What do the 2026 Cost-of-Living Adjustment Numbers Mean for You?

The IRS recently issued its 2026 cost-of-living adjustments for more than 60 tax provisions. The One Big Beautiful Bill Act (OBBBA) makes permanent or amends many provisions of the Tax Cuts and Jobs Act (TCJA). It also makes permanent most TCJA changes to various deductions and makes new changes to some deductions. OBBBA-affected changes have been noted throughout.

As you implement 2025 year-end tax planning strategies, be sure to take these 2026 numbers into account.

Individual income tax rates

Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $475–$950, depending on filing status, but the top of the 35% bracket will increase by $8,550–$17,100, depending on filing status.

2026 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $12,400	$0 – $17,700	$0 – $24,800	$0 – $12,400
12%	$12,401 –   $50,400	$17,701 – $67,450	$24,801 – $100,800	$12,401 – $50,400
22%	$50,401 – $105,700	$67,451 – $105,700	$100,801 – $211,400	$50,401 – $105,700
24%	$105,701 – $201,775	$105,701 – $201,750	$211,401 – $403,550	$105,701 – $201,775
32%	$201,776 – $256,225	$201,751 – $256,200	$403,551 – $512,450	$201,776 – $256,225
35%	$256,226 – $640,600	$256,201 – $640,600	$512,451 – $768,700	$256,226 – $384,350
37%	Over $640,600	Over $640,600	Over $768,700	Over $384,350

Note that the OBBBA makes the rates and brackets permanent. The income tax brackets will continue to be annually indexed for inflation.

Standard deduction

The OBBBA makes permanent and slightly increases the TCJA’s nearly doubled standard deduction for each filing status. The amounts will continue to be annually adjusted for inflation.

In 2026, the standard deduction will be $32,200 for married couples filing jointly, $24,150 for heads of households, and $16,100 for singles and married couples filing separately.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

2026 long-term capital gains brackets*
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
0%	$0 – $49,450	$0 – $66,200	$0 – $98,900	$0 – $49,450
15%	$49,451 – $545,500	$66,201 – $579,600	$98,901 – $613,700	$49,451 – $306,850
20%	Over $545,500	Over $579,600	Over $613,700	Over $306,850

* Higher rates apply to certain types of assets.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2026, the threshold for the 28% bracket will increase by $5,400 for all filing statuses except married filing separately, which will increase by half that amount.

2026 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $244,500	$0 – $244,500	$0 – $244,500	$0 – $122,250
28%	Over $244,500	Over $244,500	Over $244,500	Over $122,250

The AMT exemption amounts were significantly increased under the TCJA. The OBBBA makes the higher exemptions permanent, continuing to index them for inflation. The exemption amounts in 2026 will be $90,100 for singles and heads of households, and $140,200 for joint filers, increasing by $2,000 and $3,200, respectively, over 2025 amounts.

The AMT exemption phases out over certain income ranges. It’s completely phased out if AMT income exceeds the top of the applicable range.

Under the OBBBA, the income thresholds for the phaseout revert to their 2018 levels for 2026 (i.e., removing the inflation adjustments that had been made for 2019–2025) and then will be annually adjusted for inflation again in subsequent years. Also, the OBBBA phases out the exemption twice as quickly beginning in 2026.

So, the exemption phaseout ranges in 2026 will be $500,000–$680,200 for singles and $1,000,000–$1,280,400 for joint filers. These are significantly lower than the 2025 ranges of $626,350–$978,750 and $1,252,700–$1,800,700, respectively.

Amounts for married couples filing separately are half of those for joint filers.

Child-related breaks

Certain child-related breaks are annually adjusted for inflation but don’t necessarily go up every year. In addition, these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

Here are the 2026 figures for two important child-related breaks:

The Child Tax Credit. The OBBBA makes permanent the TCJA’s $2,000 per qualifying child credit amount, plus it increases it to $2,200 for 2025. The OBBBA also adjusts the credit annually for inflation starting in 2026. However, because inflation is relatively low and the dollar amount of the credit is relatively small, the credit will remain at $2,200 for 2026. The OBBBA also makes permanent the annual inflation adjustment to the limit on the refundable portion of the credit, but, again, there’s no increase for 2026. The refundable portion will remain at $1,700.

Beware that the Child Tax Credit phases out for higher-income taxpayers, and the phaseout thresholds aren’t inflation-indexed. Under the OBBBA, they’re permanently $200,000 for singles and heads of households, and $400,000 for married couples filing jointly.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2026 — by $5,890. It will be $265,080–$305,080 for joint, head of household and single filers. The maximum credit will increase by $390, to $17,670 in 2026. Under the OBBBA, a portion of the credit is refundable, and that portion is annually indexed. For 2026, the refundable portion is $5,120 (up from $5,000 for 2025).

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption had been scheduled to return to an inflation-adjusted $5 million in 2026. But the OBBBA permanently increases both exemption amounts to $15 million for 2026 and annually indexes the amount for inflation after that.

The annual gift tax exclusion in 2026 remains the same as the 2025 amount: $19,000 per giver per recipient.

2026 cost-of-living adjustments and tax planning

With many of the 2026 cost-of-living adjustment amounts trending higher, you may have an opportunity to realize some tax relief next year. However, beware that some taxpayers might be at greater AMT risk because of the reductions to the exemption phaseout ranges. If you have questions on the best tax-saving strategies to implement based on the 2026 numbers, please contact FMD.

Beware the Pitfalls of DIY Estate Planning

A do-it-yourself (DIY) estate plan may seem appealing to those who feel confident managing their own affairs and want to save money. With the abundance of online templates and legal software, it’s easier than ever to draft a will, establish powers of attorney or create a trust without professional help. However, there are significant drawbacks to consider.

Online tools vs. professional guidance

Estate planning is a legal matter, and small mistakes can result in major unintended consequences. Errors in wording, missing signatures or failure to meet state-specific requirements can render documents invalid or lead to disputes among heirs.

DIY tools often provide limited customization, which can be problematic for blended families, business owners or those with special needs beneficiaries. Additionally, these online platforms can’t provide personalized advice or foresee complex tax implications the way experienced estate planning attorneys and tax professionals can.

Although online tools can help you create individual documents — the good ones can even help you comply with applicable laws, such as ensuring the right number of witnesses to your will — they can’t help you create an estate plan. Putting together a plan means determining your objectives and coordinating a collection of carefully drafted documents designed to achieve those objectives. And in most cases, that requires professional guidance.

For example, let’s suppose Anna’s estate consists of a home valued at $1 million and an investment account with a $1 million balance. She uses a DIY tool to create a will that leaves the home to her son and the investment account to her daughter. On the surface, this seems like a fair arrangement. But suppose that by the time Anna dies, she’s sold the home and invested the proceeds in her investment account. Unless she amended her will, she’ll have inadvertently disinherited her son.

An experienced estate planning advisor would have anticipated such contingencies and ensured that Anna’s plan treated both children fairly, regardless of the specific assets in her estate.

DIY tools also fall short when a decision demands a professional’s experience rather than mere technical expertise. Online tools make it easy to name a guardian for your minor children, for example, but they can’t help you evaluate the many characteristics and factors that go into selecting the best candidate.

Don’t try this at home

Ultimately, while a DIY estate plan may be better than having no plan at all, it carries considerable risks. Professional guidance ensures your wishes are properly documented and legally sound, reducing the likelihood of costly mistakes or family conflicts. For most people, consulting a qualified estate planning advisor, including an attorney and a CPA who understands estate tax law, is a worthwhile investment in protecting one’s legacy and loved ones’ peace of mind.

Fundamental Building Blocks of an Employee Wellness Program

In a business context, a wellness program is an employer-sponsored initiative designed to promote employees’ physical, mental and emotional well-being. These programs can take many forms, but their underlying goal is generally the same: to foster a healthier, more productive workplace.

A well-structured wellness program can also help companies manage health care benefits costs, reduce absenteeism, improve employee retention and enhance company culture. Whether your business has a program in place or is considering rolling one out, here are some fundamental building blocks to help ensure your approach is effective, practical and sustainable.

