Intrafamily loans must be handled with care

If you decide to hire new employees, adjust prices or expand operations, you shouldn’t rely on financial information that might be months out of date. And this may be the case if your business generates only one set of financial statements annually. Interim financial reports can provide a fresher picture of operational performance and strategic direction. Used consistently, such reports can help you spot emerging problems and potential opportunities. Your reporting routine Interim reporting covers periods shorter than one fiscal year, such as a month or quarter. The appropriate frequency depends on your business’s size, complexity, seasonal patterns and financing requirements. Rapid growth or cash flow problems may warrant more frequent updates than if your operations are steady and predictable. To produce an interim report, start with your most recent set of financial statements. Then supplement it with other relevant information, such as inventory turnover rates or profitability by product or service. (We can help you gather what you need and set up an interim report template.) Beyond revenue growth Once you have an interim report, compare the results with your budget and your financial statements from that period of the previous year. Be sure to account for seasonality. A slow quarter may be normal for your business, but disappointing results during your historically busy months should probably ring alarm bells. Revenue doesn’t tell the whole story. Because of higher labor costs, supplier price increases or excessive discounting, sales may rise while profit margins shrink. Understanding the cause can help you decide whether to adjust pricing, renegotiate purchasing terms, change your sales approach or take no action at all. Don’t forget to review your balance sheet and statement of cash flows together. Growing accounts receivable may reflect increased sales, slower collections or both. Excess inventory can tie up cash, while shortages can delay orders. Increasing reliance on a line of credit deserves investigation, especially if you borrow to cover recurring operating shortfalls. Dependable numbers An unexpected result in an interim report doesn’t necessarily signal a crisis. But don’t dismiss it as something you can fix at year end. Immediately determine whether the anomaly reflects a business change, an accounting error or an outdated estimate. Keep in mind that consistency matters in interim reports. Record revenue and expenses in the appropriate periods for your business’s accounting method. For accrual-based reports, evaluate applicable expense accruals throughout the year, including bonuses and profit-sharing obligations. Omitting these costs until year end can overstate interim profitability. Inventory records and customer balances also need attention. Reconcile key accounts, investigate inventory discrepancies and assess whether outstanding receivables are collectible. Support any estimates and revise them if circumstances change. Although accounting software can speed report preparation, the quality of its output depends on accurate entries and review. Following through on the findings When you review interim reports, assign practical responses to them — for example, a conclusion, an action or a further investigation. Then use your next interim report to evaluate whether your response was effective. Contact us to set up an interim reporting schedule so you can translate financial results into more informed business decisions. © 2026 

Retirement is far from most teenagers’ minds when they get their first jobs. Most young people are more interested in spending their earnings or saving for a shorter-term goal. But those early earnings create a significant financial opportunity: decades of potential tax-advantaged growth. Even modest contributions to an IRA now can substantially multiply over time. Moreover, a retirement account can help teens get into the habit of saving. Traditional vs. Roth IRAs Working teens can opt for a traditional IRA or a Roth IRA. Both offer the power of tax-advantaged compounding. For example, just $2,000 contributed to an IRA earning 5% annually will grow to nearly $23,000 50 years later. But there are important tax differences between the two types of IRAs: Traditional IRA. Contributions to a traditional IRA will usually be deductible for teens. The deduction may be phased out if a taxpayer’s income exceeds certain amounts and he or she (or his or her spouse) participates in a qualified retirement plan, such as a 401(k). But teenagers generally won’t be affected by these limitations. On the downside, traditional IRA withdrawals are generally taxable. In addition, a penalty applies if funds are withdrawn before age 59½ — unless an exception is available — and a larger penalty applies if required minimum distributions (RMDs) aren’t taken beginning at the age required (75 for today’s teens if future legislation doesn’t increase it). Roth IRA. Roth IRA contributions are never deductible. But withdrawals — including earnings — are tax free as long as the account owner is age 59½ or older and the account has been open at least five years. In addition, contributions can be withdrawn at any time tax- and penalty-free. There also aren’t RMDs for Roth IRAs during the original owner’s lifetime. To contribute to