Blog - Ullrich Delevati

July 10: Employees who received $20 or more in cash and charge tips during June 2026 must report them to their employers (using IRS Form 4070).
July 15: Employers must deposit June 2026 payroll taxes (withheld income tax and both employer and employee Social Security and Medicare taxes) if the monthly deposit rule applies.
July 31: File the second-quarter Form 941 to report and reconcile withheld income and FICA taxes.
July 31: File IRS Form 720 for the second quarter to report and pay federal excise taxes.
July 31: File IRS Form 5500 or 5500-SF to report employee benefit plan information for the 2025 calendar year (if you run a retirement or benefit plan).
July 31: File IRS Form 2290 and pay the Heavy Highway Vehicle Use Tax for vehicles first used in July.

If you’re a real estate developer or a small business owner who owns commercial real estate, you might be thinking about selling a property. If it has appreciated significantly, a Section 1031 like-kind exchange may allow you to defer tax on some or all of the gain. With this transaction, you exchange one property for another qualifying property rather than sell the property outright. You generally don’t pay tax on the gain on the relinquished property until you sell the replacement property.

You may be familiar with the basics of a Sec. 1031 exchange, but you might not understand all the rules and restrictions. Here are four common myths to be aware of so you can avoid missing planning opportunities or facing unexpected taxes.

Myth 1: The replacement property must be identical to the property you give up

The definition of like-kind property is surprisingly broad. To qualify for Sec. 1031 exchange treatment, you may exchange any real property held for investment or productive use in your trade or business (relinquished property) for like-kind investment, trade or business real property (replacement property).

For these purposes, most real property is considered like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale.

Myth 2: You never have to pay current-year tax in a like-kind exchange

A properly structured Sec. 1031 exchange can defer gain. But that doesn’t mean every exchange is completely tax-free.

If it’s a straight property-for-property exchange, you generally won’t have to recognize any gain from the exchange. You’ll take the same basis (your cost for tax purposes) in the replacement property that you had in the relinquished property. Even if you don’t have to recognize any gain on the exchange, you must report it on Form 8824, “Like-Kind Exchanges.”

However, the properties aren’t always equal in value. In these situations, some cash may be added to the deal. This cash is known as “boot.” If you receive boot, you’ll have to recognize gain up to the amount of boot received.

For example, let’s say you exchange a building with a basis of $100,000 for a building valued at $125,000, plus $10,000 in cash. Your realized gain on the exchange is $35,000 because you received $135,000 in value for an asset with a basis of $100,000. However, because it’s a Sec. 1031 exchange, you have to currently recognize (and pay tax on) only $10,000 of your gain — the amount of cash (boot) you received.

It’s also important to remember that no matter how much boot you receive, you’ll never recognize more than your actual realized gain on the exchange. In addition, your basis in the like-kind replacement property you receive equals the basis you had in the relinquished property reduced by the amount of boot you received but increased by the amount of any gain recognized.

Myth 3: Cash is the only type of boot

Boot can take forms other than cash. If the property you’re exchanging is subject to debt from which you’re being relieved, the amount of the debt is generally treated as boot. The reason is that if someone takes over your debt, it’s equivalent to that person giving you cash.

Of course, if the replacement property is also subject to debt, then you’re treated as receiving boot only to the extent of your net debt relief — the amount by which the debt you become free of exceeds the debt you pick up.

Myth 4: You must have the replacement property lined up immediately

It’s possible — but rare — to find someone who wants to simultaneously swap like-kind properties with you. Fortunately, you don’t have to acquire the replacement property from the same party you relinquish your property to. And you don’t have to acquire the replacement property on the same day you transfer the relinquished property.

In most Sec. 1031 exchanges, the relinquished property is sold first, and the taxpayer uses the exchange proceeds to acquire a replacement property. However, a qualified intermediary must hold the proceeds from the relinquished property until they’re transferred to acquire the replacement property. And deadlines apply: Generally, you must 1) identify a potential replacement property within 45 days after transferring the relinquished property, and 2) complete the acquisition of the replacement property within 180 days.

These deadlines are strictly enforced. Missing either one can cause the entire transaction to lose tax-deferred treatment. While you don’t need to have the replacement property lined up immediately, you do need a plan. Begin evaluating replacement property options as early as possible and work closely with your professional advisors throughout the process.

