The House passes The One, Big, Beautiful Bill Act: An overview of its tax provisions

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 

Laws governing the execution of a valid will vary by state, but they generally require certain formalities. For example, a will typically must be signed by the person making it — known as the testator — and witnessed according to state law. Some estate planning documents may also require or benefit from notarization. Following these requirements is critical. If a will isn’t properly executed, a court could later determine that all or part of it is invalid. But what happens if your will has been executed and you later need to make a change? Perhaps you’ve welcomed a new child or grandchild, experienced a marriage or divorce, acquired significant property, or simply changed your mind about how your assets should be distributed. Handwritten revisions can cause trouble It may seem easy to pull your will out of the file cabinet, cross out an outdated provision, write in the desired change and add your initials. But altering an executed will by hand is generally a bad idea. For one thing, handwritten revisions may raise questions about when and why you made them. Beneficiaries or other interested parties might challenge the changes, alleging that you lacked testamentary capacity or were subject to undue influence. Even if the revisions accurately reflect your wishes, resolving such disputes can consume time and money and potentially damage family relationships. More important, a handwritten change may not be legally valid. The requirements depend heavily on your state’s laws. Holographic wills add another wrinkle Some states recognize “holographic” wills, which are wills written primarily or entirely in the testator’s handwriting. Depending on state law, these wills may be valid without the witnesses normally required for a typewritten will, provided they satisfy certain requirements. But the fact that your state recognizes holographic wills doesn’t necessarily mean you can safely make handwritten changes to an existing typewritten will. State laws differ significantly regarding whether such modifications are enforceable and what formalities must be followed. Attempting a do-it-yourself revision can therefore create ambiguity. In some cases, the original provision might remain effective despite your handwritten change. In others, an alteration could complicate the will’s interpretation or validity. Use a codicil or consider a new will A safer approach is to work with your attorney. For a relatively minor change, an attorney may recommend a codicil — a separate legal document that amends specific provisions of an existing will. A codicil generally must be executed with the same formalities required for a will. For more extensive changes, creating and properly executing a new will may be preferable. This can reduce confusion by putting your current wishes in one document rather than requiring your executor and beneficiaries to reconcile multiple amendments. Make changes the right way Your will is intended to distribute your property according to your wishes. Don’t jeopardize the execution of those wishes for the sake of convenience. If circumstances have changed since you executed your will, contact your estate planning attorney to help ensure that any necessary revisions comply with applicable law. © 2026 

When a business is acquired, its customers don’t necessarily transfer their loyalty to the buyer. Customers may worry about future pricing, service, product quality and whether the business’s new owner understands what they value. If their concerns go unanswered, competitors may see and exploit an opening. If you’re anticipating making an acquisition, plan how you’ll protect new customer relationships. Why they may leave Some customers have strong ties to a former owner, salesperson or service representative and may not immediately trust your team. The acquisition process can also strain relationships. Employees may leave, systems may change, and ordering, billing or fulfillment processes may temporarily struggle. Silence and conflicting messages only create more uncertainty. In fact, customers generally handle M&A-related change better when you clearly tell them what to expect. As soon as feasible, communicate information about new customer contacts, contract terms, products or services, technology, and prices. Make retention a central goal You probably won’t retain every customer, but a plan that identifies integration retention risks and assigns specific individuals to address them is critical. Prioritize customers based on revenue, profitability, growth potential, strategic importance and likelihood of departure. When appropriate, ask your acquisition’s owner or the business’s account representatives to introduce customers to your team. Once you can publicly disclose your pending transaction, communicate with customers. They’re likely to care less about the deal’s financial rationale than about how it affects them. Be ready to address questions such as: What’s going to change? How will it benefit us? Do we need to transfer our current account or establish a new one? Who’s our service contact during and after the acquisition? Avoid making promises you aren’t sure you can deliver. After your transaction closes, monitor complaints, declining orders, slower renewals and other signs that relationships may be at risk. Early intervention can help prevent customers from leaving. Retaining trust Customer and employee retention go hand in hand. If key salespeople, account managers or service employees leave after an acquisition, customer relationships and institutional knowledge may go with them. Identify your acquisition’s essential employees before the deal closes and offer incentives for them to remain. Compensation and retention bonuses can help, but employees also typically value career opportunities and stability. Explain as early — and clearly — as possible how the transaction could affect their jobs, supervisors, benefits and workplaces. You may also want to use confidentiality, nonsolicitation and noncompete agreements to preserve employee relationships and proprietary information. Note, however, that enforceability of such contracts varies significantly by state, so you’ll need to work with your legal counsel. Protect what you paid for To keep customers on board, plan acquisition integration as early as possible. Assess your acquisition’s customer concentration, retention risks and any potential financial impact of customer losses. We can help crunch the numbers and isolate threats so you’re better equipped to preserve transaction synergies and realize your return on investment. © 2026 

