5 potential tax breaks to know before moving a parent into a nursing home

Would you like your estate plan to support your favorite charity and leave a legacy for your family? Two trust types can be used together to help achieve those goals (one familiar and another you may not have heard of): a charitable remainder trust (CRT) and a wealth replacement trust (WRT). Let’s take a closer look at how each trust complements the other. The CRT’s role The CRT-WRT strategy begins with the CRT. You contribute securities or other assets to the CRT. Then the CRT pays you an income stream for life — a fixed percentage of the trust’s value. At the end of the trust’s term, the remaining assets are distributed to the charitable beneficiaries you named. In addition to receiving periodic income payments, you can claim a charitable income tax deduction equal to the present value of the charitable beneficiaries’ remainder interests. Even greater income tax savings may be available if you contribute appreciated property that would otherwise be subject to capital gains tax if sold. As a tax-exempt entity, the CRT can sell capital assets tax-free and reinvest the proceeds in income-producing assets (but you may be subject to income tax on a portion of the distributions you receive). So where does the WRT come in? As the CRT’s income beneficiary, you use the regular income stream you receive to fund the WRT. The WRT then purchases a life insurance policy that will ultimately benefit the WRT beneficiaries you name. When you die, the CRT’s assets pass to the charity you’ve selected. At the same time, the life insurance proceeds are paid to your WRT, which distributes them to your WRT beneficiaries based on the trust terms you established. The WRT’s role It’s possible to replace wealth with a stand-alone life insurance policy. However, setting up a WRT to hold your policy can offer benefits. For one thing, if you own the policy under your name, the proceeds will be included in your taxable estate. If your estate is large enough that estate taxes are a concern, this may reduce the policy’s wealth replacement power. By contrast, if your policy is owned by a properly structured WRT, the death benefit bypasses your estate (though contributions to the trust to cover premium payments generally will use up some of your lifetime gift tax exemption). Also, using a WRT allows you to place conditions on distributions to your beneficiaries. For example, you might not want them to receive all the proceeds right away. Note that it’s possible to transfer an existing life insurance policy to a WRT, but it can be risky. So unless you’re uninsurable, you’re probably better off making cash gifts to a WRT to buy a new policy. An example To get a better idea of how this strategy works, consider this example: Ken wants to donate $1 million to his alma mater, but he’s reluctant to deprive his children of the funds. Ken’s solution: He contributes $1 million to a CRT for the college’s benefit, which invests the money in conservative income-producing investments. He also establishes a WRT, naming his children as beneficiaries. He makes cash gifts each year to the trust financed in large part by income from his CRT. The WRT’s trustee uses these gifts to purchase a $1 million insurance policy on Ken’s life. When he dies, the CRT distributes its assets to the college, and the insurance company pays the death benefit to the WRT. This money, which replaces the charitable donation, can then be used by the trustee to benefit Ken’s children. Right strategy for you? If you’re charitably inclined but don’t want to deprive your family of its inheritance, the combination of a CRT and WRT may be the answer. Contact us if you’re interested in this strategy. We can review your overall estate plan to determine if a CRT and a WRT will help you achieve your goals. © 2026 

It’s every business owner’s least-favorite task: laying off staff. But sometimes, layoffs are unavoidable. Labor costs are a significant line item on most companies’ income statements, and reducing your workforce can potentially help restore stability if your business hits choppy waters. On the other hand, many costs are associated with staff reductions. These include severance payments, legal expenses, reduced productivity, reputational risk, and the future expense of hiring and training new workers when your company’s finances improve. In fact, you may first want to consider less risky alternatives that reduce or delay the need for layoffs. Last-resort thinking Think of layoffs as your company’s last resort. For example, is it possible to first trim some perks? Eliminating unnecessary travel, executive seminars, holiday parties and staff retreats may provide some budgetary breathing room. Provide managers with reasonable cost-cutting targets and completion dates. At that point, you can reassess your company’s situation. Pruning employee benefits can also yield cost savings. Ask your HR staff to scrutinize benefit use and think about discontinuing the least popular offerings. Just be careful about removing benefit options. Your business may be subject to certain contract terms and other legal obligations, particularly when it comes to retirement and health care plans. Consult knowledgeable benefits experts and your attorney as needed. You might also need more drastic