In most cases, the IRS no longer shows up at your door unannounced. Since 2023, field visits are typically scheduled in advance via Letter 725-B.
Unscheduled in-person visits still occur in rare cases involving criminal investigations, summons delivery, or extreme noncompliance.
IRS agents carry two forms of ID: a pocket commission and a government-issued badge. Taxpayers should always request to see these.
Legitimate IRS agents will never demand immediate payment, make threats, or ask for gift cards or digital transfers.
If contacted, you have the right to verify the agent’s identity and consult a tax professional before continuing any discussion.
Scam alerts remain critical: report suspicious visits to TIGTA, the IRS, or the FTC to protect yourself and others from impersonators.
If you’re a taxpayer, few things sound more terrifying than hearing a knock at your door, only to find someone claiming to be from the IRS. But does the IRS really show up at your door? In recent years, the Internal Revenue Service has changed its procedures to reduce confusion and increase taxpayer safety. That includes a major shift in how, and whether, IRS agents conduct in-person visits. Let’s take a look at when the IRS might visit you at home or your business, how to tell if it’s really them, and what you should do if it happens.
Unannounced IRS Visits Are Mostly a Thing of the Past
Here’s what changed in 2023 and what it means for taxpayers today.
The Major Policy Shift
In July 2023, the IRS announced a sweeping change in how it interacts with taxpayers: revenue officers would no longer make unannounced visits to homes or businesses in the vast majority of cases. This move, described as a “common-sense step” by then-Commissioner Daniel Werfel, was intended to protect both taxpayers and IRS employees.
For decades, it was common for revenue officers (those responsible for collecting unpaid taxes or securing unfiled returns) to show up unannounced at a taxpayer’s door. But in today’s environment of scams, impersonation schemes, and heightened security concerns, this practice became more of a liability than a benefit.
What Replaced Surprise Visits
Rather than dropping in unannounced, IRS revenue officers now contact taxpayers in advance via mail. Specifically, the IRS uses Letter 725-B, which is an official document that invites the taxpayer to schedule a face-to-face meeting.
The purpose of this change is to eliminate fear and uncertainty surrounding IRS field visits. By relying on mailed notices, the IRS ensures that taxpayers are informed and have time to prepare, often with the help of a tax professional or legal representative.
When Can the IRS Still Show Up at Your Door?
While most surprise visits are over, there are still a few situations where agents may appear in person. The IRS’s new policy does not eliminate all door-to-door interactions. There are certain, limited circumstances in which an IRS agent might still appear at your residence or place of business.
Criminal Investigations (IRS-CI)
The most serious type of in-person IRS visit involves IRS Criminal Investigation (CI) agents. These agents investigate tax fraud, money laundering, and other federal crimes. If you’re the subject of a CI investigation, a visit from a special agent could come with a warrant or subpoena.
For example, if someone is suspected of running a fraudulent tax return scheme or hiding assets in offshore accounts, IRS-CI may visit without prior notice. They are law enforcement officers and may be armed, depending on the case. These visits are rare and highly targeted. Most taxpayers will never deal with the criminal investigation division.
Summons Delivery or Legal Document Service
The IRS still reserves the right to deliver summonses or legal notices in person. A summons might be issued if the agency needs records or testimony and prior requests have gone unanswered. If you receive such a visit, the IRS agent should be delivering paperwork—not collecting money or making threats. You are within your rights to verify their identity and ask for time to respond appropriately.
Cases of Severe Noncompliance
In rare situations, a revenue officer may still make a field visit if a taxpayer has failed to respond to repeated outreach efforts by mail or phone. For instance, if a business owes payroll taxes and has ignored multiple IRS letters, a revenue officer might visit to prompt urgent action. That said, these are now the exception, not the rule. In most cases, the IRS will exhaust other communication methods before showing up in person.
How to Tell If It’s Really the IRS at Your Door
With scams on the rise, knowing how to identify a legitimate IRS agent is essential. Tax scams are a multi-million-dollar industry, and scammers frequently impersonate IRS officials to intimidate victims into sending money or personal information. That’s why it’s critical to know the signs of a real visit versus a fraudulent one.
Official Credentials to Look For
All IRS agents, including revenue officers and criminal investigators, carry two forms of official ID:
A pocket commission issued by the Department of the Treasury.
