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The IRS will start processing 2025 individual income tax returns on January 27. Even if you’re not ready to file yet, there are perks to filing sooner rather than later.

Here are answers to often-asked questions about filing federal returns. Our free 2025 tax planning guide has even more guidance on filing your taxes.

How can your tax identity be stolen?

Tax identity theft occurs when someone uses your personal information — such as your Social Security number — to file a fraudulent tax return and claim a refund in your name. One of the simplest and most effective ways to protect yourself from this type of fraud is to file your tax return as early as possible.

The IRS processes returns on a first-come, first-served basis. Once your legitimate return is in the system, thieves will have a tougher time filing a return under your name.

Are there other advantages to filing early?

In addition to protecting yourself from tax identity theft, another advantage of filing early is that if you’re getting a refund, you’ll get it faster. The IRS expects to issue most refunds in less than 21 days. The wait time is often shorter if you file electronically and receive a refund by direct deposit into a bank account.

Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable, or caught in mail delays.

What’s this year’s deadline?

For most taxpayers, the filing deadline to submit 2024 returns or file an extension is Tuesday, April 15, 2025. The IRS has granted extensions to victims of certain disasters to file tax returns.

What if I can’t file by April 15?

You can file for an automatic extension on IRS Form 4868 if you’re not ready to file by the deadline. If you file for an extension by April 15, you’ll have until October 15, 2025, to file. Remember that an extension of time to file your return doesn’t grant you any extension of time to pay your taxes. You should estimate and pay any taxes owed by the regular deadline to help avoid penalties.

When will W-2s and 1099s arrive?

To file your tax return, you need all your Forms W-2 and 1099. January 31 is the deadline for employers to issue 2024 W-2s to employees and, generally, for businesses to issue Forms 1099 to recipients of any 2024 interest, dividend, or reportable miscellaneous income payment, (including those made to independent contractors.

If you haven’t received a W-2 or 1099 by February 1, contact the entity that should have issued it. If that doesn’t help, ask your tax preparer about next steps.

What if I can’t pay my tax bill in full?

If you can’t pay what you owe by April 15, there are generally penalties and interest. You should still file your return on time because there are failure-to-file penalties in addition to failure-to-pay penalties. Try to pay as much as possible and request an installment payment plan in the meantime.

© 2025 KraftCPAs PLLC

As audit season gets underway for calendar-year entities, materiality will be the subject of many discussions – but as a business owner, how familiar are you with materiality and how it’s determined?

Simply put, materiality determines what’s important enough to be included in the financial statements and what can be omitted. It may also affect the nature, timing, and extent of audit procedures.

What’s materiality?

The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) voted in 2019 to align the definition of materiality in the auditing standards with the definition used in financial reporting under U.S. Generally Accepted Accounting Principles (GAAP).

The current definition of materiality is: “The omission or misstatement of an item in a financial report is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”

Under current rules, there are no longer inconsistencies between the AICPA standards and the definition of materiality used by the U.S. judicial system and other U.S. standard-setters and regulators. This definition was also the original definition in effect from 1980 until 2010.

However, the move to align the definitions in the United States has created inconsistencies with the international interpretation of this concept. According to the definition set by the International Accounting Standards Board, misstatements and omissions are considered material if they, individually or in the aggregate, could “reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.”

How auditors set the threshold

No prescribed materiality threshold applies to all entities. Instead, the AICPA instructs auditors to rely on their professional judgment to determine what’s material for each company based on such factors as:

• Size
• Industry
• Internal controls
• Financial performance

During fieldwork, auditors may ask about line items on the financial statements that have changed materially from the prior year. A “materiality” rule of thumb for small businesses might be to inquire about items that change by more than, say, 10% or $10,000. For example, if marketing expenses or labor costs increased by 25% in 2024, it may raise a red flag, especially if the increase didn’t correlate with an increase in revenue. Businesses should be ready to explain why the cost went up and provide supporting documents (such as invoices) for auditors to review.

However, auditors may consider certain transactions or events to be material despite being relatively small in monetary value. Examples include related-party transactions, loan covenant violations, or misstatements that impact contractual obligations or regulatory compliance.

When CPAs attest to subject matters that can’t be measured — such as sustainability programs, employee education initiatives or fair labor practices — establishing what’s material is less clear. As nonfinancial matters become increasingly important, it’s critical to understand what information will most significantly impact stakeholders’ decision-making process. In this context, “stakeholders” could refer to more than just investors. It also could mean customers, employees, suppliers, and communities — many groups to consider when determining materiality.

How materiality impacts procedures

The materiality threshold affects more than audit planning and the audit opinion. It also guides the audit’s scope and procedures. Auditors typically apply more robust procedures in areas with a high risk of material misstatement. For example, high-risk accounts may call for detailed testing, while low-risk accounts may be verified using analytical reviews.