cost-cutting measures, such as temporarily furloughing workers or implementing a four-day work week. Or you may be able to trim salaries. Would a 5% across-the-board wage reduction solve your business’s financial troubles? Could you offer stock options to compensate and incentivize affected employees? Just make sure that any sacrifices you mandate are shared. For instance, if you lower hourly wages and sales commission rates, your senior executives should also forgo any bonuses. Beyond workers Be sure to look beyond employees for solutions. You might be able to restructure your business to enhance performance or change your business form to improve tax efficiency. And if you haven’t already, sunset: Unprofitable products and services, Obsolete production lines, and Duplicative efforts. You may be able to sell equipment you no longer use or nonstrategic assets such as real estate. Also consider divesting or spinning off any noncore business lines. Act strategically If, despite all your best efforts, staff reductions appear inevitable, act strategically. Take advantage of any attrition and look at employees who may be willing to take early retirement. To protect your company’s public face, try consolidating back-office operations before terminating customer-facing employees. We know how heart-wrenching such decisions can be. So contact us to review your financial situation and suggest ways to enhance cash flow, manage budgets, deal with debt and restore your business to good health without taking any unnecessary actions. © 2026 

If you don’t have everything ready to complete your 2025 federal individual income tax return by the April 15 deadline, you can request an automatic extension. Filing Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return,” by April 15 can give you breathing room to file accurately and protect you from the failure-to-file penalty (assuming you file by the extended October 15 deadline). However, an extension applies only to filing — not to paying any tax owed. So if you expect to owe taxes, you should project and pay the amount due by April 15 to minimize interest and the failure-to-pay penalty. How penalties work Penalties for late filing and late payment can be costly. Separate penalties apply for failing to file and failing to pay. The failure-to-file penalty is generally assessed at a rate of 5% per month (or partial month) of lateness, up to a maximum 25%, on the amount of tax due. (If a 2025 return is filed more than 60 days late, a minimum penalty of $525 generally applies.) This is why, if you can’t file your return by April 15, it’s critical to file for an extension by that date. As long as you do, you’re not considered to be filing late unless you miss the extended due date. The failure-to-pay penalty is assessed at a lower rate than the failure-to-file penalty: 0.5% for each month (or partial month) the payment is late. For example, if on May 29 you pay tax that was due April 15, generally the failure-to-pay penalty will be 1% (0.5% times 2 months or partial months). The maximum penalty is 25%. This is why, even if you file for an extension, it’s important to accurately estimate and pay any tax due as close to April 15 as possible. If you don’t file for an extension or pay taxes due by April 15, both the failure-to-file penalty and the failure-to-pay penalty may apply. In this case, the failure-to-file penalty drops to 4.5% per month (or partial month), so that the combined penalty is 5%. The maximum combined penalty for the first five months is 25%. Thereafter, the failure-to-pay penalty can continue at 0.5% per month for 45 more months (an additional 22.5%). Thus, the combined penalties can reach as much as 47.5%. As you can see, putting off filing and paying taxes for an extended period of time can be very expensive. If you can’t pay what you owe, at minimum, file for an extension to protect yourself from the failure-to-file penalty. Then pay as much as you can as soon as you can to reduce the failure-to-pay penalty. Requesting an installment agreement can reduce the failure-to-pay penalty rate on the remaining balance and help avoid other negative consequences, such as levies and liens — provided you’re approved for the plan and make the required installment payments on time. More to consider If a failure to file is determined to be related to fraud, penalties can be significantly higher. On the other hand, penalties may be excused by the IRS if late filing or payment is due to “reasonable cause” such as a death or serious illness in the immediate family. Also be aware that, even if you pay all taxes due by April 15, you could owe an underpayment penalty, which is different from a failure-to-pay penalty. It can apply if you didn’t pay enough taxes during the year through withholding and estimated tax payments. And keep in mind that interest may be applied. For taxpayers other than corporations, the interest rate is equal to the federal short-term rate (adjusted quarterly) plus three percentage points. It’s assessed in addition to any applicable penalties. If you live outside the United States and Puerto Rico or serve in the military outside these two locations, you’re allowed an automatic two-month extension without filing for one. But you still must pay any tax due by April 15. Don’t wait to act If you’re not ready to file, requesting an extension and paying any tax due by April 15 can help you avoid penalties and interest, or at least reduce them. Filing an extension is relatively easy, but accurately estimating what you owe can be complicated. We can help with both and answer any questions you have about your particular situation. Contact our office today. © 2026 

