Cordasco & Company

Don’t overlook these tax issues after a job loss

Cordasco — Tue, 06 Oct 2026 19:15:09 +0000

Even with a relatively low unemployment rate (averaging around 4.4% over the past year), layoffs and terminations continue to affect workers across many industries. If you’ve recently lost your job, you’re likely focused on replacing income and evaluating your next steps. But some tax implications related to a job loss also may require attention. Here are a few important areas to consider.

Unemployment, severance and other income

Many people are surprised to find out that federal unemployment compensation is taxable. (Some states do exempt it from state tax.) Although severance pay is also taxable and subject to federal income tax withholding, some elements of a severance package may get special tax treatment. For example:

Incentive stock options (ISOs). If you sell stock acquired by way of an ISO from your former employer, part or all of your gain may be taxed at lower long-term capital gain rates rather than at ordinary income tax rates — depending on whether you meet the required holding-period rules.

“Golden parachute” payments. If you received (or will receive) such a payment, you may be subject to an excise tax equal to 20% of the portion of the payment that, under complex rules, is treated as an “excess parachute payment.” This is on top of ordinary income tax.

Job placement assistance. The value of such assistance you receive from your former employer usually is tax-free. However, the assistance is taxable if you had a choice between receiving outplacement help or cash.

Finally, be aware that payments from your former employer for accumulated unused paid time off, such as vacation time or sick time, are taxable.

Health coverage

If your former employer pays for some of your medical coverage for a period of time after termination, you won’t be taxed on the value of the benefit.

Under the COBRA rules, employers that offer group health coverage generally must provide continuation coverage to most terminated employees and their families. The cost of COBRA coverage can be high because you typically will have to pay the portion your employer had been paying in addition to what you’d been paying as an employee. So you may want to look for your own coverage through the Health Insurance Marketplace at healthcare.gov to see if you can purchase less expensive coverage there.

Medical insurance premiums not paid pretax from a paycheck are potentially tax deductible. But you must itemize deductions, and you can deduct eligible medical expenses only to the extent that they exceed 7.5% of your adjusted gross income.

If your COBRA coverage is for a high-deductible health plan or you purchase bronze-level coverage on the Marketplace, you can make tax-deductible contributions to a Health Savings Account — and you don’t have to itemize to claim the deduction. HSA withdrawals used for qualified medical expenses are tax-free.

Retirement savings

Do you have a retirement plan with your former employer, such as a 401(k) plan? You may be able to leave the account there. But consider the investment options it offers and the fees that will apply.

If you get a new job, you may want to roll over the funds to your new employer’s 401(k) plan. That will leave you with fewer retirement accounts to keep track of. But again, consider the investment options and fees of the new plan.

In many cases, a direct, tax-free rollover from your old 401(k) to an IRA is the best move. You’ll generally have a much wider variety of investment options and more control over fees because you choose the brokerage firm, bank or other IRA custodian.

If you’re doing a rollover, request a direct rollover from your old plan to your new plan or IRA. Otherwise, you’ll need to make an indirect rollover within 60 days to avoid tax and potential penalties.

If you make withdrawals from your former company’s plan or IRA to supplement missing income, you’ll generally owe income tax on them. And, if you’re under age 59½, you’ll owe an additional 10% penalty unless you qualify for an exception. (If you have a Roth IRA, you can withdraw up to your contribution amount without incurring taxes or penalties.)

If a distribution from your former employer’s retirement plan includes employer securities in a lump sum, the distribution is taxed under the lump-sum rules — except that net unrealized appreciation in the value of the stock isn’t taxed until the securities are sold or otherwise disposed of later.

Further, any loan you’ve taken out from your former employer’s retirement plan, such as a 401(k)-plan loan, may be required to be repaid within a specified period or even immediately. If it isn’t repaid, it may be treated as if the loan is in default. If the balance of the loan isn’t repaid within the required period, it will typically be treated as a taxable distribution.

Guidance available

A job loss can create tax consequences that aren’t always obvious. Reviewing your options before making decisions about severance, health coverage or retirement accounts may help you avoid unnecessary taxes and penalties. If you’d like guidance, contact us.

Sell in 2026, Invest in 2027? The Opportunity Zone Timing Trap You Cannot Ignore

Cordasco — Fri, 02 Oct 2026 19:00:29 +0000

If you are expecting a meaningful capital gain from a business sale, real estate disposition, concentrated-stock exit, or other transaction in 2026, Opportunity Zones may be back on the planning menu in a very big way. But the calendar has a plot twist worthy of a Netflix season finale: a 2026 sale can potentially lead to either old-regime or new-regime OZ treatment depending on exactly when you make the Qualified Opportunity Fund investment.

