Offering paid family and medical leave (PFML) can help businesses attract and retain employees while providing workers with financial support when they need time away to care for themselves or their families. The Section 45S PFML tax credit can help eligible employers offset some of the costs.

The One Big Beautiful Bill Act (OBBBA) made the credit permanent and expanded it beginning in 2026, potentially making it available to more employers. The IRS has issued Notice 2026-28 to provide guidance on the expanded credit. Employers that offer PFML should familiarize themselves with the new rules to determine whether they qualify and how best to take advantage of the credit. Employers that don’t currently provide PFML may want to consider whether doing so might now be more feasible because of the expanded credit.

What’s the PFML tax credit?

The PFML tax credit was created by the Tax Cuts and Jobs Act (TCJA) and is available to employers that provide qualifying employees with paid leave consistent with the Family and Medical Leave Act (FMLA), regardless of whether the FMLA applies to them. Under the TCJA, eligible employers can claim a general business credit for a portion of the actual cost of PFML wages that have been paid out, with the percentage depending on how PFML wages compare with the employee’s normal wages.

If PFML wages are 50% of normal wages, the credit is 12.5% of PFML wages paid. The rate climbs to 25% ratably as PFML wages increase from 50% of normal wages to 100%. The amount of PFML wages for which an employer can claim the credit is limited to 12 weeks per employee per year.

A qualifying employee is a full- or part-time employee who’s worked for the employer at least one year. The employee also can earn no more than 60% of the “highly compensated employee” limit (for 2026, no more than $96,000).

The credit is available only for leave taken after the employer has a written PFML policy in place. Among other things, the policy must provide at least two weeks of PFML annually (prorated for part-time employees), FMLA protections and a PFML rate of payment of at least 50% of normal wages. Under the TCJA, leave paid by a state or local government or required by state or local law wasn’t taken into account when determining whether an employer’s written policy includes a PFML rate of at least 50% of normal wages.

Notably, an employer must reduce its deduction for wages (or salaries) paid or incurred by the credit amount. Also, wages used to determine any other general business credit may not be used to calculate the PFML credit.

What are the changes under the OBBBA?

The OBBBA modifies the PFML credit in several critical ways. Here are some of the most important:

• Instead of calculating the credit based on actual PFML wages paid, an employer can opt to calculate the credit based on premiums paid or incurred for insurance policies that provide PFML for qualifying employees — regardless of whether any leave is actually taken in the tax year.
• Leave required by state or local law or paid for by state or local governments is taken into account when determining the amount of PFML the employer provided for purposes of determining eligibility for the credit but not when calculating the amount of the credit.
• Qualifying employees are limited to those customarily employed for at least 20 hours per week.
• Employers can elect to include employees after six months of employment.
• Employers can’t claim a deduction for the portion of premiums paid or incurred that’s equal to that portion of the PFML credit claimed.

The new guidance focuses on the OBBBA’s “premium method” (as opposed to the “wage method”) for determining the credit amount.

The premium method guidance

The guidance explains that an employer can claim the PFML credit only for a premium that funds a benefit for which a credit would be available under the wage method if the benefit were actually paid — what’s referred to as “creditable coverage.” If any portion of a premium funds leave that wouldn’t qualify for the credit under the wage method, that portion also isn’t eligible for the credit under the premium method.

The following types of coverage aren’t considered creditable:

• Coverage for leave that isn’t PFML,
• Coverage for leave that would be payable to a nonqualifying employee (evaluated at the time the premium is paid or incurred),
• Coverage for leave required by state or local law or paid for by a state or local government, and
• Coverage that provides a benefit other than wages.

The guidance also addresses the allocation of a premium for coverage that 1) provides both qualifying PFML and other types of leave, or 2) applies to both qualifying and nonqualifying employees. In such circumstances, an employer can use any “reasonable” allocation method that’s consistent with the policy terms and supported by contemporaneous records.

The IRS will allow an employer to use the wage method for some leave and the premium method for other leave. But the employer can’t use the wage method to claim the credit for wages paid if it also claims a credit using the premium method for coverage that funds such benefits (or vice versa).

Relying on the guidance

The IRS expects to issue proposed regulations that will mirror this guidance. These regulations will apply prospectively, but taxpayers can rely on the current guidance for tax years beginning after 2025 and before the proposed regulations are issued. If you have questions regarding the PFML credit, contact us.

Caregiving for a parent can be mentally and emotionally demanding. But providing financial support may allow you to claim a tax credit, use a more favorable filing status or deduct certain medical expenses, depending on your situation. Here’s what you need to know.

Federal Tax Credit

The Credit for Other Dependents (COD) is a nonrefundable tax credit of up to $500 that taxpayers can claim for dependents who don’t qualify for the Child Tax Credit, such as an elderly parent who meets IRS dependency requirements.

Under the requirements, you must provide more than half of your parent’s support, and your parent’s gross income needs to be below the annual threshold ($5,300 for 2026). Only taxable income counts, such as taxable interest, dividends and rental income. Tax-free Social Security benefits are excluded from gross income but must still be considered when determining whether you provide more than half of your parent’s support.

Additionally, the COD is subject to phaseout based on your modified adjusted gross income (MAGI). The threshold is $200,000 ($400,000 for married couples filing jointly). The credit is reduced by $50 for each $1,000 by which MAGI exceeds these thresholds.

Important: The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, made this credit permanent. However, as is the case with all tax breaks, future legislation could modify or eliminate it despite its current permanent status.

Head of Household Filing Status

For unmarried individuals, filing as head of household rather than single can yield significant tax savings. Compared with single filers, head-of-household filers generally benefit from wider tax brackets and a larger standard deduction. For 2026, the standard deduction is $24,150 for heads of household, compared with $16,100 for single filers — making the filing status difference potentially meaningful.

