How businesses can fund a buy-sell agreement
How businesses can fund a buy-sell agreement
Businesses with more than one owner benefit from having multiple viewpoints and varying skill sets. However, they also face serious risks of uncertainty and conflict if one of the owners suddenly departs or undergoes a major life change. A carefully crafted buy-sell agreement can guard against these risks — if it’s securely funded.
Transfer guidelines
A “buy-sell” (as it’s often called) is a legally enforceable contract among a company’s owners that sets guidelines for transferring ownership interests. It gives the remaining owners or the business itself the right — or, in some cases, the responsibility — to buy an exiting owner’s interest if a “triggering event” occurs. Such events may include an owner’s death, disability, divorce, retirement, voluntary departure, and loss of professional license or certification.
Essentially, the buy-sell creates a market for a withdrawing owner’s interest. It also defines how the price of an ownership interest will be determined, including identifying a valuation method and standard of value. By outlining when and to whom interests can be sold — and for how much — the agreement ultimately helps prevent conflicts among remaining owners or with the withdrawing owner’s family.
Popular choice
When a triggering event occurs, a substantial amount of money is typically needed to buy the departing owner’s interests. So, it’s critical to properly fund a buy-sell.
One popular choice is life insurance. Although such coverage might seem useful only to provide liquidity in the event of an owner’s death, it’s not limited to such situations.
The right policy, sometimes combined with riders or other types of coverage, can help ensure that departing owners or their beneficiaries efficiently receive the agreed-upon price for ownership interests following eligible triggering events. Meanwhile, it can ease the strain on the company’s cash flow and reduce the likelihood that the business will have to sell assets to fund an ownership interest buyout.
Various structures
Buy-sells can be structured to use life insurance in various ways. One option is a cross-purchase agreement, where each owner takes out a policy on each of the other owners.
For example, let’s say you buy coverage for your business partner. If that individual dies, triggering the buy-sell, you’ll collect the death benefit and use it to buy the ownership interest from your partner’s estate.
Assuming it’s large enough, the policy should guarantee you’ll have the funding to fulfill your obligations under the agreement. Other benefits include:
- The insurance proceeds won’t be taxable as long as you plan properly, and
- Your tax basis in the newly acquired interests will equal the purchase price.
On the downside, a cross-purchase agreement can be cumbersome if there are more than a few owners because of the number of policies required. It can also be unfair if there’s a significant disparity in owners’ ages or health, causing the policy premiums to vary substantially.
One alternative is establishing a trust or separate partnership to buy a policy on each owner. If an owner dies, the trust or partnership collects the death benefits on behalf of the remaining owners and pays each one’s share of the ownership interest buyout.
Another option is a redemption agreement. Under this approach, the business — not the individual owners — buys a policy on each owner’s life. The company holds the insurance and receives the proceeds following a qualifying triggering event, which it then uses to buy a departing owner’s interest.
A disadvantage of a redemption agreement is that the remaining owners won’t receive a step-up in basis when the company buys the departing owner’s interest. This can result in higher capital gains taxes.
Additionally, in the 2024 case of Connelly v. United States, the U.S. Supreme Court held that the value of corporate-owned life insurance used to meet a redemption agreement should be included in the value of a deceased owner’s business interest for federal estate tax purposes. And that doesn’t include any offsetting reduction for the company’s obligation to redeem the deceased owner’s interest.
The ruling may have adverse consequences for estates subject to the federal estate tax. Under current law, the unified federal estate and gift tax exemption is $13.99 million for 2025 and $15 million for 2026.
Bottom line
The bottom line is, if not properly funded, a buy-sell agreement won’t likely benefit anyone. Work with your attorney to create and occasionally review yours. Meanwhile, we can help you choose an optimal funding strategy and advise you on the tax implications.
Shining a light on your business’s brand
Shining a light on your business’s brand
Your business’s brand is more than just a logo or tagline. It represents the culmination of everything you’ve accomplished to date, as well as a promise to uphold the reputation you’ve established.
But that doesn’t mean your brand has to remain static. In fact, it may need a refresh as your company grows, markets evolve and customer expectations change. The only way to know for sure is to occasionally shine a light on your brand to determine whether it’s still optimally visible to the people you want to reach.
