Retirement is far from most teenagers’ minds when they get their first jobs. Most young people are more interested in spending their earnings or saving for a shorter-term goal. But those early earnings create a significant financial opportunity: decades of potential tax-advantaged growth. Even modest contributions to an IRA now can substantially multiply over time. Moreover, a retirement account can help teens get into the habit of saving.

Traditional vs. Roth IRAs

Working teens can opt for a traditional IRA or a Roth IRA. Both offer the power of tax-advantaged compounding. For example, just $2,000 contributed to an IRA earning 5% annually will grow to nearly $23,000 50 years later. But there are important tax differences between the two types of IRAs:

Traditional IRA. Contributions to a traditional IRA will usually be deductible for teens. The deduction may be phased out if a taxpayer’s income exceeds certain amounts and he or she (or his or her spouse) participates in a qualified retirement plan, such as a 401(k). But teenagers generally won’t be affected by these limitations.

On the downside, traditional IRA withdrawals are generally taxable. In addition, a penalty applies if funds are withdrawn before age 59½ — unless an exception is available — and a larger penalty applies if required minimum distributions (RMDs) aren’t taken beginning at the age required (75 for today’s teens if future legislation doesn’t increase it).

Roth IRA. Roth IRA contributions are never deductible. But withdrawals — including earnings — are tax free as long as the account owner is age 59½ or older and the account has been open at least five years. In addition, contributions can be withdrawn at any time tax- and penalty-free. There also aren’t RMDs for Roth IRAs during the original owner’s lifetime.

To contribute to either a traditional or a Roth IRA, a teen must have taxable compensation, such as wages or net earnings from self-employment. For 2026, the annual contribution limit for IRAs is the lesser of taxable compensation or $7,500. This is on a combined basis for both types of IRAs.

Typically, a parent or other adult opens a custodial IRA for a minor. The child takes control when he or she reaches the age specified under applicable state law and the account arrangement.

Roth IRA advantages

Because many working teenagers have little or no taxable income after their standard deduction is applied, a deduction for a traditional IRA contribution often provides little immediate tax benefit. As a result, a Roth IRA can be the more attractive option.

Consider Abigail, 16, who started her first part-time job at a local cafe and expects to earn $7,500 in 2026. Her parents want to help her develop a habit of saving. They set up a Roth IRA for her because her account should have many decades to grow and qualified distributions will be tax-free.

Abigail’s income is low enough that she likely will owe no federal income tax, so a current deduction for traditional IRA contributions will probably offer little, if any, benefit. Even if she does owe some tax, she’ll be in the lowest bracket (10%). The potential for tax-free qualified distributions in the future is, therefore, more valuable than a deduction for a traditional IRA contribution now.

Abigail doesn’t even have to use all of her own earnings to make the contribution. If she wants to contribute only $1,500 of her earnings, her parents, grandparents or others could give her $6,000 so she can contribute the full $7,500 and still have $6,000 available for spending or a shorter-term savings goal. But her family should consider any gift-tax reporting or college financial-aid implications before using this approach.

An IRA alternative

Section 530A (Trump) accounts provide another tax-advantaged savings opportunity for teens. They’re similar to an IRA, but contributions don’t require the child to have earned income. (The $1,000 federal contribution you probably have heard about is limited to qualifying children born from 2025 through 2028, so today’s teens aren’t eligible.)

Even though, like a Roth IRA, contributions aren’t deductible, the portion of distributions attributable to growth will be taxable. Also, depending on how much a working teen earns during the year, he or she may be able to contribute more to a traditional or Roth IRA. Annual contributions to a 530A account are generally limited to $5,000, though some special contributions don’t count toward that limit.

530A accounts also generally prohibit distributions and restrict investments during the growth period (until the year the child turns age 18). So a traditional or Roth IRA may offer a working teen more flexibility.

If a family can afford to contribute to both an IRA and a 530A account for a teen who’s eligible for both, that may be an even more powerful savings opportunity, with potentially a combined contribution of as much as $12,500 for 2026. But because 530A accounts were only recently enacted, IRS and Treasury guidance is still developing. Future guidance could affect the rules.

Employing your children

If your teen doesn’t currently have earned income but you own a business, consider hiring him or her. Employing your child can provide the earned income needed for an IRA contribution, and you can deduct his or her pay as a business expense. The child should be old enough to handle the assigned responsibilities, perform real work and receive reasonable compensation. An excessive pay rate for routine duties could draw IRS scrutiny. Keep records of the child’s duties, hours and pay.

