Your 2026 tax return isn’t due for months, but actions to reduce your tax liability generally must be taken by December 31. Here are eight tax planning ideas to consider before the calendar turns to 2027.

1. Sell losing investments to offset capital gains

Review taxable accounts for investments you could sell at a loss to offset 2026 capital gains you’ve recognized. If losses for the year exceed gains, up to $3,000 can offset ordinary income ($1,500 for separate filers), with the remainder carried forward.

But watch out for the wash sale rule: A current loss generally isn’t allowed if you buy substantially identical securities within 30 days before or after the sale. Purchases in your IRA and automatic dividend reinvestments also can also trigger the wash sale rule. Review transactions across accounts before selling an investment with the goal of recognizing a current loss.

2. Increase pretax or tax-deductible retirement contributions

Contributing more to a workplace retirement plan, traditional IRA or self-employed retirement plan may reduce your 2026 taxable income. Eligibility and contribution limits vary. Traditional IRA deductions, for example, may be limited based on income if you or your spouse is covered by a workplace plan. Roth contributions don’t reduce current taxable income.

Check the deadlines now. To reduce 2026 taxable income, contributions to workplace plans generally must come from 2026 pay (and may need to be elected well before December 31), but 2026 IRA contributions can be made until April 15, 2027. Some self-employed plan contributions can be made as late as your tax return’s extended due date, but earlier plan setup or election deadlines may apply.

3. Consider a partial Roth conversion

Converting part of a traditional IRA to a Roth IRA won’t reduce your 2026 taxes, but it may make sense if your current tax rate is lower than the rate you expect to pay when you take distributions. The untaxed portion of the conversion increases your current taxable income, but future qualified Roth withdrawals will be tax-free.

Choose the amount carefully to avoid pushing income into a higher bracket or triggering income-based phaseouts that reduce or eliminate certain tax breaks. Calculate the tax cost before converting: A completed conversion can’t be reversed.

4. Bunch deductible expenses

If your itemized deductions are close to the standard deduction, consider bunching certain payments into this year and taking the standard deduction the next. For 2026, the basic standard deduction is $16,100 for single and separate filers, $24,150 for heads of household and $32,200 for joint filers. Higher amounts apply if you’re 65 or older or blind.

Charitable gifts, qualifying medical expenses and assessed property taxes may be candidates for bunching. But consider deduction limits: The state and local tax deduction cap is $40,400 ($20,200 for married couples filing separately), with reductions at higher income levels. Beginning in 2026, only charitable contributions exceeding 0.5% of adjusted gross income (AGI) are deductible when itemizing. Taxpayers in the 37% bracket also face a new limit on the tax benefit of itemized deductions.

5. Donate appreciated investments instead of cash

If you itemize, consider donating publicly traded securities held for more than one year to a public charity. You avoid tax on the appreciation and can base your deduction on the securities’ fair market value, subject to applicable deduction limits.

If you don’t itemize, qualifying cash gifts to eligible charities may generate a 2026 deduction of up to $1,000, or $2,000 for joint filers. But securities don’t qualify for this deduction. However, you can still avoid the tax on the appreciation if you donate them.

6. Make charitable gifts directly from your IRA

If you’re age 70½ or older, consider a qualified charitable distribution (QCD) from an eligible IRA. For 2026, you generally can transfer up to $111,000 directly to eligible charities without including it in taxable income. A QCD also can satisfy all or part of your required minimum distribution (if applicable).

You can’t claim a charitable deduction for the same gift. But excluding the distribution from income may provide a greater benefit than taking a taxable withdrawal and donating the proceeds. Why? It can reduce your AGI and modified AGI (MAGI), which are triggers for various tax break phaseouts and additional taxes. Arrange the transfer early enough to complete it by December 31.

7. Prepay eligible tuition

Paying qualified tuition by December 31 for an academic period beginning in January, February or March 2027 may qualify you for a 2026 education credit. The American Opportunity credit is worth up to $2,500 per eligible student; the Lifetime Learning credit is worth up to $2,000 per return.

Both credits phase out over MAGI of $80,000 to $90,000 for single and head-of-household filers and $160,000 to $180,000 for married couples filing jointly. Other eligibility requirements apply. Coordinate payments with scholarships and tax-free 529 plan withdrawals: You can’t use the same expenses for multiple tax benefits.

8. Increase withholding if you’re at risk for underpayment penalties

Compare your projected 2026 tax liability with your withholding and estimated payments, especially after a large gain, bonus or Roth conversion. If you’re falling short, consider increasing withholding from your remaining paychecks, pension payments or retirement plan distributions.

Withholding is treated as paid evenly throughout the year for underpayment-penalty purposes. Increasing it late in the year therefore may help address earlier shortfalls. A larger fourth-quarter estimated payment, by contrast, generally won’t eliminate penalties attributable to earlier quarters.

Coordinating year-end tax decisions

Before implementing any of these ideas, consider how they work together and whether they could increase your exposure to the alternative minimum tax. The best strategies for 2026 also depend on your expected tax situation in 2027. Contact us to review your specific circumstances while there’s still time to act. We can run projections for various scenarios and compare the alternatives to help identify which strategies are right for you.

