Services Archives

What you need to know about deducting business gifts

Management Advisory Services & Business Consulting|January 6, 2026

Thoughtful business gifts are a great way to show appreciation to customers and employees. They can also deliver tax benefits when handled correctly. Unfortunately, the IRS limits most business gift deductions to $25 per person per year, a cap that hasn’t changed since 1962. Still, with careful planning and good recordkeeping, you may be able to maximize your deductions.

When the $25 rule doesn’t apply

Several exceptions to the $25-per-person rule can help you deduct more of your gift expenses:

Gifts to businesses. The $25 limit applies only to gifts made directly or indirectly to an individual. Gifts given to a company for use in its business — such as an industry reference book or office equipment — are fully deductible because they serve a business purpose. However, if the gift primarily benefits a specific individual at that company, the $25 limit applies.

Gifts to married couples. When both spouses have a business relationship with you and the gift is for both of them, the limit generally doubles to $50.

Incidental costs. The expenses of personalizing, packaging, insuring or mailing a gift don’t count toward the $25 limit and are fully deductible.

Employee gifts. Cash or cash-equivalent gifts (such as gift cards) are treated as taxable wages and generally are deductible as compensation. However, noncash, low-cost items — like company-branded merchandise, small holiday gifts, or occasional meals and parties — can qualify as nontaxable “de minimis” fringe benefits. These are deductible to the business and tax-free to the employee.

How entertainment gifts are treated now

Under the Tax Cuts and Jobs Act, most entertainment expenses are no longer deductible. This includes tickets to sporting events, concerts and other entertainment, even when related to business. However, if you give event tickets as a gift and don’t attend yourself, you may be able to classify the cost as a business gift, subject to the $25 limit and any applicable exceptions.

Note that meals provided during an entertainment event may still be 50% deductible if they’re separately stated on the invoice.

Why good recordkeeping matters

To claim the full deductions you’re entitled to, document your gifts properly. Record each gift’s description, cost, date and business purpose and the relationship of the recipient to your business. Digital records are acceptable — such as accounting notes or CRM entries — as long as they clearly support the deduction.

Track qualifying expenses separately in your books. That way they can be easily identified.

Make your business gifts count

A little knowledge and planning can go a long way toward ensuring your business gifts are both meaningful and tax-smart. If you’d like help reviewing your company’s gift-giving policies or want to confirm how the deduction rules apply to your situation, contact our office. We’ll help your business keep compliant with tax law while you show appreciation to your customers and employees.

Shift income to take advantage of the 0% long-term capital gains rate

Estate & Wealth Transfer Planning|December 30, 2025

Are you thinking about making financial gifts to loved ones? Would you also like to reduce your capital gains tax? If so, consider giving appreciated stock instead of cash. You might be able to eliminate all federal tax liability on the appreciation — or at least significantly reduce it.

Leveraging lower rates

Investors generally are subject to a 15% tax rate on their long-term capital gains (20% if their income exceeds certain thresholds). But the long-term capital gains rate generally is 0% for gain that would be taxed at 10% or 12% based on the taxpayer’s ordinary-income rate.

In addition, taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly and $125,000 for married filing separately) may owe the net investment income tax (NIIT). The NIIT equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no or a low federal tax cost.

Case study

Faced with a long-term capital gains tax rate of 23.8% (20% for the top tax bracket, plus the 3.8% NIIT), Ed and Nancy decide to transfer some appreciated stock to their adult granddaughter, Emma. Just out of college and making only enough from her entry-level job to leave her with $30,000 in taxable income, Emma qualifies for the 0% long-term capital gains rate.

However, the 0% rate applies only to the extent that capital gains “fill up” the gap between Emma’s taxable income and the top end of the 0% bracket. For 2025, the 0% bracket for singles tops out at $48,350 (just $125 less than the top of the 12% ordinary-income tax bracket).

When Emma sells the stock her grandparents transferred to her, her capital gains are $20,000. Of that amount $18,350 qualifies for the 0% rate and the remaining $1,650 is taxed at 12%. Emma pays only $198 in federal tax on the sale vs. the $4,760 her grandparents would have owed had they sold the stock themselves.

