Once your 2024 tax return is in the hands of the IRS, you may be tempted to clear out file cabinets and delete digital folders. But before reaching for the shredder or delete button, remember that some paperwork still has two important purposes:
Your filed tax returns are the cornerstone of your records. But what about supporting records such as receipts and canceled checks? In general, except in cases of fraud or substantial understatement of income, the IRS can only assess tax within three years after the return for that year was filed (or three years after the return was due). For example, if you filed your 2022 tax return by its original due date of April 18, 2023, the IRS has until April 18, 2026, to assess a tax deficiency against you. If you file late, the IRS generally has three years from the date you filed.
In addition to receipts and canceled checks, you should keep records, including credit card statements, W-2s, 1099s, charitable giving receipts and medical expense documentation, until the three-year window closes.
However, the assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, if no return is filed, the IRS can assess tax any time. If the IRS claims you never filed a return for a particular year, a copy of the signed return will help prove you did.
The tax consequences of a transaction that occurs this year may depend on events that happened years or even decades ago. For example, suppose you bought your home in 2009, made capital improvements in 2016 and sold it this year. To determine the tax consequences of the sale, you must know your basis in the home — your original cost, plus later capital improvements. If you’re audited, you may have to produce records related to the purchase in 2009 and the capital improvements in 2016 to prove what your basis is. Therefore, those records should be kept until at least six years after filing your return for the year of sale.
Retain all records related to home purchases and improvements even if you expect your gain to be covered by the home-sale exclusion, which can be up to $500,000 for joint return filers. You’ll still need to prove the amount of your basis if the IRS inquires. Plus, there’s no telling what the home will be worth when it’s sold, and there’s no guarantee the home-sale exclusion will still be available in the future.
Other considerations apply to property that’s likely to be bought and sold — for example, stock or shares in a mutual fund. Remember that if you reinvest dividends to buy additional shares, each reinvestment is a separate purchase.
If you separate or divorce, be sure you have access to tax records affecting you that your spouse keeps. Or better yet, make copies of the records since access to them may be difficult. Copies of all joint returns filed and supporting records are important because both spouses are liable for tax on a joint return, and a deficiency may be asserted against either spouse. Other important records to retain include agreements or decrees over custody of children and any agreement about who is entitled to claim them as dependents.
To safeguard records against theft, fire or another disaster, consider keeping essential papers in a safe deposit box or other safe place outside your home. In addition, consider keeping copies in a single, easily accessible location so that you can grab them if you must leave your home in an emergency. You can also scan or photograph documents and keep encrypted copies in secure cloud storage so you can retrieve them quickly if they’re needed.
Contact us if you have any questions about record retention. Thoughtful recordkeeping today can save you time, stress and money tomorrow.
© 2025
“Decanting” an irrevocable trust allows a trustee to use his or her distribution powers to transfer assets from one trust into another with different — often more favorable — terms. Much like decanting wine to separate it from sediment, trust decanting “pours” assets into a new vessel, potentially improving clarity and control.
While the original trust must be irrevocable, meaning its terms typically can’t be changed by the grantor, decanting offers a lawful method for trustees to update or adjust those terms under certain conditions.
There are several reasons a trustee might consider decanting. For example, the original trust may lack flexibility to deal with changing tax laws, family circumstances or beneficiary needs. Decanting can allow for the removal of outdated provisions, the addition of modern administrative powers or even a change in the trust’s governing law to a more favorable jurisdiction. It may also provide a way to correct drafting errors, protect assets from creditors or introduce special needs provisions for a beneficiary who becomes disabled.
However, decanting laws vary dramatically from state to state, so it’s important to familiarize yourself with your state’s rules and evaluate their effect on your estate planning goals. Here are several common questions and answers regarding decanting a trust:
Q: If your trust is in a state without a decanting law, can you benefit from another state’s law?
A: Generally, yes, but to avoid any potential complaints by beneficiaries, it’s a good idea to move the trust to a state whose law specifically addresses this issue. In some cases, it’s simply a matter of transferring the existing trust’s governing jurisdiction to the new state or arranging for it to be administered in that state.
Q: Does the trustee need to notify beneficiaries or obtain their consent?
A: Decanting laws generally don’t require beneficiaries to consent to a trust decanting and several states don’t even require that beneficiaries be notified. Where notice is required, the specific requirements are all over the map: Some states require notice to current beneficiaries, while others also include contingent or remainder beneficiaries. Even if notice isn’t required, notifying beneficiaries may help stave off potential disputes in the future.
Q: What is the trustee’s authority?
A: When exploring decanting options, trustees should consider which states offer them the greatest flexibility to achieve their goals. In general, decanting authority is derived from a trustee’s power to make discretionary distributions. In other words, if the trustee is empowered to distribute the trust’s funds among the beneficiaries, he or she should also have the power to distribute them to another trust. But state decanting laws may restrict this power.
Because of its complexity, decanting an irrevocable trust should be approached with careful legal and tax guidance. When used appropriately, it can be a strategic way to modernize an inflexible trust and better serve your long-term goals as well as your beneficiaries. Consult with us before taking action.
© 2025
Small to midsize businesses have valid reasons for incorporating, not the least of which is putting that cool “Inc.” at the end of their names. Other reasons include separating owners’ personal assets from their business liabilities and offering stock options as an employee incentive.
If you’re considering incorporation for your company, however, it’s essential to be aware of the associated risks. One of them is the reasonable compensation conundrum.
Let’s say you decide to convert your business to a C corporation. After completing the incorporation process, you can pay owners, executives, and other highly compensated employees some combination of compensation and dividends.
More than likely, you’ll want to pay your highly compensated employees more in compensation and less in dividends because compensation is tax deductible, and dividends aren’t. But be careful — the IRS may be watching. If it believes you’re excessively compensating a highly compensated employee for tax avoidance purposes, it may challenge your compensation approach.
Such challenges typically begin with an audit and may result in the IRS being allowed to reclassify compensation as dividends — with penalties and interest potentially tacked on. What’s worse, if the tax agency succeeds with its challenge, the difference between what you paid a highly compensated employee and what the tax agency considers a reasonable amount for the services rendered usually isn’t deductible.
Of course, you can contest an IRS challenge. However, doing so usually involves considerable legal expenses and time — and a positive outcome is far from guaranteed.
Note: S corporations are a different story. Under this entity type, income and losses usually “pass-through” to business owners at the individual level and aren’t subject to payroll tax. Thus, S corporation owners usually prefer to receive distributions. As a result, the IRS may raise a reasonable compensation challenge when it believes a company’s owners receive too little salary.
There’s no definitive bright-line test for determining reasonable compensation. However, over the years, courts have considered various factors, including:
It’s also important to assess whether the business and employee are dealing at an “arm’s length” and whether the employee has guaranteed the company’s debts.
Just a few years ago, a case played out in the U.S. Tax Court illustrating the risks of an IRS challenge regarding reasonable compensation.
The owner of a construction business structured as a C corporation led his company through tough times and turned it into a profitable enterprise. When the business recorded large profits in 2015 and 2016, primarily because of the owner’s personal efforts and contacts, it paid him a bonus of $5 million each year in addition to his six-figure salary. The IRS claimed this was excessive.
The Tax Court relied heavily on expert witnesses to make its determination. Ultimately, it decided against the business, finding that reasonable amounts for the bonuses were $1.36 million in 2015 and $3.68 million in 2016, respectively. (TC Memo 2022-15)
As your business grows, incorporation may help your company guard against certain risks and achieve a greater sense of stature. However, there are tax complexities to consider. If you’re thinking about it, please contact us for help identifying the advantages and risks from both tax and strategic perspectives.
© 2025
Tuesday, April 15 is the deadline for filing your 2024 tax return. But another tax deadline is coming up the same day, and it’s essential for certain taxpayers. It’s the deadline for making the first quarterly estimated tax payment for 2025 if you’re required to make one.
You may have to make estimated tax payments for 2025 if you receive interest, dividends, alimony, self-employment income, capital gains, prizes, or other income. If you don’t pay enough tax through withholding and estimated payments during the year, you may be liable for a tax penalty on top of the tax that’s ultimately due.
Estimated tax payments help ensure that you don’t wind up owing one large lump sum — and possibly underpayment penalties — at tax time.
Individuals must pay 25% of their “required annual payment” by April 15, June 15, September 15, and January 15 of the following year to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due the next business day. For example, the second payment is due on June 16 this year because June 15 falls on a Sunday.
Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their tax returns are filed. The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your tax return for the previous year was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.
Generally, people who receive most of their income in the form of wages satisfy these payment requirements through the tax withheld from their paychecks by their employers. Those who make estimated tax payments usually do so in four installments. After determining the required annual payment, they divide that number by four and make equal payments by the due dates.
Estimated payments can be made online, from your mobile device using the IRS2Go app, or by mail using Form 1040-ES.
Instead of making four equal payments, you may be able to use the annualized income method to make unequal payments. This method is useful to people whose income isn’t uniform over the year, for example, because they’re involved in a seasonal business.
These are the general rules. The requirements are different for those in the farming and fishing industries. Contact us if you have questions about estimated tax payments. In addition to federal estimated tax payments, many states have their own estimated tax requirements. We can help you stay on top of your tax obligations so you aren’t liable for penalties.
© 2025
Some tax sins are much worse than others. An example is failing to pay over federal income and employment taxes that have been withheld from employees’ paychecks. In this situation, the IRS can assess the trust fund recovery penalty, also called the 100% penalty, against any responsible person.
It’s called the 100% penalty because the entire unpaid federal income and payroll tax amounts can be assessed personally as a penalty against a responsible person or several responsible persons.
Since the 100% penalty can only be assessed against a so-called responsible person, who does that include? It could be a shareholder, director, officer, or employee of a corporation; a partner or employee of a partnership; or a member (owner) or employee of an LLC. To be hit with the penalty, the individual must:
Willful means intentional, deliberate, voluntary, and knowing. The mere authority to sign checks when directed to do so by a person who is higher-up in a company doesn’t by itself establish responsible person status. There must also be knowledge of and control over the finances of the business. However, responsible person status can’t be deflected simply by assigning signature authority over bank accounts to another person in order to avoid exposure to the 100% penalty. As a practical matter, the IRS will look first and hard at individuals who have check-signing authority.
The courts have examined several factors beyond check-signing authority to determine responsible person status. These factors include whether the individual:
The individuals who have been targets of the 100% penalty are sometimes surprising. Here are three real-life situations:
Case 1: The operators of an inn failed to pay over-withheld taxes. The inn was an asset of an estate, and the executor of the estate was found to be a responsible person.
Case 2: A volunteer member of a charitable organization’s board of trustees had knowledge of the organization’s tax delinquency. The individual also had the authority to decide whether to pay the taxes. The IRS determined that the volunteer was a responsible person.