The post 8 Year-End Tax Planning Ideas for Individuals first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Self-employment (SE) tax can be a major expense for small business owners — and many self-employed individuals are surprised by this obligation when they file their first tax return that includes self-employment income. It’s separate from federal and state income tax, so a small business owner may owe both income tax and SE tax on the same earnings. Here’s a closer look at whether this tax applies to your business activities, how it’s calculated and possible ways to reduce it.

Affected taxpayers

SE tax is the Social Security and Medicare tax paid by individuals who work for themselves. Essentially, it’s the self-employed counterpart to the Federal Insurance Contributions Act (FICA) taxes withheld from employees’ paychecks. The difference is that employees split these taxes with their employers, while self-employed individuals generally pay both portions.

SE tax generally applies to people who earn income from a trade or business other than as employees. It may apply to you if you conduct business as:

• A freelancer, independent contractor or gig worker,
• A sole proprietor,
• A partner in a partnership,
• A member of a single-member limited liability company (LLC) or multi-member LLC that’s treated as a partnership for federal income tax purposes.

If your work falls into one of these categories, you must pay the SE tax if you have net self-employment earnings of $400 or more in a tax year. SE tax rules apply regardless of age or whether you’re already receiving Social Security or Medicare benefits. Because taxes generally aren’t withheld from self-employment income, you’ll likely need to make estimated tax payments throughout the year to avoid underpayment penalties.

How it works

The IRS effectively treats self-employed individuals as both employers and employees. As a result, they must pay 12.4% on net self-employment income up to the annual Social Security wage base, plus 2.9% on all net self-employment income for Medicare. That results in a combined SE tax rate of 15.3%.

The Social Security wage base for 2026 is $184,500. So, the maximum amount you’ll owe for the Social Security component of SE tax is $22,878 (12.4% × $184,500). The 2.9% Medicare tax has no limit.

Self-employed individuals — like employees — are also liable for an additional 0.9% Medicare tax when their self-employment income (plus FICA wages, if they also work for an employer — more details below) exceeds the applicable threshold based on filing status ($200,000 for single or head-of-household filers, $250,000 for married people who file jointly, and $125,000 for married taxpayers filing separately). There’s no “employer” portion of this tax, so the 0.9% amount is the same regardless of whether it’s applied to self-employment income or wages.

For example, Mary is a single taxpayer who operates a sole proprietorship. She generates $210,000 of net self-employment income for 2026. Assuming she doesn’t earn any other applicable income, her SE tax bill will be $29,058 [$22,878 + (2.9% × $210,000 + (0.9% × $10,000)].

Side gigs

If you earn wages from an employer and also have self-employment income, you may wonder whether you can ask your employer to stop withholding Social Security tax once your combined wages and net earnings from self-employment reach the annual wage base threshold. Unfortunately, you can’t.

The reason is that employers must withhold Social Security taxes from an employee’s wages, even if the combined withholding exceeds the maximum amount for the year. In this situation, any excess Social Security tax is reconciled on your personal income tax return.

Your wages are considered first when applying the annual Social Security wage base. If your wages already equal or exceed the wage base, you generally won’t owe the Social Security portion of SE tax on your side-business income. However, you’ll still owe the 2.9% Medicare portion, as well as the 0.9% additional Medicare tax, if applicable.

Strategies to reduce SE tax

You generally can’t eliminate SE tax liability if your business is profitable, but there are some legitimate tax-planning strategies that can reduce or defer it. (Many will help lower your income tax obligations, too.)

The most important way to lower your tax hit is to claim all allowable business deductions. SE tax applies to net earnings from self-employment. For most self-employed individuals, net earnings are calculated by multiplying net profit (gross income minus deductible business expenses) by 92.35% (0.9235). Common business deductions include:

• Home office expenses,
• Professional fees,
• Business insurance,
• Office supplies, and
• Technology and software costs.

Important: You can also deduct half of your SE tax (the employer-equivalent portion) when calculating adjusted gross income. This deduction doesn’t reduce the SE tax itself, but it can lower income taxes. However, the 0.9% additional Medicare tax, if applicable, isn’t deductible because there’s no employer-equivalent portion.

Timing strategies can help defer taxes. For example, many self-employed people use the cash method of accounting. In that case, you might delay billing late-year work until early 2027 or pay certain expenses before December 31 to reduce net self-employment income for the year. But this strategy might not make sense over the long run if you expect to be in a higher tax bracket next year.

In addition, as your business grows, an S corporation election may create opportunities to reduce employment taxes in certain situations. However, the strategy comes with additional administrative requirements and must be carefully structured to comply with IRS rules. We can help determine whether the potential savings outweigh the added complexity.

Plan ahead for SE tax

If you have questions about SE tax, contact us. We can help you calculate your SE tax obligation, identify potential business expense deductions and develop plans to optimize your overall tax position.

The post What Triggers SE Tax, and How Can You Manage It? first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

If your small business has employees, you may need to budget for higher payroll costs next year, especially if you employ many high earners. The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $192,300 for 2027 (up from $184,500 for 2026). Wages and self-employment income above this amount aren’t subject to Social Security tax.