Companies that engage in research and development activities may qualify for a federal tax credit for some of those expenses. The credit is complicated to calculate, and not all research activities are eligible — but the tax savings can be significant. Here are answers to questions you might have about this potentially lucrative tax break. What’s it worth? The federal research credit — sometimes referred to as the research and development (R&D) credit — is for increasing research activities. Generally, it’s equal to 20% of the amount by which qualified research expenditures (QREs) in a tax year exceed a base amount derived from your company’s historical research expenditures. (There are alternative computation methods for start-ups and other companies without sufficient historical data.) QREs include wages, supplies, and certain consulting and contract research fees related to qualified research activities. The credit is nonrefundable — that is, it can’t be used to generate a loss — but unused credits may be carried back one year or forward up to 20 years. Limits on general business credits also prevent companies from using tax credits to erase their tax liability entirely. In addition, start-ups may elect to offset research credits against up to $500,000 in employer-paid payroll taxes. For this purpose, “start-ups” are generally businesses in operation for less than five years with less than $5 million in gross receipts. And sole proprietors and owners of small pass-through entities (including S corporations, partnerships and most limited liability companies) can use the credit to reduce their alternative minimum tax liability. For this purpose, “small” businesses are generally those with average gross receipts of no more than $50 million for the three preceding tax years. What costs qualify? The research credit isn’t just for scientific research. Generally, to qualify for the credit, a research activity must: Relate to the development or improvement of a “business component,” such as a product, process, technique or software program, Strive to eliminate uncertainty over how (and whether) the business component can be developed or improved, Involve a “process of experimentation,” using techniques such as modeling, simulation or systematic trial and error, and Be technological in nature — that is, it must rely on “hard science,” such as engineering, computer science, physics, chemistry or biology. To claim the credit, you must bear the financial risk associated with the research and enjoy substantial rights to the results. Otherwise, it will be considered “funded research,” which is ineligible for the credit. These criteria are broad enough to encompass a wide range of business activities. Examples include developing new products, improving processes (including business or financial processes that involve computer technology) and developing software for internal use. Finally, only domestic research costs qualify for the federal research credit. Foreign research expenses are excluded and must instead be capitalized and amortized over 15 years. Can businesses claim the research credit for deductible R&E costs? Research-related expenses may qualify for two tax breaks. The first is the research credit; the second is the deduction for research and experimental (R&E) costs. Businesses can immediately deduct domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2024. However, you can’t claim both breaks for the same expenses. In general, the expenses that qualify for the research credit are narrower than those that qualify for the R&E deduction. If you claim the research credit, you must reduce the amount otherwise deductible (or capitalized) for R&E expenditures by the amount of the credit. However, under the One Big Beautiful Bill Act, the amount deducted or charged to a capital account for R&E costs is reduced by the full amount of the research credit, as opposed to being subject to a more complex calculation in effect under prior law. Next steps Many businesses overlook the federal research credit because of its complexity. But the tax savings can be substantial — and many states offer research tax incentives in addition to those available at the federal level. If your business invests in developing or improving products, processes or software, we can help you assess eligibility, quantify potential benefits and ensure your research-related tax breaks are properly supported. Contact us for more information. © 2026 

