Billionaires tax

The Billionaires Tax Debate Is Going National. Here’s Why It Matters.

by with No Comment Tax, Advisory

The idea of a tax on billionaires has been discussed in Washington for years, but recent comments from California Gov. Gavin Newsom have brought renewed attention to the debate. Rather than supporting a proposed California wealth tax, Newsom argued that taxing the nation’s wealthiest individuals would be more effective at the federal level, where taxpayers are less able to move between jurisdictions.

While no national billionaire tax is currently law, the conversation reflects a broader discussion about how the United States should tax wealth and whether the existing tax system should be restructured for the country’s highest earners.

Why Is the Debate Shifting to the Federal Level?

One of the biggest challenges facing state-level wealth taxes is mobility. Unlike income taxes, which are tied to where income is earned, wealth can often be transferred, relocated, or managed across state lines.

Newsom said that while he supports asking the wealthiest Americans to contribute more, a state-by-state approach may be difficult to enforce because individuals and businesses can relocate. Instead, he suggested that Congress is better positioned to address the issue through federal legislation.

The proposal has reignited conversations about whether wealth should be taxed differently than income and how governments should balance revenue generation with economic growth.

What Is a Billionaire Tax?

Although various proposals have been introduced over the years, the general concept is similar: rather than taxing only annual income, a billionaire tax would assess taxes based on an individual’s accumulated wealth.

Depending on the proposal, that wealth could include assets such as:

  • Stocks and investment portfolios
  • Real estate holdings
  • Ownership interests in privately held businesses
  • Other high-value assets

Supporters argue that many ultra-wealthy individuals accumulate substantial wealth that is never subject to income tax because their assets continue to appreciate without being sold. A wealth tax, they say, would help address that gap while generating revenue for federal programs.

Critics counter that valuing complex assets each year would be difficult, could discourage investment, and might raise constitutional questions. Others argue that existing tax laws already provide mechanisms to tax wealth when assets are sold or transferred.

Could a National Billionaire Tax Become Law?

At this point, a federal billionaire tax remains a theoretical policy proposal rather than pending law.

Any such measure would need to pass both houses of Congress and be signed by the president before taking effect. Even then, legal challenges would be likely, particularly regarding constitutional questions surrounding the taxation of unrealized gains or accumulated wealth.

For most taxpayers, there are no immediate changes to current tax obligations.

What Does This Mean for Business Owners and Investors?

Although the debate primarily focuses on individuals with extremely high net worth, discussions like these often influence broader conversations about tax policy.

Changes affecting capital gains, estate planning, business ownership, investment strategies, or reporting requirements can eventually impact a wider group of taxpayers than originally anticipated. Even if a billionaire tax never becomes law, similar proposals frequently shape future legislation and tax reform efforts.

For business owners and investors, staying informed is often just as important as reacting to new laws.

The renewed discussion around a national billionaire tax highlights how quickly tax policy conversations can evolve. While no federal wealth tax is currently in effect, policymakers continue to explore different approaches to taxing high-net-worth individuals and raising federal revenue.

If you’re wondering how proposed tax legislation could affect your personal finances or your business, working with a trusted tax professional can help you separate headlines from reality. Our office can explain current law, monitor legislative developments, and help you make informed decisions based on today’s rules, not tomorrow’s speculation.

Succession planning

Succession Planning for Business Owners; Protecting Your Company, Your Family and the Tax Outcome

by with No Comment Tax, Advisory, Private Wealth

For many business owners, succession planning is one of the most important decisions they will ever make, yet it is often delayed until the owner is nearing retirement, facing health problems, or reacting to a crisis. That is usually too late. A good succession plan does far more than name a successor. It addresses who will lead the business, who will own it, how the owner will be paid, how family members will be treated fairly, how employees and customers will be protected, and how taxes will affect the ultimate transfer.

Business succession planning is not only about death. It is also about disability, divorce, disagreements among owners, changes in the business environment, retirement, and even unexpected events like a cyberattack or a key employee leaving. In other words, succession planning is really a combination of estate planning, tax planning, risk management, and business continuity planning. A well-built plan gives the business a future while also protecting the owner’s economic interests.

Start with the Goal, Not the Tax

The first mistake many owners make is beginning with a tax idea instead of a business objective. Taxes matter, sometimes a great deal, but the right succession plan must fit the owner’s real goals. Some owners want to keep the business in the family. Others want to sell to a key employee or co-owner. Some want a gradual transition that lets them remain involved for several years. Others want a clean exit with maximum cash at closing. Those are very different objectives, and the tax planning should support the goal rather than drive it.

If the business is a family company, the owner must also decide whether fairness means equal treatment or equitable treatment. Equal treatment is not always fair when one child is active in the business, and another is not. A thoughtful plan may transfer the company to the child who works in the business while giving other heirs different assets, life insurance, or offsetting inheritances. If this issue is not handled up front, it can create family conflict, disputes over valuation, and resentment that lasts for years.

Identify the Successor Early

A business cannot transition smoothly if no one is ready to take over. The successor might be a child, a spouse, a partner, a key employee, or an outside buyer. Each option has different implications.

If a family member will take over, the owner should ask whether that person truly wants the business and has the ability to run it. A successful owner is not always a successful successor. The individual may need training in management, finance, customer relationships, personnel issues, and compliance. If the next generation is not ready, the plan may need a long transition period or an interim manager.

If a key employee is the likely successor, retention becomes critical. That employee may need compensation incentives, equity opportunities, or a retention bonus. The plan should also address what happens if the employee leaves before the transition is complete. If a co-owner is the successor, the buy-sell agreement and governance documents become especially important. If the business is to be sold externally, the owner must think about value, timing, and how to make the company attractive to a buyer long before the sale.

Control and Ownership Are Not the Same Thing

Many owners want to transfer wealth without giving up control too soon. That is a legitimate goal, but it requires careful planning. Control can be divided from economics. For example, the owner may transfer nonvoting interests to heirs or trusts while keeping voting control. In a corporation, voting and nonvoting stock may be used. In an LLC or partnership, the operating agreement can separate management rights from economic rights.

That said, retaining too much control can create tax problems. In estate planning, if the owner keeps certain powers, rights, or economic benefits, the IRS may argue that the transferred interests should still be included in the owner’s taxable estate. That can undermine the entire transfer plan. The challenge is to balance business control with tax efficiency and legal security.

Owners also need to think about who has the right to make decisions after a transition. If the successor owns the company but the founder still controls the bank account, signs contracts, and handles clients, confusion is likely. A succession plan should define authority clearly. Who can hire and fire? Who can sign tax returns? Who can borrow money? Who can change vendors? Who can approve major purchases? These governance issues are not glamorous, but they can make or break a transition.

The Buy-Sell Agreement Is Often the Centerpiece

For businesses with more than one owner, a buy-sell agreement is one of the most important documents in the entire succession plan. A good buy-sell agreement sets the rules for what happens if an owner dies, becomes disabled, retires, divorces, goes bankrupt, or simply wants out. It also helps prevent unwanted outsiders from becoming owners.

The agreement should address how the business will be valued, who can buy the departing owner’s interest, how the purchase will be funded, and what happens if the parties disagree. Without a buy-sell agreement, surviving owners and family members may end up fighting over valuation and control. That can be devastating for a business and expensive from a tax and legal standpoint.

Valuation deserves special attention. Owners sometimes use a formula in the agreement, but a formula that is too low may not be respected for tax purposes, especially for estate tax valuation. On the other hand, a formula that is too high may make the business unaffordable for the buyer. The valuation method should be reviewed periodically to reflect the company’s growth and changing conditions.

Funding also matters. Many buy-sell agreements are funded with life insurance, but life insurance is not a complete answer. The agreement should consider what happens if the company cannot obtain enough coverage, if premiums become too expensive, or if the amount needed exceeds the policy proceeds. Other funding options include cash reserves, borrowing, installment payments, or a combination of methods.

Tax Issues That Can Shape the Plan

Taxes should not control the whole plan, but they can dramatically affect the outcome. One of the biggest questions is whether the owner should transfer the business during life or at death. That choice often involves a tradeoff between estate tax and income tax.

A transfer during life may reduce the size of the taxable estate, especially if the business is expected to appreciate significantly in the future. Future growth may then occur outside the owner’s estate. But a lifetime gift usually means the recipient receives a carryover basis, which can increase income tax later if the business is sold.

By contrast, business interests included in the owner’s estate may receive a stepped-up basis at death. That can reduce capital gains tax if the heirs later sell. But waiting until death may mean a larger taxable estate, possible estate tax exposure, and less certainty about who ultimately controls the business.

This tradeoff is especially important for owners of highly appreciated businesses. A plan that saves estate tax but creates a huge income tax burden later may not be the best result. The right answer depends on asset value, expected appreciation, the owner’s health, the family’s goals, and whether the business is likely to be sold or held for the long term.

The Entity Type Matters

Succession planning looks very different depending on whether the business is a sole proprietorship, partnership, LLC, S corporation, or C corporation.

