Michael Gray, CPA's Tax and Business Insight
December 4, 2025
© 2025 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Happy Holidays!
- 'Tis the season for year-end planning.
- Fourth quarter calendar year corporate estimated tax payment is due December 15.
- Fourth quarter estimated tax payment for non-corporate taxpayers is due January 15.
- First real estate tax payment is due.
- Catch-up contributions to 401(k) plans.
- Make passthrough entity elective tax payments by the year-end.
- Calendar year accrual basis corporations should pay related parties by December 31.
- Important December 31 deadline for inherited IRAs.
- President Trump signs the MATH Act.
- IRS releases inflation adjustments.
- 2026 retirement plan limitations announced.
- Changing employers?
- Employer relief from penalties for "no tax on tips" and "no tax on overtime" reporting.
- Employee guidance for claiming the "no tax on tips" and "no tax on overtime" deductions.
- Some 2026 "catch up" contributions to a 401(k) plan must be Roth contributions.
- Procedure for spouses to split gifts.
- Nonresident aliens have their own gift tax return form.
- Federal gift tax returns may now be e-filed.
- Year end planning - should you "harvest" losses before the year end?
- Donations of appreciated stock.
- Consider making retirement account contributions to Roth accounts.
- Consider Roth conversions from your traditional retirement accounts and IRAs.
- Estates and trusts should plan distributions.
- Should you buy business equipment before December 31?
- Some gifts have no limit.
- Consider gifts to a Section 529 plan.
- If you exercised an incentive stock option and haven't sold the stock, consider using the "escape hatch."
- Do you sell products, services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Our Christmas tree is up! Happy Holidays!
Christmas Day will be Thursday, December 25, and Hannukah begins at Sundown, December 14. "God Bless us, every one!"
Dawn Siemer won't be available starting December 12, returning January 5.
Michael Gray won't be available starting December 2, returning December 9.
'Tis the season for year-end planning.
There is less than a month remaining for 2025. Make your year-end planning appointment with your tax advisor now.
Fourth quarter calendar year corporate estimated tax payment is due December 15.
The final 2025 estimated tax payment for calendar-year corporations is due December 15, 2025. Not all corporations can base their federal estimated tax payments on the previous year's income tax return. For example, new corporations and corporations that had no tax liability for the previous year must compute their estimated tax using the current year's facts. See your tax advisor for assistance.
Fourth quarter estimated tax payment for non-corporate taxpayers is due January 15.
The final 2025 estimated tax payment for individuals and calendar-year estates and trusts is due January 15, 2026. Remember California taxpayers with taxable income of $1 million or more must pay their estimated taxes using the current year's facts.
Consider making the California or state payment by December 31, 2025 for a 2025 tax deduction. Watch the alternative minimum tax. Also, remember the total tax deduction for state income tax payments and real estate tax is limited to $40,000 (with a phasedown to $10,000 for modified adjusted gross income exceeding $500,000) and the standard deduction has been increased to $31,500 for married filing joint and $15,750 for singles and married filing separate returns.
See your tax advisor.
First real estate tax payment is due.
The first real estate tax payment for the 2025-2026 fiscal year in Santa Clara County is due December 10. Avoid a late payment penalty - mail your payment now!
Catch-up contributions to 401(k) plans.
Individuals who are age 50 or more may make "catch up" contributions to a 401(k), 403(b) annuity plan, 457 plan, SIMPLE 401(k), SIMPLE IRA and certain SEPs. In order to receive "catch up" contributions, the plan must permit them. For 2025, the maximum "catch up" contribution for a 401(k) plan is $7,500. Lower limits apply for SIMPLE 401(k) and SIMPLE IRA plans have lower limits.
Starting in 2026, any "catch up" contribution for an individual for participants who earn more than $145,000, adjusted for inflation, must be made to a Roth 401(k) account. (Notice 2023-75.)
Make passthrough entity elective tax payments by the year-end.