If you’re unmarried and pay more than half the cost of maintaining your dependent parent’s principal home for the year, you may qualify for head of household filing status. You and your parent generally don’t need to live in the same household. To qualify, your parent must meet the dependency requirements for head of household purposes, including the gross income and support tests described above.

For example, Mary is unmarried, and her widowed mother lives with her. Mary pays more than half of her mother’s support and more than half the cost of maintaining the household. Her mother’s income consists primarily of tax-free Social Security benefits and $1,000 in taxable interest.

In this case, Mary likely qualifies to claim her mother as a dependent and may be eligible for the $500 credit. Because Mary is single and pays more than half the annual cost of maintaining her mother’s home, she also likely qualifies for the favorable head-of-household filing status.

Deductions for Medical Expenses

If you itemize deductions, you may be able to deduct qualifying medical expenses you pay for yourself, your spouse and your dependents — including a dependent parent. Medical expenses are generally deductible to the extent they exceed 7.5% of your adjusted gross income (AGI).

Meeting the AGI threshold can be easier when you’re paying substantial medical expenses for a parent. To deduct a parent’s medical expenses, you generally must provide more than half of the parent’s support. A parent who fails the dependency gross-income test may still qualify as a dependent for purposes of the medical expense deduction if all other dependency requirements are met.

Important: To deduct a dependent parent’s medical expenses, you generally must pay the medical providers directly. Reimbursing your parent for expenses already paid generally doesn’t qualify for the deduction. Maintain clear documentation of who paid for what. Deductible medical expenses may include:

• Health insurance premiums,
• Out-of-pocket medical costs, including copayments, deductibles, dental and vision care, and
• Qualified long-term care insurance premiums, subject to age-based limits that are annually adjusted for inflation.

To determine whether itemizing makes sense, add up all qualifying medical expenses for you, your spouse and your dependents — including your parent, if applicable. Your total itemized deductions must exceed your standard deduction.

Worth a Closer Look

Many families quietly take on caregiving for elderly parents, often without realizing the tax benefits that may be available. Because the rules surrounding dependency, filing status and medical expense deductions are complex, it’s worth taking a close look at your family’s situation. If you’re supporting a parent financially, contact your tax advisor to discuss potential tax-saving opportunities.

Launching a start-up involves many decisions. Among the most important is choosing the right business structure for federal tax purposes. Last year’s One Big Beautiful Bill Act (OBBBA) made permanent and modified several provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. Some of these changes should be considered when making the call. If you’re pondering the right structure for your next venture, here are some of the most critical tax-related considerations.

Corporation vs. Pass-Through

For tax purposes, you can generally follow one of two broad paths:

1. Establish a C corporation. It pays taxes at the entity level, and shareholders may face additional tax when they receive dividends, compensation or other taxable distributions, or sell their shares. These two levels of tax obligation are commonly referred to as “double taxation.”

2. Form some type of “pass-through” entity. Here, taxable income, losses, deductions and credits pass through from the business to each owner’s individual tax return.

When it comes to pass-through entities, options include partnerships, S corporations and limited liability companies (LLCs) treated as partnerships for tax purposes. You can also choose to run your business as a sole proprietorship or single-member LLC. Technically, these don’t count as taxable entities separate from their individual owners. But for this article’s purposes, we’ll include them with pass-through entities.

Major Factors

In the current federal income tax environment, some of the major factors to consider are:

The flat corporate tax rate. The TCJA permanently established a flat 21% federal corporate income tax rate, which is significantly lower than the top individual rate (37%). This provides significant tax benefits to some C corporations, helping to mitigate the impact of double taxation on shareholders.

Tax treatment of qualified small business (QSB) corporations. QSB corporations are a special type of C corporation. At the entity level, QSB corporations are generally treated as regular C corporations for legal and federal income tax purposes. So, most of the standard advantages and disadvantages of C corporation status apply equally to QSB corporations, including the 21% flat federal corporate income tax rate.

However, QSB shareholders can potentially enjoy a significant tax advantage: A special gain exclusion rule may allow them to avoid the federal income tax hit on up to 100% of the gain from selling QSB stock. To be eligible for the gain exclusion, several requirements must be met:

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

Timing is also critical. To take advantage of the 100% gain exclusion for sales of QSB stock, you must have acquired the shares after September 27, 2010, and held them for at least five years. In addition, for qualifying stock acquired after July 4, 2025, the OBBBA allows a:

• 50% gain exclusion for QSB stock held for at least three years,
• 75% gain exclusion for QSB stock held for at least four years, and
• 100% gain exclusion for QSB stock held for at least five years.

The OBBBA also increased the per-issuer dollar limitation on eligible gain from $10 million to $15 million for qualifying stock. (Other limitations may apply.)

Individual tax rates. The OBBBA made the relatively lower individual federal income tax rates established by the TCJA permanent. They are 10%, 12%, 22%, 24%, 32%, 35% and 37%, with annual inflation adjustments to the rate bracket thresholds. If you choose to structure your start-up as a pass-through entity, one of those rates will help determine the tax impact.

Section 199A qualified business income (QBI) deduction. The OBBBA made permanent the QBI deduction for eligible owners of pass-through entities. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income.

QBI is typically the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. Excluded are certain investment items, reasonable compensation paid to an owner for services rendered to the business, and any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the business. The deduction is subject to additional limits at higher income levels.

Conventional Wisdom: Then and Now

Before the TCJA, the conventional wisdom was that small or midsize business start-ups should usually be formed as pass-through entities to avoid the double taxation associated with C corporations. Although double taxation still exists in practice, its impact has been significantly reduced by the flat 21% corporate income tax rate. Also, double taxation may be further mitigated or deferred if your C corporation:

• Has taxable income that’s zeroed out (or nearly so) with deductible compensation and fringe benefits provided to shareholder-employees (see “C Corporation Strategy: Paying Out Profits as Compensation and Benefits” below), or
• Needs to retain all its profits (or nearly so) to finance growth.