A sole proprietorship is the simplest structure, but it offers no separation between the owner and the business. At death, the business may be harder to continue smoothly because everything is tied to the individual owner. Estate planning and continuity planning become especially important.

Partnerships and LLCs taxed as partnerships often offer flexibility, but the operating agreement must be reviewed carefully. Transfer restrictions, allocations, capital accounts, basis rules, and liquidation rights can all affect the succession plan. A partnership may also use a special basis adjustment election that can be valuable when an ownership interest changes hands. These details are often overlooked until a transaction is imminent.

S corporations present their own issues. Ownership is restricted, so not every trust or transferee can qualify. A transfer can accidentally terminate S status if the rules are not followed. Basis also matters because shareholders need sufficient stock and debt basis to deduct losses. In addition, if an S corporation once operated as a C corporation, built-in gains tax may still be relevant in some cases.

C corporations can create double taxation on sale or liquidation, so succession planning often requires more analysis. Sometimes a stock sale is preferable; other times an asset sale makes more sense for the buyer. If the business qualifies for small business stock rules, that may create significant planning opportunities. But those rules are technical and must be evaluated carefully.

Estate, Gift, and Generation-Skipping Taxes

Business succession is often closely tied to estate planning. If the owner transfers the business to children or grandchildren, gift tax may be triggered. If the transfer occurs at death, estate tax may apply. If the plan benefits younger generations beyond children, generation-skipping transfer tax may also matter.

These taxes are not just technical issues for wealthy families. A business owner may have most of their wealth tied up in the company, making the business the single largest asset in the estate. If there is no liquidity outside the business, the family may be forced to sell part or all of the company to pay tax or settle the estate. That is why coordination with the estate plan is essential.

Valuation is another key issue. Business interests are often difficult to value because they are not publicly traded. Appraisals may consider control rights, marketability, earnings, assets, customer concentration, and industry conditions. Minority interests may be worth less than a pro rata share of the total business value, but those discounts must be supportable. An unsupported valuation can create audit risk and family disputes.

Liquidity Planning Is Essential

A strong business may still be a poor source of cash. That is one of the paradoxes of succession planning. The business may be valuable on paper but illiquid in reality. If the owner dies or becomes disabled, the family may need cash immediately to pay taxes, fund operations, buy out other heirs, or cover living expenses.

Life insurance is one common liquidity tool. It can fund buyouts, equalize inheritances, or provide cash for estate expenses. But insurance should be coordinated with the legal documents and beneficiary designations. If the policy is owned or structured incorrectly, the proceeds may create their own tax and control problems.

Borrowing is another option, but debt must be realistic. A lender will want to know whether the successor can service the loan, whether the business has stable cash flow, and whether collateral is available. Installment payments to the departing owner may also be possible, but the business must remain strong enough to support them.

For certain closely held businesses, estate tax deferral may be available if the requirements are met. That can ease liquidity pressure, but it is not a substitute for real planning. Deferral only delays the problem; it does not eliminate it.

Installment Sales and Partial Transfers

Not every succession plan is an outright gift or a lump-sum sale. Many owners prefer a gradual transition. That may involve selling the business over time to the next generation or to key employees, often using an installment note. This approach can spread out tax recognition and help the buyer afford the purchase.

Installment sales can be attractive because the seller receives payments over time rather than one taxable gain event in a single year. They can also keep the seller involved during the transition. However, installment sales have their own risks. The seller is exposed to buyer credit risk, interest considerations, and the possibility that the note will not be paid as expected. The tax treatment also depends on the type of asset being sold and whether any special rules apply.

A hybrid sale-and-gift strategy may also be useful. The owner might sell part of the business and gift another part, balancing cash flow, tax efficiency, and family goals. These strategies can work well, but they must be structured carefully to avoid valuation disputes and unintended tax results.

Family Dynamics and Fairness

Many succession plans fail not because of taxes, but because of family dynamics. If one child works in the business and another does not, tensions can build quickly. The child in the company may feel entitled to control because of the labor and sacrifice invested. The non-active child may feel entitled to equal value because of family expectations. Both views may have merit.

Owners should address these issues openly. A succession plan should explain how family members will be treated, whether ownership will be equal, and how nonparticipating heirs will be compensated. Sometimes the best solution is to separate control from economic value. Other times the best solution is to leave the business to one heir and transfer other assets or insurance proceeds to the others.

The worst approach is silence. If the owner avoids the issue, the family may assume the business will be divided equally, even when that would be impractical or destructive. Clear communication during life often prevents conflict after death.

Continuity Planning Is Part of Succession Planning

A business succession plan should not only answer “who will own it later?” It should also answer “how will it survive tomorrow?” Disability, sudden illness, natural disasters, ransomware, and the unexpected death of the owner can all disrupt operations immediately.

That is why continuity planning matters. The business should know who can access records, banking information, client files, passwords, vendor contacts, insurance policies, payroll systems, and tax accounts. Someone should know how to keep the doors open if the owner is suddenly unavailable. If the business serves customers or clients directly, continuity can protect goodwill and revenue during the transition.

This is especially important for owner-operated businesses where the company’s value is closely tied to the owner’s personal relationships and expertise. If the owner is the face of the company, the succession plan should include steps to transfer trust, communicate with customers, and preserve relationships before the owner exits.

Compensation, Retirement, and the Owner’s Future

Succession planning is not just about what happens to the company. It is also about what happens to the owner. Many owners rely on the business for retirement income and may not have enough outside savings. That means the succession plan must create a reliable path for the owner’s financial security.

The owner may receive salary, consulting fees, rent, note payments, redemption proceeds, or distributions. Each of those has tax consequences. Consulting arrangements should reflect actual services and reasonable compensation. Rent must be structured properly if the owner keeps real estate and leases it back to the business. Retirement plan considerations may also matter, especially if the owner has a pension or deferred compensation arrangement tied to the company.

The owner should also consider how much involvement they want after the transition. Some owners want to stay on as an adviser for a few years. Others want a clean break. The plan should define the role clearly so the successor can lead without interference, and the owner can transition into retirement with confidence.

State Taxes, Legal Issues, and Asset Protection

Federal tax issues are only part of the picture. State estate taxes, inheritance taxes, income taxes, and community property rules can affect the plan significantly. A transfer that works well federally may create a bad state tax result. Owners should also consider business registration requirements, licensing issues, and any state-law transfer restrictions.

Asset protection is another important concern. Business owners often face lawsuits, creditor claims, divorce risks, and personal guarantees. Succession planning should consider whether ownership should be transferred directly or through trusts or entities that offer greater protection. If the successor is married, divorce planning may be relevant as well. A family business can quickly become a marital property issue if documents are not carefully drafted.

Putting the Pieces Together

A successful succession plan is not a single document. It is a coordinated strategy that brings together legal documents, tax planning, ownership structure, management transition, liquidity planning, and family communication. The plan should be reviewed regularly because businesses change, tax laws change, family situations change, and market conditions change.

The process should begin with honest questions. What is the business worth? Who can lead it? Who should own it? How much income does the owner need? Is the business likely to be sold or held? What taxes could be triggered by a transfer? Is there enough liquidity to survive a death or disability? Are the legal documents consistent with the owner’s wishes? What happens if the plan is delayed another year?

Owners who answer those questions early have more options, more negotiating power, and fewer surprises. Those who wait too long often leave a burden for their families and employees.

Final Thoughts

Succession planning is one of the most important parts of owning a business, yet it is often postponed because it feels uncomfortable or because the owner is busy running the company. But waiting does not make the problem go away. It only makes the choices narrower.

A good succession plan protects the business, provides for the owner, treats family members fairly, supports employees, and minimizes unnecessary tax costs. It should address control, ownership, valuation, liquidity, continuity, retirement, and the full range of tax consequences, including gift tax, estate tax, income tax, and transfer-tax issues. It should also be flexible enough to survive the unexpected.

For most owners, the best time to begin succession planning is long before retirement. The earlier the plan is started, the more options there are to shift ownership gradually, train a successor, coordinate with tax planning, and preserve value. In that sense, succession planning is not just an end-of-career issue. It is a core part of building a durable business.

Day of Service

RBG’s Day of Service: Living Our Core Value of Community

by with No Comment ABLE Exclusive

At RBG, community is more than one of our core values. It is a commitment we strive to live out every day. Each year, our Day of Service provides an opportunity for team members across the firm to step away from their desks and invest their time, energy, and talents into making a meaningful difference throughout the Memphis community.

This year’s Day of Service brought our team together to support several outstanding nonprofit organizations that are creating lasting change across the Mid-South. Through hands-on volunteer projects, relationship building, and shared experiences, our employees demonstrated what can happen when a team unites around a common purpose.

Serving Our Community Together

The day began with team members volunteering at one of three local nonprofit organizations: The Emmanuel Center, Habitat for Humanity ReStore, and Make-A-Wish Mid-South. Each organization provided unique opportunities for our employees to serve and contribute to missions that strengthen our community.

