President Donald Trump targeted federal hiring, including specific rules for the Internal Revenue Service, and the United States’ participation in the global tax framework being developed by the Organisation for Economic Co-operation and Development among his flurry of executive orders signed on the first day of his second term in the Oval Office.

The Financial Crimes Enforcement Network is keeping beneficial reporting information reporting voluntary even though the Supreme Court has lifted the injunction that was put in place by a lower court to keep the BOI regulation from being enforced.

The Financial Crimes Enforcement Network is keeping beneficial reporting information reporting voluntary even though the Supreme Court has lifted the injunction that was put in place by a lower court to keep the BOI regulation from being enforced.

"In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force," the agency posted to its website on January 24, 2025. "However, reporting companies may continue to voluntarily submit beneficial ownership information reports."

The posting follows a Supreme Court order stating on January 23, 2025, that the injunction put in place by the United States District Court for the Eastern District of Texas on December 5, 2024, was removed.

Justice Ketanji Brown Jackson offered a dissenting opinion on lifting the injunction.

"However likely the Government’s success on the merits may be, in my view, emergency relief is not appropriate because the applicant has failed to demonstrate sufficient exigency to justify our interventions," Justice Jackson wrote, citing two reasons: the Fifth Circuit Court of Appeals has already expedited the hearing of the case and the government has deferred the implementation of the regulations on its own accord.

"The Government has provided no indication that injury of a more serious or significant nature would result if the Act’s implementation is further delayed while the litigation proceeds in the lower courts. I would therefore deny the application and permit the appellate process to run its course," Justice Jackson added.

By Gregory Twachtman, Washington News Editor

The Treasury and IRS have issued final regulations that provide rules for classifying digital and cloud transactions. The rules apply for purposes of the international provisions of the Code.

The rules retain the overall approach of the proposed regulations (NPRM REG-130700-14, August 14, 2019), with some revisions.

The Treasury and IRS also issued proposed regulations that provide sourcing rules for cloud transactions.

The Treasury and IRS have issued final regulations that provide rules for classifying digital and cloud transactions. The rules apply for purposes of the international provisions of the Code.

The rules retain the overall approach of the proposed regulations (NPRM REG-130700-14, August 14, 2019), with some revisions.

The Treasury and IRS also issued proposed regulations that provide sourcing rules for cloud transactions.

Background

Reg. §1.861-18 provides rules for classifying cross-border transactions involving digitized information, specifically computer programs, broadly grouped into the following categories:

• the transfer of a copyright;
• the transfer of a copyrighted article;
• the provision of services for the development or modification of a computer program; and
• the provision of know-how relating to the development of a computer program.

The 1998 final regulations focus on the distinction between the transfer of the copyright itself and transfer of a copyrighted article, using a substance-over-form characterization approach and by examining the underlying rights granted to the transferee. Transfers of copyrights and copyrighted articles are further characterized as complete or partial transfers, resulting in the transfers being characterized as either sales or licenses, in the case of a copyrights, or sales or leases, in the case of a copyrighted articles.

2025 Final Regulations

The 2025 final regulations maintain the basic framework for characterizing transfers of content and extend the characterization framework to digital content. Digital content is generally defined as any computer program or other content protected by copyright law, not just transactions involving computer programs.

The categories of transactions include:

• the transfer of a copyright in the digital content;
• the transfer of a copy of the digital content (a copyrighted article);
• the provision of services for the development or modification of the digital content; and
• the provision of know-how relating to the development of digital content.

The 2025 final regulations also provide for cloud transactions and characterize the transactions as a provision of services.

Cloud transactions are generally defined as transactions through which a person obtains on-demand network access to computer hardware, digital content, or similar resources.

The 2025 final regulations replace the de minimis rule and the concept of arrangement with a predominant character rule that applies to both digital content transactions and cloud transactions. Under the rule, a transaction with multiple elements is characterized based on the predominant character of the transaction.

Request for Comments on 2025 Final Regulations

The Treasury and IRS are considering whether the characterization rules should apply to all provisions of the Code and have requested comments on any specific areas that would be affected, with examples if appropriate. Comments are also requested on any guidance that would be needed and the approach the guidance should take. In addition to general comments, the Treasury and IRS also request comments on the desirability and effect of applying the rules in specific areas and the guidance need.

