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Deferring taxes on advance payments

Tax Prep, Planning & Strategy|April 23, 2026

An advance payment is one received by a business before it provides whatever is being paid for. For federal income tax purposes, generally advance payments must be reported as taxable income in the year received. This treatment always applies if your business uses the cash method of accounting for tax purposes. But, if your business uses the accrual method, it may qualify for favorable tax deferral treatment.

Tax deferral privilege

Accrual-basis businesses can elect to postpone including all or part of an eligible advance payment in taxable income until the year after it’s received. To be eligible for the deferral election, among other requirements, an advance payment must:

At least partially be included in revenue for a later year according to your business’s applicable financial statement (AFS) or, if your business doesn’t have an AFS, treated as earned in a later year, and
Be received for goods, services or other eligible items listed in IRS guidance.

If your accrual-basis business received eligible advance payments in 2025, you potentially can elect to defer reporting some or all of that income until 2026 for federal tax purposes.

What is an AFS?

An AFS can be an audited financial statement used for credit or financial reporting purposes or certain reports submitted to federal or state agencies. A form filed with the Securities and Exchange Commission, such as a 10-K or annual report, also can be an AFS.

If your business doesn’t have an AFS and elects to use the deferral method for advance payments, the payment must be included in taxable income in the year received to the extent of the amount that is treated by your business as earned in that year. The remaining portion of the advance payment must be included in taxable income the following year.

What types of payments are eligible?

Advance payments that may be eligible for deferral include payments for:

Services,
The sale of goods,
Gift cards,
The use of intellectual property,
The sale or use of computer software,
Warranty contracts, and
Subscriptions.

Other payments specified in IRS guidance also may be eligible.

Eligible advance payments don’t include rents (with some exceptions), certain insurance premiums, payments for financial instruments, payments for certain service warranty contracts, and other payments specified in IRS guidance.

Some examples

The following examples illustrate how eligible advance payments can be deferred for federal income tax purposes:

Taxpayer has an AFS. A calendar-year accrual method S corporation provides tennis facilities and lessons. On November 15, 2025, it received payment for a one-year contract for 48 one-hour tennis lessons beginning on that date. Eight lessons were given in 2025. On its AFSs, the business recognizes one-sixth (8/48) of the advance payment as revenue for 2025 and five-sixths (40/48) as revenue for 2026. Making the advance payment deferral method election, the business includes only one-sixth of the advance payment in taxable income for 2025. The remaining five-sixths must be included in taxable income for 2026.

Taxpayer doesn’t have an AFS. A calendar-year accrual method LLC provides online security protection services for computers, tablets and cell phones. On September 1, 2025, it received payment for two years of protection services beginning on that date. The business determines that four months of its services should be treated as earned in 2025. Making the advance payment deferral election, the business includes only one-sixth (4/24) of the advance payment in taxable income for 2025. The remaining five-sixths (20/24) must be included in taxable income for 2026.

Can you benefit?

We’ve only scratched the surface of complicated tax rules and regulations that apply to the treatment of advance payments. Contact us for help determining if your business is eligible to defer 2025 advance payments. We can also calculate the possible current tax savings.

Don’t sleep on these after-tax-day tips

Tax Prep, Planning & Strategy|April 16, 2026

With the April 15 tax filing deadline in the rearview mirror, you’re likely to turn your attention to other things. But before you do, it’s in your best interest to tie up a few tax-related loose ends.

IRS statute of limitations

Generally, the IRS’s statute of limitations for auditing a tax return is three years from the return’s due date or the filing date, whichever is later. However, some tax issues are still subject to scrutiny after three years. For example, if the IRS suspects that income has been understated by 25% or more, the statute of limitations for an audit extends to six years. If no return was filed or fraud is suspected, there’s no limit on when the IRS can launch an inquiry.

It’s a good idea to keep copies of your tax returns indefinitely as proof of filing. Supporting records generally should be kept until the three-year statute of limitations expires. These documents may also be helpful if you need to amend a return.

So, which records can you throw away now? Based on the three-year rule, in late April 2026, you’ll generally be able to discard most records associated with your 2022 return if you filed it by the April 2023 due date. Extended 2022 returns could still be vulnerable to audit until October 2026. But if you want extra protection, keep supporting records for six years.

What records should you retain?