Locate yourself
When reassessing your brand, first locate where your company stands today. Consider its strengths and how they’ve evolved over time — or very recently. Maybe you’ve pivoted over the last several years to address changing economic or market conditions. Look for strong suits such as:
- Notable excellence in product or service design,
- Exceptional customer service,
- Providing superior value for your price points, and
- Innovation in your industry.
You need to match your business’s mission, vision and strengths to the needs and wants of the market you serve — and express that through your brand. To that end, ask current customers what they like about doing business with you. And survey both customers and prospects about what they consider when making buying decisions.
Pinpoint your personality
If you look at any widely known brand, you’ll see a logo and broader branding effort that conveys a certain personality. Some companies want to appear creative and playful; others want to communicate stability and security.
What personality will draw customers to your business? You may think every company in your industry has the same target audience. If that’s true, you must come up with an edge that differentiates your business from its rivals.
Your company may have various points of contact with customers, such as business cards, print advertisements and catalogs, and your website’s home page and social media accounts. All play a role in your brand’s personality.
Review what your company does at each contact point, considering whether and how these efforts accurately and effectively represent the business’s core values and emphasize its strengths. Doing so will give you more insight into the best way to portray your personality through your brand.
Check up on the competition
Of course, competitors have brands all their own — and they’re after your target audience. So, in creating or refining your brand, you’ll need to identify their tactics and develop countermeasures.
To do so, engage in competitive intelligence. This simply means ethically and legally gathering information on their latest products or services, pricing and special offers, marketing and advertising methods, and social media activities.
In some cases, you may discover that a full rebranding campaign is necessary to differentiate your business from the competition. For example, let’s say a major player has entered your market and you’re worried about visibility, or perhaps your brand is blurring with another company’s.
Stand out
Branding is an ongoing process of reflecting on your company’s identity and refining how you present it to the world. By building on your strengths, expressing a clear and consistent personality, and keeping a close eye on competitors, your business can stand out in a crowded marketplace. Let us help you evaluate branding from a cost-planning perspective to ensure that any chosen strategy aligns with your budget and strategic goals.
What families need to know about the new tax law
What families need to know about the new tax law
The One, Big, Beautiful Bill Act (OBBBA) has introduced significant tax changes that could affect families across the country. While many of the provisions aim to provide financial relief, the new rules can be complex. Below is an overview of the key changes.
Adoption credit enhanced
Parents who adopt may be eligible for more generous tax relief. Under current law, a tax credit of up to $17,280 is available for the costs of adoption in 2025. The credit begins to phase out in 2025 for taxpayers with modified adjusted gross income (MAGI) of $259,190 and is eliminated for those with MAGI of $299,190 or more.
If you qualify, the adoption credit can reduce your tax liability on a dollar-for-dollar basis. This is much more valuable than a deduction, which only reduces the amount of income subject to tax.
What changed? Beginning in 2025, the OBBBA makes the adoption tax credit partially refundable up to $5,000. This means that eligible families can receive this portion as a refund even if they owe no federal income tax. Previously, the credit was entirely nonrefundable, limiting its benefit to families with sufficient tax liability. The refundable amount is indexed for inflation but can’t be carried forward to future tax years.
Child Tax Credit increased, and new rules imposed
Beginning in 2025, the OBBBA permanently increases the Child Tax Credit (CTC) to $2,200 for each qualifying child under the age of 17. (This is up from $2,000 before the law was enacted). The credit is subject to income-based phaseouts and will be adjusted annually for inflation after 2025.
The refundable portion of the CTC is made permanent. The refundable amount is $1,700 for 2025, with annual inflation adjustments starting in 2026.
The MAGI phaseout thresholds of $200,000 and $400,000 for married joint-filing couples are also made permanent. (However, these thresholds won’t be adjusted annually for inflation.)
Important: Starting in 2025, no CTC will be allowed unless you report Social Security numbers for the child and the taxpayer claiming the credit on the return. For married couples filing jointly, a Social Security number for at least one spouse must be reported on the return.