Comments should be submitted 90 days after the Notice requesting comments is published in the Internal Revenue Bulletin, with consideration for comments submitted after that date that do not delay the guidance. Comments may be submitted electronically via the Federal eRulemaking Portal www.regulations.com or or by mail to: Internal Revenue Service, CC:PA:01:PR (Notice 2025-6, Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044.

Proposed Sourcing Rules for Cloud Transactions

Gross income from a cloud transaction is sourced as services. Under the Code, gross income from the performance of services is sourced to the place where the service is performed.

To determine the place of performance, the proposed regulations would take into account the location of the employees and assets, including both tangible and intangible assets, that contribute to the provision of cloud transactions. The sourcing rules would apply on a taxpayer-by-taxpayer basis.

The place of performance of a cloud transactions is established through a formula composed of a fraction that has three parts-the intangible property factor, the personnel factor, and the tangible property factor. The factors make up the denominator of the fraction. The numerator is the sum of each portion of each factor that is from sources within the United States. The gross income from a cloud transaction multiplied by the fraction is the U.S. source portion of the gross income.

T.D. 10022

Proposed Regulations, NPRM REG-107420-24

Notice 2025-6

The IRS has released final regulations implementing the clean hydrogen production credit under Code Sec. 45V, as well as the election to treat a clean hydrogen production facility as energy property for purposes of the energy investment credit under Code Sec. 48. The regulations generally apply to tax years beginning after December 26, 2023.

The IRS issued updates to frequently asked questions (FAQs) about the Energy Efficient Home Improvement Credit (Code Sec. 25C) and the Residential Clean Energy Property Credit (Code Sec. 25D). The former credit applies to qualifying property placed in service on or after January 1, 2023, and before January 1, 2033. The updates pertained to FS-2024-15. More information is available here.

The IRS issued updates to frequently asked questions (FAQs) about the Energy Efficient Home Improvement Credit (Code Sec. 25C) and the Residential Clean Energy Property Credit (Code Sec. 25D). The former credit applies to qualifying property placed in service on or after January 1, 2023, and before January 1, 2033. The updates pertained to FS-2024-15. More information is available here.

Energy Efficient Home Improvement Credit

The credit is limited to $2,000 per taxpayer per taxable year in the aggregate for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves or boilers.

Thus, a taxpayer could claim a total credit of $3,200 if they had sufficient expenditures in property categories (or a home energy audit) subject to the $1,200 limitation and in property categories subject to the $2,000 limitation.

Additionally, a taxpayer can claim the credit only for qualifying expenditures incurred for an existing home, or for an addition to or renovation of an existing home, but not for a newly constructed home.

Residential Clean Energy Property Credit

One of the FAQs mentions that this credit is a nonrefundable personal tax credit. A taxpayer claiming a nonrefundable credit can only use it to decrease or eliminate tax liability.

The credit is generally limited to 30 percent of qualified expenditures made for property placed in service between 2022 and 2032. However, the credit allowed for qualified fuel cell property expenditures is 30 percent of the expenditures, up to a maximum credit of $500 for each half kilowatt of capacity of the qualified fuel cell property.

FS-2025-1

IR-2025-17

The IRS has provided updated guidance on the implementation of section 530 of the Revenue Act of 1978 (P.L. 95-600), as amended, regarding controversies involving whether individuals are "employees" for employment tax purposes. Section 530 (which is not an Internal Revenue Code section) provides relief for employers who are involved in worker classification status disputes with the IRS and face large employment tax assessments as a result of the IRS’s proposed reclassifications of workers.

The IRS has provided updated guidance on the implementation of section 530 of the Revenue Act of 1978 (P.L. 95-600), as amended, regarding controversies involving whether individuals are "employees" for employment tax purposes. Section 530 (which is not an Internal Revenue Code section) provides relief for employers who are involved in worker classification status disputes with the IRS and face large employment tax assessments as a result of the IRS’s proposed reclassifications of workers.

