Updated 2026 Limits for Employer-Sponsored Qualified Retirement Plans

For employers that sponsor qualified retirement plans, it’s essential to stay on top of annual IRS inflation adjustments to contribution limits and other amounts. These changes affect everything from plan design to employee communication to payroll processes. For 2026, many commonly used qualified plans will see updates that you’ll need to incorporate into administration and planning. Here are some highlights:

Elective deferrals to defined contribution plans. The annual limit on elective deferrals to 401(k), 403(b) and 457 plans will increase to $24,500 (up from $23,500). Meanwhile, the annual limit for Savings Incentive Match Plan for Employees (SIMPLE) IRAs will rise to $17,000 (up from $16,500). The limit on total contributions to defined contribution plans will increase to $72,000 (up from $70,000).

Catch-up contributions to defined contribution plans. The annual limit on catch-up contributions to 401(k), 403(b) and 457 plans, which are available to participants age 50 or over, will generally rise to $8,000 (up from $7,500). However, under the SECURE 2.0 Act, a higher catch-up contribution limit of $11,250 (unchanged from 2025) applies to participants who are 60, 61, 62 or 63 in 2026.

Starting next year, SECURE 2.0 also requires that catch-up contributions of higher-income taxpayers be treated as post-tax Roth contributions rather than pretax salary deferrals. Generally, for 2026, the requirement will apply to taxpayers who earned more than $150,000 in the previous year. However, new final regulations state that the deadline for plan amendments to implement this change is December 31, 2026.

The annual catch-up contribution limit for SIMPLE IRAs will increase to $4,000 (up from $3,500). However, under SECURE 2.0, a higher catch-up contribution limit of $5,250 (unchanged from 2025) will apply to SIMPLE IRA owners who are 60, 61, 62 or 63 in 2026.

Annual limit for defined benefit plans. Commonly known as pensions, these plans may not promise an annual benefit that exceeds the lesser of 100% of a participant’s average compensation for the individual’s highest three consecutive years or a dollar limit set annually by the IRS. That dollar limit will rise to $290,000 (up from $280,000).

Contribution and participation limits for Simplified Employee Pension Individual Retirement Accounts (SEP-IRAs). The annual limit for SEP-IRAs will be 25% of an employee’s total compensation, up to $72,000 (increased from $70,000). Catch-up contributions aren’t allowed for these accounts. The threshold for determining participation in a SEP-IRA will increase to $800 (up from $750).

Compensation for qualified retirement plan purposes. The annual limit on the maximum compensation that can be taken into account for certain retirement plan contributions and deductions will rise to $360,000 (up from $350,000).

Highly compensated employees. The threshold for determining who’s a highly compensated employee will remain at $160,000.

Key employees. The threshold for defining who’s a key employee under the top-heavy rules will rise to $235,000 (up from $230,000).

The retirement savings contributions credit. The adjusted gross income limit for determining whether certain individuals are eligible for this tax credit, which is also known as the saver’s credit, will increase to:

$80,500 (up from $79,000) for married taxpayers filing jointly,
$60,375 (up from $59,250) for heads of household, and
$40,250 (up from $39,500) for all other taxpayers.

“Control” employees. The amounts used to determine who’s a control employee, a classification relevant to valuing employer-sponsored fringe benefits, will increase to $145,000 (up from $140,000) for officers and $290,000 (up from $285,000) for other employees.

Social Security taxable wage base. The annual cost-of-living adjustment to the maximum amount of earnings subject to Social Security tax, which is relevant for various benefit purposes, will increase to $184,500 (up from $176,100).

As 2026 approaches, these IRS-issued inflation adjustments give employers a chance to revisit their retirement plan strategies, update payroll and administrative systems, and communicate new savings opportunities to employees. Contact us for help interpreting the new limits and other amounts, reviewing qualified plan documents, and assessing how these changes could affect your workforce.

The One Big Beautiful Bill Act (OBBBA) creates new income tax deductions for tax years 2025 through 2028 for qualified cash tips and overtime compensation. If you receive tips or overtime pay, you likely have questions about whether you’re eligible for a deduction and how big it might be.

The IRS has issued guidance on how workers can determine the amount of their deductions for 2025, because employers aren’t required to provide detailed information on tips income or overtime compensation until the 2026 tax year. Here’s an overview of what you need to know.

The new deductions

Rather than eliminating taxes on all tips income and overtime compensation, the OBBBA establishes partial deductions available to both itemizers and nonitemizers, subject to income-based limitations. Qualified tips income and overtime compensation remain subject to federal payroll taxes and state income and payroll taxes where applicable. Moreover, because the tax breaks are in the form of deductions claimed at tax time, employers must continue to withhold federal income taxes from employees’ paychecks.

For qualified tips, you may be able to claim a deduction of up to $25,000. “Qualified tips” generally refers to cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024. The tips must be paid voluntarily, without any consequence for nonpayment, in an amount determined by the payor and without negotiation.

Proposed IRS regulations identify 68 eligible occupations within the following categories:

Beverage and food service,
Entertainment and events,
Hospitality and guest services,
Home services,
Personal services,
Personal appearance and wellness,
Recreation and instruction, and
Transportation and delivery.

The tips deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if you’re married filing jointly. The deduction is completely phased out if your MAGI reaches $400,000, or $550,000 if you’re a joint filer.

The overtime deduction is limited to $12,500, or $25,000 if you’re a joint filer. A phaseout begins if your MAGI exceeds $150,000, or $300,000 if you’re a joint filer. The deduction is completely phased out if your MAGI reaches $275,000, or $550,000 if you’re a joint filer.

The overtime deduction is available for overtime pay required by the Fair Labor Standards Act (FLSA), which generally mandates “time-and-a-half” for hours that exceed 40 in a workweek. Notably, though, the deduction applies only to the pay that exceeds the regular pay rate — that is, the “half” component.

Because the FLSA definition of overtime varies from some state law definitions, overtime pay under state law might not be deductible. And the deduction doesn’t apply to overtime paid under a collective bargaining agreement or that an employer pays in excess of time-and-a-half (for example, double-time).

The tips deduction calculation

Employers won’t be required to include the total amount of cash tips reported by the employee and the employee’s occupation code on Form W-2 until the 2026 tax year. So, for 2025, according to the IRS, if you’re an employee, you can calculate your tips deduction using:

Social Security tips reported in Box 7 of Form W-2,
The total amount of tips you reported to your employer on Forms 4070, “Employee’s Report of Tips to Employer,” or similar forms, or
The total amount of tips your employer voluntarily reports in Box 14 (“Other”) of Form W-2 or a separate statement.

You may also include any amount listed on Line 4 of the 2025 Form 4137, “Social Security and Medicare Tax on Unreported Tip Income,” filed with your 2025 income tax return (and included as income on that return). Note that you’re responsible for determining whether the tips were received as part of an eligible occupation. If your employer opts to provide this or other relevant information in Box 14 (“Other”) of Form W-2, you may rely on it.