If the business is a sole proprietorship or a partnership in which each partner is a parent of the child, wages paid to a child under age 18 aren’t subject to Social Security and Medicare taxes. Wages paid to a child under age 21 aren’t subject to federal unemployment tax. But the wages are subject to federal income tax withholding regardless of age.

If the business is a corporation, or a partnership in which not every partner is a parent of the child, the wages are subject to federal income tax withholding and Social Security, Medicare and federal unemployment taxes regardless of the child’s age. That’s true even if a parent controls the corporation.

Put early earnings to work

For a working teen, an IRA can provide an early start on decades of tax-advantaged saving. 2026 contributions can be made until April 15, 2027, but the income to support them must be earned by December 31, 2026.

Whether a traditional or Roth IRA is better — and how a 530A account might fit in — depends on a variety of factors. We can help you determine what fits your family’s circumstances and put those early earnings to work for the future.

Over the years, you’ve invested blood, sweat and tears into building a successful small business. Now it’s time to sell and move on to the next chapter of your life. What are the tax implications of selling — and how can you reduce or defer your taxes? One possible solution is an installment sale.

How it works

With an installment sale, you don’t receive a lump-sum payment when the deal closes. Instead, you receive installment payments over time. Typically, the buyer makes a down payment at closing and issues a note requiring principal and interest payments over an agreed-upon period. Each principal payment generally includes a tax-free return of basis and taxable gain, while the interest is taxed separately as ordinary income. This spreads your gain over several years.

It’s important to note that the rules are more complicated when a deal is structured as an asset sale rather than a sale of an ownership interest. Installment sales are still possible for eligible assets included in an asset sale, but you must allocate the purchase price among the business’s assets and calculate each asset’s gain or loss separately. If you’re contemplating an asset sale, we can provide more details.

Potential tax benefits

Generally, installment sale gains qualify as low-taxed long-term capital gain or as Section 1231 gain for sales of property held for business purposes. Sec. 1231 gains are usually also taxed at the lower long-term capital gains rates. The 3.8% net investment income tax (NIIT) and state income tax may apply, too.

An installment sale generally defers tax, because you pay most of the tax liability as you receive the payments. It may also reduce your overall tax obligation from the transaction if the arrangement allows you to stay under the thresholds for triggering the 20% long-term capital gains rate or the NIIT for each tax year of the note’s term.

For 2026, the 20% long-term capital gains rate kicks in when taxable income exceeds:

• $545,500 for single filers,
• $579,600 for heads of households,
• $613,700 for married couples who file jointly, and
• $306,850 for married filing separately.

If your taxable income for the tax year is below the applicable threshold, you’ll likely pay 15% on your long-term capital gains. However, if your taxable income for the tax year is modest, you could pay no federal long-term capital gains tax. For 2026, the 0% rate applies to those with taxable income up to $49,450 (single and separate filers), $66,200 (heads of households) and $98,900 (joint filers).

For 2026, taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers and $125,000 for separate filers) may owe NIIT on some or all of their investment income.

Beyond taxes

An installment sale also might help you close a deal or get a better price for your business. For instance, an installment sale might appeal to a buyer that lacks sufficient cash to pay the price you’re looking for in a lump sum.

Or a buyer might be concerned about the ongoing success of your business without you at the helm or because of changing market conditions or other economic factors. An installment sale that includes a contingent amount based on the business’s performance might be the solution.

Of course, you should evaluate the buyer’s credit risk before entering into an installment arrangement. Consider collateral, personal guarantees and other protections. Your note may also be subordinated to financing provided by the buyer’s bank.

Beware of potential tax pitfalls

An installment sale isn’t without tax risk for sellers. For example, you must report depreciation recapture as a gain in the year of sale, no matter how much cash you receive.

Depreciation recapture generally results from deductions previously claimed for the property. It may be taxed at ordinary income tax rates, which can be as high as 37%. But in the case of certain depreciated real property, the maximum federal rate on depreciation recapture is generally 25%. The 3.8% NIIT and state income tax may apply, too. If depreciation recapture is an issue, you could owe tax that year without receiving enough cash proceeds from the sale to pay the tax.

Also, beware: If the installment note doesn’t charge adequate interest on the deferred principal payments, the complicated original issue discount (OID) rules can transform some of the payments from principal to interest. That’s unfavorable because interest income recognized by an individual taxpayer is taxed at higher ordinary income rates.

Finally, today’s federal tax rates are relatively low compared to historical rates. If Congress passes legislation that increases the long-term capital gains or NIIT rates (or lowers the applicable thresholds), you could wind up paying more overall tax on your gain from the sale. Weigh this risk carefully against the potential benefits of an installment sale.