Calendar year end passthrough entities should make an effort to pay any remaining tax by December 31, 2025. According to IRS Notice 2020-75, the tax must be paid in order to claim a current tax deduction. The tax payments reduce the taxable income passed through to the owners.
Note the option to make an additional payment in 2026 is only available to taxpayers who complied with the June 15, 2025 prepayment requirement.
See your tax advisor for details. The elective tax payment isn't a do-it-yourself project.
https://www.ftb.ca.gov/file/business/credits/pass-through-entity-elective-tax/index.html
Calendar year accrual basis corporations should pay related parties by December 31.
In order to currently deduct expenses due to certain related persons, accrual-basis corporations must pay them by the year-end. These include wages, bonuses, interest expense, rent, etc. Be sure to review the status of these items with your tax advisor by December 31.
Important December 31 deadline for inherited IRAs.
The beneficiaries of an inherited IRA must divide the account into separate accounts for each beneficiary by December 31 of the year of the decedent's death for favorable distribution rules. Otherwise, the distribution will generally be based on the life expectancy of the oldest beneficiary.
President Trump signs the MATH Act.
President Trump signed the Internal Revenue Service Math and Taxpayer Help Act, H.R. 998, on December 1, 2025. Under the Act, the IRS is required to provide specific information when it makes a tax return change due to a math or clerical error.
(Spidell's Flash E-mail, December 1, 2025, "President signs MATH Act.")
IRS releases inflation adjustments.
The IRS has released various inflation-adjusted items for 2026.
The standard deduction amounts for 2026 will be $32,200 for married individuals filing joint returns and surviving spouses, $24,150 for Heads of Households, and $16,100 for unmarried individuals and married individuals who file separate returns. The standard deduction for an individual who is claimed as a dependent by another taxpayer is the greater of (1) $1,350, (2) the sum of $450 plus the individual's earned income, or (3) the standard deduction for unmarried or married individuals.
Recipients of gifts from foreign persons must report gifts with an aggregate value during the taxable year of $20,573 or more.
(Revenue Procedure 2025-32. https://www.irs.gov/pub/irs-drop/rp-25-32.pdf.)
2026 retirement plan limitations announced.
The IRS has announced the inflation-adjusted limitations that will apply for retirement accounts for 2026.
- The limitation for the annual benefit under a defined benefit plan is increased from $280,000 to $290,000.
- The limitation for defined contribution plans (money purchase pension, profit sharing, etc.) is increased from $70,000 to $72,000.
- The maximum "catch up" contribution to most employer plans for individuals aged 50 or more increased from $7,500 to $8,000.
- The maximum "catch up" contribution to most employer plans for individuals age 60, 61, 62 or 63 in 2026 remains $11,250.
- The maximum amount of qualified charitable distributions for taxpayers age 70 or more from an IRA is increased from $108,000 to $111,000.
(Notice 2025-67. https://www.irs.gov/pub/irs-drop/n-25-67.pdf)
Changing employers?
Remember the limitation for voluntary contributions to a 401(k) plan is a dollar amount per individual. Be sure to notify the plan administrator at your new employer of the amount of voluntary contributions you made to your former employer's 401(k) plan to avoid having to "clean up" excess contributions.
Employer relief from penalties for "no tax on tips" and "no tax on overtime" reporting.
Since OBBBA was passed too late for the IRS to include additional reporting on Form W-2 and Form 1099-IC, the IRS is waiving penalties for not reporting the information employees need on the information returns. The IRS recognizes employers might not have the information readily available. Employers are still encouraged to provide the information employees will need when employees file their 2025 income tax returns.
(Notice 2025-62.)
Employee guidance for claiming the "no tax on tips" and "no tax on overtime" deductions.
Since the information for the "no tax on tips" and "no tax on overtime" deductions won't be reported on Form W-2 or Form 1099-NEC for 2025, the IRS has issued guidance for how employees or independent contractors can document and claim the deductions on their 2025 federal income tax returns.
(Notice 2025-69.)
Some 2026 "catch up" contributions to a 401(k) plan must be Roth contributions.
