News Archives - Encore Partners

We’ve Moved: Welcome to Encore’s New Home in La Jolla

February 23, 2026/in Encore Culture, News, Tax Tips - Business, Tax Tips - Individual/by Betty Kim

We’re excited to share that Encore Partners LLP has officially moved into our new office in La Jolla, California. We purchased the building last year and have spent the past months remodeling it into a space that truly reflects who we are as a firm—providing CPA, tax, and accounting services designed for collaboration, discretion, and long-term client relationships.

After many years in UTC, San Diego, California, this move marks an important milestone for us. Since our founding in 2011, Encore has continued to evolve—growing alongside our clients while staying grounded in the principles that define our work: clarity, partnership, and trusted guidance.

While the new space is more intimate in scale, it represents something much bigger. It serves as the headquarters of our operations and a long-term home for the firm—a place where our team can find heart, stability, and connection while continuing to deliver thoughtful, high-touch advisory services.

The design reflects who we are today and where we’re headed: modern yet enduring, established yet forward-thinking. Built for partnership, designed for the future, and grounded in the legacy we continue to build.

New Office Address:

5490 La Jolla Blvd., Suite B
La Jolla, CA 92037

We’re still putting the finishing touches on the space, but we’re fully operational and settling in. Once the season is behind us, we look forward to hosting an open house and welcoming you in—more details to come. In the meantime, please don’t wait for an invitation. Stop by anytime to meet our team, take a walk along the beach, and enjoy the breathtaking views and sunsets that make this location so special.

Thank you for being part of our journey and for the trust you place in our team. We’re proud of this next chapter and excited for what’s ahead.

Last-Minute Tax Strategy for 2025: Improvements, Expensing, and Bonus Depreciation

November 6, 2025/in News, Tax Tips - Business/by Betty Kim

As we head into the final stretch of 2025, many of our clients are evaluating last-minute ways to reduce taxable income — and so are we. At Encore, we’re even looking at a potential office purchase before year-end, and these new rules under the One Big Beautiful Bill Act (OBBBA) make the timing especially interesting.

The OBBBA permanently reinstates 100% bonus depreciation and increases Section 179 expensing limits to $2.5 million, allowing qualified real estate improvements and certain property purchases to be fully deductible in the year placed in service.

If your business has strong 2025 income, this is the time to consider:

Completing interior or structural improvements before December 31.
Purchasing new equipment or qualifying property.
Reviewing whether to expense or depreciate for the best long-term outcome.

We’re helping clients run quick year-end analyses to see which investments make sense under the new rules. A thoughtful review before year-end can turn planned upgrades or acquisitions into meaningful tax savings.

If you’re thinking about capital improvements or real estate purchases, reach out before year-end — the OBBBA provisions could make the timing work in your favor.

QIP defined

QIP includes any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building was placed in service. But expenditures attributable to the enlargement of the building, any elevator or escalator, or the building’s internal structural framework don’t count as QIP.

QIP has a 15-year depreciation period. It’s also eligible for bonus depreciation and Section 179 expensing.

100% bonus depreciation

Additional first-year bonus depreciation is available for eligible assets, including QIP. The One Big Beautiful Bill Act (OBBBA), signed into law in July, increases bonus depreciation to 100% for assets acquired and placed in service after Jan. 19, 2025. It also makes 100% bonus depreciation permanent.

But be aware that bonus depreciation is only 40% for assets acquired Jan. 1, 2025, through Jan. 19, 2025, and placed in service any time in 2025. So, if your objective is to maximize first-year deductions on QIP acquired during that period, you’d claim the Sec. 179 deduction first. (See below.) If you max out on that, then you’d claim 40% first-year bonus depreciation.

In some cases, a business may not be eligible for bonus depreciation. Examples include real estate businesses that elect to deduct 100% of their business interest expense and dealerships with floor-plan financing — if they have average annual gross receipts exceeding $31 million for the previous three tax years.

Sec. 179 expensing

Similar to 100% bonus depreciation, Sec. 179 expensing allows you to immediately deduct (rather than depreciate over a number of years) the cost of purchasing eligible assets, including QIP. But the break is subject to annual dollar limits, which the OBBBA increases.

For qualifying assets placed in service in tax years beginning in 2025, the maximum allowable Section 179 depreciation deduction is $2.5 million (up from $1.25 million before the OBBBA). In addition, the break begins to phase out dollar-for-dollar when asset acquisitions for the year exceed $4 million (up from $3.13 million before the OBBBA). These amounts will continue to be annually adjusted for inflation after 2025.

Another restriction is that you can claim Sec. 179 expensing only to offset net income. The deduction can’t reduce net income below zero to create an overall business tax loss.

One advantage over bonus depreciation is that, for Sec. 179 expensing purposes, QIP also includes HVAC systems, nonresidential building roofs, fire protection and alarm systems, and security systems that are placed in service after the building is first placed in service.