Documentation supporting your income, deductions and credits that you generally should retain following the three-year rule may include:

Various series 1099 forms, such as Form 1099-NEC, “Nonemployee Compensation,” Form 1099-MISC, “Miscellaneous Income,” and Form 1099-G, “Certain Government Payments,”
Form 1098, “Mortgage Interest Statement,”
Property tax payment documentation,
Charitable donation substantiation,
Records related to contributions to and withdrawals from Section 529 plans and Health Savings Accounts, and
Records related to deductible retirement plan contributions.

You’ll also want to hang on to some tax-related records beyond the statute of limitations. For example:

Retain Forms W-2, “Wage and Tax Statement,” until you begin receiving Social Security benefits. That may seem long, but if questions arise regarding your work record or earnings for a particular year, you’ll need your W-2 forms as part of the required documentation.
Keep records related to investments and real estate for as long as you own the assets, plus at least three years after you sell them and report the sales on your tax return (or six years if you want extra protection).
Hang on to records associated with retirement accounts until you’ve depleted the accounts and reported the last withdrawal on your tax return, plus three (or six) years.
Retain records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses, until they have no effect, plus seven years.
Keep records that support deductions for bad debts or worthless securities that could result in refunds for seven years because you have up to seven years to claim them.

Other tax-related chores

As you can see, keeping tax-related records is critical. So put yourself in a good position for filing your 2026 return next year by carefully tracking expenses potentially eligible for deductions or credits on an ongoing basis.

For example, if you’re self-employed and use your personal vehicle for business purposes, maintain a mileage log recording the date, mileage, purpose and destination of each trip. Or if you regularly donate to charity, keep the receipts or written acknowledgments you receive. (Additional substantiation may be required depending on the size and type of donation.)

In addition, this is a good time to reassess your current tax withholding to determine if you need to update your Form W-4, “Employee’s Withholding Certificate.” You may want to increase withholding if you owed taxes this year. Conversely, you might want to reduce it if you received a hefty refund. Changes also might be in order if you experience certain major life events, such as marriage, divorce, birth of a child or adoption, this year.

If you make estimated tax payments throughout the year, consider reevaluating the amounts you pay. You might want to increase or reduce the payments due to changes in self-employment income, investment income, Social Security benefits and other types of nonwage income.

To preempt the risk of a penalty for underpayment of tax, consider paying at least 100% of the tax shown on your 2025 tax return (110% if your 2025 adjusted gross income was over $150,000 — or over $75,000 if you’re married and filed separately) through withholding and/or four equal estimated tax payments.

What’s this? A letter from the IRS?

After filing your tax return, you may receive a letter in the mail from the IRS. While such letters can be alarming, don’t assume the worst. The letter might simply inform you of a refund adjustment (up or down) based on a math or similar error on your return. If you agree with the change, generally no response is needed. If you disagree, contact the IRS by the date indicated.

Or the letter might propose a change to your return based on information reported by third parties, such as employers or financial institutions. In this case, follow the instructions to respond, include any required documentation, and note whether you agree or disagree with the proposed change.

Of course, an IRS letter could inform you that your return is being audited. It’s important to remember that being selected for an audit doesn’t always mean there’s a significant error on your return. For example, your return could have been flagged based on a statistical formula that compares similar returns for deviations from “norms.”

Further, if selected, you’re most likely going to undergo a correspondence audit. These account for a majority of IRS audits. They’re conducted by mail for a single tax year and involve only a few issues that the IRS anticipates it can resolve by reviewing relevant documents. According to the IRS, most audits involve returns filed within the last two years.

If you receive notification of a correspondence audit, you and your tax advisor should closely follow the instructions. You can request additional time if you can’t submit all the documentation requested by the specified deadline.

Don’t ignore the letter. Failure to respond can lead to the IRS disallowing some tax breaks you claimed and issuing a Notice of Deficiency (that is, a notice that a tax balance is due).

Be proactive

Organizing your past and current-year tax records now can facilitate a smoother tax filing next year or a less painful audit of a recent return. Similarly, adjusting your withholding or estimated tax payments can mean more money in your pocket now or no (or smaller) underpayment penalties next April.

If you have questions on what files to keep and for how long or how to adjust withholding or estimated tax payments, we can help. And if you receive an IRS letter, contact us as soon as possible. We can advise you on complying with any IRS requests.

What’s your potential business vehicle deduction?

