Filing your 2025 federal income tax return can provide valuable insights to help with 2026 tax planning. For example, if you receive a large refund or owe significant taxes for 2025, you can benefit from revisiting your withholding for 2026.

Although a large refund can provide an enjoyable cash boost, it really means you were missing money in your pocket during the year and, essentially, giving the government an interest-free loan. At the opposite end of the spectrum, a large tax bill might come with interest and penalties. And paying a big amount all at once could put you in a cash crunch. To achieve a more desirable outcome for 2026, you may want to adjust your withholding and evaluate whether you should begin making estimated tax payments or, if you’re already making them, adjust the amount.

Explore Your Circumstances

If all or most of your income is from wages, whether from a salary or hourly pay, your employer withholds amounts from your paychecks designed to cover your annual income tax liability. However, withholding amounts are estimates based on the IRS withholding tables, which approximate a typical worker’s annual tax liability at your compensation level.

Your situation may differ from that of a comparably compensated worker for various reasons. You might have additional income from other sources, which could make standard withholding too low. Or you might have larger deductions or credits than is typical, which could make standard withholding too high.

One way to minimize overpayments or underpayments is to estimate your tax liability for the year and, if necessary, adjust your withholding by completing a new Form W-4, “Employee’s Withholding Certificate.” The IRS’s Tax Withholding Estimator can help. It now reflects key provisions of the One Big Beautiful Bill Act (OBBBA), including the elimination of taxes on qualified tips and qualified overtime, as well as new deductions for seniors and auto loan interest. It also more accurately accounts for OBBBA changes to tax breaks related to families, homeownership and charitable giving.  

You should repeat this exercise later in the year if you have major changes in your income or circumstances. (See “Life Changes Also Warrant a Withholding Review” below.)

Evaluate Estimated Taxes

Generally, you must make estimated tax payments if you expect to owe $1,000 or more in federal taxes when you file your return. This may be the case if you earn significant income from sources that aren’t subject to withholding, such as:

• Self-employment,
• Pass-through income from partnerships, S corporations or limited liability companies,
• Interest, dividends, capital gains or other investment income, or
• Rentals or royalties.

To satisfy your estimated tax obligations, calculate your expected tax liability for the year, subtract any expected withholdings and credits, and pay the remainder in four equal installments. The 2026 estimated tax deadlines are April 15, 2026; June 15, 2026; September 15, 2026; and January 15, 2027.

However, you don’t have to make estimated tax payments in a given year if you meet all three of these conditions:

1. In the prior tax year, your tax liability was zero, or you weren’t required to file a return,
2. You were a U.S. citizen or resident alien for the entire year, and
3. Your prior tax year covered 12 months.

It’s also possible to avoid having to pay estimated taxes by increasing your withholdings from wages or other income sources.

Beware of Penalties

The requirement to pay estimated taxes in four equal installments means you can be hit with penalties and interest if you skip or underpay an installment — even if your remaining installments cover your entire tax liability for the year. But it’s not always easy to predict your tax liability, especially if your income fluctuates. Fortunately, there are ways to avoid penalties.

First, you won’t owe penalties if you pay at least 90% of the current year’s tax liability through withholding and equal estimated tax installments. However, there’s still a risk that you’ll underpay your taxes if your income is higher than expected.

For greater penalty-avoidance certainty, you can pay 100% of your prior year’s tax liability through withholdings and equal estimated tax installments. Or pay 110% if your previous year’s adjusted gross income was more than $150,000 ($75,000 for married couples filing separately). But you could end up overpaying current-year taxes, making a large interest-free loan to the government that you might prefer to avoid.

If your income fluctuates substantially during the year, there’s a way to make unequal estimated tax payments and still avoid or reduce penalties: the annualized income installment method. It allows you to match each payment to your actual income, deductions and other tax attributes during that period.

Take Advantage of Withholding’s Special Power

If you have withholding and owe estimated taxes on other income, you can avoid penalties for skipping or underpaying an estimated payment by increasing your withholding to make up the difference. Unlike estimated tax payments, withholding amounts are treated as paid evenly throughout the year — regardless of when they’re actually withheld.

Using this strategy, you can increase withholding from your (or, if you’re married, your spouse’s) wages. Alternatively, increasing withholding from your IRA or other retirement plans may be possible if you’re retired and don’t have wages from which to withhold taxes. Consult your tax advisor for assistance.

Find the Happy Medium

Paying “just the right” amount of taxes during the year can be a challenge. You don’t want to pay too little and incur interest and penalties. But you also don’t want to substantially overpay and have too much of your money tied up during the year in an interest-free loan to the government. Your tax advisor can help you determine how to adjust your withholding, estimated tax payments or both to find the happy medium.

Because of recent tax law changes, income taxes — not estate taxes — are now a more significant focus in estate planning. And one key planning area is the step-up in basis, which affects the capital gains tax heirs owe when they sell inherited assets.

Why Income Taxes Are a Focus

The 2026 federal gift and estate tax exemption is $15 million (twice that on a combined basis for married couples). It had been scheduled to revert back to approximately half that amount this year, but the One Big Beautiful Bill Act made the higher exemption permanent. This just means there’s no expiration date for the higher exemption; lawmakers could still reduce it in the future.

Nevertheless, as long as the higher exemption is in place, only the wealthiest families will be exposed to federal gift or estate tax liability. As a result, most taxpayers are more concerned with the income tax impact of estate planning than the gift and estate tax impact.

How Capital Gains Are Taxed

Normally, when assets such as securities are sold, any resulting gain is taxable capital gain. If the assets have been owned for one year or less, this is a short-term capital gain that’s taxed at the taxpayer’s ordinary income tax rate, which may be as high as 37%.

Conversely, if the assets have been held for more than one year, it’s a long-term capital gain that’s taxed at a lower rate. The long-term capital gains rate is typically 15%, but it increases to 20% for certain higher-income individuals. This rate kicks in at lower income levels than the top ordinary-income rate does. In addition, the 3.8% net investment income tax (NIIT) may apply to gains of higher-income taxpayers — even those with a long-term gains rate of 15%.