Case 3: A corporation’s newly hired CFO became aware that the company was several years behind in paying withheld federal income and payroll taxes. The CFO notified the company’s CEO of the situation. Then, the new CFO and the CEO informed the company’s board of directors of the problem. Although the company apparently had sufficient funds to pay the taxes in question, no payments were made. After the CFO and CEO were both fired, the IRS assessed the 100% penalty against both of them for withheld but unpaid taxes that accrued during their tenures. A federal appeals court upheld an earlier district court ruling that the two officers were responsible persons who acted willfully by paying other expenses instead of the withheld federal taxes. Therefore, they were both personally liable for the 100% penalty.
If you participate in running a business or any entity that hasn’t paid over federal taxes that were withheld from employee paychecks, you run the risk of the IRS tagging you as a responsible person and assessing the 100% penalty. If this happens, you may ultimately be able to prove that you weren’t a responsible person. But that can be an expensive process. Consult your tax advisor about what records you should be keeping and other steps you should be taking to avoid exposure to the 100% penalty.
© 2025
When it comes to estate planning, one important decision many people struggle with is whether to share the details of their plans with family members. There’s no one-size-fits-all answer — it largely depends on your goals and your family’s dynamics. However, thoughtful communication can go a long way in reducing confusion and conflict after your death. Let’s take a closer look at the pros and cons of sharing your estate planning decisions with your family.
Sharing the details of your estate plan provides many benefits, including:
Explaining your wishes: When they design their estate plans, most people want to treat all their loved ones fairly. But “fair” doesn’t always mean “equal.” The problem is that your beneficiaries may not understand that without an explanation.
For example, suppose you have adult children from a previous marriage and minor children from your second marriage. Treating both sets of children equally may not be fair, especially if the adult children are financially independent and the younger children still face significant living and educational expenses. It may make sense to leave more of your wealth to your younger children. And explaining your reasoning upfront can go a long way toward avoiding hurt feelings or disputes.
Obtaining feedback: Sharing your plans with loved ones allows them to ask questions and provide feedback. If family members feel they’re being treated unfairly, you may wish to discuss alternatives that better meet their needs while still satisfying your estate planning objectives.
Streamlining estate administration: Sharing details of your plan with your executor, trustees, and any holders of powers of attorney will enable them to act quickly and efficiently when the time comes. This is particularly important for people you’ve designated to make health care decisions or handle your financial affairs if you become incapacitated.
There may be some disadvantages to sharing the details of your plan, including:
Strained relationships: Some loved ones may be disappointed when they learn the details of your estate plan, which can lead to strained relationships. Keeping your plans to yourself allows you to avoid these uncomfortable situations. On the other hand, it also deprives you of an opportunity to resolve such conflicts during your lifetime.
Encouragement of irresponsible behavior: Some affluent parents worry that the promise of financial independence may disincentivize their children from being financially responsible. They may not pursue higher education, remain gainfully employed, or generally lead productive lives. Rather than keeping your children’s inheritance a secret, a better approach may be to use your estate plan to encourage desirable behavior.
As you think over how much you wish to disclose to your loved ones about your estate plan, be sure to consider applicable state law. The rules governing what a trustee must disclose to beneficiaries about the terms of the trust vary from state to state. Some states permit so-called “quiet trusts,” also known as “silent trusts,” which make it possible to keep the trust a secret from your loved ones.
Other states require trustees to inform the beneficiaries about the trust’s existence and terms, often when they reach a certain age. For example, trustees may be required to provide beneficiaries with a copy of the trust and an annual accounting of its assets and financial activities. However, many states allow you to place limits on the information provided to beneficiaries.
Ultimately, a well-crafted estate plan should speak for itself. But open communication, when done thoughtfully, can support your plan’s success and give your loved ones clarity and peace of mind. Contact us with questions.
© 2025
Financial statements can fascinate accountants, investors and lenders. However, for business owners, they may not be real page-turners.
The truth is each of the three parts of your financial statements is a valuable tool that can guide you toward reasonable, beneficial business decisions. For this reason, it’s important to get comfortable with their respective purposes.
The primary purpose of the balance sheet is to tally your assets, liabilities and net worth, thereby creating a snapshot of your business’s financial health during the statement period.
Net worth (or owners’ equity) is particularly critical. It’s defined as the extent to which assets exceed liabilities. Because the balance sheet must balance, assets need to equal liabilities plus net worth. If the value of your company’s liabilities exceeds the value of its assets, net worth will be negative.
In terms of operations, just a couple of balance sheet ratios worth monitoring, among many, are:
Growing companies often must invest in inventory and allow for increases in accounts receivable, so upswings in these areas don’t always signal problems. However, jumps in inventory or receivables should typically correlate with rising sales.
The purpose of the income statement is to assess profitability, revenue generation and operational efficiency. It shows sales, expenses, and the income or profits earned after expenses during the statement period.
One term that’s commonly associated with the income statement is “gross profit,” or the income earned after subtracting cost of goods sold (COGS) from revenue. COGS includes the cost of labor and materials required to make a product or provide a service. Another important term is “net income,” which is the income remaining after all expenses — including taxes — have been paid.
The income statement can also reveal potential problems. It may show a decline in gross profits, which, among other things, could mean production expenses are rising more quickly than sales. It may also indicate excessive interest expenses, which could mean the business is carrying too much debt.
The purpose of the statement of cash flows is to track all the sources (inflows) and recipients (outflows) of your company’s cash. For example, along with inflows from selling its products or services, your business may have inflows from borrowing money or selling stock. Meanwhile, it undoubtedly has outflows from paying expenses, and perhaps from repaying debt or investing in capital equipment.
Although the statement of cash flows may seem similar to the income statement, its focus is solely on cash. For instance, a product sale might appear on the income statement even though the customer won’t pay for it for another month. But the money from the sale won’t appear as a cash inflow until it’s collected.
By analyzing your statement of cash flows, you can assess your company’s ability to meet its short-term obligations and manage its liquidity. Perhaps most importantly, you can differentiate profit from cash flow. A business can be profitable on paper but still encounter cash flow issues that leave it unable to pay its bills or even continue operating.
You can probably find more exciting things to read than your financial statements. However, you won’t likely find anything more insightful regarding how your company is performing financially. We can help you not only generate best-in-class financial statements, but also glean the most valuable information from them.
© 2025
With the federal gift and estate tax exemption amount set at $13.99 million for 2025, most people won’t be liable for these taxes. However, capital gains tax on inherited assets may cause an unwelcome tax bite.
The good news is that the stepped-up basis rules can significantly reduce capital gains tax for family members who inherit your assets. Under these rules, when your loved one inherits an asset, the asset’s tax basis is adjusted to the fair market value at the time of your death. If the heir later sells the asset, he or she will owe capital gains tax only on the appreciation after the date of death rather than on the entire gain from when you acquired it.
When assets such as securities are sold, any resulting gain generally is a taxable capital gain. The gain is taxed at favorable rates if the assets have been owned for longer than one year. The maximum tax rate on a long-term capital gain is 15% but increases to 20% for certain high-income individuals.
Conversely, a short-term capital gain is taxed at ordinary income tax rates as high as 37%. Gains and losses are accounted for when filing a tax return, so high-taxed gains may be offset wholly or partially by losses.
The amount of a taxable gain is equal to the difference between the basis of the asset and the sale price. For example, if you acquire stock for $10,000 and then sell it for $50,000, your taxable capital gain is $40,000.
These basic rules apply to capital assets owned by an individual and sold during his or her lifetime. However, a different set of rules applies to inherited assets.
When assets are passed on through inheritance, there’s no income tax liability until the assets are sold. For these purposes, the basis for calculating gain is “stepped up” to the value of the assets on the date of your death. Thus, only the appreciation in value since your death is subject to tax because the individual inherited the assets. The appreciation during your lifetime goes untaxed.
Securities, artwork, bank accounts, business interests, investment accounts, real estate, and personal property are among the assets affected by the stepped-up basis rules. However, these rules don’t apply to retirement assets such as 401(k) plans or IRAs.
To illustrate the benefits, let’s look at a simplified example. Dan bought XYZ Corp. stock 10 years ago for $100,000. In his will, he leaves all the XYZ stock to his daughter, Alice. When Dan dies, the stock is worth $500,000. Alice’s basis is stepped up to $500,000.
When Alice sells the stock two years later, it’s worth $700,000. She must pay the maximum 20% rate on her long-term capital gain. On these facts, Alice has a $200,000 gain. With the 20% capital gains rate, she owes $40,000. Without the stepped-up basis, her tax on the $600,000 gain would be $120,000.
What happens if an asset declines in value after the deceased acquired it? The adjusted basis of the asset the individual inherits is still the value on the date of death. If the value rebounds after death, this could result in a taxable gain on a subsequent sale or a loss if the asset’s value continues to decline.
Without the stepped-up basis rules, your beneficiaries could face much higher capital gains taxes when they sell their inherited assets. If you have questions regarding these rules, please contact us.
© 2025
For federal income tax purposes, the general rule is that rental real estate losses are passive activity losses (PALs). An individual taxpayer can generally deduct PALs only to the extent of passive income from other sources, if any. For example, if you have positive taxable income from other rental properties, that generally counts as passive income. You can use PALs to offset passive income from other sources, which amounts to being able to currently deduct them.
Unfortunately, many rental property owners have little or no passive income in most years. Excess rental real estate PALs for the year (PALs that you cannot currently deduct because you don’t have enough passive income) are suspended and carried forward to future years. You can deduct suspended PALs when you finally have enough passive income or when you sell the properties that generated the PALs.
Thankfully, there’s a big exception to the general rule that you must have positive passive income to currently deduct rental losses. If you qualify for the exception, a rental real estate loss can be classified as a non-passive loss that can usually be deducted currently.
This exception allows qualifying individual taxpayers to currently deduct rental losses even if they have no passive income. To be eligible for the real estate professional exception:
If you can clear these hurdles, you qualify as a real estate professional. The next step is determining if you have one or more rental properties in which you materially participate. If you do, losses from those properties are treated as non-passive losses that you can generally deduct in the current year. Here’s how to pass the three easiest material participation tests for a rental real estate activity:
Obviously, not everyone can pass the tests to be a real estate professional. Thankfully, some other exceptions may potentially allow you to treat rental real estate losses as currently deductible non-passive losses. These include the:
Small landlord exception. If you qualify for this exception, you can treat up to $25,000 of rental real estate loses as non-passive. You must own at least 10% of the property generating the loss and actively participate with respect to that property. Properties owned via limited partnerships don’t qualify for this exception. To pass the active participation test, you don’t need to do anything more than exercise management control over the property in question. This could include approving tenants and leases or authorizing maintenance and repairs. Be aware that this exception is phased out between adjusted gross incomes (AGIs) of $100,000 and $150,000.
