As a nonprofit leader, your mission to create a positive impact on your community or cause is the driving force behind your work. However, ensuring your organization remains in good standing with donors, funders, and the IRS is just as crucial. Failure to stay compliant with nonprofit accounting standards can lead to serious consequences, including the loss of tax-exempt status or ineligibility for future grants. This guide covers essential IRS regulations, grant accounting standards, and practical tips to ensure your nonprofit remains compliant. Understanding IRS Regulations for Nonprofit Organizations Nonprofit organizations are subject to a unique set of rules established by the IRS, particularly under Section 501(c)(3) of the Internal Revenue Code . While tax-exempt status is a significant benefit, it comes with specific accounting obligations. Here are key areas where nonprofits must remain compliant: Accurate Recordkeeping for Nonprofits The IRS mandates that nonprofits maintain detailed financial records, including income, expenses, and donations. Good recordkeeping ensures tax compliance and fosters transparency with stakeholders. Key records to track include: Donor Contributions Grants and Funding Sources Salaries, Benefits, and Expenses Assets and Liabilities Filing Annual IRS Forms (Form 990) Nonprofits must file an annual return with the IRS, commonly known as Form 990 . This form provides a comprehensive overview of your nonprofit’s financial activities. The specific form you file depends on your organization’s annual revenue and amount of assets: Form Type Gross Receipts Total Assets Form 990 Over $200K Over $500K Form 990-EZ Under $200K Under $500K Form 990-N (e-postcard) Under $50K N/A Proper Classification of Employees and Contractors Ensure that your nonprofit correctly classifies individuals as employees or independent contractors. Misclassification can lead to tax issues, including incorrect payroll tax withholding. Proper classification is essential for compliance. Unrelated Business Income Tax (UBIT) If your nonprofit generates income from activities unrelated to its exempt purpose, it may be subject to Unrelated Business Income Tax (UBIT). The IRS requires nonprofits to pay taxes on non-charitable income, such as revenue from a gift shop or paid events. Donor Restrictions Compliance If your nonprofit receives restricted donations, you must track and use the funds as directed by the donor. Failing to comply with donor restrictions can jeopardize your nonprofit's status. Adhering to Grant Accounting Standards Compliance with grant accounting standards is critical to ensuring responsible fund management and accountability to funders. Whether your nonprofit receives government grants, foundation grants, or corporate sponsorships, it’s essential to follow the guidelines for proper fund allocation and reporting. Nonprofit leaders need to ensure their organization follows more complex accounting standards, especially when grants are involved. Grant Budgets and Reporting Each grant comes with a specified budget detailing how funds should be spent. Ensuring strict adherence to this budget and providing regular reports—such as progress updates and financial statements—is necessary for continued funding. Cost Allocation for Grants Proper cost allocation is vital for maintaining grant compliance. Direct costs (e.g., staff salaries) and indirect costs (e.g., office rent) must be tracked separately and in accordance with grant terms. Funders may impose restrictions on administrative costs or require documentation for indirect expenses. Audit Trails and Grant Audits Many grantors require an audit or independent review. To prepare for audits, maintain a clear and organized audit trail, including records of all financial transactions, invoices, receipts, and supporting documents. Tracking Funds Received vs. Funds Expended Grantors want assurance that funds are being used as intended. Nonprofits must track the funds they receive and compare them to actual expenditures to ensure compliance with the grant’s terms. Address any discrepancies promptly. Best Practices for Nonprofit Accounting Compliance To avoid mistakes and maintain compliance with IRS regulations and grant accounting standards, follow these best practices: Implement a Robust Accounting System : Set up an accounting system that allows you to track donations, grants, expenses, and assets in real-time. This can be done with a nonprofit specific accounting system, or setting up and using your accounting system correctly. Train Your Team : Ensure your finance and program staff are trained on nonprofit accounting requirements, both for IRS reporting and grant compliance. Segregate Restricted Funds : Create separate accounts for donations with restrictions to ensure funds are used according to donor intentions. Consult Professionals : If you’re unsure about specific tax or accounting requirements, consult a nonprofit accountant or financial advisor for guidance. Conclusion: Ensuring IRS and Grant Compliance for Nonprofits Staying compliant with IRS regulations and grant accounting standards is crucial for maintaining your nonprofit's tax-exempt status and eligibility for funding. By keeping accurate records, adhering to grant terms, and staying updated on regulatory changes, your organization can continue to focus on fulfilling its mission while maintaining transparency and accountability. By following these guidelines and maintaining strong financial practices, your nonprofit can ensure long-term success and continue making a meaningful impact. Struggling with nonprofit compliance? Contact Pathfinder Accounting & Tax today for expert accounting services tailored to your mission-driven organization.

