Shelton & Associates, CPA, PLLC

Intangible assets, such as patents, trademarks and goodwill, play a key role in businesses. The tax implications of intangibles can be complex, but businesses should understand them. IRS regulations require the capitalization of costs to 1) acquire or create intangibles; 2) create or enhance a separate, distinct intangible; 3) create or enhance a future benefit identified in IRS guidance as capitalizable; or 4) facilitate the acquisition or creation of intangibles. Capitalized costs can’t be deducted in the year paid or incurred. They must generally be ratably deducted over the asset’s life if they’re deductible. However, there are exceptions. Contact us with questions about intangibles.

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Two tax breaks help eligible parents offset the costs of adopting a child. In 2025, adoptive parents may be able to claim a credit against their federal tax for up to $17,280 of “qualified adoption expenses” for each eligible child. This is up from $16,810 in 2024. A credit is a dollar-for-dollar reduction of tax. Also, employees may be able to exclude from gross income up to $17,280 in 2025 ($16,810 in 2024) of qualified expenses paid by an employer in an adoption assistance program. The credit and the exclusion are phased out if the parents’ income exceeds certain limits. Parents can claim both a credit and an exclusion for the costs of adopting a child but not for the same expenses.

Attorneys and law firms with deferred legal fee arrangements, take note: The IRS is watching. According to the tax agency, some taxpayers have delayed recognizing contingency fees as taxable income by transferring up to 40% of individual case settlements to third parties. In such arrangements, third parties generally hold the transferred fees for at least 20 years. Only when the fees are returned do attorneys recognize them as taxable income. The IRS’s new crackdown on such arrangements requires taxpayers to recognize settlement amounts in the year they’re transferred to a third party. To avoid possible penalties, they must use Form 8275. Contact us with questions.

The IRS’s Direct File program, which was rolled out to taxpayers in 12 states during the 2024 tax season, enables eligible individuals to file returns with the IRS. In May 2024, the IRS announced it would expand Direct File. However, in a recent letter, 29 U.S. House Republicans asked President-Elect Trump to use an executive order to shut down Direct File once he’s in office. They claim the program is a waste of financial resources and poses a threat to taxpayers’ “freedom from government overreach.” They further assert that the agency enforcing tax compliance shouldn’t also provide tax preparation. “The private sector offers better tax preparation services,” they added.

We had a holly, jolly time at our Office Christmas Party! 🎉 From delicious food to gift exchanges, and great company, this celebration reminded us how lucky we are to have such an amazing team. ❤️

The Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000. This “SALT cap” is scheduled to expire after 2025. The future of the cap is sure to play a key role in tax policy negotiations on Capitol Hill next year. Some Democratic and Republican lawmakers, mainly from high-tax states, are urging the full restoration of the SALT cap. Earlier this year, the SALT Marriage Penalty Elimination Act proposed to increase the SALT cap to $20,000 for married couples filing jointly with incomes up to $500,000. That bill failed in the House of Representatives. President-Elect Donald Trump has vowed to “get SALT back,” leaving many to assume he supports ending the SALT cap.

The Inflation Reduction Act extended the premium tax credit (PTC) through the end of 2025. The credit helps eligible individuals cover their premiums for health insurance purchased through the Health Insurance Marketplace. The Congressional Budget Office recently estimated if the expiring credit isn’t renewed, 3.8 million more people will go uninsured each year over a 10-year period. The CBO said the expiration would also lead to an average 7.9% increase in Marketplace premiums over the same period. In response, Democratic lawmakers are urging swift passage of the Health Care Affordability Act of 2024 to make the PTC permanent. Republican lawmakers have concerns over the costs. Stay tuned.