How will the One, Big, Beautiful Bill Act affect individual taxpayers?

July 17, 2025

The One, Big, Beautiful Bill Act (OBBBA) includes, among many other things, numerous provisions that can affect an individual’s taxes. The new law makes some changes to existing tax breaks that will be significant to many, but not all, taxpayers. It also creates new breaks that, again, will be significant to certain taxpayers. Finally, it makes permanent the tax rate reductions and most of the changes to deductions and credits made by the Tax Cuts and Jobs Act (TCJA), with occasional tweaks.

State and local tax deduction

The OBBBA increases the limit on the state and local tax (SALT) deduction through 2029. Beginning in 2025, eligible taxpayers can deduct up to $40,000 ($20,000 for married couples filing separately) of SALT, including property tax and either income tax or sales tax, with a 1% annual increase thereafter. However, in 2030, the previous limit of $10,000 ($5,000 for separate filers) will resume.

When modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for separate filers), the cap is reduced by 30% of the amount by which MAGI exceeds the threshold — but not below $10,000 ($5,000 for separate filers). If you expect to be near or over the threshold, taking steps to reduce your MAGI (for example, increasing retirement plan contributions or making IRA qualified charitable distributions) could help you secure the full SALT deduction.

Child Tax Credit

The $2,000 Child Tax Credit (CTC) for children under age 17 was slated to return to $1,000 per child after 2025, with the income phaseout levels subject to lower thresholds. Also, the $500 Credit for Other Dependents (COD) was scheduled to expire at that time. The COD is available for each qualifying dependent other than a qualifying child (such as a dependent child over the age limit or a dependent elderly parent).

The OBBBA makes the doubled CTC permanent, with an increase to $2,200 starting this year and annual inflation adjustments to follow. It also makes permanent the $1,400 refundable portion of the CTC, adjusted for inflation ($1,700 in 2025), and the $500 nonrefundable COD. And it makes permanent the income phaseout thresholds of $200,000, or $400,000 for joint filers.

Education-related breaks

The OBBBA expands the definition of qualified expenses that can be paid for with tax-free distributions from Section 529 plans. For example, tax-free distributions can now cover qualified post-secondary credentialing expenses. In addition, tax-free elementary and secondary school distributions are no longer limited to paying tuition; they can also pay for books and other instructional materials, online educational materials, tutoring or educational classes outside the home, and certain testing fees.

The OBBBA also increases the annual limit on tax-free distributions for qualified elementary and secondary school expenses from $10,000 to $20,000 beginning in 2026.

In addition, the law creates a tax credit of up to $1,700 for contributions to organizations that provide scholarships to elementary and secondary school students. Students who benefit from the scholarships must be part of a household with an income that doesn’t exceed 300% of the area’s median gross income and be eligible to enroll in a public elementary or secondary school.

The OBBBA also makes some tax law changes related to student loans:

Employer-paid student loan debt. If your employer pays some of your student loan debt, you may be eligible to exclude up to $5,250 from income. The OBBBA makes this break permanent, and the limit will be annually adjusted for inflation after 2026.

Forgiven student loan debt. Forgiven debt is typically treated as taxable income, but tax-free treatment is available for student loan debt forgiven after December 31, 2020, and before January 1, 2026. Under the OBBBA, beginning in 2026, only student loan debt that’s forgiven due to the death or total and permanent disability of the student will be excluded from income, but this exclusion is permanent. Warning: Some states may tax forgiven debt that’s excluded for federal tax purposes.

Charitable deductions

Generally, donations to qualified charities are fully deductible up to certain adjusted gross income (AGI)-based limits if you itemize deductions. The OBBBA creates a nonitemized charitable deduction of up to $1,000, or $2,000 for joint filers, which goes into effect in 2026.

Also beginning in 2026, a 0.5% floor will apply to itemized charitable deductions. This generally means that only charitable donations in excess of 0.5% of your AGI will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible.

Qualified small business stock

Generally, taxpayers selling qualified small business (QSB) stock are allowed to exclude up to 100% of their gain if they’ve held the stock for more than five years. (The exclusion is less for stock acquired before September 28, 2010.) Under pre-OBBBA law, to be a QSB, a business must be engaged in an active trade or business and must not have assets that exceed $50 million, among other requirements.

The OBBBA provides new, but smaller exclusions for QSB stock held for shorter periods. Specifically, it provides a 75% exclusion for QSB stock held for four years and a 50% exclusion for QSB stock held for three years. These exclusions go into effect for QSB stock acquired after July 4, 2025. The law also increases the asset ceiling for QSBs to $75 million (adjusted for inflation after 2026) for stock issued after July 4, 2025.

Affordable Care Act’s Premium Tax Credits

The OBBBA imposes new requirements for Premium Tax Credit (PTC) recipients. For example, beginning in 2028, eligible individuals must annually verify information such as household income, immigration status and place of residence. Previously, many insureds were allowed to automatically re-enroll annually.

Beginning in 2026, individuals who receive excess advanced PTCs based on estimated annual income must return the entire excess unless actual income is less than 100% of the federal poverty limit. Currently, individuals with incomes below 400% of the limit are required to make only partial repayments.