Seven-day average rental period exception. When the average rental period for a property is seven days or less, the activity is treated as a business activity. If you can pass one of the material participation tests, losses from the activity are non-passive.
30-day average rental period exception. The activity is treated as a business activity when the average rental period for a property is 30 days or less and significant personal services are provided to customers by or on behalf of you as the property owner. If you can pass one of the material participation tests, losses from the activity are non-passive.
As you can see, various taxpayer-friendly rules apply to owners of rental real estate, including the exceptions to the PAL rules covered here. We can help you take advantage of all available rental real estate tax breaks.
© 2025
When we prepare your tax return, we’ll check one of the following filing statuses: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). Only some people are eligible to file a return as a head of household. But if you’re one of them, it’s more favorable than filing as a single taxpayer.
To illustrate, the 2025 standard deduction for a single taxpayer is $15,000. However, it’s $22,500 for a head of household taxpayer. To be eligible, you must maintain a household that, for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent.
Who’s a qualifying child? This is one who:
If the parents are divorced, the child will qualify if he or she meets these tests for the custodial parent — even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.
Can both parents claim head of household status if they live together but aren’t married? According to the IRS, the answer is no. Only one parent can claim head of household status for a qualifying child. A person can’t be a “qualifying child” if he or she is married and can file a joint tax return with a spouse. Special “tie-breaker” rules apply if the individual can be a qualifying child of more than one taxpayer.
The IRS considers you to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs, and upkeep, and food consumed in the home. Don’t include medical care, clothing, education, life insurance,e or transportation.
Under a special rule, you can qualify as head of household if you maintain a home for your parent even if you don’t live with him or her. To qualify under this rule, you must be able to claim the parent as your dependent.
You must be single to claim head of household status. Suppose you’re unmarried because you’re widowed. In that case, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you maintain the household. The joint rates are more favorable than the head of household rates.
If you’re married, you must file jointly or separately — not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain the household,” you’re treated as unmarried. If this is the case, you can qualify as head of household.
Contact us. We can answer questions about your situation.
© 2025
Suppose your adult child or friend needs to borrow money. Maybe it’s to buy a first home or address a cash flow problem. You may want to help by making a personal loan. That’s a nice thought, but there are tax implications that you should understand and take into account.
You want to be able to prove that you intended for the transaction to be a loan rather than an outright gift. That way, if the loan goes bad, you can claim a non-business bad debt deduction for the year the loan becomes worthless.
For federal income tax purposes, losses from personal loans are classified as short-term capital losses. You can use the losses to first offset short-term capital gains that would otherwise be taxed at high rates. Any remaining net short-term capital losses will offset any net long-term capital gains. After that, any remaining net capital losses can offset up to $3,000 of high-taxed ordinary income ($1,500 if you use married filing separate status).
To pass muster with the IRS, your loan should be evidenced by a written promissory note that includes:
Applicable federal rates (AFRs) are the minimum short-term, mid-term and long-term rates that you can charge without creating any unwanted tax side effects. AFRs are set by the IRS, and they can potentially change every month.
For a term loan (meaning one with a specified final repayment date), the relevant AFR is the rate in effect for loans of that duration for the month you make the loan. Here are the AFRs for term loans made in April of 2025:
Key Point: These are lower than commercial loan rates, and the same AFR applies for the life of the loan.
For example, in April of 2025, you make a $300,000 loan with an eight-year term to your daughter so she can buy her first home. You charge an interest rate of exactly 4.13% with monthly compounding (the AFR for a mid-term loan made in April). This is a good deal for your daughter!
The federal income tax results are straightforward if your loan charges an interest rate that equals or exceeds the AFR. You must report the interest income on your Form 1040. If the loan is used to buy a home, your borrower can potentially treat the interest as deductible qualified residence interest if you secure the loan with the home.
What if you make a below-market loan (one that charges an interest rate below the AFR)? The Internal Revenue Code treats you as making an imputed gift to the borrower. This imaginary gift equals the difference between the AFR interest you “should have” charged and the interest you charged, if any. The borrower is then deemed to pay these phantom dollars back to you as imputed interest income. You must report the imputed interest income on your Form 1040. A couple of loopholes can potentially get you out of this imputed interest trap. We can explain the details.
As you can see, you can help a relative or friend by lending money and still protect yourself in case the personal loan goes bad. Just make sure to have written terms and charge an interest rate at least equal to the AFR. If you charge a lower rate, the tax implications are not so simple. If you have questions or want more information about this issue, contact us.
© 2025
If your estate planning goals include distributing your wealth while also encouraging specific behaviors or achievements among your heirs, using an incentive trust might be right for your plan.
Unlike a traditional trust, which distributes assets according to a set schedule or upon a beneficiary reaching a certain age, an incentive trust includes specific conditions that must be met before distributions are made. These conditions can align with your values, such as pursuing higher education, maintaining gainful employment, engaging in charitable work or avoiding destructive behaviors like substance abuse.
Essentially, an incentive trust sets guidelines for how a beneficiary becomes eligible to benefit from the trust. Distributions can, for instance, be contingent on a beneficiary graduating from high school, earning certain grades, or enrolling in or graduating from college.
Then again, perhaps you’re more concerned about a beneficiary’s physical well-being than his or her intellectual one. In this case, you might structure an incentive trust to disallow payouts if the beneficiary indulges in harmful or illegal behavior, such as abusing alcohol or using illegal drugs. Going this route will, however, require that you appoint a trustee who knows the issues and who can monitor the beneficiary’s activities and enforce the provision.
From a business perspective, an incentive trust can include provisions that reward your beneficiary for becoming involved in the family business or mapping out a career path of his or her own. Build in matching charitable donations and you can help the beneficiary develop an appreciation for community service and volunteerism.
Incentive trusts come with some inherent risks. If the provisions are too restrictive, or simply don’t suit the beneficiary in question, the incentive may backfire.
For instance, say Jane, a 20-year-old college dropout, learns that her Aunt Lucy has provided her with $500,000 in trust. However, Jane can withdraw the trust funds only if she returns to college and earns a bachelor’s degree.
The problem is, Jane never really liked Aunt Lucy, who often scolded her for making bad choices and meddled in her life. And Jane didn’t really like college either. As a result, the trust only furthers Jane’s resolve to never return to college — no matter how much money she loses.
In other cases, the beneficiary may force him- or herself to complete a degree but wind up living an unfulfilled life because he or she had other dreams in mind. Or you might end up “motivating” a beneficiary to work for the family business when he or she really doesn’t want to, which, in turn, could hurt the company.
A big part of making sure an incentive trust will work is clearly communicating with your trustee. He or she should generally have broad discretionary powers because, as time passes, a beneficiary’s circumstances might change. For example, a student might develop learning or other disabilities that prevent him or her from achieving the academic goals set by the incentive provisions.
In general, the trust should provide enough of a safety net that, if the beneficiary fails to achieve the trust’s goals, he or she will still be able to support him- or herself. The incentive provisions can apply to only a part of the trust assets. The trust should also provide for giving some or all the funds to a secondary beneficiary, in case the primary beneficiary fails to meet the stated goals or dies.
Contact us if you have questions regarding an incentive trust.
© 2025
Have you ever invested in a company only to see its stock value plummet? (This may become relevant in light of recent market volatility.) While such an investment might be something you’d rather forget, there’s a silver lining: you can claim a capital loss deduction on your tax return. Here are the rules when a stock you own is sold at a loss or is entirely worthless.
As capital assets, stocks produce capital gains or losses when they’re sold. Your capital gains and losses for the year must be netted against one another in a specific order based on whether they’re short-term (held one year or less) or long-term (held for more than one year).
If, after netting, you have short-term or long-term losses (or both), you can use them to offset up to $3,000 of ordinary income ($1,500 for married taxpayers filing separately). Any loss in excess of this limit is carried forward to later years until all of it is either offset against capital gains or deducted against ordinary income in those years, subject to the $3,000 limit. If you have both net short-term and net long-term losses, the net short-term losses are used to offset ordinary income before the net long-term losses.
If you’ve realized capital gains from stock or other asset sales during the year, consider selling some of your losing positions to offset the gains. A good tax strategy is to sell enough losing stock to shelter your earlier gains and generate a $3,000 loss since this is the maximum loss that can be used to offset ordinary income each year.
If you believe that a stock you own will recover but want to sell now to lock in a tax loss, be aware of the wash sale rule. Under it, if you sell stock at a loss and buy substantially identical stock within the 30-day period before or after the sale date, you can’t claim the loss for tax purposes. In order to claim the loss, you must buy the new shares outside of the period that begins 30 days before and ends 30 days after the sale of the loss stock.
In some cases, a stock you own may have become completely worthless. If so, you can claim a loss equal to your basis in the stock, which is generally what you paid for it. The stock is treated as though it had been sold on the last day of the tax year. This date is important because it affects whether your capital loss is short-term or long-term.
Stock shares become worthless when they have no liquidation value. That’s because the corporation’s liabilities exceed its assets and have no potential value and the business has no reasonable hope of becoming profitable. A stock can be worthless even if the corporation hasn’t declared bankruptcy. Conversely, a stock may still have value even after a bankruptcy filing, if the corporation continues operating and the stock continues trading.
You may not discover that a stock has become worthless until after you’ve filed your tax return for the year of worthlessness. In that case, you can amend your return for that year to claim a credit or refund due to the loss. You can do this for seven years from the date your original return was due, or two years from the date you paid the tax, whichever is later.
As you can see, deducting stock losses or worthless stock on your tax return can be complex. Therefore, it’s important to maintain thorough documentation. We can help maximize the benefits. Keep in mind that other rules may apply. Let us know if you have any questions.
© 2025
When it’s time to consider your business’s future, succession planning can protect your legacy and successfully set up the next generation of leaders or owners. Whether you’re ready to retire, you wish to step back your involvement or you want a solid contingency plan should you unexpectedly be unable to run the business, exploring different succession strategies is key. Here are five options to consider, along with some of the tax implications.
One of the most common approaches to succession is transferring ownership to a family member (or members). This can be done by gifting interests, selling interests or a combination. Parents often pass the business to children, but family succession plans can also involve siblings or other relatives.
Gift Tax Considerations. You may trigger the federal gift tax if you gift the business (or part of it) to a family member or if you sell it to him or her for less than its fair market value. The annual gift tax exclusion (currently $19,000 per recipient) can help mitigate or avoid immediate gift tax in small, incremental transfers. Plus, every individual has a lifetime gift tax exemption. So depending on the value of the business and your use of the exemption, you might not owe gift taxes on the transfer. Keep in mind that when gifting partial interests in a closely held business, discounts for lack of marketability or control may be appropriate and help reduce gift taxes.
