If you received an Employee Retention Credit (ERC) refund in 2026 for wages paid in 2020 or 2021, you may have an opportunity to recover the tax you pay on that refund.

The IRS currently says that if you failed to reduce your wage deductions in the original years, you should report the receipt of an ERC refund in 2026 as taxable income in 2026. We have previously recommended following that guidance and filing a protective refund claim to preserve your rights while the legal issues are resolved.

A recent court case, Twitchco, gives that strategy additional support.

In Twitchco, a federal court ruled that the IRS could not use the “tax benefit rule” to tax an improper deduction from a tax year that was already closed by the statute of limitations. That reasoning may apply to many ERC recipients because the wage deductions became improper in 2020 or 2021—not when the refund check arrived in 2026.

This does not mean every taxpayer will win their ERC protective refund claim. The legal authority is limited; other courts have reached different conclusions, and the IRS is expected to defend its position aggressively. Your filing dates, the jurisdiction you live in, and the specific facts of your ERC claim can all affect the strength of your case.

For that reason, the protective refund claim remains the most prudent strategy for most taxpayers. It allows you to comply with current IRS guidance while preserving your right to a refund if the courts ultimately reject the IRS’s position.

 

Sell Now, Pay the IRS Later: Defer Capital Gains for Decades

If you’re planning to sell highly appreciated real estate, a closely held business, or private company stock, don’t let the tax consequences become an afterthought. There may be a way to defer the capital gains tax for years—even decades—but only if you plan before the sale.

One strategy worth considering is a deferred sales trust. Instead of selling your asset directly to the buyer, you first sell it to an independent trust in exchange for an installment note. The trust then completes the sale to the buyer. Because you receive payments over time rather than all at once, you generally pay the capital gains tax as those payments are received.

The biggest advantage is that the full pre-tax sale proceeds can remain invested instead of immediately being reduced by taxes. That allows more money to compound over time and may provide a steady stream of retirement income.

Unlike a Section 1031 exchange, a deferred sales trust does not require you to purchase replacement real estate within strict deadlines. It can also provide greater investment flexibility if you’re ready to move beyond real estate.

This strategy, however, is not for everyone. Because the IRS scrutinizes these transactions, they require careful planning before you sign a binding sales agreement, and the trust must be genuinely independent. In addition, unlike a 1031 exchange, a deferred sales trust generally does not preserve the step-up in basis that heirs may receive when appreciated real estate is held until death.

 

How to Find Your 2026 Section 199A Deduction with Multiple Businesses

If you own more than one business, you may be missing out on a larger Section 199A deduction without even realizing it.

The Section 199A deduction allows many owners of sole proprietorships, partnerships, and S corporations to deduct up to 20 percent of their qualified business income. Even better, Congress has now made this deduction permanent, which means proper planning is more valuable than ever.

When you own multiple businesses, the calculation becomes much more complicated. Depending on your taxable income, you may have the opportunity to combine, or “aggregate,” certain businesses for purposes of computing the deduction. In the right circumstances, aggregation can substantially increase your tax savings.

Taxpayers with higher incomes can enhance the deduction by the amount of W-2 wages paid or business property owned. One business may have plenty of wages but little income, while another has strong profits but few wages. If the businesses qualify for aggregation, combining them can produce a significantly larger deduction than what results from calculating each business separately.

Businesses that generate losses require special attention as well. A loss from one business can reduce the deduction available from your profitable businesses, making accurate calculations especially important.

The rules governing aggregation are highly technical, and not every business qualifies. In addition, if you elect to aggregate, you generally must continue using that approach in future years unless the facts change.

 

Protect Your Home-Office Deduction from Spouse, Second Business

The home-office deduction can produce substantial tax savings, especially when it converts what would otherwise be commuting miles into deductible business mileage. But many business owners accidentally put this valuable deduction at risk.

If you use your home office for more than one purpose, each use must qualify under the tax rules. A single non-qualifying use can jeopardize the deduction.

One of the biggest traps involves W-2 employment. Federal law now permanently denies employees a home-office deduction on their personal tax returns. That means if you use the same office for both your self-employed business and your W-2 job, your employee use can threaten the deduction for your business.

The same caution applies if you operate multiple businesses from the same office. Each business must independently qualify for the home-office deduction. Likewise, if you share the office with your spouse, your spouse’s use must also qualify—unless you split the room so each spouse uses a separate portion exclusively.

If your business operates as either an S or a C corporation, there is still a way to benefit from a home office. Rather than claiming the deduction personally, the corporation can reimburse your home-office expenses through an accountable plan.