Don’t let misconceptions derail your Sec. 1031 exchange

Like-kind exchanges can be a tax-savvy way to dispose of investment or business real property — and retain working capital for your business or investment activities. But you’ll need to meet all the requirements. If you’re considering selling investment or business real estate, contact us to discuss this strategy further.

If you’re self-employed, you probably have questions about deducting business expenses on your federal income tax return. Here’s a quick overview of the filing requirements for sole proprietors and independent contractors, and five examples of expense deductions that are commonly overlooked or misunderstood.

Filing basics

Sole proprietors and independent contractors must report their business activity on Schedule C, “Profit or Loss From Business,” of their personal tax returns (Form 1040). Business income includes money earned from customers, side gigs, online sales and other self-employment activities. Income may be reported on Forms 1099-NEC or 1099-K, but you must report all taxable business income, even if you don’t receive a tax form.

Although employees can no longer deduct unreimbursed business expenses, self-employed individuals can offset their business income with various deductions for business-related expenses. This is a major tax advantage for the self-employed.

When evaluating whether costs are deductible, follow this golden rule: Business expenses must be ordinary (common in your industry) and necessary (helpful and appropriate for the business). Of course, you’ll need to keep detailed records to support your business deductions. Obvious examples of potentially deductible expenses are supplies, materials, and, if you have employees, payroll and benefits. Other business-related expenses may also be deductible on Schedule C, though the rules are sometimes confusing. Below are five common examples.

1. Home office

Unlike employees who work remotely, you can deduct the costs for a workspace in your home that’s used regularly and exclusively as your principal place of business. This can include a portion of actual indirect home expenses — such as rent or mortgage interest, insurance, utilities and repairs — based on your business-use percentage. For instance, if you use 10% of your apartment’s square footage for business, you can deduct 10% of your rent.

You can also fully deduct direct expenses (for example, the cost of painting your office) and, if you own your home, claim a depreciation allowance under IRS tables. In lieu of tracking your actual expenses, the IRS also offers a simplified method of $5 per square foot for up to 300 square feet.

2. Education

The costs of refresher courses, continuing education classes, vocational training and other education programs may be deductible if you’re required to take them to maintain or improve skills required for your current trade or business. Qualifying expenses include tuition, books, supplies and fees, and potentially travel costs to attend education programs.

However, costs of education that’s needed to meet the minimum requirements for a trade or business or that qualifies you for a new trade or business generally aren’t deductible. For example, you can’t claim the cost to obtain an undergraduate degree as a business expense.

3. Business meals

You generally can deduct 50% of the costs of business meals if they aren’t “lavish or extravagant.” This applies to food and beverages provided to customers, clients, suppliers, employees, agents, partners or professional advisors — whether established or prospective.

Although entertainment costs aren’t deductible under current law, food and beverages might be deductible even if they’re provided at a nondeductible entertainment activity. But such a deduction is available only if:

The food and beverage items are separately purchased or identified from the entertainment costs on bills, invoices or receipts, and
The amount charged for food or beverages reflects the venue’s usual selling price for those items if purchased separately from the entertainment or approximates the reasonable value of those items.

Say, for example, that you take a customer to a World Cup match this summer. The ticket costs aren’t deductible. But if you buy the customer popcorn, nachos and drinks while there, you can deduct half of those costs as long as you have proper documentation, such as the itemized receipt, and records showing who attended and the business purpose.

4. Business travel

If you travel to a temporary location for business purposes, you can deduct your travel expenses, including round-trip airfare, hotel costs and other incidentals (such as tips and cab fares). However, the primary purpose of your trip must be business related. For instance, you might travel to a different city or country to attend a trade show or educational conference.

Beware: Some allocations may be required if a trip combines business and pleasure — for example, if you fly to a location for four days of business meetings and stay for an additional three days of vacation. Only the reasonable cost of lodging and 50% of meals incurred during the business days are deductible. Lodging and meal costs incurred for the personal vacation days aren’t deductible.

On the other hand, with respect to the cost of the travel itself (for example, plane fare), if the trip is primarily for business purposes, the travel cost can be deducted in its entirety, and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible.

If your spouse joins you, his or her travel expenses generally aren’t deductible, unless your spouse is your employee and has a bona fide business reason to be there. But the restrictions apply only to additional costs incurred by having your nonemployee spouse travel with you. For example, the expense of a hotel room or for traveling by car would likely still be fully deductible because the cost to rent the room or travel by car alone vs. with another person would be the same, even in a rented car.

