The tax traps of personally guaranteeing a loan to your corporation
The tax traps of personally guaranteeing a loan to your corporation
If you’re considering guaranteeing, or are asked to guarantee, a loan to your closely held corporation, it’s important to understand the potential tax consequences. Acting as a guarantor, endorser or indemnitor means that if the corporation defaults, you could be responsible for repaying the loan. Without planning ahead, you may face unexpected tax implications.
A business bad debt
If you’re compelled to make good on the obligation, the payment of principal or interest in discharge of the obligation generally results in a bad debt deduction. This may be either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss, which is subject to certain limitations. A nonbusiness bad debt is deductible only if it’s totally worthless.
To be treated as a business bad debt, the guarantee must be closely related to your trade or business. If the reason for guaranteeing the corporation loan is to protect your job, the guarantee is considered closely related to your trade or business as an employee. But employment must be the dominant motive. If your annual salary exceeds your investment in the corporation, this generally shows that the dominant motive for the guarantee is to protect your job. On the other hand, if your investment in the corporation substantially exceeds your annual salary, that’s evidence that the guarantee is primarily to protect your investment rather than your job.
Proving the relationship
Except in the case of job guarantees, it may be difficult to show the guarantee is closely related to your trade or business. You have to show that the guarantee is related to your business as a promoter, or that the guarantee is related to some other trade or business separately carried on by you.
If the reason for guaranteeing your corporation’s loan isn’t closely related to your trade or business and you’re required to pay off the loan, you can take a nonbusiness bad debt deduction if you show that your reason for the guarantee was to protect your investment, or you entered the guarantee transaction with a profit motive.
Note: The IRS and courts will scrutinize the dominant motive carefully. Reasonable compensation doesn’t always mean money. It can include protecting employment or business interests.
Additional requirements
In addition to satisfying the above requirements, a business or nonbusiness bad debt is deductible only if you meet these three conditions:
- You have a legal duty to make the guaranty payment (although there’s no requirement that a legal action be brought against you).
- The guaranty agreement is entered into before the debt becomes worthless.
- You receive reasonable consideration (not necessarily cash or property) for entering into the guaranty agreement.
Any payment you make on a loan you guaranteed is deductible as a bad debt in the year you make it, unless the agreement (or local law) provides for a right of subrogation against the corporation. If you have this right, or some other right to demand payment from the corporation, you can’t take a bad debt deduction until the rights become partly or totally worthless.
These are only some of the possible tax consequences of guaranteeing a loan to your closely held corporation. Consult with us to learn all the implications and to help ensure the best tax results.
Why start-ups should consider launching as S corporations
Why start-ups should consider launching as S corporations
Launching a new business brings tough decisions. And that holds true whether you’re a fledgling entrepreneur starting your first company or an experienced businessperson expanding into a second or third enterprise.
Among the most important calls you’ll need to make is how to structure the start-up for tax purposes. For many business owners, electing S corporation status is a savvy move. But it’s not right for everyone. Here are some important points to consider before you decide.
What’s it all about?
An S corporation is a tax election available only to certain U.S. companies. To make the election, you’ll need to file IRS Form 2553, “Election by a Small Business Corporation,” typically within 75 days of forming the business or the start of the tax year to which you want the election to apply.
If you elect S corporation status, the IRS will treat your start-up as a “pass-through” entity. This means the business generally won’t pay federal income taxes. Instead, profits and losses will pass through to your individual tax return and those of other shareholders.
As a result, you’ll avoid the “double taxation” faced by shareholders of C corporations — whereby the company pays taxes on the business’s income and then shareholders pay tax on any dividends received. In addition, S corporation shareholders may be eligible for the Section 199A qualified business income deduction for pass-through entity owners. It was recently made permanent under the One Big Beautiful Bill Act.
Which businesses qualify?
IRS rules limit which companies can elect S corporation status. To qualify, your start-up must:
- Be an eligible domestic corporation or limited liability company (LLC),
- Have no more than 100 shareholders who must be U.S. citizens or residents (certain trusts and estates may also be eligible), and
- Offer only one class of stock.
