Is your estate plan vulnerable to these 5 pitfalls?

If a customer with outstanding bills files for Chapter 11 bankruptcy, an ordinary receivable could become an urgent financial problem. Although a customer’s filing doesn’t necessarily mean your business will go unpaid, recovery depends on the debtor’s resources — as well as your claim’s status and the bankruptcy case’s outcome. To protect your business’s rights and prevent possible financial losses, act immediately. Legal procedures When you hear about a customer’s bankruptcy, contact your attorney. Then gather contracts, invoices, delivery confirmations and payment records. You or your legal counsel will want to find out the customer’s filing date and track court notices and deadlines. Bankruptcy generally triggers an “automatic stay,” which prohibits most collection efforts for debts arising before the filing. So you shouldn’t make collection calls, pursue litigation or repossess property without legal guidance. However, if you’re a secured creditor, you may ask the court for permission to enforce your collateral rights. Determine how the debtor lists your business’s debt in its bankruptcy schedules. If your claim is omitted or listed as disputed, contingent or unliquidated, you generally must file a proof of claim to participate in any financial distributions. Also, review any payments you received from the customer during the 90 days before they filed. Certain payments may be recoverable by the debtor as “preferences,” but repayment isn’t automatic. You may have legal grounds to keep a payment even if the bankruptcy trustee asks you to return it. Preserve supporting records and have counsel evaluate any repayment demand. Special protections Your business should always track order delivery dates because the priority of your claim can depend on when a customer received an order. An order might fall into one of two categories that allow for special protections: 1. Administrative expense claims. These are goods the customer received within 20 days before filing for bankruptcy. The goods may qualify for administrative expense priority if they were sold in the ordinary course of the customer’s business. This priority generally places the claim ahead of general unsecured claims. It only concerns the receipt of goods, not services. 2. Reclamation demands. You may have a right to reclaim goods received by an insolvent debtor within 45 days before their Chapter 11 filing. You usually must make a written demand within 45 days after delivery. If that period expires after the customer’s bankruptcy filing, you’re allowed to make a demand within 20 days after filing. Prior secured interests can limit your recovery. Note that neither of these protections guarantees that your customer will make a full or immediate payment. Unsecured creditor committees In some Chapter 11 cases, unsecured creditors form a committee to investigate the debtor’s affairs and help develop a repayment plan. Membership often includes creditors holding the largest unsecured claims and must be appointed by the trustee. If your business is appointed to a committee, know that it doesn’t give your claim special priority. Committee members represent all unsecured creditors collectively. Protecting your financial position A customer’s bankruptcy is a good excuse to review your business’s cash flow, customer concentration and credit extension practices. If warranted, implement new policies that will help prevent future losses. Also be sure to weigh your likely financial recovery against the expense of pursuing it. Legal matters call for an attorney’s advice. But we can help you adjust financial projections, update controls and make loss remediation plans. © 2026 

If you’re in the process of buying a home, or you bought one earlier this year, you probably know that you may be able to claim the property tax deduction and the mortgage interest deduction when you file your next income tax return. But you might not be so sure about mortgage points paid. The good news is that qualifying points may be deductible on your 2026 return, subject to various rules and limits. You might also be able to deduct points if you took out a loan to build a new home or purchase a second home — and in a few other circumstances. When are points deductible? Points are upfront fees charged by a mortgage lender, expressed as a percentage of the loan principal. Points that a buyer pays in conjunction with a loan that’s eligible for the home mortgage interest deduction are generally deductible as mortgage interest. However, to claim the deduction, the buyer must itemize deductions rather than take the standard deduction. For an immediate deduction, points generally must meet IRS requirements for a loan to buy or build your main home. If you don’t meet the requirements for an immediate deduction, deductible points generally are deducted over the life of the loan. What additional rules apply? There are some additional limitations on the rule allowing a deduction for points: No deduction is available for points allocable to the part of a