaneous itemized deductions (like unreimbursed employee expenses) is now permanent.
      • Exception: Educator expenses are allowed above the line up to $300 (increasing with inflation). Starting after 2025, teachers can also itemize classroom expenses above this limit.

Phaseout of Itemized Deductions

      • A new overall limit applies to high-income taxpayers:
          • Itemized deductions are reduced by 2/37 of the lesser of:
            1. Total itemized deductions, or
            2. Taxable income above the 37% bracket threshold.
      • This applies after other limits (such as the SALT cap) are calculated.

Planning Note: Standard Deduction vs. Itemizing

      • The OBBB Act makes the standard deduction increase permanent:
        • $15,750 for single filers (2025)
        • $23,625 for heads of household
        • $31,500 for married filing jointly
      • The amounts adjust for inflation in future years.
      • You may still choose to itemize if your deductions (SALT, mortgage, charitable, etc.) are greater than the standard deduction.

Final Thoughts

The OBBB Act reshaped how taxpayers approach Schedule A deductions. For most, the higher standard deduction will remain the simpler choice. However, with changes such as the higher SALT cap, charitable deduction rules, and the new car loan interest deduction, some taxpayers may benefit from itemizing their deductions.

Careful planning is essential, especially for those near phase-out thresholds. Consider consulting a tax advisor to evaluate whether itemizing or taking the standard deduction will provide the best tax outcome under the new rules.

Book Report: This is Strategy: Make Better Plans by Seth Godin

Preface: “Strategy is the hard work of choosing what to do today to improve our tomorrow.” ― Seth Godin, This Is Strategy: Make Better Plans

Book Report: This is Strategy by Seth Godin

Introduction

Seth Godin is a well-known writer and thinker on marketing, leadership, and innovation. In his book This is Strategy: Make Better Plans, Godin explains how people and organizations can make smarter choices that lead to long-term success.

The book isn’t about complicated charts or formulas. Instead, it’s about changing how we think about planning, taking action, and growing in a world that is always changing. Godin’s main message is that success doesn’t come from working harder or faster. It comes from working smarter, asking better questions, and being willing to face discomfort.

The Problem with Default Thinking

Godin begins by pointing out a common problem: many people rush from task to task without making real progress. This leads to stress and burnout. The issue, he says, is that people often know what they want, but they don’t have a real strategy to get there.

Repeating the same actions over and over won’t work if the world has changed. Old methods may feel safe, but sticking to them is a trap. Strategy requires adapting to new realities.

Character as the Foundation of Strategy

One of Godin’s strongest points is the importance of character. He defines character as choosing your values over your instincts. In other words, strategy works best when it’s guided by values, even when those choices are hard.

For example, a strong leader doesn’t avoid tough conversations. They face them because those talks build trust and a stronger team. Godin believes that growth often comes from discomfort. Instead of running from it, he tells readers to seek it out because it helps us grow faster.

Learning Myths and Growth

Godin also challenges the popular idea of “learning styles.” He says people don’t really learn better in just one style—they simply have preferences that make them feel comfortable. Real growth comes when we move out of our comfort zones and try new ways to learn.

This lesson connects to strategy. Businesses can’t just stick to what’s familiar. A company that has always used one kind of marketing might need to explore new platforms or creative methods to grow.

Procrastination and Discomfort

Godin takes another common issue—procrastination—and reframes it. He argues that procrastination usually isn’t laziness. Instead, it’s avoiding the uncomfortable feelings tied to the task. Good strategists recognize this and face the discomfort rather than delay.

He quotes Ted Lasso: “If you’re comfortable, you’re doin’ it wrong.”

Tactics vs. Strategy

A key message in the book is the difference between tactics and strategy.

      • Tactics are small daily actions.
      • Strategy is the bigger picture—the “why” behind what you’re doing.

Without strategy, tactics are just busywork. Godin says many companies get caught up in tactics like running ads or chasing sales without answering bigger questions like:

      • Why are we doing this?
      • Where are we going?
      • Who are we serving?