Estate Planning. If the owner dies before transferring the business, there may be estate tax implications. Proper planning can help minimize estate tax liabilities through trusts or other estate planning tools.
Capital Gains Tax. If you sell the business to family members, you could owe capital gains tax. (See “5. Sell to an outside buyer” for more information.)
Suppose you want to keep long-term control of the business within your family. In that case, you might place ownership interests in a trust (such as a grantor-retained annuity trust or another specialized vehicle).
Estate and gift tax mitigation. Properly structured trusts can help transfer assets to the next generation with minimized gift and estate tax exposure. Trust-based strategies can be particularly effective for business owners with significant assets.
Complex legal framework. Because trusts involve legal documents and strict rules, working with us and an attorney is crucial to ensure compliance and optimize tax benefits.
Another option is to sell to a group of key employees or current managers. This path often ensures business continuity because the new owners already understand the business and its culture.
Financing Arrangements. In many cases, employees or managers may not have the funds to buy the business outright. Often, the seller finances part of the transaction. While this can provide ongoing income for the departing owner, interest on installment payments has tax consequences for both parties.
Deferred Payments. Spreading payments over time can soften your overall tax burden by distributing capital gains across multiple years, which might help you avoid being subject to top tax rates or the net investment income tax. But each payment received is still taxed.
An ESOP is a qualified retirement plan created primarily to own your company’s stock, and thus it allows employees to own shares in the business. It may be an appealing choice for owners interested in rewarding and retaining staff. However, administering an ESOP involves complex rules.
Owner Benefits. Selling to an ESOP can offer potential tax deferrals, especially if the company is structured as a C corporation and the transaction meets specific requirements.
Corporate Deductions. Contributions to an ESOP are usually tax-deductible, which can reduce the company’s taxable income.
Sometimes, the best fit is outside the family or current employees or management team. You might decide to sell to an external buyer — for example, a competitor or private equity group. If you can find the right buyer, you may even be able to sell the business at a premium.
If your business is structured as a corporation, you may sell the business’s assets or the stock. Sellers generally prefer stock (or ownership interest) sales because they minimize the tax bill from a sale.
Capital Gains Tax. Business owners typically pay capital gains tax on the difference between their original investment in the business (their “basis”) and the sale price. The capital gains rate depends in part on how long you’ve held the business. Usually, if you’ve owned it for more than one year, you’re taxed at the applicable long-term capital gains rate.
Allocation Of Purchase Price. If you sell the assets, you and the buyer must decide how to allocate the purchase price among assets (including equipment and intellectual property). This allocation affects tax liabilities for both parties.
Succession planning isn’t a one-size-fits-all process. Each option has unique benefits and pitfalls, especially regarding taxes. The best approach for you depends on factors including your retirement timeline, personal financial goals and family or employee involvement. Consult with us to ensure you choose a path that preserves your financial well-being and protects the business. We can advise on tax implications and work with you and your attorney to structure the deal advantageously. After all, a clear succession plan can safeguard the company you worked hard to build.
© 2025
When estate planning, it’s common for parents to leave their primary residence or a vacation home to their children. While your parents’ wills or trusts may specify who gets what percentage of the home, typically, you and your siblings will receive equal shares in the property.
This can result in potential problems. For example, perhaps you and your siblings have different financial needs or can’t agree on what to do with the home. Let’s take a look at how to best approach the situation.
The first step is to sit down with your siblings and have an open, honest discussion about your wishes for handling the inherited home. Generally, the options are:
If you decide to share the home, have a written agreement drafted by your attorney that outlines rules regarding scheduling, allowable uses, and responsibility for maintenance and expenses. If you choose to sell the home or arrange a buyout, obtain a professional appraisal to avoid disputes over the home’s value.
If you rent out the home, determine how you’ll handle rent collection, maintenance and other rental activities. One option is to engage a property management company to handle the day-to-day management.
Another issue to consider is how the title to the property will be held. For example, if you and your siblings own the home as tenants in common, then your respective interests will pass to your heirs according to your individual estate plans. But if you hold the property as joint tenants, then when one sibling dies, the surviving siblings receive his or her share.
Keep in mind that each of the options described above has different tax implications. Contact us with questions.
© 2025
Are you starting a business with partners and deciding on the right entity? An S corporation might be the best choice for your new venture.
One major advantage of an S corporation over a partnership is that shareholders aren’t personally liable for corporate debts. To ensure this protection, it’s crucial to:
If you anticipate early losses, an S corporation is more favorable than a C corporation from a tax perspective. Shareholders in a C corporation generally don’t benefit from such losses. However, as an S corporation shareholder, you can deduct your share of losses on your personal tax return, up to your basis in the stock and any loans you made to the entity. Losses exceeding your basis can be carried forward and deducted in the future when there’s sufficient basis.
Once the S corporation starts earning profits, the income is taxed directly to you, whether or not it’s distributed. It will be reported on your individual tax return and combined with income from other sources. Your share of the S corporation’s income isn’t subject to self-employment tax, but your wages will be subject to Social Security taxes. If the income qualifies as qualified business income (QBI), you can take the 20% pass-through deduction, subject to various limitations.
Note: The QBI deduction is set to expire after 2025 unless extended by Congress. However, the deduction will likely be extended and maybe even made permanent under the Tax Cuts and Jobs Act extension being negotiated in Congress.
If you plan to offer fringe benefits like health and life insurance, be aware that the costs for a more than 2% shareholder are deductible by the entity but taxable to the recipient.
Be cautious about transferring stock to ineligible shareholders (for example, another corporation, a partnership or a nonresident alien), as this could terminate the S election, making the corporation a taxable entity. To avoid this risk, have each shareholder sign an agreement not to make transfers that would jeopardize the S election. Also, be aware that an S corporation can’t have more than 100 shareholders.
Before making your final decision on the entity type, consult with us. We can answer your questions and help you launch your new venture successfully.
© 2025
If you made significant gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2024 gift tax return. And in some cases, even if it’s not required to file one, you may want to do so anyway.
The annual gift tax exclusion was $18,000 in 2024 (increased to $19,000 in 2025). Generally, you must file a gift tax return for 2024 if, during the tax year, you made gifts:
Important: You’ll owe gift tax only if an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($13.61 million in 2024). As you can see, some transfers require a return even if you don’t owe tax.
No gift tax return is required if your gifts for 2024 consisted solely of tax-free gifts because they qualify as:
But you should consider filing a gift tax return (even if not required) if you transferred hard-to-value property, such as artwork or interests in a family-owned business. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.
The gift tax return deadline is the same as the income tax filing deadline. For 2024 returns, it’s April 15, 2025. If you file for an extension, it’s October 15, 2025. But keep in mind that if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension. Contact us if you’re unsure whether you must (or should) file a 2024 gift tax return.
© 2025
Even if you’re single and have no children, having an estate plan helps ensure your final wishes are clearly documented and respected. Estate planning isn’t solely about passing assets on to direct descendants; it’s about taking control of your future.
Without a formal estate plan, state laws will determine how your assets are distributed, and those default decisions might not align with your values or desires. Whether they’re your financial investments or personal assets, a comprehensive estate plan allows you to specify exactly who should receive what, be they close friends, extended family or even charitable organizations.
It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain types of assets can pass to your intended recipient(s) through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.
Those laws vary from state to state but generally provide for assets to go to the deceased person’s spouse or children. For example, the law might provide that if someone dies intestate, half of the estate goes to his or her spouse and half goes to the children. However, if you’re single with no children, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. Or, if you have no living relatives, your assets may go to the state.
By preparing a will, you can ensure your assets are distributed according to your wishes, whether that’s to family, friends or charitable organizations.
Consider signing a durable power of attorney that appoints someone you trust to manage your investments, pay bills, file tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court will appoint someone to make those decisions on your behalf. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.
You should prepare a living will, a health care directive (also known as a medical power of attorney) or both. This will ensure your wishes regarding medical care — particularly resuscitation and other lifesaving measures — will be carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.
Without such instructions, the laws in some states allow a spouse, children or other “surrogates” to make those decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.
When it comes to taxes, married couples have some big advantages. For example, they can use both of their federal gift and estate tax exemptions (currently, $13.99 million per person) to transfer assets to their loved ones tax-free. Also, the marital deduction allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities.
For single people with substantial estates, it’s important to consider employing trusts and other estate planning techniques to avoid, or at least defer, gift and estate taxes.
Finally, planning ahead can help avoid potential complications in the future. Unexpected events can lead to family disputes if there’s no clear guidance on how your affairs should be handled.
With an estate plan, your personal wishes are followed precisely, ensuring that your legacy — whether it includes contributions to a cause you believe in or support for a family member — is preserved exactly as you intend. Contact us if you’re single, without children and have no estate plan. We can help draft one that’s best suited for you.
© 2025
As a business owner, you may be eligible to claim home office tax deductions that will reduce your taxable income. However, it’s crucial to understand the IRS rules to ensure compliance and avoid potential IRS audit risks. There are two methods for claiming this tax break: the actual expense method and the simplified method. Here are answers to frequently asked questions about the tax break.
In general, you qualify for home office deductions if part of your home is used “regularly and exclusively” as your principal place of business.
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:
Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:
But keeping track of actual expenses can take time and requires organized recordkeeping.
Fortunately, there’s a simplified method: You can deduct $5 for each square foot of home office space, up to a maximum of $1,500.
The cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for larger deductions using the actual expense method. So, tracking your actual expenses can be worth it.
You’re not stuck with a particular method when claiming home office deductions. For instance, you might choose the actual expense method on your 2024 return, use the simplified method when you file your 2025 return next year and then switch back to the actual expense method for 2026. The choice is yours.
If you sell — at a profit — a home on which you claimed home office deductions, there may be tax implications. We can explain them to you.
Also, be aware that the amount of your home office deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limits may apply. However, any home office expenses that you can’t deduct because of these limitations can be carried over and deducted in later years.
The Tax Cuts and Jobs Act suspended the business use of home office deductions through the end of 2025 for employees. Those who receive paychecks or Form W-2s aren’t eligible for deductions, even if they’re currently working from home because their employers require them to and don’t provide office space.
Home office tax deductions can provide valuable tax savings for business owners, but they must be claimed correctly. We can help you determine if you’re eligible and how to proceed.
© 2025
Life insurance plays a vital role in your estate plan because its proceeds can provide for your family in the event of your untimely death. And for wealthier families, life insurance proceeds can cover any estate tax liability not covered by the current $13.99 million federal gift and estate tax exemption.
But when was the last time you reviewed your policy? The amount of life insurance that’s right for you depends on your circumstances, so it’s critical to regularly review your life insurance policy.