mortgage above the debt limit for the mortgage interest deduction: $750,000 ($375,000 for married taxpayers filing separately) for debt incurred after December 15, 2017. (Higher limits apply to debt incurred earlier.) Points on a loan used to substantially improve your main home may be deducted in the year paid if applicable IRS tests are met. Points on a loan used to buy a second home generally are deducted over the life of the loan. Points paid on a refinancing generally are deducted over the loan’s term, though an exception may apply to proceeds used for a substantial improvement to your main home. Points paid on a home equity loan or line of credit may be deductible if proceeds are used to substantially improve the home securing the loan. Points charged instead of separately stated fees for services, such as appraisal or title fees, aren’t deductible as mortgage interest. What if the seller pays the points? Points are usually the buyer’s obligation. However, a seller sometimes sweetens a deal by agreeing to pay the points on the buyer’s mortgage loan. And seller-paid points may also be deductible. Suppose, for example, that you bought a home in 2026 for $600,000. In connection with a $500,000 mortgage loan, your bank charged two points, or $10,000. The seller agreed to pay the points to close the sale. If the points meet the requirements for an immediate deduction, you may deduct the $10,000 on your 2026 federal income tax return, provided you itemize and the mortgage debt limit doesn’t restrict the deduction. The seller-paid points reduce your tax basis to $590,000, which will mean more gain if you sell the home for more than that amount. But that may not happen until many years later, and the gain may not be taxable anyway. You may qualify for an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) of gain on the sale of a principal residence. Review the details Your settlement statement and loan terms can help determine when the points may be deducted and whether mortgage limits affect the amount. If you paid or expect to pay points this year (or a seller has paid or will pay points on your behalf), we can review the details with you to help assess your potential tax savings. © 2026 

If your small business has employees, you may need to budget for higher payroll costs next year, especially if you employ many high earners. The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $192,300 for 2027 (up from $184,500 for 2026). Wages and self-employment income above this amount aren’t subject to Social Security tax. What’s the Social Security wage base? The Federal Insurance Contributions Act (FICA) imposes two taxes on employers and employees. One is for Old Age, Survivors and Disability Insurance, commonly known as the Social Security tax, and the other is for Hospital Insurance, commonly known as the Medicare tax. The Social Security wage base is the maximum amount of compensation subject to Social Security tax, but there’s no maximum for Medicare tax. For 2027, the FICA tax rate for employers will be 7.65%. This includes 6.2% for Social Security and 1.45% for Medicare (the same as in 2026). Employers generally must withhold income tax and employees’ share of Social Security and Medicare taxes (which equals the employer’s share noted above) from wages and pay the employer’s share of Social Security and Medicare taxes. You’re also responsible for depositing these amounts with the IRS and reporting them on the appropriate payroll tax returns. (By contrast, self-employed individuals generally pay Social Security and Medicare taxes through the self-employment tax rather than through payroll withholding and must pay both the employer’s and employee’s shares.) Additional rules apply to the 0.9% additional Medicare tax, federal unemployment tax, and various state and local taxes. Nowadays, the Social Security wage base is adjusted annually, but it hasn’t always been. When the federal government introduced the Social Security payroll tax 90 years ago in 1937, the wage base was only $3,000. It remained that amount through 1950. As the U.S. economy grew and wages rose, the wage base needed to be adjusted to maintain Social Security funding. By 1980, it had risen to $25,900, and by 2020, it was $137,700. Inflation and wage growth were key factors in these adjustments. How much will it increase next year? For 2027, an employee will pay: 6.2% Social Security tax on the first $192,300 of wages, for a maximum tax of $11,922.60 (6.2% × $192,300), plus 1.45% Medicare tax on all covered wages, plus 0.9% additional Medicare tax on all wages in excess of $200,000 ($250,000 for married taxpayers filing joint returns, $125,000 for married taxpayers filing separate returns). Employers must match the 6.2% Social Security taxes on wages up to the annual wage base and 1.45% Medicare tax on all covered wages. There’s no employer match for the additional Medicare tax, but the employer must withhold it when an employee’s compensation exceeds $200,000, regardless of the employee’s filing status. For 2027, the self-employment tax imposed on