A 0% long-term capital gains rate generally applies to long-term gains that would be taxed at 10% or 12% based on the taxpayer’s ordinary-income rate. But the 0% rate applies only to the extent that capital gains “fill up” the gap between the taxpayer’s taxable income and the top end of the 0% bracket.

Gains and losses are netted against each other when filing a tax return. So gains may be offset wholly or partially by losses. The amount of a taxable gain is equal to the difference between the taxpayer’s basis in the asset and the sale price. For example, if you acquire stock for $1,000 and then sell it for $3,000, your taxable capital gain is $2,000.

How the Step-Up in Basis Works

When assets are passed to the younger generation through inheritance, there generally are no income tax consequences until the assets are sold. For these purposes, the basis for calculating gain is “stepped up” to the assets’ value on the deceased’s date of death. Thus, only appreciation in value after the individual inherited the assets is subject to tax. Appreciation during the deceased’s lifetime is untaxed.

Assets affected by the stepped-up basis rules include securities, business interests, real estate and personal property. However, these rules don’t apply to retirement assets such as 401(k) plans or IRAs.

To illustrate the benefits, let’s look at a simplified example. Carol bought stock 15 years ago for $10,000. In her will, she leaves the shares to her son, Jason. When Carol dies, the stock is worth $100,000, so Jason’s basis is stepped up to $100,000.

When Jason sells the stock one year later, it’s worth $110,000. Let’s say Jason’s income is high enough that he must pay the maximum 20% long-term capital gains rate plus the 3.8% NIIT on his gain. Jason has a $10,000 gain that’s taxed at 23.8%. Therefore, he owes $2,380 in taxes. Without the stepped-up basis, his gain would have been $100,000, and his tax would have been $23,800.

What happens if an asset is worth less on the date of death than when the deceased acquired it? The adjusted basis of the inherited asset would still be the value on the deceased’s date of death. This would be a basis step-down. It could result in a taxable gain on a subsequent sale if the value rebounds after death or a loss if the value continues to decline.

Planning for the Step-Up

One way to reduce estate tax liability is to make lifetime gifts to family members. Under the gift tax annual exclusion, you can give each recipient gifts valued up to $19,000 in 2026 gift-tax free ($38,000 per recipient for joint gifts by a married couple) without using up any of your lifetime exemption.

As with inherited assets, there generally are no income tax consequences for a gift recipient until the assets are sold. But the basis step-up doesn’t apply to lifetime gifts. If you give appreciated assets to a family member, your basis carries over to the recipient. Being strategic about which assets you gift during your life and which ones you bequeath after death can save taxes for your family overall.

For example, Kevin and Melissa don’t expect their estates to be large enough for federal estate taxes to be a concern — they’re focused on the income tax aspects of estate planning. They want to give their daughter, Emma, $30,000 of stock so she can sell it and put the proceeds toward a down payment on her first home. They can give her either $30,000 of stock that they paid $5,000 for 10 years ago or $30,000 of a different stock that they paid $25,000 for two years ago. Based on Emma’s income, she’ll be subject to the 15% long-term capital gains rate but not the NIIT when she sells the stock.

If Kevin and Melissa give her the stock with the $5,000 basis and Emma sells it immediately, she’ll have a gain of $25,000 and owe $3,750 in taxes. If they give her the stock with the $25,000 basis and Emma sells it immediately, she’ll have a gain of $5,000 and owe $750 in taxes. That’s clearly the more tax-efficient option in the short term.

Now imagine that Kevin and Melissa hold the $5,000-basis stock until their deaths, when they bequeath it to Emma. Let’s say the stock is worth $75,000 when she inherits it, and that her income is high enough by then to be subject to the 20% long-term capital gains rate and the 3.8% NIIT on any gain she realizes.

Because of the step-up, her basis will be $75,000. So, if she immediately sells the stock, she’ll recognize no gain and owe $0 taxes on the $70,000 of appreciation. Without the basis step-up, she’d owe $16,660 in taxes. That’s how valuable stepped-up basis can be.

However, there are many factors to consider. If, around the time that Kevin and Melissa wanted to make the $30,000 gift to Emma, they also wanted to divest themselves of the $5,000-basis stock (because its future prospects looked dim or they simply wanted to diversify), giving it to Emma could have made tax sense. This might have been the case if:

• Kevin and Melissa would have been subject to the 20% long-term capital gains rate and the 3.8% NIIT if they sold it, because Emma would pay tax at a lower 15% rate and no NIIT, or
• Kevin and Melissa would have been subject to the 15% rate, and Emma’s income had been low enough that she would have been subject to the 0% long-term rate on some or all of the gain.

As you can see, tax-smart planning that accounts for the various tax rates, basis differences within a portfolio and stepped-up basis rules gets complicated quickly. Things get even more complex if you’re on the cusp of having an estate that’s large enough for federal estate taxes to be a concern.

Achieving Your Estate Planning Goals

Tax saving is only one estate planning goal. You also want to ensure that your loved ones are provided for as you wish and that you can leave your desired legacy, such as supporting a favorite charity or preserving a family business.

Your tax and estate planning advisors can help you assess your family’s tax situation and develop an estate plan that fits your goals — or update your existing plan as needed in light of tax law, financial or family changes.

Do you own a boat that you use for recreation, business or perhaps a little of both? If so, you might be missing out on valuable tax-saving opportunities for your vessel. Let’s set sail to explore five potential tax breaks for boat owners.

1. Mortgage Interest Deductions

Under the right circumstances, your boat may qualify as a home for purposes of the mortgage interest deduction. Generally, you can deduct interest on mortgage debt incurred to buy, build or improve your principal residence and a second residence. (Mortgage points paid related to your principal residence also may be deductible.)

For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) reduced the mortgage debt limit from $1 million to $750,000 for debt incurred after December 15, 2017. (The limit for married individuals who file separately was temporarily reduced from $500,000 to $375,000.) The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, made those reduced limits permanent, though some exceptions may apply.

However, to qualify for the mortgage interest deduction, your boat must meet certain requirements. Specifically, the IRS defines a residence as “a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.” In other words, if your boat at least has a galley, sleeping quarters and bathroom, you may be able to claim a tax deduction for the vessel as your second residence — or even your primary one if you live there for most of the year. But you can’t simply toss a sleeping bag down below and call it a home.

