September 2026 - Ullrich Delevati

Ordinary repair and maintenance costs are generally deductible in the year they’re paid or incurred, depending on your accounting method. Costs that improve property must be capitalized. However, under current tax law, capitalization doesn’t necessarily mean waiting years to recover the cost. The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for eligible property and increased the Section 179 expensing limit and phaseout threshold.

Still, these provisions don’t cover every improvement. And even when an improvement qualifies for one of these breaks, repair treatment may offer certain advantages. Here’s a closer look at why distinguishing repairs from improvements remains important, and why you should consider all available deduction options.

Improvement tests

Generally, repairs keep property in ordinarily efficient operating condition without adding significant value or substantially extending its useful life. Examples might include fixing a leak, replacing a small number of damaged roof shingles or servicing machinery. An expenditure generally must be treated as an improvement and, therefore, be capitalized if it results in a betterment, restoration or adaptation of the unit of property:

Under the “betterment test,” you generally must capitalize amounts paid for work that’s reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that’s a material addition to a unit of property.
Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that’s a major component or a significant portion of the physical structure of a unit of property.
Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

For a building, these tests generally apply separately to the building structure and designated systems, such as plumbing, electrical, HVAC, elevators, fire protection and security. Consequently, replacing an entire building system may be an improvement even if the work affects only a portion of the building.

Tangible property safe harbors

Several safe harbors may allow expenditures that might otherwise be capitalized to be deducted currently:

Routine maintenance safe harbor. Recurring work performed to keep property in ordinarily efficient operating condition may be deductible. At the time the property was placed in service, you must have reasonably expected to perform the activity more than once during a 10-year period for buildings or during the applicable class life (such as three years or seven years) for other property.

Safe harbor for small businesses. Businesses with average annual gross receipts of $10 million or less during the three preceding tax years may qualify for an annual election to currently deduct the cost of work on an eligible building with an unadjusted basis of $1 million or less. The total amount paid for repairs, maintenance and improvements during the year must be no more than the lesser of $10,000 or 2% of the building’s unadjusted basis.

De minimis safe harbor. Subject to accounting-policy and recordkeeping requirements, a business may elect to deduct qualifying expenditures up to $2,500 per invoice or item. The threshold is $5,000 for a business with an applicable financial statement, such as a qualifying audited financial statement.

These safe harbors have specific requirements, and some elections must be made annually on a timely filed tax return.

100% first-year deductions for capitalized costs

If an expenditure must be capitalized, you may still be able to deduct its full cost in the year the improvement is placed in service. The OBBBA permanently restored 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025. Qualifying property generally includes machinery, equipment and real estate qualified improvement property (QIP).

QIP generally consists of improvements made to the interior of an existing nonresidential building. However, expenditures attributable to enlarging a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and are usually depreciated over 39 years.

Sec. 179 may also cover machinery, equipment and QIP, as well as certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection and alarm systems, and security systems. The OBBBA doubled the expensing limit for 2025 and also increased the phaseout threshold, but less significantly. These amounts are annually indexed for inflation. For 2026, businesses may deduct up to $2.56 million of eligible costs. The deduction begins to phase out when qualifying purchases in 2026 exceed $4.09 million and is limited by taxable income from the active conduct of a business.

Remember, eligible property generally must be placed in service, that is, ready and available for its intended use, by year end to qualify for bonus depreciation or a Sec. 179 expensing election for 2026. Merely purchasing, ordering or paying for property isn’t enough.

Benefits of repair treatment

Even when a capital improvement qualifies for a full first-year deduction, repair treatment isn’t interchangeable with bonus depreciation or Sec. 179 treatment. When an expenditure meets the requirements for repair treatment, properly classifying it as a deductible repair (rather than grouping it with capital improvements) may be advantageous for several reasons:

Repair costs don’t have to meet the eligibility or placed-in-service requirements for bonus depreciation.
Repair deductions aren’t subject to the Sec. 179 limits.
Repair treatment generally avoids depreciation elections, related basis tracking and potential depreciation recapture consequences when the property is sold.

In addition, some states don’t fully conform to the federal bonus depreciation or Sec. 179 rules. So, when applicable, repair treatment may provide an earlier state tax deduction. If an improvement qualifies for neither bonus depreciation nor Sec. 179, you may have to depreciate its cost over the applicable recovery period, which could be as long as 39 years.

Year-end planning

Now is a good time to review your property-related expenditures in 2026 to determine whether they’ve been classified correctly and whether any safe harbors or immediate deduction provisions apply. You may also be considering additional purchases or improvements to reduce your current-year taxable income. Contact us for help classifying your 2026 expenditures and evaluating the potential tax benefits of planned purchases or improvements before year end.