self-employed people will be: 12.4% Social Security tax on the first $192,300 of net earnings from self-employment, for a maximum tax of $23,845.20 (12.4% × $192,300), plus 2.9% Medicare tax on all net earnings from self-employment, plus 0.9% additional Medicare tax on net earnings from self-employment in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for separate filers). Can you modify withholding for employees with more than one employer? If you have employees who work for your business and have second jobs, those workers may have payroll taxes withheld by two different employers. However, you can’t stop withholding Social Security tax once their combined wages reach the wage base threshold. Each employer must withhold Social Security taxes from an employee’s wages, up to the annual wage base for wages that employer pays, even if the combined withholding exceeds the maximum amount that can be imposed for the year. Fortunately, an employee can generally claim a tax credit on his or her return for any excess Social Security tax withheld by multiple employers. For more information Do you have additional questions about your payroll tax obligations? Contact us. We’ll help you comply with all applicable reporting and withholding requirements. © 2026 

Helping your children, grandchildren or other loved ones obtain a quality education can be one of the most meaningful ways to pass on your wealth. A tax-advantaged 529 plan is one effective tool for funding tuition and other educational expenses. But when the plan’s owner (typically a parent or grandparent) dies, the next owner might not continue to use it to fulfill the original owner’s goals. A family education trust may be the answer. Creating the trust A family education trust is an estate planning arrangement designed to support the educational needs of designated beneficiaries, potentially across multiple generations. You establish an irrevocable trust, fund it with assets and appoint a trustee to manage it. The trust document specifies who can receive distributions and which expenses qualify. These might include private K–12 school tuition, college expenses, graduate school and vocational training. Unlike an outright bequest, a trust lets you decide how funds will be used. For example, you might authorize distributions based on each beneficiary’s educational needs rather than requiring equal distributions. A one-two punch A family education trust can be used in conjunction with 529 plans. Although 529 plan contributions aren’t federally tax-deductible, investments grow tax-deferred, and withdrawals are tax-free when used for qualified educational expenses. Some states also offer tax incentives for contributions. Qualified expenses generally include college tuition, required fees, books, supplies and certain room-and-board costs. Recently, the definition of qualified expenses has expanded to include certain K–12 expenses, eligible apprenticeship programs and qualifying postsecondary credentialing expenses, subject to applicable limits. A family education trust can own one or more 529 accounts, provided the particular 529 plan program permits trust ownership. Each account generally has one designated beneficiary, so a trust supporting several grandchildren might own separate 529 accounts for each child. This arrangement offers several potential benefits. It allows you to: Establish guidelines identifying eligible beneficiaries, Specify how trust assets should be used, Fund the 529 plans as well as directly fund education expenses, and Appoint trustees and successor trustees to oversee the funds. It may also preserve educational savings for future generations, subject to applicable rules. Unlike a 529 account, which generally accepts only cash contributions and offers limited investment choices, a family education trust can hold a broader range of assets. These assets can supplement 529 savings and cover expenses that don’t qualify for tax-free 529 distributions. Flexibility for changing circumstances Suppose you establish a family education trust that benefits your three grandchildren. One attends college, another pursues vocational training and the third receives a scholarship. The trustee may be able to adjust distributions to accommodate their needs. If a beneficiary doesn’t use all the money in a 529 account, the beneficiary generally can be changed to another qualifying family member without federal income tax consequences. However, gift and generation-skipping transfer tax consequences may arise in certain circumstances. Estate planning considerations In addition to benefiting your family, an irrevocable family education trust may provide estate tax benefits. If properly structured, assets you transfer to the trust, along with their future appreciation, generally can be excluded from your taxable estate. This can be particularly valuable for families with substantial wealth or assets expected to increase significantly in value. However, contributions to the trust may be subject to federal gift tax reporting requirements and could be subject to gift tax. Also, gifts benefiting grandchildren may trigger generation-skipping transfer (GST) tax. Create a lasting legacy A family education trust can help preserve wealth while creating educational opportunities for future generations. Incorporating 529 plans may enhance these benefits through tax-advantaged savings. We can help you determine whether this strategy is right for your family. © 2026 