Spreading out QIP depreciation

There are a few reasons why it may be more beneficial to spread out QIP depreciation over 15 years rather than claiming large first-year depreciation deductions:

Bonus depreciation can trigger the excess business loss rule. Although you can claim 100% first-year bonus depreciation even if it will create a tax loss, you could inadvertently trigger the excess business loss rule.

The rule limits deductions for current-year business losses incurred by noncorporate taxpayers: Such losses generally can offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains, only up to the applicable limit. For 2025, the limit is $313,000 ($626,000 for a married joint filer).

As a result, your 100% first-year bonus depreciation deduction might effectively be limited by the excess business loss rule. However, any excess business loss is carried over to the following tax year and can then be deducted under the rules for net operating loss carryforwards.

Large first-year deductions can result in higher-taxed gain when QIP is sold. First-year bonus depreciation and Sec. 179 deductions claimed for QIP can create depreciation recapture that’s taxed at your ordinary income rate when the QIP is sold. Under rates made permanent by the OBBBA, the maximum individual rate on ordinary income is 37%. You may also owe the 3.8% net investment income tax (NIIT).

On the other hand, for QIP held for more than one year, gain attributable to straight-line depreciation is taxed at an individual federal rate of only 25%, plus the 3.8% NIIT if applicable.

Depreciation deductions may be worth more in the future. When you claim big first-year depreciation deductions for QIP, your depreciation deductions for future years are reduced accordingly. If you’re in a higher income tax bracket in the future or federal income tax rates go up, you’ll have effectively traded potentially more valuable future-year depreciation deductions for less-valuable first-year deductions.

Keep in mind that, while the OBBBA did “permanently” extend current rates, that only means they have no expiration date. Lawmakers could still increase rates in the future.

What’s best for you

Many factors must be considered before deciding whether to maximize QIP first-year depreciation deductions or spread out the deductions over multiple years. We can help you determine what’s best for your situation.

Tax Court case provides lessons on best recordkeeping practices for businesses

October 6, 2025/in News, Tax Tips - Business/by Betty Kim

We see it every year — business owners doing their best to stay on top of things, then getting hit with an IRS or state notice that stops everything. That’s usually when they reach out to professionals like us — after the fact — and by then, it’s often a tangled mess of missing receipts, unclear records, and questions that take time (and money) to unwind.

Many think the IRS is too busy or underfunded to audit small businesses. The truth is, technology has changed that. Automated systems now flag discrepancies faster than ever — and while fewer cases may be handled by humans at first, once you’re selected, it can take months to get resolution because of those same budget and staffing cuts.

At Encore Partners, we don’t see these cases every day — but when we do, they’re messy, stressful, and entirely preventable. Records make or break your case. Clean, consistent documentation not only protects you but opens real tax-saving opportunities when it’s done right.

Below, we share a recent Tax Court case that shows exactly how poor recordkeeping can undo years of good work — and why getting it right upfront is the best investment you can make.

Why it matters

The IRS requires all businesses — no matter how small — to maintain records that accurately reflect income, expenses, assets and liabilities. Without these records, it’s nearly impossible to:

Substantiate tax deductions and credits,
Track cash flow and profitability,
Prepare accurate financial statements,
Monitor the progress of your business,
Support decisions for financing, and
Demonstrate compliance during an IRS audit.

In short, strong recordkeeping protects your business, both for operational and tax law purposes.

Taxpayer loses deductions due to insufficient records

In one case, a union power‐line worker also had business interests in a storm response partnership, a salon and a rental property. He claimed significant losses and business expenses on his return for the year in question. Among his claimed deductions were partnership losses and expenses for tools, clothing and travel.

In Tax Court Memo 2025-12, the court disallowed substantial deductions because the taxpayer couldn’t properly substantiate them. Some invoices or receipts were missing or didn’t tie clearly to the business purpose.

For example, with vehicle or travel expenses, the court noted the lack of contemporaneous logs and details that distinguished business vs. personal use. For partnership losses, the taxpayer needed to show his basis in the partnership, but couldn’t provide clear documentation of all his capital contributions.

In addition to denying many of the taxpayer’s deductions, the court upheld an accuracy‐related penalty. This is an extra charge (typically 20% of the underpayment) that can be assessed when a taxpayer makes substantial mistakes on a tax return.

This case isn’t unique. Year after year, businesses lose valuable deductions for the same reason: poor recordkeeping.