Materiality also guides the sample size auditors use for testing transactions and balances. In high-risk areas, where material misstatements are more probable, auditors may choose larger sample sizes to increase the accuracy of their testing. Smaller samples may be used in low-risk areas with less likelihood of material misstatements.

If misstatements are discovered during fieldwork, auditors apply the materiality threshold to assess whether to adjust the financial statements. If management refuses to make an adjusting journal entry to correct a misstatement, the auditor may issue a qualified or adverse opinion.

Cornerstone of financial statement audits

Materiality helps auditors focus on areas most likely to impact financial statement users’ decisions. Applying this concept throughout an audit balances thoroughness with practicality, thereby enhancing the audit’s effectiveness and efficiency. Likewise, a solid understanding of this concept helps business owners and external stakeholders appreciate the rigor involved in financial audits.

© 2025 KraftCPAs PLLC

If you own a growing, unincorporated small business, you may be concerned about high self-employment (SE) tax bills. The SE tax is how Social Security and Medicare taxes are collected from self-employed individuals like you.

SE tax basics

The maximum 15.3% SE tax rate hits the first $168,600 of your 2024 net SE income. The 15.3% rate is comprised of the 12.4% rate for the Social Security tax component plus the 2.9% rate for the Medicare tax component. For 2025, the maximum 15.3% SE tax rate will hit the first $176,100 of your net SE income.

Above those thresholds, the SE tax’s 12.4% Social Security tax component goes away, but the 2.9% Medicare tax component continues for all income.

How high can your SE tax bill go? Maybe a lot higher than you think. The real culprit is the 12.4% Social Security tax component of the SE tax, because the Social Security tax ceiling keeps getting higher every year.

To calculate your SE tax bill, take the taxable income from your self-employed activity or activities (usually from Schedule C of Form 1040) and multiply by 0.9235. The result is your net SE income. If it’s $168,600 or less for 2024, multiply the amount by 15.3% to get your SE tax. If the total is more than $168,600 for 2024, multiply $168,600 by 12.4% and the total amount by 2.9% and add the results. This is your SE tax.

Here’s an example: For 2024, you expect your sole proprietorship to generate net SE income of $200,000. Your SE tax bill will be $26,706 (12.4% × $168,600) + (2.9% × $200,000). For most, it’s not a small amount.

Projected tax ceilings 

The current Social Security tax on your net SE income is expensive enough, but it will only worsen in future years. That’s because your business income will likely grow, and the Social Security tax ceiling will continue to increase based on annual inflation adjustments.

The latest Social Security Administration (SSA) projections (from May 2024) for the Social Security tax ceilings for 2026–2033 are:

2026: $181,800
2027: $188,100
2028: $195,900
2029: $204,000
2030: $213,600
2031: $222,900
2032: $232,500
2033: $242,700

Could these estimated ceilings get worse? Absolutely, because the SSA projections sometimes undershoot the actual final numbers. For instance, the 2025 ceiling was projected to be $174,900 just last May, but the final number turned out to be $176,100. But let’s say the projected numbers play out. If so, the 2033 SE tax hit on $242,700 of net SE income will be a whopping $37,133 (15.3% × $242,700).

Tax ceiling vs. benefit increases

Don’t think that Social Security tax ceiling increases are linked to annual Social Security benefit increases. Common sense dictates that they should be connected, but they aren’t. For example, the 2024 Social Security tax ceiling is 5.24% higher than the 2023 ceiling, but benefits for Social Security recipients went up by only 3.2% in 2024 compared to 2023. The 2025 Social Security tax ceiling is 4.45% higher than the 2024 ceiling, but benefits are going up by only 2.5% for 2025 compared to 2024.

The reason is that different inflation measures are used for the two calculations. The increase in the Social Security tax ceiling is based on the increase in average wages, while the increase in benefits is based on a measure of general inflation.

S corporation strategy

While your SE tax bills can be high and will probably get even higher in future years, there may be potential ways to cut them to more manageable levels. For instance, you could start running your business as an S corporation. Then, you can pay yourself a reasonably modest salary while distributing most or all of the remaining corporate cash flow to yourself. That way, only your salary would be subject to Social Security and Medicare taxes.

© 2025 KraftCPAs PLLC

When selling business assets, understanding the tax implications is crucial. One area to focus on is Section 1231 of the Internal Revenue Code, which governs the treatment of gains and losses from the sale or exchange of certain business property.