Keep in mind that claiming your boat as a second residence means you must forgo claiming the mortgage interest deduction on a more traditional second home, such as a vacation house. So, if you have both, work with your tax advisor to decide which deduction is more valuable.

2. SALT Deductions

Did you pay state or local sales tax when buying your boat? And do you itemize on your federal tax return? If you can answer yes to both questions, you may be able to claim a deduction for state and local taxes (SALT).

Under the TCJA, your entire itemized deduction for SALT — including property tax and the greater of income or sales tax — was limited to $10,000 ($5,000 for married separate filers). The OBBBA increased the SALT deduction limit to $40,000 starting in 2025 ($20,000 for married separate filers).

For 2026 through 2029, these caps will increase by 1% annually. So, for 2026, the limit is $40,400 ($20,200 for married separate filers). The limits are scheduled to revert to $10,000 and $5,000, respectively, in 2030, unless Congress passes additional legislation to extend or modify them.

However, when a taxpayer’s modified adjusted gross income (MAGI) exceeds an applicable threshold, the cap is reduced by 30% of the amount by which MAGI exceeds the threshold — but not below $10,000 ($5,000 for separate filers). In 2026, the threshold is $505,000 for single filers, heads of household and joint filers ($252,500 for separate filers). Like the SALT deduction limit, the MAGI-based phaseout threshold will increase 1% annually through 2029. Beginning in 2030, the temporarily increased cap and related phaseout rules are scheduled to expire unless Congress passes additional legislation to extend or modify them.

Bear in mind that you must substantiate with proper documentation any deduction for eligible sales tax paid. Alternatively, you may claim a flat amount from an IRS table based on your state of residence. Doing so has the added benefit of allowing the sales tax paid on qualifying “big-ticket items” — such as a boat — to be added to the amount from the IRS table.

3. Business Write-Offs

Most boat owners use their vessels exclusively for personal enjoyment. But some operate bona fide, profit-seeking enterprises that use their boats for charter fishing, sightseeing excursions or similar outings. If you engage in such business activity, you may be able to write off ordinary and necessary expenses, such as qualifying costs for:

• Fuel,
• Equipment,
• Maintenance,
• Mooring, and
• Storage.

Additionally, you may be able to take a depreciation allowance for the boat itself. However, the IRS closely scrutinizes whether an activity is truly conducted for profit. Proper structuring, recordkeeping and demonstrating a profit motive are critical to sustaining these deductions.

Just remember that the deductions are based on business use. For instance, if 25% of the boat’s use is properly allocable to business charters, generally only 25% of mixed-use expenses may be deductible. The costs attributable to your personal use remain nondeductible.

In addition, special limits may apply if the boat qualifies as a dwelling unit — for example, if it has sleeping, cooking and toilet facilities — and you rent it out while also using it personally. In such a case, the vacation home rules may limit deductions. That is, if your personal use exceeds the greater of 14 days or 10% of the days the boat is rented at fair rental value, rental deductions generally can’t create a tax loss. And if you use the boat as a residence and rent it for fewer than 15 days during the year, the rental income generally isn’t taxable — but rental-related deductions aren’t allowed.

It’s worth noting that, before the TCJA, taxpayers could often deduct certain entertainment expenses if they were directly related to, or associated with, the active conduct of a trade or business. So, for instance, if you wrapped up a big deal with a client on Friday and took the individuals involved out on your boat for a fishing trip on Saturday, some of the costs might have been deductible under the previous rules, assuming the applicable substantiation and business-purpose requirements were met.

Today, however, most business entertainment expenses are nondeductible — including expenses for entertaining clients on yachts or other boats for fishing, sightseeing or similar purposes. So, one could say this tax break has gone straight to Davy Jones’ Locker. Separately purchased or separately itemized food and beverages may still qualify for a limited deduction if they meet the current business meal rules.

4. Home Office Deductions

Be forewarned: If you set up an office on your boat and use it only occasionally or even seasonally — say, over the summer — you more than likely won’t qualify for this write-off. However, let’s say you’re self-employed and set up an office in your boat. Would that do the trick?

As long as the boat qualifies as your home (whether primary or second), and you use a specific area of it regularly and exclusively as your principal place of business, you may be able to claim the home office deduction. It allows you to deduct from your self-employment income a portion of your mortgage interest, insurance, utilities and certain other indirect expenses. Further, you may be able to write off 1) the depreciation allocable to the portion of your boat home used for the office, and 2) direct expenses, such as a business-only phone line and office supplies.

Important: The IRS may scrutinize claims of the home office deduction involving boats more closely because of their potential for personal use.

5. Charitable Deductions

If you eventually decide to upgrade to a newer boat or abandon boating entirely, you can donate your current vessel to charity. Generally, a charitable deduction for itemizers is based on the boat’s fair market value on the donation date, assuming certain conditions are met.

You may be able to find the fair market value of comparable boats online, but it’s typically best to engage a professional appraiser. If your claimed deduction exceeds $5,000, you generally must obtain a qualified appraisal and complete the applicable section of IRS Form 8283, which is filed with your tax return. Special substantiation rules may apply to donated boats, including the need to obtain and, in some cases, attach Form 1098-C or a qualifying written acknowledgment from the charity.

Important: If the charity sells the boat without significant intervening use or material improvement, your deduction may generally be limited to the amount the charity receives from the sale.

Another idea is to arrange a “bargain sale” of the boat with a qualified charitable organization. Essentially, you transfer the boat to the charity at a discounted price, which allows you to treat part of the transaction as a sale and the other part as a donation. The donation part is the difference between the vessel’s fair market value and the bargain price. The sale part may result in a taxable gain if your tax basis in the boat is low. Bargain sales are usually complex transactions, so be sure to get guidance from your tax professional when undertaking one.

Choppy Waters

Boat-related tax breaks can be valuable, but the complex rules can lead you into choppy waters. Tax treatment depends heavily on the facts — and careful documentation. Before claiming any of these deductions, make sure you understand the applicable limits, substantiation rules and personal-use restrictions. Your tax advisor can help you determine whether your vessel may qualify for any of these tax breaks.