either a traditional or a Roth IRA, a teen must have taxable compensation, such as wages or net earnings from self-employment. For 2026, the annual contribution limit for IRAs is the lesser of taxable compensation or $7,500. This is on a combined basis for both types of IRAs. Typically, a parent or other adult opens a custodial IRA for a minor. The child takes control when he or she reaches the age specified under applicable state law and the account arrangement. Roth IRA advantages Because many working teenagers have little or no taxable income after their standard deduction is applied, a deduction for a traditional IRA contribution often provides little immediate tax benefit. As a result, a Roth IRA can be the more attractive option. Consider Abigail, 16, who started her first part-time job at a local cafe and expects to earn $7,500 in 2026. Her parents want to help her develop a habit of saving. They set up a Roth IRA for her because her account should have many decades to grow and qualified distributions will be tax-free. Abigail’s income is low enough that she likely will owe no federal income tax, so a current deduction for traditional IRA contributions will probably offer little, if any, benefit. Even if she does owe some tax, she’ll be in the lowest bracket (10%). The potential for tax-free qualified distributions in the future is, therefore, more valuable than a deduction for a traditional IRA contribution now. Abigail doesn’t even have to use all of her own earnings to make the contribution. If she wants to contribute only $1,500 of her earnings, her parents, grandparents or others could give her $6,000 so she can contribute the full $7,500 and still have $6,000 available for spending or a shorter-term savings goal. But her family should consider any gift-tax reporting or college financial-aid implications before using this approach. An IRA alternative Section 530A (Trump) accounts provide another tax-advantaged savings opportunity for teens. They’re similar to an IRA, but contributions don’t require the child to have earned income. (The $1,000 federal contribution you probably have heard about is limited to qualifying children born from 2025 through 2028, so today’s teens aren’t eligible.) Even though, like a Roth IRA, contributions aren’t deductible, the portion of distributions attributable to growth will be taxable. Also, depending on how much a working teen earns during the year, he or she may be able to contribute more to a traditional or Roth IRA. Annual contributions to a 530A account are generally limited to $5,000, though some special contributions don’t count toward that limit. 530A accounts also generally prohibit distributions and restrict investments during the growth period (until the year the child turns age 18). So a traditional or Roth IRA may offer a working teen more flexibility. If a family can afford to contribute to both an IRA and a 530A account for a teen who’s eligible for both, that may be an even more powerful savings opportunity, with potentially a combined contribution of as much as $12,500 for 2026. But because 530A accounts were only recently enacted, IRS and Treasury guidance is still developing. Future guidance could affect the rules. Employing your children If your teen doesn’t currently have earned income but you own a business, consider hiring him or her. Employing your child can provide the earned income needed for an IRA contribution, and you can deduct his or her pay as a business expense. The child should be old enough to handle the assigned responsibilities, perform real work and receive reasonable compensation. An excessive pay rate for routine duties could draw IRS scrutiny. Keep records of the child’s duties, hours and pay. If the business is a sole proprietorship or a partnership in which each partner is a parent of the child, wages paid to a child under age 18 aren’t subject to Social Security and Medicare taxes. Wages paid to a child under age 21 aren’t subject to federal unemployment tax. But the wages are subject to federal income tax withholding regardless of age. If the business is a corporation, or a partnership in which not every partner is a parent of the child, the wages are subject to federal income tax withholding and Social Security, Medicare and federal unemployment taxes regardless of the child’s age. That’s true even if a parent controls the corporation. Put early earnings to work For a working teen, an IRA can provide an early start on decades of tax-advantaged saving. 2026 contributions can be made until April 15, 2027, but the income to support them must be earned by December 31, 2026. Whether a traditional or Roth IRA is better — and how a 530A account might fit in — depends on a variety of factors. We can help you determine what fits your family’s circumstances and put those early earnings to work for the future. © 2026 