The accounting cycle is used to record, organize and summarize financial activity for a specific period. Also known as the bookkeeping cycle, it’s designed to produce accurate data that will help business owners understand performance, manage cash flow and plan for the future. Properly prepared financial records can alert owners to operational issues before they become serious problems. Let’s take a look. Follow multiple steps Although the level of detail can vary by business, you’ll generally need to follow multiple steps to complete the accounting cycle. First, gather source documents, including receipts, invoices, bills, contracts, bank and credit card statements, and payroll reports. Keep documentation complete and organized to support accuracy. Next, post transactions to your business’s general ledger. Financial transactions from your source documents are recorded using journal entries or automated feeds. Categorize each transaction correctly and post it to the appropriate accounts in your general ledger. Proper posting ensures income, expenses, assets and liabilities are reflected accurately. Then, generate a trial balance. This summarizes all ledger accounts and confirms that debits equal credits. This step enables you to identify data entry errors or missing transactions. After that, you may need to adjust the general ledger for items such as accrued expenses, depreciation, inventory and prepaid costs. These entries ensure that revenue earned in the accounting period matches the expenses incurred to generate it. Next, prepare financial statements. These enable you, your managers and other stakeholders to evaluate financial performance and make informed business decisions. They typically include: A balance sheet, which lists your business’s assets and liabilities as of the financial statement date, An income statement, which shows revenue earned and expenses incurred during the accounting period, and A statement of cash flows, which summarizes cash inflows and outflows from operating, financing and investing activities. Financial statements reviewed or audited by external accountants also may include supplemental footnote disclosures. Finally, close the books. At the end of each accounting period, close temporary accounts to retained earnings and finalize the books. This step provides a fresh start for the next accounting period. Best practices Whether you’re new to running a business or are a seasoned owner, following standard accounting procedures helps ensure accurate transaction records, balanced books and reliable financial statements. Be sure to clearly document in writing who in your organization (or, if you outsource any accounting work, which contractor) is responsible for each accounting task and when it should be completed. Contact us to develop an easy-to-follow accounting cycle for your business. We can also help you address cash flow, tax compliance and other financial issues. © 2026 

Even though tax filing season is still several months away, the decisions you make before January 1, 2027, could have a significant impact on your 2026 federal income tax liability. Year-end tax planning is especially important this year because some new changes under 2025’s One Big Beautiful Bill Act (OBBBA) are taking effect. Plus, you may still be getting familiar with OBBBA changes that went into effect last year. Here are several tax-planning areas to consider before the calendar turns to 2027. Standard deduction vs. itemizing Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status instead. Itemizing deductions when the total exceeds the standard deduction saves tax, but it makes filing more complicated. For 2026, the standard deduction is: $16,100 for single filers (and married couples filing separately), $24,150 for heads of household, and $32,200 for married couples filing jointly. Taxpayers who are age 65 or older or blind can claim an additional standard deduction of $2,050 ($1,650 per spouse if married). For taxpayers both over 65 and blind, the additional deduction is doubled. With such large standard deduction amounts, you may not give much thought to itemizing. However, certain temporary OBBBA provisions (see below) could make itemizing more beneficial for some taxpayers this year. But high earners should note that the OBBBA’s new limit on itemized deductions kicks in for the 2026 tax year. The limit effectively caps itemized deductions for taxpayers in the highest tax bracket (37%) at 35 cents per dollar (down from 37 cents per dollar). The senior deduction Through the 2028 tax year, taxpayers age 65 or older by the end of the tax year may qualify for an additional $6,000 “senior” deduction ($12,000 for joint