Tax Prep, Planning & Strategy|April 14, 2026

If you used one or more vehicles in your business during 2025, you may be eligible for valuable tax deductions on your 2025 income tax return. Businesses can generally deduct expenses attributable to business use of a vehicle plus depreciation. However, the rules are complicated, and your deduction may be affected by factors such as the vehicle’s weight, business vs. personal use, and whether you use the actual expense method or the cents-per-mile rate.

Actual expenses plus depreciation

The year you place a vehicle in service, you can choose to deduct the actual expenses attributable to your business vehicle use or, if the vehicle is a car, SUV, van, pickup or panel truck, claim the cents-per-mile deduction (discussed later). Deductible expenses include gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. You’ll need to track and substantiate these expenses.

If you use the actual expense method, you also can claim a depreciation deduction for the vehicle by making a separate depreciation calculation for each year until the vehicle is fully depreciated. According to the general rule, you calculate depreciation over a six-year span for a percentage of the purchase cost as follows:

Year 1 — 20%
Year 2 — 32%
Year 3 — 19.2%
Year 4 — 11.52%
Year 5 — 11.52%
Year 6 — 5.76%

If a vehicle is used 50% or less for business purposes, you must use the straight-line method (10% in Years 1 and 6 and 20% in Years 2 through 5) to calculate depreciation deductions instead of the percentages listed above.

Depending on the cost of a passenger auto, your deduction may be less than the percentage of cost above because “luxury auto” annual depreciation ceilings apply. These are indexed for inflation and may change annually. For a passenger auto placed in service in 2025, generally the ceilings are as follows:

Year 1 — $20,200 ($12,200 if you don’t claim first-year bonus depreciation)
Year 2 — $19,600
Year 3 — $11,800
Each remaining year until the vehicle is fully depreciated — $7,060

These ceilings are proportionately reduced for any nonbusiness use.

More favorable depreciation rules apply to heavier SUVs, pickups and vans. For example, 100% bonus depreciation or the normal Section 179 expensing limit ($2.5 million for 2025) generally is available for vehicles with a gross vehicle weight rating (GVWR) of more than 14,000 pounds. A reduced Sec. 179 limit of $31,300 applies to vehicles (typically SUVs) rated at more than 6,000 pounds but no more than 14,000 pounds. Again, this favorable tax treatment is available only if the vehicle is used more than 50% for business.

The cents-per-mile method

The 2025 cents-per-mile rate for the business use of a car, SUV, van, pickup or panel truck is 70 cents (increasing to 72.5 cents for 2026). This rate applies to gasoline- and diesel-powered vehicles as well as electric and hybrid-electric vehicles. A depreciation allowance is built into the rate, so you can’t claim both the depreciation deductions discussed earlier and the cents-per-mile rate for the same vehicle.

The rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses or worry about depreciation calculations. Although you don’t have to account for all your actual expenses, you still must record certain information, such as the mileage for each business trip, the date and the destination.

Choosing or changing your method

There’s much to consider before deciding whether to use the actual expense method or cents-per-mile method to deduct expenses for a vehicle your business placed in service in 2025. For a vehicle placed in service earlier, if you previously deducted actual expenses for the vehicle, you can’t use the cents-per-mile rate for 2025 (or any other future year). However, if you previously used the cents-per-mile rate, you can switch to the actual expense method in a later year — but you can claim only straight-line depreciation.

If you lease a business vehicle, there also are deduction opportunities but the rules are different. Contact us if you’d like more information. We can also answer questions about claiming 2025 business vehicle expenses on your 2025 return or planning for and tracking 2026 expenses.

4 types of interest expense you may be able to deduct

Tax Prep, Planning & Strategy|April 9, 2026

Personal interest expense generally can’t be deducted for federal tax purposes. There are, however, exceptions. Here are four, one of which is a new break under the One Big Beautiful Bill Act (OBBBA), which was signed into law in 2025.

1. Mortgage interest

Perhaps the most well-known interest expense deduction, home mortgage interest may be deductible if you itemize deductions rather than claiming the standard deduction. You generally can deduct interest on mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible.

The OBBBA made permanent the Tax Cuts and Jobs Act’s (TCJA’s) reduction of the mortgage debt limit from $1 million to $750,000 for debt incurred after December 15, 2017, with some limited exceptions. But the OBBBA also generally made mortgage insurance premiums deductible as mortgage interest — though not until the 2026 tax year. So you can’t deduct these premiums on your 2025 return.