Life insurance isn’t a one-size-fits-all solution. Milestones such as marriage, having children, buying a home or starting a business bring new financial responsibilities. A policy purchased years ago may no longer protect your loved ones adequately.
Conversely, you may be over-insured, paying for coverage you no longer need. For example, if your children are financially independent or you’ve paid off significant debts, your coverage requirements might decrease.
The right amount of insurance depends on your family’s current and expected future income and expenses, as well as the amount of income your family would lose in the event of your untimely death.
On the other hand, health care expenses for you and your spouse may increase. When you retire, you’ll no longer have a salary, but you may have new sources of income, such as retirement plans and Social Security. You may or may not have paid off your mortgage, student loans or other debts. And you may or may not have accumulated sufficient wealth to provide for your family.
When you sit down to reevaluate your life insurance policy, consider the:
Coverage Amount. Is your policy sufficient to cover current expenses, future obligations and debts?
Policy Type. Term life insurance can be cost-effective for temporary needs, while whole life or universal policies may offer long-term benefits such as cash value accumulation.
Beneficiaries. Ensure your policy lists the correct beneficiaries, especially after a major life event such as marriage, divorce or the birth of a child.
Premiums. Are you paying a competitive rate? Shopping around or converting an old policy could save money.
While reviewing your policy, keep in mind your broader financial plan. How does your policy currently fit within your overall strategy, including tax implications, estate planning and business succession planning?
Taking the time to reassess your life insurance needs is an investment in your family’s financial security. Contact us to ensure your coverage aligns with your current and future estate planning goals.
© 2025
If you’re getting ready to file your 2024 tax return and your tax bill is higher than you’d like, there may still be a chance to lower it. If you’re eligible, you can make a deductible contribution to a traditional IRA until this year’s April 15 filing deadline and benefit from the tax savings on your 2024 return.
You can make a deductible contribution to a traditional IRA if:
For 2024, if you’re a married joint tax return filer and you’re covered by an employer plan, your deductible traditional IRA contribution phases out over $123,000 to $143,000 of MAGI. If you’re single or a head of household, the phaseout range is $77,000 to $87,000 for 2024. The phaseout range for married individuals filing separately is $0 to $10,000. For 2024, if you’re not actively participating in an employer retirement plan but your spouse is, your deductible IRA contribution phases out with MAGI of between $230,000 and $240,000.
Deductible IRA contributions reduce your current tax bill, and earnings in the IRA are tax deferred. However, every dollar you withdraw is taxed (and subject to a 10% penalty before age 59½, unless one of several exceptions apply).
Traditional IRAs are different from Roth IRAs. You also have until April 15 to make a Roth IRA contribution. But while contributions to a traditional IRA are deductible, contributions to a Roth IRA aren’t. However, withdrawals from a Roth IRA are tax-free as long as the account has been open at least five years and you’re age 59½ or older. (There are also income limits to make contributions to a Roth IRA.)
If you’re married, you can make a deductible IRA contribution even if you don’t work. In general, you can’t make a deductible traditional IRA contribution unless you have wages or other earned income. However, an exception applies if one spouse has earned income and the other is a homemaker or not employed. In this case, you may be able to take advantage of a spousal IRA.
For 2024, if you’re eligible, you can make a deductible traditional IRA contribution of up to $7,000 ($8,000 if you’re age 50 or older). For 2025, these amounts remain the same.
In addition, small business owners can set up and contribute to Simplified Employee Pension (SEP) plans up until the due date for their returns, including extensions. For 2024, the maximum contribution you can make to a SEP is $69,000 (increasing to $70,000 for 2025).
If you want more information about IRAs or SEPs, contact us. Or ask about tax-favored retirement saving when we’re preparing your return. We can help you save the maximum tax-advantaged amount for retirement.
© 2025
If an individual taxpayer has substantial business losses, unfavorable federal income tax rules can potentially come into play. Here’s what you need to know as you assess your 2024 tax situation.
The tax rules can get complicated if your business or rental activity throws off a tax loss — and many do during the early years. First, the passive activity loss (PAL) rules may apply if you aren’t very involved in the business or if it’s a rental activity. The PAL rules generally only allow you to deduct passive losses to the extent you have passive income from other sources. However, you can deduct passive losses that have been disallowed in previous years (called suspended PALs) when you sell the activity or property that produced the suspended losses.
If you successfully clear the hurdles imposed by the PAL rules, you face another hurdle: You can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards explained below.
You generally can’t use an NOL carryover, including one from an excess business loss, to shelter more than 80% of your taxable income in the carryover year. Also, NOLs generally can’t be carried back to an earlier tax year. They can only be carried forward and can be carried forward indefinitely. The requirement that an excess business loss must be carried forward as an NOL forces you to wait at least one year to get any tax-saving benefit from it.
David is unmarried. In 2024, he has an allowable loss of $400,000 from his start-up AI venture that he operates as a sole proprietorship.
Although David has no other income or losses from business activities, he has $500,000 of income from other sources (salary, interest, dividends, capital gains and so forth).
David has an excess business loss for the year of $95,000 (the excess of his $400,000 AI venture loss over the $305,000 excess business loss disallowance threshold for 2024 for an unmarried taxpayer). David can deduct the first $305,000 of his loss against his income from other sources. The $95,000 excess business loss is carried forward to his 2025 tax year and treated as part of an NOL carryover to that year.
Variation: If David’s 2024 business loss is $305,000 or less, he can deduct the entire loss against his income from other sources because he doesn’t have an excess business loss.
Nora and Ned are married and file tax returns jointly. In 2024, Nora has an allowable loss of $350,000 from rental real estate properties (after considering the PAL rules).
Ned runs a small business that’s still in the early phase of operations. He runs the business as a single-member LLC that’s treated as a sole proprietorship for tax purposes. For 2024, the business incurs a $150,000 tax loss.
Nora and Ned have no income or losses from other business or rental activities, but they have $600,000 of income from other sources.
They don’t have an excess business loss because their combined losses are $500,000. That amount is below the $610,000 excess business loss disallowance threshold for 2024 for married joint filers. So, they’re unaffected by the disallowance rule. They can use their $500,000 business loss to shelter income from other sources.
The excess business loss disallowance rule is applied at the owner level for business losses from partnerships, S corporations and LLCs treated as partnerships for tax purposes. Each owner’s allocable share of business income, gain, deduction, or loss from these pass-through entities is taken into account on the owner’s Form 1040 for the tax year that includes the end of the entity’s tax year.
As you can see, business losses can be complex. Contact us if you have questions or want more information about the best strategies for your situation.
© 2025
A revocable trust (sometimes referred to as a “living trust”) is a popular estate planning tool that allows you to manage your assets during your lifetime and ensure a smooth transfer of those assets to your family after your death. Plus, trust assets bypass the probate process, which can save time, reduce costs and maintain privacy. However, like any legal instrument, a revocable trust has certain disadvantages.
A revocable trust’s premise is relatively simple. You establish the trust, transfer assets to it (essentially funding it) and name a trustee to handle administrative matters. You can name yourself as trustee or choose a professional to handle the job. Regardless of who you choose, name a successor trustee who can take over the reins if required.
If you designate yourself as the trust’s initial beneficiary, you’re entitled to receive income from the trust for your lifetime. You should also designate secondary beneficiaries, such as your spouse and children, who are entitled to receive the remaining assets after the trust terminates.
One of the primary benefits of a revocable trust is its flexibility. As the grantor, you retain control over the trust and can change its terms, add or remove assets, or even dissolve it at any time during your life. This control makes it a flexible tool for adapting to changing life circumstances, such as new family members, changes in financial status or shifts in your estate planning goals.
For many people, the main reason for using a revocable trust — and sometimes the only one that really matters — is that the trust’s assets avoid probate. Probate is the process of settling an estate and passing the legal title of ownership of assets to heirs specified in a will. Depending on applicable state law, probate can be costly and time consuming. The process is also open to the public, which can be a major detriment if you treasure your privacy.
Assets passing through a revocable trust aren’t subject to probate. This gives you control to decide who in the family gets what without all the trappings of a will. Along with the flexibility, it keeps your personal arrangements away from prying eyes.
One of the most notable drawbacks of a revocable trust is the upfront cost and effort involved in setting one up. Drafting a revocable trust requires the assistance of an attorney. You’ll also need to retitle your assets under the name of the trust, which can be time consuming and may incur fees.
Another limitation is that a revocable trust doesn’t provide asset protection from creditors or lawsuits during your lifetime. Because the trust is revocable, its assets are still considered your property and are thus subject to claims against you.
Finally, despite a common misconception, revocable living trusts don’t provide direct tax benefits. The assets are included in your taxable estate and dispositions of trust property can result in tax liability. You must report the income tax that’s due, including capital gains on sales of assets, on your personal tax return.
For many individuals, a revocable trust can be an invaluable part of their estate plans, offering flexibility, privacy and efficiency. However, it’s not a one-size-fits-all solution. Before deciding, weigh the benefits and drawbacks in the context of your unique financial situation and estate planning goals. Contact us with questions regarding a revocable trust. Be sure to consult with an estate planning attorney to draft your revocable trust.
© 2025
The Child Tax Credit (CTC) has long been a valuable tax break for families with qualifying children. Whether you’re new to claiming the credit or you’ve benefited from it for years, it’s crucial to stay current on its rules and potential changes. As we approach the expiration of certain provisions within the Tax Cuts and Jobs Act (TCJA) at the end of 2025, here’s what you need to know about the CTC for 2024, 2025 and beyond.
Under the TCJA, which took effect in 2018, the CTC was increased from its previous level of $1,000 to $2,000 per qualifying child. The TCJA also made more taxpayers eligible for the credit by raising the income threshold at which the credit begins to phase out.
For both 2024 and 2025, the CTC is $2,000 per child under age 17. Phaseout thresholds in 2024 and 2025 will continue at the levels established by the TCJA:
The refundable portion of the credit for 2024 and 2025 is a maximum $1,700 per qualifying child. With a refundable tax credit, you can receive a tax refund even if you don’t owe any tax for the year.
A nonrefundable credit of up to $500 is available for dependents other than those who qualify for the CTC. But certain tax tests for dependency must be met. The credit can be claimed for:
If Congress doesn’t act to extend or revise the current provisions of the TCJA, the CTC will revert to the pre-TCJA rules in 2026. That means:
In other words, many taxpayers will see their CTC cut in half if the current law sunsets in 2026. Consequently, families could experience a larger federal tax liability starting in 2026 if no new law is enacted.
When it comes to the future of the CTC, there have been various proposals in Washington. During the campaign, Vice President J.D. Vance signaled support for expanding the CTC. While specifics remain unclear, there have also been indications that President Trump favors extending the current $2,000 credit beyond 2025 or even increasing it.