Life insurance can provide peace of mind. But if your estate is large enough that estate taxes are a concern, it’s important not to own the policy at death. Why? The policy’s proceeds will be included in your taxable estate. To avoid this result, a common estate planning strategy is to set up an irrevocable life insurance trust (ILIT) to hold the policy. However, there may come a time when you no longer need the ILIT. Does its irrevocable nature mean you’re stuck with it forever? Maybe not. Depending on the ILIT’s terms and applicable state law, you might have the option of pulling a life insurance policy out of an ILIT or even unwinding the ILIT entirely. How does an ILIT work? An ILIT shields life insurance proceeds from estate tax because the trust, rather than the insured, owns the policy. (Note, however, that under the “three-year rule,” if you transfer an existing policy to an ILIT and then die within three years, the proceeds remain taxable. That’s why it’s preferable to have the ILIT purchase a new policy, if possible, rather than transferring an existing policy to the trust.) The key to removing the policy from your taxable estate is to relinquish all “incidents of ownership.” This means, for example, that you can’t retain the power to change beneficiaries; assign, surrender or cancel the policy; borrow against the policy’s cash value; or pledge the policy as security for a loan (though the trustee may have the power to do these things). What are the options for undoing an ILIT? Generally, there are two reasons you might want to undo an ILIT: You no longer need life insurance, or You still need life insurance, but your estate isn’t large enough to trigger estate tax, and you’d like to eliminate the restrictions and expense associated with the ILIT structure. Although your ability to undo an ILIT depends on the ILIT’s terms and applicable state law, potential options include: Allowing the insurance to lapse. This may be a viable option if the ILIT holds a term life insurance policy that you no longer need (and no other assets). You simply stop making contributions to the trust to cover premium payments. Technically, the ILIT continues to exist. But once the policy lapses, the ILIT owns no assets. It’s also possible to allow a permanent life insurance policy to lapse, but other options may be preferable — especially if the policy has a significant cash value. Swapping the policy for cash or other assets. Many ILITs permit the grantor to retrieve a policy from an ILIT by substituting cash or other assets of equivalent value. If you have illiquid assets but need cash, you may be able to gain access to a policy’s cash value by swapping the policy for illiquid assets of equivalent value. Surrendering or selling the policy. If your ILIT holds a permanent insurance policy, the trust might surrender it, which will preserve its cash value but avoid the need to continue paying premiums. Alternatively, if you’re eligible, the trust could sell the policy in a life settlement transaction. Distributing the trust assets. Some ILITs give the trustee the discretion to distribute trust funds (including the policy’s cash value, other trust assets or possibly the policy itself) to your beneficiaries, such as your spouse or children. Typically, these distributions are limited to funds needed for “health, education, maintenance and support.” Going to court. If the ILIT’s terms don’t permit the trustee to unwind the trust, it may be possible to obtain a court order to terminate it. For example, state law may permit a court to modify or terminate an ILIT if unanticipated circumstances require changes to achieve the trust’s purposes or if the grantor and all beneficiaries consent. We’re here to help These are some, but by no means all, of the strategies that may be available to unwind an ILIT. Bear in mind that some of these solutions can have tax implications for you or your beneficiaries. Contact us to learn more about ILITs. © 2026 

With caregiving costs rising faster than inflation, it’s harder than ever to juggle parenting young children or caring for elderly relatives while also working nine to five. Your business can help support caregiving employees and boost productivity by offering dependent care flexible spending accounts (FSAs). This benefit provides a tax-advantaged method to pay for eligible caregiving expenses using pretax dollars. Or maybe you want to make a bigger commitment but are concerned about the costs. If you provide child care directly to workers — for example, by setting up a day care facility in your building — your company may qualify for a significant tax credit. When employees opt in To sponsor dependent care FSAs, you’ll need to implement a dependent care assistance program (DCAP), which enables you to retain ownership of your workers’ FSAs. Participating employees must opt in, typically during your company’s open enrollment period or after experiencing a qualifying life event. Then they make pretax compensation deferrals to their accounts, up to $7,500 annually for married couples filing jointly, single filers and heads of households, $3,750 for those married and filing separately. These amounts aren’t indexed for inflation. Workers can use their FSA balances to pay for eligible expenses, including day care, before- and after-school care, summer day camps, and care for dependent adults who can’t care for themselves. Qualifying expenses must enable participants (and, if applicable, their spouses) to work or seek employment. Using pretax dollars to fund accounts allows participants to pay for qualifying care while reducing their taxable incomes. Employers win, too For employers, sponsoring dependent care FSAs also offers potential advantages. First, these accounts can help attract strong job candidates and retain employees. Second, because participants’ contributions