Here’s the deal: the One Big Beautiful Bill Act permanently reshaped the Opportunity Zone program beginning January 1, 2027. The new system, lovingly known as “OZ 2.0,” offers a rolling five-year deferral period and a 10% basis increase after five years, rather than forcing every investor’s deferred gain onto the same December 31, 2026 recognition date. That is HUGE. But it also means timing a 2026 sale is no longer a “we will figure it out after closing” exercise. That approach is how perfectly good tax planning turns into expensive confetti.

The Big Takeaway: Your Sale Date Controls Your Options

For a direct capital gain, you generally have 180 days beginning on the date the gain would otherwise be recognized to invest the eligible gain in a Qualified Opportunity Fund, or QOF. The existing 180-day rule remains central under the revised Opportunity Zone framework.

That 180-day clock creates a critical dividing line for 2026 gains:

If You Sell

Where the 180-Day Window Falls

Practical Result

Early 2026

Your deadline likely expires before January 1, 2027

You may be limited to an OZ 1.0 investment, assuming a qualifying old-regime investment is still available

On or after roughly July 6, 2026

Your 180-day window can extend into 2027

You may be able to invest on or after January 1, 2027 and use the OZ 2.0 regime

Late 2026

You have time to evaluate OZ 2.0 funds and newly designated zones

Potentially the cleanest timing for a 2027 QOF investment, but do not confuse more time with fewer diligence requirements.

The critical planning idea is simple: a sale in the second half of 2026 can create a bridge into OZ 2.0. A gain realized around July 6, 2026 or later will generally have an investment window that reaches January 1, 2027. A gain earlier in the year may not. Remember that gains coming through a K-1 have special rules. See below.

Holy cannoli, that is a lot of value riding on a closing date.

Why January 1, 2027 Matters So Much

The old Opportunity Zone program had a fixed tax-recognition date. You could defer eligible gain invested in a QOF, but the deferred gain was generally scheduled to come back into taxable income no later than December 31, 2026. The closer an investor made an old-regime investment to that date, the less meaningful the deferral became.

OZ 2.0 changes that architecture for qualifying investments made on or after January 1, 2027:

The program becomes permanent, with new Qualified Opportunity Zone designations made on rolling 10-year cycles.
A taxpayer can generally defer eligible gain for five years from the QOF investment date, unless an earlier disposition or inclusion event occurs.
After a five-year holding period, the investor receives a 10% basis increase in the deferred gain, effectively excluding 10% of that deferred gain from later recognition.
A Qualified Rural Opportunity Fund may qualify for a 30% basis increase after five years, assuming all of the rural-fund requirements are satisfied.
The familiar 10-year holding concept remains extraordinarily important because appreciation in the qualifying QOF investment itself may be eligible for exclusion upon a properly structured disposition after the required holding period.

Think of OZ 1.0 as an airport gate that was closing at a fixed time, whether you boarded early or sprinted to the gate at the last minute. OZ 2.0 is more like having your own five-year flight clock once you board. Still not a free vacation, amici miei. You have to buy the right ticket, get through security, and land in a qualifying fund and property structure. But the calendar is finally more rational.

A Concrete 2026 Sale Example

Let’s use a straightforward example.

Assume you sell a closely held business on August 15, 2026 , generating a $10 million eligible long-term capital gain. Assume the gain is direct to you personally, rather than passing through a partnership or S corporation, so the normal 180-day clock begins on the sale date.

Your 180-day investment deadline falls in February 2027 .

That gives you a genuine choice:

You could make an OZ investment before December 31, 2026 under the old system, assuming the investment and zone qualify under the transition rules.
Or you could wait until January 1, 2027 or later, remain within your 180-day period, and invest in a QOF qualifying under OZ 2.0.

If you invest the full $10 million gain in an OZ 2.0 QOF on January 15, 2027 , and hold the investment for five years, your deferred gain would generally be recognized in 2032 rather than in 2026. If the fund investment qualifies for the standard 10% basis increase, $1 million of the original deferred gain would be excluded, leaving $9 million subject to recognition at that later point, absent an earlier sale or inclusion event.