Section 530 Safe Harbor

Section 530 provides that an employer will not be liable for federal employment taxes regarding an individual or class of workers if certain statutory requirements are met. Section 530 relief applies only if the taxpayer did not treat the individual as an employee for federal employment tax purposes for the period at issue, and meets each of the following requirements for that period:

• the taxpayer filed all required federal tax returns, including information returns, on a basis that is consistent with the taxpayer’s treatment of the individual as not being an employee (reporting consistency requirement);
• the taxpayer did not treat the individual or any individual holding a substantially similar position as an employee (substantive consistency requirement); and
• the taxpayer had a reasonable basis for not treating the individual as an employee (reasonable basis requirement).

Rev. Proc. 85-18, 1985-1 CB 518, provided instructions for implementing section 530 relating to the employment tax status of independent contractors and employees.

Updated Guidance

The updated guidance clarifies provisions in Rev. Proc. 85-18 regarding the definition of employee, the section 530 requirement for the filing of required returns, and the reasonable basis safe harbor rules. The updated guidance also includes new provisions that reflect certain statutory changes made to section 530 since 1986.

Among other things, the updated guidance amplifies guidelines in Rev. Proc. 85-18 which interpreted the word “treat” for purposes of determining whether a taxpayer did not treat an individual as an employee for section 530 purposes. Under the updated guidance, with respect to any individual, actions that indicate “treatment” of the individual as an employee for section 530 purposes include:

• withholding of income tax or FICA taxes from any payments made;
• filing of an original or amended employment tax return;
• filing or issuance of a Form W-2; and
• contracting with a third party to perform acts required of employers.

Provisions in Rev. Proc. 85-18 that explained how refunds, credits, abatements, and handling of claims applied to taxpayers who were under audit or otherwise involved in administrative or judicial processes with the IRS at the time of enactment of section 530 are no longer applicable and were not included in the updated guidance. Section 530 relief remains available at any stage in the administrative or judicial process if the requirements for relief are met.

Effect on Other Documents

Rev. Proc. 85-18, 1985-1 CB 518, is modified and superseded.

Rev. Proc. 2025-10

The IRS has issued final regulation identifying certain partnership related-party basis adjustment transactions as transactions of interest (TOI), a type of reportable transaction under Reg. §1.6011-4. Taxpayers that participate and material advisors to these transactions, and substantially similar transactions, are required to disclose as much to the IRS using Form 8886 and Form 8918, respectively, or be subject to penalties.

Regulations under Code Sec. 2801, which imposes a tax on covered gifts and covered bequests received by a citizen or resident of the United States from a covered expatriate, have been issued.

The IRS has issued a revenue ruling addressing the federal tax treatment of contributions and benefits under state-administered paid family and medical leave (PFML) programs. The ruling clarifies how these contributions and benefits are classified for income tax, employment tax, and reporting purposes, with distinctions drawn between employer and employee contributions.

The IRS has issued a revenue ruling addressing the federal tax treatment of contributions and benefits under state-administered paid family and medical leave (PFML) programs. The ruling clarifies how these contributions and benefits are classified for income tax, employment tax, and reporting purposes, with distinctions drawn between employer and employee contributions.

PFML Contributions

Mandatory contributions made by employers under PFML programs are classified as excise taxes deductible as ordinary and necessary business expenses under Code Sec. 164. These payments are deemed state-imposed obligations for the purpose of funding public programs and are not included in employees' gross income under Code Sec. 61. In contrast, mandatory contributions withheld from employees’ wages are treated as state income taxes under Code Sec. 164(a)(3). Employees may deduct these amounts on their federal tax returns if they itemize deductions, subject to the state and local tax (SALT) deduction cap under Code Sec. 164(b)(6).

The ruling further specifies the treatment of benefits paid under PFML programs. Family leave benefits, which provide wage replacement during caregiving periods, are included in the recipient’s gross income under Code Sec. 61 but are not considered wages for federal employment tax purposes under Code Sec. 3121. By comparison, medical leave benefits attributable to employee contributions are excluded from gross income under Code Sec. 104(a)(3). However, medical leave benefits attributable to employer contributions are partially taxable under Code Sec. 105 and are subject to FICA taxes.

The ruling also addresses scenarios where employers voluntarily cover portions of employees’ contributions, referred to as "employer pick-ups." Such pick-ups are treated as additional compensation, included in employees’ gross income under Code Sec. 61, and are subject to federal employment taxes. Employers, however, may deduct these payments as ordinary business expenses under Code Sec. 162.