Home services have been seeing an increase in demand in 2025, either from tariff fears of from consumers staying in their houses, but the demands may be eaten up by the increase in material and labor costs. The first half of 2025 has been a mixed bag for small businesses, especially those in home services like roofing, HVAC, and landscaping. While challenges remain with labor and material costs, steady consumer demand and new tax incentives are creating real opportunities for growth. Key Takeaways from the Report: Strong Consumer Demand:  Homeowners are investing in upgrades and maintenance, driven by rising home equity and low mortgage rates that keep them in place rather than moving. Rising Costs:  Tariffs on steel, aluminum, and copper are pushing up material prices. Labor shortages continue, forcing many firms to raise wages or pay overtime. Southern Illinois Growth:  Our region has added jobs and seen rising incomes, which means more homeowners have money to spend on home improvements. Tax Law Changes:  The new “One Big Beautiful Bill” (H.R.1) locks in the 20% Qualified Business Income deduction and extends 100% bonus depreciation on equipment—big wins for small businesses. Energy Incentives:  Federal credits of up to $3,200 are available for homeowners making energy-efficient upgrades, a potential boost for contractors in HVAC and related services. Bottom Line:  Demand is steady, but costs are higher. Home service businesses that price smartly, take advantage of tax incentives, and focus on retaining skilled workers are positioned to thrive in the second half of 2025. Download the full report here:

The first half of 2025 has been a balancing act for small restaurant owners. Sales are steady, but higher costs, staffing shortages, and new Illinois policies are squeezing margins. Our 2025 Restaurant White Paper breaks down the details. Here’s a quick look: Sales: Holding, But Traffic Soft Restaurant sales sit around $98–99 billion a month, up 5.6% from last year. But customer traffic is weaker, with more operators seeing fewer diners than in 2024. Diners are cautious, so value and customer experience are key to keeping tables full. Costs: Food & Labor Pressure Wholesale food prices remain 30–40% higher than pre-pandemic, with beef, eggs, and coffee driving spikes. Menu prices are up too—4.4% year-over-year for full-service, but raising prices further risks driving customers away. Illinois’ new $15 minimum wage and paid leave law also add payroll pressure, with labor already accounting for about one-third of sales. Staffing: Persistent Shortages Nationwide, restaurant employment has mostly recovered, but full-service jobs are still down 228,000 since pre-pandemic. Illinois trails even further, with turnover and hiring challenges remaining a top concern for small operators. Illinois-Specific Headwinds Beyond wages, Illinois carries one of the nation’s highest corporate tax rates, plus steep local taxes and fees. Many owners report nearly 25% of revenue goes to taxes across all levels, tightening already thin profit margins. Outlook for Small Restaurants To adapt, restaurants should: Emphasize value and loyalty over discounts. Trim waste and improve operational efficiency. Build flexibility into supply chains and staffing. Download the Full Report For charts, deeper data, and state-level insights, download the free PDF here:

As a business owner, understanding your accounting method is important to ensure you accurately portray your business' finances as well as plan for any potential future plans or expansion. When you’re running a small business, choosing the right bookkeeping method isn't just a compliance issue, it's a strategic decision. One of the most important early decisions you’ll make is whether to use cash or accrual accounting. Each method tells a different story about your business’s financial health, and choosing the wrong one can distort your view of profitability, cash flow, and tax obligations. What Is Cash Accounting? Cash accounting records income when it’s received and expenses when they’re paid. It’s simple, intuitive, and easy to manage, which makes it a popular choice for freelancers, solopreneurs, and small service-based businesses. It’s otherwise known as “bank feed accounting”, because you only use the bank feed for your bank account to book entries. Pros of Cash Accounting: Easier to understand and implement Better real-time snapshot of your cash on hand Fewer accounting entries Often more tax-friendly for very small businesses Cons of Cash Accounting: Doesn’t show the full picture of income and expenses in the period they actually occur. An example of this is if you ship out goods in December and reduce your inventory and increase your Cost of Goods sold, but you don’t get paid until January, recognizing the income from that sale in the new year. Can be misleading for businesses with a lot of receivables or payables. Generally knowing how much you are owed or owe vendors is good practice in case you need to figure out ways to get customers to pay or pay vendors faster. Is not Generally Accepted Accounting Principles (GAAP) compliant if you’re looking for investors or funding. What Is Accrual Accounting? Accrual accounting recognizes income when it’s earned and expenses when they’re incurred, regardless of when cash changes hands. This provides a more accurate picture of your company’s performance and obligations. Pros of Accrual Accounting: Aligns income with related expenses, showing true profitability Better suited for inventory-heavy or fast-growing businesses Required for businesses with more than $25M in revenue, per an Internal Revenue Service threshold Often preferred by investors or lenders Cons of Accrual Accounting: More complex to maintain due to having to log items before they get paid. Can create a