A government-issued photo ID badge showing their name and position.
You are entitled to ask to see both forms of ID. You can also verify an agent’s identity by contacting the IRS directly at 800-366-4484 or using IRS contact numbers found on their official website.
What IRS Agents Will (and Won’t) Do
Legitimate IRS agents will never:
Demand payment by prepaid debit card, gift card, or wire transfer.
Threaten immediate arrest or deportation.
Refuse to show ID or provide verification.
They will:
Offer you the opportunity to verify their identity.
Provide a clear explanation of the visit’s purpose.
Accept payment only through official IRS payment channels, not on the spot in cash.
If someone is at your door claiming to be from the IRS and acting aggressively, it’s best to not engage further until you’ve verified their identity.
What to Do If an IRS Agent Visits Your Home or Business
Even if it’s a legitimate visit, you have rights and options. No one likes surprise visits from government agencies. However, staying calm and knowing your rights can help you navigate the situation confidently.
Stay Calm and Ask Questions
If an agent is at your door:
Politely request to see their credentials.
Ask for a business card and written documentation explaining why they’re there.
Take notes about what’s discussed, including names, times, and any requests made.
You’re allowed to ask for time to review the matter or reschedule a more formal meeting.
You Don’t Have to Go It Alone
You always have the right to involve your tax professional, enrolled agent, CPA, or tax attorney. If you’re not comfortable handling the conversation alone, let the agent know that you’ll follow up with your representative.
For example, if you receive Letter 725-B in the mail and it proposes a meeting, you can ask your CPA to attend or reschedule it to a time when they’re available. You are not required to speak with the IRS agent immediately, especially if you feel unprepared or uncomfortable.
How to Protect Yourself from IRS Scams
The end of most unannounced visits helps, but scammers are still out there. Even with the IRS’s new approach, fraudsters continue to impersonate government officials. That includes door-to-door tax scams, fake calls, emails, and text messages.
Top Red Flags of a Scam Visit
Be cautious if:
The person at your door pressures you to pay immediately.
They refuse to show ID or say it’s “not necessary.”
They ask for payment via Venmo, Zelle, or other peer-to-peer apps.
They make threats involving jail time, deportation, or police involvement.
Real IRS agents will not act this way.
How to Report a Suspicious Encounter
If you suspect someone is impersonating the IRS, take these steps:
Do not provide any personal or financial information.
Call the Treasury Inspector General for Tax Administration (TIGTA) at 800-366-4484.
Report phishing emails to phishing@irs.gov.
File a complaint with the Federal Trade Commission (FTC) at reportfraud.ftc.gov.
IRS impersonation scams are serious crimes and reporting them helps protect others.
Frequently Asked Questions
Can the IRS show up at your house unannounced?
In most cases, no, the IRS no longer makes unannounced visits to taxpayers’ homes. Since July 2023, revenue officers are required to send a mailed appointment letter (typically Letter 725-B) before attempting in-person contact.
What should I do if the IRS shows up at my house?
Stay calm, ask to see both forms of official IRS ID (badge and pocket commission), and do not provide personal or financial information until their identity is verified. You have the right to request time to consult a tax professional or reschedule the meeting.
Why would the IRS show up at your door?
The IRS may still visit in person for criminal investigations, delivering legal summonses, or in rare cases involving severe tax noncompliance. These situations are exceptions and not part of standard IRS procedure.
What triggers an IRS criminal investigation?
IRS Criminal Investigation (CI) cases are triggered by suspected tax fraud, evasion, money laundering, or other financial crimes. These investigations involve special agents and may result in criminal charges.
Who gets audited by the IRS the most?
High-income earners, low-income taxpayers claiming the Earned Income Tax Credit (EITC), and self-employed individuals face the highest audit rates. The IRS targets these groups due to potential errors, fraud risk, or complex returns that may yield more tax revenue.
How far back can the IRS investigate you?
The IRS can typically audit tax returns going back three years, but if substantial errors or fraud are suspected, they can look back six years or more. There is no time limit in cases of willful tax evasion.