Now pause right there. The benefit is not simply “I delay tax.” The benefit is that you defer the tax for five years, potentially reduce the deferred-gain amount by 10%, and may earn separate long-term tax-free appreciation on the QOF investment if you satisfy the 10-year requirements. That is a three-act tax strategy, not a one-act magic trick.

And, of course, the investment itself still has to make economic sense. I have said it for decades: never let the tax tail wag the investment dog. A mediocre real estate deal with an OZ sticker is still a mediocre real estate deal wearing a tuxedo.

The Timing Concerns That Keep Me Awake

Let’s be honest: this is where people get cute with calendars, and cute is not a tax strategy.

1. Do not miss the 180-day deadline

The deadline is generally measured from the date the gain would otherwise be recognized. For a direct sale, that is usually the sale date. There is no “but I was still reviewing fund decks over Christmas” exception in the Internal Revenue Code.

A 2026 seller who wants OZ 2.0 treatment must ensure that January 1, 2027 falls inside the 180-day investment period. If it does not, then waiting for 2027 may cost the ability to defer the gain altogether.

2. Know whether your gain is direct or pass-through

Partnerships, S corporations, trusts, and estates can have different starting-date elections or timing rules for the 180-day period. In several pass-through scenarios, the owner may have choices tied to the entity’s gain date, the last day of the entity’s tax year, or the entity return due date. That flexibility can be enormously valuable, but it is not automatic and must be modeled carefully.

In other words, if your gain comes on a K-1, do not simply circle 180 days from the transaction date and declare victory. That is how one creates a “surprise” in April, and I do not mean the nice kind involving fresh cannoli.

3. The new zones are not necessarily the old zones

The new decennial Opportunity Zone designations take effect on January 1, 2027. The old map and the new map will not be identical. Some previously eligible census tracts may not be redesignated, and new investments after the new regime begins must be aligned with the applicable new-designation rules.

Translation: do not fall in love with a 2026 fund’s marketing deck just because it says “Opportunity Zone.” Confirm the actual qualifying status of the relevant property, the applicable transition rules, the fund’s testing plan, and the investment date. The OZ label is not marinara sauce. You cannot just pour it over anything and call it Italian.

4. Fund diligence still matters more than the tax benefit

A QOF must meet technical asset-testing, investment, reporting, and operational requirements. The investor also needs to preserve the deferral election, maintain the investment properly, and avoid an inclusion event that accelerates the deferred gain. Treasury and the IRS have continued building the OZ reporting framework, including expanded Form 8996 reporting and investor-statement requirements.

For the business owner who just sold a company, that means your diligence should cover:

The sponsor’s track record, capitalization, leverage, fees, and promote structure
The actual project economics without the OZ tax incentive
The fund’s compliance infrastructure and asset-testing timeline
The intended hold period and exit strategy
State income-tax conformity, because some states have their own opinions about federal tax benefits, and they are not always charming opinions
How the OZ investment fits with your liquidity needs, estate plan, charitable planning, and broader post-sale portfolio

The Marathon Analogy

Here is the analogy I want you to remember.

Imagine your 2026 sale is a marathon starting gun. Once that gun fires, you have 180 days to reach the Opportunity Zone finish line. But January 1, 2027 is a checkpoint where the course changes.

If you start the race too early in 2026, you reach the checkpoint after it has already closed. You can still run the old course, but you do not get the new five-year timing benefits.

If your sale occurs late enough in 2026, your 180-day race extends past January 1, 2027. Now you can cross into the new course, with a five-year deferral clock that starts when you invest rather than a tax bill that crashes the party on a fixed 2026 date.

But friends, you still have to finish the race. You cannot stop at mile 179, sip an espresso, and tell the IRS you were spiritually committed to investing. The money must actually reach a qualifying QOF within the required period.

That is the timing issue.

What You Need to Do

If a 2026 sale is on your horizon, here is the practical playbook:

Model the sale date before the purchase agreement is signed. A few days can determine whether your 180-day period reaches January 1, 2027.
Identify the type and amount of eligible gain. Not every dollar of sale proceeds is eligible gain, and the investment amount for deferral is generally tied to gain, not gross proceeds.
Determine the correct 180-day start date. Direct gains and pass-through gains require different analysis.
Decide whether OZ 1.0 or OZ 2.0 is actually better. The answer depends on your transaction date, investment timeline, potential fund, and liquidity needs.
Start QOF diligence before closing. The best deals do not wait for a panicked taxpayer with 14 days left on the clock. Neither do the competent fund sponsors.
Coordinate the OZ plan with the rest of your exit strategy. Charitable planning, installment structures, QSBS analysis, estate planning, state-tax exposure, and portfolio construction all belong at the same table.