Insurance companies, financial institutions using the reserve method of accounting and domestic international sales corporations are generally ineligible.
Why do it?
As mentioned above, the main advantage of electing S corporation vs. C corporation status is avoiding double taxation. But there are other reasons to do it.
For example, many start-ups incur losses in their first few years. S corporation status allows owners to offset other income with those losses, a tax benefit that’s unavailable to C corporation shareholders.
S corporations also have advantages over other types of pass-through entities. Generally, all trade or business income that flows through to sole proprietors and partners in partnerships is subject to self-employment taxes — even if the income isn’t actually distributed to the owners. S corporations can divide their income into shareholder-employee salaries and distributions. The salary portion is subject to payroll taxes, but distributions aren’t. So, by drawing a smaller salary (but one that’s reasonable in the eyes of the IRS) and taking the remainder as distributions, S corporation shareholder-employees can reduce their overall tax burden.
Liability protection is another advantage S corporations have over sole proprietorships and partnerships. S corporation status shields shareholders’ personal assets from business debts and legal claims, provided applicable rules are followed. Operating as an S corporation can also make your new business appear more credible to lenders, investors and customers because of its formalized, protective framework.
What are the drawbacks?
Electing to be treated as an S corporation has its drawbacks. Your start-up will have to follow strict IRS rules, which include keeping up with filing requirements and maintaining accurate financial records. Failure to comply could lead to back taxes, interest and penalties. It could even mean losing your S corporation status in a worst-case scenario.
Indeed, S corporations tend to incur higher administrative expenses than other pass-through entities. You’ll need to file corporate tax returns and meet state-level requirements. The extra complexity may outweigh the tax advantages — especially for newly launched companies with little to no profits.
Finally, it bears repeating: Although the salary/distributions income-splitting strategy mentioned above is advantageous, it can draw IRS scrutiny. Paying shareholder-employees an unreasonably low salary to avoid payroll taxes could trigger an audit with negative consequences.
Who can help?
Congratulations and best wishes on your forthcoming start-up! Electing S corporation status may be the right way to go. However, you’ll need to assess a wide variety of factors, including projected profits, the number of shareholders and your comfort level with the administrative requirements.
Before you do anything, contact us. We can help you evaluate whether operating as an S corporation aligns with your strategic and financial goals. If it does, we’d be happy to assist you with the filing process and compliance going forward.
Businesses can still choose to address sustainability
Businesses can still choose to address sustainability
For many years, businesses of all shapes and sizes have at least considered sustainability when running their operations. Many people — including customers, investors, employees and job candidates — care about how a company impacts the environment. And reducing energy use, water consumption and waste generally lowers operational costs.
However, the current “environment regarding the environment,” has changed. With the passage of the One, Big, Beautiful Bill Act (OBBBA), the federal government has disincentivized businesses from taking certain green measures. So, you may be reevaluating your company’s stance on sustainability.
Apparent interest
According to one survey, a serious interest in sustainability remains present among many businesses. In February, management consultancy Kearney, in association with climate action media platform We Don’t Have Time, released the results of a survey of more than 500 finance executives from companies in the United States, United Kingdom, United Arab Emirates and India.
Of those respondents, 93% said they saw a clear business case for sustainability. Meanwhile, 92% expected to invest more in sustainability this year — with 62% of respondents saying they planned to allocate more than 2.1% of revenue to sustainability in 2025.
Now whether and how fully these investments come to fruition this year is hard to say. However, the fact remains that sustainability has been and will likely continue to be a strategically significant factor in many industries.
Vanishing tax breaks
As mentioned, the OBBBA has thrown a wrench into tax relief related to certain sustainable measures.
For example, the Section 179D Energy Efficient Commercial Buildings Deduction has been around since 2006. It got a big boost from the Inflation Reduction Act (IRA) of 2022, which increased the potential size of the deduction and expanded the pool of eligible taxpayers. However, the OBBBA permanently eliminates this tax break for buildings or systems on which construction begins after June 30, 2026.