More to consider

If you’re contemplating a gift to anyone who’ll be under age 24 on December 31, check whether they’ll be subject to the “kiddie tax.” Also consider any gift and generation-skipping transfer (GST) tax consequences. We’d be pleased to answer any questions you have. We can also suggest other ways you can reduce taxes on your investments.

How will taxes affect your merger or acquisition?

Tax Prep, Planning & Strategy|December 25, 2025

Whether you’re selling your business or acquiring another company, the tax consequences can have a major impact on the transaction’s success or failure. So if you’re thinking about a merger or acquisition, you need to consider the potential tax impact.

Asset sale or stock sale?

From a tax standpoint, a transaction can basically be structured as either an asset sale or a stock sale. In an asset sale, the buyer purchases just the assets of a business. This may happen if a buyer only wants specific assets or product lines. And it’s the only option if the target business is a sole proprietorship or a single-member limited liability company (LLC) that’s treated as a sole proprietorship for tax purposes.

Alternatively, if the target business is a corporation, a partnership or an LLC that’s treated as a partnership for tax purposes, the buyer can directly purchase the seller’s stock or other form of ownership interest. Whether the business being purchased is a C corporation or a pass-through entity (that is, an S corporation, partnership or, generally, an LLC) makes a significant difference when it comes to taxes.

The flat 21% corporate federal income tax rate under the Tax Cuts and Jobs Act (TCJA), which the One Big Beautiful Bill Act (OBBBA) didn’t change, makes buying the stock of a C corporation somewhat more attractive. Why? The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower rate when they’re eventually sold.

The TCJA’s reduced individual federal tax rates, which have been made permanent by the OBBBA, may also make ownership interests in S corporations, partnerships and LLCs more attractive than they once were. This is because the passed-through income from these entities will be taxed at the TCJA’s lower rates on the buyer’s personal tax return. The buyer may also be eligible for the TCJA’s qualified business income deduction, which was also made permanent by the OBBBA.

Note: In some circumstances, a corporate stock purchase can be treated as an asset purchase by making a Section 338 election. Contact us for more information. We’d be pleased to help determine if this would be beneficial in your situation.

Seller or buyer?

Sellers generally prefer stock sales for tax and nontax reasons. One of their main objectives is to minimize the tax bill from a sale. That can usually be best achieved by selling ownership interests in the business (corporate stock or interests in a partnership or LLC) as opposed to selling the business’s assets.

With a sale of stock or other ownership interest, liabilities generally transfer to the buyer and any gain on sale is typically treated as lower-taxed long-term capital gain (assuming the ownership interest has been held for more than one year).

Buyers, however, usually prefer to purchase assets. Generally, a buyer’s main objective is to generate enough cash flow from an acquired business to pay any acquisition debt and provide an acceptable return on the investment. Therefore, buyers want to limit exposure to undisclosed and unknown liabilities and minimize taxes after the deal closes.

A buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price. Stepped-up basis lowers taxable gains when certain assets, such as receivables and inventory, are sold or converted into cash. It also increases depreciation and amortization deductions for qualifying assets.

Keep in mind that other factors, such as employee benefits, can cause unexpected tax issues when merging with or acquiring a business.

We can help

Selling the business you’ve spent years building or becoming a first-time business owner by buying an existing business might be the biggest financial move you ever make. We can assess the potential tax consequences before you start negotiating to help avoid unwelcome tax surprises after a deal is signed. Contact us to get started.

IRS issues guidance on Trump accounts

Tax Prep, Planning & Strategy|December 22, 2025

The One Big Beautiful Bill Act (OBBBA) creates a new type of tax-advantaged account for eligible children. Section 530A accounts, also known as “Trump accounts,” can be established for children under age 18 who have a Social Security Number (SSN). Contributions to properly established accounts can begin on July 4, 2026.

The IRS has released guidance that sheds more light on the accounts and a temporary pilot program that will contribute $1,000 tax-free for certain children. Here’s what you need to know.

A different kind of IRA — initially

A Trump account is established for the exclusive benefit of an eligible child, who’s the account owner. While the account is essentially a type of IRA, it’s subject to special rules that don’t apply to other IRAs. Most of these rules are in effect only during the period that ends before January 1 of the calendar year in which the child reaches age 18 — what’s referred to as the “growth period.”