Working remotely may broaden your job options and make daily life easier. But working from a different state than your employer — or spending part of the year working from a second home in a different state than where you normally reside — can create state tax issues. Because the rules vary by state, work arrangements that cross state lines warrant a closer look. Convenience-of-the-employer rule If your employer is located in a state that applies a convenience-of-the-employer rule and you work remotely from a different state, you may need to file income tax returns in more than one state. Under such a rule, days worked from another state for your own convenience (rather than for the convenience of your employer) may be treated as days worked in your employer’s state. This might occur if, say, you choose to work from home across the state border from the city where your employer has an office. Your employer doesn’t require you to work remotely, but you prefer to do so to save yourself the time and cost of commuting. So your employer allows you to work from home for your convenience. A state with an income tax generally can tax all income of its residents and income earned within its borders by nonresidents. So if your employer’s state considers your days worked remotely to be days worked in that state because of the convenience-of-the-employer rule, you could be subject to taxes and filing requirements in both your employer’s state and your own. Domicile and residency Your state tax obligations can also be affected if you spend enough time working in two states that both consider you to be a resident. Residency rules vary, but many states consider your domicile, the days you spend in the state and whether you maintain a home there. Your domicile is generally your “true, fixed, permanent home” — the place you intend to return to. Some states also will treat you as a resident if you maintain a home and spend a specified number of days there. It’s possible to be domiciled in one state and be a resident of another. For example, let’s say you have a permanent home in one state where your job is located and a vacation home in another state. Your employer allows employees to work remotely, so now you spend more than 200 days per year living and working at your vacation home. The state where your permanent home is located considers you to be domiciled there, but the state where your vacation home is located might view you as a resident. So if both states have an income tax, you may be subject to taxes on the same income in both states. A credit for taxes paid to another state may reduce or eliminate double taxation, depending on the states’ rules. But your tax bill may still increase if, for example, the vacation home state’s income tax rate is higher than your permanent home state’s rate. Employer obligations From an employer’s perspective, allowing employees to work remotely may create obligations to withhold and remit income and payroll taxes in multiple states. (These requirements can also affect how much state income tax is withheld from an employee’s pay.) Plus, having employees in other states may be sufficient to establish “nexus” with those states, potentially triggering liability for their income, franchise, gross receipts or sales and use tax. In addition to the expense of tax reporting in multiple states, this may increase an employer’s overall tax liability. There are other complications as well. As a result, some employers may not allow remote employees to work for extended periods from other states. They also might prohibit remote employees from moving to a state where the employer doesn’t already have employees or nexus. Review your arrangement If you’re a remote employee, before changing where you work, check with your employer to make sure it will allow you to work from that state. Also find out how a move or extended stay could affect your state taxes and withholding. If you’ve already worked from more than one state during 2026, consider addressing the potential tax consequences before year end. Contact us to review your work arrangement and determine whether you may have tax obligations in more than one state. © 2026 

