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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A family business owner needs both an estate plan and a succession plan

August 28, 2025

For family business owners, an estate plan and a succession plan often work in tandem, ensuring that both personal and business affairs transition smoothly. Your estate plan can help ensure that your assets are distributed according to your wishes and provide contingencies in the event of your death or disability before retirement. Your succession plan can pave the way for a seamless transfer of leadership upon your retirement. Here’s how they work together. Two types of succession One reason transferring a family business is so challenging is the distinction between ownership and management succession. When a company is sold to a third party, ownership and management succession typically happen simultaneously. But in the family business context, there may be reasons to separate the two. From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing estate taxes. On the other hand, you may not be ready to hand over the reins of your business or you may feel that your children aren’t yet prepared to take over. There are several strategies owners can use to transfer ownership without immediately giving up control, including: Placing business interests in a trust, family limited partnership or other vehicle that allows the owner to transfer substantial ownership interests to the younger generation while retaining management control, Transferring ownership to the next generation in the form of nonvoting stock, or Establishing an employee stock ownership plan. Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing heirs outside the business with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth while allowing those who work in the business to take over management. Unique conflicts One more unique challenge presented by family businesses is that the older and younger generations may have conflicting financial needs. Fortunately, there are strategies available to generate cash flow for the owner while minimizing the burden on the next generation. They include: An installment sale of the business to children or other family members. This provides liquidity for the owners while easing the burden on the younger generation and improving the chance that the purchase can be funded by cash flows from the business. Plus, as long as the price and terms are comparable to arm’s length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes. A grantor retained annuity trust (GRAT). By transferring business interests to a GRAT, owners obtain a variety of gift and estate tax benefits (provided they survive the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owners’ children or other beneficiaries. GRATs are typically designed to be gift-tax-free. Because each family business is different, it’s important to work with your estate planning advisor to identify appropriate strategies in line with your objectives and resources. Cover all your bases Ultimately, having both a succession plan and an estate plan in place is an act of foresight and care. These plans protect loved ones, preserve wealth and provide clarity in uncertain times. Just as important, they reduce the likelihood of conflicts among heirs or stakeholders, helping to ensure that what you’ve worked hard to build continues to thrive. However, integrating a succession plan with your estate plan can be complex and arduous. Fortunately, you don’t have to go it alone. Contact us for assistance. © 2025

Shining a light on your business’s brand

August 27, 2025

Your business’s brand is more than just a logo or tagline. It represents the culmination of everything you’ve accomplished to date, as well as a promise to uphold the reputation you’ve established. But that doesn’t mean your brand has to remain static. In fact, it may need a refresh as your company grows, markets evolve and customer expectations change. The only way to know for sure is to occasionally shine a light on your brand to determine whether it’s still optimally visible to the people you want to reach. Locate yourself When reassessing your brand, first locate where your company stands today. Consider its strengths and how they’ve evolved over time — or very recently. Maybe you’ve pivoted over the last several years to address changing economic or market conditions. Look for strong suits such as: Notable excellence in product or service design, Exceptional customer service, Providing superior value for your price points, and Innovation in your industry. You need to match your business’s mission, vision and strengths to the needs and wants of the market you serve — and express that through your brand. To that end, ask current customers what they like about doing business with you. And survey both customers and prospects about what they consider when making buying decisions. Pinpoint your personality If you look at any widely known brand, you’ll see a logo and broader branding effort that conveys a certain personality. Some companies want to appear creative and playful; others want to communicate stability and security. What personality will draw customers to your business? You may think every company in your industry has the same target audience. If that’s true, you must come up with an edge that differentiates your business from its rivals. Your company may have various points of contact with customers, such as business cards, print advertisements and catalogs, and your website’s home page and social media accounts. All play a role in your brand’s personality. Review what your company does at each contact point, considering whether and how these efforts accurately and effectively represent the business’s core values and emphasize its strengths. Doing so will give you more insight into the best way to portray your personality through your brand. Check up on the competition Of course, competitors have brands all their own — and they’re after your target audience. So, in creating or refining your brand, you’ll need to identify their tactics and develop countermeasures. To do so, engage in competitive intelligence. This simply means ethically and legally gathering information on their latest products or services, pricing and special offers, marketing and advertising methods, and social media activities. In some cases, you may discover that a full rebranding campaign is necessary to differentiate your business from the competition. For example, let’s say a major player has entered your market and you’re worried about visibility, or perhaps your brand is blurring with another company’s. Stand out Branding is an ongoing process of reflecting on your company’s identity and refining how you present it to the world. By building on your strengths, expressing a clear and consistent personality, and keeping a close eye on competitors, your business can stand out in a crowded marketplace. Let us help you evaluate branding from a cost-planning perspective to ensure that any chosen strategy aligns with your budget and strategic goals. © 2025