Temporary tax deductions

On the campaign trail in 2024, President Trump promised to eliminate taxes on tips, overtime and Social Security benefits and to make auto loan interest deductible. The OBBBA makes a dent in these promises but doesn’t completely fulfill them. Instead, it creates partial deductions that apply for 2025 through 2028. They’re available to both itemizers and nonitemizers:

Tips. Employees and independent contractors generally can claim a deduction of up to $25,000 for qualified tips received if they’re in an occupation that customarily and regularly received tips before 2025. (The eligible occupations will be determined by the IRS and are expected to be released by October 2, 2025.) The tips must be reported on a Form W-2, Form 1099 or other specified statement furnished to the individual or reported directly by the individual on Form 4137. The deduction begins to phase out when a taxpayer’s MAGI exceeds $150,000, or $300,000 for joint filers.

Overtime. Qualified overtime pay generally is deductible up to $12,500, or $25,000 for joint filers. It includes only the excess over the regular pay rate. For example, if a taxpayer is normally paid $20 per hour and is paid “time and a half” for overtime, only the extra $10 per hour for overtime counts as qualified overtime pay. The overtime pay must be reported separately on a taxpayer’s W-2 form, Form 1099 or other specified statement furnished to the individual. This deduction also starts phasing out when MAGI exceeds $150,000, or $300,000 for joint filers.

Deductible tips and overtime pay remain subject to federal payroll taxes and any applicable state income and payroll taxes.

Auto loan interest. Interest on qualified passenger vehicle loans originated after December 31, 2024, generally is deductible up to $10,000, though few vehicles come with that much annual interest. Qualified vehicles include cars, minivans, vans, SUVs, pickup trucks and motorcycles with gross vehicle weight ratings of less than 14,000 pounds that undergo final assembly in the United States. The deduction begins to phase out when MAGI exceeds $100,000, or $200,000 for joint filers.

“Senior” deduction. While the OBBBA doesn’t eliminate taxes on Social Security benefits, it does include a new deduction of $6,000 for taxpayers age 65 or older by December 31 of the tax year — regardless of whether they’re receiving Social Security benefits. The deduction begins phasing out when MAGI exceeds $75,000, or $150,000 for joint filers. Social Security benefits, however, are still taxable to the extent that they were before the OBBBA.

Finally, be aware that additional rules and limits apply to these new tax breaks. In many cases, the IRS will be publishing additional guidance and will provide transition relief for 2025 to eligible taxpayers and those subject to information reporting requirements.

Trump Accounts

Beginning in 2026, Trump Accounts will provide families with a new way to build savings for children. An account can be set up for anyone under age 18 at the end of the tax year who has a Social Security number.

Annual contributions of up to $5,000 can be made until the year the beneficiary turns age 18. In addition, U.S. citizen children born after December 31, 2024, and before January 1, 2029, with at least one U.S. citizen parent can potentially qualify for an initial $1,000 government-funded deposit.

Contributions aren’t deductible, but earnings grow tax-deferred as long as they’re in the account. The account generally must be invested in exchange-traded funds or mutual funds that track the return of a qualified index and meet certain other requirements. Withdrawals generally can’t be taken until the child turns age 18.

TCJA provisions

The OBBBA also makes permanent many TCJA provisions that were scheduled to expire after 2025, including:

Reduced individual income tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%,
Higher standard deduction (for 2025, the OBBBA also slightly raises the deduction to $15,570 for singles, $23,625 for heads of households and $31,500 for joint filers),
The elimination of personal exemptions,
Higher alternative minimum tax exemptions,
The reduction of the limit on the mortgage debt deduction to the first $750,000 ($375,000 for separate filers) — but the law makes certain mortgage insurance premiums eligible for the deduction after 2025,
The elimination of the home equity interest deduction for debt that wouldn’t qualify for the home mortgage interest deduction, such as home equity debt used to pay off credit card debt,
The limit of the personal casualty deduction to losses resulting from federally declared disasters — but the OBBBA expands the limit to include certain state-declared disasters,
The elimination of miscellaneous itemized deductions (except for eligible unreimbursed educator expenses), and
The elimination of the moving expense deduction (except for members of the military and their families in certain circumstances and, beginning in 2026, certain employees or new appointees of the intelligence community).

The permanency of these provisions should provide some helpful clarity for tax planning. However, keep in mind that “permanent” simply means that the provisions have no expiration date. It’s still possible that lawmakers could make changes to them in the future.

Time to reassess

We’ve covered many of the most significant provisions affecting individual taxpayers, but there are other changes that also might affect you. For example, the OBBBA adds a new limitation on itemized deductions for taxpayers in the 37% tax bracket beginning in 2026. It also imposes a new limit on the deduction for gambling losses beginning next year. And sole proprietors and owners of pass-through businesses will also be directly affected by OBBBA tax law changes affecting businesses.

Given all of these and other tax law changes, now is a good time to review your tax situation and update your tax planning strategies. Turn to us to help you take full advantage of the new — or newly permanent — tax breaks.

