Tax Rounds - Newsletter for September 2025
What’s new at TaxSmart MD?
If you are a new client, let me thank you again for trusting me to help you with your tax needs. Currently, about half of clients have had tax planning meetings, and I hope we can complete as many of these as possible before the end of September. The sooner we can complete those, the more easily we can take advantage of any strategies that can lower your tax liability. We also have more time to make any adjustments to your withholdings and estimated tax payments, if necessary.
If you are a client and have not had a tax planning meeting yet, I encourage you to book one here. If you are an S Corp client, we can do two planning meetings, as long as we get them done by the end of September. I realize that most of my clients are working full-time and also have families that need most of their remaining attention. As a result, I have opened time up on the weekends and evenings. While I recommend scheduling meetings, I do want to do what works best for clients, so if you prefer, I can send you a video and email with my recommendations.
We also can meet at the end of the year to update our tax projection for 2025, if anything has changed.
Behind the Scenes of Tax Planning Meetings:
Understandably, most people don’t have a great idea of what “tax planning” entails. The definition is not very consistent among financial planners and tax professionals, either. To me, this concept means, at an elementary level, the process of predicting income and tax liability as best we can in the short term, and figuring out the best ways to lower your taxes in current and future years.
This is inherently challenging because the life situation for clients often changes in ways they can’t easily predict. Congress also seemingly changes the rules after every election. When I do tax planning for clients, I rely on what is currently written into law. As you probably know, Congress just passed a tax bill that changes many of these rules; to make it more complicated, several of these changes that favor the taxpayer are expected to sunset in the next five years. I will have more to say about these in future blog posts (stay tuned!).
I would like to give you a look behind the curtain in how I approach planning meetings. Prior to our meeting, I prepare by reviewing a client’s tax return, and I also ask clients to let me know if anything has significantly changed this year that would make their tax return look different. Importantly, I ask for outside paystubs, so that I can estimate the total income and tax withholdings. Although clients usually have a decent idea of their gross earnings, there are several factors that can impact how much income is taxed (mainly depending on the cost of benefits and retirement contributions). It is also common for clients (especially married clients) to underwithhold, in large part because the W4 is very non-intuitive.
I also generally ask for information about estimated payments made during the year. I realize that gathering all this data can be onerous and time-consuming. To make this easier, I’ve asked clients to sign a Taxpayer Information Authorization (TIA) so that I can look up their payments myself. If you are also using TaxSmart MD for payroll, I can pull up your paystubs on my own. I offer expense tracking for all of my self-employed clients, and this is an effective way to automate the process of projecting income and lessen the amount of time you need to spend answering my emails and logging into Tax Dome.
Following this, depending on the client’s situation, I extrapolate income from each source using a spreadsheet; I then use my tax software (Intuit Tax Advisor) to project the Adjusted Gross Income and Total Tax at the federal and state level. After this, I look to see if there are any changes that can be made that would lower their tax liability. Because this is so individualized, I can’t produce an exhaustive list of all the deductions and strategies I consider, but here is how I categorize them broadly:
Optimizing retirement contributions (401k, 403b, IRA’s, HSA’s, etc).
Business deductions (especially not-so-straightforward ones like home office and vehicle expenses, Augusta Rule, accelerated depreciation, etc).
Deductions and credits for kids/education (529, Child and Dependent Care Tax Credits, putting kids on payroll, etc).
Itemized Deductions (particularly the new SALT deduction with the OBBBA and charitable donations).
Special considerations for S Corps (optimizing compensation, Pass-Through Entity Tax, accountable plans).
Special considerations for clients with student loans (filing status, who should claim dependents, utility of filing extensions).
I endeavor to make my recommendations with a keen awareness of a client’s marginal tax rate. In many situations, there is some flexibility in the timing of when you make use of certain strategies. A classic example is charitable donations and the bunching strategy. Generally, if you want to optimize the timing of when to utilize a tax strategy, you should aim to do it in years in which your tax bracket is high. Even if your federal and state tax brackets don’t change much between years, there are several other ways your tax rate (for example, being phased out of certain tax deductions and credits), or other costs (such as student loan payments and Medicare Part B/D premiums) can go up, and this can vary from year to year with relatively small changes in income.
Finally, I look at withholdings and estimated payments my clients have made and are planning to make, and compare them to what I think their total tax liability will be in April of the following year. If they are due to get a big refund, we can decrease withholdings or estimated payments. If it looks like they will owe money, we’ll talk about the best ways to improve this situation between now and the end of the year. Most commonly, I recommend withholding more through the W4, since that can mitigate or eliminate the interest the IRS charges for underpayment. However, sometimes increasing estimated payments works out best. I also calculate the safe harbor amounts for clients, both at the federal and state level, so they can be clear on what they need to pay sooner, and what can wait until next April. Because many of my clients have several sets (sometimes more than four) of estimated payments to make, this comprises a significant amount of our discussion time.
After we finish our meetings, I send a pdf summary of my recommendations along with an email to the client and their financial planner. While that is a broad overview of the process, it is never cookie cutter. Every client is unique, and more importantly, clients have their own values, priorities, goals, and vision. I view tax planning as an integral component of their overall financial plan, and it should be vital in helping you attain the life that you want.
What’s new in the blog:
Energy Credits Expiring Soon: If you are thinking of getting an EV or PHEV, or you are thinking of doing energy efficient home renovations, and you want Uncle Sam to pick up part of the tab, now is the time to act.
A New Tax Era for Kelce and Swift: When couples go from dating to legally married, their taxes change in a way we know All Too Well.
Outside news and views:
The Estate Tax Mistake That Can Cost Families Millions (WSJ): Portability is a fantastic tool for reducing estate tax, but don’t forget to file that estate tax return! Note that this is something you won’t have to worry about unless your estate is worth more than the exemption (which is ~$14M per spouse this year).
How the 2025 Budget Act Accelerates Social Security’s Insolvency (Tax Policy Center): Keep in mind that Social Security insolvency doesn’t mean Social Security will end completely. It just means that it’s more likely that Social Security won’t pay out as much as promised. This reinforces my opinion that most clients should try to pay less in self-employment taxes if they can.
IRS Vets and Wild Cards: Trump’s Options for Replacing Long: Let’s hope the IRS’s next leader is more qualified.
Hiring A Nanny? Here’s What You Need to Know About the “Nanny Tax” (WCI): It’s important to know that child care workers are employees, and you need to treat them that way by withholding taxes and paying for unemployment and worker’s comp insurance. Avoiding this by paying under the table really isn’t worth the risk.
How Practice Owners Can (Legally) Make Roth IRA Contributions for Their Children (SLP Wealth): I’ve talked about this strategy with a few clients recently. If you have teenage children (or other relatives), it’s usually better to hire them than hire your spouse. However, you need to weigh the time and hassle of putting them on payroll. Also, while you don’t have to pay FICA taxes if your business is unincorporated, this is required if you have an S Corp (and is one downside to creating an S Corporation).
Wait, you can deduct this??
Cat Food: Seawright vs. Commissioner
From the opinion: On brief, respondent concedes that petitioners are entitled to a $300 business expense deduction for cat food that petitioners purchased and set out in their scrap yard for the purpose of attracting wild cats to deter snakes and rats.
No, this doesn’t mean you can deduct the cost of lasagna for Garfield. But if your feline has a function that legitimately helps you make money at your business, then you can deduct the expenses. My only request is that you please tell your tax advisor about that new cat cafe you want to open!
That’s it for September! Thanks for reading, and email me at logan@taxsmartmd.com if you think of any questions, or have other topics you want me to cover in the blog or newsletter!