IRS audit rates remain relatively low, but that’s little consolation if the IRS selects your return for an examination. Although most taxpayers will never face an audit, business owners often have more complex tax situations that can attract IRS attention. The good news is that with proper preparation, detailed records and professional guidance, you can make the process far less stressful. Am I at risk for an IRS audit? The IRS accepts most returns as filed. However, your return may be selected for examination because of discrepancies identified by IRS systems, unusual reporting patterns, information reported by third parties or, in some cases, random statistical sampling. Business owners should remember that an IRS examination may not be limited to a business tax return. Many small businesses operate as sole proprietorships, partnerships or S corporations (or as limited liability companies taxed as one of those structures). For these entities, business income, deductions and credits flow through to the owners’ individual returns. As a result, IRS questions about business activities may arise during an examination of either a business return or an owner’s individual return. While there’s no guaranteed way to eliminate your audit risk, the best way to manage an audit is to be prepared. Maintain organized records throughout the year, including invoices, receipts, bank statements, payroll records, canceled checks and other documentation supporting items reported on your tax returns. Keeping complete records in a central location, whether physical or electronic, can make responding to IRS inquiries much easier. Which issues does the IRS target? Some returns are more likely to attract IRS scrutiny than others. Common issues that may lead to questions include: Significant inconsistencies between current and prior-year returns, Income reported on a tax return that doesn’t match Forms W-2, 1099 or other information returns received by the IRS, Gross profit margins or expense levels that differ substantially from similar businesses in the same industry, Large or unusual deductions compared to income, Repeated business losses, and Mathematical errors or incomplete information on a return. Certain deductions often receive closer scrutiny because they have strict substantiation requirements. Examples include deductions for vehicles, travel, meals and home offices. Pass-through entities also present special audit risks. For example, the IRS may examine whether S corporation shareholder-employees are receiving reasonable compensation or whether owners have sufficient tax basis to claim losses and deductions. Proper documentation is essential in these areas. How should I respond to an IRS notice? If your return is selected for examination, you’ll generally be notified by mail. The IRS doesn’t initiate audits through email, text messages or social media. Be wary of unsolicited messages claiming to be from the IRS — these are likely scams. Many audits involve a request for documentation supporting specific items reported on a tax return. In some cases, taxpayers may be asked to meet with an IRS representative at a local office. More complex examinations may involve a field audit conducted at the taxpayer’s home, business or representative’s office. However, most examinations are handled through correspondence rather than in-person visits. If you receive an IRS notice, it will explain any discrepancies and give you time to respond. Carefully review the request and gather all documents relevant to the items in question. If records are missing, you’ll have to reconstruct the information using other available documentation. If you’re selected for an audit, call us as soon as possible. By involving us early in the process, our experienced tax professionals can help you: Understand the issues the IRS is examining, Gather and organize the necessary records, Communicate with the IRS on your behalf when appropriate, and Respond to the examination efficiently and effectively. In most situations, the IRS has three years after a return is filed to assess additional tax, though longer periods may apply in certain circumstances. Because examinations often occur well after a return has been filed, you should retain finished returns and any supporting documentation for the appropriate period. As a general rule, you should hold on to tax records for at least six years after they’re due or filed, whichever is later. However, you should keep certain tax-related records longer. For example, keep records related to a bad debt deduction for seven years. And keep copies of your tax returns and other proof of filing indefinitely to document that you filed. (There’s no statute of limitations for the IRS to assess tax if you didn’t file a return or you filed a fraudulent one.) Am I audit ready? Don’t let the possibility of an audit keep you up at night. Most IRS examinations are routine and manageable when taxpayers maintain accurate, detailed records and respond promptly to IRS inquiries. If you receive an IRS notice, we can help you prepare for an examination and represent your interests throughout the audit process. Or if you simply want to strengthen your recordkeeping and tax compliance processes, contact us to assess your audit readiness and identify opportunities for improvement. © 2026 