The OBBBA also nixes an incentive for the business use of “clean” vehicles. The Qualified Commercial Clean Vehicle Credit, under Sec. 45W of the tax code, hadn’t been previously scheduled to expire until after 2032. However, it’s now available only for vehicles acquired on or before September 30, 2025. Depending on vehicle weight, the maximum credit is up to $7,500 or $40,000.
Has your company installed an electric vehicle charger or another qualified dispenser of or storage facility for clean-burning fuel? If so, you may be able to claim the Alternative Fuel Vehicle Refueling Property Credit under Sec. 30C of the tax code. The IRA had scheduled the credit — which is worth up to $100,000 per item — to sunset after 2032. But under the OBBBA, eligible property must be placed in service on or before June 30, 2026, to qualify.
Tailored strategy
Where does all this leave your business? Well, naturally, it’s up to you and your leadership team whether you want to address sustainability and, if you decide to do so, precisely how. Typically, when devising or revising a strategy in this area, your company should:
- Conduct an up-to-date baseline assessment of energy use, water consumption, waste generation and your business’s overall carbon footprint,
- Set clear goals and metrics based on reliable data and the input of professional advisors,
- Address the impact of logistics, your supply chain and employee transportation, and
- Communicate effectively with staff to gather feedback and build buy-in.
And don’t necessarily give up on tax incentives. Although some federal tax breaks may be going away in the near future, state and local ones might exist that could benefit your business.
Your call
Again, as a business owner, you get to make the call regarding your company’s philosophy and approach to sustainability. If it’s something you intend to prioritize, we can help you review your operations and identify cost-effective and possibly tax-saving ways to make a positive environmental impact.
A tax guide to choosing the right business entity
A tax guide to choosing the right business entity
One of the most critical decisions entrepreneurs make when starting or restructuring a business is choosing the right entity type. This choice directly impacts how the business is taxed, the level of administrative complexity and regulatory compliance obligations. While legal liability considerations also matter, we will focus on tax implications. For liability advice, consult a legal professional.
Whether launching a new venture or reassessing your current structure, understanding how each entity is taxed can help you make strategic and compliant decisions. Here’s a brief overview of five entities.
1. Sole proprietorship: Simple with full responsibility
A sole proprietorship is the easiest structure to set up. It’s owned and operated by one person and requires minimal administrative effort. Here are the main features:
- Taxation. Income and losses are reported on the owner’s personal tax return on Schedule C of Form 1040. Income is subject to 15.3% federal self-employment tax, and the business itself isn’t taxed separately. The owner may also qualify for a Qualified Business Income (QBI) deduction, potentially reducing the effective tax rate.
- Compliance. Aside from obtaining necessary licenses or a business name registration, there’s little required paperwork. However, the owner is personally liable for all business debts and legal obligations.
2. S Corporation: Pass-through entity with payroll considerations
An S corp is a tax designation offering pass-through taxation benefits while imposing stricter rules. Here are the highlights:
- Taxation. S corps don’t pay income tax at the entity level. Instead, profits or losses are passed through to shareholders via Schedule K-1 and reported on individual returns. A key tax benefit is that shareholders who are employees receive a salary (subject to payroll tax), while additional profit distributions aren’t subject to self-employment tax. However, the salary must be reasonable. The business is eligible for QBI deductions.
- Compliance. To qualify, S corps must have 100 or fewer shareholders, all U.S. citizens or residents, and only one class of stock. They must file Form 2553, issue annual Schedule K-1s and follow corporate formalities like shareholder meetings and recordkeeping. An informational return (Form 1120-S) is also required.
3. Partnership: Collaborative ownership with pass-through taxation
A partnership involves two or more individuals jointly operating a business. Common types include general partnerships, limited partnerships, and limited liability partnerships (LLPs). Here’s what makes it unique:
- Taxation. Partnerships are pass-through entities. The business files Form 1065 (an informational return), and income or loss is distributed to partners on Schedule K-1. Partners report this on their personal returns. General partners must pay self-employment tax, while limited partners usually don’t. The business is eligible for QBI deductions.