The consequences of losing the home-office deduction can extend beyond the office itself. You may also lose valuable business mileage deductions if the IRS reclassifies your trips as non-deductible commuting.

 

S Corp. Owners: Don’t Lose 2026 Dental, Vision, Medicare Breaks

If you own more than 2 percent of an S corporation, your dental, vision, and Medicare premiums can qualify for the same valuable tax treatment as your major medical insurance premiums.

To secure the deductions, follow the same three-step process for all qualifying premiums.

First, your S corporation must either pay the premiums directly or reimburse you after you provide proof of payment. Second, the corporation must include the premiums in box 1 of your Form W-2, but not in box 3 or 5. Third, you claim the combined medical, dental, vision, and qualifying Medicare premiums as the self-employed health insurance deduction on your individual tax return.

Qualifying Medicare costs can include Part B, Part D, Medicare Advantage, Medigap, and certain voluntarily paid Part A premiums. Even when Social Security deducts Medicare premiums directly from your benefits, your corporation can reimburse you if you provide documentation, such as your Form SSA-1099 or Medicare statement.

Two important limitations apply.

You generally cannot claim the deduction for any month when you or your spouse qualified for subsidized health coverage through another employer. In addition, your total deduction cannot exceed your box 5 Medicare wages from the S corporation. Therefore, your salary should be high enough to cover the combined amount of all medical, dental, vision, and Medicare premiums

Qualifying premiums paid for relatives who work for the corporation may require the same W-2 treatment. The family attribution rules can apply even when those relatives own no stock directly.

 

Dealer or Investor? Deducting the Loss on Your First Flip

If your first house-flipping project ended in a loss, don’t assume you’re limited to deducting only $3,000 per year. Depending on your specific facts, you may qualify to deduct the entire loss in the current year.

The key issue is whether the IRS views you as a real estate dealer or as an investor. Investors generally face the $3,000 annual limit on capital losses. Dealers, however, report their activity as a business, allowing losses to offset ordinary income in full. In many cases, dealer treatment can also reduce self-employment tax.

Qualifying as a dealer depends on more than the number of properties you have sold. The IRS and the courts look at your overall business intent and activities. Factors include why you purchased the property, the extent of your rehabilitation work, how quickly you marketed the property for sale, and whether you conducted the activity in a businesslike manner.

But dealer status is not always an advantage. If future flips generate profits, those profits become ordinary income rather than capital gains. Dealer property also does not qualify for Section 1031 exchanges or installment-sale reporting.

If you intend to build a house-flipping business, good records are essential. Maintain a written business plan, keep separate books and bank accounts, track your time, and consistently report the activity as a business from year to year.

 

Tax Plan: Buy $500,000 of Goods on December 20 and Expense Them

If your business sells merchandise, there may be a valuable year-end tax planning opportunity that many small-business owners overlook.

Under today’s tax rules, many qualifying small businesses can deduct the cost of inventory when it is purchased and paid for—even if the goods remain on the shelf at year-end. But there is one critical requirement: your bookkeeping must support that treatment.

The tax law allows businesses with average annual gross receipts of less than $32 million to use simplified inventory accounting methods. If your accounting records consistently expense merchandise purchases when they are made, your tax deduction can generally follow those books. That can produce a substantial deduction before year-end.

On the other hand, if your accounting system records purchases in an inventory asset account and deducts them only when the goods are sold, your tax deduction generally must wait until the sale occurs.

The key is consistency. You cannot change your accounting method in December simply to create a larger deduction. In fact, changing inventory accounting methods usually requires IRS approval. Likewise, purchases must be genuine business transactions—not simply exist to generate a tax deduction. The merchandise must be received and paid for before year-end, and the purchase must make business sense.

If your business expects a profitable year, reviewing your inventory accounting method before year-end could produce meaningful tax deferrals. While this strategy generally postpones taxes rather than permanently eliminate them, improving cash flow by delaying taxes can still provide a significant financial advantage.

If you have questions, don’t hesitate to contact me.

Many business owners overlook a powerful strategy that allows them to pay family members, reduce taxes, and avoid payroll taxes altogether.

You likely know the traditional approach: hire your child and put them on payroll. That strategy works well for younger children in a sole proprietorship. But once your child turns 18—or if you operate as a corporation—payroll taxes usually apply.

In the right situation, a lesser-known alternative offers a better outcome.