During the growth period:

The account funds can be invested only in eligible investments — generally, mutual funds or exchange-traded funds (ETFs) that track an index of primarily U.S. companies, such as the Standard and Poor’s 500, and meet other criteria,
The account has a lower contribution limit, generally $5,000 per year (adjusted for inflation after 2027),
The account generally can’t make distributions (including hardship distributions), and
Individuals can’t claim a tax deduction for their contributions.
After the child turns 18, traditional IRA rules kick in, including those regarding contributions, distributions (as well as the 10% early withdrawal penalty), required minimum distributions (RMDs), taxation and Roth IRA conversions.

Account election

Unlike regular IRAs, Trump accounts must be created initially by the U.S. Treasury Secretary. To have an account established for your child, you must make an election, and the child must not have reached age 18 before the close of the calendar year when the election is made. The child also must have an SSN before the election is made.

According to the IRS guidance, the election can be made on the forthcoming Form 4547, Trump Account Election(s), or through an online tool that isn’t yet available. You can file the form with your 2025 tax return. An account can be established at the same time you elect to receive a pilot program contribution (see below) or any time before January 1 of the year the child turns 18. Only one account can be opened per child.

After the election is made, the Treasury Department will send you the necessary information to activate the account. The IRS says this information will be available in May 2026.

Pilot program participation

A one-time $1,000 government-provided contribution is available for children born after December 31, 2024, and before January 1, 2029, who are U.S. citizens with SSNs. The pilot program election can be made on Form 4547 or through the online tool.

The Treasury Department will contribute to accounts eligible for the pilot program as soon as practicable after the election is made. Note that no contributions will be made before July 4, 2026.

Contributions to the account

Trump accounts can receive several types of contributions during the growth period besides contributions from parents, other loved ones or the children themselves. For example, an account can accept a “qualified general contribution” funded by states and political subdivisions, the federal government, Indian tribal governments, or certain nonprofits. These contributions, which will funnel through the Treasury Department, can be made only to “qualified classes,” such as those residing in certain areas and born in specific years. Michael and Susan Dell’s recently announced donation totaling $6.25 billion is an example of this type of contribution.

Employers can contribute up to $2,500 per year (adjusted for inflation after 2027) to the accounts of employees or their dependents, with contributions generally excluded from the employee’s taxable income. The limit applies on a per-employee basis. Trump accounts can also accept qualified rollover contributions.

Pilot program contributions, qualified general contributions and qualified rollover contributions don’t count toward the annual contribution limit. However, employer contributions do count toward the limit. Notably, contributions must be made within the calendar year to count toward that year’s limit — the contribution deadline doesn’t extend to April 15 of the following year as it does for traditional and Roth IRAs.

Education savings alternatives

Trump accounts might not be the best option when it comes to building savings for your child’s education. Both 529 plans and Coverdell Education Savings Accounts (ESAs) also allow tax-deferred growth, but withdrawals for qualified education expenses are tax-free. On the other hand, Trump account distributions are taxed as ordinary income to the extent that they aren’t attributable to after-tax contributions.

There are other 529 plan advantages: Contributions may qualify for state tax deductions. And they aren’t subject to an annual limit, provided they don’t exceed the amount needed to cover the beneficiary’s qualified expenses. (Note that gift tax rules might apply, depending on the contribution amount.)

Moreover, up to $35,000 of funds left in a 529 plan account held for at least 15 years in one beneficiary’s name can be rolled over into the beneficiary’s Roth IRA without incurring the normal 10% penalty for nonqualified withdrawals or resulting in taxable income. Roth IRAs don’t have RMDs, and withdrawals are tax-free. Certain restrictions on 529 plan rollovers apply, but this rollover option could be a significant advantage over Trump accounts, which eventually become traditional IRAs.

Investment options for 529 plans are limited to those permitted by the plan administrator, typically mutual funds and ETFs. But they may offer greater choice than Trump accounts. ESAs allow a wider range of investments, typically everything a broker offers. However, the maximum contribution to an ESA is limited to $2,000 per beneficiary per year, and contributors are subject to income-based contribution limits.