Many Congressional Republicans have voiced support for maintaining the credit at the $2,000 level or making it permanent. However, in a 50-page menu of options prepared by Republicans on the House Budget Committee, there’s a proposal that would require parents and children to have Social Security numbers (SSNs) to claim the CTC. (Currently, only a child needs a valid number.) That would make fewer families eligible for the credit.
Because these proposals haven’t yet been enacted (and may not be), taxpayers should keep an eye on legislative developments.
To claim the CTC, you must include the child’s SSN on your return. The number must have been issued before the due date for filing the return, including extensions. If a qualifying child doesn’t have an SSN, you may currently claim the $500 credit for other dependents for that child.
To claim the $500 credit for other dependents, you’ll need to provide a taxpayer identification number for each non-CTC-qualifying child or dependent, but it can be an Individual Taxpayer Identification Number, Adoption Taxpayer Identification Number or SSN.
The CTC remains a critical resource for millions of families. For the 2024 and 2025 tax years, you can still benefit from up to $2,000 per qualifying child. The future of the credit after that is uncertain. As always, you can count on us to keep you informed of any changes. Contact us with any questions about your situation.
© 2025
Your estate plan is the perfect place to make charitable gifts if you’re a charitably inclined individual. One vehicle to consider using is a donor-advised fund (DAF).
What’s the main attraction? Among other benefits, a DAF allows you to set aside funds for charitable giving while you’re alive, and you (or your heirs) can direct donations over time. Plus, in your estate plan, you can designate your DAF as a beneficiary to receive assets upon your death, ensuring continued charitable giving in your name.
A DAF generally requires an initial contribution of at least $5,000. It’s typically managed by a financial institution or an independent sponsoring organization, which, in return, charges an administrative fee based on a percentage of the account balance.
You have the option of funding a DAF through estate assets. And you can name a DAF as a beneficiary of IRA or 401(k) plan accounts, life insurance policies or through a bequest in your will or trust.
You instruct the DAF on how to distribute contributions to the charities of your choice. While deciding which charities to support, your contributions are invested and potentially grow within the account. Then, the charitable organizations you choose are vetted to ensure they’re qualified to accept DAF funds. Finally, the checks are cut and distributed to the charities.
A DAF has several benefits. For starters, using a DAF is relatively easy. With all the administrative work and logistics handled for you, you simply make contributions to the fund. It may be possible to transfer securities directly from your bank account.
The contributions you make to the DAF generally are tax deductible. Therefore, if you itemize deductions on your tax return instead of taking the standard deduction, the gifts can offset your current income tax liability. Contributions can be deducted in the tax year you make them, rather than waiting until the fund distributes them.
For monetary contributions, you can write off the full amount, up to 60% of your adjusted gross income (AGI) in 2025. Any excess is carried over for five years. For a gift of appreciated property, the donation is equal to the property’s fair market value if you’ve owned the asset for longer than one year, up to 30% of AGI. Any excess is carried over for five years. Otherwise, the deduction for property is limited to your adjusted basis (often your initial cost).
If you prefer, distributions can be made to charities anonymously. Alternatively, you can name the fund after your family. In either event, the DAF may be created through your will, providing a lasting legacy.
DAFs have their drawbacks as well. Despite some misconceptions, you don’t control how the charities use the money after it’s disbursed from the DAF.
Also, you can’t personally benefit from your DAF. For instance, you can’t direct that the money should be used to buy tickets to a local fundraiser you want to support if the cost of the tickets isn’t fully tax deductible. Lastly, detractors have complained about the administrative fees.
Using a DAF in your estate plan can help maximize charitable giving, minimize taxes and create a lasting legacy aligned with your philanthropic goals. It provides flexibility and allows heirs to continue supporting charitable causes in your name. Contact us with questions regarding a DAF.
© 2025
Retirement is often viewed as an opportunity to travel, spend time with family or simply enjoy the fruits of a long career. Yet the transition may bring a tangle of tax considerations. Planning carefully can help you minimize tax bills. Below are four steps to take if you’re approaching retirement, along with the tax implications.
Begin by assessing what retirement might look like for you. For example, will you relocate to a different state or downsize by selling your home? Will you continue to work part-time?
Tax Implications: Moving to a state with lower income or property taxes may stretch your retirement savings. If you sell your home and the capital gain exceeds $250,000 ($500,000 for married couples filing jointly), you’ll need to pay tax on the amount over the exclusion limit. And if you work part-time, your earnings could reduce your Social Security benefits (depending on your age) or push you into a higher tax bracket.
Social Security is a major income component for many retirees, and deciding when to start collecting benefits is crucial. The government will permanently reduce your monthly benefit if you begin collecting before your full retirement age. Conversely, if you delay benefits past your full retirement age (up to age 70), you’ll receive larger monthly payments.
Tax Implications: Depending on your total income (including wages, retirement distributions and taxable investment income), up to 85% of your Social Security benefits could be taxable. Proper planning can help you manage taxable income and potentially reduce or avoid higher taxes on benefits.
If you’re fortunate enough to have a pension, find out your payout options. Some pensions offer lump-sum distributions, while others offer monthly annuity payments.
Tax Implications: Most pension income is taxable at ordinary income tax rates.
In addition to retirement accounts, you may have savings and investments in brokerage accounts that can supplement your income.
Tax Implications: Capital gains and dividends may be taxed differently than ordinary income, potentially at lower rates. Strategic withdrawals from taxable accounts and retirement accounts can help you manage your overall tax liability.
Once you turn 73, you must take required minimum distributions (RMDs) from most tax-deferred retirement accounts such as traditional IRAs and 401(k)s. Failing to do so can result in hefty penalties.
Tax Implications: RMDs are treated as ordinary income for tax purposes. If you don’t need them for living expenses, you might consider a qualified charitable distribution (QCD) to lower your taxable income. With a QCD, funds go directly from your retirement account to a qualified charity. They can count toward your RMD but aren’t included in your taxable income.
Distributions from Roth IRAs and Roth 401(k)s are generally tax-free (if holding-period requirements are met), making them valuable tools for reducing taxes in retirement. If you have traditional and Roth accounts, you might choose to take withdrawals from Roth accounts in years when you want to manage your tax bracket more carefully.
Tax Implications: Roth accounts don’t require RMDs during the original owner’s lifetime.
Medical costs can significantly impact retirees. Medicare premiums, hospital visits, prescriptions and potential long-term care are just some of the expenses that can eat into your retirement savings without careful planning.
Tax Implications: Health Savings Accounts (HSAs) allow for tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. If you’re retiring soon and have a high-deductible health plan, maximizing HSA contributions can be a smart move. In addition, qualified medical expenses can sometimes be deducted if they exceed a certain percentage of your adjusted gross income (AGI).
Retirement can span decades, and tax laws frequently change. By combining various withdrawal strategies and staying proactive about tax changes, you can tame the tax tangle. These are only some of the tax issues and implications. Contact us. We can help forecast tax outcomes under different scenarios and advise on strategies that complement your retirement goals.
© 2025
A variety of tax-related limits that affect businesses are indexed annually based on inflation. Many have increased for 2025, but with inflation cooling, the increases aren’t as great as they have been in the last few years. Here are some amounts that may affect you and your business.
Cap on amount of employees’ earnings subject to Social Security tax for 2025: $176,100 (up from $168,600 in 2024).
These are only some of the tax limits and deductions that may affect your business, and additional rules may apply. But there’s more to keep in mind. With President Trump back in the White House and the Republicans controlling Congress, several tax policy changes have been proposed and could potentially be enacted in 2025. For example, Trump has proposed lowering the corporate tax rate (currently 21%) and eliminating taxes on overtime pay, tips, and Social Security benefits. These and other potential changes could have wide-ranging impacts on businesses and individuals. It’s important to stay informed. Consult with us if you have questions about your situation.
© 2025
An inheritor’s trust is a specialized estate planning tool designed to protect and manage assets you pass to a beneficiary. One of its primary advantages is asset protection. It allows your beneficiary to receive his or her inheritance in trust rather than as an outright gift or bequest. Thus, the assets are kept out of his or her own taxable estate.
Having assets pass directly to a trust not only protects the assets from being included the beneficiary’s taxable estate but also shields them from other creditor claims, such as those arising from a lawsuit or a divorce. The inheritance is protected because the trust, rather than your beneficiary, legally owns the inheritance, and because the beneficiary doesn’t fund the trust.
To ensure complete asset protection, the beneficiary must establish an inheritor’s trust before receiving the inheritance. The trust is drafted so that your beneficiary is the investment trustee, giving him or her power over the trust’s investments.
Your beneficiary then selects an unrelated person — someone he or she knows well and trusts — as the distribution trustee. The distribution trustee will have complete discretion over the distribution of principal and income, which ensures that the trust provides creditor protection.
The trust should be designed with the flexibility to remove and change the distribution trustee at any time and make other modifications when necessary, such as when tax laws change. Bear in mind that the unfettered power to remove and replace trustees may jeopardize the creditor protection aspect of the trust. That could result in the inclusion of the trust property in the beneficiary’s taxable estate.
Because it’s your beneficiary, and not you, who sets up the trust, he or she will incur the bulk of the fees, which will vary depending on the trust. In addition, he or she may have to pay annual trustee fees. Your cost, however, should be minimal — only the legal fees to amend your will or living trust to redirect your bequest to the inheritor’s trust.
Another benefit of an inheritor’s trust is that it can help ensure that inherited assets remain within the family lineage. By keeping assets in the trust rather than transferring them outright to beneficiaries, the trust can prevent the depletion of wealth due to mismanagement, overspending or other poor financial decisions.
The trust’s grantor can include specific provisions or restrictions. These may include setting limits on distributions or requiring certain milestones (like completing education) before beneficiaries can access funds.
Follow The Law
Your beneficiary should consult an attorney to draft the trust in accordance with federal and state law. This will help avoid potential IRS audits or court challenges — and maximize the asset protection benefits of the trust. Contact us for more information regarding an inheritor’s trust.
© 2025
Chances are, you’re more concerned about your 2024 tax return right now than you are about your 2025 tax situation. That’s understandable because your 2024 individual tax return is due to be filed by April 15 (unless you file for an extension).
However, it’s a good time to familiarize yourself with tax amounts that may have changed for 2025 due to inflation. Not all tax figures are adjusted annually for inflation, and some amounts only change when Congress passes new laws.
In addition, there may be tax changes due to what’s happening in Washington. With Republicans in control of both the White House and Congress, we expect major tax law changes in the coming months. With that in mind, here are some Q&As about 2025 tax limits.