filers if both spouses qualify). Eligible taxpayers can take this tax break whether they itemize or claim the standard deduction, and it’s in addition to the existing extra standard deduction for seniors. However, the new deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 for single filers or $150,000 for joint filers. The deduction is reduced by 6% of MAGI exceeding these thresholds. Married taxpayers must file jointly to qualify, and each eligible individual must have a valid Social Security number. If your MAGI might exceed the applicable phaseout threshold, you may be able to take steps before year end to reduce it and maximize your senior deduction. For example, if your budget allows and you’ve already taken your required minimum distribution for the year (if applicable), consider cutting back on taxable retirement plan distributions for the rest of the year. If you’re still working, increasing your retirement plan contributions for 2026 can reduce your MAGI. Whether you’re retired or still working, loss harvesting (see below) and other investment-related strategies can also reduce your MAGI. Changes to charitable giving deductions Before the OBBBA, taxpayers who didn’t itemize generally couldn’t deduct their charitable contributions. Beginning in 2026, however, nonitemizers can deduct up to $1,000 in qualifying cash donations ($2,000 for joint filers). The deduction generally applies to cash contributions made directly to qualifying public charities. Donations to donor-advised funds and most private foundations, as well as noncash contributions, aren’t eligible. Cash donations include not just actual cash but gifts made by check, debit or credit card, payment app, or payroll deduction. If you might be eligible for this new deduction, be sure to properly substantiate your cash donations. To be deductible, they must be: Supported by a bank record, receipt or written communication from the charity if they’re under $250, or Substantiated by the charity if they’re $250 or more. The OBBBA also introduced a new limitation on charitable deductions for taxpayers who itemize. Beginning in 2026, only contributions exceeding 0.5% of adjusted gross income (AGI) are deductible. For example, if your 2026 AGI is $100,000, you can’t deduct the first $500 of your charitable contributions. Amounts disallowed by this floor generally can’t be carried forward unless the taxpayer also has contributions exceeding the applicable percentage-of-AGI deduction limits. (For instance, deductions for cash gifts to public charities generally can’t exceed 60% of your AGI.) These changes make the strategy of “bunching” charitable contributions into a single tax year worth considering. Traditionally, taxpayers have used this approach to accumulate enough itemized deductions to exceed the standard deduction in alternating years. Now, concentrating donations in one year may also help reduce the impact of the new 0.5%-of-AGI floor. However, the potential benefits depend on your income, other itemized deductions and the timing of your contributions. Increase in the SALT cap The OBBBA temporarily increased the limit on state and local tax deductions (the SALT cap) through the 2029 tax year. For 2026, taxpayers who itemize can deduct up to $40,400 ($20,200 for married couples filing separately). Deductible expenses include: State and local real estate taxes, Qualifying personal property taxes, and Either state and local income taxes or general sales taxes, but not both. The SALT cap is scheduled to return to $10,000 ($5,000 for separate filers) in 2030. The higher limit may provide substantial tax savings, depending on your SALT expenses and MAGI. For 2026, the deduction cap is reduced by 30% of MAGI exceeding $505,000 ($252,500 for separate filers), but it can’t fall below $10,000 ($5,000 for separate filers). Both the higher cap and the income threshold are scheduled to increase by 1% annually through 2029. If your 2026 SALT expenses are below the applicable cap, consider whether accelerating certain tax payments into 2026 could increase your deduction. For example, you may benefit from paying property taxes before year end, provided they’ve already been assessed, or making eligible state estimated income tax payments. Tax loss harvesting Although economic conditions have been mixed in 2026, the stock market generally has performed well. If you have underperforming investments in your taxable portfolio, consider selling them before year end to harvest capital losses that can offset taxable capital gains you’ve already recognized. If your capital losses exceed your gains, you generally can deduct up to $3,000 of the excess against ordinary income ($1,500 for separate filers), with unused losses carried forward to future tax years. Harvesting losses also may help reduce or eliminate your exposure to the 3.8% net investment income tax (NIIT). It applies to some or all net investment income when MAGI exceeds $200,000 per year ($250,000 for joint filers and $125,000 for separate filers). The NIIT thresholds aren’t annually indexed for inflation, so