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2 retirement plans for small businesses with lean budgets

May 6, 2026

Most business owners would like to offer their employees a 401(k) retirement savings plan with all the bells and whistles. But for small businesses with lean budgets and small staffs, offering such benefits may be out of the question. Fortunately, SEP IRAs and SIMPLE IRAs are less expensive and easier to administer. Might one of these tax-advantaged options work for your workforce? SEP: Flexible and zero setup fees Simplified Employee Pension (SEP) IRAs are individual retirement accounts you establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If participants decide to leave your company, their account balances go with them. Most people roll their accounts over into a new employer’s qualified plan or traditional IRA account. SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows. In addition, there are typically no setup fees for SEP IRAs. But participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets). In 2026, the SEP IRA annual contribution limit is 25% of a participant’s compensation, up to $72,000. That amount is higher than the standard 401(k) account contribution limit of $24,500 (in 2026). What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn. However, there are a few downsides to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions. SIMPLE: Easy and participant-friendly Another possibility is to offer a Savings Incentive Match Plan for Employees (SIMPLE) IRA. As with a SEP IRA, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they choose. Other advantages of SIMPLE IRAs include: They’re relatively easy for employers to set up and administer. They don’t require your business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.” You don’t need to submit the plan to nondiscrimination testing. Participants pay no setup fees and enjoy tax-deferred growth on their account funds. Participants can contribute up to $17,000 annually in 2026. Participants age 50 or over can make catch-up contributions of up to $4,000 in 2026 ($5,250 for those ages 60 to 63). Participants can contribute more to a SIMPLE IRA than to a self-owned traditional or Roth IRA. But SIMPLE IRA contribution limits are lower than limits for 401(k)s. Also, because contributions are made with pretax dollars, participants can’t deduct them. They also can’t take out plan loans. Then again, making pretax contributions does lower their taxable income. Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory, regardless of your cash-flow situation. However, in general, you can deduct contributions as a business expense. SIMPLE Roth IRAs are available, too. Ask your financial and employee benefits advisors whether this might be a better option for your business. Lower-cost options If you’ve thought you can’t afford to offer workers a retirement plan, think again. In addition to SEP and SIMPLE IRAs, there are now some lower-cost 401(k) options available as well. We can review your budget, tax situation and benefit needs and suggest how best to proceed. Contact us. © 2026

Fine-tune your tax withholding after filing your return

May 5, 2026

Many taxpayers discover at filing time that their tax payments during the year didn’t align with their actual liability — either too much or too little was withheld from their paychecks. A small difference is to be expected, but withholding that’s significantly off target can have negative consequences. Overwithholding reduces the amount available to you throughout the year. Substantial underwithholding can lead to a large balance due, along with potential interest and penalties. If you received a large refund or owed a lot of tax when you filed your 2025 return, it’s a good idea to take a closer look at how much tax is being withheld from your income this year. Reviewing and fine-tuning your withholding now can help you better align your payments with your 2026 tax liability. Review your income and withholding If all or most of your income is from wages, whether from a salary or hourly pay, your employer withholds amounts from your paychecks intended to cover your annual income tax liability. However, these withholding amounts are estimates based on IRS withholding tables, which approximate a typical worker’s annual tax liability at your compensation level. Your situation may differ from that of a comparably compensated worker for various reasons. You might have larger deductions or credits than is typical, which could make standard withholding too high. Or you might have additional income from other sources, which could make standard withholding too low. Adjust your withholding if needed One way to minimize overpayments or underpayments is to estimate your tax liability for the year. Then, if necessary, adjust your withholding by completing a new Form W-4, “Employee’s Withholding Certificate.” The IRS’s Tax Withholding Estimator can help. It now reflects key provisions of the One Big Beautiful Bill Act (OBBBA), including the elimination of taxes on qualified tips and qualified overtime (up to applicable limits), as well as new deductions for seniors and auto loan interest. It also more accurately accounts for OBBBA changes to tax breaks related to families, homeownership and charitable giving. Once you submit a new Form W-4 to your employer, changes typically will take a few weeks to go into effect. Keep that in mind when you determine your adjustments. Revisit withholding after life changes Changes during the year can affect the accuracy of your withholding. Review your Form W-4 and consider making adjustments if you: Experience a significant increase or decrease in income, Get married or divorced, Have a child or add a dependent, Buy a home, or Receive new sources of income not subject to withholding. Even if you’ve already adjusted your withholding, reviewing it again after a major life event can help you stay on track. Use withholding strategically If part of your income isn’t subject to withholding, estimated tax payments may also come into play. You can avoid penalties for missing or underpaying an estimated payment by increasing your withholding to make up the difference. Unlike estimated tax payments, withholding amounts are treated as paid evenly throughout the year — regardless of when they’re actually withheld. Using this strategy, you can increase withholding from your wages (or from your spouse’s, if you’re married). Alternatively, if you’re retired and don’t have wages from which to withhold taxes, increasing withholding from your IRA or other retirement plan distributions may be possible. Find the right balance Keeping your withholding aligned with your expected tax liability can help you enjoy better cash flow during the year and avoid surprises at filing time. We can review your current withholding (and estimated tax payments, if applicable), project your tax liability for the year and assist with deciding whether to make any withholding changes for 2026. © 2026