Straightforward design

Imagine a company introducing its new employee wellness program with an email that reads, “Welcome aboard! Attached is a 200-page guide, featuring a complex point system that will determine whether you qualify for incentives and a lengthy glossary of medical terminology.”

See the problem? The quickest way to derail participation is by overcomplicating the rollout. Granted, any type of wellness program will inevitably have a learning curve. But the simpler the design, the easier it will be to explain and implement. Remember that you can update and increase a program’s complexity as it becomes more ingrained in your business’s culture.

Clear communication

Strong program communication is also paramount. Write, format and organize materials clearly and concisely. Be creative with the design and language to capture employees’ interest. Just keep in mind that the content must be sensitive to the fact that the program addresses inherently personal issues of health and well-being.

If you don’t have anyone in-house who can handle these criteria, consider engaging a consultant. In addition, ask your attorney to review all program materials for compliance purposes.

Well-vetted vendors

For most companies, outside vendors provide the bulk of wellness program services and activities. These may include:

• Seminars on healthy life and work habits,

• Smoking cessation workshops,

• Fitness coaching,

• Healthful food options in the break room and cafeteria, and

• Runs, walks or other friendly competitive or charitable events.

It’s critical to thoroughly vet providers and engage only those that are skilled and qualified. Neglecting to do so could mean that, even if you create and communicate a solid program, it will likely fail once employees show up to participate and are disappointed by the experience. Quality partnerships build credibility — and lasting engagement.

A strategic investment

Developing a wellness program may be a wise decision for both your employees and business. If you’re just getting started, build it on the fundamentals mentioned. And if you already have a program up and running, closely monitor participation and outcomes so you can make informed adjustments that enhance its long-term value. FMD would be happy to help you establish a realistic budget, identify potential tax advantages and measure the financial return on your investment.

3 Tips to Streamline your Accounting Processes

Whether you operate a for-profit business or a not-for-profit organization, strong accounting practices are essential for maintaining financial health and making informed decisions. These include creating budgets, monitoring results, preparing accurate financial statements, and complying with tax and payroll requirements. Over time, even efficient systems can become outdated or inconsistent. Here are three simple ways to enhance your accounting function and keep operations running smoothly.

1. Review and reconcile

Management oversight is a critical component of internal controls over financial reporting. Start by ensuring that whoever oversees your finances — such as your CFO, controller or bookkeeper — regularly reviews monthly bank statements and financial reports for errors and unusual activity. Quick reviews can prevent minor discrepancies from turning into major issues later.

It’s also smart to establish clear policies for month-end cutoffs. Require all vendor invoices and expense reports to be submitted within a set period (for example, one week after month end). Delayed submissions and repeated adjustments can waste time and postpone financial reporting.

Don’t wait to reconcile balance sheet accounts until year end. Doing it monthly can save time and reduce stress. It’s much easier to fix mistakes when you catch them early. Be sure to reconcile accounts payable and accounts receivable subsidiary ledgers to your balance sheet to maintain accuracy and visibility.

2. Standardize workflows

Designing a standardized invoice coding sheet or digital approval process can improve accuracy and speed. Accounting staff often need key details, such as general ledger codes, cost centers and approval signatures, to process payments efficiently. A simple cover sheet, approval stamp or electronic workflow helps capture all this information in one place.

Include a section for the appropriate manager’s approval and multiple-choice boxes for expense allocation to departments, projects or programs. Always document payment details for reference and audit purposes.

Another tip: Batch your work. Instead of entering or paying each invoice as it comes in, set aside dedicated blocks to process multiple items at once. This saves time and reduces task-switching inefficiency.

3. Leverage accounting software

Many organizations underuse their accounting software because they haven’t explored its full capabilities. Consider bringing in a trainer or consultant to help your team unlock automation features, shortcuts and reporting tools that can save time and reduce errors.

Standardize the financial reports generated by your system so they meet your needs without manual modification. This improves data consistency and provides real-time insight, not just end-of-month visibility.

Also, automate recurring journal entries and payroll allocations when possible. Most accounting systems allow you to set up automatic postings for regular expenses, payroll distributions and accruals. Just remember to review estimates against actual figures periodically and make any necessary adjustments before closing your books.

Small improvements can make a big difference

Accounting practices are continuously changing due to advances in automation, cloud-based systems and AI-driven analytics. Review your workflows regularly to identify steps that could be automated or eliminated if they don’t add real value. Not sure where to start? Contact FMD to review your systems and brainstorm practical ideas to modernize your accounting function, enhance efficiency and improve financial oversight.

Does your Estate Plan Include a Financial Power of Attorney?

Your estate planning goals likely revolve around your family, including both current and future generations. But don’t forget to take yourself into consideration. What if you become incapacitated and are unable to make financial decisions? A crucial component to include in your estate plan is a financial power of attorney (POA).

What’s a financial POA?

Without a POA, if you become incapacitated because of an accident or illness, your loved ones won’t be able to manage your finances without going through the lengthy and expensive process of petitioning the court for guardianship or conservatorship. Executing a financial POA, also known as a POA for property, protects your family from having to go through this process and helps ensure financial decisions and tasks won’t fall through the cracks.

This document appoints a trusted representative (often called an “agent”) to make financial decisions on your behalf. It authorizes your agent to manage your investments, pay your bills, file tax returns and otherwise handle your finances, within the limits you set.

Differences between springing and durable POAs

One important decision you’ll need to make is whether your POA should be “springing” — effective when certain conditions are met — or nonspringing (also known as “durable”), which is effective immediately.

A springing POA activates under certain conditions, typically when you become incapacitated and can no longer act for yourself. In most cases, to act on your behalf, your agent must present a financial institution or other third party with the POA as well as a written certification from a licensed physician stating that you’re unable to manage your financial affairs.

While a springing POA lets you retain full control over your finances while you’re able, a durable POA offers some distinct advantages:

• It takes effect immediately, allowing your agent to act on your behalf for your convenience, not just when you’re incapacitated.

• If you do become incapacitated, it allows your agent to act quickly on your behalf to handle urgent financial matters without the need for a physician to certify that you’ve become incapacitated. With a springing POA, the physician certification requirement can lead to delays, disputes or even litigation at a time when quick, decisive action is critical.

• It may also be advantageous for elderly individuals who are mentally capable of handling their affairs but prefer to have assistance.

Durable POAs have one potential disadvantage that must be considered: You might be uncomfortable with a POA that takes effect immediately because you’re concerned that your agent may be tempted to abuse his or her authority. However, if you can’t fully trust someone with an immediate POA, it’s even riskier to rely on that person when you’re incapacitated and unable to protect yourself.

In light of the advantages of durable POAs and the potential delays caused by springing POAs, consider granting a durable POA to someone you trust completely, such as your spouse or one of your children. If you’d like added security, you could ask your attorney or another trusted advisor to hold the durable POA and deliver it to the designated agent only when you instruct them to do so or you become incapacitated.

Revisit and update your POAs

A critical estate planning companion to a financial POA is a health care POA (also known as a health care proxy). It gives a trusted person the power to make health care decisions for you. To ensure that your financial and health care wishes are carried out, consider preparing and signing both types of POA as soon as possible.

Also, don’t forget to let your family know how to gain access to the POAs in case of an emergency. Finally, financial institutions and health care providers may be reluctant to honor a POA that was executed years or decades earlier. So, it’s a good idea to sign new POAs periodically. Contact FMD with any questions regarding POAs.

2025 State of Michigan Income Tax Law Changes

By Christine LaTour, fmd@fmdcpas.com

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On October 7, 2025, Governor Gretchen Whitmer signed the State of Michigan Budget for the 2025 – 2026 fiscal year.  As part of the Budget agreement with the legislature, the State of Michigan issued 2025-PA24.  The Act officially decouples Michigan Income Tax Law from the  Internal Revenue Code, effective December 31, 2024.  This is the first time since the 1967 Michigan Tax Code was established that the State of Michigan will not follow the current federal income tax law. 