more taxpayers are being hit by this tax. Be mindful of the wash-sale rule, however. It generally disallows a loss deduction if you purchase substantially identical securities within 30 days before or after the sale. The rule can also apply to purchases made by your spouse or through an IRA. In most cases, a disallowed loss is added to the tax basis of the replacement securities, deferring the tax benefit rather than eliminating it. Don’t delay With the end of 2026 fast approaching, now is the time to take action to minimize your tax liability. Changes under the OBBBA, combined with longstanding tax-saving tactics, create both opportunities and challenges. The most effective approach depends on your income, investments, deductions and overall financial situation. Contact us to discuss your circumstances and develop a year-end tax strategy. © 2026 

As 2026 draws to a close, your employer’s 401(k) plan may offer an opportunity to reduce your current income taxes while building your retirement savings — or to boost your future tax-free retirement income. If you haven’t been contributing, it may not be too late to start. And if you’re already contributing, increasing the amount you contribute from each paycheck before year end could help you make the most of your 401(k). 401(k) refresher If you’re eligible for your employer’s 401(k) plan, you can elect to contribute a specific dollar amount or percentage of your pay. These “elective deferrals” come out of each paycheck. Generally, they’ll be pretax, so your wages or other compensation for federal income tax purposes will be reduced by the contribution amount. This will save you current income taxes, but the amounts will still be subject to Social Security and Medicare taxes. Your 401(k) balance grows tax-deferred, meaning you’ll pay no tax while your money remains in the account. This tax-deferred compounding can be powerful over time. But when you make withdrawals in the future, they’ll be subject to income tax. If your employer offers a Roth 401(k), instead of making pre-tax contributions, you can make Roth contributions. The amounts contributed will be included in your taxable income so won’t save current tax. But future qualified distributions (including earnings) will be tax-free. Your employer may match some or all of your 401(k) contributions. Although matching isn’t required, many employers offer some type of match. You generally can select among various investment options that your employer has chosen to offer. It’s important to periodically review your plan investments to determine whether each investment remains appropriate for your retirement planning goals and your risk tolerance. If you haven’t reviewed your 401(k) investments recently, consider doing so before year end. 2026 contribution limits Your total elective deferrals — for pre-tax and after-tax contributions on a combined basis — are subject to annual IRS limits. In 2026, the maximum amount permitted generally is $24,500. But when you reach age 50, if your employer’s plan allows, you can make additional “catch-up” contributions. In 2026, the catch-up contribution limit is $8,000, or $11,250 if you’re age 60 through 63 at year end. So if you’re 50 or older, the total that you can contribute to all 401(k) plans in 2026 is generally $32,500, or $35,750 if you’re age 60 through 63. Beginning in 2026, if your previous year’s wages from the employer sponsoring the plan exceeded a certain amount, any catch-up contributions you make must be Roth contributions rather than pre-tax contributions. For 2026, the new rule applies if your 2025 compensation from the same employer exceeded $150,000. (This amount will be annually adjusted for inflation.) If your employer doesn’t offer a Roth option, then you can’t make catch-up contributions. Total contributions to a 401(k) account, including elective deferrals and employer contributions (but not catch-up contributions), can’t exceed $72,000 for 2026. (Contributions also can’t exceed 100% of your compensation.) Increasing contributions Employee 401(k) contributions for 2026 generally must be made through payroll by December 31. If you haven’t reached your contribution limit and might like to increase your contributions from your remaining paychecks, check with your employer soon. Payroll processing deadlines may limit how late you can make changes. If your employer matches contributions, try to contribute at least enough to receive the maximum match. Otherwise, you’ll lose out on free money! So review how much you’ve contributed and whether you’re on track to receive your full employer match. Also check your plan’s matching formula. Some employers calculate matching contributions each pay period, while others provide a year-end adjustment. Depending on the formula, the timing of your contributions could affect the match you receive. If you’ve already contributed enough to get the maximum match, increasing your pretax contributions may still be beneficial. Not only will it reduce your taxable income, but it also will reduce your adjusted gross income (AGI) and modified