misleading sense of available cash if users of financial statements don’t fully understand. May require professional bookkeeping or accounting help When Should You Switch to Accrual Accounting? If you’re starting to scale, managing inventory, or billing customers on net terms (like Net 15 or Net 30), it might be time to move to accrual accounting. Common signs it’s time to switch: You have sales but don’t understand why cash is low You’re seeking outside financing or investment You want better insights into business performance Your CPA recommends it for tax planning purposes How This Affects Your Taxes Your chosen method affects when you report income and expenses, and that affects your tax bill. Under cash accounting, you can time income and expenses more easily to manage tax liabilities. Under accrual accounting, your financials may reflect higher taxable income even if cash hasn’t hit your account yet. Some businesses even start on a hybrid method, using accrual for internal reporting and cash for taxes, though this requires more oversight. Real-Life Examples Cash method example - You invoice a client for $5,000 in December, but they pay in January. You record the income in January. Accrual method example - You invoice the same client in December. Under accrual accounting, you record it in December and it’s a receivable, even though the cash arrives next month.   How to Choose the Right Method   Here are a few guiding questions: Do you carry inventory? Generally, you should start and get into the habit of accrual accounting. Do you invoice clients or offer credit terms? Due to having receivables, it may be best to use accrual to ensure accurate revenue reporting. Are you a solo service provider or consultant? Because you are so small in terms of the $25M in revenue, it would be fine to operate on cash basis. Are you planning to grow or get funding? To be GAAP compliant, you should use accrual to ensure most investors or lenders are understanding of your financials. Final Thoughts Choosing between cash and accrual accounting isn’t just an administrative decision, it’s a financial strategy. The method you choose can impact your decision-making, tax planning, and even how attractive your business looks to lenders or investors. If you're unsure which method is right for your business or want help making the switch, Pathfinder Accounting & Tax can help. We specialize in setting up and maintaining bookkeeping systems that grow with your business.   Book a free consultation with us today and get clarity on your financial path forward.

Business owners should regularly be looking at the numbers and budget their future activity. This is to offset any future surprises which could sink their business. Running a small business requires more than just passion, it takes consistent financial oversight. One of the most effective tools for staying in control of your finances is a monthly budget. When done right, budgeting allows you to plan, make informed decisions, and pivot quickly when needed. Here’s how small business owners can build a budget based on their activity and use monthly reviews to stay on track. As an example, we’ll use me as an accounting firm owner with fake numbers. 1.      Start with Your Revenue Projections Begin by estimating how much income you expect to generate for the month. This should be based on recent sales trends, seasonal fluctuations, and any expected changes (like a new marketing campaign or product launch). If your revenue varies significantly month to month, take a conservative approach. For me, if we were in the months February-April, my revenue will be a lot more as those are my tax return busy months. Let’s assume we are in the month of March, and I plan to only do business returns. Using fake numbers, lets say I will complete 50 returns at an average of $400 per return, as well as have 3 bookkeeping clients at an average of $250 per month. For your business, you’ll use some equivalent like average ticket price, average service call revenue and average number of patrons or widgets sold. See my hypothetical revenue below:   My projected revenue for the month of March using an average price per return and bookkeeping, as well as how many people I plan to serve.   2.      Identify Fixed and Variable Expenses Separate your expenses into two categories: Fixed Expenses: These are recurring monthly costs like rent, insurance, software licenses and salaries. Variable Expenses: These fluctuate with activity levels, such as inventory purchases, shipping, cost per use software, and utilities.   You can use any measure to determine your variable cost. Mine is the amount of deliverables . In this case, tax returns and bookkeeping reports. If I had employees, I would also be using the average number of employee hours for each deliverable, and multiplying that by their wage to get my payroll expense. Other service firms like landscaping, HVAC or construction can use that model and estimate the total number of hours for each service cost to estimate their payroll. See below for my hypothetical expense budget for my accounting firm:   My hypothetical budget for my firm in March, where I have my fixed costs which don't change per month, and my costs per deliverable, like credit card fees, software per return fees and office supplies to print returns.   Knowing the difference helps you understand what costs are within your control and which ones you must plan around. You don’t have to make your budget a super complex sheet that only finance heads can understand, it can basically be a simple calculation, just like mine is above. 3.      Allocate for Savings and Emergencies Build a cushion into your budget for savings or unexpected costs. Even a modest amount each month can create valuable financial resilience over time. 4.      