Dear Client,

Welcome to your latest tax and financial update from SK Financial CPA. This month’s newsletter covers critical deadlines, upcoming tax law expirations, and valuable insights to help you make informed decisions. From student loan forgiveness and new emergency withdrawal rules to the benefits of hiring your children in your business, we break down the updates that could impact your wallet. Plus, stay informed about global economic shifts like the U.S.-China trade war, inflation trends, and how market volatility is affecting mortgage rates. Whether you're a business owner, taxpayer, or investor, this edition has something for you.

May 15 Deadline for Tax-Exempt Filings
Tax-exempt organizations operating on a calendar-year basis must file by May 15, 2025. This includes Forms 990, 990-EZ, 990-PF, 990-N (e-Postcard), 990-T, and 4720. The IRS also provides online workshops to help organizations stay compliant and understand their responsibilities.

Key Tax Changes Set to Expire in 2025
Several individual tax benefits from the Tax Cuts and Jobs Act, such as lower tax rates, higher standard deductions, and enhanced child tax credits, will expire in 2025 unless extended by Congress. However, some provisions are permanent, including the elimination of the penalty for not having health insurance, tax-free distributions from 529 plans for K-12 tuition, and changes to alimony rules.

How to check the Refund
To check your federal tax refund status, visit the IRS "Where’s My Refund?" tool. Your refund will show one of three stages: Return Received, Refund Approved, or Refund Sent. While most refunds arrive within 21 days for e-filed returns with direct deposit and about six weeks for mailed paper returns, delays can still happen, even with error-free filings. If your status stays at Return Received for a long time, it could mean the IRS needs more time to review your return. For more details on refund timelines and common delay reasons, visit our blog.

Tax-Free Student Loan Forgiveness Ends After 2025
Through 2025, most forgiven student loan debt is excluded from federal income tax, thanks to a provision in the March 2021 stimulus law. Normally, canceled debt is considered taxable income, but this temporary relief made an exception for student loans. However, this tax break is set to expire after 2025, and it’s unlikely to be extended, as it’s not a current priority for Republican lawmakers working on new tax legislation.

New Exception to Early Withdrawal Penalty for Emergencies
Back in 2024, individuals under age 59½ can take one penalty-free emergency withdrawal of up to $1,000 per year from an IRA or 401(k). The funds must be used for an unforeseen or immediate personal or family emergency. Before this change, as seen in Campana, TC Memo. 2025-23, hardship was not a valid reason to avoid the 10% early withdrawal penalty.

Theft Loss Deductions Limited for Scam Victims
Not all internet scam victims can deduct their losses. Under current tax law, theft losses are only deductible if they occur in a transaction entered into for profit or as part of a trade or business. Personal theft losses aren't deductible through 2025. According to an IRS legal memo, individuals who fall victim to romance or kidnapping scams typically cannot claim a deduction, as these losses are considered personal. However, victims of scams involving fake investment opportunities or fraudulent warnings about compromised accounts may qualify, as those cases involve profit-driven transactions. You can read the IRS’s full memo.
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New Treasury Regulations Narrow Beneficial Ownership Reporting Rules
The Treasury Department has updated the beneficial ownership information (BOI) reporting requirements. Under new regulations, only certain foreign companies must e-file their BOI reports with FinCEN, while domestic companies are exempt from reporting and do not need to update or correct any previous filings. Additionally, foreign companies still subject to BOI reporting will benefit from an easing: they are no longer required to report the BOI of any U.S. persons listed as beneficial owners. For more detail, check IRS guidelines.

Key Updates 📢 🧾 🗓️

Tax-Preferred ABLE Accounts for the Disabled
Starting in 2026, the SECURE 2.0 law will raise the eligibility age for ABLE accounts to 46. These accounts allow tax-free rollovers from 529 plans and do not impact Medicaid or SSI eligibility, with higher contribution limits for disabled workers in 2025.

Key Rulings on Depreciation, Labor Deductions, and ERC Reporting
Recent Tax Court rulings clarified when property is considered “placed in service” for depreciation and disallowed self-employed labor deductions for LLC R&D expenses. Additionally, new IRS guidance simplifies the reporting of the Employee Retention Credit (ERC) by requiring inclusion as income in the year received, not retroactively adjusted.