5. Business vehicle expenses

If you drive your personal vehicle for business purposes, you may be eligible to deduct some auto-related expenses on Schedule C. The amount of your deduction is based on the percentage of business use.

For example, suppose you use your car 60% for business driving in 2026. That means you can deduct 60% of your vehicle costs — such as gas, repairs and insurance — plus a generous depreciation allowance, subject to certain limits for “luxury cars.” And, if you buy the vehicle in 2026, you may also qualify for a Section 179 deduction and 100% bonus depreciation, subject to applicable eligibility requirements and limitations.

Be aware that the IRS is a stickler for documentation. Briefly stated, you must keep a contemporaneous log listing every business trip and proof of your expenses. Alternatively, you can cut down on recordkeeping by using the standard mileage rate of 72.5 cents per business mile (plus business-related tolls and parking fees) in 2026.

Don’t leave tax savings on the table

Many self-employed taxpayers miss legitimate deductions because they fail to keep adequate records or misunderstand the rules. Tracking expenses throughout the year can make tax filing easier, help ensure you don’t miss legitimate deductions and strengthen your position if the IRS questions a deduction.

We can help you identify qualifying business expense deductions and establish recordkeeping practices that support them. Contact us to start discussing a tax strategy tailored to your small business.

Many modern businesses rely on intangible assets, such as goodwill, trademarks and customer lists. But the IRS doesn’t treat all intangibles the same way. Questions about how these assets are taxed often arise when a business is sold, ownership changes hands, or intellectual property is licensed or transferred.

Generally, intangibles qualify as capital assets that generate capital gains or losses when sold. This treatment is beneficial because federal long-term capital gains tax rates (typically 15% or 20%) are lower than ordinary income tax rates (which can be as high as 37%). However, certain “self-created” intangibles don’t qualify for this favorable treatment. Here’s an overview of this issue.

Close-up on self-created intangibles

Under current federal income tax rules, “self-created” means created by the personal efforts of the taxpayer. Specifically, an intangible asset is considered to be created, in whole or in part, by the personal efforts of the taxpayer if:

The taxpayer’s efforts affirmatively contributed to the creation of the asset, or
The taxpayer directed and guided others in performing the work that created the asset.

That’s easy to understand when the taxpayer is a human. It can also extend to corporations, partnerships and limited liability companies (LLCs) that receive contributions of intangible assets from the individuals who created them.

Whether a self-created intangible is treated as a capital or noncapital asset depends on the specific type of intangible.

Self-created noncapital intangibles

When you sell a self-created intangible that’s treated as a noncapital asset for federal income tax purposes, the transaction produces ordinary income or loss rather than capital gain or loss. This unfavorable treatment may apply if, through your personal efforts, you create and personally hold the following types of intangibles:

Patents,
Inventions, models or designs (patented or not),
Proprietary formulas or processes,
Copyrights, and
Literary, musical or artistic compositions.

This treatment also applies to letters, memorandums or similar property prepared or produced for you, even though you didn’t actually “create” them.

Substituted basis principle

What happens when the self-created noncapital intangibles listed above are contributed to another taxable entity? The same unfavorable treatment applies if the new owner’s tax basis in the noncapital intangible is determined, in whole or in part, by reference to the basis of the person who created it (or who had letters or memorandums prepared or produced). This is referred to as “substituted basis.”

For instance, when an affected self-created intangible asset is contributed by the creator to a partnership in a tax-free transaction, the partnership takes over the creator’s tax basis in the asset under the substituted basis principle. In this situation, the asset is treated as a noncapital asset owned by the partnership. The same treatment applies to tax-free contributions of noncapital intangibles to LLCs that are treated as partnerships and corporations. Subsequent sales of affected assets will result in ordinary income or losses rather than capital gains or losses.

Self-created capital intangibles

The following types of self-created intangibles are treated as favorably taxed capital assets:

Goodwill or going concern value,
Workforce in place,
Business books and records,
Business operating systems,
Customer-based intangibles, such as client or customer lists and lists of prospective clients or customers, and
Supplier-based intangibles, such as favorable supplier contracts.

Sales of these assets will result in capital gains or losses, not ordinary income or loss. Often, these intangibles are sold with other business assets, so it’s important to properly allocate the total purchase price among the assets acquired — including both capital and noncapital intangibles — based on their fair market values. These allocations should be well supported and documented because buyers and sellers may have differing tax objectives. The IRS may also scrutinize allocations involving intangible assets.