The effective date of one of the changes in the SECURE 2 Act of 2022 was delayed until 2026. "Catch up" contributions for participants who are age 50 or more and have wages of $145,000 or more, indexed for inflation, must be Roth contributions. (Generally, I encourage everyone to make all of their voluntary contributions Roth contributions.) The inflation-adjusted threshold for 2026 is $150,000. The employer's 401(k) plan must have Roth provisions to accept Roth contributions, so some employers might want to amend their plans for 2026, if they haven't already done so.
(Notice 2025-67 and Notice 2023-75.)
Procedure for spouses to split gifts.
Spouses who make reportable gifts must file separate gift tax returns. A consenting spouse no longer signs their spouse's Federal Gift Tax Return, Form 709, when electing to split a gift. The consenting spouse must sign and file a notice of consent, a statement that he or she is electing to treat all gifts made to third parties as having been made one-half by each spouse.
The gift tax returns for both spouses must be submitted in the same envelope. This is one situation where the returns shouldn't be e-filed.
(See page 7 of the Instructions for Form 709.)
(https://www.irs.gov/pub/irs-pdf/i709.pdf)
Nonresident aliens have their own gift tax return form.
The IRS introduced Form 709-NA, United States Gift (and Generation-Skipping) Tax Return of Nonresident Not A Resident of the United States, for 2024. Nonresident aliens and their tax advisors should determine whether they should file the return for 2025.
If a donor is a U.S. citizen or resident for part of the year and made a reportable gift during the tax year, he or she must report all gifts made during that year on Form 709, not Form 709-NA.
Federal gift tax returns may now be e-filed.
On July 14, 2025, the IRS announced that it is possible to e-file gift tax returns through the modernized e-file or MEF system.
The returns will normally be e-filed by tax return preparers using compatible software for the system.
(https://www.irs.gov/e-file-providers/modernized-e-file-mef-for-gift-taxes)
Year end planning - should you "harvest" losses before the year end?
The stock market has been very active this year, and stock values are mostly up. Review the securities (or other assets) you are holding for potential capital losses. If you sell the loss shares before the end of the year, you can offset the losses against your gains plus $3,000. This is even more important if you could be subject to the 3.8% federal net investment income tax. You could bring your adjusted gross income below the $250,000 threshold for married persons filing joint returns or $200,000 for singles.
Remember the wash sale rules. If you purchase shares of the same security during the period 30 days before and 30 days after a sale at a loss, the loss is disallowed for the same number of shares.
Also, watch the federal tax rate schedules. Depending on your taxable income, you may be eligible for a 0% tax rate on some qualified dividends and long-term capital gains. There is no wash sale rule for long-term capital gains. You might be able to sell shares for a long-term gain, pay zero tax on the gain and repurchase the shares with a higher tax basis for a later sale.
Consult with your tax advisor.
Donations of appreciated stock.
This strategy works best for taxpayers who itemize deductions. There is a double tax benefit. The taxpayer gets a charitable contribution deduction for the fair market value of the stock and doesn't pay tax on the appreciation of the stock. The charitable contribution deduction is limited to 30% of adjusted gross income. Any excess charitable contributions may be carried over for five years.
Consider making retirement account contributions to Roth accounts.
The tax deferral for contributions to qualified retirement plans, such as a 401(k), and traditional IRA accounts is temporary. The tax will eventually be due when distributions are received from the account. The SECURE Act of 2019 has mostly eliminated the "stretch IRA", while SECURE 2.0 of 2022 has expanded Roth options for employer retirement plans.
Although contributions aren't tax deductible, after a very brief waiting period, distributions from Roth accounts are tax-free, and no distributions are required during the participant's lifetime. The tax benefit is permanent.
Check whether your employer offers Roth options in its retirement plan.
If Roth alternatives are available, consider making future contributions to Roth accounts, instead of traditional retirement accounts. Since there is no tax deduction, remember to compute and plan to pay additional income taxes due for the years of contributions.
Consider Roth conversions from your traditional retirement accounts and IRAs.