Six key practices to protect tax breaks

To avoid costly mistakes, businesses should implement a recordkeeping system that’s both practical and compliant. Here are six best practices to consider:

Separate business and personal finances. Open a dedicated business checking account and credit card. Mixing personal and business expenses is one of the fastest ways to create confusion — and attract IRS scrutiny.
Maintain contemporaneous records. Document expenses when they occur, not months later. For example, keep mileage logs for business driving and note the purpose of each trip.
Use accounting software. Modern accounting platforms (like QuickBooks® or industry-specific tools) streamline recordkeeping. They allow you to categorize expenses, generate reports and integrate with bank accounts to minimize errors.
Keep source documents. For example, retain purchase and sale invoices, receipts, bank statements, canceled checks, and credit card bills. Scanning or photographing receipts ensures they won’t fade or get lost. Also, keep copies of Forms 1099-MISC and 1099-NEC. There are also specific employment tax records you must keep.
Retain records for the right amount of time. Generally, the IRS recommends keeping records for at least three years. That’s the amount of time that the tax agency can audit a tax return. However, some records (such as payroll tax or property records) should be kept longer. The length of time can be extended to six years if the income is underreported by more than 25%. And if no return is filed or fraud is involved, the IRS can conduct an audit for an indefinite amount of time.
Establish internal controls. For businesses with employees, internal checks help ensure the accuracy and integrity of records. Examples of these controls include requiring dual signatures for large expenses and segregating duties so that different employees handle authorization, custody of assets and recordkeeping.

Reliable records are vital

The lesson from the Tax Court case described above is clear: Without reliable records, even legitimate deductions can vanish. Don’t let poor documentation cost your business money. We can help your business:

Set up a recordkeeping system tailored to your business,
Learn which expenses are deductible (and how to document them),
Review its books to catch issues before the IRS does, and
Manage any IRS challenges to tax deductions.

Run a business with your spouse? You may encounter unique tax issues

September 9, 2025/in News, Tax Tips - Business/by Betty Kim

“Love, business, and taxes — a tricky trio”

Some couples thrive working side by side, while others find it more challenging. We have seen all versions. Whether it’s out of passion, practicality, or pure necessity, one thing is certain: the tax rules don’t make it easier just because you’re married.

Running a business with your spouse often means extra compliance and higher self-employment taxes — unless you plan ahead. The good news is, there are smart strategies to structure things, so you protect both the business and the relationship.

This article highlights the unique issues spousal businesses face and three approaches that can save headaches and dollars.

The partnership issue

An unincorporated business with your spouse is classified as a partnership for federal income tax purposes, unless you can avoid that treatment. Otherwise, you must file an annual partnership return using Form 1065. In addition, you and your spouse must be issued separate Schedules K-1, which allocate the partnership’s taxable income, deductions and credits between the two of you. This is only the beginning of the unwelcome tax compliance tasks.

The self-employment tax issue

Self-employment (SE) tax is how the government collects Social Security and Medicare taxes from self-employed individuals. For 2025, the SE tax consists of 12.4% Social Security tax on the first $176,100 of net SE income plus 2.9% Medicare tax. Once your 2025 net SE income surpasses the $176,100 ceiling, the Social Security tax component of the SE tax ends. But the 2.9% Medicare tax component continues before increasing to 3.8% — because of the 0.9% additional Medicare tax — if the combined net SE income of a married joint-filing couple exceeds $250,000. (This doesn’t include investment income.)

With your joint Form 1040, you must include a Schedule SE to calculate SE tax on your share of the net SE income passed through to you by your spousal partnership. The return must also include a Schedule SE for your spouse to calculate the tax on your spouse’s share of net SE income passed through to him or her. This can significantly increase your SE tax liability.

For example, let’s say you and your spouse each have net 2025 SE income of $150,000 ($300,000 total) from your profitable 50/50 partnership business. The SE tax on your joint tax return is a whopping $45,900 ($150,000 × 15.3% × 2). That’s on top of regular federal income tax. (However, you do get an income deduction for half of the SE tax.)

Here are three possible tax-saving solutions.

Use an IRS-approved method to minimize SE tax in a community property state

Under IRS guidance (Revenue Procedure 2002-69), there’s an exception to the general rule that spouse-run businesses are treated as partnerships. For federal tax purposes, you can treat an unincorporated spousal business in a community property state as a sole proprietorship operated by one of the spouses. By effectively allocating all the net SE income to the proprietor spouse, only the first $176,100 of net SE income is hit with the 12.4% Social Security tax. That can cut your SE tax bill.

Convert a spousal partnership into an S corporation and pay modest salaries

If you and your unincorporated spousal business aren’t in a community property state, consider converting the business to S corp status to reduce Social Security and Medicare taxes. That way, only the salaries paid to you and your spouse get hit with the Social Security and Medicare tax, collectively called FICA tax. You can then pay reasonable, but not excessive, salaries to you and your spouse as shareholder-employees while paying out most or all remaining corporate cash flow to yourselves as FICA-tax-free cash distributions. Keep in mind that S corps come with their own compliance obligations.