Estate planning can take on added significance when a child, spouse or other loved one has a disability. Leaving assets directly to that person — even with the best intentions — could interfere with his or her eligibility for certain means-tested government benefits. A special needs trust (SNT), sometimes called a “supplemental needs trust,” may be the answer. Assist without jeopardizing eligibility An SNT can help a loved one with a disability maintain eligibility for means-tested government programs while providing additional financial support. Supplemental Security Income (SSI) provides monthly payments to qualifying individuals with limited income and resources, while Medicaid can provide valuable health care coverage. For SSI purposes, an individual generally may have no more than $2,000 in countable resources. Medicaid eligibility rules vary by state and eligibility category. Not all property counts toward the SSI resource limit. For example, a home used as the beneficiary’s principal residence generally is excluded, as is one vehicle used for transportation. Certain life insurance policies, burial funds and spaces, household goods, and personal effects may also be excluded, subject to applicable requirements. Because the rules governing which assets count can be complex, evaluate eligibility based on the beneficiary’s particular circumstances. Word the trust carefully A properly structured SNT allows assets to be held and managed by a trustee for the benefit of a person with a disability without being treated as the beneficiary’s countable resources for SSI purposes. The beneficiary generally can’t have unrestricted access to or control over the trust assets. Instead, the trustee determines when and how distributions are made according to the trust agreement and applicable benefit rules. With those limitations in mind, an SNT’s assets can pay for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation (including wheelchair-accessible vehicles), insurance, computers, and home modifications. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation and hobbies. Keep in mind that the trust must not pay money directly to the beneficiary. Rather, it must distribute funds — on behalf of the beneficiary — directly to the third parties providing goods and services to him or her. Choose the right trustee Selecting the right trustee is an important part of establishing an SNT. The trustee will manage and invest trust assets, make distributions, maintain records, and comply with the trust document. Just as important, the trustee should understand your loved one’s individual circumstances and how trust distributions may interact with public benefits. You might choose a trusted family member, a professional trustee or a combination of individuals and professionals, depending on your situation. Coordinate the trust with your estate plan Creating an SNT is only one part of the process. Your other estate planning documents and beneficiary designations should be coordinated with the trust. For example, a will or revocable trust can direct a beneficiary’s inheritance into the special needs trust rather than to the individual outright. Life insurance and certain other assets may also be structured to provide funding for the trust. Other family members and friends should also be aware of the plan. Those who want to make gifts or donations should do so directly to the trust and not to the loved one with special needs. Plan for long-term support An SNT can help provide financial security while preserving access to important benefits. But the rules governing these trusts and government programs are complex. We can help determine how an SNT fits into your overall plan and can best support your loved one for years to come. © 2026 

These days, customers expect fast and personalized service and support from the businesses they patronize. AI can help you meet their high expectations without overburdening your employees. But as in other contexts, AI in customer service is usually only as effective as how it’s trained and used. To improve responsiveness and give employees more time to resolve complex issues, you must use AI properly. 5 potentially productive uses AI can help your business: 1. Provide immediate answers, 24/7. AI-powered chatbots and virtual assistants can answer common questions, day or night. You might train them to explain return policies, provide store hours, check order status and troubleshoot simple problems. To deliver helpful answers, your AI tool should draw from accurate, regularly updated sources — such as your website and product or service instructions. To reduce the likelihood that AI will provide inaccurate or inappropriate responses, set clear limits on where it may gather information and what it may discuss with customers. 2. Classify and route requests. AI can analyze incoming phone calls, emails, chat messages and support tickets to help determine your customers’ needs, issue types and urgency levels. Then, it can route requests to employees who can address their concerns. A billing question, for example, might be routed to accounts receivable. Meanwhile, a technical problem might be assigned to a product specialist. Some AI systems feature sentiment analysis to identify frustrated customers and prioritize their cases. 3. Support customers on social media. Customers often turn to Facebook, Instagram and other social media platforms to ask questions, report problems or post complaints. AI tools can monitor direct messages and comments made to your accounts, provide automated greetings, and acknowledge messages. You might also instruct your AI model to draft responses for employee approval. Facebook, for instance, supports automated Messenger greetings. However, you should instruct your AI tools to alert an employee about any sensitive or confidential messages, rather than responding automatically. 