From the simple to the complex: 6 strategies to protect your wealth from lawsuits and creditors

Hiring independent contractors provides your business with valuable flexibility, particularly when you require specialized expertise or help with a short-term project. But calling someone an independent contractor doesn’t automatically make them one. Worker status depends on your actual working relationship. And getting it wrong can expose your business to tax liabilities and other consequences. What’s in a name? Businesses generally must withhold federal income, Social Security and Medicare taxes for employees and pay the employer’s share of Social Security and Medicare taxes, as well as federal unemployment tax. These obligations typically don’t apply when you engage an independent contractor. So if you misclassify an employee as an independent contractor, your business could become responsible for unpaid employment taxes, penalties and interest. Depending on the circumstances, you may also be liable for unpaid payroll taxes. Consequences can extend beyond taxes. Misclassified employees may be able to claim unpaid minimum wages, overtime pay and other workplace protections. State laws could impose additional requirements involving unemployment and workers’ compensation insurance, paid time off, and other benefits. All of these could lead to legal costs and other unplanned expenditures. Working relationship For federal employment tax purposes, the IRS looks at the entire relationship between a business and worker. No single factor determines classification. Instead, relevant facts generally fall into three categories. The first is behavioral control, which concerns whether your business can direct what a worker does and how the work is performed. Instructions about when, where and how to work, as well as training your business provides, may point to the worker being an employee. Second is financial control. This focuses on the business aspects of the relationship. Relevant considerations include: How you pay the worker, Whether you reimburse the individual’s expenses, Which party supplies tools and equipment, Whether the person offers services to other businesses, and The worker’s opportunity for profit or risk of loss. Finally, the type of relationship matters. Employee status may be supported if you provide certain benefits to the worker or the person handles ongoing responsibilities that are central to your operations. A written agreement identifying someone as an independent contractor can be relevant, but it doesn’t override the facts of the relationship. Remote work doesn’t change these basic principles. Someone who works from home or another location other than your business’s primary workplace isn’t automatically an independent contractor. The question remains how much control and independence exist in the actual working arrangement. Different laws, different tests Worker classification has become an especially important area to monitor because different laws can apply different tests. The IRS uses a common-law framework for federal employment taxes. Meanwhile, the U.S. Department of Labor proposed new independent-contractor regulations in February 2026 for federal wage-and-hour law purposes. The proposal would replace the agency’s 2024 rule with a streamlined “economic reality” test. As of this writing, the proposal hasn’t been finalized. State tax, wage-and-hour and employment laws may apply their own standards as well. As a result, a classification that seems appropriate under one law may not be so under another. But this doesn’t mean you should wait for an audit, complaint or tax notice before reviewing your worker classifications. Before problems arise We can help you evaluate worker relationships under current rules and determine whether you need to reclassify anyone working for you. Addressing questions early can be far less costly than correcting them after a government agency or worker raises the issue. © 2026 

Teachers and other educators often spend their own money on books, supplies, equipment and other classroom needs. For 2026, eligible educators may have two ways to deduct qualifying unreimbursed expenses. One deduction is available whether or not they itemize, and a new deduction under the One Big Beautiful Bill Act (OBBBA) is available to itemizers. The long-time deduction for nonitemizers and itemizers Eligible educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize to claim it and it reduces your adjusted gross income (AGI), which has an added benefit: AGI-based limits affect a variety of tax breaks, so lowering your AGI might help you maximize your tax breaks overall. To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. Also, they must work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law. For 2026, up to $350 of qualified expenses paid during the year that weren’t reimbursed can be deducted. (The deduction limit is $700 for married couples filing a joint return if both spouses are eligible educators, but they can’t deduct more than $350 each.) The limit is annually indexed for inflation and was $300 for 2025. But it typically doesn’t go up every year. Examples of qualified expenses include books, classroom supplies, computer equipment (including software), other materials used in the classroom, and professional development courses. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics. The new deduction for itemizers The OBBBA made permanent the Tax Cut and Jobs Act’s (TCJA’s) suspension of miscellaneous itemized deductions subject to the 2% of AGI floor. This had included unreimbursed employee business expenses such as teachers’ out-of-pocket classroom expenses. The suspension had been in place since 2018. But the OBBBA created a new miscellaneous itemized deduction for educator expenses. And this deduction isn’t subject to the 2% of AGI floor or a specific dollar limit. The new deduction is available for eligible expenses incurred after December 31, 2025. This is in addition to the $350 above-the-line deduction. So educators eligible for both deductions can first claim the above-the-line deduction and reap the benefits of reducing their AGI and, if they have eligible expenses in excess of $350, claim the itemized deduction for those excess expenses. (Educators can’t claim both deductions for the same expenses.) Who is eligible and what expenses qualify are a little broader for the itemized deduction than for the above-the-line deduction. For example, interscholastic sports administrators and coaches are also eligible. And, for courses in health and physical education, the supplies don’t have to be related to athletics. Before deciding to claim the itemized deduction, you need to determine whether itemizing makes sense for you overall. Taxpayers can choose to itemize this and certain other deductions (such as mortgage interest, property tax and charitable donations) or to take the standard deduction based on their filing status. Itemizing deductions saves tax only when the total is greater than the standard deduction. The OBBBA made the nearly doubled standard deductions under the TCJA permanent, so fewer taxpayers benefit from itemizing. For 2026, the standard deduction is $16,100 for singles and married taxpayers filing separately, $24,150 for heads of household and $32,200 for married couples filing jointly. Keeping good records Do you expect to qualify for one or both of these deductions? Be sure to track your qualifying expenses carefully. Save your receipts to document the date and amount of each purchase, and note the purpose. Good records are especially important now that there are two educator deductions with differing rules. Contact us to discuss which educator expenses you can deduct and how the deductions may affect your 2026 taxes and planning strategies. © 2026 

To attract and retain skilled workers, your small business needs to offer more than competitive pay. Your benefits package matters, too — and benefits with favorable tax treatment can be even more valuable to prospective and existing employees. Open enrollment is right around the corner for many businesses. As you review your benefits package for 2027, here are some benefits worth considering. Although the IRS won’t announce the inflation-adjusted amounts for 2027 until later this year, the 2026 figures provide a starting point for planning. In addition, the One Big Beautiful Bill Act (OBBBA) changed certain tax rules for fringe benefits that you should be aware of. Insurance Businesses can provide several types of insurance benefits that may be fully or partially tax-free to employees. The rules vary by benefit: Health insurance. If you maintain a health care plan for employees, employer payments for coverage generally are excluded from taxable wages. This includes coverage for an employee’s spouse and dependents. Employee contributions can also be excluded from wages when made on a pretax basis through a cafeteria plan. Otherwise, such amounts are included in their wages but may be deductible by employees as an itemized deduction, subject to the applicable limits. Disability insurance. Employer-paid premiums for disability coverage generally aren’t taxable to employees when the coverage is provided under a qualifying plan. Employee-paid premiums generally aren’t deductible by the employee or excludable from income, except for pretax contributions through a cafeteria plan. The tax treatment of disability benefits received later depends in part on who paid the premiums and whether they were paid on a pretax basis. Consider the tax treatment of benefits when deciding how to structure employer and employee contributions under your plan. Long-term care insurance. Employer-provided long-term care insurance can generally be excluded from an employee’s wages. Long-term care coverage provided through a flexible spending arrangement or similar arrangement is treated differently and can’t be excluded from an employee’s wages for federal income tax purposes. However, employer contributions aren't subject to Social Security, Medicare or federal unemployment taxes. Life insurance. Employees generally can exclude the cost of up to $50,000 of employer-provided group-term life insurance coverage from income. The cost of coverage above $50,000 is generally taxable to the employee based on IRS rates, reduced by amounts the employee paid toward the coverage. Other tax-advantaged benefits Insurance isn’t the only way to provide tax-favored compensation. Other benefits to consider include: Dependent care assistance. Starting in 2026, the OBBBA increased the annual exclusion for employer-provided dependent care assistance from $5,000 to $7,500 ($3,750 for married filing