Tax Help for Those Being Audited
So, does the IRS really show up at your door? In today’s system, very rarely. The agency has moved toward transparency and security, giving you more time and information to handle tax issues properly. If you do receive a visit, don’t panic. Verify the agent’s identity, understand your rights, and consider working with a tax professional to protect your interests. Optima Tax Relief has over a decade of experience representing clients during IRS tax audits.
State tax audits are conducted by state revenue departments to verify reported income, deductions, and tax payments and can be just as serious as IRS audits.
Common audit triggers include unreported income, information mismatches, large refunds or credits, cash-heavy businesses, and worker misclassification.
A state tax audit does not automatically lead to an IRS audit, but large discrepancies can prompt federal scrutiny due to information sharing between agencies.
Audits typically remain civil but may escalate to criminal cases in instances of willful fraud, like falsifying deductions or destroying records.
States and the IRS impose separate penalties, follow different procedures, and have their own resolution paths, including appeals, payment plans, and penalty abatements.
Optima Tax Relief provides expert audit representation with tax attorneys, enrolled agents, and support staff experienced in both state and federal audits.
We often discuss IRS tax audits, but you can just as easily be audited by your state. Like an IRS audit, state tax audits can be stressful and intimidating for taxpayers. But what triggers a state tax audit? Is it less severe than an IRS audit? Would a state tax audit result in an automatic IRS audit? Here’s what you need to know about state tax audits.
What is a state tax audit?
A state tax audit is an audit performed by your state’s Department of Revenue because they believe there is a discrepancy on your state tax return. It is no less severe than an IRS audit and can result in financial and legal consequences. During the audit, your state will review your state tax return to verify that your reported income and deductions are correct. Typically, your state will send you a written notice in the mail to inform you of the audit. The notice should include the tax years they plan to review. It will also note any information you will need to provide and their contact information. You can opt to have an accountant or tax attorney represent you during the audit or proceed without one.
Once the audit is completed, your state will send you a written notice of the results. The results can lead to the acceptance of your state tax return with no further action needed. However, it can also result in taxes and penalties owed. The taxpayer may be entitled to appeal the judgment if they don’t agree with the audit results. Depending on the state, the appeals procedure may include a hearing before an administrative law judge or an appeals board.
What Triggers a State Tax Audit?
You should be aware of frequent errors that can result in a state tax audit. These can include:
Failing to record all income. You are required to report all income, including self-employment, rental, and investment income. Not doing so is one of the fastest ways to trigger an audit.
Being a nexus. If your business is a nexus, or a company that has a presence in one or more states, you might be at risk of a state audit. Each state will want to ensure you are complying with their individual tax laws.
Failing to report use tax. If you purchase taxable items in one state and intend to use, store, or consume them in another state, you must pay use tax in your own state. For example, if you purchase a car in a state that does not charge sales tax, but plan to use the car in a state that does, you must pay use tax on the purchase price of the car in your state.
Being a sole proprietor. If you are a sole proprietor and prepare your own tax returns, you may be viewed as more likely to make a mistake when filing.
Information?return mismatches. States compare what you report against W?2s, 1099s, and other filings and any discrepancy can instantly flag your return for review.
Unusually large refunds or credits. Claiming a very large tax refund or big credit positions (like R&D or energy incentives) year after year is a red flag that often leads to closer scrutiny.
Cash?intensive or high?risk industries. Businesses handling large volumes of cash (e.g., restaurants, salons, auto repair) face inherently greater audit risk due to higher noncompliance rates.
Payroll and employment?tax issues. Misclassifying workers (employees vs. contractors), late or missing withholding/unemployment filings, and inconsistent payroll reports frequently trigger audits focused on employment?tax compliance.
Misreporting data, math mistakes, incomplete state tax forms, excessive deductions, and failing to file your state tax return on time are some more common reasons for state audits.
Differences Between State and Federal Audits and How Optima Tax Relief Helps
State and federal audits operate under distinct authorities, rules, and scopes, and Optima Tax Relief has the expertise to navigate both. Whether the review comes from your state’s Department of Revenue or the IRS, our team understands the nuances of each process and tailors our approach to secure the best outcome.
Authority and Scope
State Audits are managed by individual Departments of Revenue and focus exclusively on state tax filings, credits, and state?specific add?ons (like local sales or withholding taxes). Federal Audits are conducted by the IRS, covering income, payroll, and other federal taxes across all states.