One size doesn’t fit all transactions

As you can see, installment sales have both pros and cons. To determine whether one is right for you and your business — and find out about other tax-smart options — please contact us.

Tax law changes taking effect this year will increase alternative minimum tax (AMT) risk for some higher-income taxpayers. If you may be affected, consider the AMT before implementing income or deduction timing strategies. A move that would reduce your 2026 regular tax might provide little or no benefit under the AMT — or could trigger it.

Background and changes

The AMT is a separate federal income tax system that disallows some deductions and treats certain income items differently. You must pay the AMT if your AMT liability exceeds your regular tax liability. The AMT rates are 26% or 28% (versus regular rates ranging from 10% to 37%), but the AMT applies to a larger taxable income base.

An AMT exemption may apply when calculating your AMT income. For 2026, the exemption amount is $90,100 ($140,200 for married couples filing jointly, half that for married taxpayers filing separate returns).

But at higher income levels, the AMT exemption phases out, increasing the odds that you’ll owe the AMT. For 2026, the exemption phaseout threshold has been reduced to $500,000 ($1 million for married couples filing jointly). For 2025, the exemption began to phase out when AMT income exceeded $626,350 ($1,252,700 for joint filers). In addition, the exemption phases out twice as fast for 2026 as it did for 2025.

As a result of these changes, more taxpayers may owe the AMT — or owe more AMT — for 2026.

Common triggers

Numerous factors can affect whether AMT liability will exceed regular tax liability and cause you to have to pay the AMT. Here are some of the more common AMT triggers:

• High income that causes your AMT exemption to be partially or completely phased out,
• Large state and local tax (SALT) deductions because you can’t deduct SALT expenses under the AMT rules,
• Incentive stock option (ISO) exercises because when you exercise an ISO and hold the shares beyond year end, the bargain element (the difference between the shares’ market value on the exercise date and your exercise price) generally isn’t income under the regular tax rules but is included as income under the AMT rules, and
• Interest from certain private activity municipal bonds that’s tax-free for regular tax purposes but taxable under the AMT rules.

If you’re self-employed, own a pass-through business or invest in a business or a rental real estate activity that’s passive to you, other potential triggers may be accelerated depreciation or passive activity adjustments that can produce different results under the regular and AMT systems.

Impact on timing strategies

Often, deferring income to the next year and, if you itemize deductions, accelerating deductible expenses into the current year is a good idea. Why? Because it will defer tax, which is usually beneficial. But in some cases, such actions could have a negative impact because of the AMT.

So, if you’re at AMT risk this year or next, it’s important to first project your regular tax and AMT liability for both 2026 and 2027. This can help you determine whether you can time income or expenses to avoid the AMT, reduce its impact or benefit from its lower maximum rate. The appropriate strategy depends on which tax system is expected to apply to each year:

If you could be subject to the AMT this year, consider accelerating income and short-term capital gains into 2026, which may allow you to benefit from the lower maximum AMT rate. Also consider deferring expenses you can’t deduct for AMT purposes until 2027 — you may be able to preserve those deductions (but watch out for the annual limit on the SALT deduction).

Additionally, if you defer expenses you can deduct for AMT purposes to next year, the deductions may become more valuable because of the higher maximum regular tax rate. Finally, carefully consider the tax consequences of exercising ISOs.

If you could be subject to the AMT next year, consider taking the opposite approach. For instance, defer income to 2027, because you’ll likely pay a relatively lower AMT rate. Also, before year end, consider selling any private activity municipal bonds whose interest could be subject to the AMT.

In either situation, if you could be affected by the differing tax treatment of depreciation or passive activities, be sure to factor that into your planning as well.

Run the numbers

Because of potentially higher AMT risk in 2026, year-end tax planning decisions warrant a review with the AMT in mind, even if you haven’t owed the AMT in recent years. A move that would reduce your regular tax might provide little or no benefit under the AMT — or could trigger it. Before acting, determine whether you may owe the AMT for 2026 or 2027 and how the move would affect both calculations. We can help project your regular tax and AMT liability for both years and the potential impact of timing strategies.

Executives and key employees often receive stock-based compensation in addition to salaries and bonuses. If restricted stock is part of your compensation, considering the potential tax consequences well before December 31 is a good idea.

You may have decisions to make if: 1) you’ve recently received an award or are expecting one soon, 2) your restricted shares have vested in 2026 or will vest before the end of the year, or 3) you’ve sold shares this year or are considering a sale. The timing of these events and certain decisions you make can affect both the amount and type of taxable income you must report — and may provide planning opportunities that will affect your 2026 and future taxes.