Tips also won’t be required to be reported on Forms 1099 until the 2026 tax year. For 2025, if you’re an independent contractor, you can corroborate the calculation of your qualified tips with:

Earnings statements,
Receipts,
Point-of-sale system reports,
Daily tip logs,
Third-party settlement organization records, or
Other documentary evidence.

Note: Nonemployees must confirm that their tips were received from an eligible occupation.

The overtime deduction calculation

Employers won’t be required to include eligible overtime pay on Form W-2 until the 2026 tax year. So for 2025, if you’re an employee, you can self-report your overtime compensation for the overtime deduction.

According to the IRS, you must make a “reasonable effort” to determine whether you’re considered to be an FLSA-eligible employee. The IRS says this may include asking your employers or other service recipients about your FLSA status.

To calculate the deduction amount, you must use “reasonable methods” to break out the amount of overtime pay that qualifies. For example, if you were paid time-and-a-half and receive a statement with your total amount for overtime (regular wages plus the overtime premium), then you can use one-third of the total. If you were paid double-time and receive such a statement, you can multiply the total dollar amount by one-fourth to compute the qualifying overtime pay.

A tax-saving opportunity

If you might be eligible for the tips or overtime deduction, don’t miss out on this tax-saving opportunity just because your deduction may be difficult to calculate. We’re here to help. If you’re an employer with employees who receive tips or overtime income, we can also provide guidance on how to answer employee questions for 2025 and how to ensure you’re in compliance with reporting requirements for 2026.

Even the most carefully managed retirement plans are susceptible to mistakes during navigation of complex ERISA laws and regulations. The good news is that plan sponsors may avoid plan disqualification by correcting eligible failures through the Employee Plans Compliance Resolutions System (EPCRS). Understanding how EPCRS functions and the types of errors it addresses can help maintain plan qualification and manage compliance. In this article, we explore EPCRS fundamentals and share practical guidance for using the system effectively.

Self-Correction Programs
EPCRS (Employee Plans Compliance Resolution System)	Agency: Internal Revenue Service Purpose: Correcting eligible plan qualification errors EPCRS overview \| Internal Revenue Service
VFCP (Voluntary Fiduciary Correction Program)	Agency: U.S. Department of Labor Purpose: Correcting certain fiduciary violations, including certain prohibited transactions Voluntary Fiduciary Correction Program Fact Sheet
DFVCP (Delinquent Filer Voluntary Compliance Program)	Agency: U.S. Department of Labor Purpose: Correcting late or missing Form 5500 filings Delinquent Filer Voluntary Compliance (DFVC) Program \| U.S. Department of Labor

EPCRS Fundamentals and Practical Benefits

The Employee Retirement Income Security Act of 1974 (ERISA) sets standards for many tax-qualified retirement plans offered in the private sector. The Internal Revenue Service (IRS) and Department of Labor (DOL) enforce ERISA provisions and plan compliance with reporting requirements. Each agency offers self-correction programs, with the IRS administering EPCRS.

The SECURE 2.0 Act of 2022 (SECURE 2.0) expanded EPCRS, allowing self-correction of certain eligible inadvertent failures and extending the timeline for correction from three years to a reasonable period after the mistake is discovered. Plans seeking to remediate errors through EPCRS may choose from three options, each tailored to different circumstances or situations:

Self-Correction Program (SCP): Plans can correct eligible plan errors through the SCP without IRS involvement or fees and are not required to file an application.
Voluntary Correction Program (VCP): To use the VCP, the plan provides a written application to the IRS and pays a fee. Eligible errors can then be corrected with IRS approval.
Audit Closing Agreement Program (Audit CAP): Mistakes found during an audit or IRS investigation can be corrected through Audit CAP. Fees generally are higher than VCP but typically are more favorable than the potential consequences of failing to correct the error.

Whether EPCRS may be used to self-correct plan qualification failures depends on the type of error discovered and the surrounding circumstances.

Errors Eligible for Self-Correction

EPCRS applies to all “eligible inadvertent failures.” For fiduciaries responsible for plan operations and maintenance, the question becomes: “What constitutes an eligible inadvertent failure?” Such an error “is an operational, document or demographic failure that violates the IRS qualification requirements” that occurs despite the plan’s thorough and rigorous oversight. This term does not include actions that constitute flagrant errors, diversion or misuse of plan assets, or participation in abusive tax avoidance transactions.

Currently, some of the eligible inadvertent failures listed in SECURE 2.0 cannot be self-corrected through EPCRS. These include:

Failure to initially adopt a written plan
Correction of an operational failure by plan amendment that conforms the plan document to the plan’s prior operations in a manner that is less favorable for a participant or beneficiary than the original plan terms
Significant failures in a terminated plan
Certain demographic failures
Failures in orphan (abandoned) plans
Employee stock ownership plan (ESOP) failures involving IRC Section 409
Excess contributions to a SEP or SIMPLE IRA that allows the excess to remain in the plan
Failures in SEPs or SIMPLE IRAs that do not use the IRS model plan documents and even for model plans when excess contributions remain in the IRA account

Identifying errors and choosing the best path to remediation is challenging, especially as laws evolve. Implementing proactive policies that promote constant oversight of plan documents and operations can be an effective way to support this important responsibility.

Best Practices to Follow When Using EPCRS

Reaping the benefits of self-correction requires both proactive and reactive measures. The following best practices can help plan sponsors identify and correct errors, as well as serving as preventive measures:

Assess Initial Plan Qualification: Confirm that the plan meets all IRS qualification requirements for a tax-qualified retirement plan.
Set Up Error Identification Processes: Develop and implement procedures that promote ongoing review of plan documents and operations. Train fiduciaries and third-party providers on plan requirements to help mitigate the risk of future errors.
Avert Disclosure Pitfalls: Avoid mentioning potential self-correction in your financial statements and disclosures unless corrective action is already being taken.
Choose the Right Self-Correction Program: Once an error has been discovered, evaluate it thoroughly to determine whether it qualifies for self-correction. Remember that only errors related to plan qualification can be corrected through the EPCRS.
Watch the Timing: Correct eligible inadvertent errors within a reasonable time, which is generally 18 months after the plan identifies the failure.
Line Up Documentation: When self-correcting through the EPCRS, maintain thorough documentation that confirms attempted correction and compliance.

Finding an error that could disqualify an ERISA plan is alarming but can be managed when plan fiduciaries take prompt and thorough action.

Some content borrowed with permission from BDO USA. Our firm is an independent member of the BDO Alliance USA, a nationwide association of independently owned local and regional accounting, consulting, and service firms.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, is pleased to announce the promotion of Steven Treece, CPA, PFS, to Principal effective January 1, 2026.

Treece joined Yeo & Yeo in 2013 and has since become a key member of the firm’s Tax & Consulting Service Line. He provides comprehensive tax planning and business advisory services for corporations, partnerships, and high-net-worth individuals across Michigan. Known for his technical knowledge and practical approach, Treece helps clients navigate complex tax matters while developing strategies that strengthen their long-term financial health.

His experience spans diverse industries, including agribusiness, construction, manufacturing, and real estate, giving him the insight to address unique challenges and opportunities across various sectors. He is a member of Yeo & Yeo’s Agribusiness Services and Estate & Trust Services Groups, where he applies specialized knowledge to guide clients through complex estate and trust matters, as well as succession planning. Clients have described Treece as thorough, knowledgeable, and quick to help when questions arise.