Roth IRA Conversion Amid Market Volatility
A Roth IRA conversion can be an effective strategy during market volatility, allowing tax-free withdrawals if specific conditions are met. However, conversions may impact Medicare premiums and require RMDs in the conversion year, so careful tax planning is essential.

Qualified Charitable Distributions (QCDs) for IRA Owners
IRA owners aged 70½ or older can make tax-free Qualified Charitable Distributions (QCDs) directly to charity, up to $108,000, which also count toward their required minimum distributions (RMDs). However, any deductible IRA contributions made after turning 70½ reduce the tax-free QCD amount. For example, if a person made $23,000 in post-70½ deductible contributions and then transferred $20,000 as a QCD, the entire amount would be taxable. But if they transfer additional amounts later, the remaining deductible contributions would impact the taxability of future QCDs.

IRS to End Paper Refund Checks
Starting September 30, 2025, the IRS will stop issuing paper tax refund checks, switching to electronic payments like direct deposit or prepaid cards. This change, part of a push for digital payments, aims to cut costs, prevent mail theft, and speed up refunds. Exceptions will be made for individuals without bank access.

Tax Benefits of Hiring Your Children in Your Business

Benefit	Details
Exemption from FICA Taxes	Wages paid to children under age 18 in sole proprietorships, single-member LLCs, or husband-wife partnerships are exempt from Social Security and Medicare taxes (15.3%).
Exemption from FUTA Taxes	No Federal Unemployment Tax (FUTA) applies on the first $7,000 of wages until the child turns 21.
Independent Contractor Status	If treated as an independent contractor, children are subject to self-employment tax (15.3%).
Income Tax Withholding	May apply depending on the child’s earnings and filing status.
Income Shifting	Shifts income to the child’s lower tax bracket, offering potential savings.
Financial Literacy	Helps teach financial responsibility and literacy at an early age.

U.S.-China Trade War Escalates with Higher Tariffs and Retaliation
The U.S.-China trade war has escalated with higher tariffs on Chinese imports, while China retaliates with steep tariffs on nearly all U.S. goods. Despite a decline in China's share of U.S. imports from 21% in 2018 to 13% in 2023, Chinese imports still total $439 billion annually. Key U.S. imports from China include electronics, machinery, clothing, toys, plastics, and metals. As tariffs rise, low-cost Chinese goods are vanishing from U.S. shelves, affecting consumer products with thin profit margins. Industries like petroleum, chemicals, autos, electronics, and machinery rely heavily on Chinese imports, while China’s retaliation also targets U.S. farming and tech sectors, particularly impacting rare earth mineral exports vital for semiconductors, defense, and telecom. U.S. farmers are especially vulnerable due to China's large market for American agricultural products.

March Inflation Shows Positive Trends, but Tariffs May Drive Future Price Increases
March inflation data showed promising signs, with overall prices rising minimally and core prices increasing by 2.8%. This aligns closely with the Federal Reserve's 2% target. However, the positive trend may be short-lived, as tariffs, especially on Chinese imports, are expected to drive prices higher in the coming months. Electronics prices, heavily dependent on Chinese components, are likely to rise, and 25% tariffs on cars and auto parts will significantly increase vehicle costs, including repairs and insurance. As supply chains adjust, these rising costs may outweigh the recent inflation improvements.

Stock Market Turmoil Affects Bond Market, Mortgage Rates
The stock market volatility has extended into the bond market, with 10-year Treasury yields expected to eventually stabilize around 4%, though short-term fluctuations are still likely. Bonds, typically considered a haven during stock market downturns, have not performed as expected this week. Bond yields surged after initially dropping as traders weighed risks like slower growth combined with higher inflation due to tariffs and the unwinding of risky bond trades. In terms of mortgage rates, they may rise in the near term as Treasury market turmoil continues. However, once the volatility in Treasuries settles, mortgage rates are expected to ease. The average 30-year fixed mortgage rate could eventually dip to 6.4% if the 10-year Treasury yield stabilizes at 4%.

At SK Financial CPA, we're here to help you navigate every financial challenge and opportunity. Whether you're preparing for upcoming tax deadlines, planning your retirement, or adapting to policy changes, our team is just a call or click away. Be sure to follow us on social media for timely updates, expert tips, and valuable resources to stay ahead. Your financial success is our priority, thank you for trusting us with your journey.