You can hire a family member for a “one-time project” instead of ongoing work. This structure allows you to deduct the payment at your higher tax rate while your family member reports the income at a much lower rate—often with little or no tax liability.

For example, you might pay your college-age child to design a website, create marketing materials, or complete a facility upgrade. If you structure the work as a true one-time project—not a continuous or recurring one—the income avoids employee status and thus payroll taxes for both you and the child. It also avoids 1099 independent contractor status and thus self-employment taxes for the child.

This approach can generate meaningful savings. In one scenario, a $23,225 payment produced over $7,800 in net family tax savings.

To make this strategy work, you must follow several key rules:

• Define a clear, one-time project with a specific scope.
• Pay a reasonable, fixed amount upon completion of the project.
• Avoid hourly wages or ongoing tasks.
• Maintain simple documentation and proof of completion.
• Ensure the arrangement supports proper worker classification.

This strategy depends heavily on proper structure and execution. If you treat the work as ongoing employment, you risk having your child or other family member classified as an employee or a 1099 independent contractor.

When done correctly, this approach efficiently shifts income, minimizes taxes, and keeps compliance simple.

Do You Need a W-2 for Spouse-Employee 105-HRA Benefits?

If you employ your spouse in your business and use a Section 105-HRA to deduct family medical expenses, you may be wondering whether issuing a W-2 is necessary.

The good news is, from a tax law standpoint: a W-2 is not required. IRS guidance and court decisions confirm that medical reimbursements under a properly structured Section 105-HRA can qualify as reasonable compensation—even if they are the only form of pay and are not reported as wages.

So why do some business owners still issue a W-2?

The answer lies in trade-offs:

Tax impact. Adding W-2 wages generally does not produce meaningful tax savings. In many cases, it slightly increases overall tax liabilities due to interactions between self-employment taxes and income taxes.

Administrative burden. Issuing a W-2 means running payroll, including quarterly filings, year-end reporting, and ongoing compliance. This creates additional time and cost burdens as well as the potential for penalties.

Audit perception. A no-wage setup (large benefits, zero wages) is technically valid but may appear unusual. Adding a salary makes the arrangement look more conventional and may reduce IRS scrutiny.

Bottom line. This decision is not about saving taxes—it’s about choosing between simplicity and optics. Skipping the W-2 keeps things lean and compliant, while adding it may provide peace of mind at the cost of added complexity.

Lawyer Burned by Fake AI Tax Cases—Don’t Be Next

Artificial intelligence (AI) is all the rage today. AI tools like ChatGPT, Claude, Grok, and Perplexity are being used for everything, including legal research. But beware! AI is not perfect. It’s not even intelligent.

AI doesn’t think like a human, and it has no internal fact-checker. It produces new content by analyzing vast amounts of prior works (“training data”) to identify underlying patterns and structures. It then makes probabilistic predictions about the next word in its answer. In short, it predicts words, not truth.

And AI frequently lies—AI developers call this “hallucinating.” One survey of general-purpose AI tools found that they hallucinate 58 percent to 82 percent of the time on legal queries. What about AI tools specially designed for legal research? These tools are more reliable, but they still hallucinate 17 percent to 34 percent of the time.

One attorney found this out the hard way when he apparently relied on AI to perform legal research. He ended up submitting a brief in Tax Court that contained fake and inaccurate legal citations. The Tax Court was not amused. He lost his case. This was a first for the Tax Court, but other courts have fined attorneys who submitted fake legal research generated by AI.

Tax questions are particularly difficult for AI to answer correctly because tax law is complex and constantly changing. If you use AI for research, always instruct it to provide a citation to primary authority for every legal claim, and check that reference yourself.

Many courts are now requiring attorneys to disclose whether they used AI in court filings and to certify that a human has independently reviewed any AI-generated document.

The IRS has recently advised its employees to avoid becoming overly reliant on AI tools. It says they should use those tools to assist and augment their work, not replace their own critical thinking and judgment. This is good advice for everyone.

HSAs After Death: What You Need to Know

Health Savings Accounts (HSAs) are a great way to save money.

Unlike any other tax-advantaged account, they provide a triple tax benefit:

• Contributions are tax-deductible.
• Monies inside the HSA grow tax-free.
• Withdrawals are tax-free if used for medical expenses.

Withdrawals after age 65, if not used for medical expenses, are subject to regular income taxes.

Some wealth advisors counsel HSA owners to treat their accounts like a super IRA—to maximize their contributions and make few or no withdrawals for medical expenses. By the time they retire, they could have a substantial amount saved in their accounts. They can withdraw the money tax-free to pay medical expenses, or withdraw it for non-medical expenses and pay regular income tax.

