Author: Mike

The greatest thing about the passage of the One Big Beautiful Bill Act (OBBBA) is that we shouldn’t have to constantly hear about it in the news any longer. Still, you should take some time to find out what’s in it to see what it means to you, and here I will go over the major tax related items.

What is old will not be new again

Do you remember what your taxes looked like in 2016? No? Well, the good news is that you don’t need to remember.

When the Tax Cuts and Jobs Act (TCJA) was passed in 2017 there were some rather sweeping changes made to the Internal Revenue Code, including lowered tax rates, a nearly doubled standard deduction, increased child tax credits, increased estate and gift tax exemptions, and a new 20% Qualified Business Income deduction. All of which were set to expire in 2026. The primary goal of the OBBBA, then, was to prevent that expiration, and thus the passage of this law is less about being the largest tax cut in history and more about avoiding the largest tax increase. But either way you want to look at it, that expiration date is no longer hanging over our heads and those provisions have been made permanent, or at least, the automatic expiration date has been removed.

Some old favorites with slight modifications

There is a slight increase to the standard deduction for those under 65, an additional $750 for single filers and $1,500 for those filing jointly. As for those 65 or older, an extra $6,000 deduction will be added to your standard deduction, but only if your modified gross income is under $75,000 if single, $150,000 if joint, with phase outs above that. And this extra $6,000 deduction is set to expire in 2029.

The previously increased Child Tax Credit wasn’t just made permanent, it was increased from $2,000 to $2,200.

The Qualified Business Income deduction was made permanent, and remains at 20%, but the phase out of the deduction for a specified service trade or business was increased by 50%, to $75,000 or $150,000 for joint filers, thereby helping out those struggling attorneys and accountants and whatnot.

And for those that itemize, but were limited by the TCJA to only $10,000 in deductions for state and local taxes (The “SALT” deductions you may have heard about), you can now deduct up to $40,000 for 2025. This limit goes up by 1% every year, but then it reverts back to $10,000 in 2030.

And now for something completely different

No tax on tips! Up to a $25,000 deduction, if your adjusted gross income is under $150,000, or $300,000 on a joint return. And only on “qualified tips” which are defined to include only tips where such tips are customarily and regularly received. So, hospitality, yes. Doctors and lawyers, no. Oh, and this only runs through 2028.

No tax on overtime! Up to a $12,500 deduction, if your adjusted gross income is under $150,000, $300,000 for a joint return. And yes, it’s only through 2028. I’m sensing a pattern…

A deduction for car loan interest. Up to a $10,000 deduction, for those with modified adjusted gross income under $100,000, or $200,000 joint. You don’t need to itemize to claim the deduction. Oh, and it expires after 2028.

Trump accounts. A new investment account for the kids in which the parents can contribute up to $5,000 per year, including $2,500 tax free from a parent’s employer. There is a lot that could be said here, but the fun part is, for kiddos born in 2025 through 2028, the trump account comes prefunded with a $1,000. So, free money for a part of Generation Beta.

A charitable deduction for nonitemizers of $1,000 or $2,000 for joint filers. This does not expire, but it also doesn’t start until 2026.

Business related provisions

There are many of these, too many to summarize here, but a couple of the more interesting are:

Bonus depreciation is back to 100% for property acquired on or after January 19, 2025, and this deduction is now permanent.

Changes to 1099 filing requirements include increasing the filing requirement on forms 1099-MISC and 1099-NEC from $600 to $2,000 for reporting services by independent contractors, and the 1099-K filing requirement by third party settlement organizations has increased so no reporting is necessary unless payees have earned more than $20,000 on more than 200 separate transactions in a period (This was $600 previously).

Is that all?

No, not by a long shot. The Bill was Big, as you may have heard. However, I believe that these are the provisions that most people may care about. Now we wait until 2028 to see what provisions Congress will let expire, or if we’ll see another bill, big, beautiful, or otherwise, to extend them.

It’s almost here. Thanksgiving! You can practically smell that coma inducing meal in which you are about to partake. And if you are anything like me, you naturally start to think, “Can I deduct a turkey leg?”

To explore this important topic, I sat down with our friend AI. Here’s how that went:

Me: I want a play a game that goes like this: I suggest a scenario in which I purchase a turkey leg, and then you tell me whether or not I can deduct that purchase, based on your knowledge of US Tax Law. Then we’ll move to another scenario with a different fact pattern. Sound good?

AI: Absolutely, let’s play! I’ll use the relevant tax rules, including the Internal Revenue Code and Regulations to provide clear, concise answers. Feel free to suggest your scenarios, and I’ll let you know if the turkey leg purchase is deductible. Fire away with your first scenario!

Scenario 1:

I purchased a turkey and found someone in my family to cook it. My family sits down to enjoy the turkey, and I eat the turkey leg. Can I deduct the cost of the turkey leg?
Answer: No, you cannot deduct the cost of the turkey leg because it is a personal expense, and personal food consumption is not deductible under U.S. tax law.

Scenario 2:

I purchase a turkey leg and donate it directly to a church, school, or 501(c)(3).
Answer: Yes, you can deduct the cost of the turkey leg as a charitable contribution, provided you keep proper documentation, such as a receipt or acknowledgment from the organization, and the organization is a qualified 501(c)(3).