Beyond client service, Treece mentors team members across the firm and contributes to initiatives that advance Yeo & Yeo’s commitment to excellence. His dedication to five-star client service earned him recognition as one of the Flint & Genesee Group’s 40 Under 40 in 2022, honoring his professional achievements and community impact.

Treece is an active board member and past president of the Rotary Club of Burton and is a past committee chairperson for the Old Newsboys of Flint. He also volunteers with the Food Bank of Eastern Michigan and Genesee County Habitat for Humanity, supporting initiatives that strengthen local families and the community.

At the start of the new year, Treece will transition from Yeo & Yeo’s Flint office to the Troy office, where he will support the firm’s continued growth in Southeast Michigan.

“Steve reflects the values we’re most proud of at Yeo & Yeo—integrity, collaboration, and care for our clients and communities,” said Dave Youngstrom, President & CEO. “He leads by example and encourages others to excel. We look forward to the contributions he will bring to the Troy office and the Principal group.”

Yeo & Yeo congratulates Steven Treece on his promotion to Principal and looks forward to his continued success.

“As I reflect on another year of milestones at Yeo & Yeo, I’m filled with gratitude for the incredible people who make this firm what it is. Longevity at Yeo & Yeo is not just about years of service — it’s about commitment, care, and the steady leadership that comes from showing up day after day for our clients, our colleagues, and our communities. Every person recognized this year has helped strengthen the culture that defines us — one built on trust, teamwork, and a shared belief in making a difference.

While I’m honored to be included among those celebrating milestones, what stands out most to me is the collective dedication represented here. Thirty-two individuals across our companies have spent many years building relationships, mentoring others, and upholding the values that have guided Yeo & Yeo for over a century. To each of you — thank you. Your contributions continue to shape who we are and who we aspire to be.”

David Youngstrom, Yeo & Yeo President & CEO

Honored for 30 years of service:

David Youngstrom, President & CEO, Firm Administration – Saginaw

Honored for 25 years of service:

Adele Hetzner, Marketing Coordinator, Firm Administration – Saginaw
Terrie Chronowski, Tax Supervisor, Yeo & Yeo CPAs & Advisors – Saginaw
Rob Schmidt, Senior Systems Technician, Firm Administration – Saginaw
Jamie Rivette, Principal and Assurance Service Line Leader, Yeo & Yeo CPAs & Advisors – Saginaw

Honored for 20 years of service:

Julie Surprenant, Administrative Assistant, Yeo & Yeo CPAs & Advisors – Saginaw
Tom O’Sullivan, Managing Principal, Yeo & Yeo CPAs & Advisors – Ann Arbor
Brad DeVries, Managing Principal, Yeo & Yeo CPAs & Advisors – Lansing
Jennifer Watkins, Principal, Yeo & Yeo CPAs & Advisors – Flint

Honored for 15 years of service:

Cathy Hammis, Executive Assistant & Facilities Manager, Firm Administration – Saginaw
Terra Myers, Financial Services Associate, Yeo & Yeo CPAs & Advisors – Saginaw

Honored for 10 years of service:

Melissa Lindsey, Practice Growth Manager, Firm Administration – Saginaw
Joe Smith, Senior Systems Engineer, Yeo & Yeo Technology – Saginaw
Mike Hutchison, Assistant Systems Manager, Yeo & Yeo Technology – Saginaw
Melanie Railling, Medical Biller & Account Manager, Yeo & Yeo Medical Billing & Consulting – Saginaw
Heather Welch, Administrative Assistant, Yeo & Yeo CPAs & Advisors – Troy
Derrick Friend, Manager, Yeo & Yeo CPAs & Advisors – Troy

Additionally, 15 Yeo & Yeo professionals are celebrating five years with the firm. Congratulations to you all, and thank you for your contributions to Yeo & Yeo!

Interest paid or accrued by a business is generally deductible for federal tax purposes. But limitations apply. Now some changes under the One Big Beautiful Bill Act (OBBBA) will result in larger deductions for affected taxpayers.

Limitation basics

The deduction for business interest expense for a particular tax year is generally limited to 30% of the taxpayer’s adjusted taxable income (ATI). That taxpayer could be you or your business entity, such as a partnership, limited liability company (LLC), or C or S corporation. Any business interest expense that’s disallowed by this limitation is carried forward to future tax years.

Business interest expense means interest on debt that’s allocable to a business. For partnerships, LLCs that are treated as partnerships for tax purposes, and S corporations, the limitation on the business interest expense deduction is applied first at the entity level and then at the owner level under complex rules.

The limitation on the business interest expense deduction is applied before applying the passive activity loss (PAL) limitation rules, the at-risk limitation rules and the excess business loss disallowance rules. For pass-through entities, those rules are applied at the owner level. But the limitation on the business interest expense deduction is generally applied after other federal income tax provisions that disallow, defer or capitalize interest expense.

The changes

The OBBBA liberalizes the definition of ATI and expands what constitutes floor plan financing. For taxable years beginning in 2025 and beyond, the OBBBA calls for ATI to be computed before any deductions for depreciation, amortization or depletion. This change more closely aligns the definition of ATI to the financial accounting concept of earnings before interest, taxes, depreciation and amortization (EBITDA) and increases ATI, thus increasing allowable deductions for business interest expense.

For taxable years beginning in 2025 and beyond, the OBBBA also expands the definition of floor plan financing to cover financing for trailers and campers that are designed to provide temporary living quarters for recreational, camping or seasonal use and that are designed to be towed by or affixed to a motor vehicle. For affected businesses, this change also increases allowable deductions for business interest expense.

Exceptions to the rules

There are several exceptions to the rules limiting the business interest expense deduction. First, there’s an exemption for businesses with average annual gross receipts for the three-tax-year period ending with the prior tax year that don’t exceed the inflation-adjusted threshold. For tax years beginning in 2025, the threshold is $31 million. For tax years beginning in 2026, the threshold is $32 million.

The following businesses are also exempt:

An electing real property business that agrees to depreciate certain real property assets over longer periods.
An electing farming business that agrees to depreciate certain farming property assets over longer periods.
Any business that furnishes the sale of electrical energy, water, sewage disposal services, gas or steam through a local distribution system, or transportation of gas or steam by pipeline, if the rates are established by a specified governing body.

If you operate a real property or farming business and are considering electing out of the business interest expense deduction limitation, you must evaluate the trade-off between currently deducting more business interest expense and slower depreciation deductions.

It’s complicated

The rules limiting the business interest expense deduction are complicated. If your business may be affected, contact us. We can help assess the impact.

The IRS annually updates a range of employer-provided fringe benefit limits to keep pace with inflation. These cost-of-living adjustments (COLAs) affect compensation strategy, employee benefits design and payroll administration. As we look ahead to the new year, now’s a good time to review the changes to help your organization budget accurately and communicate effectively with employees. Here are some highlights applicable to 2026:

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum payments and reimbursements under a QSEHRA will be $6,450 for self-only coverage and $13,100 for family coverage (up from $6,350 and $12,800, respectively).