separately). The exclusion is subject to other limitations, including the employee’s and spouse’s earned income and the requirements that apply to dependent care assistance programs. Adoption assistance. Employer-provided benefits under a qualified adoption assistance program may be excluded from income, subject to the applicable rules and limits. For 2026, the maximum exclusion is $17,670 per child. The exclusion begins to phase out at modified adjusted gross income of $265,080 and is fully phased out at $305,080. Employer-provided adoption benefits generally remain subject to Social Security, Medicare and federal unemployment taxes even though they’re excluded from federal income tax. Both the exclusion amount and applicable income thresholds are adjusted annually for inflation. Educational assistance. Employers can provide up to $5,250 of tax-free educational assistance per employee each year under a qualifying written educational assistance program. The OBBBA made this exclusion permanent and provided that the $5,250 limit will be adjusted for inflation for tax years beginning after 2026. The benefit can cover qualifying education expenses, including graduate-level tuition, and can also be used for principal or interest payments on an employee’s qualified education loans. Transportation benefits. You can provide qualified transportation benefits tax-free within federal limits. For 2026, the monthly exclusion is $340 for qualified transportation in a commuter highway vehicle and transit passes, and $340 for qualified parking. These amounts are adjusted annually for inflation. However, businesses generally can’t deduct qualified transportation fringe benefits they provide to employees. De minimis fringe benefits. You can generally provide employees with certain low-value benefits tax-free when the value is so small — and the benefit is provided with such infrequency — that accounting for it would be unreasonable or administratively impracticable. Examples include occasional personal use of an employer’s copier, tickets to entertainment or sporting events, noncash holiday or birthday gifts, and certain meals. Cash and cash-equivalent benefits, such as gift cards and gift certificates, generally don’t qualify for this exclusion. No-additional-cost services. You may be able to provide employees with certain services tax-free when doing so doesn’t impose a substantial additional cost on your business. This benefit generally applies to excess-capacity services that you ordinarily provide to customers in the same line of business in which the employee works. For example, a hotel may allow employees to use vacant rooms, or an airline may allow employees to fly in otherwise-empty seats. Additional eligibility and nondiscrimination requirements apply. The OBBBA also made some unfavorable changes to the tax rules for fringe benefits. For example, it permanently eliminated the exclusion for qualified bicycle commuting reimbursements. It also permanently eliminated the exclusion for qualified moving expense reimbursements for most employees. (Exceptions may apply to certain members of the U.S. Armed Forces and the intelligence community.) Beware: Some fringe-benefit exclusions are subject to nondiscrimination rules. A benefit that’s tax-free for rank-and-file employees may not receive the same treatment for certain highly compensated employees or owners. Special rules also apply to certain business owners, including more-than-2% S corporation shareholders and partners. Enhance the value of your benefits package Fringe benefits can add significant value to your compensation package. By understanding how different benefits are taxed, you can offer employees benefits that may improve their after-tax compensation while making the most of your business’s compensation budget. Contact us for help evaluating your current benefits and fine-tuning them as needed before open enrollment begins. © 2026 

Do you hold an interest in a business that’s closely held or family owned? If so, a buy-sell agreement should be a component of your estate plan. It establishes how your ownership interest (and those of other owners) will be handled following certain triggering events, including death, disability, divorce, retirement, termination of employment or withdrawal from the business. But that’s not all. Determining an ownership interest’s worth Depending on its terms, a buy-sell agreement may give the business or the remaining owners the option — or obligation — to purchase the departing owner’s interest. Life insurance is often used to provide funding when an owner dies. One of the most important provisions in a buy-sell agreement is the method used to determine what an ownership interest is worth. An outdated or poorly designed valuation provision can create financial problems — and potentially disputes — precisely when the agreement is needed most. Buy-sell agreements generally use one or more of the following approaches: Independent appraisal. A qualified business valuation professional determines the value of the ownership interest when a triggering event occurs. A predetermined formula. The agreement calculates value using measures such as book value, revenue or a multiple of earnings. A negotiated price. The owners agree on the value of the business or the departing owner’s interest. An independent appraisal can provide a valuation based on the company’s circumstances at the time of the triggering event. A formula may be simpler, but it can become outdated as the business evolves. Changes in profitability, assets, industry conditions and other factors can cause a formula to produce a price that no longer reflects economic reality. Negotiation offers flexibility, but it also carries risk. Reaching an agreement may be difficult after an owner’s death or during a contentious departure. One alternative is to allow the parties to negotiate first and require an independent appraisal if they can’t agree within a specified period. 