2. Auto loan interest

The OBBBA allows eligible individuals — whether or not they itemize — to deduct some or all of the interest paid on a loan taken out after 2024 to purchase a qualifying new car, minivan, van, SUV, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. For 2025 through 2028, you can potentially deduct up to $10,000 each year. But various requirements and limits apply.

One of the most significant requirements is that the vehicle’s “final assembly” must occur in the United States. An important limit to be aware of is that the deduction is phased out starting at $100,000 of modified adjusted gross income (MAGI) or $200,000 for married couples filing jointly. The deduction is completely phased out when MAGI reaches $150,000 ($250,000 for joint filers).

3. Student loan interest

If you have student loan debt, you may be able to deduct the interest, subject to various rules and limits. You don’t have to itemize to claim the deduction, and the maximum deduction is $2,500. The interest must be for a “qualified education loan,” which means a debt incurred to pay tuition, room and board, and related expenses to attend a post-high-school educational institution, including certain vocational schools. Post-graduate programs may also qualify.

For 2025, the deduction begins to phase out for single taxpayers when MAGI exceeds $85,000 ($175,000 for joint filers). The deduction is unavailable for single taxpayers with MAGI of more than $100,000 ($205,000 for joint filers). Married taxpayers must file jointly to claim this deduction. Taxpayers who can be claimed as a dependent on another tax return aren’t eligible.

4. Investment interest

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — may be deductible. But you can’t deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest.

Perhaps more significant, your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, qualified dividends and long-term capital gains aren’t included (unless you elect to treat them as nonqualified dividends or short-term capital gains subject to the higher tax rates that apply to those types of income). Any disallowed interest is carried forward. You can then deduct the disallowed interest in a later year if you have excess net investment income.

What interest can you deduct?

If you’re wondering whether you can claim any interest expense deductions on your 2025 return, please contact us. We can calculate your potential deductions and help you determine if there are steps you can take this year to maximize your deductions when you file your 2026 return next year.

Parents: Claim all the tax credits you’re entitled to

Tax Prep, Planning & Strategy|April 7, 2026

Raising a family comes with plenty of expenses, but it may also make you eligible for various tax breaks. Some of the most valuable are tax credits, because they reduce your tax liability dollar for dollar (unlike deductions, which only reduce the amount of income subject to tax). Here’s what you need to know.

Child, dependent and adoption credits

You may be eligible for one or more of these tax credits for families:

Child credit. The maximum child credit is $2,200 for 2025. You may be able to claim it for each qualifying child under age 17 at the end of 2025. The credit begins to phase out when 2025 modified adjusted gross income (MAGI) reaches $400,000 for married couples filing jointly and $200,000 for head of household filers. The credit is refundable up to $1,700 per qualifying child.

Credit for other dependents. You may be able to claim a credit of up to $500 for each qualifying dependent other than a qualifying child (such as a dependent child over the age limit or a dependent elderly parent). This credit is subject to the same income-based phaseout as the child credit, but it’s not refundable.

Child and dependent care credit. For children under age 13 or other qualifying dependents, you may be eligible for a credit for a portion of your 2025 dependent care expenses. For middle-income-and-higher taxpayers, the credit generally equals 20% of the first $3,000 of qualified 2025 expenses for one child or 20% of up to $6,000 of such expenses for two or more children. So, the maximum 2025 credit for these taxpayers generally will be $600 for one child or $1,200 for two or more children. But you can’t claim the credit for expenses reimbursed through an employer-sponsored child and dependent care Flexible Spending Account.

Adoption credit. If you incurred eligible adoption expenses in 2025, you may qualify for the adoption credit. The maximum credit per child is $17,280 for 2025. It begins to phase out at MAGI of $259,190, regardless of filing status. New for 2025, up to $5,000 of the credit is refundable. Any nonrefundable portion can be carried forward for up to five years.

Higher education credits

If you had a child in college in 2025, you may be eligible for one of these credits:

American Opportunity credit. This credit covers 100% of the first $2,000 of tuition and related expenses and 25% of the next $2,000 of expenses. The maximum credit, per student, is $2,500 per year for the first four years of postsecondary education in pursuit of a degree or recognized credential.

Lifetime Learning credit. If you paid postsecondary education expenses that don’t qualify for the American Opportunity credit, check whether you’re eligible for this credit (up to $2,000 per tax return).