Pension-Linked Emergency Savings Accounts (PLESAs). The SECURE 2.0 Act authorized the addition of PLESAs to eligible employer-sponsored defined contribution plans, such as 401(k)s. These accounts allow participants to save for financial emergencies, so they don’t have to draw from their retirement savings following a crisis. The contribution limit to PLESAs will be $2,600 (up from $2,500).

Qualified transportation fringe benefits. The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $340 (up from $325). The combined monthly limit for transit passes and vanpooling expenses will also be $340 (up from $325 as well).

Health Flexible Spending Accounts (FSAs). The dollar limit on employee salary reduction contributions to health FSAs will be $3,400 (up from $3,300). If a cafeteria plan allows carryovers of health FSA balances, the maximum unused amount that health FSA participants can carry over to the following plan year will be $680 (up from $660) for plan years beginning in 2026.

Qualified education loan repayments. The One Big Beautiful Bill Act (OBBBA), enacted in July, made permanent the exclusion for employer-provided payments toward qualified education loans. The maximum exclusion amount will be $5,250, subject to inflation adjustments in future years.

Benefits under a dependent care assistance program (DCAP). The DCAP limit isn’t adjusted for inflation, but it has changed. The OBBBA increased the maximum annual exclusion to $7,500 per return or $3,750 for married individuals filing separately (up from $5,000 and $2,500, respectively). These dollar amounts will apply in future years, too, unless Congress changes them.

That said, some adjustments to certain general tax limits are relevant to calculating one’s federal income tax savings under a DCAP. These include the 2026 tax rate tables, earned income credit amounts and the standard deduction.

Adoption assistance exclusion and adoption credit. Under an employer-provided adoption assistance program, the maximum amount that may be excluded from a participant’s gross income for adopting a child will be $17,670 per child (up from $17,280). The maximum adoption credit a participant may claim will also be $17,670 per child (also up from $17,280).

The adoption exclusion and credit are subject to an income-based phaseout. The phaseout will begin to kick in when a participant’s modified adjusted gross income (MAGI) exceeds $265,080 (up from $259,190). The exclusion and credit will be entirely phased out for individuals with MAGI above $305,079 (up from $299,189).

Staying current with annual COLAs is an essential part of responsibly managing your organization’s fringe benefits. Make sure your team is fully aware of the updated limits to help ensure compliance, minimize tax exposure and strengthen overall compensation. We’d be happy to help you interpret the latest IRS guidance, update plan documents as needed and evaluate whether your current benefits continue to meet your workforce’s needs.

As the year draws to a close, it’s a great time to revisit your gifting strategy — especially if you want to transfer wealth efficiently while minimizing future estate tax exposure. One of the simplest and most powerful tools available is the gift tax annual exclusion. In 2025, the exclusion amount is $19,000 per recipient. (The amount remains the same for 2026.)

Be aware that you need to use your annual exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you don’t make an annual exclusion gift to your granddaughter this year, you can’t add the unused 2025 exclusion to the 2026 exclusion to make a $38,000 tax-free gift to her next year.

How can you leverage the annual exclusion?

Making annual exclusion gifts is an easy way to reduce your potential estate tax liability. For example, let’s say that you have four adult children and eight grandchildren. In this instance, you may give each family member up to $19,000 tax-free by year end, for a total of $228,000 ($19,000 × 12).

Furthermore, the gift tax annual exclusion is available to each taxpayer. If you’re married and your spouse consents to a joint gift, also called a “split gift,” the exclusion amount is effectively doubled to $38,000 per recipient for 2025 and 2026.

Bear in mind that split gifts and large gifts trigger IRS reporting responsibilities. A gift tax return is required if you exceed the annual exclusion amount or you give joint gifts with your spouse. Unfortunately, you can’t file a “joint” gift tax return. In other words, each spouse must file an individual gift tax return for the year in which they both make gifts.

Also, beware that some types of gifts aren’t eligible for the annual exclusion. For example, gifts must be of a “present interest” to qualify.

What’s the lifetime gift tax exemption?

If you make gifts in excess of the annual exclusion amount (or gifts ineligible for the exclusion), you can apply your lifetime gift and estate tax exemption. For 2025, the exemption is $13.99 million. The One Big Beautiful Bill Act permanently increases the exemption amount to $15 million beginning in 2026, indexing it for inflation after that.

Note: Any gift tax exemption used during your lifetime reduces the estate tax exemption amount available at death.

Are some gifts exempt from gift tax?

Yes. These include gifts:

From one spouse to the other (as long as the recipient spouse is a U.S. citizen),
To a qualified charitable organization,
Made directly to a health care provider for medical expenses, and
Made directly to qualifying educational institution for a student’s tuition.

For example, you might pay the tuition for a grandchild’s upcoming school year directly to the college. The gift won’t count against the annual exclusion or your lifetime exemption.

Review your estate plan before making gifts

If you’re considering year-end giving, it may be helpful to review your overall estate plan and determine how annual exclusion gifts can support your long-term goals. We can help you identify which assets to give, ensure proper documentation and integrate gifting into your broader wealth transfer strategy.

Unanticipated crises can threaten even the most well-run company. And the risk is often greater for small to midsize businesses where the owner wears many hats. That’s why your company needs an emergency succession plan.

Unlike a traditional succession plan — which focuses on the long-term and is certainly important, too — an emergency succession plan addresses who’d take the helm tomorrow if you’re suddenly unable to run the business. Its purpose is to clarify responsibilities, preserve operational continuity and reassure key stakeholders.

Naming the right person

When preparing for potential disasters in the past, you’ve probably been urged to devise contingency plans to stay operational. In the case of an emergency succession plan, you need to identify contingency people.

Larger organizations may have an advantage here. After all, a CFO or COO may be able to temporarily or even permanently replace a CEO relatively easily. For small to midsize companies, the challenge can be greater — particularly if the owner is heavily involved in retaining key customers or bringing in new business.

For this reason, an emergency succession plan should name someone who can credibly step into the leadership role if you become seriously ill or otherwise incapacitated. Look to a trusted individual whom you expect to retain long-term and who has the skills and personality to stabilize the company during a difficult time.

After you identify this person, consider the “domino effect.” That is, who’ll take on your emergency successor’s role when that individual is busy running the company?

Empowering your pick

After choosing an emergency successor, meet with the person to discuss the role in depth. Listen to any concerns and take steps to alleviate them. For instance, you may need to train the individual on certain duties or allow the person to participate in executive-level decisions to get a feel for running the business.

Just as important, ensure your emergency successor has the power and access to act quickly. This includes:

Signatory authority for bank accounts,
Access to accounting and payroll systems, and
The ability to execute contracts and approve expenditures.

Updating company governance documents to reflect temporary leadership authority is a key step. Be sure to ask your attorney for guidance.

Centralizing key information

It’s also critical to document the financial, operational and administrative information your emergency successor will rely on. This includes maintaining a secure, centralized location for key records such as:

Banking credentials,
Vendor and customer contracts,
Payroll records and procedures,
Human resources data,
Tax filings and financial statements, and
Login details for essential systems.