So, does this mean pass-through entities have lost their luster and C corporations are now the way to go for most start-ups? Well, it’s not that simple.

4 Scenarios to Consider

Let’s look at four of the most common scenarios that entrepreneurs face when launching a start-up. For all of them, let’s assume the business owners are in the maximum 37% marginal federal income tax bracket. (Obviously, that won’t always be the case.) Our examples also generally disregard state and local taxes and assume that the taxpayers are subject to the specified federal surtaxes.

Scenario 1: You expect to incur multiyear tax losses. Many start-ups operate at a loss during their first few years as they invest in growth and establish their market presence.If your main concern is deducting expected ongoing tax losses on your individual return, you should probably operate your start-up as a pass-through entity so you can, indeed, deduct those losses. Just be sure to understand potential tax law limits, such as the passive loss rules and the excess business loss disallowance rule. (Your tax advisor can explain further.)

Scenario 2: Your business will hold assets that are likely to increase significantly in value. It’s generally not a good idea to hold substantial appreciable assets (such as real estate or certain intangibles) in a C corporation. The reason: If the assets are eventually sold for substantial gains, you may not be able to get the profits out of your corporation without incurring double taxation. In contrast, if you use a pass-through entity to hold appreciable assets, sale gains will typically be taxed only once for federal income tax purposes on your individual return.

Important: Assets held by a C corporation don’t even have to appreciate for double taxation to occur. Depreciation deductions lower the tax basis of depreciable property, so tax gains will result whenever the sale price exceeds the depreciated basis — and those gains may be double taxed if the corporation distributes the after-tax proceeds to shareholders.

Scenario 3: Your business will pay out all profits to owners. If you believe your start-up will generate a profit right away, you’ll have a tricky decision to make when it comes to entity choice. Let’s first assume that your profitable venture will be owned by one or more individuals (including you) and operated as a C corporation. The company will pay all its after-tax profits to shareholders as taxable qualified dividends that are subject to the 20% maximum federal rate. So, the maximum combined effective federal income tax rate on those profits, including the 3.8% net investment income tax (NIIT) on dividends received by shareholders, will be approximately 39.8% [21% + (79% × (20% + 3.8%))].

Although this double taxation, further inflated by the NIIT, is substantial, it’s still favorable compared to historical standards. Before the TCJA, the maximum combined effective federal income tax rate in this scenario would’ve been approximately 50.47% [35% + (65% × (20% + 3.8%))].

Now let’s say you operate the same profitable business as a pass-through entity that pays all its profits to the owners. For purposes of this simplified example, we’ll assume the income will be subject to the 37% top individual rate plus an additional 3.8% through the NIIT or applicable Medicare taxes. In that case, the maximum effective federal income tax rate will be 40.8% (37% + 3.8%). However, if you, as an owner, can claim the QBI deduction on your individual return at the full 20% rate, the maximum effective rate would fall to 33.4% [(80% × 37%) + 3.8%].

In this scenario, forming a pass-through entity may be preferable if meaningful QBI deductions are available. If not, the optimal result will depend on various factors including applicable employment taxes, the NIIT and state taxes.

Scenario 4: Your business will retain all profits to finance growth. Sometimes a start-up’s initial objective is to grow the business, not generate wealth for the owners. In this scenario, the 21% corporate income tax rate gives C corporations a potential advantage. Why? Assuming the retained profits increase the value of the corporation’s stock dollar-for-dollar, when the shares are eventually sold, shareholders will pay federal income tax at the maximum 20% rate for long-term capital gains. So, the maximum combined effective federal income tax rate on the venture’s profits, including the 3.8% NIIT on stock sale gains, will be approximately 39.8% [21% + (79% × (20% + 3.8%))].

Again, this result comes from double taxation plus the NIIT. But the 39.8% rate is still relatively low by historical standards. And remember that the shareholder-level tax on stock sale gains is deferred until the sale occurs. Plus, thanks to current first-year depreciation rules, eligible businesses can deduct 100% of the cost of many types of qualifying property the year they’re placed in service. (Note: This rate generally applies to qualifying property acquired after January 19, 2025.) So, a capital-intensive C corporation may have little or no current federal taxable income.

Now say you operate that same profitable business as a pass-through entity owned by one or more individual taxpayers (including you). Assuming the income will be subject to the 37% top individual rate plus an additional 3.8% through the NIIT or applicable Medicare taxes, the maximum effective federal income tax rate on income passed through to the owners will be 40.8% (37% + 3.8%). That’s a bit higher than the 39.8% rate that would apply to a C corporation. And unlike retained C corporation earnings, pass-through income is generally taxable to the owners currently, even if the business doesn’t distribute enough cash to cover their tax liabilities.

But here’s an important plot twist: If you, as an owner, can claim the full 20% QBI deduction, the maximum effective rate will be reduced to 33.4% [(80% × 37%) + 3.8%]. That’s significantly lower than the 39.8% rate with a C corporation.

In addition, eligible businesses can deduct 100% of the cost of many types of qualifying property the year they’re placed in service. So, a capital-intensive start-up operating as a pass-through entity may also have little to no current federal taxable income. However, reducing pass-through income with first-year depreciation could reduce allowable QBI deductions.

In this scenario, operating as a C corporation may be preferable — especially if your company is a QSB corporation. In such a case, you may be eligible for the 100% gain exclusion when you sell your stock after holding it for at least five years. If so, the maximum combined effective federal tax rate on the company’s profits could be as low as 21% (21% for the corporate-level tax and no tax at the shareholder level when you sell your shares).