But HSA owners need to understand that after they die, the tax code treats HSAs very differently from IRAs or 401(k)s.

If your spouse is your HSA beneficiary (as is normally the case for married people), the account will automatically go to your spouse upon your death, with no taxes due. Your HSA becomes your surviving spouse’s HSA.

If you don’t have a spouse as your beneficiary, your HSA automatically ends on the date you die.

Your non-spouse beneficiary—whether a child or someone else—will receive the funds and have to pay regular income tax on them that year. This is very different from the tax treatment for inherited IRAs or regular 401(k)s; non-spouse IRA and 401(k) beneficiaries have 10 years to withdraw all the money from the account and pay tax on it.

Sooner or later, every HSA will have a non-spouse beneficiary, whether because the HSA’s owner never married, they got divorced, or their spouse predeceased them. The HSA is generally not the best vehicle for passing your wealth to the next generation.

If someone other than your spouse is your HSA beneficiary, you can reduce the tax hit they’ll face when you die by making tax-free withdrawals from your account to reimburse yourself for past medical bills you paid. These include not just doctor bills but also dentist bills, vision care, and many other expenses.

It doesn’t matter how old these bills are as long as you paid them after you established your HSA and didn’t deduct them on your taxes. However, you must have proper documentation for them. You can take such reimbursements anytime, but it is definitely something to consider if you become seriously ill and don’t expect to live much longer.

All HSA owners should get in the habit of keeping receipts for their medical expenses. There are HSA expense-tracking apps that can make it relatively easy to maintain this documentation.

Don’t Make This Costly Portability Election Mistake

The One Big Beautiful Bill Act (OBBBA) permanently increased the federal estate and gift tax exemption to a whopping $15 million per person for 2026 and later. You can give away while alive and/or bequeath at death this much money or property free of federal estate and gift tax.

If you’re married, you and your spouse each get a $15 million exemption. Thus, your combined estate and gift tax exemption is $30 million for 2026 (it’s adjusted for inflation each year).

But married couples don’t automatically get the combined exemption of up to $30 million. Rather, when one spouse dies, the executor of their estate must file an estate tax return, even if it isn’t otherwise required, and make a “portability election”—that is, they must direct the IRS to “port” (transfer) the deceased spouse’s unused exemption to the living spouse.

A recent Tax Court case shows that making a portability election can be fraught with risk.

To make filing an estate tax return solely to elect portability as simple as possible, the IRS allows the executor to use a simplified reporting procedure and provide a single estimate of the entire estate’s value instead of providing fair market values of all the estate’s assets.

Key point. The executor can use simplified reporting only if the entire estate is left to the surviving spouse and/or to charity.

The Tax Court (in Estate of Rowland) recently held that the executor improperly used simplified reporting where a deceased spouse left property in trust to grandchildren. As a result, the court disallowed the executor’s portability election, and the surviving spouse lost the deceased spouse’s $3.7 million unused estate tax exemption, resulting in $1.5 million in extra estate tax due when the surviving spouse died.

This case is a wake-up call to all married couples and their estate planners. Portability offers the simplest planning strategy to maximize the couple’s combined exclusion amount. But the executor of the deceased spouse’s estate must follow the proper reporting procedures to make a valid portability election.

Executor instructions for a portability election are now especially important after Rowland, to ensure that portability is not lost entirely due to inadequate estate return preparation.

If you have questions, don’t hesitate to contact me.

As we approach the end of 2025, there’s still time to take action and make a real difference in your tax outcome for the year. 

With thoughtful planning and a few strategic steps, you can reduce your tax bill, strengthen your retirement savings, and position your finances for a better 2026.

Below are some year-end moves to consider before December 31. Each one is practical, IRS-approved, and designed to help you keep more of what you’ve earned.

1. Strengthen Your Business Deductions before December 31

Prepay Expenses Under the IRS Safe Harbor

If you’re on the cash basis, you can prepay qualifying expenses up to 12 months in advance and deduct them this year. That includes office rent, equipment leases, and insurance premiums.

For example, if your monthly office rent is $3,000, prepaying $36,000 on December 31 to cover your 2026 rent gives you a $36,000 deduction in 2025—and it provides the landlord with the income when he wants it, in 2026. Be sure to mail the funds on December 31 so they arrive in January 2026, and keep documentation, such as the USPS tracking number.