Restrictions and vesting

In a typical restricted stock arrangement, you receive shares of company stock subject to one or more restrictions but at minimal or no cost to you. The most common restriction is that you must continue working for the company until a certain date. If you leave before then, you forfeit the shares.

You don’t have to report any taxable income from a restricted stock award until the shares become vested — meaning when your ownership is no longer restricted. At that time, you’re deemed to receive taxable compensation income equal to the difference between the fair market value (FMV) of the shares on the vesting date and the amount you paid for them, if anything. The current federal income tax rate on compensation income can be as high as 37%. Depending on your state, you may owe state income tax, too.

Any appreciation after the shares vest is treated as capital gain. If you later sell the shares for more than their FMV when they vested and you’ve held the shares for more than one year after the vesting date, the additional appreciation generally will be long-term capital gain. The federal rate on most net long-term capital gains is either 15% or 20%, but you may also owe the 3.8% net investment income tax (NIIT) and, if applicable, state income tax. Your long-term gains rate and whether the NIIT applies depend on your income.

Electing to pay tax earlier

Under Section 83(b), you can elect to recognize ordinary income when you receive the restricted stock instead of later when the shares vest. The income amount equals the difference between the FMV of the shares at the time of the restricted stock award and the amount you pay for them, if anything. The income is treated as compensation subject to federal income tax, federal employment taxes and, if applicable, state income tax.

The benefit of making the election is that any subsequent appreciation in the stock’s value is treated as potentially lower-taxed capital gain rather than additional compensation income. The election also starts your capital gain holding period when the shares are transferred rather than when they vest. If you hold the shares for more than one year before selling them, any gain generally will be long-term capital gain. The election may be most beneficial if the FMV when the restricted stock is awarded is negligible or the stock is likely to appreciate significantly before income would otherwise be recognized.

The downside of making the election is that you recognize taxable income in the year you receive the restricted stock award. This means you must “prepay” tax in the current year — which not only creates tax liability for that year but also, depending on the FMV and your other income, could push you into a higher income tax bracket and trigger or increase your exposure to other taxes or income-based phaseouts of tax breaks. If you forfeit the shares back to your employer, you can claim a capital loss for the amount you paid for the shares, if anything. But you generally can’t deduct the compensation income you previously recognized.

Warning: If you opt to make the election, you must notify the IRS no later than 30 days after the stock is transferred to you.

2026 planning considerations

Your considerations will depend on where you are in the restricted stock award cycle:

1. You’re awarded restricted stock in 2026. If you still have time to make the Sec. 83(b) election, you need to decide whether to make it. We can run projections of various scenarios to help you assess the likelihood that making the election will save you tax in the long run.

If you don’t make the Sec. 83(b) election for a 2026 restricted stock award, then the award will generally have no impact on your 2026 taxes. Depending on how long the vesting period is, you may want to start planning for the potential tax impact when the stock vests in the future.

If you decide to make the Sec. 83(b) election — or you already made it earlier in the year — you need to plan for how that increase to your 2026 income will affect your overall tax situation. If the FMV of the stock was low when it was awarded, the tax impact may be minimal. But if the FMV was higher, assessing whether it may push you into a higher tax bracket or trigger other taxes or tax-break phaseouts is critical so that you can plan accordingly. To help reduce any negative impact, you may, for example, want to defer other income to 2027 where possible and accelerate deductible expenses into 2026.

2. Your restricted stock vests in 2026. If you made the Sec. 83(b) election when you were awarded the stock, then there will be no 2026 tax consequences to the vesting. If you didn’t make the election, then you need to plan for how the increase to your 2026 income from the vesting will affect your overall tax situation, similar to the planning discussed in No. 1 for a year when the Sec. 83(b) election is made.

3. You sell some or all of the shares in 2026. You need to calculate your capital gain and whether the short-term or long-term gains rate applies based on your basis and holding period, respectively, which will depend in part on whether you made the Sec. 83(b) election. If the gain will be substantial, you need to plan for the impact on your 2026 tax situation. For example, you’ll want to assess whether the gain could cause you to be subject to the 3.8% NIIT or increase your NIIT liability.

If you have other investments in your portfolio that have declined in value, consider selling them to help offset your gains — a strategy known as “loss harvesting.” Deferring other income and accelerating deductible expenses may also help reduce the tax impact.