Introduction of Trump Accounts
We’re still in the early stages of learning about this new type of tax-advantaged account but here’s what we know. Starting in 2026, Trump Accounts will offer some families a way to save for the future. An account can be set up for anyone under age 18 at the end of the tax year who has a Social Security number.
Annual contributions of up to $5,000 (adjusted annually for inflation after 2027) can be made until the year the child turns 18. In addition, U.S. citizen children born after December 31, 2024, and before January 1, 2029, with at least one U.S. citizen parent, may potentially qualify for an initial $1,000 government-funded deposit.
Contributions aren’t deductible, but earnings grow tax deferred as long as they’re in the account. The account generally must be invested in exchange-traded funds or mutual funds that track the return of a qualified index and meet certain other requirements. Employers may make contributions to Trump accounts on behalf of employees’ dependents. Withdrawals generally can’t be taken until the child turns age 18.
Even more changes
Here are three more family-related changes:
The child and dependent care credit. This credit provides parents a tax break to offset the cost of child care when they work or look for work. Beginning in 2026, there will be changes to the way the credit is calculated and the amount of income that parents can have before the credit phases out. This will result in more parents becoming eligible for the credit or seeing an increased tax benefit.
Qualified expenses for 529 plans. If you have a 529 plan for your child’s education, or you’re considering starting a plan, there will soon be more opportunities to make tax-exempt withdrawals. Beginning in 2026, you can withdraw up to $20,000 for K-12 tuition expenses, as well as take money out of a plan for qualified expenses such as books, online education materials and tutoring. These withdrawals can be made if the 529 plan beneficiary attends a public, private or religious school.
Sending money to family members in other countries. One of the lesser-known provisions in the OBBBA is that the money an individual sends to another country may be subject to tax, beginning in 2026. The 1% excise tax applies to transfers of cash or cash equivalents from a sender in the United States to a foreign recipient via a remittance transfer provider. The transfer provider will collect the tax as part of the transfer fee and then remit it quarterly to the U.S. Treasury. Transfers made through a financial institution (such as a bank) or with a debit or credit card are excluded from the tax.
What to do next
These and other changes in the OBBBA may offer substantial opportunities for families — but they also bring new rules, limits and planning considerations. The sooner you start planning, the better positioned you’ll be. Contact us to discuss how these changes might affect your family’s tax strategy.
No tax on car loan interest under the new law? Not exactly
No tax on car loan interest under the new law? Not exactly
Under current federal income tax rules, so-called personal interest expense generally can’t be deducted. One big exception is qualified residence interest or home mortgage interest, which can be deducted, subject to some limitations, if you itemize deductions on your tax return.
The One Big Beautiful Bill Act (OBBBA) adds another exception for eligible car loan interest. In tax law language, the new deduction is called qualified passenger vehicle loan interest. Are you eligible? Here are the rules.
“No tax” isn’t an accurate description
If you could deduct all your car loan interest, you’d be paying it with pre-tax dollars rather than with post-tax dollars — meaning after you paid your federal income tax bill. The new deduction has been called “no tax on car loan interest,” but that’s not really accurate. Here’s a more precise explanation.
The OBBBA allows eligible individuals — including those who don’t itemize — a temporary new deduction for some or all of the interest paid on some loans. The loans must be taken out to purchase a qualifying passenger vehicle.
Specifically, for 2025 through 2028, up to $10,000 of car loan interest can potentially be deducted each year. The loan must be taken out after 2024 and must be a first lien secured by the vehicle, which is used for personal purposes. Leased vehicles don’t qualify. So far, this may sound good, but not all buyers will qualify for the new deduction because of the limitations and restrictions summarized below.
Income-based phaseout rule
The deduction is phased out starting at $100,000 of modified adjusted gross income (MAGI) or $200,000 for married joint-filing couples. 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 of excess MAGI. So, for an unmarried individual, the deduction is completely phased out when MAGI reaches $150,000. For married joint filers, the deduction is completely phased out when MAGI reaches $250,000.
Qualifying vehicles
To qualify for the new deduction, the vehicle must be a car, minivan, van, SUV, 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, and it must be new (meaning the original use begins with you). The “final assembly” of the vehicle must occur in the United States. You must report the vehicle identification number (VIN) on your tax return. Vehicles assembled in America have a special number in the VIN to signify that.