Hold Off on Year-End Billing

A simple yet effective move for cash-basis businesses: delay billing clients until January. Since you don’t recognize income until payment is received, postponing invoices can shift taxable income into 2026.

Purchase Needed Equipment

If you’ve been planning to buy office furniture, computers, or machinery, doing it now can provide a full deduction through 100 percent bonus depreciation or Section 179 expensing—as long as you place the equipment in service before December 31.

Use Business Credit Cards Wisely

For Schedule C filers, the deduction occurs on the date of the charge, not when you pay the bill. That means charges made in December are deductible this year. Corporations can do the same when employees are using a corporate card.

Document and Claim Every Legitimate Deduction

Don’t avoid deductions because you think they might raise red flags. If they’re legitimate and supported by records, you’re entitled to them. If deductions exceed your income, that loss may create a net operating loss (NOL) that carries forward to offset future profits.

Review Qualified Improvement Property

If you improved the interior of your business or one of your commercial rental properties this year, those costs may qualify for immediate expensing rather than 39-year depreciation. To take the deduction for 2025, you must place the improvement in service by December 31.

2. Take Full Advantage of Retirement Savings Opportunities

Retirement plans remain one of the most powerful tax-saving tools available to small-business owners and self-employed professionals.

Establish or Fund a Retirement Plan Before Year-End

If you don’t yet have a retirement plan, setting one up before December 31 allows you to make both employee and employer contributions for 2025.

For a solo business, a 401(k) plan (often referred to as an “individual 401(k)” or a “solo 401(k)”) is an ideal option. Your owner-employee contribution limits for 2025 are:

• $23,500 if under age 50
• $31,000 if age 50–59 or over 64
• $34,750 if age 60–63

Your employer contributions to your retirement account (remember, you are both employer and employee) can tally up to 25 percent of compensation, with a combined maximum of $70,000–$81,250 depending on age.

Use Available Tax Credits

If you started a new plan this year or plan to, you may qualify for valuable credits:

1. A start-up credit of up to $15,000 for new plans
2. A contribution credit of up to $3,500 per employee for employer contributions
3. An automatic-enrollment credit of $500 per year for three years

These credits directly reduce taxes owed, not just taxable income.

Consider a Roth Conversion

If your income is lower this year or your investments have declined, converting a traditional IRA or 401(k) to a Roth can be an attractive option. You’ll pay tax on the converted amount now, but future qualified withdrawals are tax-free, and Roth IRAs have no required minimum distributions during your lifetime.

3. Use Vehicle Deductions to Your Advantage

The One Big Beautiful Bill Act (OBBBA) expanded the deductions available for business vehicles in 2025. Timing and vehicle type are critical.

Heavy SUVs, Pickups, and Vans 

These vehicles with a gross vehicle weight rating (GVWR) over 6,000 pounds may qualify for:

• 100 percent bonus depreciation
• Section 179 expensing up to $31,300 for SUVs and $2.5 million for trucks and vans
• No luxury limits

Example. A $50,000 SUV used 90 percent for business produces a $45,000 deduction this year.

Standard-Weight Vehicles

Cars (and lighter SUVs with GVWRs of 6,000 pounds or less) face luxury depreciation caps—allowing only up to $20,200 in first-year deductions.

Act Before Year-End

To qualify, you must own the vehicle and place it in service by December 31—meaning it’s ready and being used for business. Driving it even one business mile before midnight proves eligibility.

Note. Electric-vehicle tax credits ended September 30, 2025.

4. Plan for Crypto Profits and Losses

Crypto investors had a strong 2025, and now is the time to manage taxes efficiently.

Harvest Gains or Losses

• Tax-gain harvesting. Sell appreciated crypto now if you expect higher income next year. Pay tax at today’s rate, and immediately repurchase to reset your basis.
• Tax-loss harvesting. Sell underperforming assets to offset other capital gains. Excess losses can offset up to $3,000 of ordinary income, with the balance carried forward.

No Wash-Sale Restrictions

Because the IRS treats crypto as property—not securities—you can sell to create deductible losses and rebuy immediately without waiting 30 days.

Donate Appreciated Crypto

Donating directly to a qualified 501(c)(3) charity avoids capital gains and earns a deduction for the fair market value. If the gift exceeds $5,000, obtain a qualified appraisal and include Form 8283 with your return.

Gift Crypto to Family Members

You can give up to $19,000 per person in 2025 without any reporting requirement. The recipient inherits your original cost basis and holding period.