Stay tuned

The IRS expects to issue additional guidance on Trump accounts. We’ll keep you up to date on important developments in this and other OBBBA-related areas.

New itemized deduction limitation will affect high-income individuals next year

Tax Prep, Planning & Strategy|December 18, 2025

Beginning in 2026, taxpayers in the top federal income tax bracket will see their itemized deductions reduced. If you’re at risk, there are steps you can take before the end of 2025 to help mitigate the negative impact.

The new limitation up close

Before the Tax Cuts and Jobs Act (TCJA), certain itemized deductions of high-income taxpayers were reduced, generally by 3% of the amount by which their adjusted gross income exceeded a specific threshold. For 2018 through 2025, the TCJA eliminated that limitation. The One Big Beautiful Bill Act (OBBBA) makes that elimination permanent, but it puts in place a new limitation for taxpayers in the 37% federal income tax bracket.

Specifically, for 2026 and beyond, allowable itemized deductions for individuals in the 37% bracket will be reduced by the lesser of: 1) 2/37 times the amount of otherwise allowable itemized deductions or 2) 2/37 times the amount of taxable income (before considering those deductions) in excess of the applicable threshold for the 37% tax bracket.

For 2026, the 37% bracket starts when taxable income exceeds $640,600 for singles and heads of households, $768,700 for married couples filing jointly, and $384,350 for married taxpayers filing separately.

Generally, the limitation will mean that the tax benefit from itemized deductions for taxpayers in the 37% bracket will be as if they were in the 35% bracket.

Some examples

The reduction calculation is not so easy to understand. Here are some examples to illustrate how it works:

Example 1: You have $37,000 of otherwise allowable itemized deductions in 2026. Before considering those deductions, your taxable income exceeds the threshold for the 37% federal income tax bracket by $37,000.

Your otherwise allowable itemized deductions will be reduced by $2,000 (2/37 × $37,000). So, your allowable itemized deductions will be $35,000 ($37,000 − $2,000). That amount will deliver a tax benefit of $12,950 (37% × $35,000), which is 35% of $37,000.

Example 2: You have $100,000 of otherwise allowable itemized deductions in 2026. Before considering those deductions, your taxable income exceeds the threshold for the 37% bracket by $1 million.

Your otherwise allowable itemized deductions will be reduced by $5,405 (2/37 × $100,000). So, your allowable itemized deductions will be $94,595 ($100,000 − $5,405). That amount will deliver a tax benefit of $35,000 (37% × $94,595), which is 35% of $100,000.

Tax planning tips

Do you expect to be in the 37% bracket in 2026? Because the new limitation doesn’t apply in 2025, you have a unique opportunity to preserve itemized deductions by accelerating deductible expenses into 2025.

For example, make large charitable contributions this year instead of next. If you aren’t already maxing out your state and local tax (SALT) deduction, you may be able to pay state and local property tax bills in 2025 instead of 2026. And if your medical expenses are already close to or above the 7.5% of adjusted gross income threshold for that deduction, consider bunching additional medical expenses into 2025.

In addition, there are steps you can take next year to avoid or minimize the impact of the itemized deduction reduction. These will involve minimizing the 2026 taxable income that falls into the 37% bracket (or even keeping your income below the 37% tax bracket threshold). There are several potential ways to do this. For instance:

Recognize capital losses from securities held in taxable brokerage accounts.
Make bigger deductible retirement plan contributions.
Put off Roth conversions that would add to your taxable income.

If you own an interest in a pass-through business entity (such as a partnership, S corporation or, generally, a limited liability company) or run a sole-proprietorship business, you may be able to take steps to reduce your 2026 taxable income from the business.

Will you be affected?

If you expect your 2026 income will be high enough that you’ll be affected by the new itemized deduction limitation, contact us. We’ll work with you to determine strategies to minimize its impact to the extent possible.

Tax Court case provides lessons on best recordkeeping practices for businesses

Tax Prep, Planning & Strategy|December 16, 2025

Running a successful business requires more than delivering great products or services. Behind the scenes, meticulous recordkeeping plays a crucial role in financial health, compliance and tax savings. Good records can mean the difference between successfully defending a deduction and losing valuable tax breaks. A recent U.S. Tax Court decision underscores just how important this is.