Investing in qualified small business stock now offers expanded tax benefits

August 26, 2025

By purchasing stock in certain small businesses, you can diversify your investment portfolio. You also may enjoy preferential tax treatment, some of which is getting even better under the One Big Beautiful Bill Act (OBBBA) that was signed into law in July: Qualified small business (QSB) stock now offers more tax-saving opportunities. QSB defined A QSB generally is a U.S. C corporation that meets two requirements, one of which has been eased by the OBBBA to allow more businesses to qualify: 1. It must be engaged in an active trade or business. A qualified active business is generally any trade or business other than: Service businesses in the following fields: health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage services, Banking, insurance, financing, leasing, investing and similar businesses, Farming businesses, Certain oil, gas and mining businesses, and Operators of hotels, motels, restaurants and similar businesses. Additionally, the company must use at least 80% of its assets (by value) to conduct one or more qualified active businesses. And no more than 10% of its assets can consist of nonbusiness real estate. 2. It must have assets below a certain ceiling. Before the OBBBA, the business’s aggregate gross assets generally couldn’t exceed $50 million. The OBBBA increases the asset ceiling to $75 million (adjusted for inflation after 2026) for stock issued after July 4, 2025. If the issuer owns more than 50% of another corporation’s stock, the subsidiary’s assets are included for purposes of the gross asset test. A corporation isn’t disqualified if its assets grow beyond the threshold after issuing the stock. A valuable gain exclusion When QSB stock tax breaks were initially introduced, you could exclude 50% of your capital gain from the sale of QSB stock if you’d held it at least five years. Subsequently, Congress enhanced the exclusion. If you acquired QSB stock after February 17, 2009, and before September 28, 2010, 75% of the gain is excludible after the five-year holding period. If you acquired it on or after September 28, 2010, the exclusion is 100% after five years. Now 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. If the QSB stock is received by gift or inheritance, the transferor’s holding period is added to the recipient’s. Additional rules To qualify for the gain exclusion, generally you must acquire the stock as part of an original issuance. In other words, you must acquire it directly from the corporation (or through an underwriter) — not from an existing shareholder — in exchange for money or property (other than stock) or as compensation for services. This requirement has some exceptions, including for stock received by gift or inheritance. There is also a limit on the size of the exclusion. The amount of QSB gain on a particular issuer’s stock that you may exclude each year is limited to the greater of $10 million or 10 times your aggregate adjusted tax basis in stock sold during the tax year. Finally, be aware that some states don’t offer QSB gain exclusions. So state-level taxes may still apply. One more opportunity If within 60 days of selling QSB stock you buy other QSB stock with the proceeds, you can defer any tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold. Similar rules apply if QSB stock is converted into a different stock of the same corporation. The original stock’s holding period is added to the new stock’s holding period. Consider carefully QSB stock offers some significant tax benefits. But, as when contemplating any investment, you must think about more than just taxes. You should also consider factors such as your investment goals, time horizon and risk tolerance. Contact us to discuss the tax implications in more detail. © 2025

