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..

We are proud to announce that Burkett Burkett & Burkett CPAs, P.A. has received two honors in The State’s Best 2026 competition. Our firm earned Silver in the Accounting Firm category and Bronze in the Tax Services category, recognizing our team among the many outstanding businesses competing throughout South Carolina.

We sincerely thank our clients, employees, friends, and families who took the time to nominate our firm and vote for us. We are honored to share these awards with everyone who helped make them possible. Thank you for your continued trust and support!

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Ordinary repair and maintenance costs are generally deductible in the year they’re paid or incurred, depending on your accounting method. Costs that improve property must be capitalized. However, under current tax law, capitalization doesn’t necessarily mean waiting years to recover the cost. The One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for eligible property and increased the Section 179 expensing limit and phaseout threshold.

Still, these provisions don’t cover every improvement. And even when an improvement qualifies for one of these breaks, repair treatment may offer certain advantages. Here’s a closer look at why distinguishing repairs from improvements remains important — and why you should consider all available deduction options.

Improvement tests

Generally, repairs keep property in ordinarily efficient operating condition without adding significant value or substantially extending its useful life. Examples might include fixing a leak, replacing a small number of damaged roof shingles or servicing machinery. An expenditure generally must be treated as an improvement and, therefore, be capitalized if it results in a betterment, restoration or adaptation of the unit of property:

• Under the “betterment test,” you generally must capitalize amounts paid for work that’s reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that’s a material addition to a unit of property.
• Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that’s a major component or a significant portion of the physical structure of a unit of property.
• Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

For a building, these tests generally apply separately to the building structure and designated systems, such as plumbing, electrical, HVAC, elevators, fire protection and security. Consequently, replacing an entire building system may be an improvement even if the work affects only a portion of the building.

Tangible property safe harbors

Several safe harbors may allow expenditures that might otherwise be capitalized to be deducted currently:

Routine maintenance safe harbor. Recurring work performed to keep property in ordinarily efficient operating condition may be deductible. At the time the property was placed in service, you must have reasonably expected to perform the activity more than once during a 10-year period for buildings or during the applicable class life (such as three years or seven years) for other property.

Safe harbor for small businesses. Businesses with average annual gross receipts of $10 million or less during the three preceding tax years may qualify for an annual election to currently deduct the cost of work on an eligible building with an unadjusted basis of $1 million or less. The total amount paid for repairs, maintenance and improvements during the year must be no more than the lesser of $10,000 or 2% of the building’s unadjusted basis.

De minimis safe harbor. Subject to accounting-policy and recordkeeping requirements, a business may elect to deduct qualifying expenditures up to $2,500 per invoice or item. The threshold is $5,000 for a business with an applicable financial statement, such as a qualifying audited financial statement.

These safe harbors have specific requirements, and some elections must be made annually on a timely filed tax return.

100% first-year deductions for capitalized costs

If an expenditure must be capitalized, you may still be able to deduct its full cost in the year the improvement is placed in service. The OBBBA permanently restored 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025. Qualifying property generally includes machinery, equipment and real estate qualified improvement property (QIP).

QIP generally consists of improvements made to the interior of an existing nonresidential building. However, expenditures attributable to enlarging a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and are usually depreciated over 39 years.

Sec. 179 may also cover machinery, equipment and QIP, as well as certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection and alarm systems, and security systems. The OBBBA doubled the expensing limit for 2025 and also increased the phaseout threshold, but less significantly. These amounts are annually indexed for inflation. For 2026, businesses may deduct up to $2.56 million of eligible costs. The deduction begins to phase out when qualifying purchases in 2026 exceed $4.09 million and is limited by taxable income from the active conduct of a business.

Remember, eligible property generally must be placed in service — that is, ready and available for its intended use — by year end to qualify for bonus depreciation or a Sec. 179 expensing election for 2026. Merely purchasing, ordering or paying for property isn’t enough.