Why it matters

The IRS requires all businesses — no matter how small — to maintain records that accurately reflect income, expenses, assets and liabilities. Without these records, it’s nearly impossible to:

Substantiate tax deductions and credits,
Track cash flow and profitability,
Prepare accurate financial statements,
Monitor the progress of your business,
Support decisions for financing, and
Demonstrate compliance during an IRS audit.

In short, strong recordkeeping protects your business, both for operational and tax law purposes.

Taxpayer loses deductions due to insufficient records

In one case, a union power‐line worker also had business interests in a storm response partnership, a salon and a rental property. He claimed significant losses and business expenses on his return for the year in question. Among his claimed deductions were partnership losses and expenses for tools, clothing and travel.

In Tax Court Memo 2025-12, the court disallowed substantial deductions because the taxpayer couldn’t properly substantiate them. Some invoices or receipts were missing or didn’t tie clearly to the business purpose.

For example, with vehicle or travel expenses, the court noted the lack of contemporaneous logs and details that distinguished business vs. personal use. For partnership losses, the taxpayer needed to show his basis in the partnership, but couldn’t provide clear documentation of all his capital contributions.

In addition to denying many of the taxpayer’s deductions, the court upheld an accuracy‐related penalty. This is an extra charge (typically 20% of the underpayment) that can be assessed when a taxpayer makes substantial mistakes on a tax return.

This case isn’t unique. Year after year, businesses lose valuable deductions for the same reason: poor recordkeeping.

Six key practices to protect tax breaks

To avoid costly mistakes, businesses should implement a recordkeeping system that’s both practical and compliant. Here are six best practices to consider:

1. Separate business and personal finances. Open a dedicated business checking account and credit card. Mixing personal and business expenses is one of the fastest ways to create confusion — and attract IRS scrutiny.

2. Maintain contemporaneous records. Document expenses when they occur, not months later. For example, keep mileage logs for business driving and note the purpose of each trip.

3. Use accounting software. Modern accounting platforms (like QuickBooks® or industry-specific tools) streamline recordkeeping. They allow you to categorize expenses, generate reports and integrate with bank accounts to minimize errors.

4. Keep source documents. For example, retain purchase and sale invoices, receipts, bank statements, canceled checks, and credit card bills. Scanning or photographing receipts ensures they won’t fade or get lost. Also, keep copies of Forms 1099-MISC and 1099-NEC. There are also specific employment tax records you must keep.

5. Retain records for the right amount of time. Generally, the IRS recommends keeping records for at least three years. That’s the amount of time that the tax agency can audit a tax return. However, some records (such as payroll tax or property records) should be kept longer. The length of time can be extended to six years if the income is underreported by more than 25%. And if no return is filed or fraud is involved, the IRS can conduct an audit for an indefinite amount of time.

6. Establish internal controls. For businesses with employees, internal checks help ensure the accuracy and integrity of records. Examples of these controls include requiring dual signatures for large expenses and segregating duties so that different employees handle authorization, custody of assets and recordkeeping.

Reliable records are vital

The lesson from the Tax Court case described above is clear: Without reliable records, even legitimate deductions can vanish. Don’t let poor documentation cost your business money. We can help your business:

Set up a recordkeeping system tailored to your business,
Learn which expenses are deductible (and how to document them),
Review its books to catch issues before the IRS does, and
Manage any IRS challenges to tax deductions.

IRS releases critical guidance on calculating tips and overtime deductions for 2025

Tax Prep, Planning & Strategy|December 12, 2025

The One Big Beautiful Bill Act (OBBBA) creates new income tax deductions for tax years 2025 through 2028 for qualified cash tips and overtime compensation. If you receive tips or overtime pay, you likely have questions about whether you’re eligible for a deduction and how big it might be.

The IRS has issued guidance on how workers can determine the amount of their deductions for 2025, because employers aren’t required to provide detailed information on tips income or overtime compensation until the 2026 tax year. Here’s an overview of what you need to know.