Beginning in 2018, the Tax Cuts and Jobs Act eliminated the ability to itemize deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2025, the standard deduction amount is $30,000 for married couples filing jointly (up from $29,200 in 2024). For single filers, the amount is $15,000 (up from $14,600 in 2024) and for heads of households, it’s $22,500 (up from $21,900 in 2024). If the total amount of your itemized deductions (including mortgage interest) is less than the applicable standard deduction amount, you won’t itemize for 2025.
Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations.
If you’re eligible, you can contribute up to $7,000 a year to a traditional or Roth IRA. If you earn less than $7,000 during the year, you can contribute up to 100% of your earned income. (This is unchanged from 2024.) If you’re 50 or older, you can make an additional $1,000 “catch up” contribution (for 2024 and 2025).
In 2025, you can contribute up to $23,500 to a 401(k) or 403(b) plan (up from $23,000 in 2024). You can make an additional $7,500 catch-up contribution if you’re age 50 or older (for 2024 and 2025). However, there’s something new this year for 401(k) and 403(b) participants of certain ages. Beginning in 2025, those who are age 60, 61, 62 or 63 can make catch-up contributions of up to $11,250.
In 2025, the threshold for when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. who are independent contractors is $2,800 (up from $2,700 in 2024).
The Social Security tax “wage base” is $176,100 for this year (up from $168,600 in 2024). That means you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts you earn.)
The annual gift tax exclusion for 2025 is $19,000 (up from $18,000 in 2024).
We obviously can’t predict the future with certainty. The specifics of any new tax legislation depend on various political and economic factors. However, there are likely to be many changes in the next few years. President Trump and Republicans have signaled that they’d like to extend and possibly make permanent the provisions in the Tax Cuts and Jobs Act that expire after 2025. They’ve also discussed raising or eliminating the cap on the state and local tax deduction. Other proposals include expanding the Child Tax Credit and making certain types of income (tips, overtime and Social Security benefits) tax-free. Some of these tax breaks could become effective for the 2025 tax year.
These are only some of the tax amounts and potential changes that may apply to you. Contact us if you have questions or need more information.
© 2025
Does your estate plan leave specific assets to specific family members? If so, you may want to reconsider your plan. While it may be tempting to say, leave your son your classic car and give your daughter a family heirloom, doing so risks inadvertently disinheriting other family members, even if you’ve gone out of your way to ensure that they’re treated equally.
Let’s consider an example. Dan has three children, Susan, Peter and Emma. At the time he prepares his estate plan, Dan has three primary assets: company stock valued at $1 million, a mutual fund with a $1 million balance and a $1 million life insurance policy. His estate plan calls for Susan to acquire the stock, Peter to gain the mutual fund and Emma to become the life insurance policy’s beneficiary.
When Dan dies 15 years later, the values of the three assets have changed considerably. The stock’s value has dropped to $500,000, the mutual fund has grown to $2.5 million and he inadvertently allowed the life insurance policy to lapse.
The result: Although Dan intended to treat his children equally, Peter ended up with the bulk of his estate, Susan’s inheritance was significantly smaller than expected and Emma was disinherited altogether. To avoid unintended results like this, consider distributing your wealth among your heirs based on percentages or dollar values rather than providing for specific assets to go to specific people.
However, if it’s important to you that certain heirs receive certain assets, there may be planning strategies you can use to ensure your heirs are treated fairly. Returning to the example, Dan could’ve provided for his wealth to be divided equally among his children, with Susan receiving the stock (valued at fair market value) as part of her share. That way, Susan would have received the stock plus $500,000 of the mutual fund, and Peter and Emma would each have received $1 million of the mutual fund.
Contact us if you have questions regarding how your estate plan currently distributes your assets among family members. We can help determine if all your heirs will be treated equally.
© 2025
From the moment they launch their companies, business owners are urged to use key performance indicators (KPIs) to monitor performance. And for good reason: When you drive a car, you’ve got to keep an eye on the gauges to keep from going too fast and know when it’s time to service the vehicle. The same logic applies to running a business.
As you may have noticed, however, there are many KPIs to choose from. Perhaps you’ve tried tracking some for a while and others after that, only to become overwhelmed by too much information. Sometimes it helps to back up and review the general concept of KPIs so you can revisit which ones are likely best for your business.
One way to make choosing KPIs easier is to separate them into two broad categories: financial and nonfinancial. Starting with the former, you can subdivide financial metrics into smaller buckets based on strategic objectives. Examples include:
Growth. Like most business owners, you’re probably looking to grow your company over time. However, if not carefully planned for and tightly controlled, growth can land a company in hot water or even put it out of business. So, to manage growth, you may want to monitor basic KPIs such as:
Cash flow management. Maintaining or, better yet, strengthening cash flow is certainly a good aspiration for any company. Poor cash flow — not slow sales or lagging profits — often leads businesses into crises. To help keep the dollars moving, you may want to keep a close eye on:
Inventory optimization. If your company maintains inventory, you’ll no doubt want to set annual, semiannual or quarterly objectives for how to best move items on and off your shelves. Many businesses waste money by allowing slow-moving inventory to sit idle for too long. To optimize inventory management, consider KPIs such as:
Not every KPI you track needs to relate to dollars and cents. Companies often use nonfinancial KPIs to set goals, track progress and determine incentives in areas such as customer service, sales, marketing and production. Here are two examples:
Nonfinancial KPIs enable you to do more than just say, “Let’s provide better customer service!” or “Let’s close more sales!” They allow you to assign specific data points to business activities, so you can objectively determine whether you’re getting better at them.
The sheer number of KPIs — both financial and nonfinancial — will probably only grow. The good news is, you’ve got time. Choose a handful that make the most sense for your company and track them over a substantial period. Then, make adjustments based on the level of insight they provide.
You can also scale up how many metrics you track as your business grows or scale them down if you’re pumping the brakes. Our firm can help you identify the optimal KPIs for your company right now and integrate new ones in the months or years ahead.
© 2025
The IRS announced it will start the 2025 filing season for individual income tax returns on January 27. That’s when the agency began accepting and processing 2024 tax year returns. Even if you typically don’t file until much closer to the mid-April deadline (or you file for an extension), you may want to file earlier this year. The reason is you can potentially protect yourself from tax identity theft.
Here are some answers to questions taxpayers may have about filing.
Tax identity theft occurs when someone uses your personal information — such as your Social Security Number — to file a fraudulent tax return and claim a refund in your name. One of the simplest yet most effective ways to protect yourself from this type of fraud is to file your tax return as early as possible.
The IRS processes returns on a first-come, first-served basis. Once your legitimate return is in the system, thieves will have a tougher time filing a false return.
In addition to protecting yourself from tax identity theft, another advantage of filing early is that if you’re getting a refund, you’ll get it faster. The IRS expects to issue most refunds in less than 21 days. The time may be shorter if you file electronically and receive a refund by direct deposit into a bank account.
Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable or caught in mail delays.
For most taxpayers, the filing deadline to submit 2024 returns or file an extension is Tuesday, April 15, 2025. (The IRS has granted extensions to victims of certain disasters to file tax returns and pay taxes due.) Some years, the due date is a day or two later if April 15 falls on a weekend or holiday, but that isn’t the case this year.
You can file for an automatic extension on IRS Form 4868 if you’re not ready to file by the deadline. If you file for an extension by April 15, you’ll have until October 15, 2025, to file. Remember that an extension of time to file your return doesn’t grant you any extension of time to pay your taxes. You should estimate and pay any taxes owed by the regular deadline to help avoid penalties.
To file your tax return, you need all your Forms W-2 and 1099. January 31 is the deadline for employers to issue 2024 W-2s to employees and, generally, for businesses to issue Forms 1099 to recipients of any 2024 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).
If you haven’t received a W-2 or 1099 by February 1, first contact the entity that should have issued it. If that doesn’t work, ask us how to proceed.
If you can’t pay what you owe by April 15, there are generally penalties and interest. You should still file your return on time because there are failure-to-file penalties in addition to failure-to-pay penalties. You should generally pay as much as possible and request an installment payment plan. We’ll discuss the options with you when we meet to prepare your return.
Please contact us if you’d like an appointment to prepare your return. We can help ensure you file an accurate return and receive all the available tax breaks in your situation.
© 2025
It’s not uncommon for people who live in states with high income taxes to relocate to states with more favorable tax climates. Did you know that you can use a similar strategy for certain trusts? Indeed, if a trust is subject to high state income tax, you may be able to change its residence — or “situs” — to a state with low or no income taxes.
The taxation of a trust depends on the trust type. Revocable trusts and irrevocable “grantor” trusts — those over which the grantor retains enough control to be considered the owner for tax purposes — aren’t taxed at the trust level. Instead, trust income is included on the grantor’s tax return and taxed at the grantor’s personal income tax rate.
Irrevocable, nongrantor trusts generally are subject to federal and state tax at the trust level on any undistributed ordinary income or capital gains, often at higher rates than personal income taxes. Income distributed to beneficiaries is deductible by the trust and taxable to beneficiaries.
Therefore, relocating a trust may offer a tax advantage if the trust:
There may be other advantages to moving a trust. For example, the laws in some states allow you or the trustee to obtain greater protection against creditor claims, reduce the trust’s administrative expenses, or create a “dynasty” trust that lasts for decades or even centuries.
For an irrevocable trust, the ability to change its situs depends on several factors, including the language of the trust document (does it authorize a change in situs?) and the laws of the current and destination states. In determining a trust’s state of “residence” for tax purposes, states generally consider one or more of the following factors:
Some states apply a formula based on these factors to tax a portion of the trust’s income. Also, some states tax all income derived from sources within their borders — such as businesses, real estate or other assets located in the state — even if a trust in another state owns those assets.
Depending on state law and the language of the trust document, moving a trust may involve appointing a replacement trustee in the new state and moving the trust’s assets and records to that state. In some cases, it may be necessary to amend the trust document or to transfer the trust’s assets to a new trust in the destination state. A situs change may also require the consent of the trust’s beneficiaries or court approval.
For tax purposes, a final return should be filed in the current jurisdiction. The return should explain the reasons why the trust is no longer taxable in that state. Before taking action, discuss with us the pros and cons of moving your trust. We can help you determine whether it’s worth your while.
© 2025
Once you reach age 73, tax law requires you to begin taking withdrawals — called Required Minimum Distributions (RMDs) — from your traditional IRA, SIMPLE IRA and SEP IRA. Since funds can’t stay in these accounts indefinitely, it’s important to understand the rules behind RMDs, which can be pretty complex. Below, we address some common questions to help you navigate this process.
If you need to take money out of a traditional IRA before age 59½, distributions are taxable, and you may be subject to a 10% penalty tax. However, there are several ways that you can avoid the 10% penalty tax (but not the regular income tax). They include using the money to pay:
These are only some of the exceptions to the 10% tax allowed before age 59½. The IRS lists them all in this chart.