Meeting the requirements
In the law, the definition of final assembly is convoluted. The law states: “Final assembly means the process by which a manufacturer produces a vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.”
Another requirement is that your car loan lender must file an information return with the IRS that shows the amount of interest paid during the year on your qualified car loan.
Refinanced loans
If an original qualified car loan is refinanced, the new loan will be a qualified loan as long as: 1) the new loan is secured by a first lien on the eligible vehicle and 2) the initial balance of the new loan doesn’t exceed the ending balance of the original loan.
Ineligible loans
Interest on the following types of loans doesn’t qualify for the new deduction:
- Loans to finance fleet sales,
- Loans to buy a vehicle not used for personal purposes,
- Loans to buy a vehicle with a salvage title or a vehicle intended to be used for scrap or parts,
- Loans from certain related parties, and
- Any lease financing.
Conclusion
According to various reports, most American car buyers rely on loans to finance their purchases. So, the ability to deduct car loan interest is something that many taxpayers would be happy about. That said, many buyers won’t qualify for the new deduction. It’s off limits for high-income purchasers, used vehicle buyers and those who buy foreign imports. Contact us with any questions.
What you still need to know about the alternative minimum tax after the new law
What you still need to know about the alternative minimum tax after the new law
The alternative minimum tax (AMT) is a separate federal income tax system that bears some resemblance to the regular federal income tax system. The difference is that the individual AMT system taxes certain types of income that are tax-free under the regular system. It also disallows some deductions that are allowed under the regular system. If the AMT exceeds your regular tax bill, you owe the larger AMT amount.
Tax law changes
The Tax Cuts and Jobs Act (TCJA) made the individual alternative minimum tax (AMT) rules more taxpayer-friendly for 2018-2025 and significantly reduced the odds that you’ll owe the AMT for those years. But the new One Big Beautiful Bill Act (OBBBA) contains mixed news about your AMT exposure.
AMT rates
The maximum AMT rate is “only” 28% versus the 37% maximum regular federal income tax rate. At first glance, it may seem counterintuitive that anyone would worry about paying AMT. However, while the top AMT rate is lower, it applies to a much larger taxable base with fewer deductions and credits. That’s why people in certain situations still need to worry about it.
For 2025, the maximum 28% AMT rate kicks in when your taxable income, calculated under the AMT rules, exceeds an inflation-adjusted threshold of $239,100 for married joint-filing couples or $119,550 for other taxpayers. Below these thresholds, the AMT rate is 26%.
AMT exemptions
Under the AMT rules, you’re allowed an inflation-adjusted AMT exemption — effectively a deduction — in calculating your alternative minimum taxable income. The TCJA significantly increased the exemption amounts for 2018-2025. The OBBBA made the TCJA increased exemption amounts permanent, with annual inflation adjustments.
For 2025, the exemption amounts are $88,100 for unmarried individuals, $137,000 married joint-filing couples, and $68,500 for married individuals who file separate returns.
Exemption phase-out rule
At high levels of alternative minimum taxable income, your AMT exemption is phased out, which increases the odds that you’ll owe the tax. The TCJA dramatically increased the phase-out thresholds to levels where most taxpayers are unaffected by the phase-out rule. For 2025, the exemption begins to be phased out when alternative minimum taxable income exceeds $626,350 or $1,252,700 for a married joint-filing couple. For 2018-2025, the applicable exemption is reduced by 25% of the excess of your alternative minimum taxable income over the applicable phase-out threshold.
Mixed news in the OBBBA
Starting in 2026, the OBBBA makes the $500,000 and $1 million exemption phase-out threshold permanent. That’s the good news.
The bad news: Starting in 2026, the new law resets the exemption phase-out thresholds to $500,000 and $1 million with annual inflation adjustments for 2026 and beyond. So for 2026, these phase-out thresholds will be lower than the higher thresholds that apply for 2025. More bad news: Starting in 2026, the OBBBA increases the exemption phase-out percentage from 25% to 50%.
Bottom line: For 2026 and beyond, AMT exemptions for higher-income taxpayers can be phased out faster. That means more taxpayers may owe the AMT for 2026 and beyond.