Roth accounts have many advantages, including tax-free accumulation of income, no required minimum distributions during your lifetime and no annual required minimum distributions for an inherited account, with the balance payable during the 10th year after death. Right now, tax rates are "on sale". With record federal deficits, there will be pressure to raise federal income tax rates in the future. Work with your tax advisor and financial planner to plan converting your taxable accounts to Roth accounts. (Not available for inherited IRAs.) At least plan to take advantage of the lower income tax rate brackets, if they are available to you. Remember required minimum distributions must be received before converting traditional IRAs and retirement accounts to Roth accounts.
Estates and trusts should plan distributions.
The maximum 37% federal income tax rate and the 3.8% tax on net investment income hit estates and trusts especially hard. They apply when the undistributed estate or trust income exceeds $15,200. If possible, the income of the estate or trust should be distributed to beneficiaries before the year-end, since the threshold for these taxes is much higher for individuals. (The income of some trusts is automatically considered distributed. See your tax advisor.) An election is also available to treat distributions made during the first 65 days of the following year (for example, on January 31, 2026) as distributed for a taxable year (for example, 2025).
In most cases, capital gains don't qualify for the distribution deduction. See your tax advisor.
The beneficiaries should be involved in this decision and be informed about the additional income to be reported on their income tax returns (in writing) to avoid unpleasant surprises.
Should you buy business equipment before December 31?
The expense election for business equipment purchases is now $2,500,000. This election is even available for some SUVs and heavy trucks with a $31,300 limit, and some trucks and cargo vans don't have a limit. The excess might be eligible for bonus depreciation. See your tax advisor for details. Remember the expensed amount is only deductible against business income.
OBBBA has increased the 2025 bonus depreciation percentage from 40% to 100%. Bonus depreciation also may alternatively apply (instead of Section 179 expensing) for 2025 depreciable property, including some building improvements.
See your tax advisor.
Some gifts have no limit.
Amounts paid by donors directly to education institutions and health care providers for family members aren't counted as taxable gifts. This is a great way to provide for family members' education expenses and medical expenses.
Consider gifts to a Section 529 plan.
A Section 529 plan or qualified tuition plan is a way to invest money with potentially tax-free appreciation and avoided tax on interest and dividends. Amounts withdrawn for qualified education expenses are tax-free.
The donor may elect to treat an amount contributed to a Section 529 plan as made ratably over five years. That means about $95,000 can be contributed by an individual or $190,000 by a married couple for an individual (say, a grandchild) and be covered by the current and future annual gift tax exclusions.
Section 529 plans are also unique because the benefit can be directed to another person. For example, if a grandchild decides to not go to college, the account can be redirected to another grandchild.
Remember the election is made on a timely-filed gift tax return and annual gift tax returns must be filed to report the annual amounts. No election, no gift tax deferral.
If you exercised an incentive stock option and haven't sold the stock, consider using the "escape hatch."
I explained the details in the November 2025 edition of Michael Gray, CPA's Tax and Business Insight. This strategy can reduce the tax hit when the value of the option stock falls after the exercise. When you sell the stock during the same year as the year of exercise, the alternative minimum tax adjustment is eliminated and the ordinary income is limited to the excess of the selling price of the stock over the option price. If the stock is replaced with a wash sale (buying back the stock during the period from 30 days before the sale to 30 days after the sale) or the sale is to a related person, the strategy doesn't work. This strategy generally only works for vested publicly traded stock.
Do you sell products, services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@taxtrimmers.com.
Attention Accountants! Speed up processing your 2019 business closings!
Do you still have 2019 business income tax returns on extension that need to be done? Check out this trial balance software, EZ Trial Balance, that's super-easy to set up and use. There is a desktop version and an online version. The online version includes consolidations and ratio analysis for analytical review. http://www.eztrialbalance.com
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Financial Insider Weekly past episodes
After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.
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Michael Gray, CPA2482 Wooding Ct.San Jose, CA 95128(408) 918-3162FAX: (408) 938-0610email: mgray@taxtrimmers.comHours: 8am - 5pm PDT Monday - Friday
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