Non-self-created intangibles

How an intangible asset is developed and held affects whether it’s considered a self-created intangible and the tax treatment when it’s sold. IRS Revenue Ruling 55-706 addressed a situation involving a corporate taxpayer that held intangible assets created by several of its employees. According to the guidance, the C corporation’s intangibles were not considered to have been created by the taxpayer’s personal efforts.

Therefore, the intangibles were capital assets owned by the business. The rules regarding varying tax treatment based on the specific type of intangible that apply to self-created intangibles didn’t come into play. Presumably, the result would be the same for intangibles created and owned by a partnership, an LLC treated as a partnership for tax purposes or an S corporation.

Tread carefully

The tax rules for self-created intangible assets are complicated. You can’t do much to avoid the unfavorable federal income tax treatment of self-created noncapital intangibles. But many self-created intangibles are treated as favorably taxed capital assets. If you’re planning to sell or transfer intangible assets, we can help you understand how the rules apply to your situation and identify the potential tax implications before a deal is finalized. Contact us to learn more.

Some small business owners overlook Roth IRAs because they assume their income is too high for them to qualify to make Roth contributions. Others may think their current tax rate is higher than it will be in retirement, making current tax deductions more valuable than future tax-free distributions. However, if you don’t at least consider contributing to a Roth IRA, you may be missing a potentially valuable tax-saving opportunity.

Rules and restrictions

Roth IRA contributions aren’t deductible, but they’re beneficial because you reap tax savings on the back end. (More on that later.) For 2026, the annual contribution limit is $7,500 (up from $7,000 for 2025). If you’ll be 50 or older by the end of the tax year, you can make an additional $1,100 catch-up contribution. The same limits apply to traditional IRAs, and your Roth IRA limit is reduced by any traditional IRA contributions you make for the year.

But your ability to make Roth IRA contributions is phased out if your modified adjusted gross income (MAGI) exceeds certain levels. For 2026, the phaseout ranges are:

$153,000 to $168,000 for single individuals and heads of households, and
$242,000 to $252,000 for married couples filing jointly.

If your MAGI falls within the range, your contribution limit is reduced. If it equals or exceeds the top of the range, your ability to contribute is eliminated.

Married individuals who file separately and live apart for the full year are treated as single individuals for the income limitations. However, separate filers who live together at any time during the year are subject to a phaseout range of $0 to $10,000.

Is your income too high to qualify?

At first glance, these figures may cause you to assume you’re ineligible for Roth contributions. But take another look.

When calculating MAGI for Roth IRA eligibility purposes, self-employed individuals may be able to significantly reduce their taxable income through deductions for:

Certain business expenses, such as rent, home office expenses and computer costs,
Contributions to a tax-deferred retirement plan, such as a solo 401(k), SEP IRA or SIMPLE,
Health insurance premiums, and
Self-employment tax.

These deductions, along with others, are subtracted when calculating MAGI. Therefore, a self-employed person can have relatively high gross income from his or her business while having a much lower MAGI.

The choice between contributing to a Roth IRA or a tax-deferred account isn’t an all-or-nothing proposition. Depending on your situation, you may decide to contribute to both types of accounts, subject to applicable limits. Contributing to a tax-deferred retirement plan provides immediate tax savings. And, because these contributions lower your MAGI, they may put your taxable income below the phaseout limits for Roth IRA contributions.

Additional benefits

The main upside of contributing to a Roth IRA is that qualified withdrawals won’t be taxed. This can be advantageous if you expect to be in a higher tax bracket in retirement or if tax rates increase. Moreover, withdrawals from Roth accounts aren’t counted when calculating the taxable portion of your Social Security benefits.

Another Roth IRA advantage is that you don’t have to take withdrawals at any age, meaning the account can continue to grow tax-free. With a traditional IRA (and other tax-deferred retirement accounts), at age 73, you generally must begin to take required minimum distributions or face a penalty equal to 25% of the amount you should have withdrawn but didn’t. In addition, if your Roth IRA is passed on to your heirs, it can continue to grow tax-free, and their withdrawals generally will be tax-free. However, most nonspouse beneficiaries will be required to deplete the account within 10 years of inheriting it.

Bottom line

A Roth IRA offers many potential benefits, and self-employed individuals may be more likely to qualify to make Roth IRA contributions than other taxpayers with similar gross incomes. But they aren’t right for every situation. We can help evaluate your eligibility and develop a long-term retirement strategy that aligns with your personal and financial goals. Contact us to learn more.