To ensure compliance, the IRS requires states and employers to report benefits exceeding $600 annually under Code Sec. 6041 using Form 1099. Additionally, benefits subject to employment taxes must be reported on Form W-2.

The ruling modifies prior guidance and includes a transition period for 2025 to allow states and employers to adjust their systems to meet reporting and compliance requirements. This clarification provides a framework for managing the tax implications of PFML programs, ensuring consistent treatment across jurisdictions.

Effective Date

This revenue ruling is effective for payments made on or after January 1, 2025. However, transition relief is provided to the states, the District of Columbia, and employers from certain withholding, payment, and information reporting requirements for state-paid medical leave benefits paid made during calendar year 2025.

Effect on Other Guidance

Rev. Rul. 81-194, Rev. Rul. 81-193, Rev. Rul. 81-192, and Rev. Rul. 81-191 are amplified to include the holdings in this revenue ruling that are applicable to the facts in those rulings. Rev. Rul. 72-191, as modified by Rev. Rul. 81-192, is further modified.

Rev. Rul. 2025-4

IR-2025-16

National Taxpayer Advocate Erin Collins identified the lengthy processing and uncertainty regarding the employee retention credit as being among the ten most serious problems facing taxpayers.

National Taxpayer Advocate Erin Collins identified the lengthy processing and uncertainty regarding the employee retention credit as being among the ten most serious problems facing taxpayers.

"Although the [Internal Revenue Service] has processed several hundred thousand claims in recent months, it was still sitting on a backlog of about 1.2 million claims as of October 26, 2024," Collins noted in her just released 2024 Annual Report to Congress. "Many claims have been pending for more than a year, and with the imminent start of the 2025 filing season, the IRS will shift its focus and resources to administering the filing season, resulting in even longer ERC processing delays."

Collins is calling on the IRS to provide more specific information with claims denials, more transparency on the timing of claims processing, and allowing taxpayers to submit documentation and seek an appeal before disallowing a claim that was not subject to an audit.

In addition to ERC processing, Collins identified delays in processing of tax returns as another serious problem taxpayers are facing, including delays associated with the more than 10 million paper 1040 returns and more than 75 million paper-filed returns and forms overall each year, as well as issues surrounding rejections of e-filed returns, most of which are valid returns. These delays end up delaying refunds and can be particularly hard on low-income filers who are receiving the Earned Income Tax Credit.

"We recommend the IRS continue to prioritize automating its tax processing systems, including by scanning all paper-filed tax returns in time for the 2026 filing season and processing amended tax returns automatically," the report states.

Another processing issue identified in the report deals with delays in processing and refunds for victims of identity theft.

Collins reported that the delays in addressing identity theft issues grew to 22 months in fiscal year 2024, affecting nearly 500,000 taxpayers.

"The IRS has advised us that it has begun to prioritize resolution of cases involving refunds over balance-due returns rather than following its traditional ‘first in, first out’ approach," the report states. "This is somewhat good news, but I strongly encourage the IRS to fix this problem once and for all during the coming year."

Other issues in the top 10 include:

• Taxpayer service is often not timely or adequate;
• The prevalence of tax-related scams;
• Employment recruitment, hiring, training, and retention challenges are hindering transformational change within the industry;
• The dependence on paper forms and manual document review in processing Individual Taxpayer Identification Numbers is causing delays and potential security risks;
• Limited taxpayer financial and tax literacy;
• The IRS’s administration of civil tax penalties is often unfair, inconsistently deters improper behavior, fails to promote efficient administration, and thus discourages tax compliance; and
• Changes to the IRS’s criminal voluntary disclosure practice requirements may be reducing voluntary compliance and negatively impacting the tax gap.

Collins also called on Congress to ensure the IRS receives adequate funding specifically for taxpayer services and technology upgrades, noting that many improvements that are highlighted in the report were made possible by the Inflation Reduction Act, which provided supplemental funding to the agency.

"Much of the funding has generated controversy – namely, the funding allocated for enforcement," the report notes. "But some of the funding has received strong bipartisan support – namely, the funding allocated for taxpayer services and technology modernization."

She reported that telephone service has improved dramatically, correspondence processing has improved dramatically, and in-person has become more accessible following the IRA funding, as well as technology improvements including increased scanning and processing of paper-filed tax returns electronically; increases in electronic correspondence; expansion of secure messaging; the ability to submit forms from mobile phones; and increases in both chatbot and voicebot technology.