Optima Tax Relief maintains up?to?date knowledge of each state’s audit priorities. This is whether it’s nexus issues in multi?state filings or state credit eligibility. Optima coordinates seamlessly with IRS examiners on overlapping matters.
Procedural Differences
State Exams often allow more flexibility in scheduling and may include field visits to your place of business. Documentation requirements can vary widely by state. Federal Exams follow standardized IRS procedures, such as the National Office directives and uniform form letters, though complexity increases with larger or multi?year audits.
Optima Tax Relief’s dedicated audit team manages communication, deadlines, and record production across jurisdictions, ensuring every request (state or federal) is addressed promptly and accurately.
Issue Overlap and Divergence
Adjustments on one level don’t automatically trigger changes on the other. For example, a federal deduction denial may not affect your state liability, or vice versa. However, inconsistencies between filings can raise red flags in both arenas.
Penalty Structures
States impose their own penalty rates and interest calculations. Some align with federal accuracy?related penalties, while others have unique late?filing or fraud surcharges. The IRS applies federal penalties under its Internal Revenue Code, with established ranges for negligence, substantial understatement, or fraud. Optima Tax Relief specialists negotiate penalty reductions or abatement through voluntary?disclosure and reasonable?cause arguments.
Resolution Strategies
State Audits may be settled through installment agreements with the state, abatement petitions, or compromise offers specific to state statutes. Federal Audits can conclude with IRS payment plans, Offer in Compromise, or, where applicable, penalty abatement programs.
Will a State Tax Audit Result in an Automatic IRS Audit?
Your biggest worry when being audited by your state Department of Revenue is whether you will also trigger an IRS audit. While there is no certainty of this happening, it definitely is a possibility since both state and federal taxing agencies communicate with each other. Large mistakes on your state return will likely result in an IRS audit, but small mathematical errors may not. In some cases, your state might require you to amend your state return, which can impact your federal tax return, thus getting the IRS’s attention.
Do State and Federal Audits Result in Criminal Charges?
When you’re selected for an audit (whether by your state revenue department or the IRS), it’s natural to worry about the worst?case scenario. Many audits remain civil in nature, focused on uncovering discrepancies and collecting any additional tax owed. Only in rare circumstances, where there’s clear evidence of deliberate fraud, will an audit evolve into a criminal investigation. Here’s what you should know about criminal charges resulting from an audit.
Criminal Referrals are Rare
Only when auditors find clear, willful fraud, will they refer your case to IRS Criminal Investigation or state criminal tax bureaus. Examples include deliberately omitting large cash transactions, fabricating or inflating deductions, altering or destroying records, or repeatedly failing to file returns.
Potential Consequences of Criminal Tax Prosecution
If convicted under federal statutes (e.g., tax evasion under 26?U.S.C.?§?7201) or state equivalents, you could face felony charges carrying fines up to $100,000 (or $500,000 for corporations) and prison sentences of up to five years per count. State penalties vary but can include misdemeanors for minor frauds and felonies for major evasion.
How to Minimize Risk
Maintain accurate, organized records (receipts, bank statements, mileage logs) for at least seven years. Cooperate fully with auditors, promptly provide requested documents, and amend returns to correct honest mistakes. This demonstrates good faith and discourages criminal referrals.
Seek Professional Guidance
Engaging a qualified tax attorney or enrolled agent early can help negotiate civil resolutions. It also helps you explore voluntary?disclosure programs, offered by both the IRS and many states, that allow you to pay back taxes plus reduced penalties before an investigation escalates.
How Optima Tax Relief Represents You in State and Federal Audits
If you’re under audit by the IRS or a state revenue department, Optima Tax Relief can step in with a team of credentialed professionals to advocate on your behalf. We are experts in minimizing stress, protecting rights, and working toward the best possible outcome.
In?House Tax Attorneys. Our licensed tax attorneys handle every aspect of your client’s audit, from initial correspondence to appeals. They’re trained to interpret complex tax laws, negotiate with examiners, and, if necessary, argue points of law to achieve favorable resolutions.