June 15

Second quarter estimated tax payment for 2026 due

Although your business may seem big to you, you may wonder how the government classifies it for tax purposes. If your organization qualifies as a “small business,” you may enjoy several important tax advantages. But the rules for specific tax provisions vary. So, depending on your size, you might be eligible for some so-called small business breaks but not others. Here’s a closer look.

No universal definition

Under federal tax law, there’s no one definition of a small business. Instead, several definitions apply depending on the context, various criteria and certain thresholds. Criteria may include a business’s:

Gross assets,
Gross receipts, and
Number of shareholders and employees.

Even if a criterion such as gross receipts is the same across definitions, different thresholds may apply. Also, for some purposes, the tax code might define a small business in more than one way. Depending on how your performance and operations change over time, you might meet the government’s definition of a small business one year but not the next year.

5 special breaks for certain small businesses

The Section 448(c) gross receipts test serves as a common eligibility standard for several tax provisions available to qualifying small businesses. Under this test, your business may qualify for five potential tax breaks if it had average annual gross receipts of $25 million or less for the prior three-year period. This threshold is adjusted for inflation — for 2026, businesses that had average gross receipts up to $32 million are eligible for:

1. Cash accounting. You’re generally permitted to use the cash method of accounting for tax purposes even if you have inventories or use the accrual method for financial reporting. With certain exceptions, larger businesses — particularly those that carry inventory — must use accrual accounting. Using the cash method will likely allow you to defer more taxable income than you could under the accrual method.

2. Inventory simplification. You’re generally exempt from complex inventory accounting rules and may account for inventories by:

Treating them as nonincidental materials and supplies, or
Conforming to the inventory method you use in your financial statements or books and records.

Treating inventories as nonincidental materials or supplies allows you to deduct their cost when they’re “used or consumed.” Final IRS regulations clarify that materials aren’t used and consumed until the inventory is sold. So businesses can’t treat raw materials as used and consumed when converted into work-in-progress or finished goods.

3. Relief from UNICAP rules. You’re exempt from the uniform capitalization (UNICAP) rules, which require taxpayers to capitalize certain direct and indirect production costs to inventory, rather than deduct them when incurred. Not only can these rules increase your tax liability, but they also make tax reporting more complex.

4. Exemption from the business interest deduction limitation. You’re not subject to the cap on business interest write-offs, which generally limits deductions of net business interest expense to 30% of adjusted taxable income.

5. The completed contract method. If your business is in construction, manufacturing or another industry where long-term contracts are common, you may use the completed contract method rather than the percentage-of-completion method to account for long-term contracts expected to be completed within two years. The completed contract method allows you to defer tax until the contract is substantially complete, while the percentage-of-completion method can accelerate the tax.

When determining your business’s gross receipts, you may need to include those earned by certain related entities, such as those with common control. Special rules apply to organizations in existence for less than three years. Also, tax shelters, including syndicates, don’t qualify for small business status, even if their gross receipts are below the threshold.

Sizing up your business

Of course, these five relief measures aren’t the only tax-saving opportunities for small business owners at the federal and state levels. And determining eligibility can be more complicated than it appears. We can help evaluate your eligibility for these breaks and others — and develop a long-term plan that’s tailored to your situation. Contact us to explore the potential tax benefits of small business status.

Tax identity theft isn’t limited to individual taxpayers — businesses are also targeted through their Employer Identification Numbers (EINs), payroll systems and tax filings. The financial impact of these crimes can be significant. Businesses may face delayed or stolen tax refunds, unauthorized payroll filings, and the time and expense of resolving IRS issues. There may even be credit damage or, if employee or customer data is compromised, reputational harm. Here’s what you need to know to protect your business.

How tax identity theft happens

Business tax identity theft comes in many forms and can affect sole proprietors, corporations, partnerships and limited liability companies. For example, criminals may file fraudulent returns using a company’s EIN, impersonate executives to steal employee W-2 data, or use forged IRS documents to pose as a business for financial or tax-related activity. In more advanced cases, hackers combine stolen data from breaches with synthetic identities to create entirely fake businesses capable of filing returns and securing credit.

These schemes often go undetected until the IRS rejects a legitimate tax filing or flags duplicate activity. Other warning signs may include rejected extension requests, unexpected IRS transcripts or notices, or missing IRS correspondence.

