Category: tax deductions

BUSINESS CREDIT, Business Strategies, Family Tax Issues, General Information, RUNNING YOUR BUSINESS, Self Employed, signing agent, TAX DEBT RELIEF, tax deductions, Tax Reduction, TAXES

Don’t Leave Money on the Table! 3 Year-End Tax Moves That Pay You—Not the IRS.

Howard Tax Prep LLC

The goal of this article is simple—to help you put more money back in your pocket. While the IRS probably won’t mail you a check (though that can happen in some instances), the real benefit comes from paying less in taxes. In other words, this article is all about smart tax strategy. I’m breaking down three powerful business deduction moves you can easily understand and put into action before the end of 2025 to reduce your taxable income and keep more of what you earn.

1.) Prepay Eligible Expenses (The 12-Month Rule)

The tax code IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS. Under this little-known rule commonly referred to as the 12-Month Rule, cash-basis taxpayers can often deduct certain expenses in the current tax year, even if the service extends into the following year, provided the benefit doesn’t extend beyond the end of the next tax year.

Common prepaid items include:

  • Business Insurance Premiums: Paying the full 12-month premium in December 2025 instead of January 2026 allows you to deduct the expense this year.
  • Rent: Prepaying the first month of 2026 rent in December 2025.
  • Software Licenses/Subscriptions: Prepaying annual fees in December.

Example: Shifting a Lease Deduction

Imagine you pay $\$3,000$ in lease payments each month, and you would like to secure a $\$36,000$ deduction for tax year 2025.

  • On Wednesday, December 31, 2025, you mail your landlord a rent check for $\$36,000$ to cover the entire 2026 lease.
  • Your landlord does not receive the payment in the mail until Friday, January 2, 2026.

Here’s what happens:

  • Your Deduction (2025): You deduct the full $\$36,000$ this year (2025—the year you paid the money).
  • Landlord’s Income (2026): The landlord reports the $\$36,000$ as rental income in 2026 (the year they received the money).

Actionable Tip: Look at any annual or multi-month expenses coming due in early 2026. If the service covers only 12 months, prepay it in December 2025 to shift the deduction forward.

2. Stop Billing Customers, Clients, and Patients

Here is a rock-solid, time-tested, and easy strategy to reduce your taxable income for this year: simply stop billing your customers, clients, and patients until after December 31, 2025. Please note, this strategy assumes your business is on the cash basis of accounting and operates on the calendar year.

As a business owner, it may come as no surprise to you that most customers, clients, patients, and insurance companies don’t pay until they are billed. By delaying your invoicing until the end of the year, you effectively delay cash receipt. Since a cash-basis business only recognizes income when the cash is received (not when the service is performed), delaying the receipt pushes that income into the next tax year. This is one of the easiest ways for small business owners to postpone paying taxes on current year income.

Example: The Contractors Delayed Billing

Jake, a general contractor, usually invoices his customers at the end of each week.

  • This year, however, he sends no bills for services performed throughout December 2025.
  • Instead, he gathers up all those bills and mails them the first week of January 2026.

The Result: The payments for his December 2025 work will not be received until January or February 2026. He just postponed paying taxes on all his December income by successfully moving that income from 2025 to 2026.

Actionable Tip: Pause all non-essential billing runs starting around December 15th. Instruct your billing department or staff to hold all new invoices and statements until January 1, 2026.

3. Use Your Credit Cards Correctly

The rule for taking a tax deduction depends entirely on who owns the credit card being used for the purchase.

  • If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit cards for last-minute purchases of office supplies and other business necessities.
  • If you operate your business as a corporation (S-Corp or C-Corp) and the corporation has a credit card in its name, the same rule applies: the date of charge is the date of deduction for the corporation.
  • However, if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that deduction happens on the date of reimbursement—not the date of the charge.

Example: The Consultant’s Last-Minute Purchase

A consultant, Maria, needs to buy $1,500 worth of new software on December 30th to get a deduction for the current year (2025).

  1. If Maria is a Sole Proprietor: She uses her personal credit card on December 30th. Deduction Date: December 30, 2025.
  2. If Maria runs an S-Corp: She uses her personal credit card on December 30th. She submits the expense report on January 2nd, and the corporation reimburses her on January 5th. Deduction Date: January 5, 2026.