However, if you expect to benefit from the full 20% QBI deduction, structuring your start-up as a pass-through entity might provide a better result. Just remember, federal income taxes will be due currently, whereas with a C corporation, shareholder taxes generally aren’t due until appreciated stock is sold.

More Than Taxes

Of course, you need to think about more than just taxes when choosing an entity. Liability protection, ownership requirements, administrative costs and your eventual exit strategy may also influence the decision.

That said, the initial choice can have significant and lasting tax consequences — and changing structures later may be costly or complicated. So be sure to work with your tax and legal advisors to evaluate your options and all the surrounding circumstances.

Divorce is a major life event that can have significant personal and financial consequences. In addition to addressing family and emotional concerns, you’ll need to determine whether your assets are divided equitably. When assessing the fairness of a divorce settlement, taxes are a critical consideration. In general, you can divide most assets between you and your soon-to-be ex-spouse without any federal income or gift tax consequences. (See “How the Tax-Free Transfer Rule Works” below.)

However, special rules apply to transfers of retirement account assets between divorcing spouses. A properly structured divorce agreement can help you avoid potential pitfalls related to these tax-advantaged accounts.

IRA Transfers

Federal income tax rules allow divorcing spouses to divvy up IRAs without adverse tax consequences. The following types of accounts are considered IRAs for this purpose:

• Traditional and Roth IRAs,
• Simplified Employee Pension (SEP) IRAs, and
• Savings Incentive Match Plans for Employees (SIMPLE) IRAs. 

Essentially, you can arrange for a tax-free transfer of all or part of your interest in an IRA to an IRA maintained in your ex-spouse’s name. The IRA custodian generally completes this transaction by transferring the assets directly or changing the name on the account. After the transfer, the recipient spouse generally is responsible for taxes on future taxable distributions.

However, there’s an important catch: The transfer must be made under a decree of divorce or separate maintenance or a qualifying written instrument incident to the decree.

If you voluntarily give your ex-spouse some IRA funds before it’s required under a divorce or separation instrument, it will be treated as a taxable distribution to you. That means you’ll owe the related taxes — even though you didn’t actually keep the money. Plus, if you’re under age 59½, you’ll generally owe a 10% penalty on the early distribution, unless an exception applies. For certain distributions from a SIMPLE IRA during the first two years of participation, the additional tax may be 25% rather than 10%.

Transfers from Qualified Retirement Plans   

Dividing benefits under employer-sponsored qualified retirement plans generally requires a qualified domestic relations order (QDRO). A QDRO is commonly used for the following retirement assets:

• Qualified retirement plans at work, such as 401(k) plans,
• Self-employed or small business qualified plans, such as Keogh or corporate profit-sharing plans, and
• Defined benefit pension plans.

Many employer-sponsored plans are prohibited from transferring funds or paying benefits to a former spouse without a valid QDRO on file. A QDRO establishes your ex-spouse’s legal right to receive a designated percentage of your retirement account balance or designated benefit payments from your plan. It ensures that your ex, and not you, will be responsible for the related income taxes when they receive taxable distributions from the plan.

A QDRO also allows your ex to roll over an eligible rollover distribution received under the QDRO tax-free into an IRA (assuming the plan permits such a withdrawal). That way, your ex can take over management of the money while postponing income taxes until taxable withdrawals are taken from the rollover IRA.

Non-QDRO Transfers

Without a valid QDRO, money that’s transferred from your qualified retirement plan account to your ex-spouse is generally treated as a taxable distribution to you. That means your ex will get the money tax-free, and you’ll owe all the taxes and, if you’re under age 59½, the 10% penalty (unless an exception applies).  

Additionally, the extra income from a large taxable distribution could potentially push you into a higher tax bracket and may increase the likelihood that your other investment income will be subject to the 3.8% net investment income tax (NIIT). It may also reduce tax breaks subject to income limits.

Tax-Smart Divorce Settlements

If both spouses have their own retirement savings, it might be easier for each spouse to retain their own account and split up other assets to achieve an equitable settlement. If retirement accounts must be divided, it’s essential to address retirement account transfers properly in your divorce agreement and consult your tax advisor before finalizing your settlement.

In general, avoid taking marital assets at face value. Instead, consider their after-tax values. For example, distributions from traditional retirement accounts generally are taxable. Conversely, qualified Roth distributions generally are tax-free because Roth contributions are made with after-tax dollars.

Seek Professional Guidance

Settling the financial aspects of a divorce can be complicated, especially if the parties have been married for many years and have accumulated substantial net worth. Your tax and financial advisors can help you evaluate various settlement options — including asset allocations and support payments — that minimize potential taxes and meet other personal objectives.

You may think of a will or living trust as the primary place to dictate who’ll receive your assets after your death. But for many people, a large portion of their assets — perhaps even most of them — will be distributed according to beneficiary designations. These generally apply to retirement accounts, life insurance policies and sometimes other financial assets as well.

Because these designations typically override instructions in a will or living trust, failing to review them regularly can lead to unintended consequences — such as passing assets to a former spouse or excluding a newly added family member. That’s why it’s especially critical to check on them after major life changes, including marriage, the birth of a child, divorce or the death of a loved one.

Review and Update Key Forms

Double-check whether your beneficiary designations are accurate in the required documentation for assets such as:

• IRAs,
• Employer-sponsored retirement plan and other benefit accounts,
• Life insurance policies,
• Annuities, and
• Section 529 plan accounts.

If you have any of these types of assets and haven’t submitted beneficiary designation forms for them, do so immediately. If ones you completed years earlier are now out of date, change them to reflect your current situation before it’s too late.