The U.S. Supreme Court recently ruled that certain tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were illegal. As a result, U.S. Customs and Border Protection (CBP) has begun implementing a process to issue refunds to affected businesses. For some companies, this may provide an opportunity to recover cash from tariffs paid on imports over the past year.

CBP has launched the Consolidated Administration and Processing of Entries (CAPE) tool within its Automated Commercial Environment (ACE) portal to facilitate the refund process. According to federal court filings, CBP estimates that more than 300,000 importers paid approximately $166 billion in tariffs on over 53 million entries. But not all these tariffs will ultimately qualify for refunds.

Who Qualifies?

Eligibility generally applies to the “importer of record.” This term refers to the business entity that officially imported goods into the United States. In some cases, a customs broker that filed entries on behalf of a company may also play a role in the refund process.

If your business imports goods directly or uses a customs broker to handle import filings, there’s a strong possibility you may qualify for a refund. It’s important to note that consumers aren’t eligible for tariff refunds.

For qualifying companies, these refunds are more than just minor reimbursements — substantial dollar amounts may be at stake. Refunds can help boost cash flow and profitability. You also may need to adjust your recent financial statements or amend previously filed tax returns, depending on how tariffs were originally treated. For example, tariff refunds may affect taxable income, deductions and/or inventory accounting.

How Does the Refund Process Work?

Although CBP has introduced the CAPE tool to streamline claims, the process still requires careful coordination. Businesses should be prepared to:

• Identify affected import transactions,
• Gather supporting documentation, including entry filings and duty payments,
• Coordinate with customs brokers, if applicable, and
• Submit claims accurately through the CAPE tool.

In many cases, the customs broker who originally filed the entry may assist with tariff refunds. But companies shouldn’t assume the process is being handled automatically. A coordinated approach expedites claims processing. It also helps prevent incomplete or inaccurate filings, missed deadlines, overlooked financial reporting, and unanticipated tax consequences.

Next Steps

If your business imports goods, now’s the time to determine whether you’re eligible and, if so, begin preparing your claim. First, identify who’ll be responsible for filing your refund claim and gathering the required documentation. This person should promptly review your import activity during the affected period and reconcile import data to the general ledger to estimate the total potential refunds. Carefully review this documentation to identify missed entries or inconsistencies across multiple entities or systems. Proper substantiation is essential for obtaining CBP approval of your claim.

Also, be aware that CBP is currently processing refunds in phases. In Phase 1, CBP has said importers and customs brokers may file requests through the ACE portal by uploading a CAPE Declaration listing the relevant entry numbers. As a result, you should confirm whether your entry falls within the currently available phase.

Professional Guidance

Your financial advisor can help you assess how the refund affects your financial statements and tax filings. This professional can guide you through the refund filing process to ensure you accurately capture the full opportunity — and comply with applicable reporting requirements.

The One Big Beautiful Bill Act (OBBBA), enacted in 2025, made permanent the federal income tax deduction for qualified business income (QBI). This break was originally introduced under the Tax Cuts and Jobs Act. Many business owners have been curious about whether and how this tax break may apply to their rental real estate activities. If you count yourself among them, here’s the scoop.

Ground Rules

Under current law, self-employed individuals, sole proprietors and owners of the following pass-through entities may be eligible to deduct as much as 20% of their QBI:

• Partnerships,
• Most limited liability companies (LLCs), and
• S corporations.

QBI is generally defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of an eligible U.S. trade or business. It doesn’t include certain investment items, reasonable compensation paid to an owner for services rendered to the business, or any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the partnership or LLC.

Special Rules and Restrictions

The deduction can’t exceed 20% of the taxpayer’s taxable income. Eligible taxpayers can claim the deduction regardless of whether they itemize deductions or pay the alternative minimum tax. However, an applicable limit begins to phase in when income exceeds certain thresholds. For 2026, these thresholds are:

• $201,750 for single and head-of-household filers,
• $201,775 for married individuals filing separately, and
• $403,500 for married couples filing jointly.

For 2026, the limit fully phases out when income exceeds $276,750 ($276,775 for separate filers and $553,500 for joint filers).

If your income exceeds the applicable fully phased-in amount, your QBI deduction is limited to the greater of 1) your share of 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or 2) the sum of your share of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.

Qualified property is the depreciable tangible property — including real estate — owned by a qualified business as of year end and used by the business at any point during the tax year to produce QBI. (Additional rules apply.)

Starting in 2026, the OBBBA also created an inflation-adjusted minimum QBI deduction of $400 for taxpayers with at least $1,000 of QBI from one or more active businesses in which they materially participate. “Material participation” generally requires your regular, continuous and substantial involvement in business operations. (The material-participation concept applies to this new minimum deduction; it isn’t a general requirement for claiming the QBI deduction.) The deduction amount and the QBI thresholds will be adjusted annually for inflation.

Safe Harbor for Rental Real Estate

In 2019, the IRS finalized a safe harbor that allows certain rental real estate to be treated as a trade or business for purposes of the QBI deduction. The safe harbor is available to taxpayers seeking to claim the deduction for a “rental real estate enterprise,” which is defined as an interest in real property held to generate rental or lease income. That can mean an interest in a single property or interests in multiple properties. The taxpayer must hold each interest directly or through a so-called “disregarded entity” that isn’t considered separate from its owner for tax purposes (for example, a single-member LLC).

If you satisfy the safe harbor requirements, the IRS will treat your interest in rental real estate as a single trade or business for purposes of the deduction. And if you don’t satisfy all the requirements, your interest may still qualify for the deduction if it otherwise meets the definition of a trade or business under the QBI deduction rules.

So, what are the requirements? First, you must maintain separate books and records to reflect income and expenses for each rental real estate enterprise. For eligible enterprises that have existed for less than four years, 250 or more hours of rental services need to be performed annually. For other rental real estate enterprises, 250 or more hours of such services must be performed in at least three of the past five years.

Also, you need to maintain contemporaneous records (including time reports, logs or similar documents) that show:

• A description of rental services performed,
• The dates on which such services were performed,
• The number of hours of services performed, and
• Who performed the services.