Cost segregation studies can reveal substantial tax savings

May 4, 2026

Businesses that own commercial real property may be sitting on an overlooked treasure chest of tax savings — and a cost segregation study can be the key to unlocking it. This is a strategic tool that combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. A cost segregation study may allow you to accelerate depreciation deductions on certain items, thereby deferring taxes and boosting cash flow. Timing counts when depreciating assets Commercial rental properties and buildings used for business purposes are generally depreciated over 39 years under federal tax law. But such properties may include a wide range of components with much shorter depreciation recovery periods. These can include parts of various systems such as HVAC, plumbing, electrical, fire protection, alarm and security, as well as: Drywall, Doors, Fixtures, Data and communication ports, Flooring, and Cabinetry. These assets could have useful lives of five, seven or 15 years — all significantly less than 39 years. By segregating such assets, you can claim greater depreciation deductions sooner. You’ll claim the same total amount of depreciation on the assets over time but reduce your tax bill in the short term, providing greater cash flow. OBBBA changes add value Recent tax law changes under the One Big Beautiful Bill Act (OBBBA) enhanced these benefits by increasing first-year depreciation write-offs. The two most widely relevant provisions relate to: 1. Bonus depreciation. The OBBBA restored 100% first-year bonus depreciation deductions for eligible assets acquired and placed in service after January 19, 2025. While commercial real properties aren’t eligible for first-year bonus depreciation, segregated building components with shorter recovery periods may be eligible. There are no phaseout limits for bonus depreciation, which is helpful for larger companies. 2. Section 179 expensing. For tax years beginning in 2025, the OBBBA increased the maximum amount of eligible assets you can immediately deduct under the Sec. 179 expensing election to $2.5 million. A phaseout reduces the maximum Sec. 179 deduction if, during the year, you place in service eligible assets in excess of $4 million. Both figures are adjusted annually for inflation. For 2026, they’re $2.56 million and $4.09 million, respectively. Again, commercial real properties aren’t eligible for Sec. 179 expensing, but segregated building components with shorter recovery periods may be eligible. Additionally, if your business involves manufacturing or certain agricultural activities, you may be eligible for a new depreciation-related tax break. The OBBBA introduced a 100% deduction for the cost of qualified production property (QPP). To be eligible, among other requirements, a qualifying real property’s construction must begin after January 19, 2025, and before January 1, 2029, and it must be placed in service before 2031. This break allows eligible businesses to immediately deduct the cost of QPP that otherwise would be depreciable over 39 years. The QPP deduction makes cost segregation studies less relevant for qualifying property. But it’s subject to several specific requirements and exceptions that may prevent you from claiming it. Ready, set, save A cost segregation study can significantly lower your taxes, but it isn’t a do-it-yourself project. Although this strategy has been consistently upheld in the courts, the IRS closely monitors deductions based on cost segregation studies. And the rules can be confusing. So, it’s prudent to hire experienced professionals to help you identify various building components and break down write-off periods for them. Contact us to discuss whether a cost segregation study could potentially save you taxes. We can determine reasonable cost allocations to help withstand IRS scrutiny. © 2026

What’s the meaning of that estate planning term?

April 30, 2026

Estate planning can be overwhelming. One reason is that it has a language all its own. While you may be familiar with common terms such as “will” or “executor,” you may not be as certain about others. This uncertainty can make it difficult to make informed decisions about protecting your assets, providing for your family and ensuring your wishes are carried out. For quick reference, here’s a glossary of key terms you may come across when planning your estate: Administrator. An individual or fiduciary appointed by a court to manage an estate if no executor or personal representative has been appointed or the appointee is unable or unwilling to serve. Ascertainable standard. The legal standard, typically relating to an individual’s health, education, maintenance and support, which is used to determine what distributions are permitted from a trust. Attorney-in-fact. The individual named under a power of attorney (POA) as the agent to handle the financial and/or health affairs of another person. Codicil. A legally binding document that makes minor modifications to an existing will without requiring a complete rewrite of the will. Community property. A form of ownership in certain states in which property acquired during a marriage is presumed to be jointly owned regardless of who earned it or paid for it. (There are exceptions, such as inherited property, as long as it’s not commingled with community property.) Credit shelter trust. A trust established to bypass the surviving spouse’s estate to take full advantage of each spouse’s federal estate tax exemption. It’s also known as a bypass trust or A-B trust. Fiduciary. An individual or entity, such as an executor or trustee, designated to manage assets or funds for beneficiaries and legally required to exercise an established standard of care. Grantor trust. A trust in which the grantor retains certain control so that it’s disregarded for income tax purposes and the trust’s assets are included in the grantor’s taxable estate. Inter vivos. The legal phrase used to describe various actions (such as transfers to a trust) made by an individual during his or her lifetime. Intestacy. This occurs when a person dies without a legally valid will and the deceased’s estate is distributed through a court-supervised probate process in accordance with the applicable state’s intestacy laws. Joint tenancy. An ownership right in which two or more individuals (such as a married couple) own assets equally, often with rights of survivorship. Living trust. A trust that’s established during an individual’s lifetime to hold and manage assets for the benefit of that individual and, ultimately, for his or her beneficiaries. Also commonly referred to as a “revocable trust” or “inter vivos” trust. The individual creating the trust often serves as the trustee, retaining control over the assets while alive. One of the primary advantages of a living trust is that it allows assets to pass to beneficiaries without going through probate, helping to save time, reduce costs and maintain privacy. No-contest clause. A provision in a will or trust stating that an individual who pursues a legal challenge to assets will forfeit his or her inheritance or interest. Pour-over will. A will used upon death to pass to a living trust the ownership of assets that weren’t transferred to the trust during life. Power of appointment. The power granted to an individual under a trust that authorizes him or her to distribute assets on the termination of his or her interest in the trust or in certain other circumstances. Power of attorney. A legal document authorizing someone to act as attorney-in-fact for another person, relating to financial and/or health matters. A “durable” POA continues if the person is incapacitated. Probate. The legal process of settling an estate in which the validity of the will is proven, the deceased’s assets and debts are identified, all debts and taxes are paid, and the remaining assets are distributed. Qualified disclaimer. The formal refusal by a beneficiary to accept an inheritance or gift, which allows the inheritance or gift to pass to the successor beneficiary. Spendthrift clause. A clause in a will or trust restricting the ability of a beneficiary (such as a child under a specified age) to transfer or distribute assets. Tenancy by the entirety. An ownership right between two spouses in which property automatically passes to the surviving spouse on the death of the first spouse. Tenancy in common. An ownership right in which each person possesses rights and ownership of an undivided interest in the property. If you have questions about the meanings of these terms, contact us. We’d be pleased to provide context for any estate planning term you’re unfamiliar with. © 2026

