New law extends tax relief for disaster-related personal casualty losses and more

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 

Whether your small business is new or you’ve run it for decades, you may not fully understand which expenses are potentially tax-deductible and which aren’t. After all, that’s why you have a tax advisor! But it’s worth keeping up with tax law because your daily decisions could significantly reduce your business’s taxable income — and increase its profitability. The basics Deductible business expenses must be both ordinary (common and accepted in your field) and necessary (helpful and appropriate for your business). Expenses don’t, however, need to be indispensable to qualify as necessary. The cost of inventory is recovered through “cost of goods sold,” so it’s not generally deducted immediately. And the cost of buildings, equipment and other capital assets is usually recovered over time through depreciation or amortization. Personal expenses aren’t deductible at all. However, the business portion of mixed-use expenses, such as internet and phone service or vehicle costs, may qualify as deductible if you can support your cost allocation. Travel and vehicle costs Reasonable expenses for business travel away from your tax home — including transportation, lodging and certain incidental costs — may be deductible. Convention expenses may also qualify when attendance benefits your business, but restrictions apply to events held outside North America. If you use your own vehicle for business travel, you may deduct eligible costs using either the actual expense method or the IRS standard mileage rate method. Either way, maintain a mileage log that records dates, destinations, distances and business purposes. Note that ordinary travel between your home and regular workplace is considered a nondeductible personal commuting expense. This is true even if you work on your laptop or make business calls during the trip. Historically, small business owners recovered the cost of vehicle purchases over several years through depreciation. Current tax law may allow certain qualifying vehicles to be written off more quickly and, in some cases, fully in the first year, through 100% bonus depreciation or Section 179 expensing. To claim either tax break for the 2026 tax year, you generally need to place the vehicle in service before year end. Passenger-vehicle limits, Sec. 179 limits and business-use requirements may restrict the deduction. New meal and entertainment rules Beginning in 2026, most meals provided to employees through an employer-operated eating facility or for the employer’s convenience aren’t deductible (with limited exceptions). Recreational events primarily benefiting non-highly compensated employees — such as holiday parties or company picnics — remain fully deductible under the applicable rules. Business meals are typically 50% deductible so long as: They aren’t lavish or extravagant, The owner or an employee is present, and They have a valid business purpose. However, entertainment expenses, including event tickets and most club dues, aren’t deductible. But if you purchase food during an entertainment activity with a business purpose, you may be able to deduct it if the bill itemizes costs separately. Business gifts usually are deductible up to $25 annually per recipient. You may exclude incidental engraving, packaging and shipping costs from that limit if they don’t add substantial value to the gift. Documentation is critical We can apply these expense deduction rules for your business, but only you can supply the facts and documentation supporting each expense. Hold on to itemized receipts, mileage logs and other business records (and don’t rely solely on bank or credit card statements). Contact us for help claiming deductions available to you and identifying tax-saving opportunities throughout the year. © 2026 

Tax law changes taking effect this year will increase alternative minimum tax (AMT) risk for some higher-income taxpayers. If you may be affected, consider the AMT before implementing income or deduction timing strategies. A move that would reduce your 2026 regular tax might provide little or no benefit under the AMT — or could trigger it. Background and changes The AMT is a separate federal income tax system that disallows some deductions and treats certain income items differently. You must pay the AMT if your AMT liability exceeds your regular tax liability. The AMT rates are 26% or 28% (versus regular rates ranging from 10% to 37%), but the AMT applies to a larger taxable income base. An AMT exemption may apply when calculating your AMT income. For 2026, the exemption amount is $90,100 ($140,200 for married couples filing jointly, half that for married taxpayers filing separate returns). But at higher income levels, the AMT exemption phases out, increasing the odds that you’ll owe the AMT. For 2026, the exemption phaseout threshold has been reduced to $500,000 ($1 million for married couples filing jointly). For 2025, the exemption began to phase out when AMT income exceeded $626,350 ($1,252,700 for joint filers). In