Disband your partnership and hire your spouse as an employee

You can disband the existing spousal partnership and start running the operation as a sole proprietorship operated by one spouse. Then hire the other spouse as an employee of the proprietorship. Pay that spouse a modest cash salary. You must withhold 7.65% from the salary to cover the employee-spouse’s share of the Social Security and Medicare taxes. The proprietorship must also pay 7.65% as the employer’s half of the taxes. However, because the employee-spouse’s salary is modest, the FICA tax will also be modest.

With this strategy, you file only one Schedule SE — for the spouse treated as the proprietor — with your joint tax return. That minimizes the SE tax because no more than $176,100 (for 2025) is exposed to the 12.4% Social Security portion of the SE tax.

Additional bonus: You may be able to provide certain employee benefits to your spouse, such as retirement contributions, which may provide more tax savings.

We can help

Having a profitable unincorporated business with your spouse that’s classified as a partnership for federal income tax purposes can lead to compliance headaches and high SE tax bills. Work with us to identify appropriate tax-saving strategies.

A Tax Guide to Choosing the Right Business Entity

August 18, 2025/in News, Tax Tips - Business/by Betty Kim

Choosing the right business entity isn’t just paperwork—it’s one of the most important decisions you’ll make as a business owner. Also the smartest decisions come from understanding how your structure fits your business, your industry, and your goals.

I’ve seen firsthand how the right entity can make a big difference in taxes and day-to-day operations, while the wrong one can create headaches down the road. At Encore Partners, we specialize in helping entrepreneurs and business owners choose the right entity to minimize taxes, simplify compliance, and set up for growth.

In this guide, we break down the main entity types so you can make informed, strategic choices that support growth, minimize risk, and keep your business running smoothly.

Sole proprietorship: Simple with full responsibility

A sole proprietorship is the easiest structure to set up. It’s owned and operated by one person and requires minimal administrative effort. Here are the main features:

Taxation. Income and losses are reported on the owner’s personal tax return on Schedule C of Form 1040. Income is subject to 15.3% federal self-employment tax, and the business itself isn’t taxed separately. The owner may also qualify for a Qualified Business Income (QBI) deduction, potentially reducing the effective tax rate.
Compliance. Aside from obtaining necessary licenses or a business name registration, there’s little required paperwork. However, the owner is personally liable for all business debts and legal obligations.

S Corporation: Pass-through entity with payroll considerations

An S corp is a tax designation offering pass-through taxation benefits while imposing stricter rules. Here are the highlights:

Taxation. S corps don’t pay income tax at the entity level. Instead, profits or losses are passed through to shareholders via Schedule K-1 and reported on individual returns. A key tax benefit is that shareholders who are employees receive a salary (subject to payroll tax), while additional profit distributions aren’t subject to self-employment tax. However, the salary must be reasonable. The business is eligible for QBI deductions.
Compliance. To qualify, S corps must have 100 or fewer shareholders, all U.S. citizens or residents, and only one class of stock. They must file Form 2553, issue annual Schedule K-1s and follow corporate formalities like shareholder meetings and recordkeeping. An informational return (Form 1120-S) is also required.

Partnership: Collaborative ownership with pass-through taxation

A partnership involves two or more individuals jointly operating a business. Common types include general partnerships, limited partnerships, and limited liability partnerships (LLPs). Here’s what makes it unique:

Taxation. Partnerships are pass-through entities. The business files Form 1065 (an informational return), and income or loss is distributed to partners on Schedule K-1. Partners report this on their personal returns. General partners must pay self-employment tax, while limited partners usually don’t. The business is eligible for QBI deductions.
Compliance. Partnerships require a detailed partnership agreement, coordinated recordkeeping and clear profit-sharing arrangements. While more complex than a sole proprietorship, partnerships offer flexibility for growing businesses.

Limited liability company: Flexible and customizable

An LLC merges elements of corporations and partnerships, offering owners — called members — both operational flexibility and liability protection.

Taxation. By default, a single-member LLC is taxed like a sole proprietorship, and a multimember LLC like a partnership. However, LLCs may elect to be taxed as a C or S corp by filing Form 8832 or Form 2553. This gives owners control over their tax strategies. LLCs that don’t elect C corp status are eligible for QBI deductions.
Compliance. LLCs require articles of organization and often must have an operating agreement. Though not as complex as corporations, they still generally face state-specific compliance requirements and annual filings.

C Corporation: Double taxation with scalability

A C corp is a distinct legal entity offering the most liability protection and growth potential through stock issuance. Here are its features:

Taxation. C corps face double taxation — the business pays taxes on earnings (currently at a 21% federal rate), and shareholders pay taxes again on dividends. However, C corps can offer deductible benefits (for example, health insurance, retirement plans) and retain earnings without immediately distributing profits. C corps aren’t eligible for QBI deductions.
Compliance: These entities require the most administrative upkeep, including bylaws, annual meetings, board minutes, and extensive state and federal reporting. C corps are ideal for companies seeking venture capital or IPOs.