4. Empower service staffers. AI doesn’t have to communicate directly with customers to be valuable to your business. It can work behind the scenes to summarize a customer’s history or locate answers for staffers to convey. During a live customer service interaction, AI may recommend troubleshooting steps or identify appropriate actions. It can also prepare call notes and update records. This support may shorten response times and help employees provide better service. 5. Identify recurring problems. Customer conversations generally contain many different pieces of information about your business’s products or services. AI can analyze these interactions to uncover recurring complaints, common questions and emerging trends. AI conclusions can help you take corrective action by improving your offerings, revising product instructions, and updating sales and support training. And AI can analyze which issues consume the most support time, helping you decide where improvements may yield the greatest return. Understand potential shortcomings Of course, AI isn’t always the best option for customer service. It can misunderstand requests, overlook context and generate confident-sounding but incorrect answers. And customers may become frustrated if they can’t reach a live person quickly. In addition, keep close tabs on privacy and security issues, particularly if conversations contain payment, health or other sensitive information. Finally, your business should regularly test its AI systems, restrict their access to confidential data and establish escalation rules. Employee intervention is especially important if the system can’t resolve an issue or a supervisor believes something requires human judgment. Instruct employees to take any AI concerns to their managers immediately. An extension, not a replacement Ultimately, AI works best as an extension of — not a replacement for — your customer service team. Its greatest strength is automating routine tasks so employees can focus on nuanced or complicated matters. Contact us to discuss costs and potential savings of AI tools. © 2026 

Strong portfolio performance can bring an unwelcome surprise: an additional 3.8% federal tax. The income thresholds for the net investment income tax (NIIT) aren’t annually adjusted for inflation and haven’t changed since the tax took effect in 2013. So the NIIT is hitting more taxpayers. If your income is near or above the applicable threshold, year-end planning may help reduce its impact. When you’ll owe the NIIT The NIIT applies to some or all net investment income once a taxpayer’s modified adjusted gross income (MAGI) exceeds certain levels. Net investment income generally includes taxable gains from stocks, bonds, mutual funds and investment real estate, as well as interest, dividends, nonqualified annuity income, royalties and rents. It also can include income from a passive trade or business and from a business that trades financial instruments or commodities. You’ll generally owe the NIIT if you have net investment income and your MAGI exceeds: $200,000 if you’re a single or head-of-household filer, $250,000 if you’re married filing jointly, or $125,000 if you’re married filing separately. The amount subject to the NIIT is the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold. Many types of income aren’t included in net investment income. Examples include tax-exempt interest, the excluded portion of a gain from the sale of your primary home, qualified retirement plan distributions, Social Security benefits, wages and self-employment income. However, taxable retirement plan distributions, wages and self-employment income can increase your MAGI and cause some or all of your net investment income to become subject to the NIIT. Planning may therefore focus on managing your net investment income, your MAGI or both. Adjust your investment mix If your income is high enough to trigger the NIIT, shifting some income-producing investments to tax-exempt municipal bonds could reduce your exposure. Interest from qualifying tax-exempt municipal bonds generally isn’t included in MAGI or net investment income. Before making a change, consider the bonds’ risks and after-tax return as well as your broader investment objectives. Qualified-dividend-paying stocks are taxed at the same rates as long-term capital gains: The maximum rate is 20%, but the rate becomes 23.8% with the NIIT. Generally, however, dividends are taxed in the year they’re paid, and you can’t control when they’re paid. Quarterly dividend payments are common. As a result, you may want to consider rebalancing your investment portfolio to emphasize growth stocks over dividend-paying stocks. Although the capital gain from these investments will be included in net investment income and subject to capital gains tax and potentially the NIIT, this generally doesn’t happen until you recognize the gain by selling the stock — so you can control the timing. Also, recognized capital losses can offset capital gains. Investment and diversification considerations should drive any decision to rebalance, however. Leverage retirement accounts Tax-advantaged retirement accounts offer both opportunities and risks when it comes to the NIIT. One opportunity relates to annual contributions. Deductible or pretax contributions to a tax-deferred retirement plan reduce