Payroll tax compliance: New Social Security wage base for 2027

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 

The 2026 tax year is almost over, but you still have time to implement year-end tax planning strategies to reduce your business’s federal income tax liability. Let’s look at a few moves you may be able to make before New Year’s Day to trim your tax bill. 1. Invest in capital assets If you acquire and place in service eligible new or used assets in 2026, you can benefit from the 100% first-year bonus depreciation deduction. Eligible assets include new and used machinery, equipment, certain vehicles, off-the-shelf computer software, and qualified improvement property (QIP). Generally, bonus depreciation is automatically applied to your purchases of eligible assets placed in service during the tax year. You can elect out (which sometimes can be beneficial), but only for an entire asset class, such as all five-year assets or all seven-year assets. You can use bonus depreciation to create a net loss that you generally can carry forward to future tax years. Another depreciation-related tax break is the Section 179 expensing election. For 2026, you can deduct up to $2.56 million of the cost of purchasing eligible new or used assets, such as equipment, furniture, off-the-shelf computer software and QIP. The deduction begins to phase out dollar-for-dollar when qualifying purchases exceed $4.09 million. It’s limited to the taxable income from your business activity, so you can’t use it to create a net loss. But you can carry forward unused amounts or apply bonus depreciation to the excess. Also, Sec. 179 expensing isn’t automatic, and it can be applied on an asset-by-asset basis — or even to only part of an asset’s cost. This flexibility can be a planning advantage over bonus depreciation. Consider factors such as cash flow, revenue projections, financing terms and the impact on other tax breaks before buying a pricey capital asset. The related deduction may prove more valuable later. 2. Take advantage of the deduction for QPP If you’re a manufacturer and you have new construction nearing completion, finishing it before the new year could provide a 2026 deduction. Your business may qualify for a temporary depreciation deduction for the construction of qualified production property (QPP) placed in service after July 4, 2025, and before January 1, 2031. This break lets eligible businesses claim a deduction equal to 100% of the QPP’s adjusted basis in the tax year it’s placed in service. Unlike bonus depreciation, the QPP deduction requires an election. Among other requirements, QPP generally must be nonresidential real property located in the United States and used as an integral part of a “qualified production activity.” This means that manufacturing, production or refining activities must take place within the physical space of the property. Portions used for offices, administrative services, lodging, parking, sales, research, software development, engineering or storage of finished products generally are ineligible. Additional requirements apply, including restrictions on construction dates and property use. 3. Identify research expenses The Sec. 174 deduction for research and experimental (R&E) expenses and the Sec. 41 research credit (often called the “research and development” credit) aren’t limited to businesses traditionally associated with cutting-edge experimentation and innovation. So it could pay off to investigate whether you’ve incurred qualified expenses. Keep in mind that the definition of qualified expenses is generally broader under the R&E deduction than under the research credit. Under the R&E deduction, qualified expenses include costs related to activities intended to discover information that would eliminate uncertainty about the development or improvement of a product. You can deduct such domestic expenses in the tax year they’re incurred or paid — regardless of whether the associated project has been completed — or amortize them over at least five years. Foreign qualified expenses must be amortized over 15 years. Your deduction expenses also might qualify for the research credit, but you can’t claim both for the same expense. Generally, if you claim the credit, you must reduce your deduction by the credit amount. Or you may be able to make a Sec. 280C election, which generally will reduce the credit by the maximum corporate tax rate (21%) and let you take the full deduction. Modeling can help you determine the optimal choice. 4. Maximize your QBI deduction The Sec. 199A qualified business income (QBI) deduction allows owners of sole proprietorships and pass-through entities (including partnerships, S corporations and most limited liability companies) to deduct up to 20% of their QBI. QBI is generally defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The amount of the allowable 199A deduction is subject to wage and investment limitations at higher income levels, so project your taxable income now to determine whether they might apply. The One Big Beautiful Bill Act (OBBBA) expanded the phase-in ranges for those limits beginning in 2026, meaning some taxpayers will qualify for larger deductions. For 2026, the limits generally kick in when taxable income is within the range of $201,750 to $276,750 ($403,500 to $553,500 for married couples filing jointly). If your taxable income falls in the range, the limits will partially reduce your 199A deduction to the greater of: 50% of W-2 wages paid to employees, or 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition of qualified business property (for example, machinery, equipment, buildings and other depreciable property). When taxable income exceeds the top of the range, the deduction is fully reduced to the greater of the above. Another limit that’s phased in based on the income threshold is the 199A deduction being unavailable for income from a “specified service trade or business.” Examples include businesses that involve investment-type services and most professional practices (other than engineering and architecture). If your projections suggest you’re close to the lower end of the phase-in range, consider measures to reduce your taxable income. You can, for example, maximize retirement plan contributions. Cash-basis businesses can defer income into 2027 and accelerate expenses into 2026. If the limits are unavoidable, you may be able to boost your deduction by, for instance, increasing wages or purchasing qualified business property before year end. Keep in mind that such maneuvers can have additional consequences, such as higher payroll taxes. 