In addition, you must attach a statement to each tax return filed for any tax year you claim the safe harbor. The statement should include 1) a description of all rental real estate properties included in each rental real estate enterprise, 2) a description of rental real estate properties acquired and disposed of during the taxable year, and 3) a representation that the requirements have been fulfilled.

Certain rentals, however, generally don’t qualify for the safe harbor. These include real estate used by the taxpayer as a residence or rented or leased under a triple-net lease, where the tenant pays taxes, insurance and maintenance. Rental real estate leased to a commonly controlled trade or business is also excluded from the safe harbor, but such an arrangement may still qualify for the QBI deduction under separate rules.

A Closer Look at Rental Services

According to IRS guidance, rental services are broadly defined and include:

• Advertising to rent out the property,
• Negotiating and executing leases,
• Verifying information contained in rental applications,
• Collecting rent,
• Operating, maintaining and repairing the property (including buying materials and supplies),
• Managing the property, and
• Supervising employees and independent contractors.

Rental services can be performed by you (the owner) or your employees, agents or independent contractors whom you engage. Note that the term doesn’t include financial or investment management activities — such as arranging financing, procuring property, studying and reviewing financial statements or operational reports, improving property, or spending time traveling to and from property.

Key Question

The good news is that running a sole proprietorship or pass-through business that conducts rental real estate activities doesn’t automatically disqualify you from claiming the QBI deduction. And the bad news? It doesn’t automatically entitle you to it either.

The key question is whether your rental activities rise to the level of a trade or business under the QBI deduction rules or otherwise qualify under the IRS safe harbor for rental real estate enterprises. Your tax advisor can help you evaluate your company’s eligibility, maximize any available deduction and maintain detailed records to support the claim.

Recently, many taxpayers across the country have received IRS Notice CP53E, creating confusion and concern about whether the notices are legitimate and what action, if any, should be taken. As part of the IRS’s continued transition away from paper refund checks and toward electronic payments, these notices are being issued to taxpayers whose direct deposit information could not be processed or verified.

The IRS has confirmed that the CP53E notice is a legitimate communication. In many cases, the notice is sent when the IRS is unable to issue a refund via direct deposit due to missing, incorrect, or mismatched banking information. However, some taxpayers have reportedly received these notices unexpectedly, including situations where refunds were already scheduled to be applied to estimated taxes or where balances were due, which has understandably led to confusion.

Why Are Taxpayers Receiving These Notices?

The notices are tied to the federal government’s broader initiative to modernize payment processing and reduce the use of paper checks for federal disbursements, including tax refunds. According to reports, more than one million CP53E notices have already been issued during this filing season.

Common reasons a taxpayer may receive a CP53E notice include:

• Invalid or outdated bank account information
• A mismatch between the taxpayer’s name and the bank account
• A rejected direct deposit from the financial institution
• Missing direct deposit information on the return

AICPA Advisory and IRS Response

The American Institute of CPAs (AICPA) recently issued an advisory regarding the growing confusion surrounding CP53E notices. According to the AICPA, the IRS is aware that some notices may have been sent incorrectly, including:

• Situations where taxpayer overpayments were already scheduled to be applied to 2026 estimated taxes
• Returns where a balance was due rather than a refund owed

At this time, the AICPA stated that “until further guidance is issued, the IRS is not recommending any further action.”

The AICPA also cautioned taxpayers that some fraudulent notices may be circulating and advised taxpayers to carefully verify that any QR code included in correspondence directs users to “irs.gov” before taking any action.

Important: Be Cautious of Scams

One reason these notices have generated concern is that some legitimate IRS notices now include QR codes, something taxpayers are not accustomed to seeing in official IRS correspondence. Unfortunately, scammers are attempting to take advantage of this confusion by creating fraudulent notices designed to steal personal or banking information.
Taxpayers should exercise caution and avoid scanning QR codes or clicking links in unsolicited correspondence until the notice has been verified through official IRS channels.

What Should You Do If You Receive a CP53E Notice?

If you receive a CP53E notice, we recommend the following steps:

1. Do not panic.
2. Do not provide banking information through unfamiliar links or websites.
3. Go directly to the IRS website by typing “IRS.gov” into your browser.
4. Log into your IRS Online Account to verify whether the notice appears there.
5. Contact our office if the notice does not align with your tax return or expected refund status.

The IRS generally requires taxpayers to respond within 30 days if they wish to update direct deposit information electronically. If no action is taken, the IRS has stated that a paper refund check may still be issued, although processing could take approximately six weeks longer.

Our Recommendation

As with any IRS correspondence involving sensitive information, taxpayers should take a cautious and measured approach. While many CP53E notices are legitimate, the increase in related scam activity makes verification especially important.

Our firm strongly recommends that clients:

• Verify notices directly through IRS.gov
• Avoid scanning QR codes from unexpected mailings
• Reach out to our office with any questions before responding

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Beers, Hamerman, Cohen & Burger, P.C. (BHCB) is pleased to announce that several of its partners have been named to the Forbes Best-In-State CPAs list.

Those recognized include Francis Jay Broderick, Dennis Cole, Peter Graeb, Nicolas Iwanec, and Jennifer Schempp.

The Forbes Best-In-State CPAs list recognizes accounting professionals across the country who demonstrate a high level of expertise, leadership, and dedication to client service.

This distinction reflects the continued commitment of BHCB’s partners to delivering quality service and maintaining the highest professional standards. We are proud to see them recognized among their peers within the profession.

To view the full list, please visit the Forbes Best-In-State CPAs page:
https://www.forbes.com/lists/best-in-state-cpas

The Internal Revenue Code has long had much to offer taxpayers who are 50 or older, nearing retirement, or already in their golden years. And the One Big Beautiful Bill Act (OBBBA), enacted last July, expanded several tax breaks and added new opportunities for older taxpayers. Whether you’re in this age group and preparing your 2025 federal income tax return or looking to optimize future tax outcomes (or both), here are seven tax breaks to consider.