addition, the exemption phases out twice as fast for 2026 as it did for 2025. As a result of these changes, more taxpayers may owe the AMT — or owe more AMT — for 2026. Common triggers Numerous factors can affect whether AMT liability will exceed regular tax liability and cause you to have to pay the AMT. Here are some of the more common AMT triggers: High income that causes your AMT exemption to be partially or completely phased out, Large state and local tax (SALT) deductions because you can’t deduct SALT expenses under the AMT rules, Incentive stock option (ISO) exercises because when you exercise an ISO and hold the shares beyond year end, the bargain element (the difference between the shares’ market value on the exercise date and your exercise price) generally isn’t income under the regular tax rules but is included as income under the AMT rules, and Interest from certain private activity municipal bonds that’s tax-free for regular tax purposes but taxable under the AMT rules. If you’re self-employed, own a pass-through business or invest in a business or a rental real estate activity that’s passive to you, other potential triggers may be accelerated depreciation or passive activity adjustments that can produce different results under the regular and AMT systems. Impact on timing strategies Often, deferring income to the next year and, if you itemize deductions, accelerating deductible expenses into the current year is a good idea. Why? Because it will defer tax, which is usually beneficial. But in some cases, such actions could have a negative impact because of the AMT. So, if you’re at AMT risk this year or next, it’s important to first project your regular tax and AMT liability for both 2026 and 2027. This can help you determine whether you can time income or expenses to avoid the AMT, reduce its impact or benefit from its lower maximum rate. The appropriate strategy depends on which tax system is expected to apply to each year: If you could be subject to the AMT this year, consider accelerating income and short-term capital gains into 2026, which may allow you to benefit from the lower maximum AMT rate. Also consider deferring expenses you can’t deduct for AMT purposes until 2027 — you may be able to preserve those deductions (but watch out for the annual limit on the SALT deduction). Additionally, if you defer expenses you can deduct for AMT purposes to next year, the deductions may become more valuable because of the higher maximum regular tax rate. Finally, carefully consider the tax consequences of exercising ISOs. If you could be subject to the AMT next year, consider taking the opposite approach. For instance, defer income to 2027, because you’ll likely pay a relatively lower AMT rate. Also, before year end, consider selling any private activity municipal bonds whose interest could be subject to the AMT. In either situation, if you could be affected by the differing tax treatment of depreciation or passive activities, be sure to factor that into your planning as well. Run the numbers Because of potentially higher AMT risk in 2026, year-end tax planning decisions warrant a review with the AMT in mind, even if you haven’t owed the AMT in recent years. A move that would reduce your regular tax might provide little or no benefit under the AMT — or could trigger it. Before acting, determine whether you may owe the AMT for 2026 or 2027 and how the move would affect both calculations. We can help project your regular tax and AMT liability for both years and the potential impact of timing strategies. © 2026 

If your small business accepts, uses or invests in Bitcoin, Ethereum or other forms of cryptocurrency, accurate reporting and detailed records are critical for federal tax purposes. The IRS continues to scrutinize digital-asset transactions. Today, business tax returns include a question about digital assets, and brokers are now required to report certain transactions to taxpayers and the IRS on Form 1099-DA. Here’s what you need to know to help you comply with the current tax rules. The basics Unlike cash or credit cards, cryptocurrency still isn’t widely accepted by small businesses for routine transactions. However, some businesses may receive it from customers, use it to make purchases, pay workers with it or hold it as an investment. Cryptocurrencies can be valued in U.S. dollars and digitally traded between users. They may also be purchased or exchanged through online platforms and stored in digital wallets. The IRS uses the broader term “digital assets,” which includes cryptocurrency, stablecoins (a type of cryptocurrency designed to maintain a consistent value) and nonfungible tokens. Tax reporting Buying cryptocurrency with U.S. dollars and holding it generally doesn’t produce taxable income. However, selling it, exchanging it for another digital asset, using it to make a purchase or receiving it as payment for goods or services sold generally creates a reportable transaction. For federal tax purposes, the IRS treats cryptocurrency as property, not currency. As a result, businesses that accept cryptocurrency for goods or services must report