(NOTE: This would be an itemized deduction. With the standard deduction so high currently, fewer people itemize, but I suppose if you donate enough turkey legs to charity, you could get there.)

Scenario 3:

There’s a guy on the street holding a sign that says, “I’m hungry, please help.” I give him a turkey leg.
Answer: No, you cannot deduct the cost of the turkey leg. While generous, gifts to individuals, including those in need, are not tax-deductible because they do not meet the requirement of being made to a qualified charitable organization under U.S. tax law.

Scenario 4:

I take a potential client out to a restaurant and buy him a turkey leg.
Answer: Yes, you can deduct 50% of the cost of the turkey leg as a business meal expense, provided the meal has a clear business purpose and you maintain proper documentation, such as a receipt and records of the business discussion.

Scenario 5:

I see my client at the restaurant and I buy her a turkey leg, but neither I nor an employee of mine stick around to watch her eat it.
Answer: No, you cannot deduct the cost of the turkey leg. For a business meal to be deductible, you or an employee must be present during the meal. Without your presence, it does not meet the requirements for a business meal deduction.

Scenario 6:

I take my client to a football game. While there, I purchase a turkey leg. I have a separate receipt for the turkey leg.
Answer: No, you cannot deduct the cost of the turkey leg. While meals can sometimes be deductible during entertainment events, the cost of the ticket or event itself is nondeductible, and the IRS generally disallows deductions for meals closely associated with entertainment unless they are billed separately by the venue and meet business meal criteria.

(NOTE: AI came to the wrong conclusion on this one, which I point out later in our conversation.)

Scenario 7:

I take my client to a restaurant owned by Wolfgang Puck and buy a $5,000 turkey leg.
Answer: Yes, you can deduct 50% of the cost of the turkey leg as a business meal expense, as long as it is for a legitimate business purpose, you or an employee are present, and proper documentation is maintained. However, the extravagance of the expense could be scrutinized by the IRS under the “lavish or extravagant” standard, which might limit the deduction if deemed unreasonable.

(NOTE: No offense to Wolfgang, but in my opinion, no turkey leg is worth $5,000. It’s absolutely lavish or extravagant.)

Scenario 8:

We have a Thanksgiving party at the office for all of the employees. Everyone there gets a turkey leg.
Answer: Yes, you can fully deduct the cost of the turkey legs as an employee benefit expense, provided the party is for the benefit of your employees and not just for select individuals (e.g., highly compensated employees). Meals provided for employee events like these are generally 100% deductible.

Scenario 9:

As a reward for meeting sales goals, I pay a bonus to an employee. The bonus is in the form of a turkey leg.
Answer: Yes, you can deduct the cost of the turkey leg as a business expense because it is considered employee compensation. However, the value of the turkey leg must be included in the employee’s taxable wages and reported on their Form W-2.

Scenario 10:

I have to pay a subcontractor for services performed for my business. The subcontractor accepts cash, credit cards, PayPal, Zelle, and turkey legs. I pay the subcontractor in turkey legs.
Answer: Yes, you can deduct the cost of the turkey legs as a business expense because they are payment for services rendered by the subcontractor. However, you must report the value of the turkey legs paid to the subcontractor on a Form 1099-NEC, assuming the value exceeds the reporting threshold and other reporting requirements are met.

Scenario 11:

I’m giving out turkey legs as gifts for clients.
Answer: Yes, you can deduct the cost of the turkey legs as a business gift, but the deduction is limited to $25 per recipient per tax year. Any amount over $25 per recipient is not deductible. Proper documentation of the recipients and business purpose is required.

Scenario 12:

I purchase a turkey leg with the intent of taking a picture of me holding the turkey leg, which picture will be used on my website featuring a blog post where I ask AI a series of questions about whether or not I can deduct the cost of the purchase of a turkey leg under several different scenarios.
Answer: Yes, you can likely deduct the cost of the turkey leg as a business expense because it is being used directly for marketing and promotional purposes in connection with your business. Ensure you document the purpose and retain receipts to substantiate the deduction.

 

Me: That was fun. I do think you got one wrong though, regarding the turkey leg purchased at the football game. Are you familiar with Internal Revenue Regulation 1.274-11? Specifically 1.274-11(b)(1)(ii)?

AI: You are absolutely correct, and thank you for pointing that out! Under Treas. Reg. § 1.274-11(b)(1)(ii), food and beverages provided at or during an entertainment activity are not considered part of the nondeductible entertainment expense if they are purchased separately or their cost is stated separately on the receipt. This means that if you purchased the turkey leg at the football game and have a separate receipt or the cost is itemized on a combined bill, the cost of the turkey leg would qualify for the 50% business meal deduction under the general meal expense rules.

AI: My earlier answer overlooked this nuanced provision. I appreciate your thorough reference and careful reading of the regulation. That was indeed fun and insightful—thank you for engaging! 😊

And there you have it. Now hopefully you can enjoy your thanksgiving meal having had all of your turkey leg tax deductions answered.

Happy Thanksgiving!