1. Additional Standard Deduction

Regardless of age, taxpayers who choose not to itemize deductions are entitled to the standard deduction for their filing status. The Tax Cuts and Jobs Act (TCJA) of 2017 approximately doubled the standard deduction amounts, and the OBBBA made those increases permanent and further increased the amounts for 2025 to:

• $15,750 for single filers (up from $15,000 before the OBBBA),
• $23,625 for heads of households (up from $22,500), and
• $31,500 for married couples filing jointly (up from $30,000).

These amounts will be inflation adjusted for 2026 and beyond.

Additional standard deduction amounts are allowed for individuals age 65 or older or blind. For 2025, these amounts are $2,000 for an unmarried individual age 65 or older or blind, or $1,600 for a married person age 65 or older or blind. (These amounts are doubled if the individual is both over age 65 and blind.)

So, for instance, if you’re a joint filer claiming the standard deduction and you and your spouse are both in your late sixties (and not blind), your additional deduction is $3,200.

2. Senior Deduction

The OBBBA provides a new tax break for many taxpayers age 65 or older. For 2025 through 2028, taxpayers in this age group may be able to claim a deduction of up to $6,000. If both spouses of a married couple filing jointly are age 65 or older, each spouse may be eligible for a separate senior deduction of up to $6,000 — for a combined total of up to $12,000. This deduction is available whether you itemize or not.

But there’s a catch. The senior deduction is phased out based on modified adjusted gross income (MAGI). The phaseout begins at $75,000 of MAGI for single filers or $150,000 for joint filers. It phases out completely when MAGI exceeds $175,000 or $250,000, respectively.

3. Catch-Up Contributions

Taxpayers who max out their annual contribution limits for employer-sponsored retirement plans, such as 401(k)s, as well as for IRAs, can up the ante after reaching age 50 with catch-up contributions. These are amounts you can contribute in addition to your regularly allowed contributions and any employer matches you might receive. For instance, in 2026, taxpayers age 50 or older can add:

• $8,000 to the maximum 401(k) deferral of $24,500 for a total contribution of $32,500, or
• $1,100 to the maximum traditional or Roth IRA contribution of $7,500 for a total contribution of $8,600.

Catch-up contributions are annually indexed for inflation.

Important: Beginning in 2026, the SECURE 2.0 Act requires the 401(k) catch-up contributions of higher-income taxpayers to be treated as post-tax Roth contributions. In 2026, the requirement generally applies to taxpayers who earned more than $150,000 in 2025. This threshold will be annually indexed for inflation.

4. Super Catch-Up Contributions

Under SECURE 2.0, starting in 2025, a slightly older age group of employees — those who are age 60 to 63 at the end of the tax year — can boost their catch-up contributions to most employer-sponsored plans to 150% of the amount allowed for those age 50 and over. (Once you reach age 64, the regular catch-up contribution limit is reinstated.)

The limit for these “super” catch-up contributions in 2026 is $11,250 (the same as in 2025). So, if you’ll be 60, 61, 62 or 63 on December 31, 2026, you can potentially contribute up to $35,750 to a 401(k) this year — the maximum deferral of $24,500 plus a super catch-up contribution of $11,250.

Important: The aforementioned Roth requirement for higher-income taxpayers, including the annually indexed income threshold, applies to super catch-up contributions, too.

5. Spousal IRAs

Married couples can take advantage of a retirement-savings tax break if only one spouse works. That is, the couple may set up an IRA in the nonworking spouse’s name — often called a “spousal IRA” — based on the working spouse’s earned income. This can be particularly helpful when one spouse has retired and the other is still working.

For instance, let’s say 55-year-old Irma earns $100,000 a year while her 65-year-old spouse, Irving, has already retired. The couple can contribute up to $17,200 to IRAs in 2026 — $8,600 to Irma’s IRA and another $8,600 to Irving’s spousal IRA. Depending on income levels and participation in workplace retirement plans, these contributions may be fully or partially deductible under the usual IRA rules.

6. Penalty-Free Retirement Plan Distributions

Reaching age 59½ is a key milestone when it comes to taking distributions from IRAs, 401(k)s and other qualified retirement plans. Normally, a 10% tax penalty — on top of your regular income tax liability — is assessed on retirement plan withdrawals before that age unless a special exception applies.

If you’re retiring before age 59½ and need to make retirement plan withdrawals, consider this penalty exception: You can take substantially equal periodic payments (SEPPs) under one of three IRS-approved methods. SEPPs are based on your life expectancy or the joint life expectancy of you and a designated beneficiary. Complying with the SEPP rules can be complicated. You may want to involve your tax pro if you’re considering this option.

7. Qualified Charitable Distributions

Generally, distributions from traditional IRAs are taxed at ordinary income rates — even if you subsequently donate the funds to charity. Charitable contributions may be deductible if you itemize, and a more limited deduction will be available to nonitemizers for the 2026 tax year.

However, if you’re older than 70½, you can transfer IRA funds directly to a qualified charity with no federal income tax consequences. Although you can’t claim itemized deductions for these qualified charitable distributions (QCDs), their tax-free treatment equates to a 100% deduction because you’ll never be taxed on those amounts. QCDs also count toward required minimum distributions. (See “A Note on Required Minimum Distributions” below.)

There is an annual limit for QCDs, but it’s indexed for inflation every year. In 2026, the QCD limit is $111,000 (up from $108,000 in 2025). If you and your spouse both qualify, you can transfer twice that amount tax-free.

Moreover, QCDs aren’t included in your adjusted gross income (AGI) or MAGI. Among other benefits, this lowers the odds that you’ll be affected by income-based phaseouts and reductions of various tax breaks, such as the AGI ceiling on charitable contributions or the MAGI limit on the new senior deduction. Also, lowering AGI can potentially limit Medicare premium surcharges, exposure to the net investment income tax and the taxation of Social Security benefits.

In addition, SECURE 2.0 authorized eligible taxpayers to make a one-time QCD transfer to a charitable remainder trust or charitable gift annuity. Annually indexed for inflation, the limit on such tax-free transfers is $55,000 in 2026 (up from $54,000 in 2025).

Identify and Leverage

Tax rules affecting older taxpayers continue to evolve and, as you can see, recent legislation has added several new opportunities for tax savings. Of course, eligibility requirements, income limits and phaseouts can affect how much you’ll benefit. Ask your tax advisor for help identifying which tax breaks are available to you and how to leverage their positive impact.