Divorcing as a business owner? Don’t let taxes derail your settlement

August 25, 2025

Divorce is stressful under any circumstances, but for business owners, the process can be even more complicated. Your business ownership interest is often one of your largest personal assets, and in many cases, part or all of it will be considered marital property. Understanding the tax rules that apply to asset division can help you avoid costly surprises. Tax-free transfers Most assets — including cash and business ownership interests — can be divided between spouses without triggering federal income or gift taxes. Under this tax-free transfer rule, the spouse receiving the asset assumes its existing tax basis (used to determine gain or loss) and holding period (short-term or long-term). Example: If you give your spouse the marital home in exchange for keeping 100% of your company stock, the transfer is tax-free. Both the home and the stock retain their original tax basis and holding period for the new owner. Tax-free treatment applies to transfers made: Before the divorce is finalized, At the time of divorce, and After divorce, if they occur within one year of the marriage ending or within six years if required under the divorce agreement. Future tax consequences While transfers may be tax-free at the time, the recipient will owe taxes if he or she later sells an appreciated asset (where fair market value exceeds the tax basis). For instance, if your ex-spouse receives 48% of your highly appreciated company stock, no tax is due at transfer. However, when he or she sells the stock, your ex will pay any capital gains tax based on your original basis and holding period. Important: Appreciated assets come with built-in tax liabilities, which generally makes them less valuable than an equal amount of cash or non-appreciated property. Always account for taxes when negotiating a divorce settlement. This rule also applies to ordinary-income assets — such as business receivables, inventory or nonqualified stock options. These can be transferred tax-free, but the recipient will report the income and pay taxes when the asset is sold, collected or exercised. Valuation and adjustments for tax liabilities A critical step in a divorce involving a business is determining its value. When valuing a business interest for this purpose, the valuator must understand what’s appropriate under applicable state law and legal precedent because the rules and guidance may vary across jurisdictions. The valuation process may be contentious, especially if one spouse is actively involved in the business and the other isn’t (or will no longer be involved after the divorce is settled). A professional valuation considers tangible assets (including equipment, inventory and property), intangible assets (including intellectual property) and other factors. Potential tax liabilities are also considered during the valuation process. Examples include deferred taxes on appreciated assets, liabilities from unreported income or cash distributions, and implications from goodwill. These adjustments can significantly affect the business interest’s value and the fairness of the settlement agreement. Nontax issues There are a number of issues unrelated to taxes that a divorcing business owner should be prepared to address, including: Cash flow and liquidity. Divorce settlements may require significant cash outlays — for example, to buy out a spouse’s share of the business or to meet alimony and child support obligations. This can strain the business’s liquidity, especially if the owner must take out loans or sell assets to meet these obligations. We can help assess the impact of these financial demands and develop strategies to maintain healthy cash flow, such as restructuring debt or revisiting budgets. Privacy and confidentiality. Divorce proceedings may expose sensitive business information. Financial statements, client lists and proprietary data may become part of the public record. Business owners should work with legal and financial advisors to protect confidentiality, possibly through protective orders or sealed filings. Plan ahead to minimize risk Divorce can create unexpected tax and financial consequences, especially when dividing business interests and retirement accounts (such as 401(k) accounts and IRAs). The financial stakes are often higher for business owners, making careful planning essential. We can help you navigate these rules and structure your settlement to minimize tax liabilities while complying with state community property laws. The earlier you address potential tax issues, the better your financial outcome after divorce. © 2025

How will the changes to the SALT deduction affect your tax planning?