Business gain and loss tax basics

The federal income tax character of gains and losses from selling business assets can fall into three categories:

• Capital gains and losses. These result from selling capital assets which are generally defined as property other than 1) inventory and property primarily held for sale to customers, 2) business receivables, 3) real and depreciable business property including rental real estate, and 4) certain intangible assets such as copyrights, musical works, and art works created by the taxpayer. Operating businesses typically don’t own capital assets, but they might from time to time.
• Sec. 1231 gains and losses. These result from selling Sec. 1231 assets which generally include 1) business real property (including land) that’s held for more than one year, 2) other depreciable business property that’s held for more than one year, 3) intangible assets that are amortizable and held for more than one year, and 4) certain livestock, timber, coal, domestic iron ore, and unharvested crops.
• Ordinary gains and losses. These result from selling all assets other than capital assets and Sec. 1231 assets. Other assets include 1) inventory, 2) receivables, and 3) real and depreciable business assets that would be Sec. 1231 assets if held for over one year. Ordinary gains can also result from various recapture provisions, the most common of which is depreciation recapture.

Favorable tax treatment

Gains and losses from selling Sec. 1231 assets receive favorable federal income tax treatment.

Net Sec. 1231 gains. If a taxpayer’s Sec. 1231 gains for the year exceed the Sec. 1231 losses for that year, all the gains and losses are treated as long-term capital gains and losses — assuming the nonrecaptured Sec. 1231 loss rule explained later doesn’t apply.

An individual taxpayer’s net Sec. 1231 gain — including gains passed through from a partnership, LLC, or S corporation — qualifies for the lower long-term capital gain tax rates.

Net Sec. 1231 losses. If a taxpayer’s Sec. 1231 losses for the year exceed the Sec. 1231 gains for that year, all the gains and losses are treated as ordinary gains and losses. That means the net Sec. 1231 loss for the year is fully deductible as an ordinary loss, which is the optimal tax outcome.

Unfavorable nonrecaptured Sec. 1231 loss rule

Taxpayers must watch out for the nonrecaptured Sec. 1231 loss rule. This provision is intended to prevent taxpayers from manipulating the timing of Sec. 1231 gains and losses to receive favorable ordinary loss treatment for a net Sec. 1231 loss, followed by receiving favorable long-term capital gain treatment for a net Sec. 1231 gain recognized in a later year.

The nonrecaptured Sec. 1231 loss for the current tax year equals the total net Sec. 1231 losses that were deducted in the preceding five tax years, reduced by any amounts that have already been recaptured. A nonrecaptured Sec. 1231 loss is recaptured by treating an equal amount of current-year net Sec. 1231 gain as higher-taxed ordinary gain rather than lower-taxed long-term capital gain.

For losses passed through to an individual taxpayer from a partnership, LLC, or S corporation, the nonrecaptured Sec. 1231 loss rule is enforced at the owner level rather than at the entity level.

Tax-smart timing considerations

Because the unfavorable nonrecaptured Sec. 1231 loss rule cannot affect years before the year when a net Sec. 1231 gain is recognized, the tax-smart strategy is to try to recognize net Sec. 1231 gains in years before the years when net Sec. 1231 losses are recognized.

© 2025 KraftCPAs PLLC

Saving for retirement is a crucial financial goal, and a 401(k) plan is one of the most effective tools for achieving it. If your employer offers a 401(k) or Roth 401(k), contributing as much as possible to the plan in 2025 is a smart way to build a considerable nest egg.

If you don’t already contribute the maximum allowed, consider increasing your contribution in 2025. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions can have a big impact on the amount of money you’ll have in retirement.

With a 401(k), an employee elects to have a certain amount of pay deferred and contributed to the plan by an employer on his or her behalf. The amounts are indexed for inflation each year, and the 2025 amounts show modest increases. The contribution limit in 2025 is $23,500 (up from $23,000 in 2024). Employees age 50 or older by year’s end are also permitted to make additional catch-up contributions of $7,500 in 2025 (unchanged from 2024). This means those 50 or older can save up to about $31,000 in 2025 (up from $30,500 in 2024).

However, under a law change that becomes effective in 2025, 401(k) plan participants of certain ages can save more. The catch-up contribution amount for those who are age 60, 61, 62, or 63 in 2025 is $11,250.

The 401(k) contribution amounts also apply to 403(b) and 457 plans.

Traditional 401(k) perks

A traditional 401(k) offers many benefits, including:

• Pretax contributions, which reduce your modified adjusted gross income (MAGI) and can help you reduce or avoid exposure to the 3.8% net investment income tax
• Plan assets that can grow tax-deferred — meaning you pay no income tax until you take distributions
• The option for your employer to match some or all of your contributions pretax

If you already have a 401(k) plan, look at your contributions. In 2025, try to increase your contribution rate to get as close to the $23,500 limit (with any extra eligible catch-up amount) as you can afford. Of course, the taxes on your paycheck will be reduced because the contributions are pretax.