5. Assess the impact of the “excess” business loss limitation Noncorporate taxpayers generally can use business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains, but only up to an inflation-adjusted limit. Losses exceeding this limit generally can’t be deducted in the current year. Instead, they’re treated as net operating loss (NOL) carryforwards to subsequent tax years, generally subject to the 80% taxable income limitation on NOL deductions. The OBBBA made this “excess” business loss limitation permanent. For 2026, the limit drops to $256,000, or $512,000 for joint filers, down from $313,000 and $626,000, respectively, for 2025. As a result, taxpayers generating substantial business losses from bonus depreciation, currently deductible research expenses or other deductions may be unable to claim the full tax benefits of those losses in 2026. If your projected 2026 business losses are approaching or exceeding the limit, consider whether accelerating business income or deferring certain deductions could help maximize your current-year tax benefits. These strategies should be evaluated carefully because shifting income or deductions between tax years can affect future NOL deductions and overall tax liability. Take a proactive approach Year-end planning is important for any business looking to minimize income tax liability and strengthen its financial position. Implementing the right strategies can help you make the most of available deductions and credits — and avoid missed tax-saving opportunities. Need help? We can evaluate the implications of these and other potentially tax-cutting tactics. © 2026 

If your business’s renewed employer-sponsored health insurance plan starts at the beginning of the calendar year, you’re probably negotiating next year’s rates now or will be soon. The stakes are high and rising: Preliminary survey results from Marsh (whose Mercer business advises employers on health benefits) project that employers’ health benefit costs per employee will increase an average of 8.2% in 2027. The renewal period is an opportunity for your business to determine what employees value, where expenses are growing and how you can balance cost vs. coverage. Start with people Before changing plan benefits, review enrollment and employee feedback. Are workers using the plans you offer? Do they understand their choices? You may be looking for ways to cut costs, but a lower-premium plan may be a poor fit if its deductible, prescription coverage or provider network makes care less affordable for employees. Ask your benefits consultant for spending pattern and plan use data (that omits employees’ medical conditions). These reports can help you spot opportunities to improve plan design and communication. For example, employees may not use lower-cost care options because they aren’t aware of them. Be sure you compare the cost of plans you’re considering to what employees will pay, including premiums and likely out-of-pocket expenses. Putting numbers in context Your consultant or insurance broker can explain increases proposed by insurers and compare competing options on the same basis for the following: Provider networks, Deductibles, Prescription formularies, Administrative fees, and Any changes in covered services. A lower quote may come with trade-offs that matter to your workforce. For instance, high-deductible health plans paired with Health Savings Accounts can appeal to some workers, but you shouldn’t assume everyone will embrace that option. Give pharmacy coverage particular attention. Prescription drug benefits are among the fastest-growing expense categories. Ask what drives your costs, how rebates and fees are handled, and whether other contract arrangements offer better value. If your health plan is self-funded, an independent review of claims payments and pharmacy contract terms may uncover errors or charges that warrant your follow-up. A benefits advisor can help determine whether potential savings justify the review’s cost. For any plan, request a clear explanation of proposed wellness or care-navigation programs, including how employees would use them and how you’d measure results. Financial impact The cheapest plan isn’t necessarily the best choice for your business and its workers. Changes that raise employees’ costs may affect their ability to get care and how they view your benefits package. That, in turn, can affect hiring and retention. Before signing renewal papers, model several options using your expected enrollment, employer contributions and cash flow. Also, contact us. We can help you compare the financial impact of renewal proposals, test different cost-sharing approaches and insert the plan you choose into next year’s budget. If possible, get in touch before insurance negotiations begin so you can use our analysis in your decision. © 2026 