2 buy-sell agreement types The type of buy-sell agreement you use can have significant tax and estate planning implications. Two common options are redemption agreements and cross-purchase agreements. A redemption agreement permits or requires the company to purchase a departing owner’s interest, while a cross-purchase agreement permits or requires the remaining owners to purchase the interest. A disadvantage of cross-purchase agreements is that they can be cumbersome, especially if there are many owners. For example, if life insurance is used to fund the purchase of a departing owner’s shares, each owner will have to purchase an insurance policy on the lives of each of the other owners. But redemption agreements may trigger a variety of unwelcome tax consequences. Miscellaneous benefits A carefully structured buy-sell agreement does more than establish what happens when an owner leaves the business. It can also help prevent ownership from unexpectedly passing to outsiders, provide a market for an ownership interest that might otherwise be difficult to sell and create liquidity for an owner’s estate. For a family business, these provisions can be especially valuable. A buy-sell agreement may help keep control in the hands of family members or other intended owners while providing cash to an estate or beneficiaries who won’t participate in the business. Under certain circumstances, an agreement may also affect how an ownership interest is valued for federal estate tax purposes. Because the tax rules governing these arrangements are complex, the agreement should be coordinated with the owner’s broader estate and tax planning. Review your agreement regularly Even a carefully drafted buy-sell agreement can lose its effectiveness as circumstances change. A business may grow significantly, new owners may join, existing owners may leave, insurance coverage may become inadequate or the owners’ estate planning goals may evolve. So regular reviews are essential. We can help you develop a buy-sell agreement in conjunction with your estate plan or evaluate whether your existing agreement’s provisions still fit your business and estate planning objectives. © 2026 

Occupational fraud can occur at any level of an organization. But misconduct by owners and senior executives can be particularly costly because they usually have greater authority and can override internal controls. According to the Association of Certified Fraud Examiners’ (ACFE’s) Occupational Fraud 2026: A Report to the Nations, owners and executives account for 16% of all occupational fraud perpetrators. Yet they cause nine times the median loss associated with nonmanagerial fraudsters. Even if you trust your leadership team, strong safeguards can help protect your business and its reputation. Why it happens Forensic accountants commonly use the “fraud triangle” to understand occupational fraud. It focuses on three factors that generally need to be in place for people to steal from their employers: pressure, opportunity and rationalization. Pressure can be personal or professional. An executive facing financial difficulties or aggressive performance targets may be tempted to manipulate financial results. The ACFE found that perpetrators experiencing excessive organizational pressure are associated with a median fraud loss of $532,000 — the highest among the behavioral warning signs identified. Opportunity exists when someone has the access or authority to commit and conceal wrongdoing. Executives pose an elevated threat because they may approve transactions, influence employees, or override established procedures. More than half of the ACFE report’s cases involve either inadequate or overridden controls. Rationalization occurs when perpetrators can justify their dishonest behavior. Executives might, for example, believe they’re entitled to steal because their compensation is inadequate or that manipulating results is acceptable because it will eventually benefit the business. You can help reduce fraud risk by keeping this triangle in mind and promoting an antifraud culture. For instance, try to set realistic, achievable performance goals and intervene if executives seem excessively entitled or secretive. Strengthen safeguards at the top Internal controls that protect key functions — such as your accounting, and shipping and receiving departments — are also essential. But preventing executive fraud may require additional measures. For example: Establish clear rules for overriding controls, including requiring a second approval and documentation explaining why the exception is necessary, Mandate fraud awareness training for employees, including executives, Conduct management reviews, surprise audits and financial monitoring