current MAGI. So maximizing your contributions may help keep you below the NIIT threshold or reduce the amount of your income that’s subject to the NIIT, depending on your circumstances. Small business owners may have particular flexibility to establish or make large 2026 contributions to retirement plans — possibly even after December 31, 2026. Retirement plan distributions come with both risks and opportunities. They generally aren’t included in net investment income, but taxable distributions can increase MAGI and trigger the NIIT on other income. Your ability to control the timing of retirement plan distributions provides an opportunity. Consider the potential NIIT impact when timing discretionary distributions (or Roth IRA conversions, which also increase MAGI). If you’re subject to annual required minimum distributions (RMDs), you must take your annual RMD by the deadline or face a penalty on the amount you should have withdrawn but didn’t. But if you’re charitably inclined, a qualified charitable distribution (QCD) directly from your IRA to charity can satisfy your RMD while excluding the distributed amount from your MAGI. Review your options Other year-end strategies that may reduce or eliminate NIIT liability include harvesting capital losses, timing investment gains, donating certain appreciated investments and reviewing passive activities or rental income. The NIIT consequences of any move will depend on both your net investment income and your MAGI. We can help you estimate your potential NIIT and evaluate possible strategies before year end. © 2026 

Over the years, you’ve invested blood, sweat and tears into building a successful small business. Now it’s time to sell and move on to the next chapter of your life. What are the tax implications of selling — and how can you reduce or defer your taxes? One possible solution is an installment sale. How it works With an installment sale, you don’t receive a lump-sum payment when the deal closes. Instead, you receive installment payments over time. Typically, the buyer makes a down payment at closing and issues a note requiring principal and interest payments over an agreed-upon period. Each principal payment generally includes a tax-free return of basis and taxable gain, while the interest is taxed separately as ordinary income. This spreads your gain over several years. It’s important to note that the rules are more complicated when a deal is structured as an asset sale rather than a sale of an ownership interest. Installment sales are still possible for eligible assets included in an asset sale, but you must allocate the purchase price among the business’s assets and calculate each asset’s gain or loss separately. If you’re contemplating an asset sale, we can provide more details. Potential tax benefits Generally, installment sale gains qualify as low-taxed long-term capital gain or as Section 1231 gain for sales of property held for business purposes. Sec. 1231 gains are usually also taxed at the lower long-term capital gains rates. The 3.8% net investment income tax (NIIT) and state income tax may apply, too. An installment sale generally defers tax, because you pay most of the tax liability as you receive the payments. It may also reduce your overall tax obligation from the transaction if the arrangement allows you to stay under the thresholds for triggering the 20% long-term capital gains rate or the NIIT for each tax year of the note’s term. For 2026, the 20% long-term capital gains rate kicks in when taxable income exceeds: $545,500 for single filers, $579,600 for heads of households, $613,700 for married couples who file jointly, and $306,850 for married filing separately. If your taxable income for the tax year is below the applicable threshold, you’ll likely pay 15% on your long-term capital gains. However, if your taxable income for the tax year is modest, you could pay no federal long-term capital gains tax. For 2026, the 0% rate applies to those with taxable income up to $49,450 (single and separate filers), $66,200 (heads of households) and $98,900 (joint filers). For 2026, taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers and $125,000 for separate filers) may owe NIIT on some or all of their investment income. Beyond taxes An installment sale also might help you close a deal or get a better price for your business. For instance, an installment sale might appeal to a buyer that lacks sufficient cash to pay the price you’re looking for in a lump sum. Or a buyer might be concerned about the ongoing success of your business without you at the helm or because of changing market conditions or other economic factors. An installment sale that includes a contingent amount based on the business’s performance might be the solution. Of course, you should evaluate the buyer’s credit risk before entering into an installment arrangement. Consider collateral, personal guarantees and other protections. Your note may also be subordinated to financing provided by the buyer’s bank. Beware of potential tax pitfalls An installment sale isn’t without tax risk for sellers. For example, you must report depreciation recapture as a gain in the year of sale, no matter how much cash you receive. Depreciation recapture generally results from deductions previously claimed for the property. It may be taxed at ordinary income tax