The new deductions

Rather than eliminating taxes on all tips income and overtime compensation, the OBBBA establishes partial deductions available to both itemizers and nonitemizers, subject to income-based limitations. Qualified tips income and overtime compensation remain subject to federal payroll taxes and state income and payroll taxes where applicable. Moreover, because the tax breaks are in the form of deductions claimed at tax time, employers must continue to withhold federal income taxes from employees’ paychecks.

For qualified tips, you may be able to claim a deduction of up to $25,000. “Qualified tips” generally refers to cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024. The tips must be paid voluntarily, without any consequence for nonpayment, in an amount determined by the payor and without negotiation.

Proposed IRS regulations identify 68 eligible occupations within the following categories:

Beverage and food service,
Entertainment and events,
Hospitality and guest services,
Home services,
Personal services,
Personal appearance and wellness,
Recreation and instruction, and
Transportation and delivery.

The tips deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if you’re married filing jointly. The deduction is completely phased out if your MAGI reaches $400,000, or $550,000 if you’re a joint filer.

The overtime deduction is limited to $12,500, or $25,000 if you’re a joint filer. A phaseout begins if your MAGI exceeds $150,000, or $300,000 if you’re a joint filer. The deduction is completely phased out if your MAGI reaches $275,000, or $550,000 if you’re a joint filer.

The overtime deduction is available for overtime pay required by the Fair Labor Standards Act (FLSA), which generally mandates “time-and-a-half” for hours that exceed 40 in a workweek. Notably, though, the deduction applies only to the pay that exceeds the regular pay rate — that is, the “half” component.

Because the FLSA definition of overtime varies from some state law definitions, overtime pay under state law might not be deductible. And the deduction doesn’t apply to overtime paid under a collective bargaining agreement or that an employer pays in excess of time-and-a-half (for example, double-time).

The tips deduction calculation

Employers won’t be required to include the total amount of cash tips reported by the employee and the employee’s occupation code on Form W-2 until the 2026 tax year. So, for 2025, according to the IRS, if you’re an employee, you can calculate your tips deduction using:

Social Security tips reported in Box 7 of Form W-2,
The total amount of tips you reported to your employer on Forms 4070, “Employee’s Report of Tips to Employer,” or similar forms, or
The total amount of tips your employer voluntarily reports in Box 14 (“Other”) of Form W-2 or a separate statement.

You may also include any amount listed on Line 4 of the 2025 Form 4137, “Social Security and Medicare Tax on Unreported Tip Income,” filed with your 2025 income tax return (and included as income on that return). Note that you’re responsible for determining whether the tips were received as part of an eligible occupation. If your employer opts to provide this or other relevant information in Box 14 (“Other”) of Form W-2, you may rely on it.

Tips also won’t be required to be reported on Forms 1099 until the 2026 tax year. For 2025, if you’re an independent contractor, you can corroborate the calculation of your qualified tips with:

Earnings statements,
Receipts,
Point-of-sale system reports,
Daily tip logs,
Third-party settlement organization records, or
Other documentary evidence.

Note: Nonemployees must confirm that their tips were received from an eligible occupation.

The overtime deduction calculation

Employers won’t be required to include eligible overtime pay on Form W-2 until the 2026 tax year. So for 2025, if you’re an employee, you can self-report your overtime compensation for the overtime deduction.

According to the IRS, you must make a “reasonable effort” to determine whether you’re considered to be an FLSA-eligible employee. The IRS says this may include asking your employers or other service recipients about your FLSA status.

To calculate the deduction amount, you must use “reasonable methods” to break out the amount of overtime pay that qualifies. For example, if you were paid time-and-a-half and receive a statement with your total amount for overtime (regular wages plus the overtime premium), then you can use one-third of the total. If you were paid double-time and receive such a statement, you can multiply the total dollar amount by one-fourth to compute the qualifying overtime pay.

A tax-saving opportunity

If you might be eligible for the tips or overtime deduction, don’t miss out on this tax-saving opportunity just because your deduction may be difficult to calculate. We’re here to help. If you’re an employer with employees who receive tips or overtime income, we can also provide guidance on how to answer employee questions for 2025 and how to ensure you’re in compliance with reporting requirements for 2026.