August 22, 2025

The One Big Beautiful Bill Act (OBBBA) shifts the landscape for federal income tax deductions for state and local taxes (SALT), albeit temporarily. If you have high SALT expenses, the changes could significantly reduce your federal income tax liability. But it requires careful planning to maximize the benefits — and avoid potential traps that could increase your effective tax rate. A little background Less than a decade ago, eligible SALT expenses were generally 100% deductible on federal income tax returns if an individual itemized deductions. This provided substantial tax savings to many taxpayers in locations with higher income or property tax rates (or higher home values). Beginning in 2018, the Tax Cuts and Jobs Act (TCJA) put a $10,000 limit on the deduction ($5,000 for married couples filing separately). This SALT cap was scheduled to expire after 2025. What’s new? Rather than letting the $10,000 cap expire or immediately making it permanent, Congress included a provision in the OBBBA that temporarily quadruples the limit. Beginning in 2025, taxpayers can deduct up to $40,000 ($20,000 for separate filers), with 1% increases each subsequent year. Then in 2030, the OBBBA reinstates the $10,000 cap. While the higher limit is in place, it’s reduced for taxpayers with incomes above a certain level. The allowable deduction drops by 30% of the amount by which modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000; when MAGI reaches $600,000, the previous $10,000 cap applies. (These amounts are halved for separate filers.) The MAGI threshold will also increase 1% each year through 2029. Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. If you live in a state without income taxes or opt for the sales tax route for another reason, you don’t have to save all your receipts for the year and manually calculate your sales tax; you can use the IRS Sales Tax Deduction Calculator to determine the amount of sales tax you can claim. (It includes the ability to add actual sales tax paid on certain big-ticket items, such as a vehicle.) The increased SALT cap could lead to major tax savings compared with the $10,000 cap. For example, a single taxpayer in the 35% tax bracket with $40,000 in SALT expenses and MAGI below the threshold amount would save an additional $10,500 [35% × ($40,000 − $10,000)]. The calculation would be different if the taxpayer’s MAGI exceeded the threshold. Let’s say MAGI is $560,000, which is $60,000 over the 2025 threshold. The cap would be reduced by $18,000 (30% × $60,000), leaving a maximum SALT deduction of $22,000 ($40,000 − $18,000). Even reduced, that’s more than twice what would be permitted under the $10,000 cap. The itemization decision The SALT deduction is available only to taxpayers who itemize their deductions. The TCJA nearly doubled the standard deduction. As a result of that change and the $10,000 SALT cap, the number of taxpayers who itemize dropped substantially. And, under the OBBBA, the standard deduction is even higher — for 2025, it’s $15,750 for single and separate filers, $23,625 for heads of household filers, and $31,500 for joint filers. But the higher SALT cap might make it worthwhile for some taxpayers who’ve been claiming the standard deduction post-TCJA to start itemizing again. Consider, for example, a taxpayer who pays high state income tax. If that amount combined with other itemized deductions (generally, certain medical and dental expenses, home mortgage interest, qualified casualty and theft losses, and charitable contributions) exceeds the applicable standard deduction, the taxpayer will save more tax by itemizing. Beware the “SALT torpedo” Taxpayers whose MAGI falls between $500,000 and $600,000 and who have large SALT expenses should be aware of what some are calling the “SALT torpedo.” As your income climbs into this range, you don’t just add income. You also lose part of the SALT deduction, increasing your taxable income further. Let’s say your MAGI is $600,000, you have $40,000 in SALT expenses and you have $35,000 in other itemized deductions. The $100,000 increase in income from $500,000 actually raises your taxable income by $130,000:

If you’re asked to be an executor, be sure you’re up to the task

August 21, 2025

Make no mistake, serving as an executor (or a “personal representative” in some states) is an honor. But the title also includes significant responsibilities. So if a family member or a close friend asks you to be the executor of his or her estate, think about your answer before agreeing to the request. Let’s take a closer look at an executor’s tasks. First steps In a nutshell, an executor handles all jobs required to settle the deceased’s estate. The first task is to obtain certified copies of the death certificate, which are needed to notify financial institutions where the deceased had accounts. Typically, the funeral home or other organization that handled the deceased’s remains can provide them. It’s not unusual to need a dozen or more copies. An executor must also locate and read the will, if one exists. An attorney who specializes in estate planning can advise you on the terms of the will and the laws that apply. If the deceased had a trust, additional responsibilities may be involved. Depending on local law, you may also need to file the will in probate court, even if probate proceedings aren’t necessary. Probate, or the legal process for administering an estate, is more common with larger, more complex estates. If the deceased had minor or dependent adult children, they may need to be connected with their guardians. A clear, logical trail of the actions taken can show that the decisions you made as executor were prudent and in the interest of the estate. This can be critical if a beneficiary contests the estate’s administration. Take inventory of the assets Ideally, the deceased will have created a list of his or her assets. If not, some digging may be required. For instance, reviewing the deceased’s checkbook register or bank account statements may reveal regular deposits to a retirement account or life insurance premium payments. Then you’ll need to find out the value of these assets. If the deceased received government benefits, such as Social Security, notify the agency as soon as possible. You may need to have fine jewelry and similar assets appraised. And you’ll need to maintain insurance on some assets while they remain in the estate, such as vehicles and real estate. File a tax return, settle debts and distribute assets to beneficiaries The deceased’s taxes and debts are typically paid before assets are distributed to the heirs. These might include outstanding tax obligations, funeral expenses, ongoing mortgage and utility payments, and credit card bills. You may need to file an income tax return for the year of the deceased’s death, and check that the deceased’s other tax filings are up to date. If he or she had been sick, it’s possible that some tax obligations were neglected. Estates valued at $13.99 million or less (for 2025) generally don’t need to file estate tax returns. You should be able to open a bank account in the name of the estate to make any payments. If you’ll need to delay payments while you sort out the deceased’s assets and expenses, let creditors know as soon as possible. Keep beneficiaries and heirs apprised of the status of the will. After the deceased’s bills and taxes have been paid, you typically can begin distributing assets according to the terms of the will. However, some states require court approval before you take this step. Close the estate Your final task is to close the estate. This typically occurs after debts and taxes have been paid and all remaining assets have been distributed. Some states require a court action or agreement from the estate’s beneficiaries before the estate can be closed and the executor’s responsibilities terminated. Be aware that completing the executor’s jobs can take a year or more, depending on the complexity of the estate. Moreover, in carrying out these duties, the executor acts as a fiduciary for the estate and can be liable for improperly spending estate assets or failing to protect them. Contact us for additional information regarding the duties of an executor. © 2025