activities, and Offer tiplines or web portals that enable employees to anonymously report suspected wrongdoing. Reporting systems are especially important because tips remain the most common way to detect occupational fraud. The 2026 ACFE study found that 43% of cases are uncovered through tips, and employees provide more than half of them (other tips come primarily from vendors and customers). Because of the risks of retribution, confidentiality is critical if you want workers to blow the whistle on crooked executives. Allegations involving a senior executive or other influential individual may warrant engaging an independent fraud specialist to help ensure an objective investigation, including evidence gathering and witness interviews. If fraud is confirmed, your organization should respond based on the circumstances, applicable laws and its own policies, not the perpetrator’s position. Promote accountability Executive fraud may never be completely preventable, but you can make it harder to commit and easier to detect. To promote accountability, implement strong controls, effective employee training and confidential reporting mechanisms. Contact us for help assessing fraud risks and strengthening the safeguards that will protect your business. © 2026 

Contributing as much as possible to tax-deferred retirement accounts such as traditional 401(k)s and IRAs is a common recommendation. Contributions generally are pretax or deductible, and the power of tax-deferred compounding can help turbocharge growth. But some taxpayers can reach a point where maximizing tax deferral may become counterproductive. Potential downsides of tax-deferred saving After you’re retired, you’ll no longer be earning a salary or full-time wages. So the assumption generally is that taxpayers will be in a lower federal income tax bracket and pay tax at a lower rate when taking withdrawals during retirement than when making contributions during their working years. That’s likely the case for many, if not most, taxpayers if tax rates stay the same (or go down). But, currently, federal income tax rates may have bottomed out and could be more likely to increase in the future. If this happens, you might pay higher tax rates on withdrawals from traditional accounts during your retirement years, even if you’re in a lower tax bracket. Also, retirement plan distributions are subject to your ordinary income tax rate and don’t benefit from the lower long-term capital gains rates that normally apply to realized gains from assets held more than one year and qualified dividends. So you pay a higher tax rate on dividends and growth in a tax-deferred account than you would if the investments were held in a taxable account. Something else to remember is that with traditional retirement accounts, most withdrawals before age 59½ will be subject to a 10% early withdrawal penalty (though there are some exceptions for IRAs). If you need to make a withdrawal before that age, you may owe the penalty on top of any applicable income tax. Traditional accounts also come with required minimum distributions (RMDs). You could be subject to a 25% penalty for failing to take RMDs each year after you reach age 73 (or 75 if you’ll turn 73 after December 31, 2032). (Roth accounts set up in your name aren’t subject to RMD rules during your life and will never be subject to federal income taxes as long as you take out only qualified withdrawals after reaching age 59½.) You can avoid the penalty by taking your RMDs each year. But RMDs generally will be included in your taxable income and, depending on the size of the RMD and your other income, this could push you into a higher tax bracket, affect deductions or credits with income-based limits, or cause some of your Social Security payments to become taxable. For these reasons, some taxpayers may be better off moving from a strategy primarily focused on tax-deferred traditional accounts to one that puts a greater emphasis on Roth and taxable accounts — even though it may mean paying more taxes now. Shifting your retirement strategy Whether your tax-deferred retirement savings are excessive, insufficient or just about right depends on variables such as your current marginal income tax rate, your expectations about future tax rates and the type of income or gains earned in your retirement accounts. Each person’s situation is different, and there’s not always a clear-cut answer. If you conclude you have too much in tax-deferred accounts, one or more of these strategies can help address the situation: 1. Start making at least some of your annual retirement savings contributions to Roth accounts if possible. Contributions to these plans don’t reduce your current-year taxable income, but distributions are tax-free — including distributions attributable to growth in the account. And Roth accounts aren’t subject to RMDs during the original owner’s lifetime. However, the ability to contribute to a Roth IRA is phased out if a taxpayer’s income exceeds certain amounts. No such limit applies to employer-sponsored Roth accounts, such as Roth 401(k)s. 2. Put some money into taxable accounts. If Roth savings opportunities aren’t available to you or you’ve already maxed them out, think about putting some of the money you’re saving for retirement into taxable investment accounts. You’ll be eligible for the lower long-term capital gains rate on long-term gains and qualified dividends, and you won’t be subject to the various rules and restrictions that apply to IRAs, 401(k)s and other employer-sponsored retirement accounts. 