Actionable Tip: If your corporation owes you money for business expenses charged to your personal card, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

Family Tax Issues, General Information, REAL ESTATE, Self Employed, tax deductions, Tax Reduction, TAXES

Energy Tax Credits for Homeowners

Howard Tax Prep LLC
Photo by Ksenia Chernaya on Pexels.com

Here in our Chicago South Loop Tax Preparation office, and our Homewood Il Tax Preparation office, we work with homeowners and real estate investors that are looking to save on their taxes. As we always say, when it comes to taxes, the best tax benefit is a tax credit, because you receive the amount on a dollar-for-dollar basis, versus tax deductions which only slightly reduce your taxable income. To say it another way, a $2,000 tax credit saves you $2,000 in taxes.

Energy Efficient Home Improvement Credit

Per the IRS, “if you make qualified energy-efficient improvements to your home after Jan. 1, 2023, you may qualify for a tax credit up to $3,200.” The Efficient Home Improvement Credits help homeowners pay for various types of energy efficiency improvements. The credit is 30% of energy property cost up to $1,200, and $2,000 per year for qualified heat pumps, biomass stoves, or biomass boilers. Since more people will qualify for the energy-efficient improvements, we’ve outlined the details below.

  • Exterior doors (energy star approved). Max 2 doors, $250 each, total credit amount $500. Example, door cost $1,300; 30% of $1,300 is $390. Although 30% of the cost is $390, the taxpayer can only get $250 of the $390 (per door up to $500).
  • Exterior windows & skylights that meet Energy Star Most Efficient certification requirements; max credit amount $600.
  • Electric panel upgrades. 30% of the cost up to $600.
  • Home insulation. 30% of the cost up to $1,200.
  • Central air conditioner. 30% of the cost up to $600.
  • Furnace, heat pumps, water heaters, and hot water boilers. 30% of the cost.
  • Home energy audits. 30% of the cost up to $150.
  • Heat pumps, biomass stoves, or biomass boilers. $2,000 per year.

What if I earn a high income?

The great thing about this credit is that even those that earn higher incomes can take advantage of the credit (because there are no maximum income thresholds).

How many times can I claim this credit?

Although the Energy Efficient Home Improvement Credit has a $1,200 annual cap (with limits on specific items), you can claim the credit each year through 2033. Some homeowners are choosing to perform energy efficiency projects over several years, so that they can claim the credit each year.

Will this credit increase my tax refund?

It depends! The credit is nonrefundable, meaning if you don’t owe any tax, you will not receive the credit as a refund check. However, the credit can reduce what you owe, helping you to receive a refund of the income taxes withheld by your employer.

Can I carry this tax over to another year?

No, you can’t carry the credit over to a future tax year.

Who can claim the credit

Homeowners that use the property as their main residence, or as a vacation home. Landlords can NOT take this credit.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

Family Tax Issues, General Information, tax deductions, TAXES

Is Your Child’s Scholarship Taxable?

Howard Tax Prep LLC
Photo by Gu00fcl Iu015fu0131k on Pexels.com

In our South Loop of Chicago Tax Preparation office, and our Homewood, Il tax preparation office, we have come across many taxpayers with children that are graduating high school, and heading to college. The good news is that many students receive scholarships, but not many people know about the taxable portion of scholarships, so we wrote this blog to help taxpayers get a

For many students, scholarships are an important part of a financial aid package, and they can significantly reduce the burden of higher education costs. While scholarships are generally viewed as a financial windfall, it’s important to understand that not all scholarship funds are tax-free. The U.S. Internal Revenue Service (IRS) imposes taxes on certain portions of scholarships, and being aware of these taxable portions can help students and their families avoid unexpected tax liabilities.

Tax-Free Portions of Scholarships

According to the IRS, “a scholarship or fellowship grant is tax-free only to the extent it:

  1. Doesn’t exceed your qualified education expenses;
  2. Isn’t designated or earmarked for other purposes (such as room and board);
  3. Doesn’t require (by its terms) that it can’t be used for qualified education expenses;
  4. It doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship.”

To qualify as tax-free, the scholarship or fellowship must be used for:

  1. Qualified Education Expenses: These include tuition and fees required for enrollment or attendance at an eligible educational institution.
  2. Required Course-Related Expenses: This category encompasses books, supplies, and equipment required for courses at the educational institution.

In addition to the above requirements, the recipient must be a candidate for a degree at an eligible educational institution.

Taxable Portions of Scholarships

Portions of scholarships that do not meet the criteria for qualified education expenses are considered taxable income. The IRS outlines several scenarios in which scholarship funds become taxable:

  1. Room and Board: Scholarships used to pay for room and board, including meal plans and housing costs, are taxable. These living expenses are not considered qualified education expenses.
  2. Travel and Research: Funds used for travel, research, and other non-essential expenses not required for enrollment or course attendance are also taxable.
  3. Stipends and Payments for Services: If a scholarship or fellowship includes stipends or payments for teaching, research, or other services required as a condition for receiving the scholarship, these amounts are taxable. This often applies to graduate students who receive compensation in exchange for their teaching or research services.