What’s the Social Security wage base?

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers and employees. One is for Old Age, Survivors and Disability Insurance, commonly known as the Social Security tax, and the other is for Hospital Insurance, commonly known as the Medicare tax.

The Social Security wage base is the maximum amount of compensation subject to Social Security tax, but there’s no maximum for Medicare tax. For 2027, the FICA tax rate for employers will be 7.65%. This includes 6.2% for Social Security and 1.45% for Medicare (the same as in 2026).

Employers generally must withhold income tax and employees’ share of Social Security and Medicare taxes (which equals the employer’s share noted above) from wages and pay the employer’s share of Social Security and Medicare taxes. You’re also responsible for depositing these amounts with the IRS and reporting them on the appropriate payroll tax returns. (By contrast, self-employed individuals generally pay Social Security and Medicare taxes through the self-employment tax rather than through payroll withholding and must pay both the employer’s and employee’s shares.) Additional rules apply to the 0.9% additional Medicare tax, federal unemployment tax, and various state and local taxes.

Nowadays, the Social Security wage base is adjusted annually, but it hasn’t always been. When the federal government introduced the Social Security payroll tax 90 years ago in 1937, the wage base was only $3,000. It remained that amount through 1950. As the U.S. economy grew and wages rose, the wage base needed to be adjusted to maintain Social Security funding. By 1980, it had risen to $25,900, and by 2020, it was $137,700. Inflation and wage growth were key factors in these adjustments.

How much will it increase next year?

For 2027, an employee will pay:

• 6.2% Social Security tax on the first $192,300 of wages, for a maximum tax of $11,922.60 (6.2% × $192,300), plus
• 1.45% Medicare tax on all covered wages, plus
• 0.9% additional Medicare tax on all wages in excess of $200,000 ($250,000 for married taxpayers filing joint returns, $125,000 for married taxpayers filing separate returns).

Employers must match the 6.2% Social Security taxes on wages up to the annual wage base and 1.45% Medicare tax on all covered wages. There’s no employer match for the additional Medicare tax, but the employer must withhold it when an employee’s compensation exceeds $200,000, regardless of the employee’s filing status.

For 2027, the self-employment tax imposed on self-employed people will be:

• 12.4% Social Security tax on the first $192,300 of net earnings from self-employment, for a maximum tax of $23,845.20 (12.4% × $192,300), plus
• 2.9% Medicare tax on all net earnings from self-employment, plus
• 0.9% additional Medicare tax on net earnings from self-employment in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for separate filers).

Can you modify withholding for employees with more than one employer?

If you have employees who work for your business and have second jobs, those workers may have payroll taxes withheld by two different employers. However, you can’t stop withholding Social Security tax once their combined wages reach the wage base threshold.

Each employer must withhold Social Security taxes from an employee’s wages, up to the annual wage base for wages that employer pays, even if the combined withholding exceeds the maximum amount that can be imposed for the year. Fortunately, an employee can generally claim a tax credit on his or her return for any excess Social Security tax withheld by multiple employers.

For more information

Do you have additional questions about your payroll tax obligations? Contact us. We’ll help you comply with all applicable reporting and withholding requirements.

The post Payroll Tax Compliance: New Social Security Wage Base for 2027 first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Many businesses use federal “per diem” rates to reimburse employees for out-of-pocket travel expenses. In Notice 2026-60, the IRS announced special per diem rates that are effective for the federal government’s fiscal year of October 1, 2026, through September 30, 2027. Taxpayers can use these rates to substantiate certain lodging, meals and incidental expenses for business travel within the continental United States during this period. Let’s look at why many employers use travel per diems, how the simplified high-low method works and what those new rates are.

Travel per diems vs. actual costs

For businesses with employees who travel frequently, reimbursing actual expenses can be cumbersome. It requires detailed recordkeeping for lodging, meals and incidentals. An alternative to tracking actual business travel expenses is to use federal per diem rates, which vary from locality to locality.

Under the per diem method, employees receive a flat daily amount to cover certain business travel expenses, and they manage the funds. This setup can also help employers control and budget for travel costs more effectively. Employees still must document the time, place and business purpose of their travel within a reasonable period, but there’s no need to detail every amount they spend.

Per diem reimbursements generally aren’t subject to income or payroll tax withholding or reported on an employee’s Form W-2 to the extent they qualify under an accountable plan. However, any allowance above the applicable federal rate is generally treated as wages unless the employee substantiates the excess expenses.

Simplified high-low method

Instead of looking up specific per diem rates by city, employers can choose to apply the high-low method. This alternative uses two per diem rates for travel within the continental United States. The IRS establishes one annual rate for certain areas with higher costs. Examples of high-cost areas include Boston, San Francisco, Seattle and Nashville. All locations that aren’t listed as “high-cost” are automatically considered “low-cost,” and the annual low-cost rate applies.

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.