AMT risk factors
Various interacting factors make it difficult to pinpoint exactly who’ll be hit by the AMT and who’ll dodge it. Here are five implications and risk factors.
- Substantial income from capital gains or other sources. When you have high income, from whatever sources, it can cause your AMT exemption to be partially or completely phased out. That increases the odds that you’ll owe the AMT.
- Itemized state and local tax (SALT) deductions. You can’t deduct SALT expenses under the AMT rules. This can hurt those living in high-tax states.
- Exercise of incentive stock options (ISOs). When you exercise an ISO, the bargain element (the difference between the market value of the shares on the exercise date and your ISO exercise price) doesn’t count as income under the regular tax rules, but it counts as income under the AMT rules.
- Standard deductions. Standard deductions are disallowed under the AMT rules.
- Private activity bond interest income. This category of interest income is tax-free for regular tax purposes but taxable under the AMT rules.
Determine your status
The TCJA significantly reduced the odds that you’ll owe the AMT. But the OBBBA increases the odds for some taxpayers, thanks to unfavorable changes to the AMT exemption rules that will take effect in 2026. Don’t assume you’re exempt from AMT — especially if you have some of the risk factors outlined above. Contact us to determine your current status after the OBBBA changes take effect.
Plan ahead to minimize risk
Divorce can create unexpected tax and financial consequences, especially when dividing business interests and retirement accounts (such as 401(k) accounts and IRAs). The financial stakes are often higher for business owners, making careful planning essential.
We can help you navigate these rules and structure your settlement to minimize tax liabilities while complying with state community property laws. The earlier you address potential tax issues, the better your financial outcome after divorce.
Divorcing as a business owner? Don’t let taxes derail your settlement
Divorcing as a business owner? Don’t let taxes derail your settlement
Divorce is stressful under any circumstances, but for business owners, the process can be even more complicated. Your business ownership interest is often one of your largest personal assets, and in many cases, part or all of it will be considered marital property. Understanding the tax rules that apply to asset division can help you avoid costly surprises.
Tax-free transfers
Most assets — including cash and business ownership interests — can be divided between spouses without triggering federal income or gift taxes. Under this tax-free transfer rule, the spouse receiving the asset assumes its existing tax basis (used to determine gain or loss) and holding period (short-term or long-term).
Example: If you give your spouse the marital home in exchange for keeping 100% of your company stock, the transfer is tax-free. Both the home and the stock retain their original tax basis and holding period for the new owner.
Tax-free treatment applies to transfers made:
- Before the divorce is finalized,
- At the time of divorce, and
- After divorce, if they occur within one year of the marriage ending or within six years if required under the divorce agreement.
Future tax consequences
While transfers may be tax-free at the time, the recipient will owe taxes if he or she later sells an appreciated asset (where fair market value exceeds the tax basis).
For instance, if your ex-spouse receives 48% of your highly appreciated company stock, no tax is due at transfer. However, when he or she sells the stock, your ex will pay any capital gains tax based on your original basis and holding period.
Important: Appreciated assets come with built-in tax liabilities, which generally makes them less valuable than an equal amount of cash or non-appreciated property. Always account for taxes when negotiating a divorce settlement.
This rule also applies to ordinary-income assets — such as business receivables, inventory or nonqualified stock options. These can be transferred tax-free, but the recipient will report the income and pay taxes when the asset is sold, collected or exercised.
Valuation and adjustments for tax liabilities
A critical step in a divorce involving a business is determining its value. When valuing a business interest for this purpose, the valuator must understand what’s appropriate under applicable state law and legal precedent because the rules and guidance may vary across jurisdictions. The valuation process may be contentious, especially if one spouse is actively involved in the business and the other isn’t (or will no longer be involved after the divorce is settled). A professional valuation considers tangible assets (including equipment, inventory and property), intangible assets (including intellectual property) and other factors.
Potential tax liabilities are also considered during the valuation process. Examples include deferred taxes on appreciated assets, liabilities from unreported income or cash distributions, and implications from goodwill. These adjustments can significantly affect the business interest’s value and the fairness of the settlement agreement.