Under the new tax law, various deductions allowed under the One Big Beautiful Bill Act (OBBBA) that was signed on July 4, 2025, will not be allowed in calculating Michigan income taxes.  Other deductions defined in the OBBBA will also be allowed for State of Michigan Income Tax purposes.  The deductions affected include:

Bonus Depreciation

100 % Bonus depreciation, allowed under the OBBBA, will not be allowed for State of Michigan Income Tax purposes for assets purchased on or after January 20, 2025.  Instead, Michigan will only allow 40% Bonus depreciation for all 2025 asset purchases. Michigan's allowable bonus depreciation will continue to phase out over the following two years, meaning only 20% bonus depreciation is available for 2026 asset purchases, and 0% bonus depreciation for 2027 asset purchases.  

Section 179 Expense

For 2025, the OBBBA allows businesses to deduct up to $2.5 million in asset purchases for federal income tax purposes.  For State of Michigan Income Tax purposes, the expense deduction limitation will remain at the 2024 limit of $1,220,000. The spending limitation for 2024 of $3,050,000 will also remain in effect. Both of these limits will continue to be indexed for inflation per the Federal tax code in effect as of December 31, 2024.

Research and Development Expenses

Under the OBBBA, businesses will be eligible to immediately expense Research and Development Expenses for federal income tax purposes.  Businesses will NOT be allowed to immediately expense these costs for State of Michigan income tax purposes.  Instead, all Research and Development Expenses must continue to be capitalized and amortized over a 5-year period per the Federal tax code in effect as of December 31, 2024.

Interest Expense Limitation

Interest expense limitations required under the 2024 federal rules will continue to be applied for State of Michigan income tax purposes in 2025.  These rules were amended by OBBBA to again allow an addback to taxable income for depreciation, amortization, and depletion as previously allowed in 2021. Michigan will not allow these addbacks, and therefore, 163j limitations will have to be calculated independently for both Federal and Michigan income tax. 

Qualified TIPS

For 2025 through 2029, the State of Michigan will allow a deduction for Qualified TIPS deducted for federal income tax purposes as created under the OBBBA.

Qualified Over-time Wages

For 2025 through 2029, the State of Michigan will allow a deduction for Qualified Overtime wages deducted for federal income tax purposes as created under the OBBBA.

MI Flow Through Entity Tax

Taxpayers who have elected into the MI Flow Through Entity Tax regime should review their tax estimates for 2025, and potentially increase their Q4 estimate if they were planning on deducting the additional expenses listed above under the OBBBA for federal income tax purposes.  These deductions must be added back before calculating the tax due under the MI Flow Through Entity Tax Regime, and could substantially increase the tax due for 2025.

Time to reassess

Corporations, sole proprietors, and owners of pass-through businesses will be affected by the above rule changes.  Given all of these and other federal tax law changes, now is a good time to review your tax situation and update your tax planning strategies. Turn to us to help you take full advantage of the new — or reduced— tax breaks.

Why Start-ups should Consider Launching as S corporations

Launching a new business brings tough decisions. And that holds true whether you’re a fledgling entrepreneur starting your first company or an experienced businessperson expanding into a second or third enterprise.

Among the most important calls you’ll need to make is how to structure the start-up for tax purposes. For many business owners, electing S corporation status is a savvy move. But it’s not right for everyone. Here are some important points to consider before you decide.

What’s it all about?

An S corporation is a tax election available only to certain U.S. companies. To make the election, you’ll need to file IRS Form 2553, “Election by a Small Business Corporation,” typically within 75 days of forming the business or the start of the tax year to which you want the election to apply.

If you elect S corporation status, the IRS will treat your start-up as a “pass-through” entity. This means the business generally won’t pay federal income taxes. Instead, profits and losses will pass through to your individual tax return and those of other shareholders.

As a result, you’ll avoid the “double taxation” faced by shareholders of C corporations — whereby the company pays taxes on the business’s income and then shareholders pay tax on any dividends received. In addition, S corporation shareholders may be eligible for the Section 199A qualified business income deduction for pass-through entity owners. It was recently made permanent under the One Big Beautiful Bill Act.

Which businesses qualify?

IRS rules limit which companies can elect S corporation status. To qualify, your start-up must:

• Be an eligible domestic corporation or limited liability company (LLC),

• Have no more than 100 shareholders who must be U.S. citizens or residents (certain trusts and estates may also be eligible), and

• Offer only one class of stock.

Insurance companies, financial institutions using the reserve method of accounting and domestic international sales corporations are generally ineligible.

Why do it?

As mentioned above, the main advantage of electing S corporation vs. C corporation status is avoiding double taxation. But there are other reasons to do it.

For example, many start-ups incur losses in their first few years. S corporation status allows owners to offset other income with those losses, a tax benefit that’s unavailable to C corporation shareholders.

S corporations also have advantages over other types of pass-through entities. Generally, all trade or business income that flows through to sole proprietors and partners in partnerships is subject to self-employment taxes — even if the income isn’t actually distributed to the owners. S corporations can divide their income into shareholder-employee salaries and distributions. The salary portion is subject to payroll taxes, but distributions aren’t. So, by drawing a smaller salary (but one that’s reasonable in the eyes of the IRS) and taking the remainder as distributions, S corporation shareholder-employees can reduce their overall tax burden.

Liability protection is another advantage S corporations have over sole proprietorships and partnerships. S corporation status shields shareholders’ personal assets from business debts and legal claims, provided applicable rules are followed. Operating as an S corporation can also make your new business appear more credible to lenders, investors and customers because of its formalized, protective framework.

What are the drawbacks?

Electing to be treated as an S corporation has its drawbacks. Your start-up will have to follow strict IRS rules, which include keeping up with filing requirements and maintaining accurate financial records. Failure to comply could lead to back taxes, interest and penalties. It could even mean losing your S corporation status in a worst-case scenario.

Indeed, S corporations tend to incur higher administrative expenses than other pass-through entities. You’ll need to file corporate tax returns and meet state-level requirements. The extra complexity may outweigh the tax advantages — especially for newly launched companies with little to no profits.

Finally, it bears repeating: Although the salary/distributions income-splitting strategy mentioned above is advantageous, it can draw IRS scrutiny. Paying shareholder-employees an unreasonably low salary to avoid payroll taxes could trigger an audit with negative consequences.

Who can help?

Congratulations and best wishes on your forthcoming start-up! Electing S corporation status may be the right way to go. However, you’ll need to assess a wide variety of factors, including projected profits, the number of shareholders and your comfort level with the administrative requirements.

Before you do anything, contact us. FMD can help you evaluate whether operating as an S corporation aligns with your strategic and financial goals. If it does, we’d be happy to assist you with the filing process and compliance going forward.

Feeling Charitable? Be Sure you can Substantiate Your Gifts

As the end of the year approaches, many people give more thought to supporting their favorite charities. If you’re charitably inclined and you itemize deductions, you may be entitled to deduct your charitable donations. Note that the key word here is “may” because there are certain limitations and requirements your donations must meet.

To be eligible to claim valuable charitable deductions, you must substantiate your gifts with specific documentation. Here’s a breakdown of the rules.

Cash donations

Cash donations of any amount must be supported by one of two types of documents that display the charity’s name, the contribution date and the amount:

1. Bank records. These can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements.

2. Written communication. This can be in the form of a letter or email from the charity. A blank pledge card furnished by the charity isn’t sufficient.

In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgement (CWA) from the charity that details the following:

• The contribution amount, and

• A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.

A single document can meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.

If you make charitable donations via payroll deductions, you can substantiate them with a combination of an employer-provided document — such as Form W-2 or a pay stub — that shows the amount withheld and paid to the charity, and a pledge card or similar document prepared by or at the direction of the charity showing the charity’s name.

For a donation of $250 or more by payroll deduction, the pledge card or other document must also state that the charity doesn’t provide any goods or services in consideration for the donation.

Noncash donations

If your noncash donation is less than $250, you can substantiate it with a receipt from the charity showing the charity’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements, depending on the size of the donation:

• Donations of $250 to $500 require a CWA.