Enrolled Agents (EAs). As federally authorized tax practitioners, our EAs represent clients in any IRS matter from audits and collections to appeals. They stay current on changing tax codes and complete rigorous continuing education.
Specialized Audit Support Staff. Beyond credentialed professionals, Optima employs experienced tax preparers and support specialists who coordinate records, respond to document requests, and manage deadlines.
State?Specific Representation. Each state has its own rules for “practice before the department.” Optima’s team is versed in these regulations across jurisdictions, ensuring you receive qualified representation.
With Optima Tax Relief, you get a dedicated advocacy team with IRS expertise to guide you through every stage of a state or federal audit.
Frequently Asked Questions
Q: How far back can a state revenue department audit my tax returns?
Most states have a statute of limitations of three to four years from the original filing date to initiate an audit. However, this period can be extended to six years (or indefinitely) if there’s suspicion of substantial underreporting, fraud, or if you filed a false or fraudulent return.
Q: What records and documentation should I have on hand before a state audit begins
Prepare to produce:
Copies of filed returns and all supporting schedules
Bank statements, canceled checks, and credit?card records
Receipts or invoices for business expenses and deductions
Payroll records and Form W?2/1099 reports
Depreciation schedules and fixed?asset ledgers
Apportionment worksheets or multistate allocation documents
Q: Can I negotiate penalty reductions during a state tax audit?
Yes. Most states allow you to request penalty abatement or reduction based on reasonable cause (e.g., natural disasters, serious illness) or under a voluntary disclosure program. Your representative can present mitigating factors and documentation to persuade the auditor to lower or waive penalties.
Q: Will a state audit always trigger a federal IRS review?
Not automatically. While states sometimes share audit findings with the IRS (and vice versa), each agency evaluates returns under its own criteria. A state adjustment may prompt the IRS to take a closer look, but it’s not a guaranteed outcome.
Q: What are the most common defenses taxpayers use in state audit appeals?
Reasonable cause assertions: Demonstrating honest mistakes or events beyond your control.
Statute of limitations challenges: Arguing that the audit was initiated after the allowable period.
De minimis error arguments: Showing that discrepancies are trivial and don’t affect overall liability.
Reliance on professional advice: Citing guidance from qualified tax advisors when preparing returns.
Q: How long does a typical state tax audit process take from start to finish?
Most routine audits conclude within six to twelve months, but more complex or multi?year examinations can last eighteen to twenty?four months, especially if there are appeals or negotiation of issues and penalties.
Q: Do state auditors ever perform on?site visits to a business location?
Yes. Many states conduct field audits, where an examiner reviews records at your place of business (or your representative’s office). These visits allow auditors to examine source documents and observe operations firsthand.
Tax Help with State and Federal Audits
It goes without saying that the best way to avoid a state or federal tax audit is to submit complete and accurate tax returns. Facing an audit can be stressful and intimidating, but having audit representation can have a positive impact. Optima Tax Relief has over a decade of experience representing clients during both state and IRS tax audits.
Saving for education can be overwhelming. However, it can be a little easier with the help of a dedicated education savings account. By starting earlier and saving more efficiently, you can boost your ability to pay for educational costs, whether that’s for your children, a family member, or even yourself. One of the most popular types of education savings accounts is a 529 plan. This is thanks to its tax benefits and flexibility. Because of recent changes under Trump’s One Big Beautiful Bill, 529 plans now cover a wider range of education costs beyond college. Here’s an overview of how 529 plans work, what they can be used for, and recent changes that may benefit your family.
What is a 529 plan?
A 529 savings plan is a tax-sheltered investment account designed to pay for qualified education expenses. These plans are named after Internal Revenue Code Section 529 and are offered by states or educational institutions. Like a Roth 401(k) or Roth IRA, 529 plans are funded with after-tax contributions. This means they grow tax-free and can be withdrawn tax-free as long as they’re used for qualified education expenses. While 529 plans were originally limited to college or post-secondary costs, their scope has expanded significantly. Now they include earlier levels of education and even student loan repayment.
What is a qualified higher education expense?
Qualified education expenses now include a wide range of costs associated with K–12, college, and some post-college education needs. These can include:
College and postsecondary costs: Tuition, fees, books, computers, required equipment, internet services, and room and board for students enrolled at least half-time.
