October 1, 2026by admin
October 15
- Extended deadline for C corporation and individual returns
October 30
- Quarterly estimated tax payments
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September 22, 2026by admin
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.
September 22, 2026by admin
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.
September 22, 2026by admin
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.
September 22, 2026by admin
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 1, 2026by admin
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).
August 20, 2026by admin
Many small businesses start out as sole proprietorships. This structure is simple and inexpensive to establish and maintain — and it gives the owner direct access to profits without having to take formal distributions. But it also makes your taxes more complicated than when you were a W-2 employee. Here are some federal tax issues to consider if your business operates as a sole proprietorship.
Reporting income and expenses
You’ll report income and expenses from your business activities on Schedule C of your personal return (Form 1040). The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income, not as itemized deductions. If you have losses, they’ll generally be deductible against your other income, subject to special rules related to hobby losses, “excess” business losses incurred by noncorporate taxpayers, passive activity losses and losses from activities in which you weren’t “at risk.”
Sole proprietors may be eligible for certain deductions that generally aren’t available to other individual taxpayers. For instance, you may qualify for an above-the-line self-employed health insurance deduction for premiums paid for medical, dental and qualifying long-term care coverage, subject to certain limitations. This means your deduction for medical insurance won’t be subject to the rule that limits itemized deductions for medical expenses.
In addition, you may be entitled to deduct home office expenses if:
- A home office is your principal place of business (including when you perform management or administrative tasks there and have no other fixed place to perform them),
- You use your home as a place to meet or deal with customers, clients or patients in the normal course of business, or
- You store inventory or product samples at home.
In general, to qualify, the area must be used regularly and exclusively for business purposes.
The home office deduction may include an allocable part of mortgage interest or rent, insurance, utilities, repairs, maintenance and, if you own the home, depreciation. Alternatively, you can use a simplified method based on the square footage of the qualifying space. You may also be able to deduct travel expenses from your home office to another work location.
Be sure to keep complete records of your income and expenses. Proper documentation is needed to claim all the tax breaks to which you’re entitled. Certain expenses, such as automobile, travel, meals, and home office expenses, require extra attention because they’re subject to special recordkeeping rules or deductibility limits.
Claiming the QBI deduction
Another special tax break that you might qualify for as a sole proprietor is the Section 199A qualified business income (QBI) deduction. It generally equals 20% of QBI, not to exceed 20% of taxable income. QBI generally is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. QBI doesn’t include certain investment items or reasonable compensation paid to an owner for services rendered to the business.
This deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the QBI deduction even if you don’t itemize deductions and instead claim the standard deduction.
One word of caution: The QBI deduction is subject to additional limits at higher income levels. For 2026, these limitations generally begin to apply when taxable income (calculated before any QBI deduction) exceeds $201,750 ($403,500 for married couples filing jointly). For 2026, these limitations are fully phased in once taxable income exceeds $276,750 ($553,500 for joint filers). Contact us to learn more about the limitations that apply to your situation.
The One Big Beautiful Bill Act (OBBBA) made the QBI deduction permanent. Starting in 2026, the OBBBA also expands the income ranges over which the limitations phase in, potentially allowing larger deductions for some taxpayers. And it provides a new minimum deduction of $400 for taxpayers who materially participate in an active trade or business if they have at least $1,000 of QBI from it. The minimum deduction will be annually adjusted for inflation after 2026.
Paying self-employment taxes
One downside of owning your own business is that you must pay self-employment taxes. These taxes are the equivalent of federal payroll taxes for employees, but self-employed people must pay both the employer’s and employee’s share of them. They’re imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.
For 2026, you must pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment up to $184,500, and Medicare tax only at a 2.9% rate on the excess. An additional 0.9% Medicare tax is imposed on self-employment income in excess of $250,000 for joint filers, $125,000 for married taxpayers filing separate returns and $200,000 in all other cases. The additional Medicare tax threshold isn’t adjusted for inflation.
Establishing a tax-advantaged retirement plan
You might also want to consider setting up a qualified retirement plan. The advantages are that amounts contributed to it are deductible at the time of the contributions and aren’t subject to income tax until they’re withdrawn.