How businesses can fund a buy-sell agreement

August 20, 2025

Businesses with more than one owner benefit from having multiple viewpoints and varying skill sets. However, they also face serious risks of uncertainty and conflict if one of the owners suddenly departs or undergoes a major life change. A carefully crafted buy-sell agreement can guard against these risks — if it’s securely funded. Transfer guidelines A “buy-sell” (as it’s often called) is a legally enforceable contract among a company’s owners that sets guidelines for transferring ownership interests. It gives the remaining owners or the business itself the right — or, in some cases, the responsibility — to buy an exiting owner’s interest if a “triggering event” occurs. Such events may include an owner’s death, disability, divorce, retirement, voluntary departure, and loss of professional license or certification. Essentially, the buy-sell creates a market for a withdrawing owner’s interest. It also defines how the price of an ownership interest will be determined, including identifying a valuation method and standard of value. By outlining when and to whom interests can be sold — and for how much — the agreement ultimately helps prevent conflicts among remaining owners or with the withdrawing owner’s family. Popular choice When a triggering event occurs, a substantial amount of money is typically needed to buy the departing owner’s interests. So, it’s critical to properly fund a buy-sell. One popular choice is life insurance. Although such coverage might seem useful only to provide liquidity in the event of an owner’s death, it’s not limited to such situations. The right policy, sometimes combined with riders or other types of coverage, can help ensure that departing owners or their beneficiaries efficiently receive the agreed-upon price for ownership interests following eligible triggering events. Meanwhile, it can ease the strain on the company’s cash flow and reduce the likelihood that the business will have to sell assets to fund an ownership interest buyout. Various structures Buy-sells can be structured to use life insurance in various ways. One option is a cross-purchase agreement, where each owner takes out a policy on each of the other owners. For example, let’s say you buy coverage for your business partner. If that individual dies, triggering the buy-sell, you’ll collect the death benefit and use it to buy the ownership interest from your partner’s estate. Assuming it’s large enough, the policy should guarantee you’ll have the funding to fulfill your obligations under the agreement. Other benefits include: The insurance proceeds won’t be taxable as long as you plan properly, and Your tax basis in the newly acquired interests will equal the purchase price. On the downside, a cross-purchase agreement can be cumbersome if there are more than a few owners because of the number of policies required. It can also be unfair if there’s a significant disparity in owners’ ages or health, causing the policy premiums to vary substantially. One alternative is establishing a trust or separate partnership to buy a policy on each owner. If an owner dies, the trust or partnership collects the death benefits on behalf of the remaining owners and pays each one’s share of the ownership interest buyout. Another option is a redemption agreement. Under this approach, the business — not the individual owners — buys a policy on each owner’s life. The company holds the insurance and receives the proceeds following a qualifying triggering event, which it then uses to buy a departing owner’s interest. A disadvantage of a redemption agreement is that the remaining owners won’t receive a step-up in basis when the company buys the departing owner’s interest. This can result in higher capital gains taxes. Additionally, in the 2024 case of Connelly v. United States, the U.S. Supreme Court held that the value of corporate-owned life insurance used to meet a redemption agreement should be included in the value of a deceased owner’s business interest for federal estate tax purposes. And that doesn’t include any offsetting reduction for the company’s obligation to redeem the deceased owner’s interest. The ruling may have adverse consequences for estates subject to the federal estate tax. Under current law, the unified federal estate and gift tax exemption is $13.99 million for 2025 and $15 million for 2026. Bottom line The bottom line is, if not properly funded, a buy-sell agreement won’t likely benefit anyone. Work with your attorney to create and occasionally review yours. Meanwhile, we can help you choose an optimal funding strategy and advise you on the tax implications. © 2025

The next estimated tax payment deadline is coming up soon

August 19, 2025

If you make quarterly estimated tax payments, the amount you owe may be affected by the One Big Beautiful Bill Act (OBBBA). The law, which was enacted on July 4, 2025, introduces new deductions, credits and tax provisions that could shift your income tax liability this year. Tax basics Federal estimated tax payments are designed to ensure that certain individuals pay their fair share of taxes throughout the year. If you don’t have enough federal tax withheld from your paychecks and other payments, you may have to make estimated tax payments. This is the case if you receive interest, dividends, self-employment income, capital gains, a pension or other income that’s not covered by withholding. Individuals generally must pay 25% of a “required annual payment” by April 15, June 15, September 15, and January 15 of the following year, to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due on the next business day. The third installment for 2025 is due on Monday, September 15. Payments are made using Form 1040-ES. Amount to be paid The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year’s return was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year. Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld from their paychecks by their employers. Those who make estimated tax payments generally do so in four installments. After determining the required annual payment, divide that number by four and make four equal payments by the due dates. But you may be able to use the annualized income method to make smaller payments. This method is useful to people whose income flow isn’t uniform over the year, perhaps because of a seasonal business. For example, if your income comes exclusively from a business operated in a resort area during June, July and August, no estimated payment is required before September 15. The underpayment penalty If you don’t make the required payments, you may be subject to an underpayment penalty. The penalty equals the product of the interest rate charged by the IRS on deficiencies times the amount of the underpayment for the period of the underpayment. However, the underpayment penalty doesn’t apply to you if: The total tax shown on your return is less than $1,000 after subtracting withholding tax paid; You had no tax liability for the preceding year, you were a U.S. citizen or resident for that entire year, and that period was 12 months; For the fourth (January 15) installment, you file your return by that January 31 and pay your tax in full; or You’re a farmer or fisherman and pay your entire estimated tax by January 15 or pay your entire tax and file your tax return by March 2, 2026. In addition, the IRS may waive the penalty if the failure was due to casualty, disaster or other unusual circumstances, and it would be inequitable to impose the penalty. The penalty can also be waived for reasonable cause during the first two years after you retire (and reach age 62) or become disabled. OBBBA highlights Several provisions of the OBBBA could directly affect quarterly estimated tax payments because they change how much tax some individuals will ultimately owe for the year. For example, the law introduces a temporary (2025 through 2028) additional $6,000 deduction for seniors, which can lower taxable income. It creates new deductions for overtime pay, tips and auto loan interest — available even if you don’t itemize — which can meaningfully reduce estimated liabilities. The bill also increases the state and local tax deduction cap for certain taxpayers and temporarily enhances the Child Tax Credit. Because these deductions and credits apply during the tax year rather than after, they can reduce your quarterly payment obligations mid-year, making it important to recalculate estimates to avoid overpayment or underpayment penalties. Seek guidance now Contact us if you need help figuring out your estimated tax payments or have other questions about how the rules apply to you. © 2025