After hiring employees

Regardless of entity type, adding employees increases compliance requirements. Businesses must obtain an Employer Identification Number (EIN) and withhold federal and state payroll taxes. Employers also take on added responsibilities related to benefits, tax deposits, and employment law compliance.

What’s right for you?

There’s no universal answer to which entity is best. The right choice depends on your growth goals, ownership structure and financial needs. Tax optimization is a critical factor. For example, an LLC electing S corp status may help minimize self-employment taxes if set up properly. Contact us. We can coordinate with your attorney to ensure your structure supports both your tax strategies and business goals.

The new law introduces a game-changer for business payment reporting

August 5, 2025/in News, Tax Tips - Business/by Betty Kim

As much as this update is about a new rule coming in 2026, we’re sharing it now because the headaches around 1099 reporting are already real for 2025—and frankly, have been for years. Whether you’re a business client, Schedule C, E, or F filer, you’ve probably heard from us (more than once) asking about W-9s or confirming 1099 issuance. Some of you have even laughed at the persistence—until the IRS notices start rolling in.

This is both a heads-up and a reminder: if you’re paying vendors or contractors, get those W-9s now and stay ahead of the reporting curve. The upcoming threshold change under the One Big Beautiful Bill Act will ease things eventually, but for now, the $600 rule still applies. Read on for the details.

The current requirement: $600 threshold

For decades, the IRS has required that businesses file Form 1099-NEC (previously 1099-MISC) for payments made to independent contractors that exceed $600 in a calendar year. This threshold amount has remained unchanged since the 1950s!

The same $600 threshold is in place for Forms 1099-MISC, which businesses file for several types of payments, including prizes, rents and payments to attorneys.

Certain deadlines must be met. A Form 1099-NEC must be filed with the IRS by January 31 of the year following the year in which a payment was made. A copy must be sent to the recipient by the same January 31 deadline.

A Form 1099-MISC must also be provided to a recipient by January 31 of the year following a payment, but unlike Form 1099-NEC, the 1099-MISC deadline for the IRS depends on how it’s submitted. If a business is filing the form on paper, the deadline is February 28. If the form is being submitted electronically, the deadline is March 31.

The new rules raise the bar to $2,000

Under the OBBBA, the threshold increases to $2,000, meaning:

Fewer 1099s will need to be issued and filed.
There will be reduced paperwork and administrative overhead for small businesses.
There will be better alignment with inflation and modern economic realities.

For example, let’s say your business engaged a freelance graphic designer and pays the individual $650 this year. You’ll need to send a 1099-NEC to the designer for calendar year 2025. But if you hire the same individual in 2026, you won’t be required to send a 1099 to the graphic designer or the IRS in 2027 unless the designer earns more than $2,000.

The money is still taxable income

Even if an independent contractor doesn’t receive a 1099-NEC because the amount paid was below the threshold amount, the payment(s) are still considered part of the individual’s gross income. The contractor must report all business income received on his or her tax return, unless an exclusion applies.

In addition, businesses must continue to maintain accurate records of all payments

There are changes to Form 1099-K, too

The OBBBA also reinstates a higher threshold for Forms 1099-K, used by third-party payment processors. The reporting threshold returns to $20,000 and 200 transactions, rolling back the phased-in lower thresholds that had dropped toward $600 by 2026. This rollback undoes changes from the 2021 American Rescue Plan Act and earlier IRS delay plans.

Simplicity and relief

Raising the threshold will ease the filing burden for millions of businesses, especially small operations that rely on contractors. There will also be less risk that an IRS penalty will be imposed for failing to file a Form 1099 when required. Contact us with any questions about the new rules or your filing requirements.

What families need to know about the new tax law

July 24, 2025/in News, Tax Tips - Individual/by Betty Kim

When it comes to family, we do everything we can for the people we love. And let’s be real—raising a family today isn’t cheap. I have two teenage daughters in international sports, and they’ve been breaking me (financially and otherwise!). Between childcare, education, medical expenses, and just everyday life, the costs add up fast. That’s why smart planning isn’t optional anymore—it’s essential.

The new tax law, known as the One, Big, Beautiful Bill Act, brings several updates designed to help families do exactly that—save more, plan ahead, and take advantage of what’s available. Whether you’re adopting, maximizing your Child Tax Credit, or looking into the new “Trump Account” savings tool, these changes are worth understanding.

Here’s a breakdown of what’s new and how it could impact your family’s tax picture.

Adoption credit enhanced

Parents who adopt may be eligible for more generous tax relief. Under current law, a tax credit of up to $17,280 is available for the costs of adoption in 2025. The credit begins to phase out in 2025 for taxpayers with modified adjusted gross income (MAGI) of $259,190 and is eliminated for those with MAGI of $299,190 or more.