At The Emmanuel Center, volunteers assisted with summer camp activities, spending time with children through games, basketball, and arts and crafts. The organization supports children and families in South Memphis through programs focused on spiritual, physical, and educational growth. Our team enjoyed building relationships with the children while helping create a fun and encouraging environment.

Another group served at Habitat for Humanity ReStore, helping sort merchandise, organize inventory, and assist with store operations. Proceeds from the ReStore help support Habitat’s mission of building and repairing safe, affordable homes for individuals and families in our community.

Meanwhile, volunteers at Make-A-Wish Mid-South supported the organization behind the scenes by organizing supplies, preparing mailings, and assisting with administrative projects that help make life-changing wishes possible for children facing critical illnesses.

Learning and Serving as One Team

Following the morning activities, the entire team gathered for lunch and a Culture Index presentation, where employees gained insights into how we can work more effectively together and better understand one another’s strengths. The session reinforced RBG’s commitment not only to serving our community, but also to investing in the growth and development of our people.

The afternoon was dedicated to a large group service project at the Memphis Botanical Garden. Employees worked together on both indoor and outdoor projects that supported the Garden’s ongoing efforts to provide beautiful, educational, and accessible spaces for visitors throughout the year.

A Tradition That Reflects Who We Are

For many at RBG, Day of Service has become one of the most anticipated events of the year. It allows us to connect with coworkers in a different setting, strengthen relationships across departments, and contribute to organizations that are making a significant impact in our city. Most importantly, it reminds us that our work extends beyond providing exceptional service to clients. We also have a responsibility to support and strengthen the communities where we live and work.

We are grateful to the nonprofit partners who welcomed our team and allowed us to be part of their missions. Their dedication to serving others inspires us, and we are honored to play a small role in advancing the important work they do every day.

As we reflect on another successful Day of Service, we are proud of our employees for embracing the spirit of service and demonstrating the power of community in action. Together, we made a difference, and we look forward to continuing this meaningful tradition for years to come.

 

summer taxes

Weddings, Childcare, Children’s Summer Employment, and Travel: Navigating Summer’s Tax Minefield

by with No Comment ABLE Exclusive

Summer brings weddings, camps, teen paychecks, weekend trips, and sometimes the chance to rent your home for a short-term event. Those warm-weather plans make memories — and they can also change the way you file your taxes. This guide explains the most common summer activities that affect an individual tax return: getting married, summer childcare and camps, children working (including working in a parent’s business), renting your home for a short time, and travel. You’ll find practical examples, what documents to collect, common pitfalls, and simple steps to reduce surprises at tax return filing time.

Why Summer Matters for Taxes:

Your tax outcome often depends on facts and dates. A life change that happens in June — marriage, separation, a child taking a summer job, or renting your house during a conference — can determine your filing status, eligibility for credits, and what income must be reported for the entire year. In short, a single summer event may affect the whole year’s tax return, so it pays to think ahead and keep records.

Marriage in Summer:

One date, year-long consequences. The reason stems from a key tax rule: your marital status on December 31 determines your federal filing status for the whole year. That means a wedding on July 4 makes you “married” for the entire tax year.

What changes for most couples:

    • Before You Say “I do”: Have an open conversation about your intended’s tax history — their unpaid taxes, audits, liens, back child support, or back business-related payroll taxes can become your problem too. If you file a joint return, you’re generally jointly and severally liable for the entire tax bill for that year. An honest check now can avoid big surprises later.
    • Filing Options: Once you tie the knot, there are two filing status options: Married Filing Jointly (MFJ) or Married Filing Separately (MFS). MFJ is usually more tax-favorable — lower tax rates and access to many credits — but it also creates joint liability for any tax owed. MFS is rarely the best long-term option but can be useful in specific situations (for example, when spouses want to keep liabilities separate).
    • Credits and Phaseouts: Marriage can change eligibility for tax credits, such as the child tax credit, education credits, and the Earned Income Tax Credit among others, and the level at which income-related phaseouts apply. Combined income could push a couple out of a credit’s range.
    • Withholding and Estimated Payments: After marriage, you should review Form W-4 withholding (if an employee) or estimated tax payments because combined wages may change the amount of tax withheld during the year.
    • Names and Social Security: If you change your name after marriage, be sure to update the Social Security Administration before filing; mismatched names/SSNs delay refund processing.
    • Practical Tip: Before the wedding, do a quick “what-if” to see the tax effect. If one spouse earns much more than the other, MFJ usually still wins, but the exact impact depends on credits, deductions, and certain tax attributes.

Childcare and Summer Camps:

Summer often means day camp, babysitters, swim lessons, and specialty programs. Some of those costs qualify for tax benefits — others do not.

Child and Dependent Care Credit (CDCC): The CDCC helps pay for qualifying care so you (and your spouse, if married) can work or look for work. The credit uses a percentage of eligible expenses up to statutory limits and is subject to your earned-income limitation (you can’t claim more qualifying expenses than your earned income for the year). That earned-income rule is one of the most common surprises.

    • What Counts as Qualifying Care: Daytime supervision programs, many day camps, in-home babysitting while you work, and care for a dependent who can’t care for themself may qualify. Overnight camps do not qualify. Programs that are primarily educational (school tuition) generally don’t qualify.
    • Employer Benefits: If your employer provides dependent-care assistance (a flexible spending account or dependent care benefit), that exclusion from income interacts with the CDCC and may reduce the amount you can claim as a credit. 
    • Documentation: Get the provider’s name, address, and tax identification (TIN or SSN), dates of care, and an itemized statement showing the amounts you paid.

Common Pitfalls

    • Treating Overnight Camp or Purely Educational Programs as Qualifying: these are typically excluded from the CDCC.
    • Failing to Confirm Earned-Income Limits: if one spouse’s earned income is low or zero for the year, the allowable credit amount may be clipped or disallowed entirely.
    • Not Collecting the Provider’s TIN or SSN — you need it for the tax return.

If you pay a relative who is not a licensed caregiver, or if you pay a teen who lives in your household, different rules might apply.

Summer Jobs for Children:

A teen’s first paycheck is an important life event — and it has tax consequences. 

    • Wages are taxable income to the child and should be reported on the child’s return if they exceed filing thresholds. If your child receives a Form W-2, that’s the primary documentation.
    • The child’s standard deduction generally shelters modest earned-income earnings, but you should check filing thresholds for the year because they change with inflation. Filing a return may still be necessary to get back withheld income tax.

When the child works for your business: Hiring your child in a legitimately documented role can be an effective way to teach good work habits, shift income to the child’s lower tax bracket, and sometimes help the child build Social Security credits — but there are rules you must follow:

    • Reasonable Wages: Pay a fair wage for the work performed. The IRS expects wages to be reasonable for the services provided, just like you’d pay to any employee. Keep time records, a job description and proof of payment (checks or payroll records).
    • Payroll and Reporting: Issue a Form W-2 and report payroll taxes if required. Depending on the business type and the child’s age, taxes like Social Security, Medicare, and unemployment tax may or may not apply. There are family-employment exceptions for certain business structures — for example, some sole proprietorships and family partnerships have special rules — but those rules are technical and depend on the business entity and state law. Ask a tax professional if you plan to rely on exemptions.
    • Household Employment: If you pay a child as a household employee (for babysitting or chores in your home), different household-employer rules may apply. These rules can require withholding and payroll tax reporting if payments exceed certain thresholds.
    • Kiddie Tax and Unearned Income: The “kiddie tax” rules treat a child’s unearned income (investment income, certain trust income) differently from earned wages. Wages from a summer job are earned income and are not subject to the kiddie tax, but if a child has income from investment accounts or has significant unearned income, that income may be taxed at the parent’s marginal tax rate. Keep wage and investment records separate for clarity.
      • Example A: Your 16-year-old works 12 weeks at a local shop and receives a Form W-2 from the employer. The wages are likely sheltered by the child’s standard deduction and produce little or no federal income tax, but you still need the W-2 for the child’s return.
      • Example B: Your teen works for your sole proprietorship doing legitimate bookkeeping and you pay a reasonable wage, document hours and issue a W-2. This is generally acceptable — but without documentation, the IRS may reclassify payments as owner draws or gifts.

Renting Your Home During Summer:

A short-term rental and the “14-day rule” (sometimes called the Augusta Rule) may apply to homeowners considering renting their primary residence for a week or two during a local event. The tax consequences depend largely on how many days you rent and how you use the property.

If you rent your home (or a portion of it) for 14 days or fewer in the year and use it personally for more days than you rent, the rental income you receive can be excluded from gross income. You do not report that excluded rent on your tax return. This rule can be an attractive, legal planning tool for homeowners who host short events. The rule is technical, so document the event (invoices, advertising, a rental agreement and a calendar). If you exceed 14 rental days, you can’t use the exclusion and must report the rental income and related expenses. (The exclusion applies only if personal use still exceeds rental days and other conditions are met.)