• Donations over $500, but not more than $5,000, require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property, its fair market value and the method of determining that value.

• Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and file Section B of Form 8283 (signed by the appraiser and the charity). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or if any donation is valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.

Additional rules may apply for certain types of property, such as vehicles, clothing and household items, and privately held securities.

Charitable giving in 2026

Generally, charitable donations to qualified organizations are fully deductible up to certain adjusted gross income (AGI)-based limits if you itemize deductions. The One Big Beautiful Bill Act (OBBBA) creates a nonitemizer charitable deduction of up to $1,000, or $2,000 for joint filers, which goes into effect in 2026. Only cash donations qualify.

Also beginning in 2026, a 0.5% floor will apply to itemized charitable deductions. This generally means that only charitable donations in excess of 0.5% of your AGI will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible. Contact us for help developing a charitable giving strategy that aligns with the new rules under the OBBBA and times your gifts for maximum impact.

Make charitable gifts for the right reasons

For most people, saving taxes isn’t the primary motivator for making charitable donations. However, it may affect the amount you can afford to give. Substantiate your donations to ensure you can claim the deductions you deserve. If you’re unsure whether you’ve properly substantiated your charitable donation, contact FMD.

Year-end Budgeting: Where to Look for Cost-Saving Opportunities

As 2025 winds down, business owners and managers are ramping up their planning efforts for the new year. Part of the annual budgeting process is identifying ways to lower expenses and strengthen cash flow. When cutting costs, think beyond the obvious, such as wages, benefits and employee headcount. These cutbacks can make it harder to attract and retain skilled workers in today’s challenging labor market, potentially compromising work quality and productivity. Here are three creative ideas to help boost your company’s bottom line — without sacrificing its top line.

1. Analyze your vendors

Many companies find that just a few suppliers account for most of their spending. Identify your key vendors and consolidate spending with them. Doing so can strengthen your position to negotiate volume discounts. Consolidating your supplier base also helps streamline the administrative work associated with purchasing.

Early payment discounts can be another cost-saving opportunity. Some vendors may offer a discount (typically, 2% to 5%) to customers who pay invoices before they’re due. These discounts can provide significant savings over the long run. But you’ll need to have enough cash on hand to take advantage.

On a related note, how well do you know your suppliers? Consider conducting a supplier audit. This is a formal process for collecting key data points regarding a supplier’s performance. It can help you manage quality control and ensure you’re getting an acceptable return on investment.

2. Cut energy consumption

Going green isn’t just good for the environment. Under the right circumstances, it can save you money, too. For instance, research energy-efficient HVAC and lighting systems, equipment, and vehicles. Naturally, investing in such upgrades will cost money initially. But you may be able to lower energy costs over the long term.

What’s more, you might qualify for tax credits for installing certain items. However, pay attention to when green tax breaks are scheduled to expire. The One Big Beautiful Bill Act, enacted in July, accelerates the expiration of several clean energy tax incentives available under the Inflation Reduction Act.

3. Consider outsourcing

Businesses might try to cut costs by doing everything in-house — from accounting to payroll to HR. However, without adequate staffing and expertise, these companies often suffer losses because of mistakes and mismanagement.

External providers typically have specialized expertise and tools that are costly to replicate internally. For example, many organizations outsource payroll management, which requires an in-depth understanding of evolving labor laws and payroll tax rates. Outsourcing payroll can help reduce errors, save software costs and relieve headaches for your staff. Other services to consider outsourcing include administrative work, billing and collections, IT, and bookkeeping.

Outsourcing is often less expensive than performing these tasks in-house, especially when you factor in employee benefits costs. But you shouldn’t sacrifice quality or convenience. Vet external providers carefully to ensure you’ll receive the expertise, attention to detail and accuracy your situation requires.

Every dollar counts

As you finalize next year’s budget, treat cost control as a strategic exercise — not a blunt cut. Let’s discuss ways to prioritize cost-cutting measures with the biggest payback. We can help you model cash-flow impacts, verify tax treatment and incentives, and evaluate outsourcing options. Contact FMD to learn more.

Designing the Right Bonus Plan for Your Business

Today’s employees have a wealth of information at their fingertips and many distractions competing for their attention. Maintaining focus and productivity can be challenging.

One proven lever for promoting engagement is a performance-based bonus plan. When carefully structured, these plans acknowledge individual contributions while accelerating the company toward its strategic goals. However, if not optimally designed, bonuses can backfire — feeding worker frustration and wasting resources. That’s why the right approach is essential.

What are the goals?

The first step in creating an effective employee bonus plan is to set specific and reasonable strategic goals that inspire employees and improve your business’s financial performance. They should be tied to metrics that describe intended operational improvements, such as:

• Increased sales or profits,

• Enhanced customer retention, or

• Reduced waste.

Structure the bonus plan so that staff members’ priorities and performance goals align with the company’s strategic goals, as well as the purpose of their respective positions. Employee goals must also be specific and measurable. You may allow some workers to set “stretch” goals that require them to exceed normally expected performance levels. But don’t permit anything so difficult that an employee will likely get discouraged and give up.

It often makes sense to also set departmental goals. This way, team members can better see how their work, both individually and as a group, propels progress toward company goals. For example, the bonuses of assembly line workers at a manufacturing plant could be tied to limiting unit rejects to no more than 1%. This, in turn, would directly relate to the business’s strategic goal of reducing overall waste by 5%.

How can you do it right?

A well-structured bonus plan should do more than set employees on a “side quest” to earn more money. Ideally, it needs to educate and inspire them to think more like business owners seeking to grow the company rather than workers earning a paycheck.

For starters, keep it simple. Sometimes, bonus plans get so complicated that employees struggle to understand what they must do to receive their awards. Design a straightforward plan that clearly explains all the details. Write it in plain language so both leadership and staff have something to refer to if confusion arises.

Also, seek balance when calculating bonus amounts. This can be tricky: A bonus that’s too small won’t provide adequate motivation, while an amount that’s too large could cause cash flow issues or even jeopardize the bottom line. Many businesses structure their incentive arrangements as profit-sharing plans, so payouts are based directly on the company’s profitability.

Make the plan flexible, too, by adjusting it as business conditions change. For instance, you might tweak your bonus plan when you update your company’s strategic goals at year end. But don’t set goals that are too open-ended. Measure both strategic and individual goals on a consistent schedule with firm starting and ending dates. Companies generally track goals quarterly or annually.

Finally, consider allowing the highest achievers to reap the biggest rewards. In many businesses, salespeople have the biggest impact on the company’s overall performance. If that’s the case for your business, perhaps your sales team should be able to earn the highest amounts.

Who can help?

A thoughtfully designed bonus plan can align employee efforts with company priorities while supporting long-term growth. Let FMD help you create one that motivates employees, safeguards your bottom line, and keeps your business in full compliance with the tax and accounting rules.

How often should your Business Issue Financial Statements?

For decades, quarterly financial reporting has provided the cornerstone for fair, efficient and well-functioning markets. However, President Trump recently posted on social media that public companies should move to semiannual financial reporting. He believes changing the frequency would lower compliance costs and allow management to focus less on meeting short-term earnings targets and more on building long-term value. But critics say less frequent reporting could result in information gaps and increased market volatility.

While no changes have been made to the U.S. Securities and Exchange Commission’s (SEC’s) filing requirements, Trump’s statement reignites the debate over how often companies should issue their financials. While his post centered on public companies, reporting frequency can also be an important issue for private companies, particularly in today’s uncertain markets.

From Wall Street to Main Street

The SEC requires public companies to file annual reports on Form 10-K and quarterly reports on Form 10-Q on an ongoing basis. The quarterly requirement, in place since 1970, was designed to promote transparency and strengthen investor confidence.

Private companies aren’t required to follow SEC rules, so most issue financial statements only at year end. More frequent reporting is usually discretionary, but it can sometimes be a smart idea. For example, a large private business might decide to issue quarterly statements if it’s considering a public offering or thinking about merging with a public company. Or a business that’s in violation of its loan covenants or otherwise experiencing financial distress may decide to (or be required to) issue more frequent reports.