rates, which can be as high as 37%. But in the case of certain depreciated real property, the maximum federal rate on depreciation recapture is generally 25%. The 3.8% NIIT and state income tax may apply, too. If depreciation recapture is an issue, you could owe tax that year without receiving enough cash proceeds from the sale to pay the tax. Also, beware: If the installment note doesn’t charge adequate interest on the deferred principal payments, the complicated original issue discount (OID) rules can transform some of the payments from principal to interest. That’s unfavorable because interest income recognized by an individual taxpayer is taxed at higher ordinary income rates. Finally, today’s federal tax rates are relatively low compared to historical rates. If Congress passes legislation that increases the long-term capital gains or NIIT rates (or lowers the applicable thresholds), you could wind up paying more overall tax on your gain from the sale. Weigh this risk carefully against the potential benefits of an installment sale. One size doesn’t fit all transactions As you can see, installment sales have both pros and cons. To determine whether one is right for you and your business — and find out about other tax-smart options — please contact us. © 2026 

President Trump recently signed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (LaMalfa Act) into law. Among other things, it extends tax relief for victims of certain federally declared disasters. That relief temporarily removes two significant barriers to claiming the personal casualty loss deduction. This means victims of presidentially declared disasters in recent years who normally couldn’t claim a casualty loss deduction may now be able to claim one. It also extends certain relief for wildfire victims. Timing of the LaMalfa Act’s provisions The LaMalfa Act generally extends tax relief provided by the Federal Disaster Tax Relief Act, signed into law in December 2024, and briefly extended by the One Big Beautiful Bill Act (OBBBA). Specifically, the new law extends the relief to qualifying disasters whose incident periods begin before January 1, 2027. Important: Relief provided by the act doesn’t apply to disasters declared only at the state level, even if they now qualify as eligible disasters under the OBBBA for purposes of the personal casualty loss deduction in general. Overall, the LaMalfa Act generally applies to tax years beginning after December 31, 2024, superseding the earlier temporary provisions for those years. It covers qualifying federally declared disasters whose incident periods begin on or after December 28, 2019, and before January 1, 2027. Tax relief extended by the LaMalfa Act A casualty loss deduction can offset some unreimbursed costs if an eligible disaster damages your home or personal property. However, there are several rules and limits to the deduction. For example, the deductible loss is generally the smaller of the property’s adjusted tax basis or decline in value, reduced by any insurance or other reimbursement. If reimbursement covers the entire loss, you can’t claim a casualty loss deduction. If your insurance doesn’t cover the entire loss, then without the tax relief extended by the LaMalfa Act, you generally must subtract $100 (per casualty event) from the uncovered amount. But under the extended relief, you must subtract $500 per qualifying casualty event. This may sound like a negative, but the relief makes two other changes that, for many taxpayers, will provide tax benefits that far outweigh any negative impact of this $500 reduction. First, the relief eliminates the income-based floor. Without the relief, a floor equal to 10% of adjusted gross income (AGI) applies. So you can deduct only the uncovered loss (reduced by $100 per casualty event) that exceeds 10% of your AGI for the year you claim the loss deduction. If, say, you had one casualty loss event, your AGI is $100,000 and your casualty loss (after subtracting insurance proceeds and $100) is $11,000, you can deduct only $1,000 on your federal income tax return. For a qualified disaster-related personal casualty loss under the relief extended by the LaMalfa Act, the 10% floor doesn’t apply. So under the same example, your casualty loss deduction would be $10,600 ($11,000 − the additional $400 per casualty loss you must subtract). Second, the relief allows taxpayers to claim a qualified disaster-related personal casualty loss without having to itemize deductions. Itemizing is beneficial only if your total itemized deductions exceed the standard deduction for your filing status. So without the relief, if your total itemized deductions don’t exceed your standard deduction, losses otherwise eligible for the casualty loss deduction won’t provide any tax benefit. Expanded tax relief for wildfire payments Generally, certain wildfire relief payments can be excluded from federal taxable income. Under the LaMalfa Act, the exclusion may apply even if you don’t receive compensation until years after the wildfire. Previously, qualifying payments generally had to be received in 2020, 2021, 2022, 2023, 2024 or 2025. The LaMalfa Act eliminates that 2025 payment cutoff, extending the potential tax benefit to later payments. The exclusion generally covers qualifying payments made to compensate individuals for losses, costs or damages associated