Fiscal year 2027 high-low rates

For travel from October 1, 2026, through September 30, 2027, the per diem rate for all high-cost areas within the continental United States is $329 (up from $319 for fiscal year 2026), consisting of $243 for lodging and $86 for meals and incidental expenses. For all other areas within the continental United States, the per diem rate is $230 for travel during this period (up from $225 for fiscal year 2026), consisting of $156 for lodging and $74 for meals and incidental expenses.

Certain tourist-attraction areas count as high-cost areas on a seasonal basis, and the period the high-cost per diem applies to may change somewhat from year to year. For instance, if an employee travels to Atlanta in fiscal year 2027, the high-cost per diem applies only from January 1, 2027, through March 31, 2027.

The high-low method is subject to various rules and restrictions. For example, businesses that use it for an employee must continue using it for all reimbursement of business travel expenses within the continental United States during the calendar year. However, the business may use any permissible method to reimburse that employee for any travel outside the continental United States.

For domestic travel during the last three months of a calendar year, employers must generally continue to use the same method (the regular federal per diem or high-low method) for an employee as they used during the first nine months of the calendar year. Also, the high-low method can’t be used for employees who own 10% or more of the business.

Deducting per diem reimbursements

When claiming business expense deductions for amounts reimbursed to employees, employers must treat the amount specified for meals and incidental expenses under the high-low method as a food and beverage expense that’s generally subject to the 50% deduction limit on meal expenses.

For example, suppose your business reimburses a manager for attending an October trade show in Denver based on the $329 high-cost per diem. You may generally deduct $286 ($243 for lodging plus $43 for half of the meals and incidental expense allowance).

Choosing the right approach for your business

A clear travel reimbursement policy can help manage costs and reduce administrative burden for you and your employees. If your current policy requires employees to submit detailed expense reports for business travel, you might consider switching to the high-low method. Although the list of high-cost localities varies slightly from year to year, this method can simplify travel reimbursements. Contact us for help reviewing your policy, complying with applicable rules and restrictions, and evaluating which method makes sense for your situation going forward.

The post IRS Publishes New per Diem Business Travel Rates for Fiscal Year 2027 first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Dissolving a marriage involves numerous financial and nonfinancial decisions, and tax considerations can easily fall by the wayside. But decisions made before your divorce is finalized can affect your current-year income tax liability and your tax situation in future years. Let’s look at some of the most critical tax issues to consider as you work through a separation or divorce in 2026.

Income tax returns

Your marital status for income tax filing purposes generally is determined as of the last day of the tax year. If by December 31 you’re divorced or legally separated under applicable state law, you generally are treated as unmarried for that year and will file as single or, if you have one or more qualifying children or dependents and otherwise meet the requirements, as head of household. Otherwise, you generally are treated as married and must decide whether to file jointly or separately.

If you have children, you’ll need to determine who’ll claim them on your tax returns in order to potentially claim related tax breaks besides just head-of-household status. Which parent claims a child can affect eligibility for certain tax benefits (based on factors such as the parent’s income level), and special rules apply when parents are separated or when custody is shared. If you and your former spouse don’t agree on who’ll claim a child, federal tie-breaker rules may apply.

As year end approaches, consider how the timing of a final divorce decree or legal separation and decisions related to children could affect your 2026 filing status and tax liability. Also review whether your withholding is still appropriate.

Support payments

For alimony under separation or divorce agreements executed after December 31, 2018, there’s no deduction for the former spouse making the payments. And the payments aren’t included in the gross income of the former spouse receiving them. (The rules are generally different for alimony under agreements executed before 2019.)

No matter when a separation or divorce agreement is executed, child support payments aren’t deductible by the paying spouse or taxable to the recipient spouse.

If you’re negotiating support payments before year end, make sure to factor in how the payments will be treated for federal tax purposes and the impact on your overall tax situation.

Your home

In general, a taxpayer who sells a principal residence (main home) may be able to exclude up to $250,000 of gain if the applicable ownership and use requirements are met. Generally, this means owning and using the home as a principal residence for at least two of the previous five years. A married couple filing jointly may be able to exclude up to $500,000 of gain if they meet additional requirements for the joint exclusion.

If a couple separates or divorces and one spouse continues to live in the home and the other moves out, special rules may allow the spouse who moved out to count certain periods when the home was used as a principal residence by the other spouse under a separation or divorce agreement for purposes of the use test. The wording of the separation or divorce agreement can therefore be important when deciding whether to sell your home before year end, have one spouse retain it or transfer ownership as part of the divorce.

A transfer of the home between you and your spouse as part of a divorce generally won’t be treated as a taxable sale. If the applicable ownership and use tests aren’t met when the home is later sold, however, all or part of the gain may be taxable. A reduced exclusion may be available in certain circumstances, including some sales resulting from unforeseen circumstances.

Retirement benefits

Retirement benefits are often part of a divorce property settlement. A qualified domestic relations order (QDRO) can give one spouse rights to benefits under the other spouse’s employer-sponsored qualified retirement plan, such as a 401(k).

Generally, the spouse who receives retirement plan benefits under a QDRO is taxed on those benefits rather than the spouse who earned them. But when taking withdrawals under the QDRO, the recipient spouse generally is exempt from the 10% early withdrawal penalty that usually applies to retirement plan distributions taken before age 59½.