Examples from the Book

      • Marketing a Product – Strategy is not about pushing out more ads. It’s about building trust and connection with customers. A loyal customer base is worth more than short-term sales.
      • Career Development – Strategy in your career may mean saying “no” to an easy job in order to grow skills in a harder one. Godin says we should look at our careers as a purposeful journey, not just a series of jobs.
      • Community Building – Strategy in a community is not about control. It’s about creating shared values and giving people a chance to be part of something bigger.

Practical Applications

Godin gives several ways to put his ideas into practice:

      1. Set Clear Values – Decide what matters most to you before making a plan.
      2. Seek Discomfort – Choose the option that helps you grow, even if it’s harder.
      3. Separate Tactics from Strategy – Ask yourself if your daily actions connect to your bigger plan.
      4. Test and Adapt – Strategies must change as situations change.
      5. Think Long-Term – Focus on sustainability and lasting impact, not just quick wins.

Key Lessons for Everyone

      • Growth Requires Change – Old methods won’t work forever.
      • Character Matters – Decisions guided by values build trust.
      • Comfort Can Hold You Back – Real growth happens in discomfort.
      • Keep It Simple – Strategy doesn’t need to be complicated, just clear.
      • Strategy Is for All – It’s not only for CEOs; anyone can use it in life or work.

Conclusion

Seth Godin’s This is Strategy is a powerful reminder that success isn’t about nonstop hustle. It’s about smart, values-based strategies that help us grow and make an impact.

For leaders, it’s a call to focus on long-term vision and culture instead of quick wins. For individuals, it’s encouragement to view life and career choices as part of a bigger picture.

In today’s world, where change is constant and distractions are everywhere, Godin’s advice is clear: strategy is more than a plan—it’s a way of living and leading.

History of the Retirement Plan, Part IV

Preface: “Some people shave before bathing.
         And about people who bathe before shaving they are scathing.
          While those who bathe before shaving,
          Well, they imply that those who shave before bathing are  misbehaving.”                – Ogden Nash

History of the Retirement Plan, Part IV

The following is the fourth in a series of blog posts on the subject of retirement plans. The first three installments can be found here, here, and here. In them we have:

    • Briefly reviewed the history of government-defined retirement models in the United States,
    • Introduced the tax-deferred model,
    • Explained the difference between Qualified plans and Individual Retirement Accounts (IRAs).
    • Discussed limits to deductibility of retirement contributions, and
    • Tax treatment of non-deductible contributions.
    • And introduced the Roth model.

In this fourth installment, we will conclude our discussion of Roth IRAs with a review of:

Roth Conversions

In the previous post in this series, we extolled the virtues of the Roth IRA and the advantages it offers account holders. In particular, it allows all money contributed to grow tax-free with no reporting requirement or tax due at any time. Given a sufficient time horizon, this advantage will more than compensate for the fact that contributions to Roth IRAs cannot be deducted from taxable income.

The Empire Strikes Back against Roth Account Holders

The government is aware of these rather unfair advantages that the Roth IRA gives to the taxpayer.  For this reason, they have placed limits on who can contribute to one. This is not a limit on deductibility of contributions, as exists with the traditional IRA, but a limit on the contribution itself.

For 2025, income limits are:

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The Roth Conversion

But have no fear. You can continue to contribute to your Roth no matter how high your AGI is. Yes. Really.

The way to do this legally is a provision, some would call it a loophole, known as a Roth conversion. A Roth conversion is really just a rollover, but one from a traditional to a Roth status.

Some people will tell you that a Roth conversion is taxable. They are mostly correct. Specifically, the pre-tax portion of a Roth conversion is taxable. This is true since going from pre-tax to after-tax by definition means that tax is being paid in the process. There is not a special tax that applies to Roth conversions. It is the same tax that you would pay on any qualified withdrawal of pre-tax money. This is because, as mentioned, a Roth account must always have an entirely after-tax status.

You must report the Roth conversion on Form 8606, where you will compute the taxable amount.

Example: You have a traditional IRA with $20,000 in it. All of it is pre-tax. You decide to convert it all into a Roth. You can do this, regardless of your AGI, and regardless of the fact that the annual contribution limit to a Roth in 2025 is $7,000. The only catch is that this conversion will be taxed at your marginal rate. If you are in the 22% tax bracket, you are looking at an additional $4,400 in income tax.