gross income based on its fair market value (FMV) when received, measured in U.S. dollars. That amount generally becomes the business’s tax basis in the cryptocurrency. When the business later sells, exchanges or spends the cryptocurrency, it generally recognizes a separate gain or loss for tax purposes. The gain or loss is based on the difference between the asset’s value when disposed of and its adjusted basis. (Adjustments might include additional acquisition costs or transaction fees, certain blockchain events that affect ownership, and other tax adjustments required under IRS rules.) Here’s an overview of the tax treatment of some other common business cryptocurrency transactions: Purchases. From the buyer’s perspective, a purchase made using cryptocurrency may result in a taxable gain if the FMV of the property or services received exceeds the buyer’s adjusted basis in the cryptocurrency. Conversely, a tax loss may result if the value received is less than the adjusted basis. In other words, paying a business expense with cryptocurrency can trigger tax consequences beyond the ones typically associated with a purchase (such as a deduction for the business expense). Employee wages. For federal tax purposes, wages paid using cryptocurrency are taxable to employees and generally must be reported by employers on Form W-2. They’re subject to federal income tax withholding and payroll taxes based on their FMV on the payment date. Applicable federal and state wage-payment laws must also be considered. Payments to contractors. Cryptocurrency payments to independent contractors and other service providers are also taxable. The usual self-employment tax and information-reporting rules apply, and the payer may need to issue Form 1099-NEC. In addition, a business may have a taxable gain or loss from the appreciation or decline in the cryptocurrency’s FMV during the time it was held before it was paid to the employee or independent contractor. Assuming the payer isn’t in the trade or business of buying and selling virtual currencies, the gain and loss will be a capital gain or capital loss (short-term or long-term, depending on how long it was held). Expanded information reporting A digital-asset question now appears on federal returns including Forms 1065, 1120 and 1120-S. Businesses must answer it and report applicable transactions even if they don’t receive an information return for a transaction. Beginning with transactions in 2025, certain custodial brokers must report gross proceeds from digital-asset sales and exchanges on Form 1099-DA. Starting in 2026, they must also report the basis for certain covered digital assets. However, basis generally won’t be reported for assets acquired before 2026 or transferred into the broker’s account. So, a Form 1099-DA doesn’t eliminate the need to maintain your own records. The One Big Beautiful Bill Act didn’t change the basic tax treatment of digital assets. Its changes to Form 1099-K apply to third-party payment networks and don’t replace the separate Form 1099-DA rules. Under the Infrastructure Investment and Jobs Act of 2021, businesses will eventually be required to report certain digital-asset receipts exceeding $10,000 on Form 8300. However, until the IRS issues regulations to implement the change, businesses aren’t required to file Form 8300 solely because they receive more than $10,000 in digital assets. As a result of the expanded reporting requirements, the IRS now receives more third-party information about digital-asset transactions, making discrepancies easier to identify. Businesses that engage in crypto transactions should maintain records showing the date, number of units, dollar value, tax basis, transaction fees and business purpose of each transaction. Transfers between wallets should also be documented so they aren’t mistaken for taxable transactions. Review your records As year end approaches, review your 2026 digital-asset transactions and reconcile your records with statements from brokers and payment processors. Also keep in mind that Congress is considering bills that would change selected digital-asset tax rules. We can help you stay on top of any new developments. Contact us for assistance evaluating your transactions and meeting the current reporting requirements. © 2026 

Estate plans are often designed around rules that assume spouses and other family members are U.S. citizens. When one spouse isn’t a citizen — or when an individual owns U.S. property but lives abroad — those assumptions can create unexpected estate tax consequences. Citizenship, domicile, and the location and type of property owned can all affect how U.S. gift and estate taxes apply. For families with international connections, understanding these distinctions is an important first step toward avoiding unnecessary taxes. Domicile matters more than you might think Noncitizens can become subject to U.S. gift and estate taxes if they’re domiciled in the United States. Under IRS guidelines, an individual becomes domiciled in a country “by living there, for even a brief period of time, with no definite present intention of later removing