One option is a Simplified Employee Pension (SEP) plan, which requires minimal paperwork. You generally can set up a SEP and make deductible contributions for the tax year as late as the due date of your income tax return for the year, including extensions. The contribution amounts are discretionary, and the annual limits are high. But, if you have employees, they generally must be included in the plan, provided they work enough hours and meet other qualification requirements.
If you don’t establish a qualified retirement plan, you may still be able to contribute to a traditional IRA. But your annual contribution limit will generally be significantly lower.
Making quarterly estimated payments
The U.S. tax system is considered “pay as you go.” So, you’ll probably have to make estimated tax payments each quarter. Estimates should include both federal income tax and self-employment taxes. Estimated payments are generally calculated using Form 1040-ES.
Quarterly payments are generally due on April 15, June 15 and September 15 of the current year and January 15 of the following year. If a due date falls on a weekend or legal holiday, the deadline generally moves to the next business day. Paying enough by each deadline is critical; if you fall behind, you’ll likely owe interest and penalties.
Applying for an EIN
Sole proprietors don’t automatically need an employer identification number (EIN). You can generally use your Social Security number for federal tax purposes — unless you hire employees. You might also need an EIN if your business:
- Owes employment or excise taxes,
- Withholds certain taxes on payments to a nonresident alien,
- Establishes certain retirement plans, or
- Changes its legal structure, such as incorporating or forming a partnership.
Additionally, you might consider obtaining an EIN voluntarily for banking or administrative purposes. An EIN is available at no cost through the IRS website. To apply, you’ll need to provide identifying information, including a valid Social Security number or other taxpayer identification number, and details about the business. Eligible U.S. applicants generally receive the EIN immediately after completing the online application. You can also submit Form SS-4 by fax or mail.
We can help
Even though your business may be small, tax compliance and planning are a big deal. These are just highlights of federal income tax issues sole proprietors face. State and local income, sales, payroll, and other tax requirements may also apply. Contact us if you’d like additional information regarding the tax aspects of your business, or if you have questions about the reporting or recordkeeping requirements.
August 20, 2026by admin
Businesses in economically distressed communities often have difficulty obtaining capital for expansion, equipment, facilities and other investments. The New Markets Tax Credit (NMTC) encourages private investment in these underserved areas by offering federal income tax credits to qualifying investors.
This credit was previously scheduled to expire on December 31, 2025. However, the One Big Beautiful Bill Act made it permanent. Let’s take a closer look at how this tax break could benefit your small business.
Potential tax and financing benefits
The NMTC is generally available to individuals and businesses that make qualified equity investments in community development entities (CDEs). A CDE is generally a domestic corporation or partnership whose primary mission is to serve low-income communities or provide investment capital to them. To participate in the program, a CDE must be certified by the U.S. Department of the Treasury’s Community Development Financial Institutions Fund.
The CDE then raises funds from investors to use for qualifying loans, equity investments or other approved activities in low-income communities. Your benefits depend on your role in the transaction. If your business invests in a CDE, you may be able to claim the tax credit. If your business receives financing from a CDE, you may benefit indirectly by gaining access to capital or financing terms that might not otherwise be available. For many small business owners, these financing opportunities may be the more relevant aspect of the NMTC program.
Credit amount and filing requirements for investors
The NMTC equals 39% of the investor’s qualified equity investment in the CDE. The credit is claimed over seven years as follows:
- 5% of the investment in each of the first three years, and
- 6% in each of the next four years.
So, a qualifying $1 million investment could generate $390,000 in federal tax credits over seven years, subject to applicable limitations.
To claim the credit, you must make a cash investment that the CDE designates as a qualified equity investment. The CDE must use “substantially all” of the funds for qualified low-income community investments (QLICIs). In general, a CDE satisfies this threshold if it invests at least 85% of its aggregate gross assets in QLICIs (reduced to 75% in the seventh year).
The credit is calculated using Form 8874, “New Markets Credit,” and reported as part of the general business credit on Form 3800.
Claiming the NMTC reduces your tax basis in the investment, which may affect the tax consequences of a later sale. In addition, previously claimed credits may be recaptured (with interest) if the CDE fails to meet program requirements or redeems your investment during the seven-year credit period.