Example: As above, but $10,000 of your traditional IRA has an after-tax status. Your tax rate is the same as before, but since only the pre-tax amount is subject to tax, you owe only $2,200 on the conversion.

If the logic here sounds eerily similar to our discussion of Tax Treatment of Withdrawals from Mixed-Status IRAs in Part Two of this series, that is because it is essentially the same issue. Just as a withdrawal from a traditional IRA is taxed only on its pre-tax proportion, so too is a Roth conversion, and for the same reason. And the calculation of the pre-tax proportion is done on the same tax form, Form 8606.

Roth conversions are also subject to the same mistake people make where they assume they can avoid paying taxes by designating which monies to convert. When converting a traditional IRA, you must consider the total value of all traditional, SEP, and SIMPLE-IRAs (but not qualified plans).

Example: You have two traditional IRAs, each worth exactly $10,000. One is wholly pre-tax and the other is wholly after tax. You want to convert one of them to a Roth. “I will convert the after-tax one,” you think happily to yourself, “That way I will not owe any tax on the conversion.”

Unfortunately, that is not how the IRS is going to see things. They consider that you have a total IRA value of $20,000 with a total after-tax basis of $10,000. Therefore, exactly 50% ($10,000/ $20,000) of any withdrawal or conversion from either account is taxable. No more. No less.

Another piece of advice you will sometimes hear is to wait until after retirement to convert your IRA to a Roth because you will be in a lower tax bracket then. But consider that the longer you wait, the more your pre-tax earnings grow, which means more taxable income later, even if it is taxed at a lower rate. Converting earlier means all future growth will be after-tax, which means you will never pay tax on it no matter how much it grows. If you are planning on retiring next year and withdrawing all the money within say, five years, then it is worth waiting the year or two and doing the conversion after you retire. But if your time horizon to withdrawal is longer than that, it might be more advantageous to not postpone the conversion. Conversion also gets you out of the Required Minimum Distribution, since there is no RMD on Roths.

Unlike traditional IRA and Roth IRA contributions which have an annual limit, there is no limit to how much existing traditional money you can covert to a Roth in a single year. However, larger conversions of pre-tax money mean more taxable income. In some cases, a large conversion can even move you into a higher tax bracket for the year. For this reason, people sometimes stagger conversion of an IRA over a number of years. Luckily, there is no limit on the number of times you can do a conversion.

The Back-Door Roth Conversion

Some of you may be thinking: “My income is too high to contribute directly to a Roth IRA. I would love to convert money from a traditional IRA, but I don’t have a traditional IRA.”

You’re in luck. You don’t need to have a pre-existing traditional IRA. You can create a traditional IRA for the express purpose of contributing to it and immediately converting it. This is sometimes known as a “back-door Roth conversion.” That is not a technical term. There is no box for you to check when you open the account that says “back-door.” It is just an informal term used to mean that the traditional IRA was opened solely to convert future contributions to Roth status. You can contribute the limit to the traditional, up to $7,000 in 2025, immediately roll it over to a Roth, and it’s as if you contributed directly to the Roth, with the one key difference that it is not limited by your AGI.

As long as you don’t deduct your contribution to the traditional IRA from your taxable income, and there is no requirement that you must deduct it, the conversion is entirely non-taxable because the contributed amount is entirely after tax. Just make sure you document the conversion on Form 8606.

If you leave the money in the traditional IRA for long enough for it to earn any kind of interest or other earnings, the earnings portion will be taxable at the time of conversion.

Example: You open a traditional IRA and contribute $7,000 to it. You do not deduct any of this from your taxable income. The account earns $10 in interest. You convert the entire $7,010 to your Roth IRA.

Remember that the IRS considers your entire IRA value and your entire pre-tax basis. So in this case $10 of the conversion will be taxable at your marginal rate because that is 0.14% ($10/$7,010) of the $7,010 conversion.

Even if you convert only the $7,000 and leave $10 in the traditional IRA, $9.99 of the conversion will still be taxable at your marginal rate because that is 0.14% ($10/$7,010) of the $7,000 conversion.