therefrom.” The IRS considers several factors in determining “present intention,” including: The amount of time spent in the United States; Green card or visa status; Location of business interests and residences; Location of health care providers, jobs, places of worship and community ties; Place where vehicles are registered and where the individual is licensed to drive; Place where the person is registered to vote; and The domiciles of friends and family members. Noncitizens who are deemed to be domiciled in the United States are subject to U.S. gift and estate taxes on their worldwide assets, much like U.S. citizens. And, like U.S. citizens, these U.S. “domiciliaries” are eligible for the federal gift and estate tax exemption ($15 million for 2026) and the gift tax annual exclusion ($19,000 per recipient for 2026). Marriage to a noncitizen changes the rules A significant difference between U.S. citizens and noncitizens, and a potential tax trap for the unwary, is that the marital deduction isn’t available for transfers to noncitizens, even if they’re U.S. domiciliaries. Ordinarily, married couples can transfer an unlimited amount of assets between each other — during their lifetimes or at death — without triggering gift or estate taxes. However, estate planning strategies that rely on the marital deduction may not be available to noncitizen domiciliaries. There are ways to manage this limitation. For example, during life, an individual can make tax-free gifts to his or her noncitizen spouse using a special annual exclusion. For 2026, up to $194,000 of qualifying present-interest gifts may be transferred to a noncitizen spouse without gift tax. This is substantially higher than the regular $19,000 annual exclusion. Larger transfers may also be possible by using the donor spouse’s available gift and estate tax exemption. Beware of a tax trap A person who’s neither a U.S. citizen nor a U.S. domiciliary — that is, a “nonresident alien” — is subject to U.S. gift and estate taxes only on assets that are “situated” in the United States. Intangible property — such as corporate stock, bonds or promissory notes — is generally deemed to be situated in the United States for estate tax purposes (but typically not for gift tax purposes) if it’s issued by a domestic corporation or by a U.S. citizen or the U.S. government. Here’s where the potential tax trap comes into play: The exemption amount for U.S.-situated assets owned by nonresident aliens is only $60,000, compared with $15 million for U.S. citizens or domiciliaries. Depending on the value of a person’s property in the United States, this can result in significant gift and estate taxes. In some cases, tax treaties between the United States and a nonresident alien’s country of citizenship may provide some relief. Otherwise, one strategy to avoid these taxes may be holding the assets through a properly structured and operated foreign corporation. Turn to us for help If you or your spouse is a noncitizen, talk to us about the potential gift and estate planning ramifications. We can evaluate your citizenship, domicile, asset ownership and family circumstances and develop a plan that addresses the special tax rules that may apply. © 2026 

Offering paid family and medical leave (PFML) can help businesses attract and retain employees while providing workers with financial support when they need time away to care for themselves or their families. The Section 45S PFML tax credit can help eligible employers offset some of the costs. The One Big Beautiful Bill Act (OBBBA) made the credit permanent and expanded it beginning in 2026, potentially making it available to more employers. The IRS has issued Notice 2026-28 to provide guidance on the expanded credit. Employers that offer PFML should familiarize themselves with the new rules to determine whether they qualify and how best to take advantage of the credit. Employers that don’t currently provide PFML may want to consider whether doing so might now be more feasible because of the expanded credit. What’s the PFML tax credit? The PFML tax credit was created by the Tax Cuts and Jobs Act (TCJA) and is available to employers that provide qualifying employees with paid leave consistent with the Family and Medical Leave Act (FMLA), regardless of whether the FMLA applies to them. Under the TCJA, eligible employers can claim a general business credit for a portion of the actual cost of PFML wages that have been paid out, with the percentage depending on how PFML wages compare with the employee’s normal wages. If PFML wages are 50% of normal wages, the credit is 12.5% of PFML wages paid. The rate climbs to 25% ratably as PFML wages increase from 50% of normal wages to 100%. The amount of PFML wages for which an employer can claim the credit is limited to 12 weeks per employee per year. A qualifying employee is a full- or part-time employee who’s worked for the employer at least one year. The employee also can earn no more than 60% of the “highly compensated employee” limit (for 2026, no more than $96,000). The credit is available only for leave taken after the employer has a written