occur pretax, they’re exempt from Social Security and Medicare taxes. That reduces your business’s (and your employees’) payroll tax burden. To increase dependent care FSA participation, you may make contributions to employees’ accounts. However, the $7,500/$3,750 annual contribution limits apply to combined employer-employee contributions. Note that you can’t deduct contributions as a business expense. You’ll need to ensure that your DCAP complies with IRS regulations, including nondiscrimination rules. Proper recordkeeping, timely reimbursements and clear communication are also critical. Be sure to educate participants about the “use-it-or-lose-it” rule that says FSA balances generally must be spent by the end of the year. (Unused account funds generally revert to employers.) Be sure to train employees to estimate expenses and submit claims to minimize the risk of losing FSA funds. And let participants know their FSAs aren’t portable — meaning they can’t take their balances with them if they leave your company. Tax help with costs Another way to retain loyal, hardworking staff is to provide child care directly. For 2026, you may be able to claim an employer-provided child care tax credit equal to 40% of your qualified expenses for providing child care to employees, plus 10% of qualified resource and referral expenditures, up to $500,000. For eligible small businesses, these amounts are 50% and up to $600,000, respectively. The maximum dollar amount will be adjusted annually for inflation after 2026. (The additional 10% credit for resource and referral expenses will continue to be available.) Qualified costs include those spent to acquire, construct, renovate and operate a child care facility. Or you can claim expenses for contracting with a licensed child care facility. If you provide on-site care, at least 30% of the enrolled children must be your employees’ dependents. Competitive package Dependent care FSAs and employer-offered child care can be competitive additions to your employee benefits package. But because of the resources involved, think carefully before designing a DCAP or establishing a child care facility. Your workforce may not want them. Consider distributing a survey to gauge interest before you commit to offering new fringe benefits. And to help ensure you’re offering the most cost- and tax-effective benefits to your workforce, contact us. We can review your benefits lineup, potentially suggest changes and advise on program setup and administration. © 2026 

Whether you’re filing your 2025 individual income tax return or planning for 2026, it’s important to know if you can deduct vehicle-related expenses. A change that was made permanent by last year’s One Big Beautiful Bill Act (OBBBA) limits who can claim a deduction for business mileage. But you might still be eligible, and deductions also may be available if you use your vehicle for certain nonbusiness purposes. Rules have been evolving Historically, if you were an employee, you potentially could deduct unreimbursed business mileage as a miscellaneous itemized deduction subject to a 2% of adjusted gross income (AGI) floor. But for 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) suspended miscellaneous itemized deductions subject to the 2% floor. And the OBBBA made that suspension permanent. This means employees can’t deduct business mileage related to their employment. (However, if your employer reimburses you for mileage under an accountable plan, those reimbursements are excluded from your taxable income.) If you’re self-employed, expenses for business use of your vehicle are deducted from self-employment income. Therefore, they’re not affected by the permanent suspension of miscellaneous itemized deductions subject to the 2% floor and are still deductible — as long as they otherwise qualify. For example, commuting doesn’t qualify, but driving from your home or office to a customer’s location does generally qualify. Here are three other types of vehicle use that might make you eligible for mileage deductions: 1. Moving. Before 2018, work-related moving expenses were generally deductible without having to itemize deductions. But for 2018 through 2025, under the TCJA, moving expenses are deductible only for certain military families. The OBBBA made this change permanent, except that, beginning in 2026, certain intelligence community members are also eligible. 2. Medical. Expenses related to using your vehicle to get to and from medical appointments continue to be deductible as part of the medical expense itemized deduction. However, medical expenses are deductible only to the extent they exceed 7.5% of your AGI. It can be hard for taxpayers with larger AGIs to exceed this floor. And, with the high standard deduction made available by the TCJA and made permanent (and slightly increased) by the OBBBA, fewer taxpayers are benefiting from itemizing. 