Midyear assessment

Financial statements present a company’s financial condition at one point in time. When companies report only year-end results, investors, lenders and other stakeholders are left in the dark until the next year. Sometimes, they may want more frequent “snapshots” of financial performance.

Whether quarterly, semiannual or monthly, interim financial statements can provide advanced notice of financial distress due to the loss of a major customer, significant uncollectible accounts receivable, fraud or other circumstances. They also might confirm that a turnaround plan appears successful or that a start-up has finally achieved profits.

Management can benefit from interim reporting, too. Benchmarking interim reports against the same period from the prior year (or against budgeted figures) can help ensure your company meets its financial goals for the year. If your company is underperforming, it may call for corrective measures to improve cash flow and/or updated financial forecasts.

Quality matters

While interim reporting may provide some insight into a company’s year-to-date performance, it’s important to understand the potential shortcomings of these reports. This can help minimize the risk of year-end surprises.

First, unless an outside accounting firm reviews or audits your interim statements, the amounts reported may not conform to U.S. Generally Accepted Accounting Principles (GAAP). Absent external oversight, they may contain mistakes and unverified balances and exclude adjustments for accounting estimates, missing transactions and footnote disclosures. Moreover, leaders with negative news to report may be tempted to artificially inflate revenue and profits in interim reports.

When reviewing interim reports, outside stakeholders may ask questions to assess the skills of accounting personnel and the adequacy of year-to-date accounting procedures. Some may even inquire about the journal entries external auditors made to adjust last year’s preliminary numbers to the final results. This provides insight into potential adjustments that would be needed to make the interim numbers conform to GAAP. Journal entries often recur annually, so a list of adjusting journal entries can help identify which accounts your controller or CFO has the best handle on.

In addition, interim reporting can sometimes be misleading for seasonal businesses. For example, if your business experiences operating peaks and troughs throughout the year, you can’t multiply quarterly profits by four to reliably predict year-end performance. For seasonal operations, it might make more sense to compare last year’s monthly (or quarterly) results to the current year-to-date numbers.

Digging deeper

If interim statements reveal irregularities, stakeholders might ask your company to hire a CPA firm to conduct agreed-upon procedures. These procedures target high-risk account balances or those previously adjusted by auditors.

Agreed-upon procedures engagements may give your stakeholders greater confidence in your interim results. For instance, agreed-upon procedures reports can help identify sources for any irregularities, evaluate your company’s ability to service debt and address concerns that management could be cooking the books.

Find your reporting rhythm

Currently, public companies must issue financial reports each quarter. However, private companies generally have more discretion over how often they issue reports and the level of assurance provided. What’s appropriate for your situation depends on various factors, including your company’s resources, management’s needs and the expectations of outside stakeholders. Contact FMD for more information about reporting interim results, evaluating midyear concerns and conducting agreed-upon procedures.

Is your Company’s Pricing Strategy still Viable?

Pricing is among the most powerful levers for business owners to calibrate their companies’ profitability. Set prices too low and you risk leaving money on the table. Set them too high and customers may pass you by for cheaper competitors.

Your continuous objective should be to find that sweet spot where prices are competitive while supporting your profit margins and long-term growth. Trouble is, that sweet spot tends to move around a lot — so you must regularly reevaluate your pricing strategy.

Crunching the numbers

To get started, crunch some numbers. Use your financial statements to determine whether your current prices cover both direct costs (such as labor and materials) and indirect costs (such as overhead and administrative expenses).

Monitoring costs is critical — especially given today’s economic volatility. Rising expenses related to suppliers, vendors or labor can quickly erode margins if prices remain static. Regularly reviewing the relationship between expenses and pricing helps ensure adjustments are proactive rather than reactive.

Another useful step is calculating your breakeven point. This metric tells you how many units you must sell at a given price to cover all costs without incurring a loss. Sales beyond the breakeven point will generate a profit. It’s a good starting point for assessing whether current sales volumes align with your existing pricing strategy.

Also, benchmark pricing in relation to your industry and market. Monitor what competitors are charging and compare their prices to yours. A major differential, whether higher or lower, could hurt sales and your business’s reputation if you can’t reasonably rationalize the difference.

Listening to customers

Negative customer behavior is another indication that your pricing strategy may be suboptimal. Are customers constantly pushing back on price, whether during the sales process or when interacting with customer service? If so, you might want to modulate prices slightly lower. On the other hand, if sales are flowing through the pipeline unusually fast, with little resistance, it could mean your prices are too low.

Consider customer segmentation as well. This is a process by which you divide your customer base into smaller groups with common characteristics, allowing you to tailor pricing to each group. For example, some customers might be willing to pay a premium for faster service or customized solutions. Customer segmentation can provide cleaner, more useful data that fuels better decision-making.

Adjusting cautiously

If a thorough analysis reveals your profit margins are too thin, you may want to raise prices. But proceed with caution. Perhaps increase the price of one or two strong sellers and closely monitor the impact. If sales remain steady, you’re probably on the right track — remember, even a subtle price increase can boost profitability. Conversely, if sales suffer, you may need to rethink your pricing strategy.

When raising prices, it’s imperative to communicate clearly with customers. Explain why you’re doing it in plain language, focusing on value. Highlight what makes your business different and better than the competition in areas such as quality, expertise and service. Customers are often willing to pay more provided they understand the value they’re getting for their money.

Of course, there may also be instances when you choose to lower prices — perhaps for a limited time or even indefinitely. In such cases, customer communication is equally important. More than likely, you’ll want to “shout from the rooftops” that you’re lowering prices. Develop a marketing initiative that effectively communicates this message while covering the details.

Getting some help

In today’s roller coaster economy, a viable pricing strategy requires ongoing analysis. Regularly review your margins, assess the market, and align prices with your business’s strategic objectives and customer values. Interested in some objective guidance? FMD can help you analyze costs, apply the right metrics and optimize prices based on current market dynamics.

Don’t Let Beneficiary Designations Thwart your Estate Plan

For many individuals, certain assets bypass their wills or trusts and are transferred directly to loved ones through beneficiary designations. These nonprobate assets may include IRAs and certain employer-sponsored retirement accounts, life insurance policies, and some bank and brokerage accounts. This means that if you aren’t careful with your beneficiary designations, some of your assets might not be distributed as you expected. Not only does this undermine your intentions, but it can also create unnecessary conflict and hardship among surviving family members.

3 steps

Here are three steps to help ensure your beneficiary designations will align with your estate planning goals:

1. Name a primary beneficiary and a contingent beneficiary. Without a contingent beneficiary for an asset, if the primary beneficiary dies before you — and you don’t designate another beneficiary before you die — the asset will end up in your general estate and may not be distributed as you intended. In addition, certain assets are protected from your creditors, which wouldn’t apply if they were transferred to your estate. To ensure that you control the ultimate disposition of your wealth and protect that wealth from creditors, name both primary and contingent beneficiaries and don’t name your estate as a beneficiary.

2. Reconsider beneficiaries to reflect changing circumstances. Designating a beneficiary isn’t a “set it and forget it” activity. Failure to update beneficiary designations to reflect changing circumstances creates a risk that you’ll inadvertently leave assets to someone you didn’t intend to benefit, such as an ex-spouse.

It’s also important to update your designation if the primary beneficiary dies, especially if there’s no contingent beneficiary or if the contingent beneficiary is a minor. Suppose, for example, that you name your spouse as the primary beneficiary of a life insurance policy and name your minor child as the contingent beneficiary. If your spouse dies while your child is still a minor, it may be advisable to name a new primary beneficiary — such as a trust — to avoid the complications associated with leaving assets to a minor (court-appointed guardianship, etc.). Note that there are many nuances to consider when deciding to name a trust as a beneficiary.

3. Take government benefits into account. If a loved one depends on Medicaid or other government benefits — for example, a disabled child — naming that person as primary beneficiary of a retirement account or other asset may render him or her ineligible for those benefits. A better approach may be to establish a special needs trust for your loved one and name the trust as beneficiary.