Strategic alliances: Collaborate now, possibly combine later

April 29, 2026

Even if you aren’t currently preparing to sell your business, you might want to think strategically about your eventual buyer. Sophisticated buyers won’t only look at your financials, they’ll also evaluate how your company fits into their long-term business plan. One way to strengthen current profitability and future exit options is with a strategic alliance. Current and long-term objectives Strategic alliances are structured in several ways, including joint ventures, revenue-sharing arrangements and co-development agreements. In some relationships, the two companies simply agree to work together on a particular project. Others involve long-term agreements, with the end game being a merger. Alliances can have set expiration dates or be renewed at intervals after they pass performance reviews. Among the many reasons companies pursue alliances are to leverage core assets, expand sales capacities and reduce operating costs. Your company doesn’t have to enter into a strategic alliance to make it easier to sell one day. It may, after all, be performing well on its own. Instead, look at a potential strategic alliance as a near-term growth and expense-cutting mechanism with long-term benefits. If you agree to an alliance, focus on financial and operational objectives, including achieving economies of scale. For example, by combining orders for everything from raw materials to office supplies, both partners may qualify for supplier discounts and reduce overhead costs. What about jointly purchasing capital equipment or upgrading both companies’ IT networks? Or you may want to find a partner to improve transportation logistics by consolidating warehouses. Another idea: Sharing intellectual property, such as customized software. Keys to success Your strategic alliance may require time and effort to get up and running. But if you’ve thoroughly vetted your partner and have a well-structured agreement in place, you’re likely to realize benefits. If you don’t, and the relationship becomes a drain on resources, take immediate action. Some problems can be fixed. For example, it’s easy for alliances to drift from their original purpose. A partnership forged mainly to upgrade an IT system could wind up focusing on improving employee productivity instead — with mixed results. In this case, the partners could refocus and reinforce their alliance objectives. But if problems seem intractable, it’s usually better to terminate the alliance. Profitable arrangements Not only can strategic alliances be mutually profitable, but they can help both partners envision a permanently combined company. Alliances often begin informally or as short-term agreements that eventually lead to mergers when the companies realize their synergistic potential. A successful prior relationship can smooth the merger process. Before joining a strategic alliance, companies typically conduct due diligence on one another. Financial and other conditions can certainly change between the initiation of a strategic alliance and the beginning of merger negotiations. But a well-structured alliance allows partners to keep tabs on each other. If one of the companies experiences leadership challenges or has trouble getting financing, the other is likely to know about it. Such knowledge can speed up the merger transaction process and simplify integration. Exercise in discipline Regardless of whether your business eventually merges with a strategic partner, the discipline of building and managing your relationship can strengthen operations and expand your market reach. It can also enhance financial transparency and position your business more favorably to potential buyers. Contact us for help honing your financial objectives, vetting possible alliance partners and selling your business. © 2026