3. Convert some or all of your traditional IRA balance into a Roth IRA. A conversion can let you turn tax-deferred future growth into tax-free growth and avoid being subject to RMDs. There’s no income-based limit on who can convert. But the converted amount is taxable in the year of the conversion. So consider your current tax rate and whether a conversion could push you into a higher tax bracket or trigger other negative tax consequences. 4. If you’re age 59½ or older, withdraw money from your traditional retirement accounts sooner and faster than required. You won’t owe early withdrawal penalties, and you pay tax now at a rate that might be lower than what you’d have to pay in the future. You can reinvest the after-tax proceeds in taxable accounts where future long-term gains and qualified dividends will be taxed at your lower long-term capital gains rate. But as with Roth conversions, you need to consider your current tax rate and whether the retirement plan distribution could push you into a higher tax bracket or trigger other negative tax consequences. Tax-smart wealth accumulation As you can see, there are many considerations to evaluate when assessing whether you’re investing too much in tax-deferred retirement accounts and, if so, how to address the situation. We can help you determine the best course of action for wealth accumulation using traditional tax-deferred retirement accounts, Roth accounts and taxable accounts. © 2026 

Trading items or services — without exchanging cash — has long been common among small businesses. Today, some use online barter exchanges to facilitate trades. In addition to preserving cash flow, these types of transactions may expand your purchasing power, help you move overstocked inventory and increase your business’s exposure to new markets. But bartering isn’t tax free. For tax purposes, bartering is treated the same as being paid in cash. How it works The fair market value (FMV) of goods you receive in business barter transactions must be reported as taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties. You must report barter income the same way you report comparable income from regular cash transactions. For instance, a sole proprietor generally reports barter income on Schedule C, and this income may also be subject to self-employment tax.  Depending on what you receive in the exchange, you may be entitled to a business expense deduction or obtain tax basis in property. So, although bartering generates taxable income, it doesn’t necessarily increase taxable profit by the full value of the transaction. Let’s say a veterinarian agrees to exchange services with a marketing consultant. In this situation, both parties must report the FMV of the services received as income. So the veterinarian would report the FMV of the marketing services received, and the marketing consultant would report the FMV of the veterinary services received. This generally is the amount that would normally be charged for these services. If the parties agree to the value of the services in advance, that will be considered the fair market value unless there’s contrary evidence. Business expense deductions may also be available with barter transactions. For instance, if a plumber installs a new toilet at a local computer repair shop in exchange for fixing a broken laptop, the plumber would report the FMV of the computer repair services as income. But he or she may also deduct certain expenses: If the laptop is used in the plumber’s business and the repair would have been deductible had it been paid for in cash, the plumber can still claim a business expense deduction for the repair, subject to the usual deduction rules. The plumber can also deduct qualifying business expenses associated with the plumbing work, such as materials, supplies and any wages paid to employees. Income also must be reported if services are exchanged for property. For example, if an HVAC contractor does work for a retail business in exchange for unsold inventory, he or she will have to report income equal to the fair market value of the inventory. Or if an architect does work for a corporation in exchange for shares of the company’s stock, he or she must report income equal to the fair market value of those shares. Barter exchanges Some businesses join online barter exchanges (sometimes referred to as barter clubs) that facilitate these transactions. Barter exchanges generally use a system of “credit units,” which are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members. In general, bartering is taxable in the year it occurs. But if you participate in a barter exchange, you may be taxed on the value of credit units at the time they’re added to your account, even if you don’t redeem them for actual goods and services until a later year. For example, let’s say that you earn 2,500 credit units one year and that each unit is redeemable for $3 in goods and services. In that year, you’ll have $7,500 of income. If you redeem the units the next year, you won’t pay additional tax because you’ve already been taxed on that income. If you join a barter exchange, you’ll generally be asked to provide your