Invest through Self-Directed Accounts

Consider a self-directed IRA or solo 401(k) that allows cryptocurrency investments. You’ll enjoy the same tax-deferred or tax-free growth benefits available with traditional investments.

5. Don’t Overlook Deductions Hidden in Your Current Vehicles

Your existing vehicles can still produce valuable deductions before year-end.

• Sell older business vehicles. You’ll capture deductible losses—especially for those vehicles with declining business use.
• Check vehicles purchased before 2018. If you traded cars under the old like-kind exchange rules, you may have unclaimed losses built up over multiple trades. Selling now could unlock a sizable deduction.
• Convert a personal vehicle to business use. OBBBA allows up to 100 percent bonus depreciation when you start using a personal vehicle for business. If you operate as a corporation, the company must reimburse you for the deduction before year-end.

6. Review Your Stock Portfolio for Tax Efficiency

Year-end is an ideal time to review and adjust your investments.

Offset Gains with Losses

Match short-term gains (taxed as high as 40.8%) with long-term losses.

Avoid Wash-Sale Traps

Selling and repurchasing the same stock within 30 days cancels your loss. Wait until January to rebuy if you plan to claim the loss in 2025.

Share Wealth within the Family

Gifting appreciated stock to children or parents in lower tax brackets lets them sell at 0%–15% capital gains rates, freeing up after-tax cash for the family as a whole.

Donate Appreciated Stock to Charity

Instead of cash, donate appreciated shares. If you itemize your deductions, you’ll receive a deduction for the fair market value and avoid paying capital gains on the appreciation.

Sell Losers, Then Give Cash

If a stock has lost value, sell it to recognize the loss, then donate the cash proceeds. This way, you claim both the loss and the charitable deduction.

7. Review Your Health Care Reimbursement Options

For small-business owners, properly structured medical plans can be powerful deduction tools.

Reimburse Section 105 Expenses before December 31

If you have a Section 105 Health Reimbursement Arrangement (HRA) for your spouse-employee, ensure that all reimbursements are completed before year-end so your family’s medical expenses qualify for a 2025 deduction.

Consider a QSEHRA or an ICHRA

• QSEHRA (Qualified Small Employer HRA): For businesses with fewer than 50 employees, reimburse up to $6,350 (individual) or $12,800 (family) tax-free.
• ICHRA (Individual Coverage HRA): Works for employers of any size, and reimburses employees for individual health insurance coverage.

S Corporation Owners

For you to qualify for the above-the-line deduction on your Form 1040, your S corporation must pay or reimburse your health insurance premiums and include them on your W-2.

Small-Employer Health Insurance Credit

If you cover at least half the cost of employee health insurance, you may qualify for a 50 percent tax credit for up to two consecutive years—another reason to review your benefits before December 31.

8. Make Smart, Family-Focused Tax Moves

Put Your Children on Payroll

Paying your under-18 child reasonable wages for legitimate work can save thousands:

• The wages are deductible for you.
• Neither you nor your child owes payroll taxes.
• The first $15,750 paid to the child is tax-free to the child due to the standard deduction.
• Your child can contribute up to $7,000 to a Roth IRA, building tax-free savings for life.

Be sure to issue a W-2 (not a 1099) and keep clear records of work performed and payment dates.

Consider Marriage or Divorce Timing

Your marital status on December 31 determines your filing status for the entire year. Run both scenarios—married and single—to see which is most beneficial. Joint filing usually lowers overall tax, but not always.

For divorces finalized after 2018, alimony is no longer deductible by the payer or taxable to the recipient.

Mortgage and Relationship Planning

Two unmarried co-owners can each deduct interest on up to $1 million of mortgage debt for older loans (or $750,000 for newer loans). Married couples are limited to a total of $1 million (or $750,000).

Use the 0 Percent Capital-Gains Bracket for Family Gifts

If you assist parents or relatives in lower tax brackets (say, with a joint income of under $96,700), consider giving them appreciated stock instead of cash. They can sell the stock tax-free, preserving more family wealth.

9. Make the Most of the Section 199A Deduction

The 20 percent deduction on qualified business income remains one of the most valuable breaks for owners of pass-through entities such as sole proprietorships, partnerships, and S corporations.

Eligibility Thresholds for 2025

• $197,300 for single filers
• $394,600 for joint filers

If your taxable income exceeds these levels, the deduction may phase out—especially for specified service businesses such as law, health, or consulting.