Match Budget to Business Activity Your budget should reflect your business operations. For example, if you expect higher sales in December, plan for increased staffing, marketing, or inventory needs. A good budget aligns with your activity, not just historical numbers. 5.      Track Actuals Throughout the month, use accounting software or spreadsheets to log real-time revenue and expenses. Staying current allows for more accurate comparisons and helps you catch issues early. 6.      Conduct a Monthly Review At the end of each month, compare your actual income and expenses to your budget: Where did you exceed or fall short? Were the variances due to controllable factors or unexpected events? What can you adjust next month to improve accuracy or performance? This review process turns your budget from a static document into a dynamic management tool. 7.      Use Insights to Improve Forecasting Over time, regular budget reviews help you spot patterns and improve your forecasting. This leads to more confident planning, smarter spending, and better financial health for your business. Conclusion A monthly budget isn’t just about keeping the books balanced. It’s a vital part of running a successful business. By basing your budget on actual activity and regularly reviewing it, you gain a clearer picture of your finances and position yourself to make proactive, informed decisions every month.

Debt not only brings a lot of paperwork, it also complicates your bookkeeping. For most not versed in the complexities, it ends up bringing undue bookkeeping stress due to bookkeepers and accountants having to unravel the records. Managing your small business finances involves more than just making sales and covering expenses, it requires smart choices about funding tools like business credit cards, loans, and equipment financing. While these financial options can boost cash flow and fuel growth, they also directly impact your bookkeeping and overall financial health. Understanding how to properly record and manage these transactions ensures accurate books, easier tax preparation, and more informed financial decisions. 1. Business Credit Cards and Your Bookkeeping What They Do: Business credit cards are ideal for covering routine expenses like office supplies, software subscriptions, and travel. They offer flexibility, cash-back, or reward points, but most small business owners don’t realize that every  swipe of the credit card affects your books, not just every time you pay off the balance. Bookkeeping Tips: Track Every Transaction: Categorize and record each purchase in your accounting software to maintain accurate expense records. Every time you swipe that card, the business owes the amount of that swipe to your credit card company, and every time you pay the card, you should be decreasing the credit card liability on your books, not recording an expense . Reconcile Monthly: Match your recorded expenses with your credit card statement to spot any errors or discrepancies. They should be treated and reconciled as you would a bank account. Record Interest & Fees: Log interest charges and late fees as business expenses to keep your financial reports accurate. 2. Business Loans: Tracking Borrowed Capital What They Do: A business loan provides a lump sum you repay over time with interest. These are commonly used for expanding operations or increasing working capital. Bookkeeping Tips: Log the Loan Properly: Record the incoming cash as an asset and the loan itself as a liability. Some time organizations end up recording the cash in as revenue. If you owe  the money in the future, it’s not revenue! Separate Principal and Interest: Each repayment includes both. The principal reduces your liability, and interest is the deductible business expense. Some owners end up recording the entire payment as an expense, instead of paying down their loan balance and recording interest expense. Don’t Forget Origination Fees: Origination or service fees should be categorized as distinct expenses. 3. Equipment Financing: Recording Fixed Assets What It Does: Financing allows you to acquire essential machinery or technology without the upfront cost, paying over time instead. Instead of recording an increase of cash as you would a business loan, you record the value of the piece of equipment which you are financing. Bookkeeping Tips: Create a Fixed Asset Entry: Record the purchased equipment as an asset on your balance sheet. Track Depreciation: Depreciate the equipment over its useful life to reflect wear and value loss. Manage Liability: The amount financed should appear as a liability, with each payment reducing the balance and accounting for interest, as you would a business loan from above. Best Bookkeeping Practices for Financed Transactions Use Accounting Software: Tools like QuickBooks, Xero, or Wave simplify expense tracking and reconciliation. Maintain Proper Records: Keep all contracts, receipts, and financing agreements organized and accessible. Consult a Small Business Accountant: A professional can ensure you’re following best practices and optimizing tax deductions. If you have an accountant or bookkeeper, ensure they are in the loop before you secure the financing or credit card to make sure systems are set up to properly record it.   Final Thoughts Business financing, whether through credit cards, loans, or equipment leasing can be a game-changer for growth. But to reap the benefits, your bookkeeping must stay on point. By accurately tracking and categorizing these financial tools, you maintain a clear picture of your business’s financial health and make smarter decisions moving forward. If you’re not confident on your bookkeeping for these financial instruments, or would like to offload bookkeeping entirely, us here at Pathfinder offer a free 30 minute consultation through this link !