Ordinary repair and maintenance costs are generally deductible in the year they’re paid or incurred, depending on your accounting method. Costs that improve property must be capitalized. However, under current tax law, capitalization doesn’t necessarily mean waiting years to recover the cost. The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for eligible property and increased the Section 179 expensing limit and phaseout threshold. Still, these provisions don’t cover every improvement. And even when an improvement qualifies for one of these breaks, repair treatment may offer certain advantages. Here’s a closer look at why distinguishing repairs from improvements remains important — and why you should consider all available deduction options. Improvement tests Generally, repairs keep property in ordinarily efficient operating condition without adding significant value or substantially extending its useful life. Examples might include fixing a leak, replacing a small number of damaged roof shingles or servicing machinery. An expenditure generally must be treated as an improvement and, therefore, be capitalized if it results in a betterment, restoration or adaptation of the unit of property: Under the “betterment test,” you generally must capitalize amounts paid for work that’s reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that’s a material addition to a unit of property. Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that’s a major component or a significant portion of the physical structure of a unit of property. Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service. For a building, these tests generally apply separately to the building structure and designated systems, such as plumbing, electrical, HVAC, elevators, fire protection and security. Consequently, replacing an entire building system may be an improvement even if the work affects only a portion of the building. Tangible property safe harbors Several safe harbors may allow expenditures that might otherwise be capitalized to be deducted currently: Routine maintenance safe harbor. Recurring work performed to keep property in ordinarily efficient operating condition may be deductible. At the time the property was placed in service, you must have reasonably expected to perform the activity more than once during a 10-year period for buildings or during the applicable class life (such as three years or seven years) for other property. Safe harbor for small businesses. Businesses with average annual gross receipts of $10 million or less during the three preceding tax years may qualify for an annual election to currently deduct the cost of work on an eligible building with an unadjusted basis of $1 million or less. The total amount paid for repairs, maintenance and improvements during the year must be no more than the lesser of $10,000 or 2% of the building’s unadjusted basis. De minimis safe harbor. Subject to accounting-policy and recordkeeping requirements, a business may elect to deduct qualifying expenditures up to $2,500 per invoice or item. The threshold is $5,000 for a business with an applicable financial statement, such as a qualifying audited financial statement. These safe harbors have specific requirements, and some elections must be made annually on a timely filed tax return. 100% first-year deductions for capitalized costs If an expenditure must be capitalized, you may still be able to deduct its full cost in the year the improvement is placed in service. The OBBBA permanently restored 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025. Qualifying property generally includes machinery, equipment and real estate qualified improvement property (QIP). QIP generally consists of improvements made to the interior of an existing nonresidential building. However, expenditures attributable to enlarging a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and are usually depreciated over 39 years. Sec. 179 may also cover machinery, equipment and QIP, as well as certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection and alarm systems, and security systems. The OBBBA doubled the expensing limit for 2025 and also increased the phaseout threshold, but less significantly. These amounts are annually indexed for inflation. For 2026, businesses may deduct up to $2.56 million of eligible costs. The deduction begins to phase out when qualifying purchases in 2026 exceed $4.09 million and is limited by taxable income from the active conduct of a business. Remember, eligible property generally must be placed in service — that is, ready and available for its intended use — by year end to qualify for bonus depreciation or a Sec. 179 expensing election for 2026. Merely purchasing, ordering or paying for property isn’t enough. Benefits of repair treatment Even when a capital improvement qualifies for a full first-year deduction, repair treatment isn’t interchangeable with bonus depreciation or Sec. 179 treatment. When an expenditure meets the requirements for repair treatment, properly classifying it as a deductible repair (rather than grouping it with capital improvements) may be advantageous for several reasons: Repair costs don’t have to meet the eligibility or placed-in-service requirements for bonus depreciation. Repair deductions aren’t subject to the Sec. 179 limits. Repair treatment generally avoids depreciation elections, related basis tracking and potential depreciation recapture consequences when the property is sold. In addition, some states don’t fully conform to the federal bonus depreciation or Sec. 179 rules. So, when applicable, repair treatment may provide an earlier state tax deduction. If an improvement qualifies for neither bonus depreciation nor Sec. 179, you may have to depreciate its cost over the applicable recovery period, which could be as long as 39 years. Year-end planning Now is a good time to review your property-related expenditures in 2026 to determine whether they’ve been classified correctly and whether any safe harbors or immediate deduction provisions apply. You may also be considering additional purchases or improvements to reduce your current-year taxable income. Contact us for help classifying your 2026 expenditures and evaluating the potential tax benefits of planned purchases or improvements before year end. © 2026 