Both a credit and a tax-free Section 529 savings plan or Coverdell Education Savings Account distribution can be taken as long as expenses paid with the distribution aren’t used to claim the credit. However, income-based phaseouts also apply to these credits. They begin to phase out at MAGI of $160,000 for joint filers and $80,000 for heads of household. If you don’t qualify for one of the credits on your tax return because your income is too high, your child might.

Maximize your tax savings

Child, dependent, adoption and education tax credits can provide significant tax savings, but the rules are complex. If you’d like help determining which family-related credits you may qualify for on your 2025 return, contact us. We can help ensure you maximize your tax savings from these and other tax breaks you’re eligible for.

Don’t miss your opportunity to make a 2025 IRA contribution — whether you can deduct it or not

Tax Prep, Planning & Strategy|April 2, 2026

Generally, each year you can contribute up to the annual limit to a traditional or Roth IRA (or a combination of the two). But once the contribution deadline has passed, the opportunity to contribute for that year is lost forever. The deadline for 2025 IRA contributions is April 15, 2026. You may be eligible to deduct all or part of your IRA contribution and save taxes on your 2025 return. But even if you can’t claim a deduction, contributing can still be beneficial.

How much can you contribute?

For 2025, the IRA contribution limit is $7,000. If you’re age 50 or older, you can make an additional $1,000 catch-up contribution.

Generally, contributions can’t exceed the IRA owner’s earned income. However, spousal IRAs allow contributions to be made to an IRA in a nonworking spouse’s name based on the working spouse’s earned income.

The contribution limit applies to traditional and Roth IRAs on a combined basis. So, assuming you’re eligible, you can contribute $7,000 to a traditional IRA or $7,000 to a Roth IRA — or you can split the limit and, say, contribute $5,000 to a traditional IRA and $2,000 to a Roth (or whatever split you prefer that doesn’t exceed $7,000).

Are you eligible to deduct your contributions?

Deductible traditional IRA contributions reduce your current tax bill. Earnings in the IRA are also tax deferred. However, every dollar you withdraw is taxed (and subject to a 10% penalty before age 59½, unless an exception applies).

You can make a fully deductible contribution to a traditional IRA if you (and your spouse, if you’re married) aren’t an active participant in an employer-sponsored retirement plan.

But if you (and/or your spouse) are an active participant in an employer plan, your deduction might be partially or fully phased out. The phaseout applies if your modified adjusted gross income (MAGI) exceeds certain levels that vary from year to year by filing status. For 2025, the deduction phases out over the following MAGI ranges:

If you’re single or a head of household: $79,000 to $89,000.
If you’re married filing jointly and you’re covered by an employer plan: $126,000 to $146,000.
If you’re a joint filer and not actively participating in an employer retirement plan but your spouse is: $236,000 to $246,000.
If you’re married filing separately and lived with your spouse at any time during 2025: $0 to $10,000.

If your MAGI is in the applicable range, you can make a deductible contribution equal to a portion of the $7,000 contribution limit. (The specific amount depends on where your MAGI falls within the range.) If it exceeds the applicable range, you can’t deduct any IRA contribution.

Are you eligible to make Roth IRA contributions?

Contributions to a Roth IRA aren’t deductible. 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. This means that growth in the account is never taxed as long as you meet those two requirements.

There are income limits on who can make Roth IRA contributions. For 2025, the ability to contribute phases out over the following MAGIs:

If you’re single or a head of household: $150,000 to $165,000.
If you’re married filing jointly: $236,000 to $246,000.
If you’re married filing separately and lived with your spouse at any time during 2025: $0 to $10,000.

You can make a Roth contribution equal to a portion of the $7,000 contribution limit if your MAGI falls within the applicable range. (The specific amount depends on where your MAGI falls within the range.) But you can’t make any Roth contribution if it exceeds the top of the range.

Should you make nondeductible traditional IRA contributions?

If you’re ineligible to make Roth IRA contributions or deductible traditional IRA contributions because your income is too high, a nondeductible traditional IRA contribution can be beneficial. While it won’t reduce your 2025 taxes, the contribution can grow tax-deferred.

When you take qualified withdrawals in retirement, only the portion attributable to the growth will be taxed. The portion attributable to your contribution will be tax-free because the contribution was made with income that had already been taxed.