PFML policy in place. Among other things, the policy must provide at least two weeks of PFML annually (prorated for part-time employees), FMLA protections and a PFML rate of payment of at least 50% of normal wages. Under the TCJA, leave paid by a state or local government or required by state or local law wasn’t taken into account when determining whether an employer’s written policy includes a PFML rate of at least 50% of normal wages. Notably, an employer must reduce its deduction for wages (or salaries) paid or incurred by the credit amount. Also, wages used to determine any other general business credit may not be used to calculate the PFML credit. What are the changes under the OBBBA? The OBBBA modifies the PFML credit in several critical ways. Here are some of the most important: Instead of calculating the credit based on actual PFML wages paid, an employer can opt to calculate the credit based on premiums paid or incurred for insurance policies that provide PFML for qualifying employees — regardless of whether any leave is actually taken in the tax year. Leave required by state or local law or paid for by state or local governments is taken into account when determining the amount of PFML the employer provided for purposes of determining eligibility for the credit but not when calculating the amount of the credit. Qualifying employees are limited to those customarily employed for at least 20 hours per week. Employers can elect to include employees after six months of employment. Employers can’t claim a deduction for the portion of premiums paid or incurred that’s equal to that portion of the PFML credit claimed. The new guidance focuses on the OBBBA’s “premium method” (as opposed to the “wage method”) for determining the credit amount. The premium method guidance The guidance explains that an employer can claim the PFML credit only for a premium that funds a benefit for which a credit would be available under the wage method if the benefit were actually paid — what’s referred to as “creditable coverage.” If any portion of a premium funds leave that wouldn’t qualify for the credit under the wage method, that portion also isn’t eligible for the credit under the premium method. The following types of coverage aren’t considered creditable: Coverage for leave that isn’t PFML, Coverage for leave that would be payable to a nonqualifying employee (evaluated at the time the premium is paid or incurred), Coverage for leave required by state or local law or paid for by a state or local government, and Coverage that provides a benefit other than wages. The guidance also addresses the allocation of a premium for coverage that 1) provides both qualifying PFML and other types of leave, or 2) applies to both qualifying and nonqualifying employees. In such circumstances, an employer can use any “reasonable” allocation method that’s consistent with the policy terms and supported by contemporaneous records. The IRS will allow an employer to use the wage method for some leave and the premium method for other leave. But the employer can’t use the wage method to claim the credit for wages paid if it also claims a credit using the premium method for coverage that funds such benefits (or vice versa). Relying on the guidance The IRS expects to issue proposed regulations that will mirror this guidance. These regulations will apply prospectively, but taxpayers can rely on the current guidance for tax years beginning after 2025 and before the proposed regulations are issued. If you have questions regarding the PFML credit, contact us. © 2026 

Are you planning to retire or move on from your family business in the next five to ten years? If so, and you know who’ll succeed you, start preparing that person to lead. To reveal knowledge gaps, minimize friction among relatives and employees, and give everyone greater confidence in the next leader — and the business’s future — you should begin the preparation process as early as possible. Build experience Your chosen successor should understand the family business from the ground up. Rotating through key functions provides firsthand knowledge of how decisions affect customers, employees, cash flow and profitability. It also helps this future leader earn employees’ respect instead of appearing to have been handed the top job because of family connections. Customer-facing work is particularly valuable. The successor candidate should accompany salespeople in meetings to learn how to identify customer needs, prepare proposals, discuss pricing and maintain critical relationships. Time spent in customer service can help build empathy and demonstrate how reliability, accuracy and timely communication influence customer loyalty. Marketing experience can develop skills in project management, brand stewardship, market analysis and measuring the return on promotional spending. Financial training is important, too. Your successor must know how to: Read financial statements, Prepare and monitor budgets, Manage cash flow, Comply with tax obligations, Evaluate capital expenditures, and Work effectively with internal and external financial specialists. To make