Three Ways to Boost the Deduction before Year-End

1. Harvest capital losses. Lower taxable income by offsetting gains in your investment portfolio.
2. Make charitable contributions. Prepay 2026 charitable gifts or donate appreciated stock to increase itemized deductions and lower your taxable income.
3. Buy business assets and place them in service. New equipment or property expensed under Section 179 or bonus depreciation can bring taxable income below the threshold and increase your deduction.

10. Review Your Year-End Tax Checklist

Here’s a quick review of some steps to take before December 31:

• Prepay next year’s qualifying business expenses
• Delay billing until January
• Purchase and place in service needed equipment and vehicles
• Establish or fund your retirement plan
• Review current and older vehicles for possible loss deductions
• Manage crypto and stock portfolios for gains and losses
• Complete any health-insurance reimbursements or S corporation W-2 adjustments
• Pay children for work performed in the family business
• Confirm eligibility for the Section 199A deduction

Each of these moves can help reduce your 2025 tax liability and improve your long-term financial position.

If you have questions, don’t hesitate to contact me.

Here’s an important tax planning strategy that can save you thousands in penalties if you’ve missed estimated tax payments for 2025.

The Penalty Problem

When you don’t make your 2025 estimated tax payments on time, the IRS charges a non-deductible 7 percent penalty that compounds daily.

Because penalties are not deductible, they are considerably more costly than deductible interest.

Simply writing a check today won’t erase the penalties. It only prevents them from growing further. But there is a powerful way to make them disappear entirely.

The One Perfect Solution

By using a retirement account with 60-day rollover provisions, you can eliminate estimated tax penalties instantly. Here’s how:

• Withdraw funds from your IRA, 401(k), or other eligible plan, and direct the custodian to withhold federal income tax.
• Repay the full amount into the retirement account within 60 days using other funds.

The IRS treats the withheld taxes as if they were made evenly across all four estimated tax deadlines. And because you repaid the account within 60 days, the withdrawal is not taxable, and no penalty applies.

Other Options and Pitfalls

If you are age 73 or over, you can use withholding taxes from required minimum distributions (RMDs) to cover both your RMD and your estimated tax needs.

Don’t use a W-2 bonus. It triggers payroll taxes and can reduce your Section 199A deduction—likely more costly (and perhaps far more costly) than the penalty itself.

Beat the OBBBA/TCJA Rules That Punish Dog Breeding Hobbies

Are you involved in a dog breeding business or considering starting one? If so, you are in the IRS’s crosshairs. The IRS has long considered dog breeding to be an activity typically classified as a hobby, rather than a business, for tax purposes.

When it comes to taxes, hobbies are usually tax disasters. Unlike a business, you can’t deduct your hobby expenses from hobby income (or any other income). But you must still report and pay tax on any hobby income you earn. 

On the expense deduction front, there’s one exception. You can deduct your costs of goods sold for each puppy you sell.

Fortunately, a dog breeder can qualify as a business. You can do this even if you lose money in some years (or even in many years). There are two ways to qualify:

1. Profit test. If you earn a profit in three of five years, the IRS must treat your activity as a business.
2. Facts and circumstances test. If you can’t meet the three-of-five-years test, you can still qualify by showing that you engage in breeding with a genuine intent to earn a profit. Your goal doesn’t need to appear reasonable to others, but it must be honest and bona fide.

The IRS reviews nine factors to determine profit motive. Three factors carry the most weight: 

1. Operating in a businesslike manner 
2. Having expertise in dog breeding 
3. Devoting time and effort to the activity
   

To strengthen your case as a business, you should:

• Keep accurate business records
• Market your business consistently
• Consider integrating breeding with related businesses, such as a kennel or grooming service
• Create and follow a business plan
• Commit steady time and effort to breeding

Forming a legal business entity, such as an LLC or a corporation, also reinforces your profit motive.

OBBBA Revives Your Ability to Kill Capital Gains with QOFs

Since 2018, taxpayers have enjoyed significant tax benefits by investing capital gains in Qualified Opportunity Funds (QOFs). QOFs channel money into Qualified Opportunity Zones (QOZs)—government-designated low-income census tracts. Investors have embraced the program, pouring in more than $160 billion.

The program was set to expire in 2026. However, the One Big Beautiful Bill Act (OBBBA) made the program permanent and adjusted the tax benefits.

New Rules Beginning in 2027

Starting in 2027, you can invest in a new set of QOZs that meet stricter low-income standards. Expect about 25 percent fewer QOZs than under the original program. 

Also, in 2027 and 2028, you can invest in the original QOFs and obtain the new QOF treatment. 