If you don’t already have a traditional IRA, you can use a nondeductible contribution to create a “backdoor” Roth IRA. You set up a traditional IRA and make a nondeductible contribution to it. Then you can convert the traditional account to a Roth account as soon as the contribution transaction clears.

Normally, Roth conversions are taxable. But in this case, the only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

What else is there to consider?

Making a 2025 IRA contribution can provide tax savings today or when you take distributions in retirement. And you can benefit from tax-deferred or tax-free compounding. But you need to contribute by April 15, 2026 — even if you file for an extension on your 2025 return. And be sure to indicate that it’s for 2025 and not 2026. Do you have more questions about IRA contributions or other tax-advantaged retirement savings options? Contact us.

How the new Trump Accounts for children will work

Estate & Wealth Transfer Planning|March 31, 2026

A new tax-advantaged way to help children build up savings for the future was created by the One Big Beautiful Bill Act (OBBBA): Trump Accounts (TAs). Under a pilot program, you can make an election to set up a TA for your U.S. citizen child born in 2025 through 2028 and the federal government will fund the account with $1,000 of free money. But older children also are eligible for TAs as long as they have a Social Security number and are under 18 at the end of the tax year; they just aren’t eligible for the $1,000 government contribution.

Getting started

One way to set up a TA is to file Form 4547, “Trump Account Election(s),” along with your 2025 federal income tax return. But the form doesn’t have to be filed with a tax return; it can be filed anytime through an online portal that is expected to be available this summer.

After July 3, 2026, you and any other individual, such as a grandparent, can begin making annual TA contributions of up to a combined limit of $5,000 (adjusted for inflation starting in 2028) until the year your child turns 18.

The $1,000 government contribution doesn’t count against the annual limit. So, if your child is born this year, up to $5,000 could be contributed to his or her TA in 2026 on top of the $1,000 from the government.

Other contributions

Employers can set up a TA contribution program. After July 3, 2026, employers can contribute and deduct up to $2,500 annually (adjusted for inflation starting in 2028) to a TA for an eligible under-age-18 employee or an employee’s eligible under-age-18 dependent. (Employers can’t contribute more than $2,500 per employee, even if an employee has multiple eligible dependents.) These contributions count against the $5,000 annual contribution limit. Employer contributions are excluded from the employee’s taxable income.

State, local or tribal governments and tax-exempt 501(c)(3) organizations can also make tax-free contributions to TAs under rules to be established by the IRS. These qualified general contributions aren’t subject to the $5,000 annual contribution limit and must be provided to all children within a qualified group, as defined.

Tax treatment and other requirements

Contributions aren’t deductible for individual contributors, but the account earnings can grow tax-deferred as long as they’re in the account. Generally, no distributions can be taken from the TA before the year your child turns 18.

Until the year your child turns 18, the account can invest only in certain eligible investments. These are mutual funds or exchange traded funds that 1) track a qualified index, 2) don’t use leverage, 3) don’t charge fees of more than 0.1% of the invested balance, and 4) meet other criteria that may be set by the IRS.

After age 18

In the year your child turns 18, the TA will transition into a traditional IRA. It will become subject to the familiar federal income tax rules governing traditional IRA contributions and distributions.

So, your child will have to have earned income to make any further contributions to the account. But those contributions will be deductible if he or she is eligible, and the higher IRA annual contribution limit will apply.

Also starting with the year your child turns 18, distributions can be taken. But the distributions will generally be at least partially taxable, and IRA early withdrawal penalties could also apply. So it’s best to leave the account untouched so that it can continue to grow tax-deferred.

Weighing your options

If your child is eligible for the $1,000 government contribution, you’ll want to set up a TA to at least get this free money and take advantage of the tax-deferred growth on it. And it can be an even more powerful savings tool if you also make contributions.

Say you put $5,000 a year into your child’s TA for the first 17 years of his or her life after collecting the $1,000 of free money from the government in Year 1. If the account earns 5% annually, it will be worth about $138,000 by the time your child turns 18. Say your child leaves the money invested in what’s now a traditional IRA until age 65. If the account continues to earn 5%, it will grow to almost $1.44 million. Once your child starts having earned income, he or she can make additional contributions to what is now a traditional IRA and have an even bigger account balance at retirement.