taxpayer identification number — such as your Social Security number or Employer Identification Number — and complete Form W-9 or a similar certification. In certain circumstances, including failure to provide or properly certify a taxpayer identification number, barter income may be subject to 24% backup withholding. The IRS generally treats barter exchanges as brokers. If the reporting requirements apply, a barter exchange will send participants a Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” by February 15 of the following calendar year. This form shows the value of cash, property, services and credits that you received through the exchange during the previous year. This information will also be reported to the IRS. No tax-free trade Bartering may be more common than you think: According to the National Association of Trade Exchanges, more than 400,000 U.S. businesses used some form of barter in 2022, the latest available statistics. Regardless of how you make a trade — directly with another business or through a barter exchange — remember your federal and state tax obligations. We can help you estimate the fair market value of items and services exchanged, identify potential deductions, and maintain the records needed to report these transactions properly. Contact us to learn more. © 2026

The death of a spouse brings significant personal and financial changes, including important tax considerations. One question surviving spouses face is how to file their federal income tax returns for the year of death. In many cases, a surviving spouse can file a joint return with the deceased spouse for that year, potentially preserving lower tax rates and other benefits. However, special rules apply, and understanding the filing requirements can help avoid complications and ensure available tax benefits aren’t overlooked. Filing a final return When a person dies, his or her executor (called a “personal representative” in some states) must file an income tax return for the year of death (as well as any unfiled returns for previous years). For purposes of the final return, the tax year generally begins on January 1 and ends on the date of death. The return is due on April 15 of the following calendar year unless the executor requests a six-month filing extension. Income that’s included on the final return is determined according to the deceased’s tax accounting method. Individuals usually use the cash method, in which case the income tax return will report only income actually or constructively received before death and deduct only expenses paid before death. Income and expenses after death are reported on an estate tax return. Filing a joint return The surviving spouse is generally treated as married for the tax year his or her spouse died, unless he or she qualifies as unmarried under special rules. So filing as single or head of household usually isn’t an option. The surviving spouse does have the option to file a joint return with the deceased spouse — if the executor agrees. And the surviving spouse alone can elect to file a joint return if an executor hasn’t yet been appointed by the filing due date. (However, a court-appointed executor may later revoke that election.) A joint return generally includes the deceased spouse’s income and deductions through the date of death, along with the surviving spouse’s income and deductions for the entire tax year. Filing jointly can be advantageous because joint filers typically have access to more favorable tax brackets and may qualify for deductions and credits that are reduced or unavailable to married taxpayers filing separately. When filing separately may make sense There may be disadvantages to filing jointly. For example, higher adjusted gross income (AGI) may reduce the tax benefits of expenses, such as medical bills, that are deductible only to the extent they exceed a certain percentage of AGI. In this case, filing separately may provide more tax savings. Similarly, filing separately sometimes may produce a better result because of the couple’s particular mix of income, deductions and other tax attributes. Filing a separate return may also be appropriate when the surviving spouse has concerns about the accuracy of the deceased spouse’s tax information or about previously undisclosed income, questionable deductions, unpaid taxes or other potential tax problems. In some situations, filing separately may help limit the surviving spouse’s exposure to liabilities associated with items reported (or not reported) on the deceased spouse’s return, though the extent of that protection depends on the facts and circumstances. Look beyond the final joint return The year of death may not be the end of the potential benefits of joint filing. Under certain conditions, a surviving spouse with a dependent child may qualify to use qualifying surviving spouse status for the two tax years following the year of death. This status generally provides the same tax brackets and standard deduction available to married couples filing jointly. There are many factors to consider when deciding whether to file jointly or separately after a spouse’s death. We can compare the alternatives, explain the potential risks and benefits, and help ensure that required returns are filed properly during a difficult time. © 2026 

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