For an IRA, you must take your first RMD by April 1 of the year following the year in which you turn 73, regardless of whether you’re still employed. The RMD age used to be 72 but the Secure 2.0 Act raised it to 73 starting in 2023.
The RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who’s 10 or more years younger than the owner.
If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs. You don’t have to take a separate RMD from each IRA.
Yes, you can always withdraw more than the RMD. But you can’t apply excess withdrawals toward future years’ RMDs.
In planning for RMDs, you should weigh your income needs against the ability to keep the tax shelter of the IRA going for as long as possible.
Can I take more than one withdrawal in a year to meet my RMD?
You may withdraw your annual RMD in any number of distributions throughout the year, as long as you withdraw the yearly total minimum amount by December 31 (or April 1 if it is for your first RMD).
If the distributions to you in any year are less than the RMD for that year, you’ll be subject to an additional tax equal to 50% of the amount that should have been paid but wasn’t.
Contact us to review your traditional IRAs and analyze other retirement planning aspects. We can also discuss who you should name as beneficiaries and whether you could benefit from a Roth IRA. Roth IRAs are retirement savings vehicles that operate under a different set of rules than traditional IRAs. Contributions aren’t deductible, but qualified distributions are generally tax-free.
© 2025
New and used “heavy” SUVs, pickups and vans placed in service in 2025 are potentially eligible for big first-year depreciation write-offs. One requirement is you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you may be able to deduct that percentage of the cost in the first year. The write-off will reduce your federal income tax bill and your self-employment tax bill, if applicable. You might get a state tax income deduction too.
Setting up a business office in your home for this year can also help you collect tax savings. Here’s what you need to know about the benefits of combining these two tax breaks.
The generous first-year depreciation deal is only available for an SUV, pickup, or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that’s purchased (not leased). First-year depreciation deductions for lighter vehicles are subject to smaller depreciation limits of up to $20,400 in 2024. (The 2025 amount hasn’t come out yet.)
It’s not hard to find attractive vehicles with GVWRs above the 6,000-pound threshold. Examples include the Cadillac Escalade, Jeep Grand Cherokee, Chevy Tahoe, Ford Explorer, Lincoln Navigator, and many full-size pickups. You can usually find the GVWR on a label on the inside edge of the driver’s side door.
Favorable depreciation rules apply to heavy SUVs, pickups and vans that are used over 50% for business because they’re classified as transportation equipment for federal income tax purposes. Three factors to keep in mind:
Again, the favorable first-year depreciation rules are only allowed if you use your heavy SUV, pickup, or van over 50% for business.
You’re much more likely to pass the over-50% test if you have an office in your home that qualifies as your principal place of business. Then, all the commuting mileage from your home office to temporary work locations, such as client sites, is considered business mileage. The same is true for mileage between your home office and any other regular place of business, such as another office you keep. This is also the case for mileage between your other regular place of business and temporary work locations.
Bottom line: When your home office qualifies as a principal place of business, you can easily rack up plenty of business miles. That makes passing the over-50%-business-use test for your heavy vehicle much easier.
How do you make your home office your principal place of business? The first way is to conduct most of your income-earning activities there. The second way is to conduct administrative and management chores there. But don’t make substantial use of any other fixed location (like another office) for these chores.
Key points: You must use the home office space regularly and exclusively for business throughout the year. Also, if you’re employed by your own corporation (as opposed to being self-employed), you can’t deduct home office expenses under the current federal income tax rules.
You can potentially claim generous first-year depreciation deductions for heavy business vehicles and also claim home office deductions. The combination can result in major tax savings. Contact us if you have questions or want more information about this strategy.
© 2025
As higher education costs continue to rise, you may be concerned about how to save and pay for college. Fortunately, several tools and strategies offered in the U.S. tax code may help ease the financial burden. Below is an overview of some of the most beneficial tax breaks and planning options for funding your child’s or grandchild’s education.
A 529 plan allows you to buy tuition credits or contribute to an account set up to meet your child’s future higher education expenses. State governments or private institutions establish 529 plans.
Contributions aren’t deductible. They’re treated as taxable gifts to the child, but they’re eligible for the annual gift tax exclusion ($19,000 in 2025). If you contribute more than the annual exclusion limit for the year, you can elect to treat the gift as if it is spread out over five years. By taking advantage of the five-year gift tax election, a grandparent (or anyone else) can contribute up to $95,000 ($19,000 × 5) per beneficiary this year, free of gift tax.
Earnings on 529 plan contributions accumulate tax-free until the education costs are paid with the funds. Distributions are tax-free to the extent they’re used to pay “qualified higher education expenses,” which can include up to $10,000 in tuition per beneficiary for an elementary or secondary school. Distributions of earnings that aren’t used for qualified higher education expenses are generally subject to income tax plus a 10% penalty.
You can establish a Coverdell ESA and make contributions of up to $2,000 for each child under age 18. This age limitation doesn’t apply to beneficiaries with special needs.
The right to make contributions begins to phase out once AGI is over $190,000 for married couples filing jointly ($95,000 for singles). If income is too high, the child can contribute to his or her own account. These thresholds haven’t been adjusted for inflation in many years.
Although Coverdell ESA contributions aren’t deductible, income in the account isn’t taxed, and distributions are tax-free if spent on qualified education expenses. If the child doesn’t attend college, you must withdraw the money when the child turns 30, and any earnings will be subject to tax plus a penalty. However, you can transfer unused funds tax-free to a Coverdell ESA of another family member who isn’t 30 yet. The age 30 requirement doesn’t apply to individuals with special needs.
Series EE U.S. savings bonds offer two tax-saving opportunities when used for college expenses:
To qualify for the college tax exemption, you must purchase the bonds in your name (not the child’s) or jointly with your spouse. The proceeds must be used for tuition, fees, etc. — not room and board. If only some proceeds are used for qualified expenses, only that part of the interest is exempt. The exemption is phased out if your modified adjusted gross income exceeds certain amounts.
Beyond saving vehicles, there are also tax credits you may be able to claim while paying college expenses:
You can’t claim the AOTC and the LLC for the same student in the same year. However, you can claim each credit for different students in the same household if you meet eligibility requirements.
These are just some of the tax-wise ways to save and pay for college. Contact us to discuss the best path forward in your situation.
© 2025
When selling business assets, understanding the tax implications is crucial. One area to focus on is Section 1231 of the Internal Revenue Code, which governs the treatment of gains and losses from the sale or exchange of certain business property.
The federal income tax character of gains and losses from selling business assets can fall into three categories:
Gains and losses from selling Sec. 1231 assets receive favorable federal income tax treatment.
Net Sec. 1231 gains. If a taxpayer’s Sec. 1231 gains for the year exceed the Sec. 1231 losses for that year, all the gains and losses are treated as long-term capital gains and losses — assuming the nonrecaptured Sec. 1231 loss rule explained later doesn’t apply.
An individual taxpayer’s net Sec. 1231 gain — including gains passed through from a partnership, LLC, or S corporation — qualifies for the lower long-term capital gain tax rates.
Net Sec. 1231 losses. If a taxpayer’s Sec. 1231 losses for the year exceed the Sec. 1231 gains for that year, all the gains and losses are treated as ordinary gains and losses. That means the net Sec. 1231 loss for the year is fully deductible as an ordinary loss, which is the optimal tax outcome.
Now for a warning: Taxpayers must watch out for the nonrecaptured Sec. 1231 loss rule. This provision is intended to prevent taxpayers from manipulating the timing of Sec. 1231 gains and losses in order to receive favorable ordinary loss treatment for a net Sec. 1231 loss, followed by receiving favorable long-term capital gain treatment for a net Sec. 1231 gain recognized in a later year.
The nonrecaptured Sec. 1231 loss for the current tax year equals the total net Sec. 1231 losses that were deducted in the preceding five tax years, reduced by any amounts that have already been recaptured. A nonrecaptured Sec. 1231 loss is recaptured by treating an equal amount of current-year net Sec. 1231 gain as higher-taxed ordinary gain rather than lower-taxed long-term capital gain.
For losses passed through to an individual taxpayer from a partnership, LLC, or S corporation, the nonrecaptured Sec. 1231 loss rule is enforced at the owner level rather than at the entity level.
Because the unfavorable nonrecaptured Sec. 1231 loss rule cannot affect years before the year when a net Sec. 1231 gain is recognized, the tax-smart strategy is to try to recognize net Sec. 1231 gains in years before the years when net Sec. 1231 losses are recognized.
Achieving the best tax treatment for Sec. 1231 gains and losses can be a challenge. We can help you plan the timing of gains and losses for optimal tax results.
© 2025
Saving for retirement is a crucial financial goal and a 401(k) plan is one of the most effective tools for achieving it. If your employer offers a 401(k) or Roth 401(k), contributing as much as possible to the plan in 2025 is a smart way to build a considerable nest egg.
If you’re not already contributing the maximum allowed, consider increasing your contribution in 2025. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions can have a significant impact on the amount of money you’ll have in retirement.
With a 401(k), an employee elects to have a certain amount of pay deferred and contributed to the plan by an employer on his or her behalf. The amounts are indexed for inflation each year and they’re increasing a modest amount. The contribution limit in 2025 is $23,500 (up from $23,000 in 2024). Employees age 50 or older by year end are also generally permitted to make additional “catch-up” contributions of $7,500 in 2025 (unchanged from 2024). This means those 50 or older can generally save up to $31,000 in 2025 (up from $30,500 in 2024).
However, under a law change that becomes effective in 2025, 401(k) plan participants of certain ages can save more. The catch-up contribution amount for those who are age 60, 61, 62 or 63 in 2025 is $11,250.
Note: The contribution amounts for 401(k)s also apply to 403(b)s and 457 plans.
A traditional 401(k) offers many benefits, including:
If you already have a 401(k) plan, look at your contributions. In 2025, try to increase your contribution rate to get as close to the $23,500 limit (with any extra eligible catch-up amount) as you can afford. Of course, the taxes on your paycheck will be reduced because the contributions are pretax.
Your employer may also offer a Roth option in its 401(k) plans. If so, you can designate some or all of your contributions as Roth contributions. While such amounts don’t reduce your current MAGI, qualified distributions will be tax-free.
Roth 401(k) contributions may be especially beneficial for higher-income earners because they can’t contribute to a Roth IRA. That’s because the ability to make a Roth IRA contribution is reduced or eliminated if adjusted gross income (AGI) exceeds specific amounts.
Contact us if you have questions about how much to contribute or the best mix between traditional and Roth 401(k) contributions. We can also discuss other tax and retirement-saving strategies for your situation.
© 2024