IRS issues final regulations on tips tax break

April 28, 2026

Last year, a new income tax deduction for qualified cash tips went into effect under the One Big Beautiful Bill Act (OBBBA). The break is scheduled to expire after 2028. In September 2025, the IRS released proposed regulations to provide guidance for taxpayers. The IRS has now published final regs that largely mirror the proposed regs but also include some important clarifications and additions. What does the deduction cover? Under the OBBBA, individual taxpayers can claim a tax deduction, available to both itemizers and nonitemizers, for up to $25,000 in “qualified tips.” The deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if you’re married filing jointly. The deduction is completely phased out if your MAGI reaches $400,000, or $550,000 if you’re a joint filer. (Married taxpayers filing separately can’t claim the tips deduction.) Important: The $25,000 limit applies per tax return, so joint filers who both receive qualified tips can’t claim two separate deductions. In addition, tips remain subject to federal payroll taxes and, where applicable, state income and payroll taxes. Qualified tips generally refers to tips paid in cash (or an equivalent medium, such as checks or credit and debit cards) to an individual in an occupation that customarily and regularly received tips on or before December 31, 2024. They must be paid voluntarily, without any consequence for nonpayment, in an amount determined by the payor and without negotiation. Tips received in the course of a specified service trade or business are excluded. What’s in the final regs? The final regs address several critical areas, including: Eligible occupations. The proposed regs identified 68 eligible occupations in eight categories. The final regs expand the list to 71 occupations (adding visual artists, floral designers and gas pump attendants) and tweaked some of the categories, ending up with: Beverage and Food Service, Entertainment and Events, Hospitality and Guest Services, Home Services, Personal Services, Personal Appearance and Wellness, Recreation and Instruction, and Transportation and Delivery. The final regs also expanded some of the proposed regs’ categories and clarified others. For example, they added “app/platform-based delivery person” to the illustrative list for the “Goods Delivery People” occupation in the “Transportation and Delivery” category. The final regs also include two new examples dealing with payments to digital content creators. If customers’ payments give them access to the content, the payments are treated as compensation for services provided. But if customers make voluntary payments after gaining access to the content, the payments are tips. Digital assets. The final regs state that digital assets aren’t considered cash tips — for now. Thus, they’re currently not eligible for the tips deduction. But the IRS has indicated it will consider the treatment of stablecoins in connection with the implementation of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act and any future legislation that modifies the characterization of digital assets. Voluntariness. Under the proposed regs, service charges, automatic gratuities and any other mandatory amounts automatically added to a customer’s bill by the vendor or establishment generally weren’t considered voluntary, even if the amounts were subsequently distributed to employees. To be voluntary, the customer must be expressly provided an option to disregard or modify amounts added to a bill. The final regs retain this approach. However, they modify the language to make clear that a tip is voluntary if the customer has the option to reduce the tip amount to zero. So tips made on POS systems with a tip slider that goes to zero or an option for the customer to select “other” and enter zero are voluntary. Note: Payments in excess of mandatory amounts are voluntary. Managers/supervisors. Under the final regs, tips received by a manager or supervisor via a voluntary or mandatory tip-sharing arrangement, such as a tip pool, aren’t considered qualified tips. But tips received directly by supervisors or managers for services they provided in the course of duties performed in an eligible occupation (for example, performing the duties of wait staff while the restaurant is crowded) are qualified tips if all other requirements are satisfied. Anti-abuse rules. To prevent the reclassification of income as qualified tips, under the proposed regs, a payment wasn’t a qualified tip if the recipient had an ownership interest in or was employed by the payor of the tip. The final regs relax this standard somewhat. Under the final regs, an amount isn’t a qualified tip if, based on all relevant facts and circumstances, the amount is a recharacterization of wages or payment for goods or services for the purpose of claiming the deduction. Facts and circumstances that might indicate that wages, payment for services or other income have been recharacterized as tips in order to claim the deduction include when: The invoiced charge for services is less than the payment from the payor shown on a related receipt, and the amount of the cash tip reported on the receipt approximates the difference between the invoiced charge and the payment amount on the receipt, and A significant shift in historical tipping or payment practices between the payor and the tip recipient occurs. Moreover, the final regs establish an irrebuttable presumption that a “tip” reflects a recharacterization of wages, payment for services or other income when the employer is the payor of a cash tip received by the employee. The presumption also is triggered if the tip recipient has a direct ownership interest in the tip payor. Questions? If you receive tips for work you perform, check the list of occupations eligible for the deduction and plan accordingly. If you have any questions about this tax break, contact us. We can help you determine if the tips you receive qualify for the deduction. © 2026