You also might receive a Letter 5263C or 6042C from the IRS. If your business receives one of these notices, don’t panic — it may stem from an IRS verification issue or a filing inconsistency, such as transposed numbers on your return. But it could signal something more serious. So contact your tax advisor to help answer all the questions in the letter within the timeframe specified in the notice (typically within 30 days). In some cases, the IRS may require you to file Form 14039-B, “Business Identity Theft Affidavit,” to report suspected identity theft.

How to protect your business

Tax identity theft can be costly, so prevention and early detection are critical. Consider the following seven security measures to help protect your business:

1. Prioritize cybersecurity. Your business should have a formal cybersecurity plan that provides a step-by-step approach for detecting identity theft. When breaches happen, your plan should trigger a prompt, thorough response. Review your plan regularly and update it to reflect changes in your business operations and emerging cyber risks.

2. Safeguard sensitive business data. Store employee and customer data, along with other proprietary records, such as financial statements and prior years’ tax returns, in a secure location. Keep your EIN information up to date with the IRS, including the responsible party and contact details. Shred nonessential documents before throwing them out, and limit access to your EIN to parties with whom you initiated the contact. Share sensitive information via the internet or email only if the recipient is trusted (such as your lender or tax preparer) and the site is secure or the email is encrypted.

3. Guard your logins and passwords. Some businesses store account logins and passwords in a single location, which can be convenient but risky. If a dishonest employee or hacker gains access, they could reach sensitive systems, including those tied to your EIN and tax filings. Use strong security controls to protect this information.

4. Use the latest cybersecurity technology. This includes firewalls, antivirus and antimalware software, spam filters, encryption and multi-factor authentication. Also exercise common sense: Don’t download files, click links or open attachments sent from unknown sources. It’s also prudent to back up sensitive data to a secure, external source not connected to your network.

5. Educate employees. Conduct periodic training sessions to remind employees about the latest scams, such as phishing emails that impersonate familiar businesses or colleagues to steal sensitive information. Employees should be aware of your cybersecurity plan and each person’s role if a breach occurs. Also remind them that the IRS doesn’t initiate contact by telephone, email, text or social media to request sensitive information.

6. Monitor business credit reports. It doesn’t take much effort to monitor your company’s profiles from the three major business credit bureaus: Equifax, Experian and TransUnion. Subscribe to their monitoring services and real-time alerts for suspicious activity, which may signal unauthorized accounts or broader identity theft affecting your business.

7. Secure your tax filings and accounts. Work with a trusted tax professional and use secure portals to share tax documents. Review IRS notices promptly and investigate any rejected filings, unexpected transcripts or unusual activity tied to your EIN.

Be proactive, not reactive

No preventive measure is 100% fail-safe, so identifying suspicious activity is also critical. Uncovering identity theft early makes it easier to address.

Contact us if you have questions about protecting your business’s tax filings, employee tax data or IRS account information. We can help you review your risks, implement practical data security measures and determine the next steps if something looks suspicious.

Businesses that own commercial real property may be sitting on an overlooked treasure chest of tax savings — and a cost segregation study can be the key to unlocking it. This is a strategic tool that combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. A cost segregation study may allow you to accelerate depreciation deductions on certain items, thereby deferring taxes and boosting cash flow.

Timing counts when depreciating assets

Commercial rental properties and buildings used for business purposes are generally depreciated over 39 years under federal tax law. But such properties may include a wide range of components with much shorter depreciation recovery periods. These can include parts of various systems such as HVAC, plumbing, electrical, fire protection, alarm and security, as well as:

Drywall,
Doors,
Fixtures,
Data and communication ports,
Flooring, and
Cabinetry.

These assets could have useful lives of five, seven or 15 years — all significantly less than 39 years. By segregating such assets, you can claim greater depreciation deductions sooner. You’ll claim the same total amount of depreciation on the assets over time but reduce your tax bill in the short term, providing greater cash flow.

OBBBA changes add value

Recent tax law changes under the One Big Beautiful Bill Act (OBBBA) enhanced these benefits by increasing first-year depreciation write-offs. The two most widely relevant provisions relate to:

1. Bonus depreciation. The OBBBA restored 100% first-year bonus depreciation deductions for eligible assets acquired and placed in service after January 19, 2025. While commercial real properties aren’t eligible for first-year bonus depreciation, segregated building components with shorter recovery periods may be eligible. There are no phaseout limits for bonus depreciation, which is helpful for larger companies.