Assess the tax impact

Restricted stock can affect your taxes at several points, from the initial award to vesting to an eventual sale. As year end approaches, review any restricted stock activity that has already occurred in 2026 as well as activity that will occur — and actions you’re considering — before January 1, 2027. If you’ve recently received an award, don’t overlook the 30-day deadline for making an 83(b) election.

Contact us for assistance. We can help you decide whether to make the election and, whether or not you make the election (or made it in the past), help you determine how your restricted stock should fit into your year-end tax planning.

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.

Payroll administration can be challenging for small business owners — and mistakes can create problems for both employers and employees. Incorrect paychecks can frustrate employees and require time and resources to fix. Errors involving tax withholding, deposits or reporting can also expose your business to interest and penalties.

Mistakes can happen even with payroll software or an outside payroll provider. Here are some steps you can take to reduce your risk.

Withhold and deposit taxes properly

Employers generally must withhold income tax and employees’ share of Social Security and Medicare taxes from their wages, as well as pay the employer’s share of Social Security and Medicare taxes. You’re also responsible for depositing these amounts with the IRS and reporting them on the appropriate payroll tax returns. Additional rules may apply to the 0.9% additional Medicare tax, federal unemployment tax, and various state and local taxes.

Errors when entering information from an employee’s Form W-4, “Employee’s Withholding Certificate,” can result in incorrect federal income tax withholding. Changes to an employee’s name, address or visa status can create problems, too.

Perhaps the most dangerous mistake is failing to deposit withheld federal income tax, Social Security and Medicare taxes and the employer’s share of Social Security and Medicare taxes on time. IRS penalties accrue quickly because they increase with the length of the delay. That is:

• If a deposit is one to five calendar days late, the penalty is 2% of the unpaid deposit,
• If a deposit is six to 15 calendar days late, the penalty is 5% of the unpaid deposit, and
• If a deposit is more than 15 calendar days late, the penalty is 10% of the unpaid deposit.

The penalty rate may increase to 15% if more than 10 calendar days elapse after the date of the first notice or letter from the IRS. Alternatively, a 15% penalty may apply on the day a notice or letter for immediate payment is received.

If the IRS can make the case that a failure to deposit withheld taxes (income tax and the employee’s share of Social Security and Medicare taxes) was willful, a 100% penalty may apply. Such penalties can also be levied personally against all responsible individuals in an organization.

To reduce the risk of withholding and deposit errors, establish procedures for reviewing employee withholding information and monitoring deposit deadlines. Even if you use an outside payroll provider, your business generally remains responsible for making sure federal taxes are deposited and paid — and payroll tax returns are filed — on time. Regularly reconcile your payroll records with amounts reported and deposited, and promptly investigate any discrepancies.

Report all forms of taxable compensation

Remember, salaries or wages aren’t the only items that must be included in employees’ taxable income. You must also include the value of bonuses, awards and certain fringe benefits.

Failing to withhold sufficient amounts from employees’ total reportable income can also result in noncompliance with IRS rules. In turn, this could lead to penalties for failing to properly withhold or deposit payroll taxes. What’s more, the employer could be subject to information return penalties for incorrect Forms W-2, “Wage and Tax Statement.”

To minimize your exposure, review the tax treatment of bonuses, awards and fringe benefits before processing them through payroll. This is particularly important when adding a new benefit or revising a compensation arrangement because the rules for federal income tax withholding, Social Security and Medicare taxes aren’t always the same.

Correct mistakes promptly

Despite your best efforts, mistakes can happen. When you discover one, first determine:

• What went wrong,
• Which employees and payroll periods are affected, and
• Whether the error involves taxable wages, withholding, deposits or information reporting.

Then determine the appropriate correction. It’s important to act promptly because available correction procedures may vary based on when you discovered the error.

Depending on the mistake, you may need to adjust an employee’s pay, correct your payroll records, make an additional tax deposit or correct a previously filed employment tax return. For example, certain errors reported on Form 941, “Employer’s Quarterly Federal Tax Return,” may need to be corrected using Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.” An incorrect Form W-2 may require Form W-2c, “Corrected Wage and Tax Statement.”

Keep records explaining the error and the steps taken to correct it. If employees’ pay or tax information is affected, communicate with them promptly so they understand what happened and what, if anything, they need to do.

Keep your payroll on track

Payroll mistakes can be costly, but strong review procedures can reduce the likelihood that they’ll occur — and prompt action can limit the damage when they do. If you discover a payroll error or have questions about your payroll tax obligations, contact us. We can help you understand the applicable rules and refine your payroll practices to stay in compliance.

