Tax preparers expect surprises, but so far, 2025 has brought three big challenges at once. During a recent Federal Tax Updates podcast, Roger Harris, EA, and Annie Schwab, CPA, discussed how see-sawing Beneficial Ownership Information (BOI) requirements, IRS staffing turmoil, and evolving 1099-K rules are converging right in the middle of tax season.
“Thirty days in the middle of tax season is about as blind an understanding of who these businesses are going to turn to for help, and a complete lack of recognition of what these advisors are doing right now” Roger remarked, expressing the frustration many practitioners feel as deadlines and rules keep shifting.
Read on for Roger and Annie’s ideas for handling these changes during an already busy filing season.
Sudden BOI Reporting Deadline
BOI reporting seemed to be on hold for months due to court injunctions and legal challenges. Then, on February 18, it became effective again, with FinCEN announcing a tight March 21 filing deadline for most existing reporting companies. This abrupt turnaround forced many small businesses and their advisors to start gathering complex ownership data in the midst of filing returns.
The Treasury Department has since announced it will not enforce any penalties or fines associated with the existing deadline and will issue a proposed rule to narrow the scope of the rule to foreign reporting companies only.
However, the rules could change again. As Roger cautioned, “If history repeats itself… we’ll all drop what we’re doing to file these forms, and another court could knock it down again.”
In the meantime, it might be a good idea to ask clients for BOI details while you gather regular tax documentation to avoid multiple follow-ups. Then you can identify which clients truly need to comply with BOI reporting requirements and prioritize them first.
IRS Staffing and Leadership Turmoil
The Internal Revenue Service is also in a state of flux. New hires with less than a year of service were recently let go, and long-time employees who planned to retire early are being told they must stay on until after April deadlines. Doug O’Donnell, who was serving as Acting Commissioner, announced his retirement in late February, prompting Secretary of the Treasury Scott Bessent to announce IRS Chief Operating Officer Melanie Kraise would become acting IRS commissioner. A permanent successor awaits Senate confirmation with no hearing date in sight.
These staffing changes raise concerns about how well the IRS can handle phone calls, process paper returns, and resolve notice issues this season. Practitioners already spend considerable time on hold. If seasoned employees depart and fewer new agents remain, wait times and backlog risks may rise.
Tax pros need to serve their clients no matter what’s happening in Washington. So for now,
- Keep thorough records. Document every interaction with the IRS, including names and reference numbers, in case policies shift.
- Encourage online tools. Prompt clients to set up IRS online accounts or request Identity Protection PINs to reduce phone calls.
- Follow up quickly. If you receive notices or partial information, resolve them as soon as possible before staff reassignments occur.
Confusion Over 1099-K Reporting
Third-party payment platforms like PayPal, Venmo, and Cash App now must issue 1099-Ks for more transactions than ever before. Although a permanent drop to a $600 threshold was delayed, many filers still see 1099-Ks triggered at a higher limit: $5,000 for 2024 payments and $2,500 for payments made in 2025.
The bigger issue, though, is personal vs. business transactions, because an app can’t always tell if $50 is for a birthday gift or for a design project.
As Annie explained, “You’re seeing 1099-Ks being sent out for personal payments. Some apps have the ability to let users mark transactions as a non-business payment, but some don’t and the app doesn’t know what it’s for.” That confusion leads to real risk.
Practitioners can help their clients by asking detailed questions, encouraging them to separate personal from business transactions in their payment apps, and preparing clients early so they know how to handle next year’s forms well before tax season begins.
If a 1099-K includes personal transfers, follow the advice in the IRS’s detailed 1099-K FAQ page to show the agency why it’s not taxable income.
Bonus: Common “Is It Taxable or Deductible?” Questions
Roger and Annie also fielded questions about whether certain items are taxable or if certain expenses are deductible. Here are a few clarifications:
- Gifts: Money received as a true gift is not taxable to the recipient, though large gifts can require the giver to file a gift tax return.
- Found money: If you find cash in the street, technically, it is taxable income.
- Tips: Currently, tips are taxable. There is talk about removing them from taxable income, but no final rule exists.
- Service animals vs. household pets: Service animals for a business or medical need may be deductible, but family pets are not.
- Cosmetic procedures: Generally not deductible unless there is a medical necessity as certified by a doctor.
It’s best to double-check each scenario with authoritative IRS guidance. Even everyday expenses could be nondeductible if they don’t meet specific rules.
Moving Forward in a Shifting Environment
Tax season is never dull, but the disruptions this year—BOI deadlines, IRS staffing shifts, and tricky 1099-K rules—make it especially challenging. Adaptability, thorough communication, and good recordkeeping are your strongest defenses. By taking small, practical steps today, you can protect your clients from accidental noncompliance and keep your practice running smoothly.
As these rules continue to evolve, stay tuned to the Federal Tax Updates podcast for timely insights that help you stay ready for whatever changes come next, this season and beyond.