If you rent your home frequently, through platforms like Airbnb or VRBO, or rent more than 14 days, the hosting activity generally becomes reportable income. You’ll need to report gross receipts, and you may be able to deduct allowable expenses (cleaning, supplies, depreciation) subject to the rules for rental properties and potential passive loss limitations.

Short-term rentals may trigger local occupancy taxes (hotel taxes), the need for a business licenses or HOA restrictions. Don’t forget to check and comply with local rules.

For documentation, keep a calendar showing rental days and personal use days, rental agreements, invoices and proof of income received, and evidence of the event’s business purpose if using the 14-day rule (for example, the rental was for a client meeting or corporate retreat).

Travel – Vacation vs. Business, and How to Allocate:

Travel is common in summer, and tax questions often arise when a trip mixes business and pleasure.

    • Vacation Travel: Vacation costs are personal and not deductible. If you take a family vacation, there is no federal deduction for the lodging, airfare, or meals you pay.
    • Business Travel: If the primary purpose of travel is business, you may be able to deduct airfare, lodging, transportation, and other ordinary expenses. Self-employed taxpayers report these deductions on Schedule C; employees’ unreimbursed business expenses are generally not deductible for most taxpayers (check current law and exceptions for state tax purposes).
    • Mixed Trips: When a trip mixes business and personal time, you must allocate expenses. Only the portion of travel that’s ordinary and necessary for business is potentially deductible. Personal side trips or family travel costs are not deductible.
    • Recordkeeping: Keep agendas, meeting invitations, receipts for transportation and lodging, and notes on business activities and attendees.

Records and Documentation:

Audits are rarely about novel tax theory — they’re about whether you kept records and for how long. For summer activities, keep:

    • Provider statements for childcare (name, address, TIN/SSN, dates and amount paid)
    • Camp invoices and descriptions (day vs. overnight)
    • W-2s and payroll records for children who work
    • Time sheets, job descriptions and pay stubs if you employ a child in your business
    • Rental agreements, calendars, receipts and platform statements for any short-term rental of your home
    • Travel itineraries, meeting agendas and receipts for business travel

Keep records for at least three years after filing, and longer for items that may affect depreciation recovery or capital gain calculations, or if required by your state’s tax rules.

Common Mistakes to Avoid:

    • Assuming all summer programs qualify for the child and dependent care credit — overnight and educational programs typically don’t qualify.
    • Failing to collect the provider’s tax ID — the IRS requires provider information for the CDCC.
    • Paying a child informally with cash and no payroll documentation — if you treat the child as an employee, follow payroll rules; if not, don’t call the payment a wage on your return.
    • Misusing the 14-day rental exclusion — keep careful calendars and documentation; exceeding the limit changes the rules.
    • Mixing business and leisure travel without a contemporaneous agenda — the IRS expects contemporaneous documentation for business purpose.

Simple Summer Planning to Reduce Tax Surprises Later:

    • If you plan to marry, consider a quick tax projection before the wedding date to see how combined income and credits change withholding or estimated payments.
    • If you plan to hire your child in a family business, document the position, set reasonable pay, maintain payroll, and issue a W-2 if required. Don’t treat gifts or distributions as wages.
    • If you’ll rent your home, count the days carefully, keep a rental contract and receipts, and check for local tax obligations.
    • Keep a simple “summer tax folder” (digital or physical) with receipts, statements, and calendars so you won’t be scrambling for them at tax time.

Contact this office for help with questions — whether a particular summer activity qualifies as childcare, how to report your teen’s wages, or your short-term rental income.   

 

Trump Scam

Trump Accounts Scam Alerts: How to Protect Your Child’s Savings

by with No Comment ABLE Exclusive

Trump Accounts are a new type of tax-advantaged savings account designed for children under 18, with a government seed contribution available for certain children born between January 1, 2025, and December 31, 2028. Starting January 1, 2026, parents have been able to open these accounts for eligible children, though contributions aren’t permitted until July 4, 2026, or later.

Because Trump Accounts are new, they are likely to attract scammers. Anytime a financial program is new, fraudsters try to imitate official notices, brokerage messages, tax forms, or government communications. If your family has opened — or is planning to open — a Trump Account, it is important to know what legitimate communication looks like and what should immediately raise suspicion.

Some colleagues reported they have clients who have already received scam emails supposedly from the program’s sole broker-dealer, Robinhood Securities LLC, asking for certain information and trying to entice their clients to click on links embedded in the email.   

Common Scam Themes to Watch for:

Scammers may try to trick you by claiming they can:

    • “activate” a Trump Account for you,
    • speed up the $1,000 government seed contribution,
    • help you “claim” bonus money,
    • verify your child’s eligibility,
    • confirm identity information,
    • unlock funds or “fix” a problem with the account, or
    • send a link to complete setup right away.

A real setup process should not require you to hand over sensitive information to an unsolicited caller, text message, or random email. If you have or will establish the account through your tax return, this office will handle it through the proper filing process, not through an unexpected outside message.

Red Flags That Usually Mean “Scam”:

Be especially cautious if the message:

    • pressures you to act immediately,
    • threatens loss of money if you do not respond,
    • asks for your Social Security number, child’s Social Security number, passwords, or one-time codes,
    • asks for payment to “release” funds,
    • tells you to move money to a different account,
    • contains strange links, shortened URLs, or spelling errors,
    • comes from an unfamiliar email address or phone number, or
    • asks you to download software or share screen access.

The legitimate Trump Account financial institution will not need to “rush” you into providing sensitive information over a text message.

How to Tell Real Communication from Fake Communication

Since Robinhood Securities LLC is the sole broker-dealer for Trump Accounts, and scammers know that, then treat Robinhood-branded communication with extra care: verify it before you act.  Contact this office for assistance.

Real Communication is More Likely To:

    • appear inside the official Robinhood app or official account portal,
    • use clear, consistent branding,
    • reference your account in a professional, non-urgent way,
    • direct you to log in through the official app or by typing the website yourself, or
    • avoid asking for passwords, verification codes, or full Social Security numbers by email or text.

Fake Communication Often:

    • comes from a look-alike email address,
    • includes urgent language like “final notice” or “last chance,”
    • links to a copycat website,
    • asks you to “confirm” account information immediately, or
    • tries to move you away from the official app or normal tax-filing process.

Best Practices for Families

Here are simple ways to stay safe:

    • Do not click links in unexpected messages.

Open the official app or website yourself.

    • Verify before you act.

If a message claims to be from Robinhood, confirm it through official support channels.

    • Never share passwords or security codes.

No legitimate representative should ask for them.

    • Coordinate account setup through this office if applicable.

If you are using the tax return process, keep the setup within that workflow.

    • Watch for fake “seed money” offers.

The government’s seed contribution is only available under the program rules for eligible children, not through an unofficial claim form or social media ad.

    • Keep records of real communications.

Save screenshots and emails so you can compare future messages against them.

What to Do if You Suspect a Scam:

If you think a message is fraudulent:

    • Do not reply.
    • Do not click links.
    • Do not send money.
    • Contact Robinhood through its official app or website.
    • Notify your tax preparer if the message relates to account setup.
    • Change passwords if you may have shared information.
    • Monitor financial accounts for unauthorized activity.
    • Report the fraud to the appropriate authorities.

Bottom Line

Trump Accounts can be a valuable savings tool for children, but new programs often attract scammers. Real communications should be calm, specific, and verifiable. Fake communications rely on urgency, fear, and pressure.

When in doubt, stop and verify through the official Robinhood channel before taking any action.

Contact this office with questions.

IRMAA

IRMAA: The Stealth Retirement Tax Many Affluent Retirees Miss

by with No Comment Tax, AdvisoryABLE Exclusive

For many retirees, Medicare feels like a fixed part of retirement life: you sign up, pay your premiums, and move on. But for higher-income retirees, there is often a second layer of cost that catches people off guard. It is called IRMAA, the Income-Related Monthly Adjustment Amount, and although it shows up on a Medicare bill, it is really one more example of how retirement tax decisions can ripple through an entire financial plan.

That is why IRMAA is best understood not as a standalone Medicare issue, but as a stealth retirement tax—one that is shaped by income choices, account withdrawals, investment decisions, and timing. For affluent retirees and recent retirees in particular, it is rarely enough to ask, “What will my tax return look like this year?” The better question is, “How will this decision affect my taxes, my Medicare premiums, my cash flow, and my next few years of retirement income?”

That is where thoughtful planning becomes valuable.

What IRMAA Really Is

IRMAA is an income-based surcharge added to Medicare Part B and Part D premiums for higher-income beneficiaries. In plain English, it means that Medicare costs more when your income rises.

Many retirees are surprised by this because they think of Medicare as a health insurance program, not a tax-sensitive system. But IRMAA is triggered by your reported income, which means it is closely tied to the same planning decisions that affect your tax return. It is not unusual for a retiree to make a perfectly reasonable tax move and then be surprised when that move also increases Medicare premiums later.

That is the key point: IRMAA is not just about healthcare costs. It is about income management.