Avoiding unintentional outcomes

Not paying proper attention to beneficiary designations can also expose your estate to costly delays and legal disputes. If a listed beneficiary is no longer living, or if a designation is vague or incomplete, an asset may have to go through probate, which defeats the purpose of naming beneficiaries in the first place.

This can increase expenses, delay distributions and create stress for your family during an already difficult time. Carefully making beneficiary designations and regularly reviewing and updating them helps ensure your asset distributions align with your current wishes, helps prevent disputes, and helps protect your family from unintended financial complications. Contact FMD with questions regarding your estate plan.

What Every Business Owner Should Know About Data Hygiene

When you read the word “hygiene,” you may immediately think about the importance of washing your hands or brushing your teeth. But there’s another use of the term that every business owner should know: data hygiene.

This refers to the ongoing process of ensuring that the information your company relies on is accurate, complete, consistent and up to date. Whether customer contact info, financial records or vendor agreements, data that isn’t wholly clean puts your business at risk of making poor decisions and costly mistakes.

Specific harms

How can dirty data harm your company? For starters, inaccurate or outdated information can lead to billing mistakes and delays, ineffective marketing campaigns, missed or mishandled sales opportunities, and compliance troubles. When employees must constantly question the validity of data and fix errors, productivity falls and costs rise. Over time, lack of reliable information can erode trust with customers, vendors, lenders and investors — all while lowering staff morale.

And now that many businesses widely use artificial intelligence (AI), there’s a cybersecurity angle. Among the many threats currently evolving is “data poisoning.” It occurs when bad actors, either internal or external, intentionally corrupt the information that an AI model relies on to operate. The objective is to manipulate the model’s behavior by introducing malicious, biased or inaccurate data during the “training phase.” Without strong data hygiene safeguards in place, these cyberattacks can compromise an AI system and ruin the reputation of the company using it.

Best practices

The good news is your business can significantly improve its data hygiene by adhering to certain best practices. Begin by setting clear standards for data entry. Employees should input information the same way every time, according to a well-defined process. Train staff members on the definition and importance of data hygiene. Ask them to routinely verify critical details related to financial transactions, such as customer contact info and vendor payment instructions.

From a broader perspective, set up regular audits of your databases to remove duplicate items, catch and correct inaccuracies, and archive outdated information. Consider investing in software tools that flag inconsistencies and prompt updates to key systems.

Above all, assign the responsibility to promote and oversee data hygiene to someone within your company. If you run a small business, you may have to do it. But many companies assign this job duty to the chief data officer or data quality manager.

Financial performance benefits

Robust data hygiene can translate directly to stronger financial performance. As the accuracy and reliability of information are continuously improved, your company will be able to generate more dependable financial records and reports. In turn, you’ll have the tools to make better-informed decisions about budgeting, cash flow management and strategic planning. Clean data benefits sales and marketing as well. For example, it helps you target the right audience, reducing wasted efforts and improving return on investment.

Of course, there are costs associated with data hygiene. You’ll likely have to spend money on software, training, and potentially engaging consultants to audit your systems and upgrade your technological infrastructure. However, handled carefully, such costs will probably be far less than those associated with lost sales, compliance penalties and reputational damage.

More important than ever

Data hygiene may not be top of mind for business owners dealing with hectic schedules and complex operational challenges. However, the quality and quantity of information are critical to running a competitive company in today’s fast-paced, data-driven economy. FMD can help you and your leadership team understand the cost implications of data hygiene and budget for it appropriately.

IRS Releases Guidance on Changes to R&E Expensing

Among its numerous tax provisions, the One Big Beautiful Bill Act (OBBBA) reinstated immediate deductions for research and experimental (R&E) expenditures under Internal Revenue Code Section 174, beginning in 2025. The IRS has recently issued transitional guidance (Revenue Procedure 2025-28) on how this change will be implemented.

The guidance addresses several critical issues. Here’s what businesses of all sizes need to know.

The reinstatement

R&E expenditures generally refer to research and development costs in the experimental or laboratory sense. They include costs related to activities intended to discover information that would eliminate uncertainty about the development or improvement of a product.

Since 2022, the Tax Cuts and Jobs Act (TCJA) has required businesses to amortize domestic R&E costs over five years, with foreign costs amortized over 15 years. The OBBBA permanently reinstates the pre-TCJA treatment of domestic R&E costs, allowing their deduction for expenses incurred or paid in tax years beginning after 2024.

The OBBBA also permits small businesses that satisfy a gross receipts test to claim the R&E deduction retroactively to 2022. (For 2025, average annual gross receipts for the previous three years must be $31 million or less.) And any business that incurred domestic R&E expenses in 2022 through 2024 may elect to accelerate the remaining deductions for those expenditures over either a one- or two-year period.

The immediate deduction of qualified R&E expenses isn’t mandatory. Depending on a variety of factors, in some situations, claiming it may not be advisable. Taxpayers generally can instead elect to capitalize and amortize such expenses paid in a tax year after 2024 over at least 60 months. The election must be made by the due date, with extensions, of the original tax return for the first tax year to which the election applies. For 2025, a taxpayer that makes an accounting method change to capitalize and amortize R&E expenses will be deemed to have made the election.

Retroactive deductions for small businesses

As noted, eligible small businesses can elect to treat the changes to Sec. 174 as if they took effect for tax years beginning after 2021, rather than after 2024. How to do this depends in part on whether the taxpayer has already filed a 2024 tax return.

If the taxpayer filed a 2024 return before August 28, 2025, an automatic extension to supersede that return to include the new guidance is available. However, the taxpayer must file that replacement return by the extended deadline (typically September 15 or October 15). Alternatively, the taxpayer can file an amended 2024 return, following one of the two options discussed below.

If the taxpayer didn’t file a 2024 return by August 28, the taxpayer can file by the applicable extended deadline and either:

1. Elect to expense eligible R&E expenses under the new guidance, which would also require filing amended returns for 2022 and 2023, or

2. Do an automatic method of accounting change and a “true-up” adjustment on the 2024 return for the 2022 and 2023 R&E expenses.

Elections must be made by the earlier of July 6, 2026, or the applicable deadline for filing a claim for a credit or refund for the tax year (generally, three years from filing the return).

Accelerated deductions for all businesses

Businesses with unamortized domestic R&E expenses under the TCJA can elect to fully recover those remaining expenses on their 2025 income tax returns or over their 2025 and 2026 returns.

Notably, the IRS guidance states that taxpayers “may elect to amortize any remaining unamortized amount” of such expenses. This language suggests that the deduction will be considered an amortization expense. This is significant in light of changes the OBBBA made to the business interest expense deduction.

The business interest deduction generally is limited to 30% of the taxpayer’s adjusted taxable income (ATI). (Taxpayers that meet the same annual gross receipts test discussed earlier are exempt from the limitation.) Under the OBBBA, beginning in 2025, ATI for purposes of the interest deduction is calculated without deductions for depreciation, amortization or depletion. So amortization deductions are “added back,” potentially increasing the ATI and the allowable business interest deduction. If R&E expenses aren’t treated as an amortization deduction, they could reduce the allowable business interest deduction.

The interplay with the research credit

The Sec. 41 research tax credit is also available for certain research-related expenses, and you can’t claim both the credit and the deduction for the same expense. A tax deduction reduces the amount of income that’s taxed, while a tax credit reduces the actual tax you owe dollar-for-dollar, providing much more tax savings than a deduction of an equal amount. But the types of expenses that qualify for the credit are narrower than those that qualify for the deduction.

The OBBBA changes a TCJA provision so that the amount deducted or charged to a capital account for research expenses is reduced by the full amount of the research credit, as opposed to being subject to a more complex calculation that had been in effect under the TCJA. The amount that’s capitalized is reduced by the amount of the credit claimed. For example, suppose the allowed credit is $20,000. The capitalized amount for the year would be reduced by $20,000.

The OBBBA continues, however, to allow taxpayers to elect to take a reduced research credit, rather than reducing their R&E deduction. The OBBBA also allows certain small businesses (generally determined by the gross receipts test mentioned above) to make late elections to reduce their research credit — or to revoke prior elections to reduce the credit. The late elections generally are available for tax years for which the original return was filed before September 15, 2025, and must be made by the earlier of July 6, 2026, or the deadline for filing a claim for a credit or refund for the tax year, on an amended return or an administrative adjustment request (AAR).