3. Charitable. Expenses related to using your vehicle for charitable purposes (if unreimbursed by the charity) continue to be deductible as a charitable itemized deduction. Unlike the medical expense deduction, no floor applies to the charitable deduction for 2025. But, under the OBBBA, a 0.5% of AGI floor goes into effect beginning in 2026. Mileage deduction rates vary Rather than keeping track of your actual vehicle expenses, you can use a standard mileage rate to compute your deductions. The rates vary depending on the driving purpose and the year: Business: 70 cents (2025), 72.5 cents (2026) Moving: 21 cents (2025), 20.5 cents (2026) Medical: 21 cents (2025), 20.5 cents (2026) Charitable: 14 cents (2025 and 2026) The business rate is significantly higher because it takes into account depreciation, which isn’t an allowable vehicle expense deduction for medical, moving or charitable deduction purposes. The charitable rate is the lowest because it isn’t annually indexed for inflation. Occasionally, when gas prices increase substantially during the year, the IRS will increase the mileage rates midyear. If you choose to claim deductions based on the standard mileage rate, you may also deduct actual parking fees and tolls. Substantiation is critical Without adequate records, the IRS may disallow your vehicle expense deduction, even if the expense would otherwise qualify. If you use the standard mileage rate, your records should show the date, mileage, purpose and destination of each trip. A mileage log kept throughout the year is one of the simplest ways to support your deduction. If you choose to deduct actual expenses, documentation is also critical. Which specific expenses you can deduct depends on whether you’re claiming the deduction for business, moving, medical or charitable use of your vehicle. Evaluating your deduction opportunities If you’re self-employed or itemize deductions, you’re more likely to be able to benefit from vehicle-related deductions. But other factors can affect your potential benefit, such as whether your total expenses exceed applicable deduction floors. Also keep in mind that you might be eligible for the new auto loan interest expense deduction for a vehicle purchased in 2025 or 2026. Contact us to discuss your particular situation. We can help you claim any vehicle-related deductions you’re entitled to on your 2025 return if you haven’t filed yet. And we can help determine what steps you can take now to maximize your deduction opportunities for 2026. © 2026 

If you operate your business as a C corporation, how you put money into your company — and how you take it back out — can have a major impact on your tax bill. Payments from shareholders to fund the business can either be classified as capital contributions (equity) or shareholder loans (debt). That might sound like an accounting technicality, but it has real tax consequences because our federal income tax system treats corporate debt more favorably than corporate equity. Put simply, equity can lead to double taxation; loans can help you avoid it. Why it matters Companies occasionally need capital infusions. Start-ups need cash to help get the business up and running. And established businesses may need additional funds to pursue growth opportunities or cover short-term cash flow gaps. If your business needs money, you could seek financing from a third-party lender. But for closely held businesses, shareholders are often a more convenient (and affordable) source of financing. Some closely held C corporations are funded exclusively with equity, but many are intentionally structured with a mix of equity and shareholder loans. Lending money to your corporation can be a tax-smart move over the long run. That’s because when you later get your money back out of the corporation in the form of loan repayments, the repayments of loan principal will generally be tax-free. Interest payments on a shareholder loan are taxable to you as ordinary income, but the corporation gets an offsetting deduction. In essence, shareholder loans provide a built-in, tax-advantaged mechanism for C corporation owners to get cash out of the business. In contrast, making a capital contribution (a stock investment) can be costly from a tax perspective. When you later, as an equity investor, want to take cash out of the corporation, the withdrawals may be treated as nondeductible dividends to the extent of the corporation’s earnings and profits. This results in double taxation. In other words, the corporation already paid income taxes on the profits (at a flat 21% rate), and you as a shareholder must pay individual-level taxes on the dividends. The maximum federal rate on qualified dividends is 20%, but most taxpayers pay 15%. Individuals may also owe the 3.8% net investment income tax (NIIT) on dividends. How it works Suppose your C corporation needs a $5 million capital infusion. As the sole shareholder, you ante up with a $2 million capital contribution and a $3 million loan. You execute a formal, written note that specifies the loan terms, including the interest rate, maturity date, any collateral pledged to secure the loan and a repayment schedule. If the interest rate on your loan to the company equals or exceeds the applicable federal rate (AFR), you’ll avoid federal income tax complications and possible adverse tax results. AFRs can change monthly. In April 2026, the monthly AFR for mid-term loans with terms of three to nine years is only 3.75%. This is significantly lower than the rate you’d get from a third-party lender. This capital structure allows you to recover $3 million of your investment in the company as tax-free repayments of loan principal. The interest payments give you additional cash from the corporation without double taxation, because