K–12 education: Up to $10,000 per year, per beneficiary, can be used for tuition at public, private, or religious elementary and secondary schools.
Home-schooling and expanded K–12 uses: Under provisions passed in Trump’s One Big Beautiful Bill, 529 plans can now be used for more than just tuition. The annual $10,000 limit also applies to qualified expenses. This includes things like curriculum materials, textbooks, instructional materials, online education tools, and fees for standardized testing.
These expanded definitions make 529 plans a more versatile option for families pursuing private school, charter school, or home-schooling paths. However, state laws vary, and some states have not yet adopted these federal changes. That means if you use 529 funds for these new types of expenses, your state may consider the withdrawal non-qualified. This potentially subjects you to taxes or penalties at the state level. Be sure to check your state’s current rules before tapping into your account.
What are the tax advantages of 529 plans?
Contributions to a 529 plan are made with after-tax dollars, so they’re not deductible at the federal level. However, some states do allow deductions or credits for contributions to their in-state 529 plans. The real benefit lies in how the money grows and is withdrawn. Investment earnings are tax-free when used for qualified education expenses. This can create substantial savings over time. Compared to a regular taxable brokerage account, a 529 plan allows your earnings to compound without being eroded by annual taxes. This helps your savings stretch further, especially for long-term goals.
529 plans also serve as useful estate planning tools. Contributions are considered completed gifts for tax purposes. In 2025, you can contribute up to $19,000 per beneficiary (or up to $38,000 for married couples filing jointly) without triggering gift taxes. Larger amounts can be contributed using a special five-year election, which lets you front-load five years’ worth of gifts in one year. This can help reduce your taxable estate while funding future educational goals for children, grandchildren, or other relatives.
What if my child doesn’t need the money?
Life changes and your education savings plan can adapt. If the original beneficiary no longer needs the funds, you have several options:
Change the beneficiary to another qualifying family member.
Use the funds yourself if you’re considering taking classes or earning a new credential.
Convert to a 529 ABLE account, which supports individuals with disabilities and has its own set of tax advantages.
Rollover to a Roth IRA: Starting in 2024, you can roll over up to $35,000 from a 529 plan into a Roth IRA in the beneficiary’s name. The account must have been open for at least 15 years, and the rollover is subject to annual contribution limits.
This new Roth option makes 529 plans even more attractive for long-term savings, especially if the funds aren’t fully used for education. It provides a built-in backup plan for retirement savings.
Tax Help with 529 Plans
529 plans are no longer just “college savings plans.” They’re now comprehensive education savings tools. With expanded flexibility that includes K–12, home-schooling, and even student loan repayment, they offer families a tax-efficient way to plan for many types of learning expenses. That said, it’s crucial to understand both federal and state rules before making withdrawals. Keeping detailed records and checking how your state treats certain expenses can help you avoid surprises at tax time. Used wisely, a 529 plan is a powerful tool to support education while maximizing tax savings and flexibility. If you need help figuring out if a 529 plan is for you, ask a tax professional. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
In recent years, the tax landscape for businesses has undergone significant changes. One notable provision is the Qualified Business Income (QBI) deduction, first enacted under the Tax Cuts and Jobs Act (TCJA) of 2017. This deduction provides a valuable tax break for eligible business owners and was originally set to expire in 2025. However, the One Big Beautiful Bill Act (OBBB), passed in 2025, has expanded and extended the deduction. This is making it more accessible to more business owners for the years ahead. The QBI deduction aims to stimulate economic growth by offering tax relief to small business owners and entrepreneurs. This article explores how the deduction works, who qualifies, and what’s changed under the One Big Beautiful Bill.
Understanding the Qualified Business Income Deduction
The Qualified Business Income deduction allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income. This deduction is available to individuals that own pass-through entities. These include sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs).
Qualified Business Income is generally defined as the net amount of income, gains, deductions, and losses from any qualified trade or business. It excludes certain investment-related income such as capital gains, dividends, and interest income. The deduction is designed to provide tax relief to small business owners. It also encourage investment in businesses that drive economic growth.
Eligibility Criteria
The QBI deduction can lead to major tax savings, but not all business owners will qualify. Your eligibility depends on several key factors, many of which have been updated under the One Big Beautiful Bill Act (OBBB).