You may also be able to name beneficiaries for bank accounts and brokerage firm accounts. To do so, you usually need to complete and submit a transfer-on-death (TOD) or payable-on-death (POD) form to the bank or brokerage firm. To change beneficiaries, you’d complete and submit an updated TOD or POD form. Naming beneficiaries for these types of accounts can be helpful because it allows assets to be transferred quickly and easily without going through probate.

Important: As mentioned above, don’t rely on your will or living trust to override outdated beneficiary designations. Generally, whoever is named on the most recent beneficiary form will receive the assets after your death — regardless of what other documents might say.

Check Into Spousal Consent

Be aware that if you’re married, your spouse’s consent may be required to make certain beneficiary changes. This can depend on the type of asset, the terms of the retirement plan or contract, and applicable federal or state law — including the relevant rules in community property states. Most assets accumulated during marriage may be treated as marital or community property, depending on where you live and how the asset is titled.

If you set up assets with you and your spouse named as joint tenants with right of survivorship, your spouse will automatically take over sole ownership if you die. This is a common ownership arrangement for real property and has the advantage of avoiding probate. But retitling assets can have tax, creditor, control and estate planning consequences. So, discuss ownership options with your tax, financial and legal advisors before proceeding.

Don’t Forget To Name Contingent Beneficiaries

Many beneficiary designation forms allow you to name contingent beneficiaries — sometimes called secondary or successor beneficiaries — who receive the asset if the primary beneficiary dies before you. For instance, you might name a child, grandchild, trust or charity as a contingent beneficiary, depending on your family circumstances, tax considerations and estate planning goals.

When designating either primary or contingent beneficiaries, bear in mind that your choice can have income tax consequences. For example, who you name as beneficiary of a retirement account may affect whether the balance must be distributed within 10 years or distributions can be spread out over the beneficiary’s lifetime, allowing continued tax deferral. Also, if you don’t designate a beneficiary for an asset that requires one, or you name your estate as the beneficiary, the asset could have to go through probate.

Simple Yet Important

Reviewing and updating your beneficiary designations is among the simplest yet most important steps you can take to protect your loved ones and help ensure your assets are distributed as you intended. Set aside the time to review your beneficiary designations at least annually and after major life changes. If you have questions or would like a helping hand, contact your estate planning advisors.

Once upon a time, employees could claim home office expenses as a miscellaneous itemized deduction, subject to a 2%-of-adjusted-gross-income floor, if the arrangement was for their employer’s convenience. But such deductions were suspended for 2018 through 2025, and last year’s One Big Beautiful Bill Act made that suspension permanent.

So, today employees get no personal tax benefit if they work from home. However, self-employed individuals may still be eligible to deduct home office expenses from their self-employment income. Here’s how.

Qualifying for the Deduction

To qualify for a home office deduction, in addition to being self-employed, you generally must use at least part of your home regularly and exclusively as either:

• Your principal place of business, or
• A place to meet or deal with customers, clients or patients in the normal course of business.

In addition, you may be able to claim deductions for maintaining a separate structure — such as a barn or shed — where you store products or tools used solely for business purposes.

Notably, “regular and exclusive” use means you must consistently use a specific, identifiable area in your home for business and not for any other activities. You don’t have to cordon off the area used for business purposes, but doing so may be helpful when a room is also used personally for other reasons.

When evaluating whether your home office is your principal place of business, the IRS could challenge deductions if you work at multiple locations. However, your home office will qualify as your principal place of business if it’s used regularly and exclusively for administrative or management activities, and you don’t have any other fixed location for conducting these activities. This scenario may affect taxpayers in a wide range of professions and industries, such as physicians, interior designers and plumbers.

Looking at Direct vs. Indirect Expenses

If you qualify for the home office deduction, you potentially can write off the full amount of your direct expenses and a proportionate amount of your indirect expenses based on the percentage of business use of your home. (Note: The deduction generally can’t exceed your net income from self-employment.) Indirect expenses include:

• Mortgage interest,
•  Property taxes,
• Utilities (such as electric, gas and water),
• Insurance,
• Exterior repairs and maintenance,
• Home security system fees, and
• Depreciation for homeowners based on IRS tables or a proportionate share of rent for renters.

Important: If you itemize deductions, your mortgage interest and property taxes may already be deductible (subject to certain limits). If you claim a portion of these expenses as indirect home office expenses, the remainder for each is deductible as an itemized deduction. But you can’t deduct the same amount twice, first as a personal itemized deduction and again as a home office expense.

Doing the Math

Typically, the percentage of business use is determined by square footage. For instance, if you have a 3,000 square-foot home and use a room with 300 square feet as your home office, the applicable percentage is 10% [300 ÷ 3,000]. Alternatively, you may use any other reasonable method for determining this percentage, such as a percentage based on the number of rooms used for business compared with the total number of rooms — as long as the rooms are approximately equal in size.

Now let’s say your home office is 150 square feet and the percentage of your home is 5%. You spend $5,000 to paint and make some minor repairs in your home office (direct expenses), and you incur another $10,000 in indirect expenses for the entire home. In this case, you can generally deduct $5,500 [$5,000 + (5% of $10,000)].

Keeping It Simple

Tracking direct and indirect expenses can be time-consuming and tedious. Some taxpayers prefer to take advantage of a simplified method of deducting home office expenses. Instead of deducting actual expenses, you can claim a deduction equal to $5 per square foot for the area used as a home office, up to a maximum of 300 square feet or $1,500 for the year.

Although the simplified method takes less time than tracking your actual expenses, it generally results in a significantly lower deduction. Going back to the previous example of a 150-square-foot home office and a home office percentage of 5%, the simplified method would give you a home office deduction of only $750. That’s much less than the $5,500 home office deduction you’d have received by tracking actual expenses.