If you qualify, the adoption credit can reduce your tax liability on a dollar-for-dollar basis. This is much more valuable than a deduction, which only reduces the amount of income subject to tax.

What changed?

Beginning in 2025, the OBBBA makes the adoption tax credit partially refundable up to $5,000. This means that eligible families can receive this portion as a refund even if they owe no federal income tax. Previously, the credit was entirely nonrefundable, limiting its benefit to families with sufficient tax liability. The refundable amount is indexed for inflation but can’t be carried forward to future tax years.

Child Tax Credit increased, and new rules imposed

Beginning in 2025, the OBBBA permanently increases the Child Tax Credit (CTC) to $2,200 for each qualifying child under the age of 17. (This is up from $2,000 before the law was enacted). The credit is subject to income-based phaseouts and will be adjusted annually for inflation after 2025.

The refundable portion of the CTC is made permanent. The refundable amount is $1,700 for 2025, with annual inflation adjustments starting in 2026.

The MAGI phaseout thresholds of $200,000 and $400,000 for married joint-filing couples are also made permanent. (However, these thresholds won’t be adjusted annually for inflation.)

Important: Starting in 2025, no CTC will be allowed unless you report Social Security numbers for the child and the taxpayer claiming the credit on the return. For married couples filing jointly, a Social Security number for at least one spouse must be reported on the return.

Introduction of Trump Accounts

We’re still in the early stages of learning about this new type of tax-advantaged account but here’s what we know. Starting in 2026, Trump Accounts will offer some families a way to save for the future. An account can be set up for anyone under age 18 at the end of the tax year who has a Social Security number.

Annual contributions of up to $5,000 (adjusted annually for inflation after 2027) can be made until the year the child turns 18. In addition, U.S. citizen children born after December 31, 2024, and before January 1, 2029, with at least one U.S. citizen parent, may potentially qualify for an initial $1,000 government-funded deposit.

Contributions aren’t deductible, but earnings grow tax deferred as long as they’re in the account. The account generally must be invested in exchange-traded funds or mutual funds that track the return of a qualified index and meet certain other requirements. Employers may make contributions to Trump accounts on behalf of employees’ dependents. Withdrawals generally can’t be taken until the child turns age 18.

Even more changes

Here are three more family-related changes:

The child and dependent care credit. This credit provides parents a tax break to offset the cost of child care when they work or look for work. Beginning in 2026, there will be changes to the way the credit is calculated and the amount of income that parents can have before the credit phases out. This will result in more parents becoming eligible for the credit or seeing an increased tax benefit.

Qualified expenses for 529 plans. If you have a 529 plan for your child’s education, or you’re considering starting a plan, there will soon be more opportunities to make tax-exempt withdrawals. Beginning in 2026, you can withdraw up to $20,000 for K-12 tuition expenses, as well as take money out of a plan for qualified expenses such as books, online education materials and tutoring. These withdrawals can be made if the 529 plan beneficiary attends a public, private or religious school.

Sending money to family members in other countries. One of the lesser-known provisions in the OBBBA is that the money an individual sends to another country may be subject to tax, beginning in 2026. The 1% excise tax applies to transfers of cash or cash equivalents from a sender in the United States to a foreign recipient via a remittance transfer provider. The transfer provider will collect the tax as part of the transfer fee and then remit it quarterly to the U.S. Treasury. Transfers made through a financial institution (such as a bank) or with a debit or credit card are excluded from the tax.

What to do next

These and other changes in the OBBBA may offer substantial opportunities for families — but they also bring new rules, limits and planning considerations. The sooner you start planning, the better positioned you’ll be. Contact us to discuss how these changes might affect your family’s tax strategy.

Spousal IRAs: A smart retirement strategy for couples

July 9, 2025/in News, Tax Tips - Individual/by Betty Kim

Have you wondered if your spouse can still save for retirement even if they’re not bringing home a paycheck? Good news — they totally can!

Thanks to something called a spousal IRA, couples can keep growing retirement savings for both partners, even if just one is earning an income. It’s a smart (and often overlooked) way to keep your long-term financial goals on track together.

Let’s break it down and see why this could be a win for your future selves.

A spousal IRA isn’t a separate type of account created by the IRS, but rather a strategic use of an existing IRA. It allows a working spouse to contribute to an IRA on behalf of their non-working or low-income spouse. The primary requirement is that the couple must file a joint tax return. As long as the working spouse earns enough to cover both their own contribution and that of their spouse, both partners can take advantage of the retirement savings benefits offered by IRAs.

Amount you can contribute

For 2025, the contribution limit for both traditional and Roth IRAs is $7,000 per person under the age of 50. Those aged 50 or older can put away an additional $1,000 as a catch-up contribution, for a total of $8,000. This means that a married couple can potentially contribute up to $14,000 (or $16,000 if both are eligible for catch-up contributions) into their respective IRAs, even if only one spouse has earned income.