Payroll administration can be challenging for small business owners, and mistakes can create problems for both employers and employees. Incorrect paychecks can frustrate employees and require time and resources to fix. Errors involving tax withholding, deposits or reporting can also expose your business to interest and penalties.

Mistakes can happen even with payroll software or an outside payroll provider. Here are some steps you can take to reduce your risk.

Withhold and deposit taxes properly

Employers generally must withhold income tax and employees’ share of Social Security and Medicare taxes from their wages, as well as pay the employer’s share of Social Security and Medicare taxes. You’re also responsible for depositing these amounts with the IRS and reporting them on the appropriate payroll tax returns. Additional rules may apply to the 0.9% additional Medicare tax, federal unemployment tax, and various state and local taxes.

Errors when entering information from an employee’s Form W-4, “Employee’s Withholding Certificate,” can result in incorrect federal income tax withholding. Changes to an employee’s name, address, or visa status can create problems, too.

Perhaps the most dangerous mistake is failing to deposit withheld federal income tax, Social Security and Medicare taxes and the employer’s share of Social Security and Medicare taxes on time. IRS penalties accrue quickly because they increase with the length of the delay. That is:

If a deposit is one to five calendar days late, the penalty is 2% of the unpaid deposit,
If a deposit is six to 15 calendar days late, the penalty is 5% of the unpaid deposit, and
If a deposit is more than 15 calendar days late, the penalty is 10% of the unpaid deposit.

The penalty rate may increase to 15% if more than 10 calendar days elapse after the date of the first notice or letter from the IRS. Alternatively, a 15% penalty may apply on the day a notice or letter for immediate payment is received.

If the IRS can make the case that a failure to deposit withheld taxes (income tax and the employee’s share of Social Security and Medicare taxes) was willful, a 100% penalty may apply. Such penalties can also be levied personally against all responsible individuals in an organization.

To reduce the risk of withholding and deposit errors, establish procedures for reviewing employee withholding information and monitoring deposit deadlines. Even if you use an outside payroll provider, your business generally remains responsible for making sure federal taxes are deposited and paid, and payroll tax returns are filed, on time. Regularly reconcile your payroll records with amounts reported and deposited, and promptly investigate any discrepancies.

Report all forms of taxable compensation

Remember, salaries or wages aren’t the only items that must be included in employees’ taxable income. You must also include the value of bonuses, awards and certain fringe benefits.

Failing to withhold sufficient amounts from employees’ total reportable income can also result in noncompliance with IRS rules. In turn, this could lead to penalties for failing to properly withhold or deposit payroll taxes. What’s more, the employer could be subject to information return penalties for incorrect Forms W-2, “Wage and Tax Statement.”

To minimize your exposure, review the tax treatment of bonuses, awards and fringe benefits before processing them through payroll. This is particularly important when adding a new benefit or revising a compensation arrangement because the rules for federal income tax withholding, Social Security and Medicare taxes aren’t always the same.

Correct mistakes promptly

Despite your best efforts, mistakes can happen. When you discover one, first determine:

What went wrong,
Which employees and payroll periods are affected, and
Whether the error involves taxable wages, withholding, deposits or information reporting.

Then determine the appropriate correction. It’s important to act promptly because available correction procedures may vary based on when you discovered the error.

Depending on the mistake, you may need to adjust an employee’s pay, correct your payroll records, make an additional tax deposit or correct a previously filed employment tax return. For example, certain errors reported on Form 941, “Employer’s Quarterly Federal Tax Return,” may need to be corrected using Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.” An incorrect Form W-2 may require Form W-2c, “Corrected Wage and Tax Statement.”

Keep records explaining the error and the steps taken to correct it. If employees’ pay or tax information is affected, communicate with them promptly so they understand what happened and what, if anything, they need to do.

Keep your payroll on track

Payroll mistakes can be costly, but strong review procedures can reduce the likelihood that they’ll occur, and prompt action can limit the damage when they do. If you discover a payroll error or have questions about your payroll tax obligations, contact us. We can help you understand the applicable rules and refine your payroll practices to stay in compliance.

To attract and retain skilled workers, your small business needs to offer more than competitive pay. Your benefits package matters, too — and benefits with favorable tax treatment can be even more valuable to prospective and existing employees. Open enrollment is right around the corner for many businesses. As you review your benefits package for 2027, here are some benefits worth considering.

Although the IRS won’t announce the inflation-adjusted amounts for 2027 until later this year, the 2026 figures provide a starting point for planning. In addition, the One Big Beautiful Bill Act (OBBBA) changed certain tax rules for fringe benefits that you should be aware of.