Understanding the most common IRS notices

Tax Prep, Planning & Strategy|December 11, 2025

For many taxpayers, receiving a letter from the IRS can feel intimidating. The envelope arrives with the IRS seal, and immediately, worry sets in: Did I make a mistake? Am I in trouble? The truth is, IRS notices aren’t uncommon, and most of them can be resolved fairly easily once you understand what they mean.

This article walks through the most common types of IRS notices, explains why taxpayers receive them, and provides guidance on how to respond.

Why the IRS sends notices

The IRS communicates primarily by mail — not phone or email. Notices are typically sent for reasons such as:

Clarifying information on a tax return,
Notifying you of a balance due,
Confirming changes made to your return,
Requesting additional documentation, and
Alerting you to a possible error.

Each notice is numbered in the upper right-hand corner (for example, CP2000 or Notice CP12). That code is your key to understanding the purpose of the letter. In all cases, contact us if you have questions about how to proceed.

Five common notices and what they mean

1. CP2000, proposed changes to your tax return. This notice is issued when the IRS finds a mismatch between the information you reported and what third parties (like employers or banks) reported. For example, if your W-2 shows more wages than what you entered, the IRS will propose a correction.

How to respond: Review the notice carefully. If the IRS is correct, you can agree and pay any additional tax owed. If you disagree, you have the right to dispute it by providing supporting documentation.

2. CP12, refund adjustment. If the IRS corrects a math error or other mistake on your return, you may receive this notice. Sometimes, it will result in a smaller or larger refund than you expected.

How to respond: If you agree with the correction, no action is needed. If not, you can request a reversal by contacting the IRS within 60 days of the date of the notice.

3. CP14, balance due. This is the most common notice. It informs a taxpayer that he or she owes additional tax. It will list the amount due, including penalties and interest.

How to respond: Don’t ignore it. Pay the balance in full, set up a payment plan or contact the IRS if you believe the notice is incorrect.

4. Letter 4883C, identity verification. When the IRS suspects identity theft, it sends this letter asking you to verify your identity before processing your return.

How to respond: Follow the instructions immediately — usually by calling the IRS or verifying online. Delaying could stall your refund.

5. CP49, refund applied to a debt. A taxpayer will receive this notice if he or she was expecting a refund, but instead had it applied to past-due federal taxes or other debts (like child support or student loans).

How to respond: The notice will explain how the refund was applied. If you disagree, you may need to contact the agency that received the payment, not the IRS.

Steps to take

In addition to the response steps listed above, here are six more tips:

Don’t panic. Notices are often routine and resolvable.
Read carefully. The notice will explain the issue, next steps and deadlines.
Check the notice number. This will help you look up details online or discuss the matter with us.
Verify accuracy. Compare the notice to your tax return and records.
Respond promptly. Many notices have deadlines for disputing or appealing.
Avoid scams. The IRS will never email, text or call demanding payment. Legitimate notices always come by mail.

Ways we can help

Interpreting an IRS notice may be tricky, especially if it involves complex calculations or disputed information. We can review the notice for accuracy and explain what it means in plain language. In addition, we can communicate with the IRS on your behalf, help you gather documentation, file corrections and guide you through payment plans or appeals if needed. With professional guidance, most IRS issues can be resolved without stress or confusion.

5 potential tax breaks to know before moving a parent into a nursing home

Estate & Wealth Transfer Planning|December 9, 2025

Approximately 1.3 million Americans live in nursing homes, according to the National Center for Health Statistics. If you have a parent moving into one, taxes are probably not on your mind. But there may be tax implications. Here are five possible tax breaks.

1. Long-term medical care

The costs of qualified long-term care, including nursing home care, are deductible as medical expenses to the extent they, along with other medical expenses, exceed 7.5% of adjusted gross income (AGI).

Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal-care services required by a chronically ill individual that are provided by a licensed healthcare practitioner.

To qualify as chronically ill, a physician or other licensed healthcare practitioner must certify an individual as unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing and continence) for at least 90 days due to a loss of functional capacity or severe cognitive impairment.

2. Nursing home payments

Amounts paid to a nursing home are deductible as medical expenses if a person is staying at the facility principally for medical, rather than custodial care. If a person isn’t in the nursing home principally to receive medical care, only the portion of the fee that’s allocable to actual medical care qualifies as a deductible expense. But if the individual is chronically ill, all qualified long-term care services, including maintenance or personal care services, are deductible.