effective strategic decisions, the successor will further need to understand how compensation, employee benefits and other operating costs affect the business. Finally, exposure to HR can prepare a future leader to recruit, retain and evaluate workers. It can also prepare your successor to handle sensitive employee matters. Standards and progress Assuming the successor candidate is a family member, you may feel uncomfortable conducting candid performance discussions. Reduce subjectivity during the mentoring process by establishing written qualifications, development goals and a timetable for increasing responsibility. It’s important to evaluate your successor using the same clear standards you’d apply to a nonfamily candidate. Provide regular feedback and consider appointing an experienced nonfamily executive, outside professional or advisory board member to help assess progress. Gradually transfer decision-making authority, beginning with smaller projects and advancing to responsibility for a department, major customer relationship or strategic initiative. This approach gives your successor room to make real decisions and demonstrate judgment while you’re still available to advise. Outside perspective Experience beyond the family business can strengthen a successor’s independence and professional credibility. Specifically, working elsewhere helps future leaders learn different systems, management approaches and workplace expectations. And it allows them to succeed without family connections. Don’t make a certain number of years of outside employment an inflexible requirement, though. The right approach depends on your successor’s experience and your timeline. What matters most is that the individual gains meaningful responsibility and brings useful ideas back to your organization. Real decisions As you train your successor, don’t leave employees wondering who’s in charge. Establish a detailed timeline for stepping down, including a departure date. We can help you create a succession plan that addresses key tax and estate planning issues while protecting family relationships and the business you’ve built. © 2026 

Executives and key employees often receive stock-based compensation in addition to salaries and bonuses. If restricted stock is part of your compensation, considering the potential tax consequences well before December 31 is a good idea. You may have decisions to make if: 1) you’ve recently received an award or are expecting one soon, 2) your restricted shares have vested in 2026 or will vest before the end of the year, or 3) you’ve sold shares this year or are considering a sale. The timing of these events and certain decisions you make can affect both the amount and type of taxable income you must report — and may provide planning opportunities that will affect your 2026 and future taxes. Restrictions and vesting In a typical restricted stock arrangement, you receive shares of company stock subject to one or more restrictions but at minimal or no cost to you. The most common restriction is that you must continue working for the company until a certain date. If you leave before then, you forfeit the shares. You don’t have to report any taxable income from a restricted stock award until the shares become vested — meaning when your ownership is no longer restricted. At that time, you’re deemed to receive taxable compensation income equal to the difference between the fair market value (FMV) of the shares on the vesting date and the amount you paid for them, if anything. The current federal income tax rate on compensation income can be as high as 37%. Depending on your state, you may owe state income tax, too. Any appreciation after the shares vest is treated as capital gain. If you later sell the shares for more than their FMV when they vested and you’ve held the shares for more than one year after the vesting date, the additional appreciation generally will be long-term capital gain. The federal rate on most net long-term capital gains is either 15% or 20%, but you may also owe the 3.8% net investment income tax (NIIT) and, if applicable, state income tax. Your long-term gains rate and whether the NIIT applies depend on your income. Electing to pay tax earlier Under Section 83(b), you can elect to recognize ordinary income when you receive the restricted stock instead of later when the shares vest. The income amount equals the difference between the FMV of the shares at the time of the restricted stock award and the amount you pay for them, if anything. The income is treated as compensation subject to federal income tax, federal employment taxes and, if applicable, state income tax. The benefit of making the election is that any subsequent appreciation in the stock’s value is treated as potentially lower-taxed capital gain rather than additional compensation income. The election also starts your capital gain holding period when the shares are transferred rather than when they vest. If you hold the shares for more than one year before selling them, any gain generally will be long-term capital gain. The election may be most beneficial if the FMV when the