Reporting and Paying Taxes on Scholarships

Students receiving scholarships must be diligent in reporting the taxable portions on their tax returns. Here are the steps to ensure compliance:

  1. Documentation: Keep detailed records of all scholarship funds received and how they were spent. This includes receipts for tuition, fees, books, and other educational materials.
  2. Form 1098-T: Educational institutions typically provide Form 1098-T, which details the amount billed for qualified tuition and related expenses. Use this form to help determine the taxable portion of the scholarship.
  3. Tax Filing: Report the taxable portion of the scholarship on your federal income tax return. For most students, this involves including the taxable amount on Form 1040 or 1040-SR.

Conclusion

Understanding the taxable portion of scholarships is crucial for students navigating the financial aspects of their education. While scholarships provide significant financial relief, being aware of the IRS rules ensures that students remain compliant with tax laws and avoid unexpected tax bills. By differentiating between qualified and non-qualified expenses, the IRS maintains the integrity of tax-free scholarships and ensures they serve their intended educational purpose.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.

General Information, REAL ESTATE, RUNNING YOUR BUSINESS, Self Employed, tax deductions, TAXES

How to write off startup cost/ expenses on a rental property.

Howard Tax Prep LLC

In our South Loop of Chicago Tax Preparation office, and our Homewood, Il tax preparation office, we often encounter taxpayers who want to generate additional revenue without having to take on a second job or a time-consuming activity. In most cases, taxpayers express an interest in becoming a commercial or residential landlord; however, prior to becoming a rent-collecting landlord, you’ll likely have to spend a lot of money researching and preparing the property for rental. The good news is that the tax code treats some of those monies as start-up expenses.

What Are Start-Up Expenses?
“Start-up expenses” are certain costs (money spent) you incur before a new business begins. In the case of a rental property business, these are costs incurred before you offer the property for rent.

Unlike operating expenses (the cost you spend on monthly bills such as internet, rent, office software etc.) for an existing business, start-up expenses can’t automatically be deducted in a single year because the money you spend to start a new rental (or any other) business is a capital expense—a cost that will benefit you for more than one year.

Normally, you can’t deduct start-up expenses until you sell or otherwise dispose of the business. But a special tax rule allows you to deduct up to $5,000 in start-up expenses the first year you are in business, with the remaining cost being deducted over the next 15 years.

There are two broad categories for startup cost:

  1. Investigatory–Cost incurred as part of a general search to determine whether to acquire or enter a new business and which new business to enter. For example, you may deduct fees paid to a market research firm to analyze the demographics, traffic patterns, and general economic conditions of a neighborhood.
  2. Pre-opening costs, such as advertising, office expenses, salaries, insurance, and maintenance costs.

Your cost of purchasing a rental property is not a start-up expense. Rental property and other long-term assets, such as furniture, must be depreciated (cost spread out over time) once the rental business begins.

On the day you start your rental business, you can elect to deduct your start-up expenses.

The deduction is equal to

  • the lesser of your start-up expenditures or $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, plus
  • amortization of the remaining start-up expenses over the 180-month period beginning with the month in which the rental property business begins.

When you file your tax return, you automatically elect to deduct your start-up expenses when you label and deduct them on your Schedule E (or other appropriate return).

Additionally, travel expenses to get your rental business going are deductible start-up expenses with one important exception: travel costs to buy the targeted rental property are not start-up expenses. Instead, they are capital expenses that must be added to the cost of the property and depreciated.

Costs you pay to form a partnership, limited liability company, or corporation are not part of your start-up expenses. But under a different tax rule, you can deduct up to $5,000 of these costs the first year you’re in business and amortize any remaining costs over the first 180 months you are in business.

Note that the cost of expanding an existing business is a business operating expense, not a start-up expense. As long as business expansion costs are ordinary, necessary, and within the compass of your existing rental business, they are deductible.

The IRS and tax court take the position that your rental business exists only in your property’s geographic area. So, a landlord who buys (or seeks to buy) property in a different area is starting a new rental business, which means the expenses for expanding in the new location are start-up expenses.

You can’t deduct start-up expenses if you’re a mere investor in a rental business. You must be an active rental business owner to deduct them.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.

Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.