Roth 401(k) benefits

Your employer may also offer a Roth option in its 401(k) plans. If so, you can designate some or all of your contributions as Roth contributions. While such amounts don’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions may be especially beneficial for higher-income earners because they can’t contribute to a Roth IRA. That’s because the ability to make a Roth IRA contribution is reduced or eliminated if adjusted gross income (AGI) exceeds specific amounts.

© 2024 KraftCPAs PLLC

The on-again, off-again requirement for business owners to file beneficial ownership information (BOI) is on hold one more time.

On December 26, a federal appeals court reinstated a lower court’s injunction that stopped enforcement of a January 13, 2025, BOI filing deadline for many small businesses in the U.S. On December 23, a different panel of judges on the court had lifted the injunction and ordered the BOI requirements to resume.

Under the rule, an estimated 32 million businesses in the U.S. would be required to file the report or face civil or criminal penalties. As the issue continues to drift through the courts, business may voluntarily file BOI reports and avoid potential last-minute scrambles if the injunction is again lifted. At least 6.5 million BOI reports have been filed so far.

Filing is free, and BOI forms and extensive resources are available online at fincen.gov/boi.

BOI’s path so far

Under the Corporate Transparency Act (CTA), the BOI reporting requirements went into effect on January 1, 2024. The requirements are intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud. The CTA requires most small businesses to provide information about their beneficial owners – or the individuals who ultimately own or control the businesses – to FinCEN.

Under the CTA, the exact deadline for BOI compliance depends on the entity’s date of formation. Reporting companies created or registered before January 1, 2024, have one year to comply by filing initial reports, which means their deadline would be January 1, 2025. Those created or registered on or after January 1, 2024, but before January 1, 2025, have 90 days to file their initial reports upon receipt of their creation or registration documents. Entities created or registered on or after January 1, 2025, have 30 days upon receipt of their creation or registration documents to file initial reports.

District court issues an injunction

On December 3, the U.S. District Court for the Eastern District of Texas issued an order granting a nationwide preliminary injunction that enjoined the CTA (including enforcement of the statute and regulations implementing its BOI reporting requirements) and stayed all deadlines to comply with the CTA’s reporting requirements.

The U.S. Department of Justice, on behalf of the Treasury Department, filed an appeal in the case on December 5.

Fifth Circuit lifts the injunction

On December 23, the U.S. Court of Appeals for the Fifth Circuit issued a ruling to lift the preliminary injunction. FinCEN quickly announced that reporting companies were once again required to provide BOI. However, the January 1 deadline was extended to January 13, 2025, with some exceptions. For example, reporting companies qualifying for disaster relief may have extended deadlines beyond January 13.

Fifth Circuit upholds injunction

On December 26, the same Fifth Circuit court – but consisting of a different panel of judges – reversed its order and placed an injunction on the BOI rules. In its ruling, the court said it needed additional time to consider the merits of the case and issue its final ruling.

© 2024 KraftCPAs PLLC

Intangible assets – including patents, trademarks, copyrights, and goodwill – play a crucial role in business, but the tax treatment of these assets can be complex.

A better understanding of the issues involved can be financially lucrative. Here are a few of the most common questions and answers.

What are intangible assets?

The term “intangibles” covers many items, and determining whether an acquired or created asset or benefit is intangible often isn’t easy. Intangibles include debt instruments, prepaid expenses, non-functional currencies, financial derivatives (including options, forward or futures contracts, and foreign currency contracts), leases, licenses, memberships, patents, copyrights, franchises, trademarks, trade names, goodwill, annuity contracts, insurance contracts, endowment contracts, customer lists, ownership interests in any business entities (such as corporations, partnerships, LLCs, trusts, and estates) and other rights, assets, instruments, and agreements.

What are the expenses?

A few expenses you might incur to acquire or create intangibles that are subject to the capitalization rules include amounts paid to:

• Obtain, renew, renegotiate or upgrade business or professional licenses
• Modify certain contract rights (such as a lease agreement)
• Defend or perfect title to intangible property (such as a patent)
• Terminate certain agreements, such as leases of tangible property, exclusive licenses to acquire or use your property, and certain non-competition agreements.

IRS regulations generally characterize an amount as paid to “facilitate” the acquisition or creation of an intangible if it’s paid in the process of investigating or pursuing a transaction. The facilitation rules can affect any business and many ordinary business transactions. Examples of costs that facilitate the acquisition or creation of an intangible include payments to:

• Outside counsel to draft and negotiate a lease agreement
• Attorneys, accountants and appraisers to establish the value of a corporation’s stock in a buyout of a minority shareholder
• Outside consultants to investigate competitors in preparing a contract bid
• Outside counsel for preparing and filing trademark, copyright, and license applications

Why are intangibles so complex?