- Compliance. Partnerships require a detailed partnership agreement, coordinated recordkeeping and clear profit-sharing arrangements. While more complex than a sole proprietorship, partnerships offer flexibility for growing businesses.
4. Limited liability company: Flexible and customizable
An LLC merges elements of corporations and partnerships, offering owners — called members — both operational flexibility and liability protection.
- Taxation. By default, a single-member LLC is taxed like a sole proprietorship, and a multimember LLC like a partnership. However, LLCs may elect to be taxed as a C or S corp by filing Form 8832 or Form 2553. This gives owners control over their tax strategies. LLCs that don’t elect C corp status are eligible for QBI deductions.
- Compliance. LLCs require articles of organization and often must have an operating agreement. Though not as complex as corporations, they still generally face state-specific compliance requirements and annual filings.
5. C Corporation: Double taxation with scalability
A C corp is a distinct legal entity offering the most liability protection and growth potential through stock issuance. Here are its features:
- Taxation. C corps face double taxation — the business pays taxes on earnings (currently at a 21% federal rate), and shareholders pay taxes again on dividends. However, C corps can offer deductible benefits (for example, health insurance, retirement plans) and retain earnings without immediately distributing profits. C corps aren’t eligible for QBI deductions.
- Compliance: These entities require the most administrative upkeep, including bylaws, annual meetings, board minutes, and extensive state and federal reporting. C corps are ideal for companies seeking venture capital or IPOs.
After hiring employees
Regardless of entity type, adding employees increases compliance requirements. Businesses must obtain an Employer Identification Number (EIN) and withhold federal and state payroll taxes. Employers also take on added responsibilities related to benefits, tax deposits, and employment law compliance.
What’s right for you?
There’s no universal answer to which entity is best. The right choice depends on your growth goals, ownership structure and financial needs. Tax optimization is a critical factor. For example, an LLC electing S corp status may help minimize self-employment taxes if set up properly. Contact us. We can coordinate with your attorney to ensure your structure supports both your tax strategies and business goals.
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.
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.
Is your company’s pricing strategy still viable?
Is your company’s pricing strategy still viable?
Pricing is among the most powerful levers for business owners to calibrate their companies’ profitability. Set prices too low and you risk leaving money on the table. Set them too high and customers may pass you by for cheaper competitors.
Your continuous objective should be to find that sweet spot where prices are competitive while supporting your profit margins and long-term growth. Trouble is, that sweet spot tends to move around a lot — so you must regularly reevaluate your pricing strategy.
Crunching the numbers
To get started, crunch some numbers. Use your financial statements to determine whether your current prices cover both direct costs (such as labor and materials) and indirect costs (such as overhead and administrative expenses).
Monitoring costs is critical — especially given today’s economic volatility. Rising expenses related to suppliers, vendors or labor can quickly erode margins if prices remain static. Regularly reviewing the relationship between expenses and pricing helps ensure adjustments are proactive rather than reactive.
Another useful step is calculating your breakeven point. This metric tells you how many units you must sell at a given price to cover all costs without incurring a loss. Sales beyond the breakeven point will generate a profit. It’s a good starting point for assessing whether current sales volumes align with your existing pricing strategy.
Also, benchmark pricing in relation to your industry and market. Monitor what competitors are charging and compare their prices to yours. A major differential, whether higher or lower, could hurt sales and your business’s reputation if you can’t reasonably rationalize the difference.
Listening to customers
Negative customer behavior is another indication that your pricing strategy may be suboptimal. Are customers constantly pushing back on price, whether during the sales process or when interacting with customer service? If so, you might want to modulate prices slightly lower. On the other hand, if sales are flowing through the pipeline unusually fast, with little resistance, it could mean your prices are too low.