"I want to highlight this distinction so that if Congress decides to cut IRA funding, it does not inadvertently throw the baby out with the bathwater," she reports.

By Gregory Twachtman, Washington News Editor

IR-2025-4

A taxpayer who may have misplaced or lost a copy of his tax return that was already filed with the IRS or whose copy may have been destroyed in a fire, flood, or other disaster may need information contained on that return in order to complete his or her return for the current year. In addition, an individual may be required by a governmental agency or other entity, such as a mortgage lender or the Small Business Administration, to supply a copy of his or a related party's tax return.

A taxpayer who may have misplaced or lost a copy of his tax return that was already filed with the IRS or whose copy may have been destroyed in a fire, flood, or other disaster may need information contained on that return in order to complete his or her return for the current year. In addition, an individual may be required by a governmental agency or other entity, such as a mortgage lender or the Small Business Administration, to supply a copy of his or a related party's tax return.

In such circumstances, you may obtain a copy of your tax return by filing Form 4506, Request for Copy or Transcript of Tax Form, along with the applicable fee, to the IRS Service Center where the return was filed. Also, tax account information based on the return may be obtained free of charge from IRS Taxpayer Service Offices. You may also request a transcript that will show most lines from the original return, including accompanying forms and schedules.

Fees

There is no charge to request a tax return transcript of the Form 1040 series filed during the current calendar year and the three preceding calendar years. For other requests, a fee of $23.00 per tax period requested must be paid in order to obtain copies of a return. Taxpayers seeking tax account information (such as adjusted gross income, amount of tax, or amount of refund) should contact their local IRS Taxpayer Service Office, which will provide the account information free of charge.

Timing of requests

A request for a copy of a return must be received by the IRS within 60 days following the date when it was signed and dated by the taxpayer. It may take up to 60 calendar days to get a copy of a tax form or Form W-2 information. If a return has been recently filed, the taxpayer must allow six weeks before requesting a copy of the return or other information. The IRS cautions that returns filed more than six years ago may not be available for making copies; tax account information, however, is generally available for these periods.

You may be able to save some time by going directly to your tax return preparer for the information. Although a return preparer may retain a copy of the taxpayer's return, however, there is no absolute requirement to do so. Preparers must retain for three years either a copy of each completed return and claim for refund or a list of the names and taxpayer identification numbers of taxpayers for whom returns or claims have been prepared.

Every business owner knows that he or she is responsible for payroll taxes for employees but not for independent contractors. This is the general rule, but like every rule in the Tax Code, there are exceptions.

Every business owner knows that he or she is responsible for payroll taxes for employees but not for independent contractors. This is the general rule, but like every rule in the Tax Code, there are exceptions.

Some workers, even if they are called independent contractors, must be treated as employees for tax purposes. They are called statutory employees. You are required to withhold and pay certain payroll taxes, under certain circumstances. If you fail to withhold payroll taxes for these workers, you could be liable for significant fines and penalties.

Conditions

Some conditions must be met to transform an independent contractor into a statutory employee. First, only certain types of work trigger the change in treatment. Second, a contract between you and the worker must contemplate that the worker will personally perform substantially all of the work. Third, the worker's investment in equipment and property used to provide the services usually is insubstantial. Fourth, the services usually are performed on a regular and continuing basis.

Here's a look at some of the specific occupations that are treated as statutory employment.

Agent-Drivers

Agent-drivers and commission drivers who deliver specified products are deemed statutory employees for payroll tax purposes. These are individuals wh

-- Operate their own trucks;

-- Serve customers designated by you;

-- Serve customers they solicit on their own;

-- Make wholesale or retail sales; and

-- Paid commissions on their sales.

These drivers are treated as your employees if they distribute:

-- Beverages (other than milk);

-- Meat;

-- Fruit;

-- Vegetables;

-- Bakery products; or

-- Laundry

Generally, you are not required to withhold income taxes for agent-drivers but you must withhold FICA and federal unemployment taxes.

Salespeople

A very specific group of salespeople are treated as employees even if your arrangement terms them independent contractors. These individuals remit orders on your behalf from customers who are:

-- Retailers;

-- Wholesalers;

-- Contractors; or

-- Operators of hotels and restaurants.