Reduced uncertainty

The IRS guidance also provides automatic IRS consent to applications to change accounting methods for domestic R&E expenses under the TCJA, the OBBBA, the small business retroactive method and the recovery of unamortized method — reducing uncertainty. FMD can help address any questions you have about the tax treatment of R&E expenses.

Intrafamily Loans Must be Handled with Care

Is one of your top estate planning goals to provide your family with financial security at the lowest tax cost? Strategies to consider include making gifts during your lifetime or bequests at death, or creating trusts and naming your loved ones as beneficiaries.

You could also make an intrafamily loan. This type of loan — where one family member lends money to another — can be an effective way to transfer wealth, provide financial support or assist with major purchases, such as a first home or a business startup. However, this strategy isn’t without drawbacks.

Why choose one?

A key benefit is flexibility. Families can often offer better loan terms than banks, such as lower interest rates, more forgiving repayment schedules and fewer fees. Intrafamily loans also keep money within the family rather than paying interest to outside lenders, which can help preserve family wealth. In addition, when properly structured, these loans can serve as a tax-efficient way to transfer money while still requiring accountability from the borrower.

From a tax perspective, intrafamily loans allow you to transfer wealth tax-free. Here’s how it works: When you make a loan to a family member, charge interest at the applicable federal rate (AFR). (Charging no interest or interest below the AFR can lead to unwelcome tax surprises.) To the extent that the borrower earns returns on the funds in excess of the interest payments on the loan (by investing them in a business opportunity, for example), the borrower pockets those earnings free of gift and estate tax.

Note that an intrafamily loan doesn’t enable the lender to avoid gift and estate tax on the loan principal itself. The outstanding balance is included in the lender’s taxable estate, even if the lender dies before the loan is paid off. In that case, either the borrower will be obligated to repay the loan to the estate, or, if the loan terms call for it to be forgiven on the lender’s death, that forgiveness will be treated as a taxable transfer.

Will the IRS treat it as a gift or loan?

To enjoy the benefits of an intrafamily loan, it’s critical to treat the transaction as a legitimate loan. Otherwise, the IRS may determine that it’s a disguised gift, which can trigger negative tax consequences (assuming you’re subject to gift and estate taxes). Generally, the IRS presumes intrafamily transactions are gifts. So, to ensure that a loan is treated as a loan, you must take steps to demonstrate that you and the borrower have a bona fide creditor-debtor relationship.

To decide whether a transfer of funds is a loan or a gift, the IRS and courts consider the “Miller” factors. A transfer is more likely to be treated as a loan if:

• There was a promissory note or other evidence of indebtedness,

• Interest was charged,

• There was security or collateral,

• There was a fixed maturity date,

• A demand for repayment was made,

• Actual repayment was made,

• The transferee had the ability to repay,

• The parties maintained records treating the transaction as a loan, and

• The parties treated the transaction as a loan for federal tax purposes.

These factors aren’t exclusive. Additionally, the courts generally consider an actual expectation of repayment and intent to enforce the debt as crucial to determining whether a transfer constitutes a loan.

What are the drawbacks?

Although an intrafamily loan can be a helpful tool, families should carefully weigh the financial and emotional risks before proceeding. A significant risk is personal — mixing money with family relationships can create tension. If a borrower struggles to repay, the lender may feel taken advantage of, while the borrower may feel pressure or resentment.

If you’re considering making intrafamily loans, it’s important to observe the formalities associated with bona fide loans to ensure the desired tax treatment. Contact FMD for additional details.

Occupational Fraud Still Affects Many Businesses

The more things change, the more they stay the same. This age-old saying applies to many things, and one of them is fraud perpetrated against businesses by their employees.

In fact, occupational fraud cost organizations about 5% of their revenue on average last year, according to the Association of Certified Fraud Examiners’ Occupational Fraud 2024: A Report to the Nations. Let’s review its three basic categories.

Misappropriating assets

The first category is asset misappropriation. It comprises theft or misuse of any business asset, but related schemes often involve cash. These types of scams are the most common type of occupational fraud, though they’re typically less costly than crimes committed under the other two categories.

One classic example is the “ghost” employee ploy, where a staff member with payroll access channels funds to a nonexistent worker. Naturally, those funds end up in the real employee’s pocket.

There are plenty of others. Asset misappropriation has long involved check tampering, whereby an employee steals, forges or alters company checks to reap ill-gotten financial rewards. Now that midsize and larger businesses rely more on electronic transactions, these companies are relatively less susceptible to check schemes. However, many small companies are still at risk.

If you run a cash-intensive business, be on the lookout for dishonest workers skimming funds before they’re recorded. And if your company maintains inventory or supplies, safeguard these carefully to avoid theft.

Engaging in corrupt activities

The second category of occupational fraud is corruption. Dishonest employees in positions of influence may commit crimes for personal gain and the company’s loss. These types of schemes are rarely simple and may go on for months — or even years — without anyone noticing.

For instance, a corrupt staffer may work with a vendor rep to inflate prices on the vendor’s goods and services. The two then split the difference when the business pays the bill. Collusion like this can hurt your company’s financial performance and business reputation. Leadership teams that fail to prevent such schemes risk losing the confidence and support of lenders and investors.

Don’t ignore the possibility of kickback schemes either. Here, a person of influence in the company uses a vendor or other provider, not because they’re the best choice, but because the employee involved gets a personal benefit. Examples might include cash, a valuable gift or free services.

Falsifying financial statements

The third category is financial statement fraud. In these schemes, perpetrators falsify financial statements to either hide poor performance or commit outright theft. On the upside, this category is generally the least prevalent of the three. The downside? It’s often the costliest — with such crimes costing companies many hundreds of thousands of dollars on average.

One example to watch out for is inflated revenue. A manager, perhaps angling for a promotion or fearful of termination, records sales that never actually occurred to make the business appear more profitable. On a similar tack, a dishonest employee may hide or delay recording legitimate expenses or debts to make financial results look stronger.

Fraudulent manipulation of financial statements can be particularly dangerous. These crimes are often sophisticated, hard to detect and damaging to a company’s reputation at the highest levels.

Common thread

As you can see, occupational fraud can take many forms. But the common thread is the financial and reputational damage to affected businesses. And the threat level is often higher for smaller companies because they may have fewer resources to fight back. Let FMD help you spot vulnerabilities in your operations, strengthen internal controls, and devise tailored fraud prevention and detection strategies.

A Quiet Trust Has its Benefits, but an Incentive Trust may be a Better Option

When it comes to estate planning, one of the more nuanced tools available is a quiet trust (also known as a “silent” trust). Unlike a traditional trust, a quiet trust keeps beneficiaries — often children or young adults — in the dark about its existence or details until they reach a certain age or milestone.

Many states permit quiet trusts, but these trusts have both positives and negatives. Depending on the situation, an incentive trust may be a better way to achieve your goals.

The pros

One of the biggest benefits of using a quiet trust is that it helps preserve ambition and independence. If your heirs know too early about a significant inheritance, they may lose motivation to pursue educational goals or build a career. By keeping the details private, you give them the chance to grow independently.

Quiet trusts can also reduce family conflict during your lifetime, especially if distributions are unequal or come with specific conditions. In addition, secrecy offers protection from outside pressures — such as creditors, estranged spouses or opportunistic friends — and allows time for heirs to develop the maturity needed to manage wealth responsibly.

The cons

Quiet trusts aren’t without drawbacks. Some beneficiaries may feel resentful when they eventually discover that assets were withheld from them. This secrecy can also increase the risk of legal challenges once the trust is revealed.

By keeping heirs uninformed, you also may unintentionally deprive them of valuable opportunities. For example, they might forego graduate school because they don’t want to take on student loan debt that could take decades to pay back when, in fact, the trust would eventually allow them to pay off the loan more quickly. (Or current access to the money could allow them to avoid student loan debt altogether.) And because trustees must administer the trust without beneficiary input, their decisions could later be questioned, adding tension at an already difficult time.