Reconciling is more than a mental exercise, it's a way to ensure your accounts are good, and you're catching issues before they become major headaches. As a small business owner, staying on top of your finances is crucial, but it doesn’t have to be complicated. One simple habit that can make a big difference? Monthly bank reconciliations. It’s a smart way to keep your books accurate, avoid surprises, and protect your cash flow. What Is a Bank Reconciliation? A bank reconciliation is the process of comparing your business’s internal records with your bank statement to ensure everything matches. If there’s a difference like a bank fee you didn’t record or a check that hasn’t cleared, you’ll catch it and can fix it fast. Think of it as a monthly financial check-up that helps you stay in control. Why It Matters for Small Business Owners Reconciling your accounts each month may seem like a small task, but it delivers big benefits: Catch Costly Errors Early From duplicate entries to missed deposits, small mistakes can add up. Reconciliations help you spot and correct them before they throw off your finances. Guard Against Fraud Regular account reviews make it easier to detect unauthorized transactions or suspicious activity, and act quickly. Keep Records Accurate Accurate books are the backbone of smart business decisions, whether you're budgeting, filing taxes, or tracking profitability. Maximize Tax Deductions When all your transactions are accounted for, you won’t miss deductible expenses. That means more savings come tax time. Be Ready for Funding Opportunities Lenders and investors want up-to-date financials. With monthly reconciliations, you’ll always be prepared. How to Reconcile Your Bank Account The process is straightforward: Match your bank statement to your accounting records Check off transactions that appear in both Investigate differences (like outstanding checks or unrecorded fees) Adjust your books as needed You can do this with spreadsheets, accounting software, or with help from a bookkeeper. Make It a Monthly Habit It’s easy to push off financial tasks, but a quick monthly reconciliation can save you time, stress, and money in the long run. Plus, it gives you confidence that your numbers are spot-on. Need help getting started? Our team specializes in helping small businesses simplify their finances. Let’s get your books in shape so you can focus on growing your business.

Data Reporting and Visualization is becoming available to smaller non-profits due to the lower technical barrier of entry, allowing organzations to do more with less. For many small nonprofits, resources are limited but the mission is big. Every dollar and every hour count, so finding ways to streamline operations, improve data management, and simplify reporting is essential. That’s where no-code software can make a big difference. What Is No-Code Software? No-code platforms allow users to build applications, forms, and workflows without writing a single line of code. Tools like Airtable, Google Suite, Cognito Forms, and Microsoft Power BI enable non-technical staff to create custom solutions tailored to their organization’s needs. Optimizing Business Processes Many small nonprofits still rely on spreadsheets, email chains, and manual tracking for their day-to-day operations. No-code tools can consolidate these processes into centralized systems. For example: Volunteer Management:  Create an online portal for sign-ups, scheduling, and communication. Donor Tracking:  Build a CRM-like dashboard to log donations, send thank-you emails, and track engagement. Event Planning:  Coordinate logistics, registrations, and feedback with connected forms and databases. Grant Reporting:  The ability to not only collect grant service data, but to also be able to generate reports to make grant reporting a breeze. These tools can automate repetitive tasks and reduce human error, freeing up staff to focus on mission-driven work. Easier Data Collection No-code form builders like Cognito Forms or Typeform make it simple to collect structured data from volunteers, clients, donors, and stakeholders. Whether it’s a grant application or a program feedback survey, you can quickly build and share forms that feed directly into your data system. Smarter Reporting and Visualization Data collection is only half the battle; making sense of that data is where no-code tools really shine. Platforms like Airtable, and Microsoft Power BI let you turn raw data into meaningful visuals: Dashboards: Show real-time updates on fundraising goals, program participation, or service delivery metrics. Charts and Graphs:  Highlight trends, outcomes, and impact for board meetings or grant reports. Custom Reports:  Easily filter and export data to meet funder requirements or internal reviews. Affordable and Accessible Best of all, many no-code tools offer free or discounted plans for nonprofits. With a bit of setup, your organization can create professional-grade systems without hiring a developer or investing in expensive software. Final Thoughts For small nonprofits, the promise of no-code isn’t just about saving time, it’s about unlocking capacity and remaining compliant. By streamlining operations and turning data into insights, no-code platforms empower your team to work more efficiently and make a bigger impact with the resources you already have. Need help exploring which no-code tools are right for your nonprofit? Not only can we help evaluate options but help set up solutions that fit your mission and budget.