The individuals must work full-time for you. In addition, the orders they remit must be for items that your customers will resell or use as supplies in their business. Generally, you must withhold FICA and federal unemployment taxes for these salespersons.

Homeworkers

Some individuals who work at home for you must be treated as employees. Frequently, these individuals work on a contract or piecework basis. A common example is an individual you hire to type your correspondence, using his or her computer equipment, at home.

Your payroll tax obligation for homeworkers generally kicks-in when you've paid the workers $100 in cash wages during the year. Once you've reached the $100 threshold, all wages paid during the year are subject to FICA taxes.

This is a confusing area of the tax law. Our office can help clarify if an independent contractor is a statutory employee so you don't miss your important payroll tax obligations. Contact us if you have any questions.

I sold a small piece of property two years ago. Going through my records recently I realized that the gain on that sale was never reported on my tax return. What should I do now?

A: The usual solution is to file an amended return for that year, paying any additional tax due plus interest and a late payment penalty. You are not permitted simply to add it to this year's tax return.

An amended return must be filed, and any additional tax due paid, by any taxpayer who has omitted an income item for a previous tax year for which the statute of limitations period (which is generally three years) is still open. When an original, and then an amended return is filed, the statute of limitations generally starts running on the original filing.

Some taxpayers think they can wait until a few days before the three-year limitations period is about to expire to file their amended return to avoid any further IRS audit of it. They should think again. To cover this ploy, an exception to the three-year limitations period on assessment is made when the taxpayer files an amended return within 60 days before the end of the limitations period on assessment. In this situation, the IRS has 60 days from when it gets the amended return to assess the additional tax due as reported, even if the usual three-year period would normally otherwise end.

Taxpayers who plan to wait until after the three-year limitation expires, and then do nothing, are playing an even more dangerous game.

First, the IRS tends to pull most returns for audit between the second and third year after filing. If the IRS catches a taxpayer for unreported income before he or she fesses up, the penalties are generally much worse.

Second, even though initially not reporting some taxable gain may be just a mistake, hiding the income once you discover that it has not been reported may subject you to criminal fraud, which carries even higher penalties …and no statute of limitations.

A new IRS ruling confirms that HRAs are entitled to significant tax breaks. Properly structured, they can provide a deduction for the business, tax-free benefits for employees, and more direct and personal control over health care costs…a classic "win-win" situation, compliments of the tax code.

Health reimbursement arrangements (HRAs) have just been given the "green light" by the IRS -paving the way for you and many businesses to consider whether an HRA is a good solution to rising health-care costs.

A new IRS ruling confirms that HRAs are entitled to significant tax breaks. Properly structured, they can provide a deduction for the business, tax-free benefits for employees, and more direct and personal control over health care costs…a classic "win-win" situation, complements of the tax code.

As Treasury Secretary Paul O'Neill put it, "With this new guidance, we clear the way for employers to adopt health plans with patient-directed features so that employees have more choice and greater control over their health care coverage."

Patient-directed health plan

An HRA is a written arrangement set up by employers to provide employees with reimbursement up to a pre-selected amount for a variety of medical expenses. In order to qualify, an HRA must:

• Be funded solely by employer contributions and never through voluntary salary reduction contributions under a cafeteria plan or by any other form of employee contribution;

• Require funds to be used to reimburse employees for substantiated medical expenses of employees, their spouses, and dependents.

The two outstanding features of an HRA are:

• (1) Each employee gets his or her own account balance that may be carried over from year to year, indefinitely. Flexible spending accounts (FSAs), in contrast, work on a "use-it and lose-it" basis under which amounts left unspent at the end of the year are lost. The carryover feature of the HRA gives employees incentive to spend wisely and save on medical costs whenever possible, so that their "personal care accounts" can increase over the years.

• (2) Amounts in the HRA can be used to pay medical insurance premiums as well as for reimbursement of medical services and other costs. FSAs are expressly prohibited from being used to pay insurance premiums.

Options

HRAs can offer an employer great flexibility in the overall health care package presented to employees. An HRA can either supplement a deductible group health plan, or it can operate alone in providing your employees with medical benefits. It can also be used together with FSAs to enhance the benefits of both.