The IRS typically updates Form 1040 every year — sometimes a little, sometimes a lot. Given the many tax law changes under the One Big Beautiful Bill Act (OBBBA), there’s plenty to talk about this filing season. Here are some highlights.

Basic Changes

The OBBBA permanently extends the individual federal income tax rates established under the Tax Cuts and Jobs Act. The thresholds for these rates are annually adjusted for inflation. (See “2025 Federal Tax Rates and Brackets for Individuals” below.)

The law also increased the basic standard deduction for 2025 to:

• $15,750 for single filers (up from $15,000 before the OBBBA),
• $23,625 for heads of households (up from $22,500), and
• $31,500 for married couples filing jointly (up from $30,000).

These amounts will be inflation adjusted for 2026 and beyond.

Additional standard amounts are allowed for individuals age 65 or older or blind. For 2025, the additional amounts are $2,000 for an unmarried individual age 65 or older or blind, or $1,600 for a married person filing jointly age 65 or older or blind. (These amounts are doubled if the individual is both over age 65 and blind.)

New Deduction for Seniors

For 2025, the OBBBA allows individuals age 65 and older to claim a new “senior” deduction of up to $6,000, subject to an income-based phaseout. This deduction is available whether you itemize or not. For joint filers, if both spouses are age 65 or older, each one is potentially eligible for a bonus deduction of up to $6,000 — for a combined total of up to $12,000.

The senior deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 for single filers ($150,000 for joint filers). The phaseout is complete when MAGI exceeds $175,000 ($250,000 for joint filers).

New Deduction for Tips

For 2025, the OBBBA allows a new deduction that can offset up to $25,000 of qualified tip income received during the year. The tax break is available if you work in an occupation where tips are customarily received, and it can be claimed whether you itemize or not.

For self-employed individuals, the deduction can’t exceed the amount of your net income — before the deduction — from the trade or business in which you earned the tips. If you’re married, you must file a joint return to claim the tip deduction. And the tax break is available only if you include your Social Security number on your Form 1040.

The tip deduction that would otherwise be allowed (subject to the $25,000 limit) starts to phase out when MAGI exceeds $150,000 for single filers ($300,000 for joint filers). The deduction phases out by $100 for each $1,000 (or fraction thereof) of MAGI above the applicable threshold.

Important: You can’t claim the tip deduction for work in a specified service trade or business (SSTB). Ask your tax advisor whether you work in an SSTB.

New Deduction for Overtime Pay

For 2025, eligible taxpayers can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay. This deduction can be claimed whether you itemize or not. However, if you’re married, you must file jointly to claim it. And you can’t claim the tax break unless you include your Social Security number on your Form 1040.

Qualified overtime pay means extra overtime compensation (the so-called “overtime premium”) that was paid to you as mandated under the Fair Labor Standards Act (FLSA). This law requires time-and-a-half overtime pay except for certain exempt workers. Qualified overtime pay doesn’t include overtime premiums that aren’t required by the FLSA but are mandated by state law or under certain contracts (for example, union-negotiated collective bargaining agreements). In other words, the overtime deduction is unavailable to employees who aren’t subject to the FLSA’s overtime pay requirements.

For example, suppose you worked 500 hours of overtime last year. In compliance with the FLSA, you were paid $37.50 per overtime hour rather than your regular rate of $25 per hour. In this situation, your qualified overtime pay for 2025 is $6,250 (500 times a $12.50 overtime premium).

The overtime deduction that would otherwise be allowed (after applying the $12,500/$25,000 limit) starts to phase out when your MAGI exceeds $150,000 for single filers ($300,000 for joint filers). The deduction is phased out by $100 for each $1,000 of MAGI (or fraction thereof) above the applicable threshold.

New Deduction for Auto Loan Interest

For 2025, the OBBBA grants eligible individuals — including those who don’t itemize — a new deduction of up to $10,000 for interest paid on loans taken out to buy a qualifying personal-use passenger vehicle. The loan must be taken out after 2024 and secured by a “first lien” for a vehicle used for personal purposes. Leased vehicles don’t qualify.

To qualify for the new deduction, the vehicle must be a car, minivan, van, sport utility vehicle, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. It must be manufactured primarily for use on public streets, roads and highways. In addition, the vehicle needs to be new (meaning the original use begins with you), and its final assembly must have occurred in the United States. You’re required to report the vehicle identification number (VIN) on your tax return. Vehicles assembled in the United States have a special number in the VIN that confirms eligibility.

The deduction begins to phase out when MAGI exceeds $100,000 for single filers ($200,000 for joint filers). If your MAGI is above the applicable threshold, the amount that you can deduct (subject to the $10,000 limit) is reduced by $200 for each $1,000 (or fraction thereof) of excess MAGI.

Bigger SALT Deduction

Before the OBBBA, the itemized deduction for state and local taxes (SALT) was limited to $10,000 per return ($5,000 for married individuals who file separately). For 2025, the OBBBA increased the SALT deduction limit to $40,000 per return ($20,000 for married filing separately).

As before, you can choose to deduct general state and local sales taxes instead of income-related SALT. This is a helpful option if you owe little or nothing for income-related SALT. If you choose it, your SALT deduction will be based on the amount of general state and local sales taxes you paid, plus your state and local property taxes, if applicable.

For 2025, the higher SALT deduction limit begins to phase out at $500,000 per return ($250,000 for married filing separately). The phaseout reduces the otherwise allowable SALT deduction limitation by 30% of MAGI above the applicable threshold, but not below $10,000 per return ($5,000 for married filing separately).

Important Changes for People with Children and Other Dependents

The dependents section of the 2025 Form 1040 also requests more information about you and your dependents than in previous tax years. The IRS uses this information to determine eligibility for certain tax benefits, such as the Child Tax Credit, the Credit for Other Dependents and the Earned Income Credit.

For 2025, the OBBBA increases the Child Tax Credit to $2,200 per qualifying child under age 17. The refundable portion of the credit is $1,700 for 2025. You can collect the refundable credit amount even if you don’t owe any federal income tax. Beginning in 2025, a valid Social Security number is required to claim the Child Tax Credit.