AGI (MAGI), which are triggers for many tax break phaseouts and certain additional taxes. If you’re less concerned about 2026 taxes and you want to maximize your tax-free income during retirement, consider increasing your Roth 401(k) contributions. This may be an especially good option if your income is too high for you to be eligible to make Roth IRA contributions. Before increasing your 401(k) contributions, consider the rules and restrictions that apply to withdrawals. You won’t have easy access to the funds after the contribution. And in the limited circumstances when you can take withdrawals before age 59½, they generally will be subject to a penalty in addition to any applicable income taxes. Act before year end With a handful of paychecks left in 2026, you may still have time to increase your 401(k) contributions and either cut your 2026 taxes or provide yourself with tax-free retirement income. Check with your employer about deadlines and available options. We can help you evaluate the tax implications and determine whether increasing your contributions makes sense for your situation. © 2026 

Many businesses use federal “per diem” rates to reimburse employees for out-of-pocket travel expenses. In Notice 2026-60, the IRS announced special per diem rates that are effective for the federal government’s fiscal year of October 1, 2026, through September 30, 2027. Taxpayers can use these rates to substantiate certain lodging, meals and incidental expenses for business travel within the continental United States during this period. Let’s look at why many employers use travel per diems, how the simplified high-low method works and what those new rates are. Travel per diems vs. actual costs For businesses with employees who travel frequently, reimbursing actual expenses can be cumbersome. It requires detailed recordkeeping for lodging, meals and incidentals. An alternative to tracking actual business travel expenses is to use federal per diem rates, which vary from locality to locality. Under the per diem method, employees receive a flat daily amount to cover certain business travel expenses, and they manage the funds. This setup can also help employers control and budget for travel costs more effectively. Employees still must document the time, place and business purpose of their travel within a reasonable period, but there’s no need to detail every amount they spend. Per diem reimbursements generally aren’t subject to income or payroll tax withholding or reported on an employee’s Form W-2 to the extent they qualify under an accountable plan. However, any allowance above the applicable federal rate is generally treated as wages unless the employee substantiates the excess expenses. Simplified high-low method Instead of looking up specific per diem rates by city, employers can choose to apply the high-low method. This alternative uses two per diem rates for travel within the continental United States. The IRS establishes one annual rate for certain areas with higher costs. Examples of high-cost areas include Boston, San Francisco, Seattle and Nashville. All locations that aren’t listed as “high-cost” are automatically considered “low-cost,” and the annual low-cost rate applies. Under some circumstances — for example, if an employer provides lodging or pays the hotel directly — employees may receive a per diem reimbursement only for their meals and incidental expenses. There’s also a $5 incidental-expenses-only rate for employees who don’t pay or incur meal expenses for a calendar day (or partial day) of travel. Fiscal year 2027 high-low rates For travel from October 1, 2026, through September 30, 2027, the per diem rate for all high-cost areas within the continental United States is $329 (up from $319 for fiscal year 2026), consisting of $243 for lodging and $86 for meals and incidental expenses. For all other areas within the continental United States, the per diem rate is $230 for travel during this period (up from $225 for fiscal year 2026), consisting of $156 for lodging and $74 for meals and incidental expenses. Certain tourist-attraction areas count as high-cost areas on a seasonal basis, and the period the high-cost per diem applies to may change somewhat from year to year. For instance, if an employee travels to Atlanta in fiscal year 2027, the high-cost per diem applies only from January 1, 2027, through March 31, 2027. The high-low method is subject to various rules and restrictions. For example, businesses that use it for an employee must continue using it for all reimbursement of business travel expenses within the continental United States during the calendar year. However, the business may use any permissible method to reimburse that employee for any travel outside the continental United States. For domestic travel during the last three months of a calendar year, employers must generally continue to use the same method (the regular federal per diem or high-low method) for an employee as they used during the first nine months of the calendar year. Also, the high-low method can’t be used for employees