If you’re the receiving spouse and not yet subject to required minimum distributions (RMDs), which generally means you’re under age 73, you may have a few options (with varying tax consequences):

• Take a lump-sum distribution of the full amount — this may produce a significant income spike in the year received that might push you into a higher tax bracket, trigger (or increase the impact of) various tax-break phaseouts or produce other negative tax consequences,
• Arrange to receive regular payments, thereby spreading out the taxes over multiple years and avoiding some of the possible negative tax consequences of a lump-sum payment,
• Roll over the assets into your own retirement plan or IRA — if the rollover requirements are met, you’ll owe no current tax for the year of the rollover but RMDs generally will apply when you reach age 73 or 75, depending on your year of birth, or
• Leave the money where it is and wait until later to start taking distributions — again, RMDs generally will apply when you reach age 73 or 75.

Before finalizing the divorce agreement, consider the tax consequences of dividing retirement assets, including the timing and tax treatment of distributions. (Keep in mind that many of the tax consequences will be different if the retirement benefits are in a Roth account, where qualified distributions are tax-free.)

Business interests

Business interests require particular attention before a divorce settlement is finalized. For example, a transfer of S corporation stock can affect suspended losses and other tax attributes. Suspended losses generally carry over for the shareholder, but losses that remain suspended when the shareholder disposes of all of the stock generally are lost.

With partnership interests, the partner’s tax basis, share of partnership liabilities and other tax attributes merit a close look. A transfer can affect the tax consequences for both the transferring and receiving spouse, so address these issues before completing the transaction.

Review the tax impact

From a tax perspective, separation and divorce can affect much more than your filing status. Before year end, review your withholding, estimated tax payments, ownership of major assets and any property or retirement accounts being transferred as part of the settlement. You’ll also want to revisit your estate plan and beneficiary designations when the divorce is finalized. We can help you evaluate the tax consequences of your separation or divorce so you can make informed decisions before year end.

The post Separating or Divorcing This Year? Consider These Tax Issues Before Year End first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

For most small business owners, strong revenue growth is something to celebrate. But a profitable year can also significantly increase your income tax liability. If your business is on track for a banner year, now is the time to evaluate tax-reduction strategies. Here’s some guidance for sole proprietors and owners of pass-through entities (such as partnerships, S corporations and most limited liability companies).

Start with a year-end tax projection

Many owners focus on revenue growth without estimating the resulting tax impact. A year-end projection can help identify potential tax obligations while there’s still time to respond.

Your projection should address factors such as:

• Year-to-date revenue and expenses,
• Expected results for the remainder of the year,
• Significant asset purchases,
• Owner compensation and distributions, and
• Other sources of income reported on the owner’s tax return.

Business growth can also create new compliance responsibilities, including state and local tax filing requirements. Evaluate how operational changes, such as adding employees or expanding into new markets, may affect your 2026 tax situation.

Prepare for higher estimated tax payments

Next, evaluate whether estimated tax payments you’ve made throughout the year will be sufficient. Your fourth payment for the 2026 tax year is due on January 15, 2027. You may need to increase this payment to potentially avoid (or minimize) underpayment penalties. However, increasing your final payment won’t necessarily eliminate penalties for earlier underpayments. Special rules may provide relief if your income increased significantly late in the year.

Even if you make enough estimated tax payments for 2026 to avoid penalties, you may still owe tax when you file your return. Waiting until tax season to address your tax liability can create cash flow challenges. Be sure to set aside funds for both your January 15 estimated tax payment and the amount you expect to owe when you file next year.

However, strong profits don’t automatically translate into strong cash flow. If your growing business is short on cash, you might need to balance certain year-end moves — such as paying year-end bonuses, distributing cash to owners, and investing in new vehicles and equipment — with impending tax obligations and ongoing operating costs.

Make tax-smart moves before year end

Once you’ve assessed your current tax and cash flow position, you’re ready to explore strategies to reduce your 2026 tax bill. Common examples include:

Deferring taxable income. Some businesses may have flexibility in when they recognize taxable income and deduct certain expenses, depending on their accounting method. The traditional approach is to accelerate deductible expenditures into the current year and defer taxable income into next year. In general, this will reduce your 2026 tax obligation.

However, if you expect strong performance to continue next year, you could be in an even higher tax bracket for 2027. In that case, you might take the opposite approach by timing revenue and expenses to accelerate taxable income into this year. That way, more of your business income will be taxed at this year’s lower rate instead of at next year’s higher rate.

Taking advantage of the QBI deduction. You may be eligible for a deduction of up to 20% of your qualified business income (QBI). This deduction is subject to a limit of 20% of taxable income. Additional limits may apply if taxable income for the year exceeds the applicable threshold. These limitations are phased in and are especially important to consider in a big revenue year.

For 2026, the income-based limits begin when taxable income exceeds $201,750 (double that amount for married couples filing jointly). Starting in 2026, the phase-in ranges have been expanded, allowing larger QBI deductions than in previous years for some taxpayers. The limits are fully phased in when taxable income exceeds $276,750 (double that amount for joint filers).