However, before making TA contributions, consider whether other tax-advantaged savings options might better achieve your goals. For example, if you want to build up funds for your child’s education, contributing to a Section 529 savings plan may be a better fit. Distributions used to pay qualified education expenses will be tax-free, and some or all of any remaining balance after your child graduates can eventually be converted to a Roth IRA, with tax-free distributions.

Learn more

TAs are worth considering, especially if you can afford to make significant annual contributions. If you have questions about TAs or want more information about other tax-advantaged savings options to benefit your children — or grandchildren — contact us.

If you’re married, should you file jointly or separately?

|March 26, 2026

Married couples have a choice when filing their 2025 federal income tax returns. They can file jointly or separately. What you choose will affect your standard deduction, eligibility for certain tax breaks, tax bracket and, ultimately, your tax liability. Which filing status is better for you depends on your specific situation.

Minimizing tax

In general, you should choose the filing status that results in the lowest tax. Typically, filing jointly will save tax compared to filing separately. This is especially true when the spouses have different income levels. Combining two incomes can bring some of the higher-earning spouse’s income into a lower tax bracket.

Also, some tax breaks aren’t available to separate filers. The child and dependent care credit, adoption expense credit, American Opportunity credit and Lifetime Learning credit are available to married couples only on joint returns. And some of the new tax deductions under 2025’s One Big Beautiful Bill Act (OBBBA) aren’t available to separate filers. These include the qualified tips deduction, the qualified overtime deduction and the senior deduction.

You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer-sponsored retirement plan such as a 401(k) and you file separate returns. And you can’t exclude adoption assistance payments or interest income from Series EE or Series I savings bonds used for higher education expenses if you file separately.

However, there are cases when married couples may save taxes by filing separately. An example is when one spouse has significant medical expenses. Medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in a larger total deduction.

Couples who got married in 2025

If you got married anytime in 2025, for federal tax purposes you’re considered to have been married for all of 2025 and must file either jointly or separately. And married filing separately status isn’t the same as single filing status. So you can’t assume that filing separately for 2025 will produce similar tax results to what you and your spouse each experienced for 2024 filing as singles, even if nothing has changed besides your marital status — especially if you have high incomes.

The income ranges for the lower and middle tax brackets and the standard deductions are the same for single and separate filers. But the top tax rate of 37% kicks in at a much lower income level for separate filers than for single filers. So do the 20% top long-term capital gains rate, the 3.8% net investment income tax and the 0.9% additional Medicare tax. Alternative minimum tax (AMT) risk can also be much higher for separate filers than for singles.

Liability considerations

If you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. That means the IRS can come after either of you to collect the full amount.

Although there are “innocent spouse” provisions in the law that may offer relief, they have limitations. Therefore, even if a joint return results in less tax, some people may still choose to file separately if they want to be responsible only for their own tax. This might occur when a couple is separated.

Many factors

These are only some of the factors to consider when deciding whether to file jointly or separately. Contact us to discuss the many factors that may affect your particular situation.

IRS releases guidance on new depreciation deduction

|March 20, 2026

A new but temporary special depreciation allowance for qualified production property (QPP) was created by last year’s One Big Beautiful Bill Act (OBBBA). It’s available for certain manufacturing-related real property placed in service after July 4, 2025, and before January 1, 2031. Under previous law, taxpayers had to depreciate such property over a 39-year period. The OBBBA allows them to elect a deduction equal to 100% of the property’s adjusted basis in the tax year it’s placed in service — basically, it’s bonus depreciation for certain buildings and production facilities.

The IRS recently issued interim guidance (Notice 2026-16) that taxpayers generally can rely on until proposed regulations are published. It clarifies several important issues related to the deduction.

Identifying QPP

The guidance defines QPP as any portion of nonresidential real property that is:

Subject to the Modified Accelerated Cost Recovery System,
Used by the taxpayer as “an integral part” of a qualified production activity (QPA, defined below), and
Placed in service in the United States or any of its territories.

In addition, the property’s construction must begin after January 19, 2025, and before January 1, 2029. Its original use generally must begin with the taxpayer, though certain used property may qualify as QPP under special rules.

Property (or a portion of property) is used as an integral part of a QPA if the QPA takes place in the physical space of the property (or a portion of the physical space). Each unit of property (including additions and improvements) must satisfy the integral part requirement on its own, with an exception for “integrated facilities.”