Nontax issues
There are a number of issues unrelated to taxes that a divorcing business owner should be prepared to address, including:
- Cash flow and liquidity. Divorce settlements may require significant cash outlays — for example, to buy out a spouse’s share of the business or to meet alimony and child support obligations. This can strain the business’s liquidity, especially if the owner must take out loans or sell assets to meet these obligations. We can help assess the impact of these financial demands and develop strategies to maintain healthy cash flow, such as restructuring debt or revisiting budgets.
- Privacy and confidentiality. Divorce proceedings may expose sensitive business information. Financial statements, client lists and proprietary data may become part of the public record. Business owners should work with legal and financial advisors to protect confidentiality, possibly through protective orders or sealed filings.
Plan ahead to minimize risk
Divorce can create unexpected tax and financial consequences, especially when dividing business interests and retirement accounts (such as 401(k) accounts and IRAs). The financial stakes are often higher for business owners, making careful planning essential.
We can help you navigate these rules and structure your settlement to minimize tax liabilities while complying with state community property laws. The earlier you address potential tax issues, the better your financial outcome after divorce.
New rules could boost your R&E tax savings in 2025
New rules could boost your R&E tax savings in 2025
A major tax change is here for businesses with research and experimental (R&E) expenses. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) reinstated the immediate deduction for U.S.-based R&E expenses, reversing rules under the Tax Cuts and Jobs Act (TCJA) that required businesses to capitalize and amortize these costs over five years (15 years for research performed outside the United States).
Making the most of R&E tax-saving opportunities
The immediate domestic R&E expense deduction generally is available beginning with eligible 2025 expenses. It can substantially reduce your taxable income, but there are strategies you can employ to make the most of R&E tax-saving opportunities:
Apply the changes retroactively. If you qualify as a small business (average annual gross receipts of $31 million or less for the last three years), you can file amended returns for 2022, 2023 and/or 2024 to claim the immediate R&E expense deduction and potentially receive a tax refund for those years. The amended returns must be filed by July 4, 2026.
Accelerate remaining deductions. Whatever the size of your business, if you began to amortize and capitalize R&E expenses in 2022, 2023 and/or 2024, you can deduct the remaining amount either on your 2025 return or split between your 2025 and 2026 returns, rather than continuing to amortize and capitalize over what remains of the five-year period.
Relocate research activities. Consider relocating foreign research activities to the United States. Before the OBBBA, the five-year vs. 15-year amortization period made domestic R&E activities more attractive from a tax perspective. Now the difference between a current deduction and 15-year amortization makes domestic R&E activities even more advantageous tax-wise.
Take advantage of the research credit. A tax deduction reduces the amount of income that’s taxed, while a tax credit reduces the actual tax you owe dollar-for-dollar, providing much more tax savings than a deduction of an equal amount. So consider whether you may be eligible for the tax credit for “increasing research activities.” But keep in mind that the types of expenses that qualify for the credit are narrower than those that qualify for the deduction. And you can’t claim both the credit and the deduction for the same expense.
We’re here to help
With the recent changes to the R&E expense rules, understanding your options is more important than ever. Our team can walk you through the updates, evaluate potential strategies, and help you determine the best approach to maximize your savings and support your business goals.
Investing in qualified small business stock now offers expanded tax benefits
Investing in qualified small business stock now offers expanded tax benefits
By purchasing stock in certain small businesses, you can diversify your investment portfolio. You also may enjoy preferential tax treatment, some of which is getting even better under the One Big Beautiful Bill Act (OBBBA) that was signed into law in July: Qualified small business (QSB) stock now offers more tax-saving opportunities.
QSB defined
A QSB generally is a U.S. C corporation that meets two requirements, one of which has been eased by the OBBBA to allow more businesses to qualify:
1. It must be engaged in an active trade or business. A qualified active business is generally any trade or business other than:
- Service businesses in the following fields: health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage services,
- Banking, insurance, financing, leasing, investing and similar businesses,
- Farming businesses,
- Certain oil, gas and mining businesses, and
- Operators of hotels, motels, restaurants and similar businesses.
Additionally, the company must use at least 80% of its assets (by value) to conduct one or more qualified active businesses. And no more than 10% of its assets can consist of nonbusiness real estate.