Watching Out for the Recapture Provision

If you eventually sell your home, you may qualify for a tax exclusion of up to $250,000 of gain for single filers ($500,000 for married couples filing jointly). But there’s a catch if you’ve claimed the home office deduction: You must recapture the depreciation attributable to your home office for the period after May 6, 1997. The recaptured amount could be taxable at a rate as high as 25%, which is greater than the usual maximum long-term capital gains rate of 20%. (The 3.8% net investment income tax could also apply, depending on various factors.)

Also, the little-known recapture provision technically applies to “allowed” or “allowable” depreciation. So it’s imposed on a home sale even if you haven’t claimed depreciation in the past. However, there’s no recapture if you used the simplified method for claiming home office expenses. This is another factor to consider when deciding whether to deduct your actual home office expenses or to use the simplified method.

Determining Eligibility

Whether you’re a self-employed business owner, professional or tradesperson — or you have self-employment income from a side gig — if you use part of your home for business purposes, you might qualify for the home office deduction. Your tax advisor can help you determine whether you’re eligible and, if so, which deduction method to use.

If you’re the parent of a college-aged child, you already know how pricey higher education has become. According to EducationData.org’s Education Data Initiative (EDI), the average annual cost of college in the United States in 2026 is $38,270, which means college costs have more than doubled in the 21st century.

Of course, the actual cost of earning a bachelor’s degree depends on many factors. These include whether a student attends a public or private institution and whether a public school is in- or out-of-state. Also, will a student live in campus housing, in an off-campus residence or at home? Do those cost calculations take into account books, supplies, technology needs and living expenses? And critically, how much financial aid will the student receive? Let’s take a closer look at the real cost of college — and how it’s possible to reduce it significantly.

Role of Financial Aid

Financial aid can substantially reduce college costs — if you apply for it. Regardless of your family’s income level, you should fill out the Free Application for Federal Student Aid (FAFSA) form. Even families with high incomes may qualify for some financial aid. Yet the National College Attainment Network found that only slightly over half of high school seniors completed the FAFSA in 2025. Why is the rate so low? According to Bankrate, a financial information provider, “A mix of misconceptions, skepticism, lack of awareness and a botched 2024 season may be keeping students from applying.”

Different schools may use different methodologies to calculate specific financial aid awards. In addition to filling out the FAFSA, your child’s college may ask you to submit other forms with additional financial information.

Some private colleges use the CSS Profile or other institutional aid applications to gather more detailed financial information than the FAFSA requires. Depending on the school, institutional aid calculations may consider factors such as home equity, medical expenses, private school tuition, noncustodial parent finances or other family circumstances.

Some schools also use shared institutional aid principles or school-specific formulas. Because methodologies vary, families should review each college’s financial-aid requirements and net price calculator.

Regardless of the methodology a college uses, financial aid offices sometimes have flexibility when awarding institutional aid. When awarding federal grants, loans and most state aid, colleges generally use the federal formula. But when awarding their own money, schools may make different calculations.

Important: Some parents mistakenly believe the FAFSA requires them to report their retirement savings. You don’t. For financial aid purposes, balances in qualified retirement accounts generally aren’t reported on the FAFSA, though withdrawals may affect income.

Lowdown on Loans

In the 2024-25 school year, parents and students borrowed $102.6 billion in federal and nonfederal loans to pay for postsecondary education, according to the College Board. Your student may qualify for several types of federal and private loan programs. Be sure to review the terms and conditions of each loan option carefully.

Parents who complete the FAFSA may qualify for federal Parent PLUS loans. If you’re considering one of these, however, confirm current annual and aggregate borrowing limits, because federal rules may change by award year. Or you may be eligible to take out private parent loans through a bank or to cosign with your child on private student loans. But beware: You don’t want to compromise your own financial security (including your retirement savings plans) to pay for your child’s college costs. As the saying goes, you can borrow money for college, but no one will loan you money for retirement.

Never borrow more than what’s needed for legitimate college expenses. Some programs make it easy to borrow extra spending money that students can use for, say, travel or entertainment expenses, leading to a hefty loan balance at graduation.

Free Money?

There are billions of dollars of scholarships available to students who make the effort to apply. Scholarships are generally available regardless of your income level. Even if you don’t qualify for need-based aid, you may qualify for an educational merit or sports scholarship, or one of the thousands of niche scholarships.

However, finding scholarship opportunities takes research. Your student’s high school guidance counselor can help. In addition to private merit-based scholarships, there are state-funded scholarships to explore. These are designed to keep the top students at in-state colleges and universities. And though you should search online for possible scholarships, know that some information may be inaccurate, misleading or even fraudulent. For example, scam websites might charge a fee for the “inside scoop” on scholarships, or they might ask for personal information or credit card numbers that they can use to steal your identity. If you encounter such requests, go elsewhere.

Most scholarships have firm application deadlines, with an application process that requires recommendation letters, transcripts, essays and other supporting documentation. To improve the chances of qualifying, you may need to complete the FAFSA early. Many merit-based scholarships are offered through the institutions your child applies to, and they may require the FAFSA and additional supporting items. In some cases, funding is limited to a fixed number of qualified applicants. In other words: First come, first served.

Important: Keep excellent records of your scholarship and loan applications, and read all the fine print before signing and applying.

Room, Board and Other Expenses

Living at home during college or attending a local community college for the first two years is a great way to save money. But if your student wants to go away to college, room and board will likely be a big expense. EDI estimates that the average cost of college room and board for 2026 is $12,917. However, living expenses can vary substantially depending on specific factors.

A little frugality can go a long way. For example, your student may be able to choose a more cost-effective meal plan while living in the residence halls, drink home-brewed coffee or find a few friends to share an off-campus apartment. A part-time job can be a great way for students to earn spending money, contribute to education costs and build their resumes.