IRS regulations require the capitalization of costs to:

• Acquire or create an intangible asset
• Create or enhance a separate, distinct intangible asset
• Create or enhance a “future benefit” identified in IRS guidance as capitalizable
• “Facilitate” the acquisition or creation of an intangible asset

Capitalized costs can’t be deducted in the year paid or incurred. If they’re deductible, they must be ratably deducted over the life of the asset (or, for some assets, over periods specified by the tax code or under regulations). However, capitalization generally isn’t required for costs not exceeding $5,000 and for amounts paid to create or facilitate the creation of any right or benefit that doesn’t extend beyond the earlier of either:

• 12 months after the first date on which the taxpayer realizes the right or benefit; or
• the end of the tax year following the tax year in which the payment is made.

Exceptions to the rules

Like most tax rules, these capitalization rules have exceptions. Taxpayers can also make certain elections to capitalize items that aren’t ordinarily required to be capitalized. The examples described above aren’t all-inclusive. Given the length and complexity of the regulations, transactions involving intangibles and related costs should be analyzed by an accountant to determine the tax implications.

© 2024 KraftCPAs PLLC

You’ve worked hard to establish a seasoned, well-oiled internal audit function at your organization – but with changes coming to the standards, now’s the time to make sure you remain compliant.

The new IIA Global Internal Audit Standards (the 2024 Standards) were released on January 9, 2024, and will become effective on January 9, 2025. All quality assessment reviews performed after that date will utilize the new Standards. Because compliance is imperative, your CAE and internal audit function must be up-to-date and functioning prior to the effective date.

There should be a systematic approach to achieving compliance with the new Standards. Broadly, comprehensive assessment and gap analysis, training and development, and continuous monitoring and evaluation should be performed to assist in your preparation for the new Standards becoming effective.

Although not all-inclusive, steps that should be considered include:

• Have conversations with senior management, audit committee members, and board members to discuss these changes and the need for updates in policies and procedures, including their roles, consideration, approval, and support.
• Consider past quality assessment reports, both internal and by third parties, and make sure you have addressed any areas of concern or non-conformance.
• Incorporate updates to your audit operating and policy manuals, processes, and procedures, and get them approved.
• Build out risk assessments, audit plans, and budgets to incorporate the changes.
• Initiate and provide training to employees, senior management, audit committee members, and the board on the changes both broadly for the organization as a whole and within your internal audit function.
• Visit the IIA website and review published materials to determine if you have gaps between the 2017 IPPF and the 2024 Standards. Any gaps must be addressed.

These steps will serve as a starting point in your quest to comply with the new Standards. The new Standards retain a strong focus on five key areas:

• The purpose of internal auditing
• Performing internal audit services
• Managing the internal audit function
• Governance of the internal audit function
• Ethics and professionalism

There are several enhancements to areas such as scope, clarity, emphasis on risk management, communication, reporting, professional competence, and due professional care.

The IIA has provided many tools, articles, training, and supplements to help with the transition to the new Standards. The changes fall into various categories, but we stress the importance of exploring the associated changes in more detail.  Here are some changes to consider that could influence your internal audit function as you move forward:

Known concepts, new definitions

• Professional courage
• Ethical expectations
• Professional skepticism

Still CPE but new conformance

• Core competencies and knowledge, skills, and abilities
• Continuing professional development
• Methodologies, policies, and procedures aligned with the Standards

More IT, data, and information protection

• Information and data access should be least privilege, and establish and follow a methodology

Additional governance, support, and CAE oversight

• Governing of the internal audit function must be discussed with the board and senior management
• Board and senior management support
• CAE’s overall responsibility to facilitate, their qualifications/competencies, and roles and responsibilities of the board and senior management
• External quality assessment every five years; ensuring quality assessor holds a CIA certification
• Establish internal audit strategy including mission, vision, and strategic objectives

Increased documentation and engagement reporting

• Communicating results, findings, and conclusions considered in the totality of the audit plan
• Evaluating the function’s performance
• Ongoing communications, e.g., engagement objectives, scope, and timing
• Evaluating and discussing limitations and changes to objectives and scope
• Documenting relevant information that cannot be obtained as a finding
• Evaluating findings in relation to risk and significance
• Process to resolve disagreements on recommendations and action plans to determine resolution
• Final engagement communications, specify action plan, responsible parties, and implementation date

The updates to the Standards represent a continued focus on accountability, integrity, and excellence in internal auditing practices worldwide. Adherence to the Standards provides many benefits, including enhanced governance and oversight, improved risk management, and increased stakeholder confidence. By embracing the Standards, organizations reaffirm their commitment to these core values and drive sustainable growth and resilience in an ever-evolving environment and world.

In addition to the information mentioned above, CAEs and internal audit functions are advised to monitor and continue to evaluate information released by the IIA regarding the 2024 Standards for more specific guidance.

Jamie Braswell is a senior manager with the risk assurance and advisory services group at KraftCPAs. Reach her at 615-782-4227 or [email protected].