restricted stock is awarded is negligible or the stock is likely to appreciate significantly before income would otherwise be recognized. The downside of making the election is that you recognize taxable income in the year you receive the restricted stock award. This means you must “prepay” tax in the current year — which not only creates tax liability for that year but also, depending on the FMV and your other income, could push you into a higher income tax bracket and trigger or increase your exposure to other taxes or income-based phaseouts of tax breaks. If you forfeit the shares back to your employer, you can claim a capital loss for the amount you paid for the shares, if anything. But you generally can’t deduct the compensation income you previously recognized. Warning: If you opt to make the election, you must notify the IRS no later than 30 days after the stock is transferred to you. 2026 planning considerations Your considerations will depend on where you are in the restricted stock award cycle: 1. You’re awarded restricted stock in 2026. If you still have time to make the Sec. 83(b) election, you need to decide whether to make it. We can run projections of various scenarios to help you assess the likelihood that making the election will save you tax in the long run. If you don’t make the Sec. 83(b) election for a 2026 restricted stock award, then the award will generally have no impact on your 2026 taxes. Depending on how long the vesting period is, you may want to start planning for the potential tax impact when the stock vests in the future. If you decide to make the Sec. 83(b) election — or you already made it earlier in the year — you need to plan for how that increase to your 2026 income will affect your overall tax situation. If the FMV of the stock was low when it was awarded, the tax impact may be minimal. But if the FMV was higher, assessing whether it may push you into a higher tax bracket or trigger other taxes or tax-break phaseouts is critical so that you can plan accordingly. To help reduce any negative impact, you may, for example, want to defer other income to 2027 where possible and accelerate deductible expenses into 2026. 2. Your restricted stock vests in 2026. If you made the Sec. 83(b) election when you were awarded the stock, then there will be no 2026 tax consequences to the vesting. If you didn’t make the election, then you need to plan for how the increase to your 2026 income from the vesting will affect your overall tax situation, similar to the planning discussed in No. 1 for a year when the Sec. 83(b) election is made. 3. You sell some or all of the shares in 2026. You need to calculate your capital gain and whether the short-term or long-term gains rate applies based on your basis and holding period, respectively, which will depend in part on whether you made the Sec. 83(b) election. If the gain will be substantial, you need to plan for the impact on your 2026 tax situation. For example, you’ll want to assess whether the gain could cause you to be subject to the 3.8% NIIT or increase your NIIT liability. If you have other investments in your portfolio that have declined in value, consider selling them to help offset your gains — a strategy known as “loss harvesting.” Deferring other income and accelerating deductible expenses may also help reduce the tax impact. Assess the tax impact Restricted stock can affect your taxes at several points, from the initial award to vesting to an eventual sale. As year end approaches, review any restricted stock activity that has already occurred in 2026 as well as activity that will occur — and actions you’re considering — before January 1, 2027. If you’ve recently received an award, don’t overlook the 30-day deadline for making an 83(b) election. Contact us for assistance. We can help you decide whether to make the election and, whether or not you make the election (or made it in the past), help you determine how your restricted stock should fit into your year-end tax planning. © 2026 

If you own a closely held C corporation, you might be looking for ways to withdraw cash from your business. Paying yourself a dividend can be a straightforward option — but it comes at a tax cost. Corporate distributions are generally taxable to you to the extent of your company’s “earnings and profits,” and your company can’t deduct them. Distributions exceeding earnings and profits first reduce your stock basis; any remaining distribution is typically treated as capital gain. To avoid dividend treatment, consider these five alternative methods: 1. Repayment of shareholder loans to the corporation If you’ve made bona fide loans to your corporation, it can generally repay the principal without the payment being treated as a dividend. A principal payment generally isn’t taxable to you unless it exceeds your adjusted tax basis in the debt. Interest is taxable to you, and the corporation may deduct it, subject to applicable interest-deduction limitations and related-party timing rules. Whether money you advance to your corporation is treated as debt (as opposed to a capital contribution) depends on the facts and circumstances. Proper documentation is important, but labeling an advance as a “loan” isn’t enough. Relevant factors include whether: The arrangement has a fixed maturity date and interest rate. Your corporation is able to repay the loan. You’ve followed the loan agreement’s terms. The corporation’s debt-to-equity ratio supports debt treatment. If an arrangement doesn’t qualify as bona fide debt, payments to you may be treated as corporate distributions and taxed as dividends to the extent of your corporation’s earnings and profits. 