If your parent qualifies as your dependent, you can include any medical expenses you incur for your parent along with your own when determining your medical deduction.

3. Long-term care insurance

Premiums paid for a qualified long-term care insurance contract are deductible as medical expenses (subject to limitations explained below) to the extent they, along with other medical expenses, exceed the percentage-of-AGI threshold. A qualified long-term care insurance contract covers only qualified long-term care services, doesn’t pay costs covered by Medicare, is guaranteed renewable and doesn’t have a cash surrender value.

Qualified long-term care premiums are includible as medical expenses up to certain amounts. For individuals over 60 but not over 70 years old, the 2025 limit on deductible long-term care insurance premiums is $4,810, and for those over 70, the 2025 limit is $6,020.

4. The sale of your parent’s home

If your parent sells his or her home, up to $250,000 of the gain from the sale may be tax-free. To qualify for the $250,000 exclusion ($500,000 if married), the seller must generally have owned and used the home for at least two years out of the five years before the sale. However, there’s an exception to the two-out-of-five-year use test if the seller becomes physically or mentally unable to care for him- or herself during the five-year period.

5. Head-of-household filing status

If you aren’t married and your parent meets certain dependency tests, you may qualify for head-of-household filing status, which has a higher standard deduction and, in some cases, lower tax rates than single filing status. You might be eligible to file as head of household even if the parent for whom you claim an exemption doesn’t live with you.

These are only some of the tax issues you may have to contend with when your parent moves into a nursing home. Contact us if you need more information or assistance.

The tax traps of personally guaranteeing a loan to your corporation

Management Advisory Services & Business Consulting|December 4, 2025

If you’re considering guaranteeing, or are asked to guarantee, a loan to your closely held corporation, it’s important to understand the potential tax consequences. Acting as a guarantor, endorser or indemnitor means that if the corporation defaults, you could be responsible for repaying the loan. Without planning ahead, you may face unexpected tax implications.

A business bad debt

If you’re compelled to make good on the obligation, the payment of principal or interest in discharge of the obligation generally results in a bad debt deduction. This may be either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss, which is subject to certain limitations. A nonbusiness bad debt is deductible only if it’s totally worthless.

To be treated as a business bad debt, the guarantee must be closely related to your trade or business. If the reason for guaranteeing the corporation loan is to protect your job, the guarantee is considered closely related to your trade or business as an employee. But employment must be the dominant motive. If your annual salary exceeds your investment in the corporation, this generally shows that the dominant motive for the guarantee is to protect your job. On the other hand, if your investment in the corporation substantially exceeds your annual salary, that’s evidence that the guarantee is primarily to protect your investment rather than your job.

Proving the relationship

Except in the case of job guarantees, it may be difficult to show the guarantee is closely related to your trade or business. You have to show that the guarantee is related to your business as a promoter, or that the guarantee is related to some other trade or business separately carried on by you.

If the reason for guaranteeing your corporation’s loan isn’t closely related to your trade or business and you’re required to pay off the loan, you can take a nonbusiness bad debt deduction if you show that your reason for the guarantee was to protect your investment, or you entered the guarantee transaction with a profit motive.

Note: The IRS and courts will scrutinize the dominant motive carefully. Reasonable compensation doesn’t always mean money. It can include protecting employment or business interests.

Additional requirements

In addition to satisfying the above requirements, a business or nonbusiness bad debt is deductible only if you meet these three conditions:

You have a legal duty to make the guaranty payment (although there’s no requirement that a legal action be brought against you).
The guaranty agreement is entered into before the debt becomes worthless.
You receive reasonable consideration (not necessarily cash or property) for entering into the guaranty agreement.

Any payment you make on a loan you guaranteed is deductible as a bad debt in the year you make it, unless the agreement (or local law) provides for a right of subrogation against the corporation. If you have this right, or some other right to demand payment from the corporation, you can’t take a bad debt deduction until the rights become partly or totally worthless.

These are only some of the possible tax consequences of guaranteeing a loan to your closely held corporation. Consult with us to learn all the implications and to help ensure the best tax results.

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