How to get started

To win the benefits of an HRA, certain rules must be followed. HRAs may only provide benefits that cover substantiated medical expenses. They cannot discriminate in favor of highly-compensated employees.

While an HRA cannot be funded within a cafeteria plan, employers can coordinate cafeteria plan benefits with HRAs in a manner that provides an attractive, yet IRS-sanctioned package. Planning can also enhance other HRA features.

Contact this office for further details on how an HRA can improve your financial as well as medical health.

U.S. Savings Bonds can be a relatively risk-free investment during time of upheaval in the stock market, such as we are experiencing now. There are two different types of savings bonds for tax purposes. The first includes Series EE bonds and Series I bonds. If you invest in these bonds, you have a choice of reporting interest as it accrues each year you hold the bond until you sell it or redeem it. A second category consists of a special type of savings bond, HH bonds, on which income generally must be reported as accrued.

U.S. Savings Bonds can be a relatively risk-free investment during time of upheaval in the stock market, such as we are experiencing now. There are two different types of savings bonds for tax purposes. The first includes Series EE bonds and Series I bonds. You purchase these bonds at a discount from their face value and they accrue interest until reaching face value at maturity.

If you invest in these bonds, you have a choice of reporting interest as it accrues each year you hold the bond until you sell it or redeem it.

A second category consists of a special type of savings bond, HH bonds, on which income generally must be reported as accrued.

Series EE and I bonds

Generally, you do not have to pay taxes on interest accruing on EE and I bonds until they mature. You can make a special election to pay tax on the interest as it accrues.

Most investors choose not to make this election. However, if you have little or no other taxable income during the years in which the bond is maturing, you may be better off electing to pay tax annually as the bond earns interest until it reaches maturity, since you will be paying taxes on annual interest at a lower tax rate.

Once you make the election to pay tax annually, the election applies to all Series EE and I bonds that you own for all future years. This means the election cannot be made on a bond-by-bond basis. The IRS has a special rule and you may be able to cancel your election in some circumstances.

Higher education expenses

If you buy Series EE bonds, you can exclude all the interest earned at maturity if you use the bond to pay for higher education expenses. Many, but not all, higher education expenses qualify. Check with your tax advisor.

Series HH bonds

You may have acquired a special type of bond, the HH bond, which cannot be purchased for cash. You obtain HH bonds in exchange for EE bonds. HH bonds pay interest semi-annually at a variable interest rate.

Interest is reportable when you receive it. However, there is one important exception. If you obtained HH bonds in exchange for EE bonds, on which you did not pay interest currently, interest continues to be deferred until the bond is redeemed or matures. HH bonds mature in 10 years.

Generally, if you do volunteer work for a charity, you are not entitled to deduct the cost of services you perform for the charity. However, if in connection with the volunteer work you incur out-of-pocket expenses, you may be entitled to deduct some of those expenses.

Q. I spend 20 hours every week cooking meals and delivering them to an organization that feeds the hungry and homeless. Am I entitled to a deduction for my time and the food I pay for out of my own money?

A. Generally, if you do volunteer work for a charity, you are not entitled to deduct the cost of services you perform for the charity. However, if in connection with the volunteer work you incur out-of-pocket expenses, you may be entitled to deduct some of those expenses.

Qualifying expenses

If the amounts that you pay for food and other supplies used in the preparation and packaging of the meals are not reimbursed by the charity, generally you may deduct these expenses as contributions to the charity.

In addition, if the amounts that you pay to travel by car or other means to deliver the meals are not reimbursed by the charity, and you derive no personal benefit from the travel, the expenses are deductible. Qualifying expenses include gasoline for your car and fares for taxis or public transportation.

Special mileage rate

If you drive your own vehicle to deliver the meals, you can use a special IRS mileage rate to calculate charitable contribution deductions involving use of your car. The standard mileage rate for charitable purposes, which is statutorily set, is 14 cents per mile.

Other expenses

Other out-of-pocket expenses incurred in connection with services you provide to a charity that are deductible include costs related to uniforms, travel, meals, and lodging. Sometimes, expenses incurred while serving as a charity's delegate to a convention may be deducted.

Keep receipts

If you take a deduction for out-of-pocket expenses you incurred incident to your performance of services for a charity, it is important to have receipts to document expenses. It is also a good idea to get a written acknowledgement from the charity for the services you provide.