Why the Two-Year Lookback Surprises So Many Retirees

One of the biggest reasons IRMAA catches people off guard is the two-year lookback rule. Medicare does not usually base premiums on your most recent tax return. Instead, it generally looks back to income from two years earlier.

That timing creates a disconnect.

A retiree may make a major financial decision today and not feel the impact until much later, when Medicare premiums adjust based on the prior year’s tax return. By then, the transaction is long finished, the portfolio move is already on the books, and the premium increase feels disconnected from the original decision.

This is why so many retirees say the same thing: “I had no idea that decision would affect my Medicare costs.”

A good planning process helps eliminate that surprise by looking beyond the current year and considering the next several years together.

IRMAA Is Really a Tax Planning Issue, Too

It is tempting to think of IRMAA as a Medicare problem. In practice, it is often a tax planning issue wearing a Medicare mask.

Why? Because the same income items that matter on a tax return can also affect Medicare premiums. That includes:

    • Retirement account withdrawals
    • Roth conversions
    • Capital gains
    • Business or consulting income
    • Pension income
    • Social Security coordination
    • Required Minimum Distributions
    • Investment income that pushes up adjusted gross income

In other words, the premium is not just a Medicare issue. It is the byproduct of a broader retirement income strategy.

This is why retirement planning should be coordinated across disciplines. Tax planning, investment planning, retirement income planning, and Medicare decisions all belong in the same conversation.

The Planning Problem: Many Decisions Work in Isolation, But Retirement Doesn’t

A common mistake is to treat each retirement decision as a separate event.

A client sells appreciated stock in one year. A client does a Roth conversion in another. A client begins Social Security at a different time. A client takes RMDs later. A client withdraws from an IRA to cover living expenses when it feels convenient.

Each decision may make sense on its own. However, when viewed together, they can create an income pattern that unnecessarily raises taxes and Medicare premiums.

That is why multi-year planning matters so much. Retirement is not one tax year at a time. It is a series of interconnected years, and decisions made today often affect several years ahead.

Common Retirement Decisions That Can Affect IRMAA

1. Roth Conversion Timing

Roth conversions can be an excellent planning tool. They can help reduce future taxable income, manage long-term tax exposure, and create more flexibility later in retirement.

But a conversion also increases current-year taxable income, which can affect Medicare premiums two years later.

That does not mean Roth conversions are a bad idea. It means the timing matters.

A well-planned conversion strategy considers questions such as:

    • Should conversions be spread across several years?
    • Are there lower-income years available for strategic conversions?
    • Will a conversion push income into a range that creates avoidable Medicare premium increases?
    • Is the long-term tax benefit worth the short-term income increase?

In many cases, the answer is yes—but the conversion should be coordinated thoughtfully, not done in isolation.

2. Capital Gains Recognition

Selling appreciated investments can be a wise move for portfolio rebalancing, liquidity, or estate planning. But recognized gains can also increase income for IRMAA purposes.

That is especially relevant for retirees who are no longer working and now have more control over the timing of gains. A large sale, a concentrated position reduction, or the sale of a business interest can all create a tax ripple effect.

The planning opportunity is not necessarily to avoid selling. It is to ask whether the sale should happen this year, next year, or in stages.

3. Required Minimum Distributions

RMDs are one of the most important income drivers in retirement. Once they begin, they can create a baseline level of taxable income that is hard to avoid.

For many retirees, RMDs are not just a tax issue—they are a cash flow and Medicare issue as well.

    • A thoughtful strategy may include:
    • Reducing future RMDs through earlier planning
    • Coordinating withdrawals before RMDs begin
    • Using Roth conversions in lower-income years
    • Balancing withdrawals against expected Social Security and investment income

The earlier these decisions are reviewed, the more flexibility a retiree usually has.

4. IRA Distribution Timing

Retirees often think of IRA withdrawals as flexible. And in many cases they are. But the timing of those withdrawals can matter just as much as the amount.

Taking a distribution to pay for a one-time expense may seem harmless. But if that distribution causes higher income in a year that later affects Medicare premiums, the true cost of the withdrawal may be higher than expected.

That does not mean you should avoid using retirement accounts. It means those withdrawals should fit into an overall plan rather than be made reactively.

5. Social Security Claiming Coordination

Social Security claiming is another area where tax and Medicare planning intersect.

The decision to begin benefits is often framed as a break-even calculation, but that is only part of the story. The real question is how Social Security interacts with other income sources:

    • Will benefits be layered on top of IRA withdrawals?
    • Will deferred claiming create a larger future income stream that affects Medicare premiums?
    • Would earlier claiming allow more controlled withdrawal planning from retirement accounts?
    • How does the decision fit with the client’s cash flow needs and tax bracket strategy?

The best claiming strategy is often the one that works across the entire retirement income picture, not just one isolated objective.

Common Misconceptions About IRMAA

“Nothing can be done about it.”

This is one of the most common misconceptions. While some income increases are unavoidable after they occur, many future decisions are still within your control.

You may not be able to change the past, but you can often influence the next two, three, or five years through better planning.

“It’s just a Medicare issue.”

Not really. IRMAA is driven by taxable income, which makes it part of a broader tax strategy. Medicare is simply where the cost shows up.

“There’s no planning involved.”

Actually, there is a great deal of planning involved. The challenge is that the planning is not always obvious. It may involve investment sales, account withdrawals, pension timing, Roth conversions, or Social Security coordination.

“Once the premium is determined, I’m stuck.”

Not always. Some premium adjustments may be tied to recent events, and some situations may warrant a review. Even when a current premium is already set, future income decisions can often be better structured to avoid repeating the same result.

Practical Examples of IRMAA in Real Life

The retiree doing a large Roth conversion

A couple retires early and has several lower-income years before RMDs begin. They want to convert a large portion of an IRA to a Roth account. That may be a smart move long-term, but if the conversion is too aggressive in one year, it could push them into a higher Medicare premium bracket later.

A more refined approach might spread the conversions over several years, balancing tax efficiency against premium impact.

The investor selling appreciated assets

A retiree sells a highly appreciated stock position to simplify the portfolio and reduce concentration risk. The sale creates a meaningful capital gain. That may be entirely appropriate, but it should be reviewed in the context of the retiree’s other income for that year.

If there is flexibility, the sale might be broken into stages or coordinated with a lower-income year.

The retiree beginning RMDs

A client reaches the age when RMDs begin and suddenly sees taxable income rise. That increase may also affect future Medicare premiums.

The answer is usually not to panic. It is to plan ahead for the transition, looking at whether earlier withdrawals or Roth strategies could have softened the impact.

The Social Security plus IRA withdrawal combination

A retiree starts Social Security and also takes IRA withdrawals to cover living expenses. On paper, the cash flow works well. But if the combined income creates a steep increase in future Medicare premiums, the overall retirement cost may be higher than expected.

A coordinated strategy can sometimes create the same spending power with less tax friction.

The retiree managing income after leaving work

A new retiree often has a temporary window where income is lower than it will be later. That can be a valuable planning opportunity. It may be the ideal time to review Roth conversions, portfolio rebalancing, or withdrawals before Social Security and RMDs begin to stack on top of each other.

This is exactly the kind of window that should not be wasted.

Why Multi-Year Planning Matters

Retirement tax planning is not just about minimizing this year’s tax bill. It is about managing lifetime outcomes.

A good plan considers:

    • Current-year taxable income
    • Future required withdrawals
    • Potential Roth conversion opportunities
    • Social Security timing
    • Investment realization strategy
    • Medicare premium exposure
    • Cash flow needs across multiple years

That broader view is where real planning value appears.

Sometimes the smartest move is to recognize income in a controlled way now in order to reduce future tax pressure. Other times, the smartest move is to preserve flexibility and keep income lower during a year when Medicare premiums would otherwise jump. The point is not that one strategy always wins. The point is that the decision should be intentional.

The Advisor’s Role

Clients do not need to become experts in Medicare rules. They need an advisor who understands how retirement income decisions interact.

That is why a retirement tax planning meeting can be so valuable. It allows the advisor to look at the full picture and help coordinate decisions before they are made.

A productive meeting may review:

    • Expected income for the next several years
    • Roth conversion opportunities
    • RMD timing
    • Social Security coordination
    • Capital gain realization
    • Retirement account withdrawal sequencing
    • The possible Medicare premium effect of each decision

That is a very different conversation from simply asking, “What will my tax return show?”

Final Thoughts

IRMAA is rarely just about Medicare.

It is one of many interconnected retirement planning issues that can affect taxes, retirement income, Social Security coordination, Required Minimum Distributions, cash flow, and long-term financial outcomes. For affluent retirees and recent retirees, it is often a reminder that every income decision has more than one consequence.

The good news is that this complexity creates opportunity. With proactive planning, many of these decisions can be coordinated instead of left to chance. That coordination may not eliminate every premium increase, but it can often reduce unnecessary surprises and improve the overall efficiency of a retirement plan.

Good retirement planning is not about reacting after the fact. It is about coordinating today’s decisions to avoid tomorrow’s surprises.

