From Childcare Credits to Capital Gains: Your Midyear Tax Update

Tax Relief for Military Members and Those Affected by the Israel Conflict Combat Zone Extensions

Members of the U.S. military serving in a designated combat zone during tax season may qualify for an automatic extension of at least 180 days to file and pay federal taxes. This extension also generally applies to their spouses, with a few exceptions. For full details on eligibility and specific scenarios, refer to IRS Publication 3, Armed Forces’ Tax Guide.

Reporting Foreign Financial Accounts & Assets

U.S. taxpayers with foreign bank or investment accounts that exceeded $10,000 at any point in 2024 must file FinCEN Form 114 (FBAR) electronically by April 15, 2025. An automatic extension is available until October 15, 2025 no request is needed. Those with certain foreign assets may also need to file Form 8938 with their federal tax return and report interest or dividends on Schedule B. All amounts must be reported in U.S. dollars using the December 31, 2024, exchange rate. Individuals who gave up U.S. citizenship or residency in 2024 are required to file a dual-status return. For more details, see IRS Publication 519, U.S. Tax Guide for Aliens.

📢 Reminder: Employer-Provided Childcare Tax Credit—Up to $150,000
Businesses can claim up to $150,000 per year in tax credits for offering childcare to employees. The credit covers 25% of facility costs and 10% of referral services. Eligible expenses include construction, operations, and childcare worker support.

📄 Use Form 8882 to claim. Unused credit can be carried back 1 year or forward up to 20 years. 🔗 Learn more at the IRS Childcare Credit page. Need help applying? SK Financial CPA can guide you through the process.

Capital Gains Taxes: Key Points for Investors

Profits from selling investments are taxed differently based on how long you hold them. Long-term gains (over a year) are taxed at 0%, 15%, or 20%, while short-term gains (a year or less) are taxed as regular income, up to 37%. High earners may owe an extra 3.8% Net Investment Income Tax, and some assets like art or real estate have their own higher rates.

Keep an eye on mutual funds with high turnover, which may trigger taxes even if you don’t sell. Consider holding them in tax-deferred accounts. And don’t forget many states tax gains like ordinary income. A little planning can go a long way in reducing your tax bill. Let us know if you’d like help reviewing your investments.

Estate and Gift Tax Exemption May Rise to $15 Million

A new House proposal would raise the lifetime estate and gift tax exemption to $15 million starting in 2026, adjusted annually for inflation. This would prevent the scheduled reduction to about $7 million and offer permanent relief with no expiration date, creating more certainty for families with significant assets. While some support repealing the estate tax entirely, that remains unlikely.

Overview: A proposed tax-advantaged savings account for children under age 8, called the Trump Account.

Contributions: Parents can contribute up to $5,000 annually (adjusted for inflation) until the child turns 18. Contributions aren’t tax-deductible.

Withdrawals: No withdrawals allowed before age 18. Between the ages of 18 and 25, only half the balance can be withdrawn. The account closes at age 31.

Tax Treatment: Earnings grow tax-deferred. Qualified withdrawals (for college, a first home, or starting a business) are taxed as long-term capital gains. Nonqualified withdrawals are taxed as ordinary income, plus a 10% penalty if taken before age 30.

Government Support: Eligible children born between 2025 and 2028 receive a one-time $1,000 federal contribution. If parents don’t open the account, the Treasury will open one automatically.

Higher Standard Deductions May Be Coming

*2024 figures are approximate and indexed for inflation.

• The proposed increase is temporary: 2025–2028.
• The age 65+ bonus applies even for those who itemize.
• A valid Social Security number is required to claim the age-based deduction.

The IRS wants to ban contingency fees for tax return preparation and refund claims, calling the practice disreputable conduct. Proposed regulations released in January would allow the agency to suspend or bar tax preparers who charge clients based on the size of their refund or credit. However, the House-passed tax bill pushes back. It includes a provision that would prohibit the IRS from banning or limiting contingency fee arrangements. Supporters say it gives taxpayers more flexible payment options, but critics warn it opens the door to abuse. The AICPA strongly opposes the proposal, calling it "an open invitation to unscrupulous tax preparers.

Tax Breaks for Long-Term Care Costs

If you, your spouse, or a dependent needs long-term care, you may be able to deduct unreimbursed expenses like in-home care, assisted living, or nursing homes as medical expenses on Schedule A, as long as total medical costs exceed 7.5% of your adjusted gross income. To qualify, care must be medically necessary for a chronically ill individual, certified by a licensed healthcare provider.

Premiums for long-term care insurance are also deductible, with 2025 limits based on age (e.g., up to $6,020 for those 71+). Self-employed individuals can deduct these on Schedule 1. Starting in 2026, taxpayers under age 59½ may withdraw up to $2,500 annually from retirement accounts to pay premiums without incurring the 10% early withdrawal penalty.

⚠️ Energy Tax Credits can expire

If you're planning energy-efficient home upgrades, act quickly. The House-passed One Big Beautiful Bill would eliminate the Energy-Efficient Home Improvement Credit and the Residential Clean Energy Credit for property placed in service after 2025. The Senate’s version would repeal them for upgrades completed 181 days after the bill becomes law. Since these credits can only be claimed for the year the improvements are made, completing projects now may be the only way to secure the tax break.

Tariffs May Return: What It Means for U.S. Businesses

Tariffs could be reinstated and expanded if former President Trump is re-elected, creating uncertainty for U.S. businesses. While tariffs can protect domestic suppliers, they also raise costs for manufacturers relying on imported parts. New trade actions may lead to higher prices, supply chain shifts, and market volatility. Some companies are already speeding up imports ahead of possible July 2 tariffs. SK Financial CPA is monitoring these changes and can help you plan your tax and financial strategy accordingly.
 

Summary of New Tax Proposals

The One Big Beautiful Bill introduces three notable tax measures. It allows up to a $10,000 annual deduction on interest from personal auto loans (2025–2028), with phaseouts based on income and eligibility limited to U.S.-assembled vehicles. It also offers a nonrefundable tax credit for donations to K–12 scholarship funds, capped at $5,000 or 10% of income. Lastly, it proposes a 3.5% remittance tax on money transfers sent abroad by noncitizens, raising concerns over its complexity and potential unintended consequences.

If you missed taking a required minimum distribution (RMD) from your IRA or retirement plan, you could face a penalty of up to 25% of the amount not withdrawn, reduced to 10% if corrected within two years. However, the IRS may waive the penalty entirely if you had a reasonable cause and are actively correcting the issue. To request a waiver, file Form 5329 with your tax return and include a letter explaining the situation. Importantly, do not pay the penalty upfront you’ll only owe it if the IRS denies your waiver request.

A Russian postdoctoral researcher working in a U.S. medical lab was denied a tax exemption on her salary under the U.S.-Russia tax treaty. The Tax Court ruled that her compensation was taxable because it was payment for full-time work, not a nontaxable grant. She received salary and benefits in exchange for her labor, making it ordinary income. As a result, she also owes a 20% penalty for significantly understating her taxes (Kramarenko, TC Memo. 2025-61).