Additionally, starting in 2025, up to $5,000 of the adoption credit amount is refundable. This amount will be inflation adjusted after 2025. You can collect a refundable credit amount even if you don’t owe any federal income tax.

Liberalized Rules for Section 529 Account Withdrawals

Section 529 accounts are a tax-favored way to save for and pay qualified education expenses. In 2025, account owners could take tax-free withdrawals of up to $10,000 to pay tuition for a public, private or religious K-12 school. Starting in 2026, the annual limit increases to $20,000.

For withdrawals taken after July 4, 2025, the OBBBA expanded the definition of qualified K-12 expenses to include curriculum materials; fees for nationally standardized tests, books and other instructional materials; dual-enrollment fees for college courses taken in high school; online educational materials; tutoring or educational classes taken outside the home; and specialized strategies to support students with disabilities.

For withdrawals taken after July 4, 2025, tax-free treatment is allowed for withdrawals to cover qualified postsecondary credentialing expenses. Such expenses include:

• Tuition, fees, books, supplies and equipment required for the enrollment or attendance of the 529 account beneficiary in a recognized postsecondary credential program,
• Fees for required testing for the beneficiary to obtain or maintain a recognized postsecondary credential, and
• Fees for required continuing education for the beneficiary to maintain a recognized postsecondary credential.

You can also use tax-free 529 account withdrawals to cover 1) expenses for the beneficiary to attend a registered apprenticeship program, and 2) principal or interest payments on qualified education loans owed by the account beneficiary or a sibling of the account beneficiary, subject to a lifetime limit of $10,000.

New Trump Accounts

The OBBBA allows parents, guardians and other authorized individuals to elect to establish new Trump Accounts (TAs), which are similar to traditional IRAs set up for under-age-18 account beneficiaries. For children who are U.S. citizens born in 2025, an authorized individual can elect to have a tax-free $1,000 pilot program contribution made to the TA in question. Elections to establish a TA and receive the $1,000 contribution can be made on the new Form 4547, “Trump Account Election(s),” which may be filed with your tax return.

Important: After July 4, 2026, authorized individuals can start making annual nondeductible TA contributions of up to $5,000 until the year the account beneficiary turns age 18.

Reporting Requirement for Digital Asset Transactions

Did you use a broker in 2025 to sell a digital asset, such as Bitcoin? If so, the broker should send you a Form 1099-DA, “Digital Asset Proceeds From Broker Transactions,” to report the transaction. On that form, your broker may report your tax basis in the digital asset you sold — but isn’t required to do so.

If your broker doesn’t report your basis on Form 1099-DA, you must use your own records to determine the basis. And regardless of whether you receive a Form 1099-DA, you’re required to answer the digital assets question on your return and report any gains or losses from digital asset transactions during the year.

More Than a Few

As you can see, there are more than a few changes to consider when filing your 2025 return. Your tax advisor can provide further specifics and help you take full advantage of any tax-saving opportunities available to you.

If you’re a parent of minor children or of one or more college students, you’re likely thinking about them as you prepare to file your 2025 federal tax return or begin tax planning for 2026. Do they make you eligible for the Child Tax Credit? For the Credit for Other Dependents? For education-related tax breaks?

What you might not be thinking about is the “kiddie tax,” which could increase taxes on your children’s unearned income. Knowing when the kiddie tax applies and how it works can help prevent unpleasant surprises and allow for smarter tax planning.

A Higher Tax on Unearned Income

The kiddie tax is designed to minimize parents’ ability to significantly reduce income taxes by transferring income-producing assets to their children in lower tax brackets. When it applies, some or most income on investments held by the child is taxed at the parents’ higher marginal federal income tax rate rather than at the child’s rate.

The rule applies only to unearned income. This typically includes interest, dividends, capital gains and similar investment income, often from custodial accounts or investments held in a child’s name. Earned income, such as wages from a part-time job or self-employment, isn’t subject to the kiddie tax and is taxed at the child’s own rate.

Applicability After Age 18

The kiddie tax isn’t strictly a tax on minors. It often applies for several years after a child turns 18. Specifically, the kiddie tax may apply if your child is under age 18 at year end or is age 18 at year end and didn’t provide more than half of his or her own support through earned income. It can also apply to full-time students from ages 19 through 23 who didn’t provide more than half of their own support through earned income.

Beginning the year your child turns 24, the kiddie tax no longer applies. This is true even if he or she is still a student relying on parental support.

Unearned Income Thresholds

If your child is subject to the kiddie tax, it won’t apply to all of his or her unearned income. For both 2025 and 2026, the first $1,350 of your child’s unearned income will generally be tax-free. The next $1,350 will be taxed at your child’s own federal income tax rate. Any unearned income above $2,700 generally will be subject to the kiddie tax and taxed at your marginal federal income tax rate.

As a result, relatively modest investment income can trigger the kiddie tax. For example, custodial accounts holding investments that generate dividends or capital gains distributions can trigger the kiddie tax even when no trading occurs.

Planning Considerations

Before transferring any investment assets to your children or grandchildren, consider the potential kiddie tax consequences. You may want to avoid giving them assets that generate substantial dividends or that are highly appreciated and will generate substantial capital gains when sold — unless they can be held until the child is no longer subject to the kiddie tax.

You may also want to consider alternatives to transferring assets directly to the child or to a taxable custodial account. For example, you could make contributions to a suitable tax-advantaged account, such as a Section 529 savings plan, Coverdell Education Savings Account or a newly available Trump Account.

If your child already holds investments that could generate income subject to the kiddie tax, you may want to consider traditional tax planning strategies for his or her investments. For instance, you could minimize trading activity or offset realized capital gains by selling other investments in your child’s portfolio at a loss.

Things Can Get Complicated

Calculating the kiddie tax involves several steps, including filing a tax return for the child. Plus, because the child’s return relies on information from the parents’ tax return, the kiddie tax ties the two together. Suffice it to say, things can get complicated quickly. If your child has unearned income, contact your tax advisor for help determining whether he or she is subject to the kiddie tax, calculating the tax if needed, and aligning tax planning strategies with your overall goals.