Dissolving a marriage involves numerous financial and nonfinancial decisions, and tax considerations can easily fall by the wayside. But decisions made before your divorce is finalized can affect your current-year income tax liability and your tax situation in future years. Let’s look at some of the most critical tax issues to consider as you work through a separation or divorce in 2026. Income tax returns Your marital status for income tax filing purposes generally is determined as of the last day of the tax year. If by December 31 you’re divorced or legally separated under applicable state law, you generally are treated as unmarried for that year and will file as single or, if you have one or more qualifying children or dependents and otherwise meet the requirements, as head of household. Otherwise, you generally are treated as married and must decide whether to file jointly or separately. If you have children, you’ll need to determine who’ll claim them on your tax returns in order to potentially claim related tax breaks besides just head-of-household status. Which parent claims a child can affect eligibility for certain tax benefits (based on factors such as the parent’s income level), and special rules apply when parents are separated or when custody is shared. If you and your former spouse don’t agree on who’ll claim a child, federal tie-breaker rules may apply. As year end approaches, consider how the timing of a final divorce decree or legal separation and decisions related to children could affect your 2026 filing status and tax liability. Also review whether your withholding is still appropriate. Support payments For alimony under separation or divorce agreements executed after December 31, 2018, there’s no deduction for the former spouse making the payments. And the payments aren’t included in the gross income of the former spouse receiving them. (The rules are generally different for alimony under agreements executed before 2019.) No matter when a separation or divorce agreement is executed, child support payments aren’t deductible by the paying spouse or taxable to the recipient spouse. If you’re negotiating support payments before year end, make sure to factor in how the payments will be treated for federal tax purposes and the impact on your overall tax situation. Your home In general, a taxpayer who sells a principal residence (main home) may be able to exclude up to $250,000 of gain if the applicable ownership and use requirements are met. Generally, this means owning and using the home as a principal residence for at least two of the previous five years. A married couple filing jointly may be able to exclude up to $500,000 of gain if they meet additional requirements for the joint exclusion. If a couple separates or divorces and one spouse continues to live in the home and the other moves out, special rules may allow the spouse who moved out to count certain periods when the home was used as a principal residence by the other spouse under a separation or divorce agreement for purposes of the use test. The wording of the separation or divorce agreement can therefore be important when deciding whether to sell your home before year end, have one spouse retain it or transfer ownership as part of the divorce. A transfer of the home between you and your spouse as part of a divorce generally won’t be treated as a taxable sale. If the applicable ownership and use tests aren’t met when the home is later sold, however, all or part of the gain may be taxable. A reduced exclusion may be available in certain circumstances, including some sales resulting from unforeseen circumstances. Retirement benefits Retirement benefits are often part of a divorce property settlement. A qualified domestic relations order (QDRO) can give one spouse rights to benefits under the other spouse’s employer-sponsored qualified retirement plan, such as a 401(k). Generally, the spouse who receives retirement plan benefits under a QDRO is taxed on those benefits rather than the spouse who earned them. But when taking withdrawals under the QDRO, the recipient spouse generally is exempt from the 10% early withdrawal penalty that usually applies to retirement plan distributions taken before age 59½. If you’re the receiving spouse and not yet subject to required minimum distributions (RMDs), which generally means you’re under age 73, you may have a few options (with varying tax consequences): Take a lump-sum distribution of the full amount — this may produce a significant income spike in the year received that might push you into a higher tax bracket, trigger (or increase the impact of) various tax-break phaseouts or produce other negative tax consequences, Arrange to receive regular payments, thereby spreading out the taxes over multiple years and avoiding some of the possible negative tax consequences of a lump-sum payment, Roll over the assets into your own retirement plan or IRA — if the rollover requirements are met, you’ll owe no current tax for the year of the rollover but RMDs generally will apply when you reach age 73 or 75, depending on your year of birth, or Leave the money where it is and wait until later to start taking distributions — again, RMDs generally will apply when you reach age 73 or 75. Before finalizing the divorce agreement, consider the tax consequences of dividing retirement assets, including the timing and tax treatment of distributions. (Keep in mind that many of the tax consequences will be different if the retirement benefits are in a Roth account, where qualified distributions are tax-free.) Business interests Business interests require particular attention before a divorce settlement is finalized. For example, a transfer of S corporation stock can affect suspended losses and other tax attributes. Suspended losses generally carry over for the shareholder, but losses that remain suspended when the shareholder disposes of all of the stock generally are lost. With partnership interests, the partner’s tax basis, share of partnership liabilities and other tax attributes merit a close look. A transfer can affect the tax consequences for both the transferring and receiving spouse, so address these issues before completing the transaction. Review the tax impact From a tax perspective, separation and divorce can affect much more than your filing status. Before year end, review your withholding, estimated tax payments, ownership of major assets and any property or retirement accounts being transferred as part of the settlement. You’ll also want to revisit your estate plan and beneficiary designations when the divorce is finalized. We can help you evaluate the tax consequences of your separation or divorce so you can make informed decisions before year end. © 2026