Taxpayers can treat multiple properties that operate as an integrated facility on the same piece or contiguous pieces of land as a single unit of property. For example, if a manufacturer constructs a new building to store raw materials and other manufacturing inputs for activities in two factories on the same site, the three buildings constitute a single unit of property for purposes of the integral part requirement.

The guidance also includes a de minimis rule: If 95% or more of a property’s physical space satisfies the integral part requirement when the property is placed in service, the taxpayer can elect to treat the entire property as satisfying the requirement.

For purposes of determining whether property meets the integral part requirement, property used by a lessee generally isn’t considered to be used by the lessor taxpayer as part of a QPA. The guidance provides exceptions, though, for intercompany leases within consolidated groups and commonly controlled pass-through entities.

The guidance specifies several types of ineligible property, including property used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to a QPA. Property used to store finished products is also ineligible.

Under the guidance, taxpayers may use any reasonable method to allocate a property’s unadjusted depreciable basis between eligible property and ineligible property. The use of square footage, cost segregation data, architectural or engineering plans, process diagrams, or construction invoices to allocate unadjusted depreciable basis to eligible property may be reasonable methods. Taxpayers can also use any reasonable method to allocate the basis for “dual-use infrastructure” that serves both eligible property and ineligible property (such as an HVAC or sprinkler system).

Identifying QPAs

A QPA is the manufacturing, production or refining of a qualified product that results in a “substantial transformation” of the qualified product (generally, any tangible personal property except a food or beverage prepared in the same building where it will be sold). The guidance explains that “substantial transformation” refers to the further manufacturing, production or refining of the constituent elements, raw materials, inputs or subcomponents into a final, complete and distinct item of property that’s fundamentally different from those original elements, materials, inputs or subcomponents.

The guidance interprets the term QPA somewhat broadly. It says that a QPA can include “essential activities” that are critical to the completion of the product (for example, the receiving and storage of raw materials or other inputs to be used or consumed during a QPA). A QPA also includes certain related activities, such as oversight and direction of the manufacturing, production or refining activities that result in the substantial transformation of a qualified product.

The guidance includes specific definitions for “manufacturing,” “production,” “refining” and other important terms. Notably, “production” is limited to activities in the agricultural or chemical industries.

And that’s not all

The interim guidance also includes special rules, election procedures and a safe harbor for property placed in service in 2025 — as well as information about how depreciation must be recaptured and included in ordinary income if a QPP change in use occurs within 10 years after the property is placed in service. We can help you navigate the rules and maximize this new tax break if you’re eligible.

Increase your current business deductions under tangible property safe harbors

Management Advisory Services & Business Consulting|March 19, 2026

Did your business make repairs to tangible property, such as buildings, equipment or vehicles, in 2025? Such costs may be fully deductible on your 2025 income tax return — if they weren’t actually for “improvements” that must be depreciated over a period of years.

Betterment, restoration or adaptation

In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized, with depreciation deductions spread over a few years or longer (depending on depreciation method and property type). An improvement occurred if there was a betterment, restoration or adaptation of the unit of property.

Under the “betterment test,” you generally must capitalize amounts paid for work that’s reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that’s a material addition to a unit of property.

Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that is a major component or a significant portion of the physical structure of a unit of property.

Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

Immediate deduction safe harbors

Costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. But distinguishing between repairs and improvements can be difficult. A few IRS safe harbors can help:

Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Amounts incurred for activities outside the safe harbor don’t necessarily have to be capitalized, though. These amounts are subject to analysis under the general rules for improvements.

De minimis safe harbor. Amounts paid for tangible property can be currently deducted for tax purposes if those amounts are deducted for financial accounting purposes or in keeping your books and records. However, a dollar limit applies:

$5,000 if you have an “applicable financial statement,” generally meaning one that’s audited by a CPA, or
$2,500 if you don’t have an applicable financial statement.

Additional rules apply that may limit or eliminate your current deduction for a particular expense.

Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. A qualified small business is generally one with average annual gross receipts of $10 million or less for the past three tax years.

A variety of tax-saving opportunities

As you can see, various options may be available to immediately deduct repair and maintenance costs safely. But keep in mind that improvements might also be eligible to be deducted immediately in certain circumstances, such as if they qualify for 100% bonus depreciation or Section 179 expensing. Contact us to discuss what you can deduct on your 2025 return and to start planning for tax-efficient repairs, maintenance and improvements in 2026.

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