Business Structure
The QBI deduction is generally available to businesses organized as sole proprietorships, partnerships, S corporations, and LLCs. C corporations are not eligible.
Qualified Income
QBI generally refers to the net income from a qualified trade or business. Income that does not qualify still includes capital gains and losses, dividends, interest income, certain annuities, foreign income, and compensation paid to owners in the form of wages or guaranteed payments.
Expanded Taxable Income Limits (Post-OBBB)
Under the One Big Beautiful Bill Act, the taxable income thresholds for full QBI deduction eligibility were significantly raised beginning in tax year 2025:
Single filers can claim the full 20% QBI deduction if their total taxable income is under $210,000
Married filers filing jointly can claim the full deduction if income is under $420,000
Above these thresholds, the deduction phases out over a $100,000 range. This means:
For single filers, the deduction phases out between $210,000 and $310,000
For joint filers, it phases out between $420,000 and $520,000
These changes effectively make the QBI deduction more accessible to middle- and upper-middle-income business owners.
Qualified Trade or Business
If your income is over the limit, the type of work you do also matters. The IRS still limits the deduction for certain fields, like law, health, accounting, consulting, and financial services. These are called Specified Service Trades or Businesses (SSTBs). The good news is that the new law gives more room for partial deductions than before, even if you’re in one of these fields.
Wage and Property Limitations
If you earn more than the phaseout range, your deduction will also depend on how much you pay employees and how much property your business owns. This mostly applies to high earners or large operations. Most small business owners under the new income limits won’t need to worry about this.
How to Claim the Qualified Business Income Deduction
Claiming the Qualified Business Income (QBI) deduction can be done by completing Form 8995, Qualified Business Income Deduction Simplified Computation. If your tax situation is a bit more complicated, you’ll need to use Form 8995-A, Qualified Business Income Deduction. This may include someone who wants to claim the QBI deduction but has income above the threshold.
Benefits of the QBI Deduction
The QBI deduction, especially after the One Big Beautiful Bill Act, offers several important benefits:
Tax Savings: The primary benefit is the reduction of taxable income by up to 20%, leading to significant tax savings.
Encourages Investment: The deduction encourages investment in businesses by providing a tax incentive for entrepreneurs and investors to actively participate in qualifying trades or businesses.
Support for Small Businesses: Small businesses stand to gain the most from the QBI deduction. It helps them retain more income for growth and expansion.
Flexibility in Business Structure: The QBI deduction provides business owners with flexibility in choosing their business structure.
Tax Help for Business Owners
The Qualified Business Income deduction remains one of the most valuable tools for small business tax planning. With the One Big Beautiful Bill Act extending and expanding this provision, business owners should take full advantage. Understanding the rules, especially the income thresholds, limitations, and changes under OBBB, is key to maximizing your benefit. If you’re unsure how these changes apply to you, consult a qualified tax professional for personalized guidance. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
Sometimes after a loved one dies, we must deal with grief, funeral planning, and an estate. In some cases, we inherit assets from a deceased loved one. Unfortunately, not much in this life comes for free, and even the things we inherit can cost us. Whether you’re preparing your own estate or inheriting assets from someone else, it’s important to know what’s taxed, what isn’t, and what’s changed under recent laws, including the long-term impact of Trump’s One Big Beautiful Bill.
What Are Estate Taxes?
Estate taxes are federal taxes imposed on the total value of a person’s assets at death before those assets are distributed to heirs. These taxes apply to property, investments, business interests, and other valuables, all based on fair market value at the time of death.
However, most Americans will never pay federal estate taxes because of high federal estate tax exemptions. These were made permanent through Trump’s recent One Big Beautiful Bill. In 2025, the exemption is $13.99 million per person and in 2026 it is $15 million. This will be adjusted annually for inflation.