2. It must have assets below a certain ceiling. Before the OBBBA, the business’s aggregate gross assets generally couldn’t exceed $50 million. The OBBBA increases the asset ceiling to $75 million (adjusted for inflation after 2026) for stock issued after July 4, 2025.
If the issuer owns more than 50% of another corporation’s stock, the subsidiary’s assets are included for purposes of the gross asset test. A corporation isn’t disqualified if its assets grow beyond the threshold after issuing the stock.
A valuable gain exclusion
When QSB stock tax breaks were initially introduced, you could exclude 50% of your capital gain from the sale of QSB stock if you’d held it at least five years. Subsequently, Congress enhanced the exclusion. If you acquired QSB stock after February 17, 2009, and before September 28, 2010, 75% of the gain is excludible after the five-year holding period. If you acquired it on or after September 28, 2010, the exclusion is 100% after five years.
Now the OBBBA provides new, but smaller exclusions for QSB stock held for shorter periods. Specifically, it provides a 75% exclusion for QSB stock held for four years and a 50% exclusion for QSB stock held for three years. These exclusions go into effect for QSB stock acquired after July 4, 2025.
If the QSB stock is received by gift or inheritance, the transferor’s holding period is added to the recipient’s.
Additional rules
To qualify for the gain exclusion, generally you must acquire the stock as part of an original issuance. In other words, you must acquire it directly from the corporation (or through an underwriter) — not from an existing shareholder — in exchange for money or property (other than stock) or as compensation for services. This requirement has some exceptions, including for stock received by gift or inheritance.
There is also a limit on the size of the exclusion. The amount of QSB gain on a particular issuer’s stock that you may exclude each year is limited to the greater of $10 million or 10 times your aggregate adjusted tax basis in stock sold during the tax year.
Finally, be aware that some states don’t offer QSB gain exclusions. So state-level taxes may still apply.
One more opportunity
If within 60 days of selling QSB stock you buy other QSB stock with the proceeds, you can defer any tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.
Similar rules apply if QSB stock is converted into a different stock of the same corporation. The original stock’s holding period is added to the new stock’s holding period.
Consider carefully
QSB stock offers some significant tax benefits. But, as when contemplating any investment, you must think about more than just taxes. You should also consider factors such as your investment goals, time horizon and risk tolerance. Contact us to discuss the tax implications in more detail.
Businesses strive for balance in hybrid work models
Businesses strive for balance in hybrid work models
If your business allows employees to perform their jobs under a hybrid work model, it’s not alone. Ever since the pandemic, many companies have sought to strike a balance between permitting some remote work while also requiring staff to come into the office (or another type of facility).
Data released this year shows that, by and large, businesses seem to have found a certain equilibrium regarding hybrid work. However, maintaining the right balance for your company will require a careful eye going forward.
Schedule control
Just this month, Gallup published survey results showing that, as of May 2025, 51% of remote-capable employees in the United States are working under a hybrid model. That’s a slight decrease from 55% in November 2024. Interestingly, during the same period, the percentage of fully remote workers rose 2% — but fully on-site employees also increased by the same percentage.
One particularly important issue brought up by the research is how much control a business asserts over its hybrid workers’ schedules. The data showed that the percentage of employees who describe their schedules as “entirely up to me” fell from 37% in 2024 to 34% this year.
How do most companies establish hybrid schedules? Gallup found that three main groups typically make the call:
- Employees themselves,
- Managers or teams, or
- Leadership.
The second option generally comes out on top, according to Gallup. More specifically, 91% of hybrid workers whose teams established their schedules described their employers’ policies as “fair.” That’s the same rate as employees who determined their own schedules. When leadership mandated schedules, the fairness rate reported by hybrid workers fell to only 73%.
Policy enforcement
Another recent report on hybrid work models is the 2025 Americas Office Occupier Sentiment Survey by commercial real estate services and investment consultancy CBRE. It polled companies across the United States, Canada and Latin America on topics that included “efforts to align workspaces with hybrid work models while meeting business objectives.”