with certain federally declared wildfire disasters. Eligible expenses and losses may include additional living costs, wages lost and not reimbursed by an employer, and financial damages related to personal injury, death or emotional distress. To qualify, the wildfire must have been part of a federally declared disaster occurring after December 31, 2014, and before January 1, 2027. There are important limitations. The exclusion applies only to losses or expenses not reimbursed by insurance or another source. In addition, taxpayers generally can’t receive a double tax benefit: Expenses covered by an excluded wildfire relief payment can’t also be used to claim a deduction or credit, and the tax-free payment can’t be used to increase the basis of affected property. Do you qualify under the new law? Recovering from a natural disaster can bring significant financial challenges, particularly when insurance doesn’t cover the full extent of the damages. The LaMalfa Act provides relief by allowing more affected taxpayers to deduct qualifying personal casualty losses or exclude wildfire relief payments. Because eligibility and timing depend on the circumstances of the disaster and the loss, contact us to determine whether a deduction or exclusion is available and how best to claim it. © 2026 

If your estate plan includes gifts, bequests or other transfers to grandchildren, great-grandchildren or other beneficiaries decades younger than you, the generation-skipping transfer (GST) tax deserves careful attention. Without proper planning, transfers that skip a generation can potentially trigger a significant federal tax in addition to gift or estate taxes. GST tax rules at a glance The GST tax is designed to prevent families from avoiding transfer tax at one or more generational levels. Generally, this tax applies to certain transfers to a “skip person.” A skip person may be a grandchild or another family member who’s two or more generations below the person making the transfer. An unrelated individual generally is considered a skip person if he or she is more than 37½ years younger than the transferor. GSTs generally fall into three categories: direct skips, taxable distributions and taxable terminations. Depending on the circumstances, the GST tax may apply to an outright gift or bequest to a skip person, a distribution from a trust, or a termination of a beneficiary’s interest that leaves only skip persons with interests in the trust. The GST tax rate is 40%. Fortunately, a $15 million GST tax exemption is available. It’s separate from the $15 million gift and estate tax exemption. But under the annual gift tax exclusion, you can exclude from gift tax certain gifts of up to the annual exclusion amount — $19,000 per recipient for 2026 (twice that if your spouse elects to split the gift with you or you’re giving community property) — without using up any of your gift and estate tax exemption. And annual exclusion gifts are generally also exempt from the GST tax. Beware of a few pitfalls Automatic allocation rules for the GST tax exemption can reduce the risk that you’ll inadvertently fail to allocate it to GSTs. For example, the GST tax exemption generally will be automatically allocated to certain direct skips and to transfers to trusts that meet the definition of a “GST trust.” Automatic allocation can be useful, but it doesn’t always produce the desired result. For example, depending on the trust’s beneficiaries and your estate planning objectives, the exemption may be allocated to a trust that has little chance of generating a GST tax, wasting your exemption. To avoid this result — and preserve your exemption for transfers that are more likely to trigger GST taxes — elect to opt out of automatic allocation on a timely filed gift tax return. If you neglect to opt out, you may still be able to obtain relief from the IRS. Doing so allows you to make a late election so long as you can demonstrate that you acted reasonably and in good faith. Another potential issue can arise when a trust has both skip-person and non-skip-person beneficiaries and the GST exemption has been allocated to only part of the trust. The trust then will have an “inclusion ratio” between zero and one. A trust’s inclusion ratio refers to the portion of a trust’s assets that will be subject to the GST tax if a taxable event occurs. If you haven’t allocated any of your exemption to a trust, its inclusion ratio is 1.0. If the exemption protects a trust’s assets, its inclusion ratio is 0.0. So, if the inclusion ratio is, for example, 0.5, then only 50% of the distributions to skip persons will be exempt from the GST tax. In some situations, it may be possible to divide, or sever, a trust into separate trusts so that one has an inclusion ratio of zero and the other has an inclusion ratio of one. This approach may make it easier to administer the trusts and direct GST-exempt assets toward skip persons. Review your GST tax strategy regularly If your estate plan includes multigenerational trusts or significant transfers to grandchildren or other younger beneficiaries, review your GST exemption allocation, trust provisions and previous gift tax returns periodically. We can help determine whether your current strategy is using the available exemption effectively and identify opportunities to minimize unnecessary GST tax exposure. © 2026