Consider customer segmentation as well. This is a process by which you divide your customer base into smaller groups with common characteristics, allowing you to tailor pricing to each group. For example, some customers might be willing to pay a premium for faster service or customized solutions. Customer segmentation can provide cleaner, more useful data that fuels better decision-making.
Adjusting cautiously
If a thorough analysis reveals your profit margins are too thin, you may want to raise prices. But proceed with caution. Perhaps increase the price of one or two strong sellers and closely monitor the impact. If sales remain steady, you’re probably on the right track — remember, even a subtle price increase can boost profitability. Conversely, if sales suffer, you may need to rethink your pricing strategy.
When raising prices, it’s imperative to communicate clearly with customers. Explain why you’re doing it in plain language, focusing on value. Highlight what makes your business different and better than the competition in areas such as quality, expertise and service. Customers are often willing to pay more provided they understand the value they’re getting for their money.
Of course, there may also be instances when you choose to lower prices — perhaps for a limited time or even indefinitely. In such cases, customer communication is equally important. More than likely, you’ll want to “shout from the rooftops” that you’re lowering prices. Develop a marketing initiative that effectively communicates this message while covering the details.
Getting some help
In today’s roller coaster economy, a viable pricing strategy requires ongoing analysis. Regularly review your margins, assess the market, and align prices with your business’s strategic objectives and customer values. Interested in some objective guidance? We can help you analyze costs, apply the right metrics and optimize prices based on current market dynamics.
The 2025–2026 “high-low” per diem business travel rates are here
The 2025–2026 “high-low” per diem business travel rates are here
If you have employees who travel for business, you know how frustrating it can be to manage reimbursements and the accompanying receipts for meals, hotels and incidentals. To make this process easier, consider using the “high-low” per diem method. Instead of tracking every receipt, your business can reimburse employees using daily rates that are predetermined by the IRS based on whether the destination is a high-cost or low-cost location. This saves time and reduces paperwork while still ensuring compliance. In Notice 2025-54, the IRS announced the high-low per diem rates that became effective October 1, 2025, and apply through September 30, 2026.
How the per diem method works
The per diem method provides fixed travel per diems rather than requiring employees to save every meal receipt or hotel bill. Employees simply need to document the time, place and business purpose of their trip. As long as reimbursements don’t exceed the applicable IRS per diem amounts, they aren’t treated as taxable income to the employee and don’t require income or payroll tax withholding.
Under the high-low method, the IRS establishes an annual flat rate for certain areas with higher costs. All locations within the continental United States that aren’t listed as “high-cost” are automatically considered “low-cost.” The high-low method may be used in lieu of the specific per diem rates for business destinations. Examples of high-cost areas include Boston and Los Angeles. But many locations are considered high-cost during only part of the year. Some of these partial-year locations are resort areas, while others are major cities where costs may be lower for, say, some of the colder months of the year, such as New York City and Chicago.
Under some circumstances — for example, if an employer provides lodging or pays the hotel directly — employees may receive a per diem reimbursement only for their meals and incidental expenses. There’s also a $5 incidental-expenses-only rate for employees who don’t pay or incur meal expenses for a calendar day (or partial day) of travel.
The new high-low per diems
For travel after September 30, 2025, the per diem rate for high-cost areas within the continental United States is $319. This consists of $233 for lodging and $86 for meals and incidental expenses. For all other areas within the continental United States, the per diem rate is $225 for travel after September 30, 2025 ($151 for lodging and $74 for meals and incidental expenses).
For travel during the last three months of 2025, employers must continue to use the same reimbursement method for an employee as they used during the first nine months of the calendar year. Also, note that per diem rates can’t be paid to individuals who own 10% or more of the business.
Revisit reimbursement methods
As the beginning of a new year approaches, it’s a good time to review how your business reimburses employees’ business travel expenses. Switching from an actual expense method to a per diem method in 2026 could save your business and your employees time and frustration. Contact us if you have questions about efficient and tax-compliant travel reimbursement methods.