Financing benefits for qualifying businesses
By encouraging investment in CDEs, the NMTC may expand access to financing for qualifying businesses and nonprofit organizations in low-income communities. Examples of businesses and projects that may receive NMTC-supported financing are:
- Real estate developments,
- Manufacturers,
- Retailers,
- Health care providers,
- Child care centers and schools,
- Hotels, and
- Community centers.
For example, suppose you own a grocery store in a qualifying community and need funds to renovate the building. A CDE could use capital raised from investors to provide your business with a loan or equity financing for this project. In this scenario, qualified investors would receive the federal tax credit, and your business would benefit from access to financing that might otherwise be difficult to obtain through conventional sources.
Simply operating in a low-income area doesn’t automatically qualify a business or project for NMTC-supported financing. The CDE must determine whether the business, location and planned use of the financing satisfy the program’s requirements.
Exploring NMTC opportunities
The now-permanent NMTC may offer a valuable tax break for qualified investors and provide an important source of financing for qualifying businesses and community development projects. However, the rules are complex. Contact us to learn more. We can help you estimate the potential tax or financing benefits and address the applicable compliance requirements.
August 20, 2026by admin
Your employees use Form W-4, “Employee’s Withholding Certificate,” to tell you how much federal income tax to withhold from their pay. Most forms are routine, but an altered certificate, unusual accompanying statement or IRS lock-in letter may require special handling. Knowing how to respond can help your business meet its withholding obligations without becoming involved in an employee’s personal tax dispute.
Recognizing an invalid form
An employee is responsible for the information provided on Form W-4 and signs the form under penalties of perjury. Businesses generally aren’t required to verify whether the employee’s filing status, credits, deductions or other adjustments are accurate.
However, a Form W-4 may be invalid if the employee:
- Alters the official form,
- Deletes or crosses out the penalties-of-perjury declaration, or
- Indicates that information on the form is false.
You must also reject any substitute form created by an employee. An electronic or substitute form developed by your business may be acceptable if it meets IRS requirements.
If an employee submits an invalid Form W-4, you should explain that you can’t accept it and should request a valid replacement. You can generally continue using any valid Form W-4 already in effect until you receive the replacement. If you don’t have a valid form already on file, withhold as if the employee selected “single or married filing separately” and made no entries in Steps 2, 3 or 4.
Similarly, a claim of exemption from withholding isn’t automatically invalid. Beginning with the 2026 Form W-4, employees claiming exemption from withholding use the exemption checkbox on the form. For 2026, an employee generally may claim exemption only if the employee had no federal income tax liability in 2025 and expects to have none in 2026. The employee — not the employer — is responsible for determining whether those requirements are met.
Responding to IRS instructions
Businesses aren’t required to routinely send Forms W-4 to the IRS. You generally must submit these forms only when directed to do so in a written IRS notice or in specific published guidance.
The IRS uses information reported on Forms W-2 and other records to identify employees who may have inadequate withholding. If the IRS determines that an employee’s withholding needs to be increased, it may send you a “lock-in letter” specifying the filing status and adjustments that must be used. Before these instructions take effect, the employee receives a separate notice and an opportunity to dispute the determination with the IRS.
Once the lock-in instructions take effect, you generally must disregard a Form W-4 that would reduce withholding below the IRS-mandated amount. However, you must honor a new form that results in more withholding. If your business accepts Forms W-4 electronically, its system must prevent an employee subject to a lock-in letter from reducing withholding below the locked-in amount.
An employee who disagrees with a lock-in determination must work directly with the IRS. The employee may submit a new Form W-4 and supporting information to the address provided in the IRS notice. Don’t reduce withholding unless the IRS authorizes the change. Businesses that fail to follow lock-in instructions may be liable for the additional tax that should have been withheld.
Establishing consistent procedures
Your payroll procedures should explain how Forms W-4 are submitted, reviewed and retained. Train payroll personnel to recognize altered or unauthorized forms, but don’t ask them to evaluate whether an employee has calculated the proper amount of withholding. That determination generally belongs to the employee and, when necessary, the IRS.