Sale of a property can lead to unexpected tax consequences for rental operators. Most rental real estate operators are aware of the tax advantages of getting involved with rental real estate. A large part of these advantages suround the ability to take depreciation expense over the lifetime of the asset. However, most operators are not aware of the implications when it comes time to selling property and what it means to your overall tax situation. Operational Impact: Depreciation as a Tax Shield Depreciation allows rental property owners to deduct a portion of the property's cost each year, even though the actual cash outlay occurred when the property was purchased. This "paper expense" reduces taxable income, thereby lowering the operator's annual tax liability. For residential rental properties, the IRS allows depreciation over 27.5 years using the straight-line method. This period is even longer for commercial properties. For investors, depending on the classification of some additions to the property, they can take additional depreciation, either through bonus depreciation or accelerated methods. This deduction can offset rental income, sometimes even creating a paper loss that reduces the owner’s overall taxable income, which becomes a strategy that is particularly advantageous for high-income investors or those who qualify as real estate professionals. Impact at Sale: Depreciation Recapture When a rental property is sold, the IRS requires owners to "recapture" the depreciation that was previously deducted. There are multiple recapture methods available to the IRS depending on the classification of the property or improvements. For example, if an investor claimed 100% bonus depreciation on improvement property in a residential rental that cost $27,500, then proceeded to sell the property after 3 years for $30,000, a portion of the sale price becomes a section 1250 gain because the investor took more depreciation than straight-line depreciation allows. See a calculation of the gain below. A Calculation of the gains calculation on the above example. The section 1250 gain is taxed at a maximum 25% tax rate, which is higher than a normal 1231 long-term capital gains. This increase in liability can come as a surprise for taxpayers if they have not adequently planned in advance. It's important that tax considerations be taken into account before making any moves, especially depending on the size of the sale. Strategies to Manage Depreciation Recapture Several strategies can help mitigate the impact of depreciation recapture: 1031 Exchange:  If you sell the property, then roll forwrad the cash from the sale into a "Like-kind property", investors are able to defer not only the depreciation recapture, but the capital gains as well. Installment Sales:  Spreading out gain recognition over several years based upon receiving a steady payment over a period of time. Estate Planning:  Holding the property until death or contributing the property to a charitable trust can eliminate depreciation recapture, as heirs receive a step-up in basis, and the trust doesn't pay any taxes when it sells the property. Conclusion Depreciation provides meaningful tax benefits during the ownership phase of rental real estate, but it also creates tax obligations when the property is sold. Understanding how to manage both sides of the equation is critical. A knowledgeable accounting advisor can help you make the most of depreciation while minimizing its long-term tax consequences. If you need guidance navigating depreciation, recapture, or planning for a sale, our team is here to help.