Lower your self-employment tax bill by switching to an S corporation

August 18, 2025

If you own an unincorporated small business, you may be frustrated with high self-employment (SE) tax bills. One way to lower your SE tax liability is to convert your business to an S corporation. SE tax basics Sole proprietorship income, as well as partnership income that flows through to partners (except certain limited partners), is subject to SE tax. These rules also apply to single-member LLCs that are treated as sole proprietorships for federal tax purposes and multi-member LLCs that are treated as partnerships for federal tax purposes. In 2025, the maximum federal SE tax rate of 15.3% hits the first $176,100 of net SE income. That includes 12.4% for the Social Security tax and 2.9% for the Medicare tax. Together, we’ll refer to them as federal employment taxes. The rate drops after SE income hits $176,100 because the Social Security component goes away above the Social Security tax ceiling of $176,100 for 2025. But the Medicare tax continues to accrue at a 2.9% rate, and then increases to 3.8% at higher income levels because of the 0.9% additional Medicare tax. This 0.9% tax applies when wages and SE income exceed $200,000 for singles and heads of households, $250,000 for married couples filing jointly and $125,000 for married couples filing separately. Tax reduction strategy To lower your SE tax bill, consider converting your unincorporated small business into an S corp and then paying yourself (and any other shareholder-employees) a modest salary. Distribute most (or all) of the remaining corporate cash flow to the shareholder-employee(s) as federal-employment-tax-free distributions. S corp taxable income passed through to a shareholder-employee and S corp cash distributions paid to a shareholder-employee aren’t subject to federal employment taxes. Only wages paid to shareholder-employees are subject to them. This favorable tax treatment places S corps in a potentially more favorable position than businesses conducted as sole proprietorships, partnerships or LLCs. The caveats However, this strategy isn’t right for every business. Here are some considerations: 1. Operating as an S corp and paying yourself a modest salary saves SE tax, but the salary must be reasonable. Otherwise, you run the risk of the IRS auditing your business and imposing back employment taxes, interest and penalties. You can minimize that risk if you gather objective market evidence to demonstrate that outsiders could be hired to perform the same work for salaries equal to what you’re paying. 2. A potentially unfavorable side effect of paying modest salaries to an S corp shareholder-employee is that it can reduce your ability to make deductible contributions to tax-favored retirement accounts. If the S corp maintains a SEP or traditional profit-sharing plan, the maximum annual deductible contribution for each shareholder-employee is limited to 25% of his or her salary. So, the lower the salary, the lower the maximum contribution. However, if the S corp sets up a 401(k) plan, paying modest salaries won’t preclude generous contributions. 3. Operating as an S corp requires extra administrative hassle. For example, you must file a separate federal return (and possibly a state return). In addition, you must scrutinize transactions between S corps and shareholders for potential tax consequences, including any transfers of assets from an existing sole proprietorship or partnership to the new S corp. State-law corporation requirements, such as conducting board meetings and keeping minutes, must be respected. Mechanics of converting To convert an existing sole proprietorship or partnership to an S corp, a corporation must be formed under applicable state law, and business assets must be contributed to the new corporation. Then, an S election must be made for the new corporation by a separate form with the IRS by no later than March 15 of the calendar year, if you want the business to be treated as an S corp for that year. Suppose you currently operate your business as a domestic LLC. In that case, it generally isn’t necessary to go through the legal step of incorporation to convert the LLC into an entity that will be treated as an S corp for federal tax purposes. The reason is because the IRS allows a single-member LLC or multi-member LLC that otherwise meets the S corp qualification rules to simply elect S corporation status by filing a form with the IRS. However, if you want your LLC to be treated as an S corp for the calendar year, you also must complete this paperwork by no later than March 15 of the year. Weighing the upsides and downsides Converting an existing unincorporated business into an S corp to reduce federal employment taxes can be a wise tax move under the right circumstances. That said, consult with us so we can examine all implications before making the switch. © 2025