Without this documentation, even the most capable interim leader may struggle to keep the business functioning smoothly.

Also, ensure your successor will have access to insurance records. Review your coverage to verify it protects the company financially in the event of a sudden transition. Key person insurance, disability buyout policies, and the structure of ownership or buy-sell agreements should align with your emergency succession plan’s objectives.

Getting the word out

A traditional succession plan is usually kept close to the vest until it’s fully formulated and nearing execution. An emergency succession plan, however, must be transparent and communicated as soon as possible.

When ready, inform your team about the plan and how it will affect everyone’s day-to-day duties if executed. In addition, develop a strategy for communicating with customers, vendors, lenders, investors and other stakeholders.

Acting now

If you haven’t created an emergency succession plan, year end may be a good time to get started. Already have one? Be sure to review it at least annually or whenever there are significant changes to the business. We’d be happy to help you evaluate areas of financial risk, better document internal controls and strengthen the processes that will keep your company moving forward — even in the face of the unexpected.

Choosing the right bookkeeper is one of the most important staffing decisions your business will make. A skilled bookkeeper maintains accurate financial records, manages cash flow, and ensures compliance with accounting and tax requirements. But finding the right person can be challenging, especially in today’s competitive job market. Whether you’re replacing a long-time team member or hiring for the first time, here are some key factors to consider when interviewing candidates.

Education and experience

A good starting point is evaluating each candidate’s educational background. Some bookkeepers have degrees in accounting, finance or business, while others have completed bookkeeping training programs or earned software certifications. Advanced training isn’t required, but it can demonstrate professionalism and a commitment to maintaining current skills.

Experience and up-to-date accounting knowledge also matter. Most small businesses benefit from hiring someone with several years of bookkeeping experience, ideally in a similar industry or in a business of comparable complexity. Familiarity with U.S. Generally Accepted Accounting Principles and applicable tax laws is valuable, even if a candidate isn’t a formally trained accountant. Because accounting and tax rules change frequently, you’ll want someone who stays current on the latest developments.

Technical skills

Modern bookkeepers rely heavily on technology. Ask candidates about their experience with your specific accounting program and related tools, such as payroll systems, tax software, budgeting applications, artificial intelligence tools and spreadsheet programs.

If you’re open to changing systems, experienced bookkeepers can often recommend software solutions that improve efficiency and visibility. A bookkeeper’s ability to adapt to new technology or automate manual processes is often just as valuable as his or her ability to keep the books balanced.

Compliance awareness is another important factor. Many bookkeepers manage or assist with payroll filings, sales tax reporting, Form 1099 preparation and other compliance tasks. Even if you rely on a CPA firm for final tax returns, your bookkeeper’s understanding of the underlying rules drives the work’s accuracy and timeliness. Someone who’s handled these responsibilities in previous roles will likely require significantly less training and supervision.

Oversight and planning abilities

Strong bookkeepers do more than record transactions — they can also help streamline daily operations. Ask candidates about their experience closing the books each month, preparing timely financial statements, reconciling accounts, minimizing workflow bottlenecks and supporting audit requests.

Some bookkeepers also take on higher-level financial responsibilities. For instance, they may prepare budgets, forecasts or weekly management summaries. These skills can be particularly valuable because they may help relieve you of some strategic planning tasks and provide a sounding board for major business decisions. Some candidates may even have training in forensic accounting, which you can leverage to tighten internal controls and reduce fraud risks.

Soft skills

Technical skills are only part of the hiring equation. A bookkeeper works with sensitive financial data, so trustworthiness, confidentiality and sound judgment are essential.

A bookkeeper also interacts with vendors, employees, customers and your outside accounting firm, so strong communication and collaboration skills matter. Consider whether candidates can explain financial concepts clearly, are organized and proactive, and maintain professionalism. Discuss how they’ve handled reporting discrepancies or audit adjustments in previous roles. You might even present a recent accounting challenge from your business and ask how they’d address it. When assessing competency, you may find that a candidate’s problem-solving approach often reveals as much as his or her resumé.

Long-term potential

Even the most experienced bookkeeper may struggle if their working style doesn’t align with your business or mesh well with your existing staff. The ideal candidate will demonstrate leadership qualities, a willingness to take initiative and a desire to grow with your company.

When searching for the right candidate for this critical position, a thoughtful hiring process can prevent costly turnover, reporting errors and frustration down the road. In addition to helping brainstorm questions and referring qualified candidates, we can temporarily handle your bookkeeping tasks. Contact us for guidance during your search.

The passage of the One Big Beautiful Bill Act (OBBB) in July ushered in many tax-related updates for businesses and individuals in 2025 and beyond. We have compiled a list of the changes and corresponding actions taxpayers can take, which may help optimize their position.

Yeo & Yeo’s 2025 Year-end Tax Planning Guide provides action items that may help you save tax dollars if you act before year-end. These are just some of the steps that can be taken to save taxes. Not all actions may apply in your particular situation, but you or a family member can likely benefit from many of them.

Next steps

After reviewing the Year-end Tax Guide, reach out to your Yeo & Yeo tax advisor, who can help narrow down the specific actions you can take and tailor a tax plan unique to your current personal and business situation.

Together we can:

Identify tax strategies and advise you on which tax-saving moves to make.
Evaluate tax planning scenarios.
Prepare for the upcoming year.

We will continue to monitor tax changes and share information as it becomes available. Visit our Tax Resource Center for the latest tax insights and useful links.

The word “affordability” is getting a lot of play in the news and elsewhere these days. But if you’re an employer that sponsors a health insurance plan, you may already be familiar with the concept in a more specific sense.

Under the Affordable Care Act (ACA), applicable large employers (ALEs) must offer full-time employees health coverage that meets the law’s “affordability” standards. With updated inflation-adjusted thresholds taking effect in 2026, now’s a good time to revisit the rules and determine what the upcoming year’s numbers may mean for your organization.

Employer shared responsibility

For ACA purposes, an employer’s size is determined annually based on its average number of employees in the previous year. Generally, if your organization had an average of 50 or more full-time or full-time equivalent employees during the previous calendar year, you’ll be classified as an ALE for the current year. A full-time employee is one who averages at least 30 hours of service per week.

Under the ACA’s employer shared responsibility provision, ALEs must offer minimum essential coverage that’s affordable and provides minimum value to full-time employees (or equivalents) and their dependents. Affordability is measured using an annually indexed percentage of an employee’s household income. An ALE may be penalized if at least one full-time employee receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”) and it fails the affordability or minimum value tests.

Premium tax credit

It’s worth noting that the enhanced premium tax credit rules — originally expanded under the American Rescue Plan Act (ARPA) and later extended by the Inflation Reduction Act (IRA) — are set to expire after 2025. Unless Congress acts, the Marketplace subsidies available to employees and their families will shrink substantially in 2026. Although this doesn’t change an employer’s ACA responsibilities, it may affect the appeal of Marketplace coverage compared with your organization’s health insurance plan.