Taxpayers who are affected by these limitations may be able to salvage some or all of the QBI deduction (or be subject to a smaller deduction phaseout) by deferring income or accelerating deductions to keep income under the dollar thresholds. You may also be able to increase the deduction by increasing W-2 wages before year end. The rules are complex, so consult us before acting.

Leveraging first-year depreciation write-offs. If your business is planning to purchase equipment, machinery, vehicles, computers or other qualifying assets, you may be able to write off most or all of the purchase price on your 2026 return. But the asset must be placed in service by December 31, 2026, to provide a 2026 deduction.

Qualified improvement property and many other assets with recovery periods of 20 years or less may qualify for 100% bonus depreciation and Section 179 expensing. The latter is subject to an annual limit ($2.56 million for 2026) that begins to phase out when eligible purchases for the year exceed the phaseout threshold ($4.09 million for 2026).

Immediately deducting qualifying costs can significantly reduce your 2026 tax bill, but tax savings alone shouldn’t drive purchasing decisions. You should also consider your operational needs and available cash flow. If revenue growth continues to accelerate and pushes you into a higher tax bracket in the future, you may save more tax in the long run by deferring purchasing assets (or placing them in service) or by following normal depreciation schedules that spread deductions over multiple years.

Contributing to retirement accounts. If your business offers a qualified retirement plan, you may be able to increase deductible contributions to reduce current-year taxable income. In addition to potentially lowering taxes, retirement plan contributions can help support long-term financial goals.

If your business doesn’t currently sponsor a retirement plan, consider establishing one in time to make deductible 2026 contributions. You can adopt and fund some types of tax-favored qualified employee retirement plans as late as the federal income tax return due date (including any extension) for the adoption year.

Turn growth into a tax-planning opportunity

A successful year can create both opportunities and tax challenges. By proactively reviewing your tax position, you may be able to identify strategies that reduce uncertainty, improve cash flow management and support your long-term business goals. However, tax-planning moves require careful coordination. For example, you might inadvertently reduce your allowable QBI deduction if you claim significant first-year depreciation deductions or make sizable deductible retirement plan contributions.

Contact us to discuss these and other tax-smart moves for the 2026 tax year. We can help you avoid tax-filing surprises and develop a plan tailored to your situation.

The post Expecting a Big Revenue Year? Consider Tax Moves Before Year End first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

IRS audit rates remain relatively low, but that’s little consolation if the IRS selects your return for an examination. Although most taxpayers will never face an audit, business owners often have more complex tax situations that can attract IRS attention. The good news is that with proper preparation, detailed records and professional guidance, you can make the process far less stressful.

Am I at risk for an IRS audit?

The IRS accepts most returns as filed. However, your return may be selected for examination because of discrepancies identified by IRS systems, unusual reporting patterns, information reported by third parties or, in some cases, random statistical sampling.

Business owners should remember that an IRS examination may not be limited to a business tax return. Many small businesses operate as sole proprietorships, partnerships or S corporations (or as limited liability companies taxed as one of those structures). For these entities, business income, deductions and credits flow through to the owners’ individual returns. As a result, IRS questions about business activities may arise during an examination of either a business return or an owner’s individual return.

While there’s no guaranteed way to eliminate your audit risk, the best way to manage an audit is to be prepared. Maintain organized records throughout the year, including invoices, receipts, bank statements, payroll records, canceled checks and other documentation supporting items reported on your tax returns. Keeping complete records in a central location, whether physical or electronic, can make responding to IRS inquiries much easier.

Which issues does the IRS target?

Some returns are more likely to attract IRS scrutiny than others. Common issues that may lead to questions include:

• Significant inconsistencies between current and prior-year returns,
• Income reported on a tax return that doesn’t match Forms W-2, 1099 or other information returns received by the IRS,
• Gross profit margins or expense levels that differ substantially from similar businesses in the same industry,
• Large or unusual deductions compared to income,
• Repeated business losses, and
• Mathematical errors or incomplete information on a return.

Certain deductions often receive closer scrutiny because they have strict substantiation requirements. Examples include deductions for vehicles, travel, meals and home offices.

Pass-through entities also present special audit risks. For example, the IRS may examine whether S corporation shareholder-employees are receiving reasonable compensation or whether owners have sufficient tax basis to claim losses and deductions. Proper documentation is essential in these areas.

How should I respond to an IRS notice?

If your return is selected for examination, you’ll generally be notified by mail. The IRS doesn’t initiate audits through email, text messages or social media. Be wary of unsolicited messages claiming to be from the IRS — these are likely scams.

Many audits involve a request for documentation supporting specific items reported on a tax return. In some cases, taxpayers may be asked to meet with an IRS representative at a local office. More complex examinations may involve a field audit conducted at the taxpayer’s home, business or representative’s office. However, most examinations are handled through correspondence rather than in-person visits.

If you receive an IRS notice, it will explain any discrepancies and give you time to respond. Carefully review the request and gather all documents relevant to the items in question. If records are missing, you’ll have to reconstruct the information using other available documentation.