Teachers and other educators often spend their own money on books, supplies, equipment and other classroom needs. For 2026, eligible educators may have two ways to deduct qualifying unreimbursed expenses. One deduction is available whether or not they itemize, and a new deduction under the One Big Beautiful Bill Act (OBBBA) is available to itemizers.

The long-time deduction for nonitemizers and itemizers

Eligible educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize to claim it and it reduces your adjusted gross income (AGI), which has an added benefit: AGI-based limits affect a variety of tax breaks, so lowering your AGI might help you maximize your tax breaks overall.

To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. Also, they must work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

For 2026, up to $350 of qualified expenses paid during the year that weren’t reimbursed can be deducted. (The deduction limit is $700 for married couples filing a joint return if both spouses are eligible educators, but they can’t deduct more than $350 each.) The limit is annually indexed for inflation and was $300 for 2025. But it typically doesn’t go up every year.

Examples of qualified expenses include books, classroom supplies, computer equipment (including software), other materials used in the classroom, and professional development courses. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.

The new deduction for itemizers

The OBBBA made permanent the Tax Cut and Jobs Act’s (TCJA’s) suspension of miscellaneous itemized deductions subject to the 2% of AGI floor. This had included unreimbursed employee business expenses such as teachers’ out-of-pocket classroom expenses. The suspension had been in place since 2018.

But the OBBBA created a new miscellaneous itemized deduction for educator expenses. And this deduction isn’t subject to the 2% of AGI floor or a specific dollar limit. The new deduction is available for eligible expenses incurred after December 31, 2025.

This is in addition to the $350 above-the-line deduction. So educators eligible for both deductions can first claim the above-the-line deduction and reap the benefits of reducing their AGI and, if they have eligible expenses in excess of $350, claim the itemized deduction for those excess expenses. (Educators can’t claim both deductions for the same expenses.)

Who is eligible and what expenses qualify are a little broader for the itemized deduction than for the above-the-line deduction. For example, interscholastic sports administrators and coaches are also eligible. And, for courses in health and physical education, the supplies don’t have to be related to athletics.

Before deciding to claim the itemized deduction, you need to determine whether itemizing makes sense for you overall. Taxpayers can choose to itemize this and certain other deductions (such as mortgage interest, property tax and charitable donations) or to take the standard deduction based on their filing status.

Itemizing deductions saves tax only when the total is greater than the standard deduction. The OBBBA made the nearly doubled standard deductions under the TCJA permanent, so fewer taxpayers benefit from itemizing. For 2026, the standard deduction is $16,100 for singles and married taxpayers filing separately, $24,150 for heads of household and $32,200 for married couples filing jointly.

Keeping good records

Do you expect to qualify for one or both of these deductions? Be sure to track your qualifying expenses carefully. Save your receipts to document the date and amount of each purchase, and note the purpose. Good records are especially important now that there are two educator deductions with differing rules. Contact us to discuss which educator expenses you can deduct and how the deductions may affect your 2026 taxes and planning strategies.

Contributing as much as possible to tax-deferred retirement accounts such as traditional 401(k)s and IRAs is a common recommendation. Contributions generally are pretax or deductible, and the power of tax-deferred compounding can help turbocharge growth. But some taxpayers can reach a point where maximizing tax deferral may become counterproductive.

Potential downsides of tax-deferred saving

After you’re retired, you’ll no longer be earning a salary or full-time wages. So the assumption generally is that taxpayers will be in a lower federal income tax bracket and pay tax at a lower rate when taking withdrawals during retirement than when making contributions during their working years.

That’s likely the case for many, if not most, taxpayers if tax rates stay the same (or go down). But, currently, federal income tax rates may have bottomed out and could be more likely to increase in the future. If this happens, you might pay higher tax rates on withdrawals from traditional accounts during your retirement years, even if you’re in a lower tax bracket.

Also, retirement plan distributions are subject to your ordinary income tax rate and don’t benefit from the lower long-term capital gains rates that normally apply to realized gains from assets held more than one year and qualified dividends. So you pay a higher tax rate on dividends and growth in a tax-deferred account than you would if the investments were held in a taxable account.

Something else to remember is that with traditional retirement accounts, most withdrawals before age 59½ will be subject to a 10% early withdrawal penalty (though there are some exceptions for IRAs). If you need to make a withdrawal before that age, you may owe the penalty on top of any applicable income tax.

Traditional accounts also come with required minimum distributions (RMDs). You could be subject to a 25% penalty for failing to take RMDs each year after you reach age 73 (or 75 if you’ll turn 73 after December 31, 2032). (Roth accounts set up in your name aren’t subject to RMD rules during your life and will never be subject to federal income taxes as long as you take out only qualified withdrawals after reaching age 59½.)