Under the ACA’s original framework, eligibility for a premium tax credit is limited to taxpayers with household incomes between 100% and 400% of the federal poverty line who buy coverage through a Marketplace. The ARPA temporarily removed the upper-income limit and increased the credit by lowering the percentage of household income individuals are expected to contribute. However, if ARPA and IRA enhancements expire as scheduled, the ACA’s original premium tax credit caps and formulas will return.

Next year’s numbers

For plan years beginning in 2026, the required contribution percentage used to determine whether employer-sponsored health coverage is affordable will increase from the 9.5% statutory baseline to 9.96% (up from 9.02% for 2025 plan years). This percentage determines the maximum amount an eligible employee can be required to pay toward the employee-only premium for the employer’s lowest-cost plan providing minimum value.

The ACA’s employer shared responsibility penalty amounts for ALEs have also been indexed for inflation. The penalty for offering coverage deemed unaffordable or that fails to provide minimum value will increase to $5,010 per applicable employee for 2026 plan years (up from $4,350 for 2025). Meanwhile, the separate “no offer” penalty — triggered when an ALE fails to offer coverage to at least 95% of full-time employees — will rise to $3,340 per applicable employee for 2026 plan years (up from $2,900 for 2025).

Compliant and competitive

Rising affordability thresholds, shifting Marketplace subsidies and increased penalty amounts could all potentially affect your organization’s benefits strategy and future decision-making. We can help you test affordability, model scenarios and ensure your plan remains both compliant and competitive in the years ahead.

Year-round tax planning generally produces the best results, but there are some steps you can still take in December to lower your 2025 taxes. Here are six to consider:

1. Postpone invoicing. If your business uses the cash method of accounting and it would benefit from deferring income to next year, wait until early 2026 to send invoices.

2. Prepay expenses. A cash-basis business may be able to reduce its 2025 taxes by prepaying certain 2026 expenses — such as lease payments, insurance premiums, utility bills, office supplies and taxes — before the end of the year. Many expenses can be deducted even if paid up to 12 months in advance.

3. Buy equipment. Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back for assets acquired and placed in service after January 19, 2025. And the Sec. 179 expensing limit has doubled, to $2.5 million for 2025. But remember that the assets must be placed in service by December 31 for you to claim these breaks on your 2025 return.

4. Use credit cards. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.

5. Contribute to retirement plans. If you’re self-employed or own a pass-through business — such as a partnership, S corporation or, generally, a limited liability company — one of the best ways to reduce your 2025 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2025 contributions up until its tax return due date (including extensions).

6. Qualify for the pass-through deduction. If your business is a sole proprietorship or pass-through entity, you may be able to deduct up to 20% of qualified business income (QBI). But if your 2025 taxable income exceeds $197,300 ($394,600 for married couples filing jointly), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here. Please consult us before implementing them. We can also offer more ideas for reducing your taxes this year and next.

The “fraud triangle” is a three-legged model that explains the generally required conditions for a worker to commit occupational fraud: 1) incentive, 2) opportunity and 3) rationalization. Twenty years ago, fraud professionals expanded the triangle to include another leg — capability — and the “fraud diamond” was born. Since then, the diamond framework has gained considerable support among forensic accountants. Understanding its principles can also help business owners prevent financial crimes in their companies.

From triangle to diamond

The triangle’s basic conditions are simple to unpack. Incentive refers to the motivations that fraud perpetrators experience. They can be personal (such as debt, addiction or a costly lifestyle) or professional (such as pressure to meet certain sales goals or revenue targets). Opportunity generally means that fraudsters believe they can get away with committing crimes. Poor internal controls, weak management oversight and failure to audit may be to blame. Rationalization is the perpetrator’s mental justification. The employee might feel underpaid or mistreated, believe that “everybody does it” or think the employer can afford the financial loss.

Capability, introduced in the diamond model, represents a broader set of material and psychological conditions. It dictates that an individual capable of fraud is typically someone with all or most of the following:

An elevated job position or access to financial functions,
Intelligence,
Confidence,
Resilience to stress and guilt,
Authority to lead and even coerce others, and
Ability to lie and conceal activities.

As you probably recognize, many qualities that can make someone an effective thief can also make that person a successful executive.

Don’t let opportunity knock

Several studies have shown that fraud professionals using the diamond model are better at predicting workplace fraud than those using the triangle framework alone. Because fraud is essentially a people problem, you should carefully screen new hires and get to know employees on a personal level to assess their capacity to commit fraud. That said, it’s important to recognize that most capable individuals don’t ever steal or falsify data — even if other factors would seem to encourage it.

Some capability traits — such as intelligence, confidence and resilience — generally are desirable qualities in an employee. So perhaps a better way for business owners to prevent fraud is to concentrate on opportunity factors. Make financial crimes more difficult to commit by implementing and consistently following robust internal controls that address your organization’s greatest vulnerabilities. This includes ensuring that managers are properly trained and provide adequate employee oversight, and that audits are conducted regularly.

Partner with us

It’s essential to identify and strengthen weaknesses in your company’s defenses and investigate any suspicious behaviors. Contact us to help protect your business from fraud.

More than a century ago, Yeo & Yeo’s founders laid the groundwork for a culture of community service. Today, their legacy continues to thrive through the efforts of our people, including the Yeo Young Professionals (YYP) group. Each year, the YYPs lead a firm-wide service project, uniting the firm to raise funds and volunteer for a designated nonprofit organization. By taking the lead in organizing events and rallying support, these emerging leaders demonstrate that service is a powerful avenue for personal and professional growth.

This year, our YYP service project supported the Greater Michigan Chapter of the Alzheimer’s Association. Professionals across our Yeo & Yeo companies and offices participated in Walks to End Alzheimer’s and FUNdraising initiatives, raising more than $3,400 for the cause. Combined with the $9,500 allocated by the Yeo & Yeo Foundation, the firm’s total contribution reached $13,370 in support of Alzheimer’s care and research.

“Alzheimer’s has unfortunately impacted so many of our lives,” said Michael Wilson II, CPA, Manager and Foundation Board Young Professionals Service Chair. “This firm-wide initiative gave us a chance to acknowledge those experiences while doing something positive together. It was incredible to see our people unite around such an important cause.”

Yeo & Yeo’s dedication to giving back is more than a tradition—it is a defining part of our company’s culture and identity. Established in 2018, the Yeo & Yeo Foundation is an employee-run organization dedicated to supporting charitable causes throughout Michigan. Since its inception, the Foundation has allocated funds to support the YYP service project, benefiting organizations such as the American Cancer Society, Special Olympics Michigan, and Habitat for Humanity.

This Giving Tuesday, and every day, we are proud to give our time, talent, and resources to uplift others. Beyond the Foundation’s grants and service projects, Yeo & Yeo professionals serve on numerous boards and committees throughout the state, lending their expertise to nonprofits that strengthen our communities. Additionally, through our Nonprofit Services Group, we help nonprofit organizations thrive by providing specialized accounting, audit, HR, technology, and advisory services so they can focus on advancing their missions.