The main advantage of a spousal IRA lies in its ability to equalize retirement savings opportunities between spouses. In many households, one spouse may have taken time off from paid work to raise children, care for an elderly family member or pursue other responsibilities. Without earned income, that spouse would traditionally be excluded from contributing to a retirement account. A spousal IRA changes that by allowing the working spouse to fund both accounts, helping both partners accumulate tax-advantaged savings over time.

Income limits

Spousal IRAs can be opened as either traditional or Roth IRAs, depending on the couple’s income and tax goals. Traditional IRAs offer the possibility of a tax deduction in the year the contribution is made, though this is subject to income limits, especially if the working spouse is covered by a workplace retirement plan. On the other hand, Roth IRAs are funded with after-tax dollars, so they don’t offer an immediate tax break, but qualified withdrawals in retirement are tax-free. Couples with a modified adjusted gross income under $236,000 in 2025 can make full contributions to a Roth IRA, with the eligibility phasing out completely at $246,000.

It’s important to note that Roth IRAs aren’t subject to required minimum distributions during the original owner’s lifetime, while traditional IRAs are.

Setting up a spousal IRA is straightforward. The account must be opened in the name of the non-working spouse, and the couple must ensure that contributions are made by the annual tax filing deadline, generally April 15 of the following year. Many financial institutions offer the option to open and fund these accounts online or with the help of a financial advisor.

Plan for financial security

In summary, a spousal IRA is a valuable financial planning tool that can help ensure both partners are saving adequately for retirement, regardless of employment status. With the increased contribution limits in 2025, this strategy is more powerful than ever for couples looking to maximize their long-term financial security. For tailored advice about retirement planning and taxes, contact us to help guide you based on your unique situation.

Milestone moments: How age affects certain tax provisions

July 2, 2025/in News, Tax Tips - Individual/by Betty Kim

Happy 4^th of July! Wishing you a safe and happy Independence Day!

Can’t believe we’re already halfway through 2025—hope you’re enjoying a great summer!

At Encore, we know that age is more than just a number when it comes to tax and financial planning. Whether you’re saving for your kids, navigating mid-career decisions, or planning for retirement, each stage of life brings different opportunities—and different IRS rules.

We tailor our advice to fit your life now and help you prepare for what’s ahead. The article below is a helpful reminder of the tax milestones tied to age. Let us know if you’d like to take a closer look at how they apply to you or your family.

With that in mind, the IRS treats you differently as you move through life, because key tax rules kick in at specific ages. Here are some important age-related tax milestones for you and loved ones to keep in mind as the years fly by.

Ages 0–23: The kiddie tax

The kiddie tax can potentially apply to your child, grandchild or other loved one until age 24. Specifically, a child or young adult’s unearned income (typically from investments) in excess of the annual threshold is taxed at the parent’s higher marginal federal income tax rates instead of the more favorable rates that would otherwise apply to the young person in question. For 2025, the unearned income threshold is $2,700.

Age 30: Coverdell accounts

If you set up a tax-favored Coverdell Education Savings Account (CESA) for a child or grandchild, the account must be liquidated within 30 days after the individual turns 30 years old. To the extent earnings included in a distribution aren’t used for qualified education expenses, the earnings are subject to tax plus a 10% penalty tax. To avoid that, you can roll over the CESA balance into another CESA set up for a younger loved one.

Age 50: Catch-up contributions

If you’re age 50 or older at end of 2025, you can make an additional catch-up contribution of up to $7,500 to your 401(k) plan, 403(b) plan or 457 plan for a total contribution of up to $31,000 ($23,500 regular contribution plus $7,500 catch-up contribution). This assumes that your plan allows catch-up contributions.

If you’re 50 or older at the end of 2025, you can make an additional catch-up contribution of up to $3,500 to your SIMPLE IRA for a total contribution of up to $20,000 ($16,500 regular contribution plus $3,500 catch-up contribution). If your company has 25 or fewer employees, the 2025 maximum catch-up contribution is $3,850.

If you’re 50 or older at the end of 2025, you can make an additional catch-up contribution of up to $1,000 to your traditional IRA or Roth IRA, for a total contribution of up to $8,000 ($7,000 regular contribution plus $1,000 catch-up contribution).

Age 55: Early withdrawal penalty from employer plan

If you permanently leave your job for any reason after reaching age 55, you may be able to receive distributions from your former employer’s tax-favored 401(k) plan or 403(b) plan without being socked with the 10% early distribution penalty tax that generally applies to the taxable portion of distributions received before age 59½. This rule doesn’t apply to IRAs.

Age 59½: Early withdrawal penalty from retirement plans

After age 59½, you can receive distributions from all types of tax-favored retirement plans and accounts (IRAs, 401(k) accounts and pensions) without being hit with the 10% early distribution penalty tax. The penalty generally applies to the taxable portion of distributions received before age 59½.