When you invest capital gains in a 2027-or-later QOF, within 180 days you unlock four major tax benefits:

1. You avoid tax on your capital gains for five years.
2. You get a 10 percent step-up in basis at the five-year mark, which eliminates 10 percent of your taxable gain.
3. You owe no tax on the appreciation of the QOF, as long as you hold the QOF investment for 10 years before selling.
4. You may keep your investment for up to 30 years and still avoid capital gains tax on any appreciation through the end of that year.
   

Qualified Rural Opportunity Funds

The OBBBA also created a new vehicle: the Qualified Rural Opportunity Fund. These funds must invest at least 90 percent of their assets in rural QOZs. If you invest capital gains in one of these funds, you gain a 30 percent step-up in basis after five years.

QOZ 1.0: The Original Program

The original QOZ program remains in effect through 2026. If you invest in 2025 or 2026, you defer tax on your capital gains only until December 31, 2026, when you must pay the tax on your 2026 return. You also lose the five-year, 10 percent step-up in basis.

Still, the most powerful benefit remains: you owe no tax on appreciation if you hold the investment for 10 years. You can even hold it through December 31, 2047, without paying tax on appreciation.

A Word of Caution

Treat QOF investments with care. Before you commit money, make sure you feel confident about the fund’s management team, investment strategy, projected returns, and fees.

OBBBA’s Secret Gift: Bigger Tax Breaks for QCDs from Your IRA

If you’re age 70 1/2 or older, the IRS allows you to make charitable contributions directly from your IRA to approved organizations, such as your church. 

These transfers, known as qualified charitable distributions (QCDs), have become even more powerful under the new One Big Beautiful Bill Act (OBBBA)—and could be one of the most effective ways to give.

How QCDs Work

A QCD allows you to transfer funds directly from your IRA trustee to a qualified charity. The money never touches your hands, and the transfer is wholly excluded from your taxable income. While this means you cannot claim the gift as an itemized deduction, you don’t need to—because avoiding taxation is the best. It’s far better than a 100 percent deduction.

For 2025, the annual QCD limit is $108,000 per person. If both you and your spouse have IRAs, each of you may contribute up to that amount separately.

Tax-Saving Advantages

QCDs provide you with many distinct benefits, including the five below:

1. Lower taxable income. Unlike regular IRA withdrawals, QCDs do not increase your adjusted gross income (AGI) or modified AGI (MAGI). This helps you stay out of higher tax brackets and avoid triggering phaseouts of other deductions and credits.
2. Avoid new OBBBA restrictions. Starting in 2026, the OBBBA reduces itemized charitable deductions by floors and limits tied to income levels. QCDs are exempt from these rules.
3. Meet required minimum distributions (RMDs). If you are age 73 or older, QCDs can count toward your annual RMD, allowing you to satisfy the requirement without adding taxable income.
4. Preserve other tax breaks. By keeping AGI and MAGI lower, QCDs can help you avoid Medicare premium surcharges, the 3.8 percent net investment income tax, and the loss of valuable deductions such as those for state and local taxes.
5. Achieve estate planning benefits. QCDs reduce the size of your taxable estate, potentially lowering future estate tax exposure.
   

Takeaway

If you are charitably inclined and have reached age 70 1/2, QCDs may be your path to give generously and cut your tax bill. The OBBBA makes them even more attractive in 2025 and beyond.

Selling a Term Life Insurance Policy Creates Thorny Tax Issues

Are you considering cashing out your term life insurance policy? Unfortunately, selling a term life policy to investors is nearly impossible unless you are terminally ill and unlikely to outlive the policy.

You do have one potential option: you could name a relative as the beneficiary in exchange for a payment and their agreement to take over all future premium payments.

This type of arrangement creates significant tax consequences:

• Taxable transfer. The IRS will likely treat the transaction as a “transfer for value.” You, as the transferor, must recognize taxable income if the payment you receive exceeds your basis in the policy. Your basis equals the total premiums you paid before the transfer. If you owned the policy for more than one year, you’ll pay tax at long-term capital gains rates.
• Taxable death benefit. If you die while the policy is still in effect, the beneficiary will be required to pay tax on the death benefit. Typically, life insurance proceeds are tax-free. However, in this situation, the beneficiary can exclude only the amount equal to what they paid for the policy, plus any premiums paid after the transfer. The IRS taxes the rest at ordinary income rates.
• No deductible loss. If you outlive the policy and the beneficiary receives nothing, the IRS will not allow a deductible loss.

If you have questions, don’t hesitate to contact me.