Whether through volunteering, professional service, or charitable giving, the Yeo & Yeo team continues to demonstrate that community building is at the heart of who we are. This year’s YYP service project is one more example of that commitment—and a reminder that when we come together, actions create lasting impact.

As year-end approaches, it’s important for employers to review upcoming payroll and compliance changes that could affect their reporting, employee communication, and filing requirements in 2025. Following are three major updates from the IRS that all businesses—large and small—should be aware of as they prepare for W-2s, ACA filings, and electronic reporting.

1. Overtime Reporting on Form W-2: Transition Relief for 2025

The IRS has issued transition relief for tax year 2025, meaning employers are not required to separately report overtime pay on Form W-2 this year. However, employees may still need this information to claim deductions under the One Big Beautiful Bill Act (OBBBA).

Employer Options for 2025

Report overtime in Box 14 of Form W-2
Pros: Helps employees claim deductions easily; proactive for future compliance.
Cons: Requires payroll system updates; adds administrative steps.
Provide a separate year-end statement to employees
Pros: Gives employees clear documentation for deductions; flexible format.
Cons: Additional administrative effort; must ensure accuracy.
Do not report overtime separately
Pros: No penalty for 2025; avoids system changes now.
Cons: Employees may lack documentation for deductions; could lead to inquiries.

What Counts as “Qualified” Overtime?

Only the premium portion of overtime required under the Fair Labor Standards Act (FLSA) is deductible. If an employee earns $20/hour and works 50 hours in a week:

Regular pay: 40 × $20 = $800
Overtime pay: 10 × $30 = $300
Qualified deduction: (10 hrs. × $10 premium) = $100

The maximum annual deduction is $12,500 for single filers or $25,000 for joint filers. Amounts phase out at higher income levels.

2. Electronic Filing Threshold: 10-Return Rule

Beginning last year, the IRS significantly lowered the threshold for mandatory electronic filing. Employers who file 10 or more combined information returns must file electronically—including W-2s, 1099s, 1098s, and other similar forms.

Action Steps for Employers

Count all information returns across all categories.
Register for an IRS-approved e-filing system:
- SSA Business Services Online
- IRS IRIS Portal
Obtain a Transmitter Control Code (TCC) if needed.

If your organization has traditionally filed paper returns, now is the time to ensure your systems and processes support electronic filing ahead of 2025 deadlines.

3. Affordable Care Act Filing Requirements & ALE Status Determination

If your organization averaged 50 or more full-time employees and full-time equivalents (FTEs) in 2024, you are considered an Applicable Large Employer (ALE) for 2025.

ALE Responsibilities Include:

Offering affordable, minimum essential health insurance coverage to full-time employees and dependents
Filing Forms 1094-C and 1095-C with the IRS
Providing Form 1095-C to employees

Calculating ALE Status

Count all full-time employees and FTEs each month of 2024.
Add them together.
Divide by 12. Employees working 30+ hours/week or 130+ hours/month count as full-time.

This calculation is critical—incorrectly assuming you are not an ALE could lead to penalties.

Next Steps for Employers

As you prepare for year-end filings, consider the following:

Decide if and how you will provide overtime information to employees.
Confirm you are set up for the required electronic filing.
Determine 2025 ALE status and begin preparing 1094/1095 forms if required.

Yeo & Yeo’s payroll and compliance professionals are here to assist with your year-end reporting needs.

Download the 2026 Payroll Brief

For a deeper look at payroll updates and year-end requirements, download Yeo & Yeo’s 2026 Payroll Planning brief.

A living trust is one of the most versatile estate planning tools available. It offers a streamlined way to manage and transfer assets while maintaining privacy and control. Unlike a traditional will, a living trust allows your assets to pass directly to your beneficiaries without going through probate. By placing assets into the trust during your lifetime, you create a clear plan for how they should be distributed, and you empower a trustee to manage them smoothly if you become incapacitated. This combination of efficiency and continuity can provide significant peace of mind for you and your family.

However, even the most carefully created living trust can’t automatically account for every asset you acquire later or forget to transfer into it. That’s where a pour-over will becomes essential.

Defining a pour-over will

A pour-over will acts as a safety net by directing any assets not already held in your living trust to be “poured over” into the trust at your death. Your trustee then distributes the assets to your beneficiaries under the trust’s terms. Although these assets may still pass through probate, the pour-over will ensures that everything ultimately ends up under the trust’s umbrella, following the same instructions and protections you’ve already put in place.

This setup offers the following benefits:

Convenience. It’s easier to have one document controlling the assets than it is to “mix and match.” With a pour-over will, it’s clear that everything goes to the trust, and then the trust document determines who gets what. That, ideally, makes it easier for the executor and trustee charged with wrapping up the estate.

Completeness. Generally, everyone maintains some assets outside of a living trust. A pour-over will addresses any items that have fallen through the cracks or that have been purposely omitted.

Privacy. In addition to conveniently avoiding probate for the assets that are titled in the trust’s name, the setup helps maintain a level of privacy that isn’t available when assets pass directly through a regular will.

Understanding the roles of your executor and trustee

Your executor must handle specific bequests included in the will, as well as the assets being transferred to the trust through the pour-over provision before the trustee takes over. (Exceptions may apply in certain states for pour-over wills.) While this may take months to complete, property transferred directly to a living trust can be distributed within weeks of a person’s death.

Therefore, this technique doesn’t avoid probate completely, but it’s generally less costly and time consuming than usual. And, if you’re thorough with the transfer of assets made directly to the living trust, the residual should be relatively small.

Note that if you hold back only items of minor value for the pour-over part of the will, your family may benefit from an expedited process. In some states, your estate may qualify for “small estate” probate, often known as “summary probate.” These procedures are easier, faster and less expensive than regular probate.

After the executor transfers the assets to the trust, it’s up to the trustee to do the heavy lifting. (The executor and trustee may be the same person, and, in fact, they often are.) The responsibilities of a trustee are similar to those of an executor, with one critical difference: They extend only to the trust assets. The trustee then adheres to the terms of the trust.

Creating a coordinated estate plan

When used together, a living trust and a pour-over will create a comprehensive estate planning structure that’s both flexible and cohesive. The trust handles the bulk of your estate efficiently and privately, while the pour-over will ensures that no assets are left out or distributed according to default state laws. This coordinated approach helps maintain consistency in how your estate is managed and can reduce stress and confusion for your loved ones.

Because living trusts and pour-over wills involve legal considerations, we recommend working with an experienced estate planning attorney to finalize the documents. We can assist you with the related tax and financial planning implications. Contact us to learn more.

As a small to midsize business grows, demands on its time, talent and resources inevitably expand right along with it. Many business owners reach a point where continuing to do everything in-house — or even themselves — begins to slow progress or expose the company to unnecessary risk. Have you reached this point yet? If so, or even if you’re getting close, outsourcing could be a smart move.

Common candidates

Many business activities can be outsourced. The key is identifying functions that, if handled by an external provider, would improve efficiency, strengthen compliance, and give you and your team more time to focus on revenue-generating work. Here are some common candidates:

Accounting and financial reporting. A reputable provider can manage your books, collect payments, pay invoices and keep accounting technology up to date. It should also be able to prepare financial statements that meet the standards expected by lenders, investors and other outside parties.