You can avoid the penalty by taking your RMDs each year. But RMDs generally will be included in your taxable income and, depending on the size of the RMD and your other income, this could push you into a higher tax bracket, affect deductions or credits with income-based limits, or cause some of your Social Security payments to become taxable.

For these reasons, some taxpayers may be better off moving from a strategy primarily focused on tax-deferred traditional accounts to one that puts a greater emphasis on Roth and taxable accounts — even though it may mean paying more taxes now.

Shifting your retirement strategy

Whether your tax-deferred retirement savings are excessive, insufficient or just about right depends on variables such as your current marginal income tax rate, your expectations about future tax rates and the type of income or gains earned in your retirement accounts. Each person’s situation is different, and there’s not always a clear-cut answer.

If you conclude you have too much in tax-deferred accounts, one or more of these strategies can help address the situation:

1. Start making at least some of your annual retirement savings contributions to Roth accounts if possible. Contributions to these plans don’t reduce your current-year taxable income, but distributions are tax-free — including distributions attributable to growth in the account. And Roth accounts aren’t subject to RMDs during the original owner’s lifetime. However, the ability to contribute to a Roth IRA is phased out if a taxpayer’s income exceeds certain amounts. No such limit applies to employer-sponsored Roth accounts, such as Roth 401(k)s.

2. Put some money into taxable accounts. If Roth savings opportunities aren’t available to you or you’ve already maxed them out, think about putting some of the money you’re saving for retirement into taxable investment accounts. You’ll be eligible for the lower long-term capital gains rate on long-term gains and qualified dividends, and you won’t be subject to the various rules and restrictions that apply to IRAs, 401(k)s and other employer-sponsored retirement accounts.

3. Convert some or all of your traditional IRA balance into a Roth IRA. A conversion can let you turn tax-deferred future growth into tax-free growth and avoid being subject to RMDs. There’s no income-based limit on who can convert. But the converted amount is taxable in the year of the conversion. So consider your current tax rate and whether a conversion could push you into a higher tax bracket or trigger other negative tax consequences.

4. If you’re age 59½ or older, withdraw money from your traditional retirement accounts sooner and faster than required. You won’t owe early withdrawal penalties, and you pay tax now at a rate that might be lower than what you’d have to pay in the future. You can reinvest the after-tax proceeds in taxable accounts where future long-term gains and qualified dividends will be taxed at your lower long-term capital gains rate. But as with Roth conversions, you need to consider your current tax rate and whether the retirement plan distribution could push you into a higher tax bracket or trigger other negative tax consequences.

Tax-smart wealth accumulation

As you can see, there are many considerations to evaluate when assessing whether you’re investing too much in tax-deferred retirement accounts and, if so, how to address the situation. We can help you determine the best course of action for wealth accumulation using traditional tax-deferred retirement accounts, Roth accounts and taxable accounts.

Disability insurance is a valuable benefit provided by many employers. It replaces a portion of the insured person’s income — typically 45% to 65% of pre-disability earnings — after a specified waiting period that starts when the person becomes disabled (as defined by the policy’s terms). Whether you’re just beginning to receive disability benefits or you’re evaluating your long-term financial security, it’s important to understand the tax implications of these benefits.

Payment of premiums

Taxability of disability insurance benefits usually hinges on who paid the premiums. If your employer paid the premiums, then payouts from the policy generally will be taxed to you just as if the income were paid directly to you by your employer. If you paid the premiums, the payments you receive generally won’t be taxable.

Even if your employer arranges for the coverage (in other words, it’s a policy made available to you at work), as long as you pay the premiums, the benefits generally won’t be taxable. For these purposes, if the premiums are paid by your employer but the amount paid is included in your taxable income from work, the premiums will be treated as paid by you.

The rules in action

Let’s say your salary is $1,500 a week ($78,000 a year). Under a disability insurance arrangement made available to you by your employer, $20 a week ($1,040 annually) is paid on your behalf by your employer to an insurance company. Your Form W-2 reports $79,040 in income as your wages for the year ($78,000 paid to you plus $1,040 in disability insurance premiums). Under these circumstances, the insurance is treated as paid for by you. If you become disabled and receive benefits under the policy, the benefits won’t be taxable income to you.

Now assume that only $78,000 is reported on your W-2 as your wages for the year because your employer treats the amount paid for the insurance coverage as excludable under the rules for employer-provided health and accident plans or because the coverage is paid through a cafeteria plan. In this case, the insurance is treated as paid for by your employer. If you become disabled and receive benefits under the policy, the benefits will be taxable income to you.