So what happened to that missing one cent of taxable income? It remains with the traditional IRA. Another way to look at it is: we are partitioning out the $7,000 in after-tax basis so that 6990.01 is allocated to the conversion and $9.99 to the traditional IRA. So going forward, the traditional IRA as it continues to grow will have a $9.99 after-tax basis.

Bottom Line: the IRS will not allow you to avoid or decrease tax due on a conversion by choosing which part of the money you are converting.

Beware of Pre-Existing Traditional Accounts

When figuring the taxable proportion of a Roth conversion, the IRS requires that you consider the value of “all your traditional, traditional SEP, and traditional SIMPLE IRAs”. This makes the back-door conversion not a particularly good strategy for those with pre-existing IRA-type accounts.

Example: You open a traditional IRA and contribute $7,000 to it. You do not deduct any of this from your taxable income. You convert the entire $7,000 to your Roth IRA.

It turns out you had a SEP-IRA from a past job that is now worth $100,000, all pre-tax. So $6,542.06 your conversion will be taxable at your marginal rate because that is 93.46% ($100,000/$107,000) of the $7,000 conversion.

Note that this does not apply to Qualified plans, which can be ignored for purposes of Roth conversions.

If you have a pre-existing IRA with a large pre-tax component, you can increase the after-tax proportion each year by contributing after-tax amounts to it or to any other traditional IRA. However, any future earnings in these accounts will count towards the pre-tax component, because that is the nature of traditional IRAs.

See Part Two of this series for two possible strategies to directly decrease the pre-tax component of a traditional IRA. However, be forewarned that these strategies might not be applicable to all taxpayers.

OBBB Act: What the New Section 179 Expensing Limits Mean for Your Business

Preface: “I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes.” – Edward Gibbon

OBBB Act: What the New Section 179 Expensing Limits Mean for Your Business

On July 4, 2025, President Trump signed the One Big Beautiful Bill (OBBB) Act into law. Among many tax changes, one major update affects Section 179 expensing—a valuable tool for small and mid-sized businesses to write off equipment and property purchases.

What Is Section 179 Expensing?

Section 179 lets businesses deduct the cost of certain equipment, vehicles, and property right away, instead of depreciating it over many years. This makes it a powerful way to lower taxable income in the year you make a big investment.

Qualifying property generally includes:

    • New or used equipment
    • Business vehicles (with some limits, like SUVs)
    • Office furniture
    • Computers and software
    • Certain types of real property improvements

What Changed Under the OBBB Act?

Before the law, businesses could expense up to $1,250,000 in 2025, with deductions starting to phase out after $3,130,000 of total purchases.

The OBBB Act doubles those amounts starting in 2025:

    • New Section 179 Deduction Limit: $2.5 million
    • New Investment Cap: $4 million

These amounts will also be adjusted for inflation every year going forward.

The rules for SUVs didn’t change. For 2025, the maximum Section 179 deduction for an SUV is still $31,300.

Why This Matters

This change makes it much easier for businesses to deduct large investments. Whether you’re buying farm equipment, upgrading your factory machinery, or investing in technology, you may now expense the full cost up front.

Examples

Example 1 – A Small Business Upgrade
ABC Landscaping buys $150,000 of new trucks and mowers in 2025.

        • Before the law: Still fully deductible, because the old $1.25 million limit was plenty.
        • After the law: No change for them, but more room for growth if they expand further.

Example 2 – A Growing Manufacturer
XYZ Manufacturing spends $3.5 million on new machinery in 2025.

        • Before the law: They would have hit the $3.13 million investment cap, and their deduction would start phasing out.
        • After the law: With the new $4 million cap, they can deduct the entire $3.5 million under Section 179. This could save them over $700,000 in taxes (assuming a 20% tax rate).

Key Takeaway

The OBBB Act permanently raises Section 179 expensing limits, giving businesses greater ability to deduct equipment purchases up front. This is especially helpful for companies making multi-million-dollar investments.

Planning Note: If you’re considering large purchases of equipment or property, now is the time to plan ahead. The new limits make Section 179 one of the most powerful tax tools available for business growth.