Insurance

Businesses can provide several types of insurance benefits that may be fully or partially tax-free to employees. The rules vary by benefit:

Health insurance. If you maintain a health care plan for employees, employer payments for coverage generally are excluded from taxable wages. This includes coverage for an employee’s spouse and dependents. Employee contributions can also be excluded from wages when made on a pretax basis through a cafeteria plan. Otherwise, such amounts are included in their wages but may be deductible by employees as an itemized deduction, subject to the applicable limits.

Disability insurance. Employer-paid premiums for disability coverage generally aren’t taxable to employees when the coverage is provided under a qualifying plan. Employee-paid premiums generally aren’t deductible by the employee or excludable from income, except for pretax contributions through a cafeteria plan.

The tax treatment of disability benefits received later depends in part on who paid the premiums and whether they were paid on a pretax basis. Consider the tax treatment of benefits when deciding how to structure employer and employee contributions under your plan.

Long-term care insurance. Employer-provided long-term care insurance can generally be excluded from an employee’s wages. Long-term care coverage provided through a flexible spending arrangement or similar arrangement is treated differently and can’t be excluded from an employee’s wages for federal income tax purposes. However, employer contributions aren’t subject to Social Security, Medicare or federal unemployment taxes.

Life insurance. Employees generally can exclude the cost of up to $50,000 of employer-provided group-term life insurance coverage from income. The cost of coverage above $50,000 is generally taxable to the employee based on IRS rates, reduced by amounts the employee paid toward the coverage.

Other tax-advantaged benefits

Insurance isn’t the only way to provide tax-favored compensation. Other benefits to consider include:

Dependent care assistance. Starting in 2026, the OBBBA increased the annual exclusion for employer-provided dependent care assistance from $5,000 to $7,500 ($3,750 for married filing separately). The exclusion is subject to other limitations, including the employee’s and spouse’s earned income and the requirements that apply to dependent care assistance programs.

Adoption assistance. Employer-provided benefits under a qualified adoption assistance program may be excluded from income, subject to the applicable rules and limits. For 2026, the maximum exclusion is $17,670 per child. The exclusion begins to phase out at modified adjusted gross income of $265,080 and is fully phased out at $305,080. Employer-provided adoption benefits generally remain subject to Social Security, Medicare and federal unemployment taxes even though they’re excluded from federal income tax. Both the exclusion amount and applicable income thresholds are adjusted annually for inflation.

Educational assistance. Employers can provide up to $5,250 of tax-free educational assistance per employee each year under a qualifying written educational assistance program. The OBBBA made this exclusion permanent and provided that the $5,250 limit will be adjusted for inflation for tax years beginning after 2026. The benefit can cover qualifying education expenses, including graduate-level tuition, and can also be used for principal or interest payments on an employee’s qualified education loans.

Transportation benefits. You can provide qualified transportation benefits tax-free within federal limits. For 2026, the monthly exclusion is $340 for qualified transportation in a commuter highway vehicle and transit passes, and $340 for qualified parking. These amounts are adjusted annually for inflation. However, businesses generally can’t deduct qualified transportation fringe benefits they provide to employees.

De minimis fringe benefits. You can generally provide employees with certain low-value benefits tax-free when the value is so small — and the benefit is provided with such infrequency — that accounting for it would be unreasonable or administratively impracticable. Examples include occasional personal use of an employer’s copier, tickets to entertainment or sporting events, noncash holiday or birthday gifts, and certain meals. Cash and cash-equivalent benefits, such as gift cards and gift certificates, generally don’t qualify for this exclusion.

No-additional-cost services. You may be able to provide employees with certain services tax-free when doing so doesn’t impose a substantial additional cost on your business. This benefit generally applies to excess-capacity services that you ordinarily provide to customers in the same line of business in which the employee works. For example, a hotel may allow employees to use vacant rooms, or an airline may allow employees to fly in otherwise-empty seats. Additional eligibility and nondiscrimination requirements apply.

The OBBBA also made some unfavorable changes to the tax rules for fringe benefits. For example, it permanently eliminated the exclusion for qualified bicycle commuting reimbursements. It also permanently eliminated the exclusion for qualified moving expense reimbursements for most employees. (Exceptions may apply to certain members of the U.S. Armed Forces and the intelligence community.)

Beware: Some fringe-benefit exclusions are subject to nondiscrimination rules. A benefit that’s tax-free for rank-and-file employees may not receive the same treatment for certain highly compensated employees or owners. Special rules also apply to certain business owners, including more-than-2% S corporation shareholders and partners.

Enhance the value of your benefits package

Fringe benefits can add significant value to your compensation package. By understanding how different benefits are taxed, you can offer employees benefits that may improve their after-tax compensation while making the most of your business’s compensation budget. Contact us for help evaluating your current benefits and fine-tuning them as needed before open enrollment begins.

