Tax

Tax

IRS Moves Toward All-Electronic Refunds: What You Need to Know

Your tax refund will no longer arrive by paper check. The IRS recently announced that it will stop issuing refund checks, with limited exceptions, and will require taxpayers to receive refunds electronically.

Why the Change?

Paper checks cost more, create security risks, and take much longer to process. In addition, the Trump administration directed all federal agencies to eliminate paper check payments.

What Stays the Same?

The IRS has not changed the process for filing your tax return. You will continue to file exactly as you do now.

How to Receive Your Refund

The fastest and most reliable way to receive your refund is through direct deposit into your bank account. Ninety-three percent of taxpayers already use direct deposit, and this change will not affect them.

If you currently receive refund checks, switch to direct deposit when you file your 2025 return. Simply enter your bank’s routing and account numbers on your tax form.

If you prefer not to use direct deposit, you can choose certain mobile apps or prepaid debit cards that provide a routing and account number.

The IRS will still issue a paper check if you request a waiver because you lack access to banking services or electronic payment systems. Keep in mind that paper checks take at least six weeks to process, while electronic refunds typically take about 21 days.

If You Need a Bank Account

You can open an account online through several resources:

Paying Taxes

For now, the IRS will still accept tax payments by check. However, electronic payments remain the faster and more reliable option. To review all electronic payment methods, visit the IRS Make a payment web page.

If you want to discuss tax payments and refunds, please call me on my direct line at 408-778-9651  

Tax

The Pitiful and Outdated Tax Code Business Gift Limit

You plan to send holiday gift baskets to colleagues, referral partners, and select customers, and you want to deduct the cost. You can take a deduction, but the IRS limits you to $25 per recipient per year. 

This rule comes straight from 1962, and lawmakers have never increased the limit—even though real-world prices have climbed dramatically over the past six decades.

You may give a much more expensive basket if you choose, but you can deduct only the first $25. If you maintain separate business relationships with both spouses, you may deduct $25 for each person. 

The IRS does not let you treat higher-value packaging or decorative containers as “incidental,” so those items count toward the $25 cap. However, you may treat shipping, sales tax, and basic wrapping as incidental because they do not add significant value to the gift.

To protect your deduction, you must keep simple records. For each gift, write down the cost, the date, the description, the business purpose, and your business relationship with the recipient. You can easily explain the business reason: you strengthen colleague relationships, encourage referrals, and maintain customer loyalty.

The real problem comes from the outdated limit. A $25 cap from 1962 equals roughly $268 today when you adjust for inflation. Meanwhile, everyday costs from cars to postage have increased many times over. Congress never updated this rule, and it now creates an unfair result for business owners who want to maintain normal professional relationships during the holiday season.

You have two practical options: First, you can urge lawmakers to fix this problem. A simple inflation adjustment would bring the deduction cap into modern reality. Second, you can choose to keep each gift at or below $25 and guarantee a full deduction. Many business owners take this approach and focus on thoughtful but modest gifts.

If you want to discuss business gifts, please call me on my direct line at 408-778-9651  

Tax

Start-up and Acquisition Costs after a Deal Falls Apart

If you’re considering buying a business, it’s important to understand how the related investigation and acquisition costs are treated for federal income tax purposes—especially if a deal falls through. A recent example illustrates how these rules work.

Jim, an employee looking to become a business owner, spent $15,000 researching an industry and identifying a target company. Once he decided to acquire that business, he incurred an additional $35,000 in legal, accounting, and similar fees. When the purchase failed, the tax consequences depended on the nature of each cost:

  • Initial investigation costs ($15,000). Because Jim never acquired the target business, his early research and start-up expenses are treated as personal and non-deductible. However, if he later buys a business in the same field, he may roll some or all of the costs into the new start-up and treat them as amortizable start-up costs.
  • Acquisition-specific costs ($35,000). Professional fees incurred after Jim committed to the purchase must be capitalized. Since the deal collapsed within a year, he may treat these costs as a short-term capital loss, deductible against capital gains and up to $3,000 per year of ordinary income until fully used.

Bottom line. A failed acquisition can still produce valuable tax benefits. Start-up and transaction costs are handled differently, and proper classification helps ensure you capture all available deductions and losses.

If you want to discuss investigation and acquisition expenses, please call me on my direct line at 408-778-9651  

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