Trusts can serve many purposes in an estate plan, from managing assets during your lifetime to controlling how property passes to beneficiaries after your death. Two broad categories are inter vivos trusts and testamentary trusts. Although both can help manage assets, they differ in when they’re funded and take effect and how they’re used in estate planning. Inter vivos trusts operate during your lifetime An inter vivos trust is created while you’re alive. You transfer assets to the trust, and a trustee manages them according to the trust agreement. Inter vivos trusts can be either revocable or irrevocable. With a revocable trust, you generally retain the ability to change or terminate the trust during your lifetime. You may also serve as trustee, allowing you to continue managing assets after you’ve transferred them to the trust. One of the biggest benefits is that, if you become incapacitated, a successor trustee can step in and manage the assets on your behalf. A properly funded revocable living trust can also help assets avoid probate after your death. Instead of the assets going through probate and being distributed according to your will, the successor trustee distributes the assets or continues managing them according to the trust’s terms. This can potentially save time, increase privacy and simplify administration, particularly if you own real estate in more than one state. Irrevocable inter vivos trusts serve different purposes. Depending on their design, they may be used for gift and estate tax planning, asset protection, charitable giving, life insurance planning, or other objectives. Because transferring property to an irrevocable trust can have significant tax and legal consequences, careful planning is essential. Testamentary trusts begin after death A testamentary trust, by contrast, is established through your will and generally comes into existence after you die and the will is admitted to probate. Your will specifies which assets you want to fund the trust, identifies the trustee and establishes the terms governing distributions. Testamentary trusts can be especially useful when beneficiaries shouldn’t receive an inheritance outright. For example, a testamentary trust might hold assets for minor children until they reach specified ages. It can also provide a trustee with discretion to make distributions for education, health care and other needs. Testamentary trusts may also be useful when beneficiaries have difficulty managing money or when you want to provide longer-term oversight of inherited wealth. However, because the trust is created under a will, the assets used to fund it generally must pass through probate first. Different tools for different goals Because of the differences between inter vivos and testamentary trusts, both types may have a place in your estate plan. Your assets, family circumstances and goals are key considerations. Trust provisions can also have important income, gift and estate tax consequences. We can help you evaluate the tax considerations and work with your estate planning attorney to determine what best fits your situation. © 2026 

Robust sales don’t always translate into strong profits. A popular product could produce disappointing returns when you account for discounts, shipping, returns and support costs. At the same time, a lower-volume product could quietly generate an attractive profit margin. How can you tell what’s working? The solution may be product-level analysis that shows where you’re generating profit and where strong revenue might be masking weak performance. This holds true whether your business manufactures, distributes or sells products through sales reps, online channels or brick-and-mortar stores. Calculating the full cost Start by identifying each of your product’s direct costs, such as materials, inventory purchases, production labor and packaging. Then consider expenses that might be easier to overlook, including: Freight, warehousing and inventory carrying costs, Sales commissions, Payment-processing charges, Promotions and discounts, Returns, spoilage and shrinkage, and Customer service and technical support. Overhead expenses — including rent, insurance, technology and administrative salaries — also affect product profitability. However, allocating them solely by sales volume can distort results. A product that requires, for example, customized packaging or extensive customer support should receive a greater share of those costs. Activity-based costing can provide a more realistic view by assigning expenses according to the activities that generate them. Beyond gross margin No single measurement tells the whole story. Gross margin shows how much revenue remains after covering cost of goods sold. Meanwhile, contribution margin subtracts variable costs from revenue. A positive contribution margin generally means a product helps cover fixed expenses and generate profit. So if a product appears unprofitable after allocated overhead, don’t automatically discontinue it. Because many fixed costs will remain, eliminating the product could reduce your business’s overall profit. Instead, consider whether the product attracts new customers or supports sales of more profitable items. Also evaluate product profitability by sales channel and customer segment. The same item may be profitable in a store but lose money through an online marketplace because of commissions, fulfillment expenses and returns. In a similar vein, a large customer’s discounts could erase the benefit of high sales volume. Turn findings into action Reliable product data can support better pricing, purchasing, marketing and inventory decisions. It can also help you negotiate supplier terms, adjust sales and distribution channels, and evaluate new products. Product-level analysis shouldn’t be a one-time exercise. Market and economic conditions often change, so you should review margins regularly and investigate major variances. Also contact us. We can help you develop a practical approach to turning product data into profitable decisions. © 2026 

