This week, the financial landscape is experiencing notable shifts as the recent government shutdown has come to an end, allowing the IRS to resume regular operations. The IRS has been working to catch up on processing returns and responding to correspondence, announcing new guidance related to the One Big Beautiful Bill Act (OBBBA). This guidance is particularly relevant for taxpayers seeking to claim deductions for tips and overtime compensation for the 2025 tax year.
On Friday, the IRS detailed how taxpayers can determine their deductions for cash tips and qualified overtime compensation without needing separate accounting from employers. Interestingly, as employers are not required to report tips separately on Forms W-2 for 2025, employees have the option to rely on other forms of documentation, such as the amount of Social Security tips reported in Box 7 of Form W-2 or contemporaneous records for self-employed workers.
A significant point of confusion involved Specified Service Trade or Businesses (SSTBs), such as medical practitioners and financial advisors, which typically are not eligible for the tips deduction. However, under the new guidance, there will be a transitional relief for the SSTB exclusion in 2025, meaning that tips will be treated as qualified for now, awaiting final regulations from the Treasury.
Furthermore, the IRS clarified rules surrounding overtime compensation, specifying that only the “half” of any overtime payment required by the Fair Labor Standards Act (FLSA) is deductible. Payments beyond that required amount are not considered qualified overtime for deduction purposes. As the IRS resumes operations, taxpayers are encouraged to stay informed about their statuses and any potential delays in processing times.
As economic concerns loom large, inflation continues to worry many Americans. Recent surveys show that consumer sentiment regarding the economy has reached a low, with expectations predicting a rise of 4.5% in prices over the coming year. Former President Trump has entered the conversation on rising costs, announcing the lifting of tariffs on certain agricultural products, including coffee and bananas, in an attempt to reduce prices. However, the effectiveness of this move is questionable, as these products cannot be easily produced domestically.
To combat the rising costs, the White House has excluded over 100 products from the previously imposed tariffs. Trump suggested the possibility of distributing a $2,000 tariff “dividend” to taxpayers, although indications from Treasury Secretary Bessent suggest that implementing this idea might require Congressional approval, casting doubt on its practicality.
The ongoing rise in living costs significantly impacted Republicans in recent elections, as voters pointed fingers at them for the inflation. Yet, economic commentators like Steve Forbes advocate for wider reforms, including the rollback of tariffs, citing the likelihood that executive-ordered tariffs may soon be deemed unconstitutional.
Looking ahead, Congress will recess for Thanksgiving from November 20 to November 27, leaving little time for major economic reforms in the near term. Like many families, the author of this newsletter plans to use the break for a Thanksgiving dinner gathering, where friends, family, and university students will be welcomed.
In addition to the macroeconomic updates, readers raised tax-related queries, with one asking about marital status implications on tax filings for a wedding planned at the end of the year. Confirmation was given that, for tax purposes, if a couple is married on December 31, they will file as married for that tax year—no matter how brief their marriage may be at year-end.
As the IRS processes returns post-shutdown, the public can expect ongoing delays as federal agencies work through backlogs. While assistance is available through in-person and telephone services, taxpayers are advised to remain patient as various processing issues are addressed.
On a different note, the intersection of sports and community expenditures comes into focus this Thanksgiving, with the NFL featuring three games. Despite this popular holiday tradition, researchers warn of the limited return on public investments in stadiums, noting that such spending often doesn’t provide the promised economic uplift to communities.
As families prepare for their Thanksgiving celebrations and the upcoming holiday break, both economic trends and community issues are likely to remain focal points in discussions, reminding everyone about the interconnectedness of financial policies and daily life.