If you’re selected for an audit, call us as soon as possible. By involving us early in the process, our experienced tax professionals can help you:

• Understand the issues the IRS is examining,
• Gather and organize the necessary records,
• Communicate with the IRS on your behalf when appropriate, and
• Respond to the examination efficiently and effectively.

In most situations, the IRS has three years after a return is filed to assess additional tax, though longer periods may apply in certain circumstances. Because examinations often occur well after a return has been filed, you should retain finished returns and any supporting documentation for the appropriate period. As a general rule, you should hold on to tax records for at least six years after they’re due or filed, whichever is later.

However, you should keep certain tax-related records longer. For example, keep records related to a bad debt deduction for seven years. And keep copies of your tax returns and other proof of filing indefinitely to document that you filed. (There’s no statute of limitations for the IRS to assess tax if you didn’t file a return or you filed a fraudulent one.)

Am I audit ready?

Don’t let the possibility of an audit keep you up at night. Most IRS examinations are routine and manageable when taxpayers maintain accurate, detailed records and respond promptly to IRS inquiries.

If you receive an IRS notice, we can help you prepare for an examination and represent your interests throughout the audit process. Or if you simply want to strengthen your recordkeeping and tax compliance processes, contact us to assess your audit readiness and identify opportunities for improvement.

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Strong portfolio performance can bring an unwelcome surprise: an additional 3.8% federal tax. The income thresholds for the net investment income tax (NIIT) aren’t annually adjusted for inflation and haven’t changed since the tax took effect in 2013. So the NIIT is hitting more taxpayers. If your income is near or above the applicable threshold, year-end planning may help reduce its impact.

When you’ll owe the NIIT

The NIIT applies to some or all net investment income once a taxpayer’s modified adjusted gross income (MAGI) exceeds certain levels. Net investment income generally includes taxable gains from stocks, bonds, mutual funds and investment real estate, as well as interest, dividends, nonqualified annuity income, royalties and rents. It also can include income from a passive trade or business and from a business that trades financial instruments or commodities.

You’ll generally owe the NIIT if you have net investment income and your MAGI exceeds:

• $200,000 if you’re a single or head-of-household filer,
• $250,000 if you’re married filing jointly, or
• $125,000 if you’re married filing separately.

The amount subject to the NIIT is the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

Many types of income aren’t included in net investment income. Examples include tax-exempt interest, the excluded portion of a gain from the sale of your primary home, qualified retirement plan distributions, Social Security benefits, wages and self-employment income. However, taxable retirement plan distributions, wages and self-employment income can increase your MAGI and cause some or all of your net investment income to become subject to the NIIT.

Planning may therefore focus on managing your net investment income, your MAGI or both.

Adjust your investment mix

If your income is high enough to trigger the NIIT, shifting some income-producing investments to tax-exempt municipal bonds could reduce your exposure. Interest from qualifying tax-exempt municipal bonds generally isn’t included in MAGI or net investment income. Before making a change, consider the bonds’ risks and after-tax return as well as your broader investment objectives.

Qualified-dividend-paying stocks are taxed at the same rates as long-term capital gains: The maximum rate is 20%, but the rate becomes 23.8% with the NIIT. Generally, however, dividends are taxed in the year they’re paid, and you can’t control when they’re paid. Quarterly dividend payments are common.

As a result, you may want to consider rebalancing your investment portfolio to emphasize growth stocks over dividend-paying stocks. Although the capital gain from these investments will be included in net investment income and subject to capital gains tax and potentially the NIIT, this generally doesn’t happen until you recognize the gain by selling the stock — so you can control the timing. Also, recognized capital losses can offset capital gains. Investment and diversification considerations should drive any decision to rebalance, however.

Leverage retirement accounts

Tax-advantaged retirement accounts offer both opportunities and risks when it comes to the NIIT.

One opportunity relates to annual contributions. Deductible or pretax contributions to a tax-deferred retirement plan reduce current MAGI. So maximizing your contributions may help keep you below the NIIT threshold or reduce the amount of your income that’s subject to the NIIT, depending on your circumstances. Small business owners may have particular flexibility to establish or make large 2026 contributions to retirement plans — possibly even after December 31, 2026.

Retirement plan distributions come with both risks and opportunities. They generally aren’t included in net investment income, but taxable distributions can increase MAGI and trigger the NIIT on other income.

Your ability to control the timing of retirement plan distributions provides an opportunity. Consider the potential NIIT impact when timing discretionary distributions (or Roth IRA conversions, which also increase MAGI).

If you’re subject to annual required minimum distributions (RMDs), you must take your annual RMD by the deadline or face a penalty on the amount you should have withdrawn but didn’t. But if you’re charitably inclined, a qualified charitable distribution (QCD) directly from your IRA to charity can satisfy your RMD while excluding the distributed amount from your MAGI.

Review your options

Other year-end strategies that may reduce or eliminate NIIT liability include harvesting capital losses, timing investment gains, donating certain appreciated investments and reviewing passive activities or rental income. The NIIT consequences of any move will depend on both your net investment income and your MAGI. We can help you estimate your potential NIIT and evaluate possible strategies before year end, so contact us today with any questions.