Trading items or services without exchanging cash has long been common among small businesses. Today, some use online barter exchanges to facilitate trades. In addition to preserving cash flow, these types of transactions may expand your purchasing power, help you move overstocked inventory, and increase your business’s exposure to new markets. But bartering isn’t tax-free. For tax purposes, bartering is treated the same as being paid in cash.

How it works

The fair market value (FMV) of goods you receive in business barter transactions must be reported as taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties. You must report barter income the same way you report comparable income from regular cash transactions. For instance, a sole proprietor generally reports barter income on Schedule C, and this income may also be subject to self-employment tax.

Depending on what you receive in the exchange, you may be entitled to a business expense deduction or obtain tax basis in property. So, although bartering generates taxable income, it doesn’t necessarily increase taxable profit by the full value of the transaction.

Let’s say a veterinarian agrees to exchange services with a marketing consultant. In this situation, both parties must report the FMV of the services received as income. So the veterinarian would report the FMV of the marketing services received, and the marketing consultant would report the FMV of the veterinary services received. This generally is the amount that would normally be charged for these services. If the parties agree to the value of the services in advance, that will be considered the fair market value unless there’s contrary evidence.

Business expense deductions may also be available with barter transactions. For instance, if a plumber installs a new toilet at a local computer repair shop in exchange for fixing a broken laptop, the plumber would report the FMV of the computer repair services as income. But he or she may also deduct certain expenses:

If the laptop is used in the plumber’s business and the repair would have been deductible had it been paid for in cash, the plumber can still claim a business expense deduction for the repair, subject to the usual deduction rules.
The plumber can also deduct qualifying business expenses associated with the plumbing work, such as materials, supplies and any wages paid to employees.

Income also must be reported if services are exchanged for property. For example, if an HVAC contractor does work for a retail business in exchange for unsold inventory, he or she will have to report income equal to the fair market value of the inventory. Or if an architect does work for a corporation in exchange for shares of the company’s stock, he or she must report income equal to the fair market value of those shares.

Barter exchanges

Some businesses join online barter exchanges (sometimes referred to as barter clubs) that facilitate these transactions. Barter exchanges generally use a system of “credit units,” which are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.

In general, bartering is taxable in the year it occurs. But if you participate in a barter exchange, you may be taxed on the value of credit units at the time they’re added to your account, even if you don’t redeem them for actual goods and services until a later year. For example, let’s say that you earn 2,500 credit units one year and that each unit is redeemable for $3 in goods and services. In that year, you’ll have $7,500 of income. If you redeem the units the next year, you won’t pay additional tax because you’ve already been taxed on that income.

If you join a barter exchange, you’ll generally be asked to provide your taxpayer identification number, such as your Social Security number or Employer Identification Number, and complete Form W-9 or a similar certification. In certain circumstances, including failure to provide or properly certify a taxpayer identification number, barter income may be subject to 24% backup withholding.

The IRS generally treats barter exchanges as brokers. If the reporting requirements apply, a barter exchange will send participants a Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” by February 15 of the following calendar year. This form shows the value of cash, property, services and credits that you received through the exchange during the previous year. This information will also be reported to the IRS.

No tax-free trade

Bartering may be more common than you think: According to the National Association of Trade Exchanges, more than 400,000 U.S. businesses used some form of barter in 2022, the latest available statistics. Regardless of how you make a trade, directly with another business or through a barter exchange, remember your federal and state tax obligations. We can help you estimate the fair market value of items and services exchanged, identify potential deductions, and maintain the records needed to report these transactions properly. Contact us to learn more.

September 10, 2026

Deadline for employees who received $20 or more in tips during August to report them to their employers using Form 4070.

September 15, 2026

Q3 Estimated Tax Payment Due: Third-quarter estimated tax payments for 2026 (Form 1040-ES) are due for self-employed individuals and gig workers.
Extended Partnership & S-Corp Returns: Final deadline to file extended income tax returns for calendar-year partnerships (Form 1065) and S-corporations (Form 1120-S).
Employer Payroll Deposits: Deposit Social Security, Medicare, and withheld income taxes for August if the monthly deposit rule applies.

September 30, 2026

Extended due date for Form 1041 (Income Tax Return for Estates and Trusts).

Repair or Improvement: Does the Distinction Matter Under Current Tax Law?

How to Avoid and Correct Common Payroll Tax Mistakes

Which Fringe Benefits are Tax-Free to Employees?

Let’s Trade! Business Bartering is Still Taxable

Tax Deadlines: September 2026

Tax Deadlines: October 2026

Repair or Improvement: Does the Distinction Matter Under Current Tax Law?

How to Avoid and Correct Common Payroll Tax Mistakes

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