2. Section 179 expensing. For tax years beginning in 2025, the OBBBA increased the maximum amount of eligible assets you can immediately deduct under the Sec. 179 expensing election to $2.5 million. A phaseout reduces the maximum Sec. 179 deduction if, during the year, you place in service eligible assets in excess of $4 million. Both figures are adjusted annually for inflation. For 2026, they’re $2.56 million and $4.09 million, respectively. Again, commercial real properties aren’t eligible for Sec. 179 expensing, but segregated building components with shorter recovery periods may be eligible.

Additionally, if your business involves manufacturing or certain agricultural activities, you may be eligible for a new depreciation-related tax break. The OBBBA introduced a 100% deduction for the cost of qualified production property (QPP). To be eligible, among other requirements, a qualifying real property’s construction must begin after January 19, 2025, and before January 1, 2029, and it must be placed in service before 2031. This break allows eligible businesses to immediately deduct the cost of QPP that otherwise would be depreciable over 39 years.

The QPP deduction makes cost segregation studies less relevant for qualifying property. But it’s subject to several specific requirements and exceptions that may prevent you from claiming it.

Ready, set, save

A cost segregation study can significantly lower your taxes, but it isn’t a do-it-yourself project. Although this strategy has been consistently upheld in the courts, the IRS closely monitors deductions based on cost segregation studies. And the rules can be confusing.

So, it’s prudent to hire experienced professionals to help you identify various building components and break down write-off periods for them. Contact us to discuss whether a cost segregation study could potentially save you taxes. We can determine reasonable cost allocations to help withstand IRS scrutiny.

If you run your business as a C corporation, you may be eligible for a potentially significant tax break for qualified small business (QSB) stock. This opportunity has existed for years, but recent tax law changes have enhanced it.

What’s a QSB corporation?

QSB corporations are a special type of C corporation. At the entity level, QSB corporations are generally treated as regular C corporations for legal and federal income tax purposes. So, most of the standard advantages and disadvantages of C corporation status apply equally to QSB corporations, including the 21% flat federal income tax rate on corporate income. However, QSB shareholders can potentially enjoy a significant tax advantage: A special gain exclusion rule can allow them to avoid the federal income tax hit on up to 100% of the gain from selling QSB stock.

C corporations that own QSB stock aren’t eligible for the gain exclusion. But sales of QSB stock held by pass-through business entities — such as S corporations, partnerships and, typically, limited liability companies — may be eligible. The break is effectively passed through to individual pass-through entity owners.

Which shares qualify as QSB stock?

To be eligible for the QSB stock gain exclusion, several requirements must be met, including the following:

You must acquire the shares upon original issuance by the corporation or by gift or inheritance.
The corporation must be a QSB corporation on the date the stock is issued and for substantially all the time you own the shares. Among other things, this means it must not have assets that exceed $75 million ($50 million if the stock was issued on or before July 4, 2025). The $75 million limit will be indexed for inflation after 2026.
The corporation must actively conduct a qualified business. Service businesses and certain other businesses don’t qualify. (Contact us for a complete list of nonqualified businesses.)

Timing is also critical. To take advantage of the 100% gain exclusion for sales of QSB stock, you must have acquired the shares after September 27, 2010, and held them for at least five years.

How did the OBBBA expand the exclusion?

In addition to raising the QSB asset ceiling, the One Big Beautiful Bill Act (OBBBA) enhanced the gain exclusion rules for QSB shares acquired after July 4, 2025. It allows a 50% gain exclusion for QSB stock held for at least three years and a 75% gain exclusion for QSB stock held for at least four years. The 100% gain exclusion still applies to QSB stock held for at least five years.

For QSB shares acquired after July 4, 2025, your excludable gain for any year is limited to the greater of:

10 times your aggregate tax basis in the QSB stock that was sold, or
$15 million ($7.5 million if you were married but filed separately), reduced by the amount of gain you excluded in prior tax years from sales of QSB stock issued by the same corporation.

When the $15 million (or $7.5 million) restriction applies, it’s effectively a lifetime limitation.

Next steps

The gain exclusion for QSB stock and the flat 21% corporate federal income tax rate are two powerful incentives to operate a business as a QSB corporation. You can potentially convert an existing unincorporated business into a QSB corporation by incorporating it. Contact us to learn more about this tax-saving strategy. We can help you navigate the complex rules and requirements.

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