The post Watch Out for the Growing Reach of the Additional 3.8% Tax on Investment Income first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Our team has been serving clients across the state for 50 years, and we’ve made a lot of memories throughout that time. We’ve put together a photo gallery to share just a few of our team’s special moments from across the last half-decade.

Click Here to View the Gallery

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If your small business accepts, uses or invests in Bitcoin, Ethereum or other forms of cryptocurrency, accurate reporting and detailed records are critical for federal tax purposes. The IRS continues to scrutinize digital-asset transactions. Today, business tax returns include a question about digital assets, and brokers are now required to report certain transactions to taxpayers and the IRS on Form 1099-DA. Here’s what you need to know to help you comply with the current tax rules.

The basics

Unlike cash or credit cards, cryptocurrency still isn’t widely accepted by small businesses for routine transactions. However, some businesses may receive it from customers, use it to make purchases, pay workers with it or hold it as an investment.

Cryptocurrencies can be valued in U.S. dollars and digitally traded between users. They may also be purchased or exchanged through online platforms and stored in digital wallets. The IRS uses the broader term “digital assets,” which includes cryptocurrency, stablecoins (a type of cryptocurrency designed to maintain a consistent value) and nonfungible tokens.

Tax reporting

Buying cryptocurrency with U.S. dollars and holding it generally doesn’t produce taxable income. However, selling it, exchanging it for another digital asset, using it to make a purchase or receiving it as payment for goods or services sold generally creates a reportable transaction.

For federal tax purposes, the IRS treats cryptocurrency as property, not currency. As a result, businesses that accept cryptocurrency for goods or services must report gross income based on its fair market value (FMV) when received, measured in U.S. dollars. That amount generally becomes the business’s tax basis in the cryptocurrency.

When the business later sells, exchanges or spends the cryptocurrency, it generally recognizes a separate gain or loss for tax purposes. The gain or loss is based on the difference between the asset’s value when disposed of and its adjusted basis. (Adjustments might include additional acquisition costs or transaction fees, certain blockchain events that affect ownership, and other tax adjustments required under IRS rules.)

Here’s an overview of the tax treatment of some other common business cryptocurrency transactions:

Purchases. From the buyer’s perspective, a purchase made using cryptocurrency may result in a taxable gain if the FMV of the property or services received exceeds the buyer’s adjusted basis in the cryptocurrency. Conversely, a tax loss may result if the value received is less than the adjusted basis. In other words, paying a business expense with cryptocurrency can trigger tax consequences beyond the ones typically associated with a purchase (such as a deduction for the business expense).

Employee wages. For federal tax purposes, wages paid using cryptocurrency are taxable to employees and generally must be reported by employers on Form W-2. They’re subject to federal income tax withholding and payroll taxes based on their FMV on the payment date. Applicable federal and state wage-payment laws must also be considered.

Payments to contractors. Cryptocurrency payments to independent contractors and other service providers are also taxable. The usual self-employment tax and information-reporting rules apply, and the payer may need to issue Form 1099-NEC.

In addition, a business may have a taxable gain or loss from the appreciation or decline in the cryptocurrency’s FMV during the time it was held before it was paid to the employee or independent contractor. Assuming the payer isn’t in the trade or business of buying and selling virtual currencies, the gain and loss will be a capital gain or capital loss (short-term or long-term, depending on how long it was held).

Expanded information reporting

A digital-asset question now appears on federal returns including Forms 1065, 1120 and 1120-S. Businesses must answer it and report applicable transactions even if they don’t receive an information return for a transaction.

Beginning with transactions in 2025, certain custodial brokers must report gross proceeds from digital-asset sales and exchanges on Form 1099-DA. Starting in 2026, they must also report the basis for certain covered digital assets. However, basis generally won’t be reported for assets acquired before 2026 or transferred into the broker’s account. So, a Form 1099-DA doesn’t eliminate the need to maintain your own records.

The One Big Beautiful Bill Act didn’t change the basic tax treatment of digital assets. Its changes to Form 1099-K apply to third-party payment networks and don’t replace the separate Form 1099-DA rules.

Under the Infrastructure Investment and Jobs Act of 2021, businesses will eventually be required to report certain digital-asset receipts exceeding $10,000 on Form 8300. However, until the IRS issues regulations to implement the change, businesses aren’t required to file Form 8300 solely because they receive more than $10,000 in digital assets.

As a result of the expanded reporting requirements, the IRS now receives more third-party information about digital-asset transactions, making discrepancies easier to identify. Businesses that engage in crypto transactions should maintain records showing the date, number of units, dollar value, tax basis, transaction fees and business purpose of each transaction. Transfers between wallets should also be documented so they aren’t mistaken for taxable transactions.

Review your records

As year end approaches, review your 2026 digital-asset transactions and reconcile your records with statements from brokers and payment processors. Also keep in mind that Congress is considering bills that would change selected digital-asset tax rules. We can help you stay on top of any new developments. Contact us for assistance evaluating your transactions and meeting the current reporting requirements.

The post What Are the Tax Implications of Cryptocurrency Transactions? first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..