The WHite House pushed out new tax legislation aimed at extending and making tax changes for individual taxpayers. The recent passage of HR 1 EAS, also known as the One Big Beautiful Bill, brings significant changes to individual tax provisions. The bill extends and expands several key tax benefits, delivering on former President Trump’s campaign promises to keep taxes low and to build upon the Tax Cuts and Jobs Act (TCJA) of 2017. Here is a breakdown of the major individual tax changes that could affect your upcoming tax planning and filings. 1. Freezing of Individual Tax Rates The TCJA of 2017 lowered individual income tax rates, setting the lowest bracket at 10% and the highest at 37%. Originally, these reduced rates were set to expire after 2025, which would have resulted in an average increase of about 2% per bracket, with some middle-income families seeing increases up to 3%. The Big Beautiful Bill freezes these rates permanently, preventing those increases and locking in the current lower tax rates for individuals moving forward. 2. Increase in Standard Deduction The standard deduction is increasing across filing statuses: Single Filers:  $15,750 Married Filing Jointly:  $31,500 Head of Household:  $23,625 Additionally, the senior bonus deduction will increase to $6,000 per year. On average, taxpayers will see about a $1,000 increase in their standard deduction, leading to meaningful tax savings for those who do not itemize. 3. State and Local Tax (SALT) Deduction Cap Increased Previously, the SALT deduction was capped at $10,000, significantly affecting taxpayers in high-tax states like New York, California, and Illinois. Under the Big Beautiful Bill, the SALT cap has been increased to $40,000 through 2030. After 2030, it will revert back to the $10,000 cap unless further legislation is passed. This change benefits taxpayers who itemize and pay substantial state and local taxes, allowing them to reduce taxable income by a greater amount. 4. Increase to the Child Tax Credit The Child Tax Credit (CTC) will see a modest increase: Maximum per qualifying child:  $2,200 Refundable portion:  $1,700 for tax year 2025 The credit will adjust for inflation each year. However, this increase is temporary and set to expire in 2028 unless extended by Congress. Because the CTC reduces taxes dollar-for-dollar rather than simply reducing taxable income, it continues to provide significant relief to families. 5. Deductions for Tips, Overtime Compensation, and Auto Loan Interest A core promise of Trump’s campaign was to remove taxes on tips and overtime. The Big Beautiful Bill provides significant new deductions: Tips:  Deduction of up to $25,000 Overtime Compensation:  Deduction of up to $12,500 ($25,000 for joint filers). This deduction applies only to the additional half-time portion of overtime pay. Both deductions phase out for incomes above $150,000 ($300,000 joint). Additionally, taxpayers who purchase new American-manufactured vehicles after December 31, 2024, can deduct up to $10,000 of interest paid on their car loan, with phaseouts starting at $100,000 ($200,000 joint). All these deductions are currently set to expire after 2028. 6. Charitable Deduction for Standard Deduction Filers Starting in 2026, taxpayers who take the standard deduction can also deduct charitable cash contributions: Single Filers:  Up to $1,000 per year Married Filing Jointly:  Up to $2,000 per year This provision permanently extends the temporary 2021 measure, allowing more taxpayers to benefit from charitable giving incentives. Conclusion The One Big Beautiful Bill introduces wide-reaching tax changes for individual taxpayers. While these provisions aim to reduce taxes and increase deductions, they also add complexity to tax reporting, especially regarding new overtime and tip deductions. Stay informed with Pathfinder Accounting & Tax . Our team is here to help you navigate these changes to maximize your benefits and remain compliant. Contact us today to discuss how these new tax provisions affect your personal tax strategy for 2025 and beyond.

The US Capital Building, where the finer points of HR1 were debated between the House and Senate up until July 3rd before being signed by President Trump on the 4th of July. The recent passage of HR 1 EAS, also known as the Big Beautiful Bill, brings significant tax changes for small businesses, including the extension of the QBI deduction, bonus depreciation updates, and increased Section 179 limits. The first Trump administration’s landmark tax bill, the Tax Cuts and Jobs Act of 2017, had helped usher new tax changes that helped changed the business landscape for the last half a decade. This bill will be no different. From things like decreases in income tax rates, the Qualified Business Income (QBI) Deduction, bonus depreciation, and changes to the standard deduction. Most of these were slated to revert back to their pre-2017 levels, but most of these ended up being extended through the Big Beautiful Bill. See below for a comprehensive list of the changes that relate to small business owners and how they could help your business.   