2. Loans from the corporation You may be able to receive cash without immediate taxable income by borrowing it from your corporation. However, to prevent the loan from being treated as a corporate distribution, you must properly document it in a loan agreement or note. The terms should be comparable to those an unrelated lender would require, including a stated maturity date, a repayment schedule and an adequate interest rate. You should also have the ability and intent to repay the loan and make payments according to its terms. A corporation can generally make de minimis loans of $10,000 or less to shareholders without charging interest. (The exception doesn’t apply if tax avoidance is one of the principal purposes of the loan’s interest arrangement.) If the aggregate outstanding balance exceeds $10,000, shareholder loans may be subject to a complicated set of “imputed” interest rules unless the corporation charges what the IRS considers an adequate rate of interest. Each month, the IRS publishes its applicable federal rates (AFRs), which vary depending on the loan’s term. A below-market loan may result in imputed interest. Depending on the circumstances, the interest the corporation has foregone may be treated as a constructive dividend or additional compensation to the shareholder receiving the loan. The corporation may deduct reasonable compensation, but it will be subject to payroll taxes. Both dividends and additional compensation may be taxable income to the shareholder personally. A canceled loan may also be treated as a constructive dividend. Be aware that your corporation must report interest income from shareholder loans. 3. Compensation Your business can deduct reasonable compensation that you receive for services rendered to the corporation. So you may be able to take cash out of your corporation through a salary increase or bonus payment. However, it will be taxable to you as wages and subject to payroll taxes. You may be able to obtain the equivalent of a cash withdrawal by receiving fringe benefits, which can sometimes be more tax-efficient than a raise or bonus. Certain benefits may be excluded from your taxable income, even though your corporation can generally deduct the related costs. Examples include: Employer-provided health coverage, Qualifying dependent care assistance, Certain retirement plan contributions, and Up to $50,000 of group-term life insurance coverage. Each benefit has its own eligibility, dollar-limit and reporting requirements. In addition, highly compensated employees may lose some tax exclusions if a benefit plan discriminates in their favor. You can also establish a written Section 125 cafeteria plan, sometimes called a salary reduction plan, that allows you (and other employees) to take a portion of compensation as qualifying tax-free benefits rather than as taxable compensation. The plan must satisfy specific eligibility, documentation and nondiscrimination requirements. 4. Rental payments If you own real estate or equipment, you can lease it to your corporation. Your business may generally deduct reasonable rent as a business expense, and you’ll receive a steady stream of rental payments. You must report these payments as rental income. The tax treatment may be affected by the passive activity and self-rental rules. Rental rates should reflect the market value of the property provided. If rent is considered excessive, the excess may be treated as a constructive dividend, and your corporation won’t be able to deduct it as a business expense. 5. Property sales You can get cash from the corporation by selling property to it. However, certain sales have unfavorable tax consequences. For example, you generally can’t claim a loss on the sale of property to a corporation you own more than 50% of. And gain from the sale of depreciable property to a more than 50%-owned corporation is generally treated as ordinary income, rather than capital gain. A sale should have a legitimate business purpose and terms comparable to those an unrelated third party would accept. If your corporation pays more than fair market value, the excess may be treated as a constructive dividend. You may need to obtain an independent appraisal to establish the property’s value. Year-end planning If you’d like to receive additional cash or benefits before year end, it’s important to evaluate the tax implications for both you and your corporation. Contact us before proceeding. We can help you sort through your options and review your 2026 shareholder-corporation transactions to ensure proper documentation and classification. © 2026