Another option

The idea behind a quiet trust is to avoid disincentives to responsible behavior. But it’s not clear that such a trust will actually accomplish that goal. A different approach is to design a trust that provides incentives for responsible behavior.

For example, an incentive trust might condition distributions on behavior you wish to encourage, such as obtaining a college or graduate degree, maintaining gainful employment, or pursuing worthy volunteer activities. Or it could require getting treatment for alcohol or substance abuse and maintaining a sober lifestyle.

One drawback to setting specific goals is that it may penalize a beneficiary who chooses a different, but responsible, life choice — a stay-at-home parent, for example. To build some flexibility into the trust, you might establish general principles for distributing trust funds to beneficiaries who behave responsibly but give the trustee broad discretion to apply these principles on a case-by-case basis.

Finding the right balance

A quiet trust can be a powerful way to encourage independence and protect your heirs, but it requires careful planning. Many families find success in combining secrecy with a gradual disclosure strategy — sharing information at key milestones or leaving behind a written explanation to reduce confusion and conflict.

Every family is different, and the decision to use a quiet trust or an incentive trust should be based on your goals, values and relationships. FMD can help you weigh the pros and cons and structure your plan in a way that best protects your family and your legacy.

Businesses Strive for Balance in Hybrid Work Models

If your business allows employees to perform their jobs under a hybrid work model, it’s not alone. Ever since the pandemic, many companies have sought to strike a balance between permitting some remote work while also requiring staff to come into the office (or another type of facility).

Data released this year shows that, by and large, businesses seem to have found a certain equilibrium regarding hybrid work. However, maintaining the right balance for your company will require a careful eye going forward.

Schedule control

Just this month, Gallup published survey results showing that, as of May 2025, 51% of remote-capable employees in the United States are working under a hybrid model. That’s a slight decrease from 55% in November 2024. Interestingly, during the same period, the percentage of fully remote workers rose 2% — but fully on-site employees also increased by the same percentage.

One particularly important issue brought up by the research is how much control a business asserts over its hybrid workers’ schedules. The data showed that the percentage of employees who describe their schedules as “entirely up to me” fell from 37% in 2024 to 34% this year.

How do most companies establish hybrid schedules? Gallup found that three main groups typically make the call:

1. Employees themselves,

2. Managers or teams, or

3. Leadership.

The second option generally comes out on top, according to Gallup. More specifically, 91% of hybrid workers whose teams established their schedules described their employers’ policies as “fair.” That’s the same rate as employees who determined their own schedules. When leadership mandated schedules, the fairness rate reported by hybrid workers fell to only 73%.

Policy enforcement

Another recent report on hybrid work models is the 2025 Americas Office Occupier Sentiment Survey by commercial real estate services and investment consultancy CBRE. It polled companies across the United States, Canada and Latin America on topics that included “efforts to align workspaces with hybrid work models while meeting business objectives.”

Among the survey’s key findings is an uptick in the enforcement of hybrid work policies. In fact, 85% of responding businesses reported communicating an attendance policy to hybrid workers. What’s more:

• 69% of respondents measured compliance with their policies (up from 45% in 2024), and

• 37% of respondents took enforcement actions (up from 17% in 2024).

And those enforcement measures seem to be working. The survey found that 72% of respondents achieved their attendance goals in 2025 (up from 61% in 2024). Overall, the data indicates that employees averaged 2.9 days a week on-site, which is close to businesses’ reported expectations of 3.2 days on average.

Cost considerations

Along with determining and refining how you establish workers’ schedules and enforce your policies, you should carefully identify all the costs that accompany hybrid work. For example, even with fewer employees on-site, your business still needs to maintain office space.

Some companies are downsizing, while others are redesigning their layouts to accommodate shared desks and collaborative spaces. If you choose these alternatives, be aware of your lease commitments, maintenance and utility expenses, and renovation costs.

Supporting a hybrid workforce also requires secure and reliable technology. This typically includes video conferencing tools, cloud-based software, cybersecurity measures, and internet and networking systems. These expenses often extend to both office and home setups.

Beware of hidden costs, too. For instance, policy enforcement may cause your business to spend more on compliance-related technology, as well as training for HR staff and supervisors.

Clear and constant view

The surveys mentioned above, as well as other indicators, show that hybrid work is here to stay. Finding the optimal balance for your business depends on savvy scheduling, judicious policy enforcement, and a clear and constant view of the financial implications. FMD can help you assess all the expenses involved and align spending with productivity goals to ensure your hybrid model remains sustainable.

Is a Custodial Account Right for Your Family?

If you’re considering opening an investment account for your minor child or grandchild to help him or her save for the future, a custodial account can be a useful option. Indeed, for many families, a custodial account strikes the right balance between gifting assets to a child and maintaining oversight until the child is legally an adult. It also has some benefits compared to a Trump Account, which the One Big Beautiful Bill Act will make available beginning in 2026.

What is a custodial account?

A custodial account is a financial account that an adult manages on behalf of a minor child until the child reaches the age of majority (typically 18 or 21, depending on the state). These accounts are often set up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), which provide a legal framework for transferring assets to minors without requiring a formal trust.

The adult custodian — often a parent or grandparent — has control over the account, but the assets legally belong to the child. Once the child comes of age, the account is transferred into his or her full control. Trump Accounts will be similar in that, generally, the child won’t be able to access the account funds until reaching age 18.

Custodial accounts can hold a wide range of assets, including cash, stocks, bonds, mutual funds, and, in the case of UTMA accounts, even real estate or other property. Trump Accounts, on the other hand, will generally be limited to investing in exchange-traded funds or mutual funds that track the return of a qualified index and meet certain other requirements.

Custodial account funds can be used for any purpose and often are used to save for future expenses such as a first car or a down payment on a home. Trump Account funds also can be used for any purpose. Both types of accounts can be used to fund education expenses, but they don’t offer some of the tax benefits of education-specific savings options.

What are the pluses and minuses?

One of the most significant advantages of using a custodial account is its flexibility. Indeed, unlike some savings vehicles, such as Coverdell Education Savings Accounts (ESAs), anyone can contribute to a custodial account, regardless of their income level, and there are no contribution limits. (Trump Accounts will have annual contribution limits.)

Also, as noted earlier, there are no restrictions on how the money in custodial accounts or Trump Accounts is spent. In contrast, funds invested in ESAs and Section 529 education savings plans must be spent on qualified education expenses — withdrawals not used for qualified expenses may be partially subject to a 10% penalty. (Trump Account withdrawals could also be partially subject to a 10% penalty if taken before age 59½).

Contributions to custodial accounts can also save income taxes. A child’s unearned income up to $2,700 (for 2025) is usually taxed at low rates. (Income above that threshold is usually taxed at the parents’ marginal rate.)

On the downside, other savings vehicles can offer greater tax benefits. Although custodial accounts can reduce taxes, ESAs, Section 529 plans and Trump Accounts allow earnings to grow on a tax-deferred basis. Also, ESA and 529 plan withdrawals are tax-free provided they’re spent on qualified education expenses. There may also be financial aid implications, as the assets in a custodial account are treated less favorably than certain other assets.

Trump Accounts provide another potential benefit that custodial accounts don’t: U.S. citizens children born between Jan. 1, 2025, and Dec. 31, 2028, can potentially qualify for an initial $1,000 government-funded deposit to a Trump Account.

It’s important to be aware that there’s a loss of control involved with both custodial accounts and Trump Accounts. After the child reaches the age of majority (or age 18 for Trump Accounts), he or she gains full control over the assets and can use them as he or she sees fit. If you wish to retain control longer, you’re better off opening an ESA or a 529 plan or creating a trust.

Consider all your options

Custodial accounts can be a valuable tool to build your child’s financial foundation while teaching him or her about money management. Still, it’s important to weigh the tax implications, college planning considerations and your long-term goals before opening one. Depending on the situation, another type of account may better fit your goals. Contact FMD with questions.