Tax mitigation strategies when rebalancing your investment portfolio

April 28, 2026

Large stock market gains in recent years, coupled with some significant volatility in 2026, have left many investors with portfolios that are out of balance with their desired asset allocation. If you haven’t rebalanced recently, it may be time to do so. But you also must consider the tax implications. Careful planning can minimize the tax cost of rebalancing. What does rebalancing mean? When you built your investment portfolio, you took several factors into account, such as your performance goals, risk tolerance and age, to arrive at an allocation across asset classes (such as money market funds, stocks and bonds) and subcategories (such as small-cap vs. mid-cap vs. large-cap U.S stocks and U.S. Treasury vs. municipal bonds). When one asset class (or subcategory) outperforms, it will become a larger portion of your portfolio than your original asset allocation. This situation can potentially increase your risk and cause your portfolio to no longer align with your goals. To keep your asset allocation in alignment, monitor your portfolio regularly and rebalance it as needed. Rebalancing involves selling some investments in classes that have become overweighted, usually appreciated stocks and mutual fund shares. You then reinvest the proceeds in other asset classes to help achieve your desired allocation. But the gain you recognize from selling appreciated investments will be currently taxable — unless the investments are held in tax-advantaged retirement accounts, such as 401(k)s and IRAs. Taxable brokerage accounts When you file your tax return, your recognized capital gains for the year are netted against your recognized capital losses. If your gains in your taxable accounts exceed your losses, you have a net capital gain. If a net capital gain is from investments held for more than a year, it will be taxed at the federal long-term gains rate. Most individuals will pay 15%, but, depending on your income, the rate could be 0% or 20%. Also depending on your income, you may owe the 3.8% net investment income tax (NIIT) on all or part of your net long-term gain. Depending on your state, you might owe state income tax, too. If you have a net capital gain from investments held for one year or less, it will be taxed at the short-term gains rate. This is your ordinary federal income tax rate, which may be as high as 37%. You may also owe the NIIT on all or part of your net short-term gain. And, again, you might owe state income tax. If losses in your taxable accounts for the year exceed your gains, you have a net capital loss. You can deduct the loss against up to $3,000 of ordinary income ($1,500 if you’re married and file separately). Any remaining net capital loss is carried over to next year. Tax-advantaged retirement accounts If you sell assets held in a tax-advantaged retirement account, the resulting gains and losses affect your account balance. But they have no tax impact until you start taking withdrawals. If it’s a non-Roth account, the taxable portion of withdrawals (generally any amount attributable to appreciation or to contributions that were pretax or deductible) will be taxed at your ordinary federal income tax rate. Depending on your state, you may also owe state income tax. If it’s a Roth account, qualified withdrawals will generally be income-tax-free for federal purposes. This includes withdrawals attributable to appreciation. Tax-smart strategies If you have both taxable and tax-advantaged accounts, consider them together when rebalancing your portfolio. For example, let’s say your overall portfolio across brokerage and retirement accounts has become overweighted in large-cap U.S. stocks. You can save taxes for the current year if you sell some of this appreciated stock from a retirement account because the gain won’t be taxed. Sometimes selling appreciated assets in a taxable brokerage account will be necessary to achieve rebalancing goals. In this case, look to see if there are also assets in that account (or another taxable account) that you can sell at a loss. The recognized loss can offset some or all of your capital gains on the appreciated assets you sell. Remember that selling assets at a loss in your tax-advantaged retirement account won’t provide a current-year tax loss. If you need to sell appreciated assets in a brokerage account and you won’t be able to recognize enough losses to offset your gains, try to sell assets you’ve held more than one year. That way, the gain will be taxed at your lower long-term gains rate. Rebalancing involves not only selling assets in classes that have become overweighted but also using the proceeds to buy assets in classes that have become underweighted. As you invest in new assets, consider which assets make more sense to hold in taxable vs. tax-advantaged accounts. It generally makes sense to hold the investments you think will generate the highest long-term returns in a Roth account, because you can eventually take the resulting income and gains out free of federal income taxes. And if you do a lot of short-term trading that would generate high-taxed short-term gains in a taxable brokerage firm account, it makes sense to do the trading in a tax-advantaged retirement account. Look beyond current tax consequences Despite the significant impact taxes can have, don’t make investment decisions — including those related to rebalancing your portfolio — based primarily on current-year tax consequences. You should also consider investment goals, time horizon, risk tolerance, investment-specific factors, fees and the long-term tax consequences. If you have questions or would like more information about investment portfolio rebalancing, contact us. © 2026

Unlock tax-free gains with QSB stock

April 27, 2026

If you run your business as a C corporation, you may be eligible for a potentially significant tax break for qualified small business (QSB) stock. This opportunity has existed for years, but recent tax law changes have enhanced it. What’s a QSB corporation? QSB corporations are a special type of C corporation. At the entity level, QSB corporations are generally treated as regular C corporations for legal and federal income tax purposes. So, most of the standard advantages and disadvantages of C corporation status apply equally to QSB corporations, including the 21% flat federal income tax rate on corporate income. However, QSB shareholders can potentially enjoy a significant tax advantage: A special gain exclusion rule can allow them to avoid the federal income tax hit on up to 100% of the gain from selling QSB stock. C corporations that own QSB stock aren’t eligible for the gain exclusion. But sales of QSB stock held by pass-through business entities — such as S corporations, partnerships and, typically, limited liability companies — may be eligible. The break is effectively passed through to individual pass-through entity owners. Which shares qualify as QSB stock? To be eligible for the QSB stock gain exclusion, several requirements must be met, including the following: You must acquire the shares upon original issuance by the corporation or by gift or inheritance. The corporation must be a QSB corporation on the date the stock is issued and for substantially all the time you own the shares. Among other things, this means it must not have assets that exceed $75 million ($50 million if the stock was issued on or before July 4, 2025). The $75 million limit will be indexed for inflation after 2026. The corporation must actively conduct a qualified business. Service businesses and certain other businesses don’t qualify. (Contact us for a complete list of nonqualified businesses.) Timing is also critical. To take advantage of the 100% gain exclusion for sales of QSB stock, you must have acquired the shares after September 27, 2010, and held them for at least five years. How did the OBBBA expand the exclusion? In addition to raising the QSB asset ceiling, the One Big Beautiful Bill Act (OBBBA) enhanced the gain exclusion rules for QSB shares acquired after July 4, 2025. It allows a 50% gain exclusion for QSB stock held for at least three years and a 75% gain exclusion for QSB stock held for at least four years. The 100% gain exclusion still applies to QSB stock held for at least five years. For QSB shares acquired after July 4, 2025, your excludable gain for any year is limited to the greater of: 10 times your aggregate tax basis in the QSB stock that was sold, or $15 million ($7.5 million if you were married but filed separately), reduced by the amount of gain you excluded in prior tax years from sales of QSB stock issued by the same corporation. When the $15 million (or $7.5 million) restriction applies, it’s effectively a lifetime limitation. Next steps The gain exclusion for QSB stock and the flat 21% corporate federal income tax rate are two powerful incentives to operate a business as a QSB corporation. You can potentially convert an existing unincorporated business into a QSB corporation by incorporating it. Contact us to learn more about this tax-saving strategy. We can help you navigate the complex rules and requirements. © 2026

If you’re charitably inclined, your estate plan can benefit from a donor-advised fund