Among the survey’s key findings is an uptick in the enforcement of hybrid work policies. In fact, 85% of responding businesses reported communicating an attendance policy to hybrid workers. What’s more:
- 69% of respondents measured compliance with their policies (up from 45% in 2024), and
- 37% of respondents took enforcement actions (up from 17% in 2024).
And those enforcement measures seem to be working. The survey found that 72% of respondents achieved their attendance goals in 2025 (up from 61% in 2024). Overall, the data indicates that employees averaged 2.9 days a week on-site, which is close to businesses’ reported expectations of 3.2 days on average.
Cost considerations
Along with determining and refining how you establish workers’ schedules and enforce your policies, you should carefully identify all the costs that accompany hybrid work. For example, even with fewer employees on-site, your business still needs to maintain office space.
Some companies are downsizing, while others are redesigning their layouts to accommodate shared desks and collaborative spaces. If you choose these alternatives, be aware of your lease commitments, maintenance and utility expenses, and renovation costs.
Supporting a hybrid workforce also requires secure and reliable technology. This typically includes video conferencing tools, cloud-based software, cybersecurity measures, and internet and networking systems. These expenses often extend to both office and home setups.
Beware of hidden costs, too. For instance, policy enforcement may cause your business to spend more on compliance-related technology, as well as training for HR staff and supervisors.
Clear and constant view
The surveys mentioned above, as well as other indicators, show that hybrid work is here to stay. Finding the optimal balance for your business depends on savvy scheduling, judicious policy enforcement, and a clear and constant view of the financial implications. We can help you assess all the expenses involved and align spending with productivity goals to ensure your hybrid model remains sustainable.
Teachers and others can deduct eligible educator expenses this year — and more next year and beyond
Teachers and others can deduct eligible educator expenses this year — and more next year and beyond
At back-to-school time, much of the focus is on the students returning to the classroom — and on their parents buying them school supplies, backpacks, clothes, etc., for the new school year. But teachers are also buying school supplies for their classrooms. And in many cases, they don’t receive reimbursement. Fortunately, they may be able to deduct some of these expenses on their tax returns. And, beginning next year, eligible educators will have an additional deduction opportunity under the One Big Beautiful Bill Act (OBBBA).
The current above-the-line deduction
Eligible educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize and it reduces your adjusted gross income (AGI), which has an added benefit: Because AGI-based limits affect a variety of tax breaks, lowering your AGI might help you maximize your tax breaks overall.
To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. Also, they must work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.
For 2025, up to $300 of qualified expenses paid during the year that weren’t reimbursed can be deducted. (The deduction limit is $600 if both taxpayers are eligible educators who file a joint tax return, but these taxpayers can’t deduct more than $300 each.) The limit is annually indexed for inflation but typically doesn’t go up every year.
Examples of qualified expenses include books, classroom supplies, computer equipment (including software), other materials used in the classroom, and professional development courses. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.
A new miscellaneous itemized deduction
The OBBBA makes permanent the Tax Cut and Jobs Act’s (TCJA’s) suspension of miscellaneous itemized deductions subject to the 2% of AGI floor. This had included unreimbursed employee business expenses such as teachers’ out-of-pocket classroom expenses. The suspension had been in place since 2018.
But the OBBBA creates a new miscellaneous itemized deduction for educator expenses. This is in addition to the $300 above-the-line deduction. And this deduction isn’t subject to the 2% of AGI floor or a specific dollar limit. The new deduction is available for eligible expenses incurred after Dec. 31, 2025.
Both who’s eligible and what expenses qualify are a little broader for the itemized deduction than for the above-the-line deduction. For example, interscholastic sports administrators and coaches are also eligible. And, for courses in health and physical education, the supplies don’t have to be related to athletics.
Keep in mind that you’ll have to itemize deductions to claim this new deduction next year. Taxpayers can choose to itemize this and certain other deductions or to take the standard deduction based on their filing status. Itemizing deductions saves tax only when the total is greater than the standard deduction. The OBBBA has made permanent the nearly doubled standard deductions under the TCJA, so fewer taxpayers are benefiting from itemizing.
Carefully track expenses
If you’re a teacher or other educator, keep receipts when you pay for eligible expenses and note the date, amount and purpose of each purchase. Have questions about educator deductions or other tax-saving strategies? Please contact us.