4-Year Target

When selecting a college, consider the school’s graduation rates. One of the best ways to control the cost of college is to graduate on time. Yet four-year completion is far from guaranteed. EDI reports that only about 42% of students seeking a bachelor’s degree graduate within four years.

Planning is key to on-time graduation. Students who drop or fail classes, frequently switch majors or enroll in a less-than-full course load each semester are likely to take longer to complete their coursework. So before starting college, your student should take advantage of any advanced placement classes or dual enrollment options. Once in college, students should meet with their academic advisors every semester to ensure they’re meeting the requirements necessary to graduate on time.

Important: Students should know what classes their school will offer in their final semesters. They may need a certain class for their major or to graduate, only to find it won’t be offered again until the fall after they’re scheduled to graduate.

A Long Process

The price you’ll ultimately pay for college probably won’t be the original sticker price. Smart planning can help you and your student measurably reduce the cost of tuition, room and board, and other higher-education expenses. That’s the good news.

The bad news is that worrying about college costs doesn’t usually end when you submit financial aid paperwork or receive word about an aid package. It’s a four-year — and often longer — process, during which your financial situation could change.

Your school’s financial situation may change, too. For example, the school may have offered scholarships or grants to students who chose another school, leaving extra aid available. For this reason, check in with your financial aid office in the summer to see whether it can offer additional financial assistance for the fall.

Ask for Help

It’s not unusual for parents to feel overwhelmed by the process of funding a child’s college education. Your financial advisor can help you strategize for one of the biggest and most rewarding financial commitments of your life, as well as look for ways to cut some of the costs involved.

Financially speaking, college athletics are a whole new ballgame these days. Student-athletes can now be paid for the use of their name, image and likeness (NIL) without jeopardizing their eligibility. Payments largely come from boosters — individuals supporting their alma mater or favorite school. And for top high school recruits and elite transfer portal prospects in certain sports, millions of dollars may be at stake. Let’s explore the tax impact for both groups.

What’s NIL?

In 2021, the National Collegiate Athletic Association (NCAA) adopted its interim NIL policy, allowing student-athletes to be paid without jeopardizing their NCAA eligibility. In addition, following the House v. NCAA settlement in 2025, participating schools were permitted to begin direct revenue-sharing payments to student-athletes, adding another layer of tax complexity beyond traditional third-party NIL deals.The definition of NIL income is expansive. According to the IRS, it applies to:

• Brand endorsements and marketing,
• Social media content,
• Sponsorships,
• Autograph fees,
• Guest and promotional appearances,
• Exhibitions,
• Endorsements, and
• Gifts, giveaways, merchandise, gift cards and other noncash items.

Whatever form it takes, whether cash or noncash compensation, NIL income is generally taxable at the federal level.

How Do Student-Athletes Pay Taxes?

Many student-athletes with third-party NIL deals are treated as independent contractors and may need to pay federal income tax and self-employment tax through quarterly estimated payments. For the 2026 tax year, the due dates are:

• April 15, 2026,
• June 15, 2026,
• September 15, 2026, and
• January 15, 2027.

If a due date falls on a weekend or holiday in a given year, it’s extended to the next business day.

Failure to make quarterly estimated payments may result in additional tax, interest and penalties. However, under two estimated tax safe harbors, student-athletes may be able to reduce or avoid underpayment penalties by paying:

1. At least 90% of the current year’s tax liability, which requires a calculated estimate of the individual’s current tax situation, or

2. At least 100% of the previous year’s tax liability, or 110% if adjusted gross income for the previous year exceeded $150,000 ($75,000 if married and filing separately).

There’s a third, less frequently used exception as well. When income is earned unevenly throughout the year, a student-athlete may use the annualized income installment method to reduce or avoid penalties.

The main takeaway is that self-employed student-athletes can’t wait until traditional tax time to settle up with the IRS. They must track their income throughout the year and pay estimated taxes. (Note: Some student-athletes may instead receive wages or other reportable payments from a school or other payer. If treated as employees, they’d have federal income taxes withheld and receive a Form W-2.)

There are state income taxes to deal with, too. Student-athletes must report their income to their state of residency and pay taxes, if applicable. They may also face multistate filing obligations if they perform NIL services, make promotional appearances or earn income in states other than their state of residency.

What About the Boosters?

Since 2021, financial support from boosters has poured in — from billionaires with premium season tickets to average, everyday fans who sit in the nosebleeds. Regardless of your financial standing, however, you may be hard-pressed to reap any tax benefits. Payments made directly to student-athletes aren’t deductible because they’re not considered qualified charitable contributions for tax purposes.

There may be a little more leeway for payments made to certain “collectives” used to disburse NIL income. These are third-party organizations formed by contributors of all stripes — including alumni, businesspeople and local supporters — to provide NIL income to student-athletes through social media promotions, personal appearances, autograph signings, endorsements and so forth. Although collectives operate independently, they’re often closely associated with a particular college and focused on supporting that school’s athletic programs.

To provide tax benefits to contributors, some collectives seek to attain tax-exempt status as qualified charitable organizations under Section 501(c)(3) of the tax code. Currently, the primary guiding authority for this strategy is IRS Advice Memorandum (AM) 2023-004, released on June 9, 2023. It concluded that many nonprofit NIL collectives don’t qualify for tax-exempt status because they provide more-than-incidental private benefits to student-athletes.

In other words, these organizations don’t always serve a public interest. If an organization benefits both public and private interests, AM 2023-004 requires the private benefit to be “both qualitatively and quantitatively incidental” to accomplishing the organization’s tax-exempt purpose. This sets a high bar for most collectives; however, some do manage to clear it.