April 23, 2026

Donor-advised funds (DAFs) have become increasingly popular among individuals and families who want to simplify their charitable giving while maximizing tax efficiency. According to the 2025 Annual DAF Report produced by the Donor Advised Fund Research Collaborative, in 2024, the total number of DAF accounts reached a record high of 3.56 million. Total assets in DAFs increased 27.5%, with total invested funds reaching $326.5 billion. Here’s how a DAF might fit into your charitable giving strategy and estate plan. DAFs in action A DAF is a charitable investment account that generally requires an initial contribution of at least $5,000. It’s typically managed by a financial institution or an independent sponsoring organization, which charges an administrative fee based on a percentage of the deposit. From a tax perspective, DAFs offer significant benefits. Contributions are generally deductible in the year they’re made (assuming you itemize deductions), even if the funds are distributed to charities in future years. This is particularly valuable in high-income years when you may want to offset income with a sizable charitable deduction but don’t know exactly which charities you’d like to benefit. Additionally, donating appreciated assets, such as publicly traded stock, allows you to avoid the capital gains tax liability you’d incur if you sold the assets. Yet you can still deduct their fair market value. (Be aware that some DAFs only allow contributions of cash or cash equivalents.) Another DAF advantage is administrative simplicity. Unlike private foundations, DAFs don’t require the donor to manage compliance, file separate tax returns or oversee grant administration. The sponsoring organization handles recordkeeping, due diligence and distribution logistics, allowing you to focus on your charitable intent rather than administrative burdens. DAFs can also enhance strategic giving. Funds within a DAF can be invested and potentially grow tax-free, increasing the amount ultimately available for charitable purposes. You can take time to thoughtfully select the charities, involve family members in philanthropic decisions and create a more intentional giving strategy rather than making rushed year-end donations. Estate planning benefits Integrating a DAF into an overall estate plan can amplify its benefits. It can serve as a centralized vehicle for a family’s charitable legacy, helping to align philanthropic goals across generations. You can name successor advisors — such as children or other heirs — who can recommend grants from your DAF after your lifetime, fostering continued family engagement in charitable giving. From an estate tax standpoint, DAFs are also beneficial. Assets contributed to a DAF — whether during your life or at death — are removed from your taxable estate. This can be particularly advantageous for high-net-worth individuals seeking to reduce estate tax exposure while supporting causes they care about. Additionally, you can designate a DAF as a beneficiary of retirement accounts, such as IRAs. Because these accounts are typically subject to income tax when an individual beneficiary takes distributions, leaving them to a charitable vehicle, such as a DAF, can be tax-efficient. (But think twice before naming a DAF as the beneficiary of a Roth account, because distributions would generally be tax-free to an individual beneficiary.) Coordination is key It’s important to coordinate a DAF with your other estate planning strategies. For example, ensure that your charitable intentions are clearly documented and aligned with your overall distribution strategy. We can help structure your DAF contributions and beneficiary designations to maximize both tax savings and philanthropic impact. © 2026

How to ensure your business really owns its intellectual property

April 22, 2026

Whether it’s a trademark, copyright, patent, trade secret or other piece of IP, its ultimate value to your business depends on you owning it. Without airtight agreements with employees and independent contractors, these workers may claim that the IP they research and develop belongs to them. Some companies learn they don’t actually own IP assets only when they’ve engaged a business valuation professional in preparation for a sale, or when employees leave and take IP with them. To prevent unexpected ownership issues and costly disputes that could create risk and diminish your business’s value, take action now. What the law says Federal copyright law and the laws of most states mandate that employees and independent contractors who invent products, write materials and develop software may be the owners of the IP rights. In fact, in some states, employers may only have a limited license to inventions created by employees, even if they were invented “on the clock” or using company resources. Fortunately, you can help prevent ownership disputes, including litigation. All states permit businesses to require workers to sign copyright, IP and invention assignment agreements, subject to applicable legal limitations. Work with an attorney who specializes in IP to draft a standard agreement based on your state’s laws. It should require the employee or contractor to turn over or legally “assign” IP rights to your business. In addition, it should mandate that the employee or contractor assist your company’s legal counsel in securing and enforcing these rights. It’s also important to apply these agreements consistently and enforce them in practice, because inconsistent use can weaken your position in disputes and merger and acquisition due diligence. Go a step further When you hire workers (or when you require them to sign an agreement), make sure you ask them to identify all pre-existing inventions that are to be excluded from the agreement. For example, they may have patented inventions on their own or created trademarks for previous employers. Then request that they give up claims to any new inventions that are related to your business activities, even if the inventions are developed during their nonworking hours. For example, let’s say your company develops 3D printing software. Your agreement should prohibit your code writers from creating related design tools at home and then selling them to your competitors. If, however, an employee working on her own time and with her own resources develops software that’s unrelated to your business, that IP likely belongs to her. Some states, such as California, prevent employers from claiming such IP or asking employees to sign away their rights to it. Legal and financial advice Ultimately, safeguarding IP isn’t a passive exercise but a deliberate business discipline that requires foresight, structure and legal precision. Although an attorney’s guidance is critical for this purpose, financial advisors also play an important role. We can help you address IP ownership issues before you sell your business or before workers leave your employment. We can also help identify financial and tax considerations of IP. Contact us for more information. © 2026