If you are approaching retirement, already enrolled in Medicare, or making decisions about Roth conversions, IRA withdrawals, Social Security, or investment sales, now is the time to schedule a retirement tax planning meeting. A thoughtful review today may help you avoid costly surprises later—and make your retirement income strategy far more effective.

property tax

Florida Is Rethinking Property Taxes. Other States Are Watching Closely.

by with No Comment ABLE Exclusive

For years, Florida’s tax reputation has been relatively simple:

    • No state income tax.
    • Moderate property taxes.
    • Heavy reliance on sales taxes and tourism.

Now, that formula may be changing.

In recent weeks, Florida lawmakers and Governor Ron DeSantis have advanced a series of tax proposals ranging from targeted tax breaks to one of the most ambitious property tax overhauls currently under discussion anywhere in the United States. The debate is drawing attention far beyond Florida because it raises a larger question: If one of America’s fastest-growing states can significantly reduce property taxes, could others follow?

The Tax Package That Actually Passed

Despite early discussions about cutting Florida’s gas tax, lawmakers ultimately moved in a different direction.

The final tax package approved by the Legislature includes a collection of targeted tax reductions, exemptions, and sales-tax holidays rather than a broad gas-tax cut. Among the provisions are tax relief measures for outdoor recreation purchases, hunting and fishing equipment, aviation fuel, and certain business taxes. Lawmakers also continued discussions about using tourist-development tax revenues for broader tax relief purposes.

While none of those measures are likely to transform a family’s finances overnight, they reflect a broader effort to provide tax relief without introducing an income tax or significantly increasing state debt.

The Bigger Story: Property Taxes

The real headline here isn’t the tax package, though.

It’s property taxes.

In late May and early June, Florida lawmakers approved a proposed constitutional amendment that would dramatically expand the state’s homestead exemption if voters approve it in November 2026. Under the proposal, the homestead exemption would increase from $50,000 today to $150,000 in 2027 and eventually to $250,000 in 2028. For some homeowners, that could eliminate most or all non-school property taxes.

Supporters argue the proposal is a logical response to rising housing costs, soaring insurance premiums, and rapid increases in property values across much of the state. Critics worry about the impact on local government budgets and the services those taxes help fund.

Florida Is Even Discussing Property Tax Elimination

If that sounds dramatic, the conversation has gone even further.

Governor DeSantis has publicly discussed long-term plans that could eventually eliminate property taxes on homestead properties altogether, positioning Florida as a state with neither a personal income tax nor meaningful property taxes on primary residences. Several legislative proposals this year explored versions of that concept, though some stalled before reaching the ballot.

Whether full elimination is politically or financially realistic remains an open question.

According to analysis from the Tax Foundation, replacing all property tax revenue would require major changes elsewhere in the tax system and could significantly increase reliance on sales taxes or other revenue sources.

Why the Rest of the Country Should Care

Florida’s debate matters because it reflects a broader national trend.

Across the country, policymakers are increasingly focused on property taxes.

Unlike income taxes, which many taxpayers only think about once a year, property taxes arrive annually and are often impossible to ignore. Rising home values have pushed tax bills higher in many markets, leading to growing pressure for relief.

We’ve already seen:

    • Property tax relief proposals in Texas
    • Expanded homestead exemptions in several states
    • New tax-credit programs aimed at homeowners
    • Growing efforts to shift local government funding away from traditional property taxes

Florida simply happens to be pursuing one of the most aggressive versions of that idea.

The Potential Tradeoffs

The challenge is that property taxes fund many local services Americans rely on every day.

Depending on the jurisdiction, property tax revenue may support:

    • Police and fire protection
    • Roads and infrastructure
    • Libraries
    • Parks
    • Local government operations
    • Public schools

Florida’s current proposals generally preserve school funding while targeting other property-tax obligations, but local officials have still expressed concerns about long-term revenue impacts.

That’s why many tax experts argue the real debate isn’t whether taxpayers want lower property taxes.

It’s what replaces the revenue if those taxes disappear.

A New Twist: New Residents May Not Get the Same Benefit

One controversial aspect of the Florida proposal is that some of the largest benefits could be reserved for existing Florida residents.

Under current discussions, homeowners who establish Florida residency before the end of 2026 could potentially qualify sooner for expanded exemptions than those who move to the state later. Critics argue that could create a two-tier system, while supporters say it rewards current residents who have absorbed years of rising housing costs.

Florida’s 2026 tax debate is no longer just about sales-tax holidays or niche tax breaks. It’s become one of the country’s most closely watched experiments in property tax reform.

Whether voters ultimately approve the proposed constitutional amendment remains to be seen. But the discussion itself reflects a growing reality nationwide: As housing costs continue to rise, property taxes are becoming one of the most politically important taxes in America.

Florida may simply be the first state trying to rewrite the rules.

 

blog photo

Unlocking Healthcare Savings: How HSAs and HDHPs Can Combat Rising Insurance Costs

by with No Comment ABLE Exclusive

In the face of escalating healthcare costs, many individuals and families are seeking innovative strategies to manage expenses effectively. One emerging alternative gaining traction is the combination of Health Savings Accounts (HSAs) and High-Deductible Health Plans (HDHPs). This dynamic duo not only empowers consumers with greater control over their healthcare spending but also offers potential tax advantages, making it an appealing option in today’s financial landscape. As traditional health insurance premiums continue to rise, understanding how HSAs coupled with HDHPs can serve as a viable solution is increasingly important. This article explores the benefits, considerations, and potential savings these plans offer, providing a comprehensive overview for those looking to take charge of their healthcare finances.

At its core, a Health Savings Account is a tax-advantaged account available to individuals enrolled in High-Deductible Health Plans (HDHPs). HSAs allow individuals to contribute funds that are not taxed when deposited, grow tax-free, and whose withdrawals for qualifying medical expenses are tax-free.

The Structure and Benefits of HSAs 

HSAs are uniquely structured to offer a triple tax benefit—a feature that sets them apart from many other savings and investment accounts:Death of an Account Owner: Upon an account owner’s death, the HSA’s outcome depends on the beneficiary. If transferred to a spouse, the HSA remains intact as a spousal account. For non-spouse beneficiaries, the account’s value becomes taxable income.

    • Tax-Deductible Contributions: Contributions to an HSA are made with pre-tax dollars, reducing an individual’s taxable income. This can lead to substantial tax savings, particularly for individuals in higher tax brackets.
    • Tax-Free Growth: Within the account, funds accumulate without being taxed on interest or investment earnings. This allows the balance to grow over time without the erosion of taxes that typically affect other types of accounts.
    • Tax-Free Withdrawals: When funds are used for qualified medical expenses, HSA withdrawals are not taxed. This provides significant financial relief by covering a wide range of healthcare-related costs without additional tax burdens.
    • Non-Medical Withdrawals: Before age 65, if withdrawn funds are not used for qualified medical expenses, they are taxable and subject to a 20% penalty.
    • Post-Age 65 Withdrawals: Once reaching age 65, distributions other than for medical purposes can be taken penalty-free, although they are taxable income (like traditional IRAs).
Use as Retirement Vehicle

Establishing and contributing to an HSA can be more than just a way for individuals to save taxes and gain control over their medical care expenditures. It can also be a retirement vehicle, especially for taxpayers who are maxed out on their other retirement plan options or who can’t contribute to an IRA because of the income limitations that apply when covered by an employer’s plan.  There is no requirement that medical expenses must be paid or reimbursed from the HSA, so a taxpayer can maximize tax-free growth in the account by using funds from other sources to pay routine medical costs.  Later, distributions can be used tax-free to pay post-retirement medical expenses.  Or, if used for non-medical purposes, an individual aged 65 or older will pay income tax but not a penalty on the distribution.  Unlike IRAs, no minimum distributions are required to be made from HSAs at any specific age.

Eligibility for HSAs:

To participate in an HSA, an individual must meet specific criteria:

    • Enrollment in an HDHP: An individual must be covered by a High-Deductible Health Plan that meets the IRS-set minimum deductible and maximum out-of-pocket thresholds.
    • No Other First-Dollar Coverage: The individual should not have any other insurance that provides coverage before the HDHP deductible is met (with exceptions for certain types of insurance, such as dental, vision, and long-term care).
    • Not Enrolled in Medicare: Contributing to an HSA is restricted if the account holders have Medicare or VA coverage. Generally, HSA contributions aren’t allowed if you’re enrolled in Medicare, which typically begins at age 65. However, account holders can still spend down existing HSA funds.
    • Have VA Coverage: An account holder may be an eligible individual even if they receive hospital care or medical services under any law administered by the Secretary of Veterans Affairs for a service-connected disability. (IRS Pub 969 (2024)).
    • Dependency Status: The account holder cannot be claimed as a dependent on another person’s tax return.
High-Deductible Health Plan (HDHP)

An HDHP is a type of health insurance characterized by lower monthly premiums and higher annual deductibles than traditional plans. Under an HDHP, you typically pay the full cost of medical care out of pocket until you reach your deductible, after which the insurance company begins to share costs through coinsurance or copayments. 