Key Changes for Small Businesses Qualified Business Income Deduction   The QBI Deduction was slated to expire in 2026. The bill will make this deduction permanent. This allows small business owners to take a minimum deduction of $400 up to 20% of their qualified business income, subject to income and property limitations and phaseouts for high earners and specified service trade or service business owners. This is good news for small business owners to continue to allow them to take this tax deduction on their personal taxes. Bonus Depreciation   Section 168(k), otherwise known to business owners as bonus depreciation had been amended from it’s TCJA language, which stated that the bonus depreciation was 100% until 2022, with the percentage reduced by 20% every year thereafter. If we were under the TCJA rules, you would only be able to depreciate 40% of the property placed in service in 2025, 20% in 2026 and 0% for every year after. The HR1 EAS bill makes the old 100% bonus depreciation amount permanent if it was placed in service after January 19 th  of 2025 until 2030. This is good news for business owners with capital expenses. This is particularly helpful for the real estate, construction, manufacturing, technology, and transportation industries, as there are many improvements and equipment purchased in the normal course of business. Section 179 Deduction   Section 179, otherwise known as the hummer deduction, has seen a limit increase. This section can be used to take a 100% deduction on various real estate improvements, vehicles, and other equipment. In 2025 the deduction would have been limited to $1.25 million in property. This bill increases the limit to $2.5 million in a year. This is a large increase and will affect the same capital-intensive industries such as real estate and construction. Research and Development Deduction In the past, you were required to capitalize and amortize the costs of research and development of products over a 15-year period. Under the new rules, you’re able to deduct domestic R&D expenses immediately, allowing businesses to take advantage of immediate expenditures. This is meant to incentive more R&D spending due to the immediate effect on business finances. This is advantageous for R&D industries such as manufacturing, start-ups, and software firms. Conclusion The changes in the bill were meant to be a reversion back to some of the landmark staples of the original TCJA of 2017 in the first Trump administration. From an extension of the QBI deduction, changes and increases to bonus depreciation and the 179 deduction, as well as allowing for immediate deduction of domestic R&D expenses, there is going to be an incentive for businesses, big and small, to make capital expenditures. Either through purchasing new vehicles and equipment, or through real estate improvements and more research and development, there is no shortage tax advantages for businesses in the new “Big Beautiful Bill”.

A new tax proposal from House Republicans could bring significant changes for both small businesses and individual taxpayers. The proposed bill, aligned with the Trump administration's economic goals, aims to extend and expand several popular provisions from the 2017 Tax Cuts and Jobs Act (TCJA). Washington is looking to get tax proposals passed, reflecting the Trump Administration's campaign promises. If you’re a small business owner or individual taxpayer trying to stay ahead of potential tax changes, here’s what you need to know. Proposed Business Tax Changes: What Small Business Owners Should Watch 1. Bonus Depreciation Makes a Comeback The bill proposes a revival of 100% bonus depreciation for qualified assets placed in service between 2025 and 2029. This allows businesses to immediately expense the full cost of qualifying purchases, improving cash flow and incentivizing investment. What’s new?  The definition of qualified property would expand beyond the original TCJA criteria, giving more businesses access to this powerful deduction. 2. R&D Expense Deduction Restored Under current law, domestic research and development (R&D) costs must be amortized over 15 years—an obstacle for startups and tech companies. The new proposal would reverse this, letting businesses fully deduct R&D expenses in the year incurred. This change could offer significant relief for small businesses in software, biotech, and innovation-heavy industries. 3. QBI Deduction Increased and Made Permanent One of the most valuable tax breaks for pass-through entities, the Qualified Business Income (QBI) deduction, was set to expire. The new bill proposes to: Make the QBI deduction permanent Increase the deduction rate from 20% to 23% Adjust income limitations and thresholds for wider accessibility This would be a big win for sole proprietors, S corps, and partnerships. Individual Tax Changes: What You Should Know 1. Lower Personal Income Tax Rates The bill would lock in the TCJA’s individual tax brackets permanently. Additionally, it proposes inflation-based reductions in tax rates, with the exception of the top 37% bracket. 2. Higher Standard Deduction The proposal would: Make the standard deduction increases from TCJA permanent Add a further $1,500 increase through 2028 3. Expanded Child Tax Credit Key changes include: Increasing the Child Tax Credit to $2,500 for 2025–2028 Reverting to $2,000 afterward Making the Additional Child Tax Credit permanent 4. New Deduction for Tips and Overtime Employees would be able to deduct income from tips and overtime pay, offering new tax relief for hourly workers and service industry professionals. What’s Next for the 2025 Tax Reform Bill? This tax legislation is still in the proposal stage. It must: Pass the House of Representatives Pass the Senate in identical form (or go through reconciliation) Receive approval from the President Final tax law could look very different, so now is the time to start planning and stay informed. Takeaway for Small Business Owners and Taxpayers This proposed tax bill includes significant provisions that could impact your bottom line, especially if you run a small business, own a pass-through entity, or have family-related deductions. Stay ahead of tax law changes by consulting a tax professional and subscribing to updates. Proactive planning now could save thousands later.