Helpful links

Conformance Readiness Assessment Tool (theiia.org)

Global Internal Audit Standards (theiia.org)

Two-Way Mapping: 2017 IPPF Mandatory Elements to 2024 Global Internal Audit Standards (and Back) (theiia.org)

Benchmark Hub (theiia.org)

Introducing the New Quality Assessment: Aligned to the Global Internal Audit Standards (theiia.org)

Medicare health insurance premiums can add up to big bucks — especially if you’re upper-income, married, and you and your spouse both pay premiums. Do you have a solid understanding of how those premiums affect your taxes?

Premiums for Part B coverage 

Medicare Part B coverage is commonly known as Medicare medical insurance. Part B mainly covers doctors’ visits and outpatient services. Eligible individuals must pay monthly premiums for this benefit. Medicare is generally for people 65 or older. It’s also available earlier to some people with disabilities and those with end-stage renal disease and ALS.

The monthly premium for the current year depends on your modified adjusted gross income (MAGI), as reported on your Form 1040 for two years earlier. MAGI is the adjusted gross income (AGI) number on your Form 1040 plus any tax-exempt interest income.

For 2025, most individuals will pay the base monthly Part B premium of $185 per covered person.

Higher-income individuals must pay a surcharge on top of the base premium. For 2025, a surcharge applies if you:

• filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year, or;
• filed jointly for 2023 and reported MAGI above $212,000 for that year.

For 2025, Part B monthly premiums, including surcharges if applicable, for each covered individual can be found on this web page.

Part B premiums, including any surcharges, are withheld from your Social Security benefit payments and are shown on the annual Form SSA-1099 sent to you by the Social Security Administration (SSA).

Premiums for Part D drug coverage

Medicare Part D is private prescription drug coverage. Base premiums vary depending on the plan. Higher-income individuals must pay a surcharge on top of the base premium.

For 2025, surcharges apply to those who:

• filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year, or;
• filed a joint return for 2023 and reported MAGI above $212,000.

You can find the 2025 monthly Part D surcharges for each covered person on this web page.

You pay the base Part D premium, which depends on the private insurance company plan you select, to the insurance company. Any surcharge will be withheld from your Social Security benefit payments and reflected on the annual Form SSA-1099 sent to you by the SSA.

Deducting Medicare premiums

You might be able to combine premiums for Medicare insurance with other qualifying health care expenses to claim an itemized medical expense deduction. Your deduction equals total qualifying expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).

Your 2024 tax return and 2026 Medicare premiums 

Decisions reflected on your 2024 Form 1040 can affect your 2024 MAGI and, in turn, your 2026 Medicare health insurance premiums. This issue is especially relevant if you’re self-employed or an owner of a pass-through business entity (LLC, partnership, or S corporation) because you have more opportunities to micro-manage your 2024 MAGI at tax-filing time. For example, you can choose to make bigger or smaller deductible contributions to a self-employed retirement plan and maximize or minimize depreciation deductions for business assets.

While your 2026 Medicare health insurance premiums may seem to be an issue in the distant future, 2026 will be here before you know it. It’s not too early to plan.

© 2024 KraftCPAs PLLC

If you’re confused about the federal tax treatment of business-related meal and entertainment expenses, you’re not alone. Changes to the tax code have led to a variety of changes to deduction rules. Here’s where they stand for the current tax year.

Current law

The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. That means, for example, that you can’t deduct any part of the cost of taking clients out for a round of golf or to a football game.

You can still generally deduct 50% of the cost of food and beverages when they’re business-related or consumed during business-related entertainment.

Allowable food and beverage costs

IRS regulations clarify that food and beverages are all related items whether they’re characterized as meals, snacks, etc. Food and beverage costs include sales tax, delivery fees, and tips.

To be 50% deductible, food and beverages consumed in conjunction with an entertainment activity must either be purchased separately from the entertainment or be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages. You can deduct 50% of the approximate reasonable value if they aren’t purchased separately.

Other rules

Per IRS regulations, no 50% deduction for the cost of business meals is allowed unless:

1. The meal isn’t lavish or extravagant under the circumstances.
2. You (as the taxpayer) or an employee is present at the meal.
3. The meal is provided to you or a business associate.

A “business associate” is an individual with whom you reasonably expect to conduct business — such as established or prospective customers, clients, suppliers, employees, or partners.

IRS regulations make it clear that you can deduct 50% of the cost of a business-related meal for yourself — for example, because you’re working late at night.

Traveling on business

Per IRS regulations, the general rule is that you can still deduct 50% of the cost of meals while traveling on business. The longstanding rules for substantiating meal expenses still apply. Don’t forget to keep receipts.

IRS regulations also reiterate the longstanding general rule that no deductions are allowed for meal expenses incurred for spouses, dependents, or other individuals accompanying you on business travel. This is also true for spouses and dependents accompanying an officer or employee on a business trip.