Federal Estate Tax Rates
If an estate exceeds the exemption amount, the excess is taxed on a sliding scale from 18% to 40%. Here’s a simplified look at how the estate tax brackets work:
Tax Rate
Taxable Amount
Tax Owed
18%
$0-$10,000
18% of taxable income
20%
$10,001-$20,000
$1,800 plus 20% of amount over $10,000
22%
$20,001-$40,000
$3,800 plus 22% of amount over $20,000
24%
$40,001-$60,000
$8,200 plus 24% of amount over $40,000
26%
$60,001-$80,000
$13,000 plus 26% of amount over $60,000
28%
$80,001-$100,000
$18,200 plus 28% of amount over $80,000
30%
$100,001-$150,000
$23,800 plus 30% of amount over $100,000
32%
$150,001-$250,000
$38,800 plus 32% of amount over $150,000
34%
$250,001-$500,000
$70,800 plus 34% of amount over $250,000
37%
$500,001-$750,000
$155,800 plus 37% of amount over $500,000
39%
$750,001-$1,000,000
$248,300 plus 39% of amount over $750,000
40%
$1,000,001 and up
$345,800 plus 40% of amount over $1,000,000
Federal estate taxes are typically paid out of the estate itself before any distributions are made to heirs. The executor of the estate is responsible for filing the return and ensuring any taxes owed are paid.
State Estate Tax Exemptions
Some states impose their own estate taxes. In general, your estate tax bill is subtracted from the value of your taxable estate before you calculate what you might owe the IRS. There are a handful of states that impose an estate tax. These are Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Here are their individual exemption amounts.
State
2025 Exemption
Connecticut
$13.99 million
District of Columbia
$4.873 million
Hawaii
$5.49 million
Illinois
$4 million
Maine
$7 million
Maryland
$5 million
Massachusetts
$2 million
Minnesota
$3 million
New York
$7.16 million
Oregon
$1 million
Rhode Island
$1.8 million
Vermont
$5 million
Washington
$2.19 million
Your estate assets pay any federal and state taxes before they are distributed to beneficiaries. Typically, the executor of the estate is responsible for making tax payments. They also confirm there are no other liabilities due, and then distribute the remaining assets.
What Are Inheritance Taxes?
Inheritance taxes are state taxes levied on a deceased individual’s assets. The beneficiaries are usually responsible for paying these taxes. The amount owed is based on the total value of the estate. The assets can be anything from money to stocks to property. Currently, six states impose an inheritance tax:
State
Tax Rates
Kentucky
0%-16%
Maryland
0%-10%
Nebraska
0%-15%
New Jersey
0%-16%
Pennsylvania
0%-15%
Iowa has eliminated its inheritance tax for deaths as of January 1, 2025. Your tax rate is typically based on your relationship to the decedent. Surviving spouses are almost always exempt from this tax. In some states, so are sons, daughters, and parents of the deceased. Usually, you would pay a higher rate if you had no familial relationship with the decedent.
Inheritance taxes come into effect after the estate is divided and distributed to the appropriate beneficiaries. Typically, each state will have their own exemption rules. In other words, the assets are taxed after they reach a certain value. For example, if your state imposes a 5% tax on inheritances larger than $3 million, and you inherited $5 million in assets, you will pay tax on $2 million.
How Can I Reduce Estate and Inheritance Taxes?
Although federal estate taxes now affect only a small percentage of estates, planning still matters, especially in high-tax states or for individuals with large estates. Here are some common ways to reduce your estate’s tax burden:
Annual Gifts: Gift up to $18,000 per person per year (2025) without affecting your estate exclusion.
Direct Payments for Education or Medical Expenses: Payments made directly to schools or hospitals are not taxable gifts.
Irrevocable Life Insurance Trusts (ILITs): These remove life insurance from your taxable estate.
Charitable Giving: Donations to qualified charities reduce the taxable value of your estate.
Use Portability: Make sure your executor files IRS Form 706 to preserve your spouse’s unused exemption.
For state-level inheritance and estate taxes, tailored planning may involve changing residency, adjusting how assets are titled, or using trusts to control distributions.
Tax Help with Estates
We know taxes are the furthest thing from your mind when grieving the death of a loved one. Alternatively, preparing a will should not have to result in worry. If you are planning to leave behind assets for your loved ones after death, you can reduce estate taxes. For example, you can pay for educational or medical expenses from your estate. These payments will be exempt from taxes if the funds go directly to the provider. Also, setting up an irrevocable trust or life insurance trust (ILIT) can help ensure that assets are not used to pay taxes. A team of expert tax professionals can help. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