Using POD or TOD accounts may result in undesirable results in certain situations

August 14, 2025

Payable-on-death (POD) and transfer-on-death (TOD) accounts are attractive estate planning tools because they allow assets to pass directly to named beneficiaries without going through probate. This can save time, reduce administrative costs and provide your beneficiaries with quicker access to their inheritance. However, there are drawbacks to using these accounts. In some cases, they can lead to unintended — and undesirable — results. Pluses and minuses POD and TOD accounts are relatively simple to set up. Generally, POD is used for bank accounts while TOD is used for stocks and other securities. But they basically work the same way. You complete a form provided by your bank or brokerage house naming a beneficiary (or beneficiaries) and the assets are automatically transferred to the person (or persons) when you die. In addition, you retain control of the assets during your lifetime, meaning you can spend or invest them or close the accounts without beneficiary consent. While POD and TOD accounts can streamline asset transfers, they also have limitations and potential drawbacks. These designations override instructions in your will, which can lead to unintended consequences if your estate plan isn’t coordinated across all accounts and assets. They also don’t provide detailed guidance for how the beneficiary should use the funds, so they may not be the best fit if you want to place conditions or protections on the inheritance. Another consideration is that if your named beneficiary predeceases you and you haven’t updated the account, the funds may end up going through probate after all. Not right for all estates Despite their simplicity and low cost, POD and TOD accounts may have some significant disadvantages compared to more sophisticated planning tools, such as revocable trusts. For one thing, unlike a trust, POD or TOD accounts won’t provide the beneficiary with access to the assets in the event you become incapacitated. Also, because the assets bypass probate, they may create liquidity issues for your estate, which can lead to unequal treatment of your beneficiaries. Suppose, for example, that you have a POD account with a $200,000 balance payable to one beneficiary and your will leaves $200,000 to another beneficiary. When you die, the POD beneficiary automatically receives the $200,000 account. But the beneficiary under your will isn’t paid until the estate’s debts are satisfied, which may reduce his or her inheritance. Unequal treatment can also result if you use multiple POD or TOD accounts. Say you designate a $200,000 savings account as POD for the benefit of one child and a $200,000 brokerage account as TOD for the benefit of your other child. Despite your intent to treat the two children equally, that may not happen if, for example, the brokerage account loses value or you withdraw funds from the savings account. A more effective way to achieve equal treatment would be to list the assets in both accounts in your will or transfer them to a trust and divide your wealth equally between your two children. Coordinate with other estate planning documents POD and TOD accounts are often best suited for relatively straightforward transfers where you want to ensure quick, direct access for your beneficiary — such as passing a savings account to a spouse or adult child. They work well as part of a broader estate plan, especially when coordinated with a will, trust or other legal documents to ensure that your wishes are carried out consistently. For more complex family or financial situations — blended families, minor beneficiaries, or significant assets — additional estate planning tools may be necessary to avoid conflicts and ensure long-term protection of your legacy. Contact us for additional details. © 2025