The exception is when the expenses would otherwise be deductible. For example, meal expenses for your spouse are deductible if he or she works at your company and accompanies you on a business trip for legitimate business reasons.

100% deductions in certain situations

IRS regulations confirm that some longstanding favorable exceptions for meal and entertainment expenses still apply. For example, your business can deduct 100% of the cost of:

• Food, beverage, and entertainment incurred for recreational, social, or similar activities that are primarily for the benefit of all employees (for example, at a company holiday party)
• Food, beverages, and entertainment available to the public (for example, free food and music you provide at a promotional event open to the public)
• Food, beverages, and entertainment sold to customers for full value
• Amounts that are reported as taxable compensation to recipient employees
• Meals and entertainment that are reported as taxable income to a non-employee recipient on a Form 1099 (for example, a customer wins a dinner cruise for 10 valued at $750 at a sales presentation)

In addition, a restaurant or catering business can deduct 100% of the cost of food and beverages purchased to provide meals to paying customers and consumed at the worksite by employees who work in the restaurant or catering business.

© 2024 KraftCPAs PLLC

Internal and external audits are both essential for ensuring your company’s financial health and providing a robust framework for accountability and transparency. And both can be effective antifraud controls.

Business owners should understand how these types of audits differ to ensure they leverage both functions effectively to reinforce their companies’ internal controls and build trust with stakeholders. Here’s an overview of six fundamental differences.

1. Purpose

The purpose of an internal audit is to assess and improve a company’s internal controls, risk management, and governance processes. Some companies have an internal audit department, while others outsource this function to external audit firms. Internal auditors — whether in-house or outsourced — work as an extension of the company’s management to ensure that internal processes align with organizational objectives and mitigate risk.

External audits must always be performed by an independent CPA firm. Their primary purpose is to provide an opinion on the accuracy and fairness of the company’s financial statements on the reporting date. An external audit aims to assure stakeholders — such as lenders, investors and regulators — that the financial statements are free from material misstatement and comply with Generally Accepted Accounting Principles (GAAP) or another relevant framework.

2. Scope

Internal audits can cover a broad range of topics. For example, auditors can evaluate operations, internal controls, company- or industry-specific risks, and compliance with laws and regulations. The scope can be tailored to the company’s needs and may change as new risks or business areas emerge. Outsourcing this function can be cost-effective for smaller organizations that don’t require a full-time internal audit department.

External audits are standardized, focusing solely on the financial statements and related disclosures. External auditors perform testing on account balances and transactions, evaluate financial reporting controls, and assess compliance with GAAP or other relevant frameworks. Auditors follow strict regulatory guidelines, such as Generally Accepted Auditing Standards set forth by the American Institute of Certified Public Accountants (AICPA) and the Public Company Accounting Oversight Board standards.

3. Independence

Internal auditors work under the direction of the company’s audit committee or management. Outsourced internal audit teams are also considered part of the organization’s internal audit function, which means they may not be entirely independent of the organization. While internal auditors usually provide recommendations directly to the company, they can remain objective if they report directly to the board or audit committee.

On the other hand, external auditors must maintain strict independence from the companies they audit to ensure objectivity and compliance with professional standards. They can’t have financial interests in the company or perform services that could create actual or perceived conflicts of interest. Independence is crucial for external auditors to provide an unbiased opinion that stakeholders can trust.

4. Methods

Internal auditors use a risk-based, continuous-improvement approach, focusing on specific areas of concern. Internal auditors may use internal control models — such as the Committee of Sponsoring Organizations of the Treadway Commission framework — to assess the company’s processes, identify potential risks, evaluate controls, and make recommendations for improvement. Their role tends to be more consultative.

External auditors follow standardized methods to gather sufficient evidence to form an opinion on the financial statements’ fairness and compliance. After assessing the company’s risks, external auditors may perform substantive procedures, analytical reviews, and sampling techniques to detect material misstatements. They verify the accuracy of accounts by conducting tests, reviewing source documents, and confirming account balances with third parties.

5. Deliverables

Internal auditors typically report directly to management and the audit committee. They provide detailed recommendations and management action plans based on their findings, areas of risk, and control weaknesses. Internal audit reports aren’t usually distributed to outside stakeholders; instead, they’re intended to guide internal improvements and decision-making.

External auditors issue an audit opinion on the organization’s financial statements. The audit opinion is a letter that serves as the front page of the company’s financials. The following types of opinions may be issued, depending on the audit findings:

Unqualified. A clean “unqualified” opinion is the most common and desirable. The auditor states that the financial statements fairly present the company’s financial condition, position, and operations.

Qualified. The auditor expresses a qualified opinion if the financial statements appear to contain a small deviation from GAAP but are otherwise fairly presented. Qualified opinions also may be given if management limits the scope of certain audit procedures.