Customer service. This may seem an unlikely candidate because you might believe that someone must work for your business to truly represent it. But that’s not necessarily true. Internal customer service departments often have high turnover rates, which drives up costs and reduces service quality. Outsourcing to a provider with a more stable, well-trained team can improve both customer satisfaction and operational consistency.

Information technology (IT). Bringing in an outside firm or consultant to manage your IT needs can provide significant benefits. For starters, you’ll be able to better focus on your mission without the constant distraction of changing technology. Also, a provider will stay current on the best hardware and software for your business, as well as help you securely access, store and protect your data.

Payroll and human resources (HR). These functions are governed by complex regulations that change frequently — as does the necessary software. A qualified vendor can help your business comply with current legal requirements while giving you and your employees a better, more secure platform for accessing payroll and HR information.

Downsides to watch out for

Naturally, outsourcing comes with potential downsides. You’ll need to spend time and resources researching and vetting providers. Then each engagement will involve substantial ongoing expenses.

You’ll also have to place considerable trust in providers — especially in today’s environment, where data breaches are common and cybersecurity is critical. Finally, even a solid outsourcing arrangement requires ongoing communication and management to maintain a productive relationship.

Not a one-size-fits-all solution

Every business owner must carefully consider when to outsource, which services are worth the money and how to measure return on investment over time. If you’d like help evaluating your options or better understanding the financial and tax implications of outsourcing, contact us.

Whether you’re selling your business or acquiring another company, the tax consequences can have a major impact on the transaction’s success or failure. So if you’re thinking about a merger or acquisition, you need to consider the potential tax impact.

Asset sale or stock sale?

From a tax standpoint, a transaction can basically be structured as either an asset sale or a stock sale. In an asset sale, the buyer purchases just the assets of a business. This may happen if a buyer only wants specific assets or product lines. And it’s the only option if the target business is a sole proprietorship or a single-member limited liability company (LLC) that’s treated as a sole proprietorship for tax purposes.

Alternatively, if the target business is a corporation, a partnership or an LLC that’s treated as a partnership for tax purposes, the buyer can directly purchase the seller’s stock or other form of ownership interest. Whether the business being purchased is a C corporation or a pass-through entity (that is, an S corporation, partnership or, generally, an LLC) makes a significant difference when it comes to taxes.

The flat 21% corporate federal income tax rate under the Tax Cuts and Jobs Act (TCJA), which the One Big Beautiful Bill Act (OBBBA) didn’t change, makes buying the stock of a C corporation somewhat more attractive. Why? The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower rate when they’re eventually sold.

The TCJA’s reduced individual federal tax rates, which have been made permanent by the OBBBA, may also make ownership interests in S corporations, partnerships and LLCs more attractive than they once were. This is because the passed-through income from these entities will be taxed at the TCJA’s lower rates on the buyer’s personal tax return. The buyer may also be eligible for the TCJA’s qualified business income deduction, which was also made permanent by the OBBBA.

Note: In some circumstances, a corporate stock purchase can be treated as an asset purchase by making a Section 338 election. Contact us for more information. We’d be pleased to help determine if this would be beneficial in your situation.

Seller or buyer?

Sellers generally prefer stock sales for tax and nontax reasons. One of their main objectives is to minimize the tax bill from a sale. That can usually be best achieved by selling ownership interests in the business (corporate stock or interests in a partnership or LLC) as opposed to selling the business’s assets.

With a sale of stock or other ownership interest, liabilities generally transfer to the buyer and any gain on sale is typically treated as lower-taxed long-term capital gain (assuming the ownership interest has been held for more than one year).

Buyers, however, usually prefer to purchase assets. Generally, a buyer’s main objective is to generate enough cash flow from an acquired business to pay any acquisition debt and provide an acceptable return on the investment. Therefore, buyers want to limit exposure to undisclosed and unknown liabilities and minimize taxes after the deal closes.

A buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price. Stepped-up basis lowers taxable gains when certain assets, such as receivables and inventory, are sold or converted into cash. It also increases depreciation and amortization deductions for qualifying assets.

Keep in mind that other factors, such as employee benefits, can cause unexpected tax issues when merging with or acquiring a business.

We can help

Selling the business you’ve spent years building or becoming a first-time business owner by buying an existing business might be the biggest financial move you ever make. We can assess the potential tax consequences before you start negotiating to help avoid unwelcome tax surprises after a deal is signed. Contact us to get started.

With Notice 2025–67, the IRS has issued its 2026 inflation-adjusted retirement plan contribution limits. Although the changes are more modest than in recent years, most retirement-plan-related limits will still increase for 2026. Depending on your plan, these adjustments may provide extra room to boost your retirement savings.

Type of limitation	2025 limit	2026 limit
Elective deferrals to 401(k), 403(b) and 457 plans	$23,500	$24,500
Annual benefit limit for defined benefit plans	$280,000	$290,000
Contributions to defined contribution plans	$70,000	$72,000
Contributions to SIMPLEs	$16,500	$17,000
Contributions to traditional and Roth IRAs	$7,000	$7,500
Catch-up contributions to 401(k), 403(b) and 457 plans for those age 50 or older*	$7,500	$8,000
Catch-up contributions to 401(k), 403(b) and 457 plans for those age 60, 61, 62 or 63*	$11,250	$11,250
Catch-up contributions to SIMPLE plans for those age 50 or older	$3,500	$4,000
Catch-up contributions to SIMPLE plans for those age 60, 61, 62 or 63	$5,250	$5,250
Catch-up contributions to IRAs for those age 50 or older	$1,000	$1,100
Compensation for benefit purposes for qualified plans and SEPs	$350,000	$360,000
Minimum compensation for SEP coverage	$750	$800
Highly compensated employee threshold	$160,000	$160,000

*Starting in 2026, the SECURE 2.0 Act requires the catch-up contributions of higher-income taxpayers to be treated as post-tax Roth contributions. Generally for 2026, the requirement will apply to taxpayers who earned more than $150,000 during the prior year. However, new final regulations state that the deadline for plan amendments to implement this change is December 31, 2026. So there might not be any adverse consequences for plans that continue to allow non-Roth account catch-up contributions for higher-income taxpayers in 2026.

Your modified adjusted gross income (MAGI) may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits will all increase for 2026:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
- For a spouse who participates, the 2026 phaseout range limits will increase by $3,000, to $129,000–$149,000.
- For a spouse who doesn’t participate, the 2026 phaseout range limits will increase by $6,000, to $242,000–$252,000.
For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2026 phaseout range limits will increase by $2,000, to $81,000–$91,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,500 contribution limit for 2026 (plus $1,100 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies.

Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2026 phaseout range limits will increase by $6,000, to $242,000–$252,000.
For single and head-of-household taxpayers, the 2026 phaseout range limits will increase by $3,000, to $153,000–$168,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for traditional and Roth IRAs.)

When reviewing your retirement plan, be sure to take these 2026 contribution limits into account. We can help you review your retirement plan and make any necessary revisions.