Ages 60–63: Larger catch-up contributions to some employer plans

If you’re age 60–63 at the end of 2025, you can make a larger catch-up contribution of up to $11,250 to your 401(k) plan, 403(b) plan, or 457 plan. This assumes your plan allows catch-up contributions.

If you’re age 60–63 at the end of 2025, you can make a larger catch-up contribution of up to $5,250 to your SIMPLE IRA.

Age 73: Required minimum withdrawals

After reaching age 73, you generally must begin taking annual required minimum distributions (RMDs) from tax-favored retirement accounts (traditional IRAs, SEP accounts and 401(k)s) and pay the resulting extra income tax. If you fail to withdraw at least the RMD amount for the year, you can be assessed a penalty tax of up to 25% of the shortfall. However, if you’re still working after reaching age 73 and you don’t own over 5% of your employer’s business, you can postpone taking RMDs from the employer’s plan(s) until after you retire.

Watch the calendar

Keep these important tax milestones in mind for yourself and your loved ones. Knowing these rules can mean the difference between a smart tax strategy and a costly oversight. If you have questions or want more detailed information, contact us.

Is college financial aid taxable? A crash course for families

June 24, 2025/in News, Tax Tips - Individual/by Betty Kim

As my oldest daughter enters her senior year of high school, our family is stepping into the world of college applications, financial aid, and exploring the growing costs of higher education. It’s been eye-opening to see how competitive the process has become—and how quickly tuition adds up, even for in-state public schools.

The article below offers a helpful overview of how different types of financial aid are treated for tax purposes. College can be expensive—according to the College Board, the average sticker price for tuition and fees at private colleges was $43,350 for the 2024–2025 school year. The average cost for out-of-state students at public colleges was $30,780, and for in-state students, it was $11,610. There are also additional costs for housing, food, books, and other expenses that can quickly add thousands to the total.

Fortunately, a surprisingly high percentage of students at many schools receive at least some financial aid, and your child’s chances may be better than you think. If your child receives financial aid, what are the tax implications? Here’s what you need to know. If you or your family are navigating this stage as well, I hope you find it useful.

The basics

The economic characteristics of what’s described as financial aid determine how it’s treated for federal income tax purposes.

Gift aid, which is money the student doesn’t have to work for, is often tax-free. Gift aid may be called a scholarship, fellowship, grant, tuition discount or tuition reduction.

Most gift aid is tax-free

Free-money scholarships, fellowships and grants are generally awarded based on either financial need or academic merit. Such gift aid is nontaxable as long as:

The recipient is a degree candidate, including a graduate degree candidate.
The funds are designated for tuition and related expenses (including books and supplies) or they’re unrestricted and aren’t specifically designated for some other purpose — like room and board.
The recipient can show that tuition and related expenses equaled or exceeded the payments. To pass this test, the student must incur enough of those expenses within the time frame for which the aid is awarded.

If gift aid exceeds tuition and related expenses, the excess is taxable income to the student.

Tuition discounts are also tax-free

Gift aid that comes directly from the university is often called a tuition discount, tuition reduction or university grant. These free-money awards fall under the same tax rules that apply to other free-money scholarships, fellowships and grants.

Payments for work-study programs are generally taxable

Arrangements that require the student to work in exchange for money are sometimes called scholarships or fellowships, but those are misnomers. Whatever payments for work are called, they’re considered compensation from employment and must be reported as income on the student’s federal tax return. As explained below, however, this doesn’t necessarily mean the student will actually owe any tax.

Under such arrangements, the student is required to teach, do research, work in the cafeteria or perform other jobs. The college or financial aid payer should determine the taxable payments and report them to the student on Form W-2 (if the student is treated as an employee) or Form 1099-MISC (if the student is treated as an independent contractor).

Taxable income doesn’t necessarily trigger taxes

Receiving taxable financial aid doesn’t necessarily mean owing much or anything to the federal government. Here’s why: A student who isn’t a dependent can offset taxable income with the standard deduction, which is $15,000 for 2025 for an unmarried individual. If the student is a dependent, the standard deduction is the greater of 1) $1,350 or 2) earned income + $450, not to exceed $15,000. The student may have earned income from work at school or work during summer vacation and school breaks. Taxable financial aid in excess of what can be offset by the student’s standard deduction will probably be taxed at a federal rate of only 10% or 12%.

Finally, if you don’t claim your child as a dependent on your federal income tax return, he or she can probably reduce or eliminate any federal income tax bill by claiming the American Opportunity Tax Credit (worth up to $2,500 per year for the first four years of undergraduate study) or the Lifetime Learning Credit (worth up to $2,000 per year for years when the American Opportunity credit is unavailable).

Avoid surprises at tax time

As you can see, most financial aid is tax-free, though it’s possible it could be taxable. To avoid surprises, consult with us to learn what’s taxable and what’s not.

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