Bottom line: Contributions to a collective (or affiliated organization) that qualifies for tax-exempt status may be deductible, subject to the usual charitable contribution rules. However, payments can’t be earmarked for a specific individual or exchanged for substantial benefits, such as athletic seating rights.

Any Questions?

It’s doubtful we’ve heard the last word on NIL income and its impact on federal and state taxes. Student-athletes and boosters alike should work closely with their tax advisors to understand all the rules and issues involved.

As cryptocurrency continues to gain mainstream adoption, scammers are finding new ways to target digital asset investors. The Internal Revenue Service (IRS) recently issued a warning about a sophisticated phishing campaign involving fraudulent letters that appear to come from the IRS and direct taxpayers to a fake “Digital Asset Compliance Portal.”

How the Scam Works

Victims receive what appears to be an official IRS letter stating that they must enroll in a “Digital Asset Compliance Portal” before a specified deadline. The letter includes a QR code that directs recipients to a fraudulent website designed to closely resemble IRS.gov.

Once on the fake website, individuals may be asked to provide sensitive information, including:

• Personal identifying information
• Cryptocurrency wallet details
• Exchange account usernames and passwords
• Other financial credentials

The IRS has made it clear that it does not operate a Digital Asset Compliance Portal, and any communication claiming otherwise is fraudulent.

What Should You Do?

If you receive a letter requesting that you scan a QR code or provide cryptocurrency account information:

• Do not scan the QR code.
• Do not provide any personal or financial information.
• Visit IRS.gov directly by typing the website into your browser rather than using links or QR codes from unsolicited correspondence.
• If you’re uncertain about the legitimacy of a notice, contact the IRS using official contact information available on IRS.gov.

If You Already Responded

If you believe you’ve interacted with the fraudulent website or shared sensitive information, take action immediately:

• Stop all communication with the scammer.
• Change passwords for any affected financial or cryptocurrency accounts.
• Notify your cryptocurrency exchange or financial institution as soon as possible.
• Save copies of emails, letters, screenshots, and any other communications.
• Report the incident to IRS Criminal Investigation through the agency’s online fraud reporting process.

A Reminder About QR Codes

While the IRS does use QR codes on certain legitimate notices, including some recent correspondence, taxpayers should exercise caution when receiving unexpected letters, emails, or text messages requesting immediate action. When in doubt, navigate directly to the IRS website rather than scanning a code from an unsolicited communication.

How BHCB Can Help

Tax-related scams continue to evolve, and cryptocurrency investors are increasingly becoming targets. If you receive suspicious tax-related correspondence or have questions about legitimate IRS communications involving digital assets, the professionals at Beers, Hamerman, Cohen & Burger, P.C. can help you determine whether a notice is authentic and guide you on the appropriate next steps.

Have questions about cryptocurrency taxation or IRS correspondence? Contact the BHCB team today. We’re here to help you protect both your financial information and your digital assets.

As families prepare for the new school year, Connecticut is offering two valuable sales tax exemptions that can help reduce back-to-school shopping costs. Whether you’re buying school clothes or stocking up on classroom essentials, understanding these exemptions can lead to meaningful savings.

Connecticut Sales Tax Free Week Returns August 16–22

Connecticut’s annual Sales Tax Free Week will take place Sunday, August 16, through Saturday, August 22, 2026. During this period, most clothing and footwear priced under $300 per item may be purchased free of Connecticut sales tax.

The exemption applies whether you shop:

• In Connecticut retail stores
• Online through qualifying retailers

It’s important to note that the $300 limit applies to each individual item—not the total purchase. An unlimited number of qualifying items may be purchased tax-free, provided each item costs less than $300.

Items That Do Not Qualify

Certain products remain taxable, including:

Specialized athletic or protective clothing not normally worn as everyday apparel

• Specialized athletic or protective clothing not normally worn as everyday apparel
• Jewelry
• Handbags
• Wallets
• Luggage
• Umbrellas
• Watches and similar accessories

If an item costs more than $300, the entire purchase price is taxable. However, if a retailer coupon reduces the final sales price below $300, the item may qualify for the exemption.

Permanent Sales Tax Exemption for Nonelectronic School Supplies

Beginning July 1, 2026, Connecticut also provides a year-round sales tax exemption for qualifying nonelectronic school supplies purchased for nonbusiness purposes.

Examples of qualifying supplies include:

• Notebooks
• Composition books
• Binders
• Pens and pencils
• Crayons and markers
• Glue sticks
• Scissors
• Rulers
• Paper
• Folders
• Lunch boxes
• Pencil boxes
• Chalk
• Highlighters and other traditional classroom supplies

Electronic versions of these items—or electronics such as laptops, tablets, or calculators—do not qualify under this exemption.

Business Purchases Are Different

The exemption for nonelectronic school supplies is intended only for personal, nonbusiness use.

If supplies are purchased by or for a business, they generally remain taxable. Retailers are instructed to presume purchases are for personal use unless the buyer indicates the items are being purchased for business purposes. Businesses that do not pay sales tax at the time of purchase may be required to self-report and remit use tax.

Planning Your Back-to-School Shopping

By combining Connecticut’s Sales Tax Free Week with the permanent exemption for qualifying nonelectronic school supplies, families can stretch their back-to-school budgets even further.
Before you shop:

• Purchase qualifying clothing and footwear between August 16 and August 22 to take advantage of Sales Tax Free Week.
• Keep individual clothing items below the $300 price limit whenever possible.
• Remember that qualifying nonelectronic school supplies are already exempt year-round when purchased for personal use.

With a little planning, Connecticut families can make the most of these tax-saving opportunities while preparing students for the upcoming school year.

Questions about Connecticut sales tax rules or other tax planning opportunities? Contact the professionals at Beers, Hamerman, Cohen & Burger, P.C. We’re here to help you navigate changing tax laws and make informed financial decisions.