    • 2026 IRS Requirements – For a plan to be classified as a “qualified” HDHP in 2026, it must meet specific financial thresholds set by the IRS:
      • Minimum Deductible: At least $1,700 for self-only coverage or $3,400 for family coverage.
      • Maximum Out-of-Pocket Limit: Total out-of-pocket expenses (including deductibles and coinsurance, but not premiums) cannot exceed $8,500 for self-only or $17,000 for family coverage. 

Note: Starting in 2026, all individual marketplace Bronze and Catastrophic plans are reclassified as qualifying HDHPs, even if they do not meet these standard financial limits. 

Also new beginning in 2026 is that an individual with an HDHP may also enroll in a “direct primary care arrangement” without jeopardizing their eligibility for their HSA. This is an arrangement where medical cares provided to the individual consists solely of primary care services provided by a primary care practitioner for a fixed period fee not exceeding $150 per month or $300 per month if the arrangement covers more than one individual. The dollar limits will be inflation-adjusted annually after 2026. Fees paid for a direct primary care service arrangement are treated as medical expenses (and not the payment of insurance).

    • Key Features:
      • HSA Eligibility: HDHPs are the only health plans that can be paired with a Health Savings Account (HSA), which allows you to set aside pre-tax money for medical expenses.
      • Preventive Care: Most plans cover in-network preventive services (such as vaccinations and screenings) at 100% with no deductible.
      • Telehealth: New regulations allow HDHPs to cover telehealth and remote care services before the deductible is met without losing HSA eligibility. 
Contribution Limits

Contribution limits are annually inflation-adjusted and deductible above the line, thereby reducing a taxpayer’s AGI.  The contribution limits for 2026 are:

    • Self-Only Coverage: $4,400
    • Family Coverage: $8,750
    • Age 55+ Catch-Up Contribution: $1,000  
      • Married Taxpayers: If both spouses are 55+ and eligible, each can contribute an additional $1,000 to their own separate accounts.
    • Excess Contribution Penalty: Both the employer and the employee can contribute to an HSA, with employee contributions made either via payroll deductions or direct deposit to the account. If contributions exceed the annual limit, the excess amount can be withdrawn by the tax-filing deadline, including extensions, to avoid a 6% excise tax penalty for over-contribution.
    • Tax Deduction: An account holder can deduct contributions to his HSA even if someone else (e.g., a family member) makes them. (Code Sec. 62(a)(19)) Employer contributions to an HSA are excludable from the employee’s income, so these contributions are not deducted on the employee’s tax return. Distributions for qualifying medical expenses are tax-free, but these same medical expenses can’t be used as a Schedule A medical deduction.
Qualified Medical Expenses

Are unreimbursed expenses paid by the account beneficiary, his or her spouse, or dependents for medical care as defined in Code § 213(d), i.e., generally the same definition used for itemized deduction medical expenses. Additional items specifically included are:

    • Over-the-counter drugs
    • Insulin
    • Feminine menstrual products
    • COVID-19 personal protective equipment

Qualified medical expenses encompass a wide range of health-related costs, including doctors’ fees, hospital services, and prescription medications.  

Generally, health insurance premiums are not qualified medical expenses for HSA purposes, except for the following:

    1. Qualified long-term care (LTC) insurance, but only up to the annual age-based limit that applies for deducting long-term care premiums as medical expenses,
    2. COBRA health care continuation coverage,
    3. Health care coverage while receiving unemployment compensation, and
    4. For individuals age 65 or over, premiums for Medicare Parts A, B, or D, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including employer-sponsored retiree health insurance (but not Medigap policies).
Non-Qualified Distributions

Distributions from an HSA are permitted at any time, and if used exclusively to pay for qualified medical expenses of the account beneficiary, his or her spouse, or dependents, are excludable from gross income. Distributed amounts not used to pay for qualified medical expenses are includible in the account beneficiary’s gross income and are subject to a 20% penalty tax. However, the penalty does not apply if the distribution is made on account of the beneficiary’s:

    • Death,
    • Disability, or
    • Attaining age 65.

Amounts withdrawn from an HSA to pay for the account’s administration and maintenance fees are not treated as taxable distributions. If these fees are paid directly by the account beneficiary or employer, they will not be considered contributions to the HSA and therefore will not count toward the annual contribution maximum.

    • Correcting Non-Qualified Distributions – If an HSA distribution was mistakenly made due to a reasonable cause, the account beneficiary can repay it by April 15 of the year after they realize the mistake. In this case, the distribution isn’t included in gross income, isn’t subject to the 20% additional tax, and the repayment isn’t subject to excise tax on excess contributions.
How HSA Accounts Are Established

An HSA can be established through a qualified trustee, such as a bank, credit union, or other approved institution. Notably, there is no requirement for earned income to open an HSA. Contributions can come from the account holder, their employer, or another individual, but only cash may be contributed—not stocks or other property.

For those navigating the complexities of healthcare savings and insurance options, seeking personalized advice can make all the difference. Whether you have questions about Health Savings Accounts, High-Deductible Health Plans, or other financial strategies, we’re here to help. Contact this office to schedule a consultation, explore options, and assist you in making informed decisions that align with your healthcare and financial goals.  

 

sports

Game, Set, Tax: The Parents’ Playbook for Sports Expenses, Deductions, and NIL

by with No Comment ABLE Exclusive

A child’s and their parent’s sports expenses, from registration fees and travel to equipment and volunteer time, sit at the intersection of personal, medical, charitable and business tax rules. For tax‑minded parents the key is sorting each cost into the correct box, documenting it carefully, and understanding the limited circumstances when a deduction or credit is available. This article walks through the major categories: possible child‑care treatment, charitable contributions and volunteer out‑of‑pocket expenses, medical‑expense exceptions, and when a child’s sport activity can be treated as a business.

As a Child‑Care Expense: There are limited situations when sports costs will qualify. The child and dependent care credit (and associated employer‑provided dependent care benefits) is aimed at expenses that enable a parent (or parents) to work or look for work. Eligible care is generally custodial care for a qualifying individual, most commonly a child under age 13.

What Does Not Count: Tuition for lessons, private coaching, sports camps that are primarily instructional (i.e., teaching athletic skill rather than providing care), summer school and tutoring are treated as educational and therefore do not qualify. Likewise, kindergarten or private school tuition is not eligible.

What Counts: Fees for day camps and similar custodial programs generally do qualify as dependent‑care expenses if the care is primarily custodial and not mainly educational. Day camps that provide supervision during work hours often meet the test. Overnight camps are not eligible.

If a program combines athletic instruction and custodial care, only the portion of the cost allocable to custodial care is eligible. This requires reasonable allocation and substantiation in the event of a tax audit.

Example: paying for a weeklong day camp whose primary purpose is supervised childcare for working parents is likely eligible for the credit; paying for an elite week‑long skills camp where most time is instruction rather than supervision generally is not.

Charitable Contributions: Donations to youth sports nonprofits and quid pro quo payments:

    • Cash donations: parents who make true gifts of money to a qualified 501(c)(3) youth sports organization can claim an itemized charitable deduction for the donated amount (subject to the usual AGI limits and substantiation rules). If the taxpayer receives a benefit in return — e.g., a ticket to a fundraiser or a uniform — only the amount that exceeds the fair market value of the benefit is deductible (a quid pro quo contribution).
    • Payments to Participate: Fees paid to register a child for a nonprofit’s program are usually payments for services (considered program fees) rather than pure charitable gifts. If the registration is essentially a payment for admission or participation, it is not a deductible charitable contribution. Where a program has a subsidized “scholarship” option or a voluntary donation component, only bona fide voluntary gifts to the nonprofit qualify.
    • Substantiation: Get the organization’s name, EIN, the amount, and contemporaneous written acknowledgement for any single donation of $250 or more. Document any benefits received and the fair market value estimate for non-cash donations.

Volunteering Parents: Unreimbursed Out‑of‑Pocket Expenses:

  • Deductible Volunteer Expenses: While the value of donated time or services is not deductible, many out‑of‑pocket costs incurred while volunteering for a qualified charity are deductible as charitable contributions. Examples include:
    • Supplies and equipment purchased for the nonprofit (e.g., marking cones, field‑maintenance supplies) that you donate.
    • Uniforms required by the organization that are not suitable for everyday wear.
    • Travel costs incurred while performing volunteer duties (e.g., transporting equipment or players or traveling between sites). For automobile use, volunteers generally may deduct either actual out‑of‑pocket costs or charitable mileage rate set by Congress, which has been 14 cents per mile for many years.  A mileage deduction isn’t allowed if the volunteer’s own child was among those being driven  
    • Lodging and meals when the travel is away from home overnight for the charity (subject to the usual business‑vs‑personal tests and substantiation).
  • What is Not Deductible: The fair rental value of allowing a charity to use your property (see next section), and the value of your time. The costs of items purchased specifically for use by your child participating in the activity (e.g., a baseball glove or uniform) aren’t deductible.
  • Substantiation: Keep receipts, mileage logs showing date, purpose, miles driven and the charity’s name, and written acknowledgements for donated items.