your company can deduct the interest. If you instead supply the full $5 million as a capital contribution and later want to withdraw money, all or part of the withdrawal could be treated as a double-taxed dividend. For instance, say you withdraw $3 million after a few years, and the entire amount is treated as a taxable dividend. Assuming you’d be subject to the maximum 20% federal income tax rate and the 3.8% NIIT, you’d owe Uncle Sam $714,000 on the withdrawal ($3 million × 23.8%). You could have avoided incurring that tax liability by making a $2 million capital contribution and a $3 million loan to the corporation. Bottom line Structuring part of a needed capital infusion as a loan — rather than all equity — can minimize double taxation, giving you a more tax-efficient way to access cash in the future. But this arrangement only works if it’s properly documented and respected as bona fide debt. This includes 1) drafting a written promissory note with a stated interest rate and stated repayment dates, and 2) making timely principal and interest payments. The IRS may reclassify shareholder loans as equity if they’re not properly structured, thereby eliminating the intended tax benefits. If you’d like to take advantage of this strategy, we can explain your options and help you structure the loan to reduce the chance of IRS reclassification. © 2026 

A family limited partnership (FLP) allows you to manage and protect your wealth while gradually transferring it to your children or other heirs. Additional benefits include potential tax savings and protection from creditors. And you don’t have to own a business to have an FLP. FLPs in a nutshell To take advantage of an FLP, you form a limited partnership to transfer a family business, real estate, investments or other assets. Initially, you receive a general partnership interest of 1% or 2% and limited partnership interests totaling 99% or 98%. You then sell or gift the limited partnership interests to your children or other family members. As a general partner, you retain management control over the partnership assets, even after you’ve transferred most of the assets’ value to other family members. The significant benefit here is that an FLP removes wealth from your estate while the federal gift and estate tax exemption is at a record high without you immediately parting with control over that wealth. For 2026, the exemption amount is $15 million ($30 million on a combined basis for married couples). (Although there’s no longer an expiration date for the high exemption, lawmakers could still reduce the amount in the future.) Limited partners, on the other hand, have minimal control over the partnership, and their ability to sell their interests to nonfamily members is generally highly restricted by terms of the partnership agreement. This allows the older generation to consolidate management of family assets and keep them in the family. Reduce your taxable estate Transferring FLP interests to family members removes the value of the underlying assets from your taxable estate. Although interests that are gifted rather than sold (or sold for less than fair market value) are taxable gifts, they can be shielded (in whole or in part) from federal gift tax by your gift and estate tax exemption. In addition, because limited partnership interests possess little control over the partnership and are challenging to sell, their value for gift tax purposes is generally discounted substantially. This allows the older generation to give away even more wealth tax-free. Shift income to a lower tax bracket A properly structured and operated FLP allows you to shift income to your children or other family members who may be in lower tax brackets. An FLP is a pass-through entity for income tax purposes. In other words, there’s no entity-level federal tax. Instead, the FLP’s income (as well as its deductions, credits and other items) is passed through to the individual partner, who reports his or her share on a personal income tax return. So, for example, if you’re in the 35% tax bracket and transfer FLP interests to family members in the 10% or 12% bracket, the tax savings can be substantial. However, your ability to shift income to children may be limited because of the “kiddie” tax, which can apply to children as old as 23, depending on the circumstances. Increase asset protection Transferring assets to an FLP can place them beyond the reach of certain creditors. Generally, an FLP’s assets are protected against claims by the limited partners’ personal creditors. In most cases, those creditors are limited to obtaining rights to distributions, if any, received by a limited partner. In addition, limited partners’ personal assets held outside the FLP are generally shielded against claims by the FLP’s creditors. General partners don’t enjoy the same protections. Still, they may be able to limit their personal liability by forming a corporation or limited liability company to hold their general partnership interests. Seek professional guidance A potential downside to consider is that establishing and maintaining an FLP requires legal and tax expertise, ongoing administrative oversight and strict adherence to partnership formalities to withstand IRS scrutiny. Contact us for help determining whether an FLP would be beneficial for your family. © 2026