Special rules apply if there’s a permanent loss (or loss of the use) of a part or function of the body or a permanent disfigurement.

Other disability benefits

If disability income is paid directly to you by your employer, rather than by an insurance company, it’s generally taxable to you just as your ordinary pay would be. Taxable benefits are also subject to federal income tax withholding. However, depending on your employer’s disability plan, these benefits might not be subject to Social Security tax.

Different rules apply to the tax treatment of Social Security Disability Insurance (SSDI) benefits. SSDI benefits are taxed under the same rules that apply to Social Security benefits. Depending on your income and filing status, some of your SSDI benefits may be taxable.

More considerations

The tax treatment of disability benefits can have a major impact on what you’ll end up with in your pocket. So it’s important to consider taxes when determining how much disability coverage you need. Keep in mind that state tax treatment of disability benefits varies.

If you’re paying the premiums, you have to replace only your “after tax” (take-home) income because your benefits won’t be taxed. But if your employer is paying the premiums, you’ll lose a percentage of your benefits to taxes and may need more coverage. We can help you assess how much disability coverage you need depending on the tax consequences and other factors.

Businesses in economically distressed communities often have difficulty obtaining capital for expansion, equipment, facilities and other investments. The New Markets Tax Credit (NMTC) encourages private investment in these underserved areas by offering federal income tax credits to qualifying investors.

This credit was previously scheduled to expire on December 31, 2025. However, the One Big Beautiful Bill Act made it permanent. Let’s take a closer look at how this tax break could benefit your small business.

Potential tax and financing benefits

The NMTC is generally available to individuals and businesses that make qualified equity investments in community development entities (CDEs). A CDE is generally a domestic corporation or partnership whose primary mission is to serve low-income communities or provide investment capital to them. To participate in the program, a CDE must be certified by the U.S. Department of the Treasury’s Community Development Financial Institutions Fund.

The CDE then raises funds from investors to use for qualifying loans, equity investments or other approved activities in low-income communities. Your benefits depend on your role in the transaction. If your business invests in a CDE, you may be able to claim the tax credit. If your business receives financing from a CDE, you may benefit indirectly by gaining access to capital or financing terms that might not otherwise be available. For many small business owners, these financing opportunities may be the more relevant aspect of the NMTC program.

Credit amount and filing requirements for investors

The NMTC equals 39% of the investor’s qualified equity investment in the CDE. The credit is claimed over seven years as follows:

• 5% of the investment in each of the first three years, and
• 6% in each of the next four years.

So, a qualifying $1 million investment could generate $390,000 in federal tax credits over seven years, subject to applicable limitations.

To claim the credit, you must make a cash investment that the CDE designates as a qualified equity investment. The CDE must use “substantially all” of the funds for qualified low-income community investments (QLICIs). In general, a CDE satisfies this threshold if it invests at least 85% of its aggregate gross assets in QLICIs (reduced to 75% in the seventh year).

The credit is calculated using Form 8874, “New Markets Credit,” and reported as part of the general business credit on Form 3800.

Claiming the NMTC reduces your tax basis in the investment, which may affect the tax consequences of a later sale. In addition, previously claimed credits may be recaptured (with interest) if the CDE fails to meet program requirements or redeems your investment during the seven-year credit period.

Financing benefits for qualifying businesses

By encouraging investment in CDEs, the NMTC may expand access to financing for qualifying businesses and nonprofit organizations in low-income communities. Examples of businesses and projects that may receive NMTC-supported financing are:

• Real estate developments,
• Manufacturers,
• Retailers,
• Health care providers,
• Child care centers and schools,
• Hotels, and
• Community centers.

For example, suppose you own a grocery store in a qualifying community and need funds to renovate the building. A CDE could use capital raised from investors to provide your business with a loan or equity financing for this project. In this scenario, qualified investors would receive the federal tax credit, and your business would benefit from access to financing that might otherwise be difficult to obtain through conventional sources.

Simply operating in a low-income area doesn’t automatically qualify a business or project for NMTC-supported financing. The CDE must determine whether the business, location and planned use of the financing satisfy the program’s requirements.

Exploring NMTC opportunities

The now-permanent NMTC may offer a valuable tax break for qualified investors and provide an important source of financing for qualifying businesses and community development projects. However, the rules are complex. Contact us to learn more. We can help you estimate the potential tax or financing benefits and address the applicable compliance requirements.