who own 10% or more of the business. Deducting per diem reimbursements When claiming business expense deductions for amounts reimbursed to employees, employers must treat the amount specified for meals and incidental expenses under the high-low method as a food and beverage expense that’s generally subject to the 50% deduction limit on meal expenses. For example, suppose your business reimburses a manager for attending an October trade show in Denver based on the $329 high-cost per diem. You may generally deduct $286 ($243 for lodging plus $43 for half of the meals and incidental expense allowance). Choosing the right approach for your business A clear travel reimbursement policy can help manage costs and reduce administrative burden for you and your employees. If your current policy requires employees to submit detailed expense reports for business travel, you might consider switching to the high-low method. Although the list of high-cost localities varies slightly from year to year, this method can simplify travel reimbursements. Contact us for help reviewing your policy, complying with applicable rules and restrictions, and evaluating which method makes sense for your situation going forward. © 2026 

Transferring wealth to family members can reduce your taxable estate. But when gifts involve assets that are difficult to value, such as interests in a closely held business or family limited partnership (FLP), unexpected tax consequences can arise. The challenge is that the IRS may disagree with the value assigned to a gifted asset. If it determines that the asset is worth more than you reported, the resulting adjustment could trigger additional gift tax, interest and potentially penalties. One strategy to manage this uncertainty is to make defined-value gifts. What is a defined-value gift? Rather than transferring a fixed percentage of a business or a specific number of partnership units, a defined-value gift transfers an interest worth a predetermined dollar amount. For example, suppose you want to give your daughter a $2 million interest in your FLP, protected from gift tax by your lifetime gift and estate tax exemption. Based on a professional appraisal, you transfer a 20% interest. Later, the IRS determines that the FLP is worth more than the appraisal. It values the 20% interest at $2.5 million. That additional $500,000 of value will use up another $500,000 of your lifetime exemption. If you don’t have enough lifetime exemption left to cover that amount, it could be partially or fully subject to federal gift tax at a rate of 40%, plus interest and even penalties. With a properly drafted defined-value formula, the percentage interest transferred would be adjusted to reflect the final value determined for federal gift tax purposes. Your daughter would still receive an interest worth $2 million, but the ownership percentage transferred would be smaller. This approach can help prevent an unexpected valuation adjustment from increasing the gift’s taxable value. How do formula and savings clauses differ? Not all provisions designed to protect against valuation adjustments are legally effective. Courts have distinguished between permissible formula clauses and problematic “savings” clauses. A formula clause establishes the dollar value of the property being transferred and determines the corresponding ownership interest using a value finally determined for federal tax purposes. If that value changes, the ownership percentage adjusts under the original formula. A savings clause, by contrast, attempts to reverse part of a completed gift if the IRS later determines that the transfer creates an unwanted tax liability. Courts generally have rejected such provisions. Precise wording in the transfer document matters For a defined-value gift to be effective, language in the transfer documents must be precise. In one case, the U.S. Tax Court rejected an intended defined-value gift of FLP interests and upheld the IRS’s gift tax assessment based on percentage interests. The documents called for transferring FLP interests with a defined fair market value “as determined by a qualified appraiser” within a specified time after the transfer. The court found that the transfer documents failed to achieve a defined-value gift because a qualified appraiser determined the fair market value. The documents didn’t provide for an adjustment in the number of FLP units if their value “is finally determined for federal gift tax purposes to exceed the amount described.” Consult an estate planning attorney for assistance drafting proper formula clauses for defined-value gifts. Reducing valuation-related tax risks Defined-value gifts are useful when transferring business interests or other assets without readily available market prices. If you’re considering substantial gifts of hard-to-value assets, contact us for help determining if a defined-value gift may be right for your situation. With appropriate planning and documentation, you may be able to reduce valuation-related tax risks while advancing your long-term wealth transfer goals. © 2026