For questions about completing Form W-4, direct employees to the IRS Tax Withholding Estimator or suggest consulting their personal tax advisors. Avoid giving individualized tax advice unless your business is qualified and authorized to provide it.
Know when to seek assistance
Unusual Forms W-4 and IRS lock-in letters can create compliance risks if they aren’t handled correctly. We can guide you through the withholding rules to help reduce the risk of costly errors. Contact us for assistance evaluating your payroll procedures, responding to an invalid form or complying with an IRS lock-in letter.
August 20, 2026by admin
Offering a broad menu of employee benefits can help your business attract and retain skilled workers. One benefit that’s popular among employees with families is employer-provided child care. Although this option hasn’t been financially feasible for many small businesses, recent tax law changes may give you a reason to reconsider opening (or upgrading) a child care facility, contracting with a child care provider or participating in a jointly operated arrangement. Here’s an overview of the credit and how it’s been enhanced starting in 2026.
Recent changes
Under Section 45F of the tax code, employers may claim a tax credit for eligible expenses paid or incurred to provide child care to employees. For 2026, the credit has increased from 25% to 40% of an employer’s qualified child care facility expenditures, plus 10% of its qualified child care resource and referral expenditures paid or incurred during the tax year. It’s limited to a total of $500,000 per tax year (up from $150,000 for 2025). Beginning in 2027, the $500,000 limit will be adjusted annually for inflation.
The credit has been further enhanced for certain small businesses. If you meet the eligibility requirements, you can claim a credit equal to 50% of qualified child care facility expenses, plus 10% of qualified resource and referral expenditures, up to a maximum of $600,000 for 2026 (annually inflation-adjusted going forward).
Eligible small businesses are generally those that had average annual gross receipts for the previous five tax years below an inflation-adjusted threshold. For 2026, the threshold is $32 million.
Also, eligible small businesses can now pool their resources to provide child care for their employees and to use third-party intermediaries to facilitate child care services. These options may make the credit more accessible to businesses that can’t justify operating their own facilities.
Qualified expenditures
Qualified child care facility expenditures are amounts paid or incurred to:
- Acquire, construct, rehabilitate or expand property that’s 1) to be used as part of your qualified child care facility, 2) depreciable or amortizable, and 3) not part of your principal residence or an employee’s home,
- Operate your qualified child care facility, including the costs to train and compensate its employees and provide scholarship programs, or
- Contract with a qualified child care facility to provide eligible services to your employees.
It’s important to note that qualified child care expenses exclude amounts that exceed the fair market value of providing such care.
A qualified child care facility is one that meets all state and local regulatory requirements. In addition, the facility 1) must be used principally to provide child care (unless it’s also the personal residence of the person who operates it), 2) must be open to all employees during the tax year, and 3) can’t discriminate in favor of highly compensated employees. And, if the facility is your principal trade or business, at least 30% of enrollees must be your employees’ dependents.
Additional rules
To avoid doubling your tax benefits from the same expenditures, your tax basis in any qualified child care facility is reduced by the amount of the credit attributable to facility-related expenditures. You also can’t claim other deductions or credits based on the same expenses.
In addition, if your child care facility ceases to operate as such or undergoes a change in ownership before the tenth tax year after the tax year in which it’s placed in service, you may have to recapture (pay back) some or all of the credit. The percentage of the credit that must be recaptured decreases gradually over the 10-year period.
The Sec. 45F credit is part of the general business credit, which is composed of more than 30 separate tax credits that are subject to combined limits based on your tax liability. So the amount you can use in the current year may be limited. However, any unused credit can generally be carried back one year and carried forward for 20 years. The credit is calculated and claimed on Form 8882, “Credit for Employer-Provided Childcare Facilities and Services.”
Look before you leap
Providing child care for your employees can be a major long-term investment. Although the recent enhancements to the employer-provided child care credit help make this benefit option more feasible, it isn’t right for every employer. You should also consider workforce demographics, operational costs, available providers, and the associated risks and responsibilities. Even when outsourcing, you’ll have to exercise due diligence to select a reputable provider, monitor service quality and make changes as necessary.
If you’re interested in pursuing this family-friendly benefit, we can help you evaluate the pros and cons and model the credit’s potential value. Contact us for more information and assistance.