Use of an Asset by a Charity: No deduction is allowed for mere use. Core rule: allowing a charity to use an asset you own (lending your field, permitting a nonprofit to use your boat, computer or home for activities) is not the same as donating the asset. The IRS generally disallows a charitable deduction for the value of the use of property.

    • Donation vs. Use:
      • Deductible: If you transfer ownership of tangible property (e.g., you donate sports equipment, you convey the field or transfer title to an asset), the value of that contributed property may be deductible (subject to normal rules about basis, fair market value, and limits), provided you itemize your deductions rather than claiming the standard deduction.
      • Not deductible: If you simply let the nonprofit use your private tennis court for tournaments for a season but retain ownership and the right to reclaim use, you cannot deduct an imputed rental value or the “use” of the court.

Example: Buying and giving new soccer goals to a nonprofit is a deductible charitable contribution (document value and transfer). Letting the club use your privately owned net and goals for a month without transferring ownership is not deductible.

Practical nuance: If you rent your property to a nonprofit at a below‑market rate, the difference between fair market rent and the amount charged could be considered a charitable contribution only in narrow circumstances and requires careful valuation and documentation; consult counsel.

Medical Expense Exception: Prescribed activities for children with special needs may meet the definition of medical expenses that are primarily for the prevention or alleviation of a physical or mental disability or illness and may be deductible to the extent they exceed the floor (7.5% of adjusted gross income). The expense must be primarily medical in nature.

    • Sports and therapy: In very specific cases a doctor’s prescription that a child undertake a particular physical activity (for example, therapeutic horseback riding, specialized swimming therapy, or adaptive sports training) may make related costs deductible as medical expenses. To meet the IRS standard:
      • There must be a written recommendation or prescription from a licensed medical professional stating the medical necessity.
      • The activity must be primarily for medical care or treatment, not merely general health or recreation.
      • Costs must be reasonable, ordinary for the treatment, and not reimbursed.
    • High bar and examples: A physician prescribing therapeutic horseback riding for a child with cerebral palsy could support deductibility of fees and certain related costs (lessons, specialized equipment) if well documented; by contrast, ordinary travel to recreational soccer practice for a child with asthma would not meet the medical necessity threshold.
    • Documentation: Keep the physician’s prescription, notes showing the medical condition and treatment plan, invoices, receipts and any program descriptions demonstrating the therapeutic nature of the activity.

When a Child’s Sport Becomes a Business: Profit motive matters. If a child participates in a sport with a bona fide profit objective (e.g., competing for significant prize money, endorsement deals, or providing paid coaching services), the activity could be a trade or business. In which case:

    • Income (prize money, sponsorships, appearance fees, Name, Image, and Likeness (NIL) deals for college athletes) is taxable.   
    • Related ordinary and necessary business expenses are deductible against that income if the activity is carried on for profit. If the activity is classified as a hobby, expenses are not deductible.
    • Self‑Employment (SE) Tax: Net earnings from a child’s self‑employment (including independent contracting for sports appearances or coaching) are subject to self‑employment tax if above thresholds — remember this can create both income tax and SE tax obligations.
    • Kiddie Tax and Earned Income: Wages and business income earned by a child are considered earned income and generally are not subject to the “Kiddie Tax” rules that apply to unearned investment income. 
    • NIL Income for College Athletes: Payments for name, image and likeness are taxable. Whether the compensation is treated as wages received as an employee or independent contractor income depends on the arrangement. College athletes receiving NIL payments should report them and keep records; some NIL arrangements generate self‑employment tax and the need to issue/receive 1099 forms.

Recordkeeping and Practical Guidance: Be conservative and document everything. For dependent care credit claims, retain invoices and evidence the expense enabled employment. For charitable deductions, keep the nonprofit’s EIN, written acknowledgements for gifts of $250+, and receipts for out‑of‑pocket volunteer expenses and mileage logs. For medical deductions tied to prescribed activities, preserve physicians’ orders and program descriptions showing therapy focus.

    • Allocate mixed‑purpose expenses. If a program mixes custodial care and instruction, or combines medical therapy and recreation, allocate costs between deductible and nondeductible portions on a reasonable basis and document your method.
    • Beware of quid pro quo transactions. Payments that secure benefits, privileges, or services are often partially nondeductible — only the charitable portion is deductible.

The lines between childcare, charitable, medical, and business treatment can be thin and fact‑specific. Large prizes, long‑term NIL arrangements, substantial volunteer program costs or donated property with complex valuation all merit professional review. Contact this office for assistance.

covid

Surprise Refund Opportunity? Millions of Taxpayers May Be Owed COVID-Era Penalty Refunds

by with No Comment Tax, AdvisoryCovid-19ABLE Exclusive

The pandemic disrupted… well, everything.

Business operations. Filing deadlines. IRS processing. Even the way taxpayers interacted with the government changed almost overnight.

Now, years later, a federal court case is reopening a question many assumed was already settled:

Did the IRS improperly assess certain penalties and interest during the COVID era?

And if so…

Could taxpayers actually get that money back?

For millions of individuals and businesses, the answer may be yes.

Why This Matters Right Now

A recent federal court decision interpreted disaster relief rules in a way that could dramatically expand pandemic-related deadline relief for taxpayers.

The ruling centers around a provision in the tax code that automatically postpones certain tax deadlines during federally declared disasters.

Since the federal COVID disaster declaration remained in effect from January 2020 through May 2023, the court concluded that many filing and payment deadlines during that window may have been postponed much longer than previously understood.

The practical impact?

Some penalties for late filing, late payment, and even related interest charges assessed during the pandemic years may not have been legally owed in the first place.

That means taxpayers who paid those amounts could potentially qualify for refunds.

The Clock Is Already Ticking

Here’s the part taxpayers shouldn’t ignore:

For many people, the deadline to preserve refund rights may be July 10, 2026.

That deadline is tied to the statute of limitations for filing refund claims with the IRS.

And this is where things get tricky.

The legal issue is not fully resolved yet. The federal government is expected to challenge the court’s decision through the appeals process.

But waiting for the final outcome could create a problem.

If taxpayers miss the filing deadline while the case works its way through the courts, they could permanently lose the ability to claim a refund later — even if the courts ultimately rule in favor of taxpayers.

That’s why many advisors are encouraging affected taxpayers to consider filing what’s called a “protective refund claim.”

What Is a Protective Refund Claim?

Think of it like reserving your place in line.

A protective refund claim doesn’t guarantee a refund.

Instead, it preserves your right to request one later if the courts ultimately uphold the broader interpretation of the COVID-era deadline relief rules.

Without filing a claim before the statute expires, taxpayers may lose the ability to recover certain penalties and interest altogether.

Who Could Be Affected?

Potentially affected taxpayers may include:

    • Individuals who filed tax returns late during the pandemic years
    • Businesses assessed late payment penalties
    • Taxpayers who entered installment agreements after penalties accrued
    • Individuals or companies who paid significant IRS interest charges between 2020 and 2023
    • Taxpayers whose filing or payment deadlines fell during the federal COVID disaster period

This could apply across multiple tax years and multiple return types.

In some situations, the potential refunds may be relatively small.

In others — particularly for businesses or higher-income taxpayers with larger balances due — the amounts could be substantial.

There’s One Big Frustration

Ironically, the process itself may feel a little… outdated.

Current guidance indicates these refund claims generally must be submitted on paper rather than electronically.

That means taxpayers may need to prepare and mail formal documentation to the IRS to preserve their rights.

Not exactly ideal in 2026.

It’s one reason taxpayer advocates are pushing for broader systemic relief rather than requiring millions of individual paper filings.

Why This Could Become a Bigger Story

This issue highlights something many taxpayers learned during the pandemic:It is one of the largest financial decisions many families make.

Tax law gets complicated fast when emergency relief measures collide with real-world administration.

The IRS issued wave after wave of temporary guidance during COVID. Filing dates shifted. Payment deadlines changed. Enforcement priorities evolved.

Now the courts are stepping in to clarify whether some of those timelines were applied correctly.

And depending on how the appeals process unfolds, this could become one of the more significant post-pandemic taxpayer relief developments we’ve seen.

What Taxpayers Should Do Now

If you or your business paid IRS penalties or interest connected to filing or payment delays during the COVID years, this is worth reviewing sooner rather than later.

Waiting until the legal outcome is finalized may not be the safest strategy if filing deadlines expire first.

Every taxpayer situation is different, and eligibility may depend on timing, tax years involved, and the specific penalties assessed.

Questions About Whether You May Qualify?

If you believe you may have been affected by COVID-era IRS penalties or interest charges, contact our office.

We can help review your situation, determine whether filing a protective refund claim makes sense, and help you understand the potential opportunities — before important deadlines pass.