Adverse. An adverse opinion letter outlines material exceptions to GAAP that affect the financial statements as a whole. It indicates that the financial statements aren’t presented fairly.

Disclaimer. A disclaimer of opinion happens when an auditor gives up in the middle of an audit. Reasons for disclaimers may include significant scope limitations, material doubt about the company’s going-concern status, and concerns about dishonest management practices.

Public companies file reports with the Securities and Exchange Commission, which are available to the public. Many private companies share audited financial statements with lenders, franchisors, private equity investors, and other stakeholders.

6. Frequency

Internal audit procedures are performed throughout the year, typically following an annual audit plan approved by management or the audit committee. Internal auditors may evaluate different areas on a rotating or as-needed basis as risks evolve or emerge.

External audits are typically performed at year-end. However, public companies and larger private organizations may also be required to issue audited financial statements on a quarterly basis. For an added measure of assurance, some companies have auditors conduct periodic “surprise” audits or agreed-upon procedures engagements that target high-risk accounts or areas of concern identified during year-end audit procedures.

How audits fight fraud

Internal and external audits are some of the most common and effective antifraud controls, according to “Occupational Fraud 2024: A Report to the Nations,” published by the Association of Certified Fraud Examiners (ACFE). The study found that 84% of the respondents had audited financial statements and 80% had internal audits.

It also reported that losses incurred by victim organizations that had their financial statements audited by outside accounting firms were 52% less than those without audited financial statements. Additionally, the median duration of fraud schemes was cut in half with the use of external audits. The time it took for victim organizations with audited financials to discover fraud schemes was 12 months, compared to 24 months for those without.

Likewise, internal audits reduced fraud losses by 43% and the duration of fraud schemes by 50%. However, internal auditors detected 14% of fraud schemes in the 2024 study (compared to only 3% for external auditors). And whistleblowers initially reported fraud suspicions to the internal audit department in 14% of the cases (compared to only 1% for external auditors).

© 2024 KraftCPAs PLLC

Although inflation rates have come down since peaking in 2022, some tax amounts will still increase for 2025. The IRS recently announced next year’s inflation-adjusted amounts for several provisions.

Here are the highlights:

Standard deduction. What does an increased standard deduction mean for you? A larger standard deduction will shelter more income from federal income tax next year. For 2025, the standard deduction will increase to $15,000 for single taxpayers, $30,000 for married couples filing jointly, and $22,500 for heads of household. This is up from the 2024 amounts of $14,600 for single taxpayers, $29,200 for married couples filing jointly, and $21,900 for heads of household.

The highest tax rate. For 2025, the highest tax rate of 37% will affect single taxpayers and heads of households with income exceeding $626,350 ($751,600 for married taxpayers filing jointly). This is up from 2024, when the 37% rate affects single taxpayers and heads of households with income exceeding $609,350 ($731,200 for married couples filing jointly).

Retirement plans. Some retirement plan limits will increase for 2025. That means you may have an opportunity to save more for retirement if you have one of these plans and you contribute the maximum amount allowed. For example, in 2025, individuals can contribute up to $23,500 to their 401(k) plans, 403(b) plans and most 457 plans. This is up from $23,000 in 2024. The general catch-up contribution limit for employees age 50 and over who participate in these plans will be $7,500 in 2025 (unchanged from 2024).

However, under the SECURE 2.0 law, specific 401(k) participants can save more with catch-up contributions beginning in 2025. The new catch-up contribution amount for taxpayers who are age 60, 61, 62, or 63 will be $11,250.

Therefore, participants in 401(k) plans who are 50 or older can contribute up to $31,000 in 2025. Those who are age 60, 61, 62, or 63 can contribute up to $34,750.

The annual contribution limit for those with IRA accounts will remain at $7,000 for 2025. The IRA catch-up contribution for those age 50 and up also remains at $1,000 because it isn’t adjusted for inflation.

Flexible Spending Accounts (FSAs). These accounts allow owners to pay for qualified medical costs with pre-tax dollars. If you participate in an employer-sponsored FSA, you can contribute more in 2025. The annual contribution amount will rise to $3,300 (up from $3,200 in 2024). FSA funds must be used by year-end unless an employer elects to allow a 2 1/2-month carryover grace period. For 2025, the amount that can be carried over to the following year will rise to $660 (up from $640 for 2024).

Taxable gifts. You can make annual gifts up to the federal gift tax exclusion amount each year. Annual gifts help reduce the taxable value of your estate without reducing your unified federal estate and gift tax exemption. For 2025, the first $19,000 of gifts to as many recipients as you’d like (other than gifts of future interests) aren’t included in the total amount of taxable gifts. This is up from $18,000 in 2024.

© 2024 KraftCPAs PLLC