Many individuals invest in real estate to help diversify their portfolio, create an income stream for themselves from rental income and build net worth over time. Often, this is a side activity to a career in another field or running another type of business — not the individual’s primary source of income. Holdings might range from a condo or small house you rent out to a multifamily residential building or even a commercial property. Whatever type of property you own, investment real estate comes with special tax considerations you need to be aware of. With proper planning, you can maximize your after-tax returns. Rental activity rules One important consideration is the tax treatment of income and losses from rental properties. They’re considered passive by definition — unless you’re a real estate professional. Even then, you generally must “materially participate” in a rental activity for it to be treated as nonpassive. Why is this important? Passive income may be subject to the 3.8% net investment income tax (NIIT) on top of any income tax otherwise due, and passive losses are deductible only against passive income, with the excess being carried forward. For investors who have another primary occupation, qualifying as a real estate professional can be difficult. To qualify, you must annually perform: More than 50% of your personal services in real property trades or businesses in which you materially participate, and More than 750 hours of service in these businesses during the year. Each year stands on its own, and there are other nuances to keep in mind. To materially participate in an activity, generally you must participate more than 500 hours during the year or demonstrate that your involvement constitutes substantially all of the participation in the activity. But there are other ways to meet the material participation test. Carefully track the time you spend on your real estate activities. If you own rental properties in addition to working in another business or profession, also carefully track the time spent on those non-real-estate activities, so you can see if you spend a small enough portion of your time on them vs. real-estate activities that you can pass the first real estate professional test. Although your spouse’s hours can’t be counted toward the tests for qualifying as a real estate professional, special rules for spouses may help you meet the material participation test: Generally, your spouse’s participation can be counted when determining whether you materially participate. Depreciation breaks Buying an investment property may be only the beginning of your expenditures. If you renovate or improve a property, the tax treatment of those costs can vary depending on the type of property and improvement. Generally, residential real estate, including improvements, must be depreciated over 27.5 years and commercial real estate over 39 years. But three valuable depreciation-related breaks may be available to real estate investors: 1. Qualified improvement property (QIP) deduction. QIP is defined as an improvement to an interior portion of a nonresidential building placed in service after the building was initially put into use. So these rules can apply to qualifying improvements to commercial real estate, but not to improvements to a residential rental property. QIP has a 15-year Modified Accelerated Cost Recovery System (MACRS) recovery period and qualifies for bonus depreciation and Section 179 expensing. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP. They usually must be depreciated over 39 years. 2. Bonus depreciation. This additional first-year depreciation allowance is available for qualified assets, including QIP. Bonus depreciation is 100% for eligible assets acquired and placed in service after January 19, 2025. 3. Section 179 expensing election. This allows you to currently deduct qualified property, subject to certain limits. This includes QIP, certain depreciable tangible personal property used predominantly to furnish lodging and for the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems For 2026, the maximum Sec. 179 deduction is $2.56 million. The deduction begins to phase out if the cost of qualifying property placed in service during the year exceeds $4.09 million. Deferring gains Eventually, you may decide to sell an appreciated rental or other investment property. You might be able to structure the transaction to defer some or all of the taxable gain. Such strategies may even help you keep your income low enough to avoid triggering the 3.8% NIIT and the 20% long-term capital gains rate. One example is an installment sale. It allows you to defer gains by spreading them over several years as you receive the proceeds. But ordinary gain from certain depreciation recapture is recognized in the year of sale, even if you receive no cash. Another option is a Section 1031 exchange. Also known as a “like-kind” exchange, this technique allows you to exchange one real estate investment property for another and defer paying tax on any gain until you sell the replacement property. If you receive cash or other non-like-kind property as part of the exchange, however, you generally must recognize gain to that extent. These tax deferral strategies aren’t without risks. For example, if tax rates go up, you could ultimately end up paying more in taxes. They also have detailed requirements, so it’s important to consider the tax consequences before completing a sale or exchange. Tax-smart decisions Taxes can affect the economics of an investment property from the time you buy it through the time you sell it. Decisions about your involvement in rental activities, improvements to the property, and the timing and structure of a sale can all have tax consequences. Contact us to discuss tax planning related to your investment real estate. We can help you identify potential tax-saving opportunities and avoid tax pitfalls. © 2026