Benefits of repair treatment

Even when a capital improvement qualifies for a full first-year deduction, repair treatment isn’t interchangeable with bonus depreciation or Sec. 179 treatment. When an expenditure meets the requirements for repair treatment, properly classifying it as a deductible repair (rather than grouping it with capital improvements) may be advantageous for several reasons:

• Repair costs don’t have to meet the eligibility or placed-in-service requirements for bonus depreciation.
• Repair deductions aren’t subject to the Sec. 179 limits.
• Repair treatment generally avoids depreciation elections, related basis tracking and potential depreciation recapture consequences when the property is sold.

In addition, some states don’t fully conform to the federal bonus depreciation or Sec. 179 rules. So, when applicable, repair treatment may provide an earlier state tax deduction. If an improvement qualifies for neither bonus depreciation nor Sec. 179, you may have to depreciate its cost over the applicable recovery period, which could be as long as 39 years.

Year-end planning

Now is a good time to review your property-related expenditures in 2026 to determine whether they’ve been classified correctly and whether any safe harbors or immediate deduction provisions apply. You may also be considering additional purchases or improvements to reduce your current-year taxable income. Contact us for help classifying your 2026 expenditures and evaluating the potential tax benefits of planned purchases or improvements before year end.

The post Repair or Improvement: Does the Distinction Matter Under Current Tax Law? first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Working remotely may broaden your job options and make daily life easier. But working from a different state than your employer — or spending part of the year working from a second home in a different state than where you normally reside — can create state tax issues. Because the rules vary by state, work arrangements that cross state lines warrant a closer look.

Convenience-of-the-employer rule

If your employer is located in a state that applies a convenience-of-the-employer rule and you work remotely from a different state, you may need to file income tax returns in more than one state. Under such a rule, days worked from another state for your own convenience (rather than for the convenience of your employer) may be treated as days worked in your employer’s state.

This might occur if, say, you choose to work from home across the state border from the city where your employer has an office. Your employer doesn’t require you to work remotely, but you prefer to do so to save yourself the time and cost of commuting. So your employer allows you to work from home for your convenience.

A state with an income tax generally can tax all income of its residents and income earned within its borders by nonresidents. So if your employer’s state considers your days worked remotely to be days worked in that state because of the convenience-of-the-employer rule, you could be subject to taxes and filing requirements in both your employer’s state and your own.

Domicile and residency

Your state tax obligations can also be affected if you spend enough time working in two states that both consider you to be a resident. Residency rules vary, but many states consider your domicile, the days you spend in the state and whether you maintain a home there. Your domicile is generally your “true, fixed, permanent home” — the place you intend to return to. Some states also will treat you as a resident if you maintain a home and spend a specified number of days there.

It’s possible to be domiciled in one state and be a resident of another. For example, let’s say you have a permanent home in one state where your job is located and a vacation home in another state. Your employer allows employees to work remotely, so now you spend more than 200 days per year living and working at your vacation home.

The state where your permanent home is located considers you to be domiciled there, but the state where your vacation home is located might view you as a resident. So if both states have an income tax, you may be subject to taxes on the same income in both states. A credit for taxes paid to another state may reduce or eliminate double taxation, depending on the states’ rules. But your tax bill may still increase if, for example, the vacation home state’s income tax rate is higher than your permanent home state’s rate.

Employer obligations

From an employer’s perspective, allowing employees to work remotely may create obligations to withhold and remit income and payroll taxes in multiple states. (These requirements can also affect how much state income tax is withheld from an employee’s pay.)

Plus, having employees in other states may be sufficient to establish “nexus” with those states, potentially triggering liability for their income, franchise, gross receipts or sales and use tax. In addition to the expense of tax reporting in multiple states, this may increase an employer’s overall tax liability. There are other complications as well.

As a result, some employers may not allow remote employees to work for extended periods from other states. They also might prohibit remote employees from moving to a state where the employer doesn’t already have employees or nexus.

Review your arrangement

If you’re a remote employee, before changing where you work, check with your employer to make sure it will allow you to work from that state. Also find out how a move or extended stay could affect your state taxes and withholding. If you’ve already worked from more than one state during 2026, consider addressing the potential tax consequences before year end. Contact us to review your work arrangement and determine whether you may have tax obligations in more than one state.

The post Remote Work Can Complicate Your State Taxes first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..