Bottom Line

For a 2026 sale, Opportunity Zone timing is no longer merely a compliance deadline. It is a strategic fork in the road. A sale timed late enough in the year may allow you to invest under OZ 2.0, receive a true five-year deferral, capture a 10% basis increase after five years, and preserve the potential for tax-free QOF appreciation after a 10-year hold.

I can tell you, after nearly 40 years of watching Congress rewrite the rules while taxpayers try to catch up, this is one of those moments when planning before the sale is the whole ballgame. Wait until after closing, and you may discover that your 180-day window is less “strategic opportunity” and more “Game of Thrones winter is coming.”

If you are contemplating a 2026 exit, reach out to us at info@cordasco.cpa before the clock starts running. We will help you separate the real Opportunity Zone opportunity from the glossy brochure, the sponsor’s pasta primavera, and the tax-planning fairy tale.

Grazie Mille, Ciao!

The Administrative Office Reimbursement Strategy: How S Corp Owners Can Get Tax-Free Money Back from Their Business

Cordasco — Thu, 01 Oct 2026 19:00:29 +0000

Friends, I need to tell you about a tax strategy that is simultaneously one of the simplest tools in our arsenal AND one of the most consistently underutilized by S corporation owners across the country. We’re talking about the Administrative Office Reimbursement or more precisely, the Accountable Plan and if you own an S corporation and you’re not using one, I’ve got two words for you: start now. C corporations can also use these strategies, but we are limiting these to S Corporations for simplicity of explanation.

Here’s the deal: as an S corporation owner-employee, you spend money out of your own pocket on legitimate business expenses every single day. Home office costs. Business mileage. Cell phone. Internet. Travel. Professional subscriptions. And because of how the tax code works post-TCJA (where employees can no longer deduct unreimbursed business expenses on Schedule A) if your corporation isn’t reimbursing you for these expenses under a properly structured Accountable Plan, you are essentially giving that money away. To Uncle Sam. No thank you. Basta!

This strategy is the rare planning tool that works at every income level, in every industry, for virtually every S corporation and C Corporation owner. And yet most CPAs treat it as an afterthought, if they mention it at all. That stops today.

What Is an Administrative Office Reimbursement (Accountable Plan)?

An Accountable Plan is an IRS-recognized reimbursement arrangement, authorized under IRC §62(c) and Treasury Reg. §1.62-2, that allows your S corporation to reimburse you, as an owner-employee, for ordinary and necessary business expenses you’ve paid out of your own pocket. When structured correctly, these reimbursements are:

Not taxable income to you — they don’t show up on your W-2
Not subject to payroll taxes (FICA) — zero Social Security or Medicare tax
Fully deductible by your S corporation as an ordinary business expense
Not reported anywhere on your personal income tax return

Let me say that again for the people in the back: your corporation pays you back for real business expenses, gets a deduction, and you pay ZERO tax on the money. That is the definition of a win-win. BOOM.

Compare that to the alternative, taking additional W-2 salary or distributions to cover these expenses, where every dollar runs through FICA, federal income tax, and potentially state income tax. The Accountable Plan is not just better. It’s dramatically better.

The Big Picture: Without an Accountable Plan, your out-of-pocket business expenses are invisible to your tax return. With one, they become deductible at the corporate level AND tax-free at the personal level. That’s double-sided tax efficiency.

The Administrative Office Reimbursement: The Crown Jewel

Now, within the broader world of Accountable Plans, the Administrative Office Reimbursement (also called the Home Office Reimbursement) is the strategy I want to focus on, because it is where many S corporation owners find the largest single opportunity. And it’s one of the most misunderstood.

Here’s the context: S corporation owners cannot take a home office deduction directly on their personal returns for unreimbursed expenses the way a sole proprietor can on Schedule C. Post-TCJA, that door is closed for employees. But your S corporation CAN reimburse you for your home office costs through an Accountable Plan and that reimbursement is tax-free to you and fully deductible to the corporation. This is HUGE.

Think about what’s inside a home office reimbursement calculation. We’re talking about the business-use percentage of:

Mortgage interest (or rent payments)
Real estate taxes
Homeowner’s or renter’s insurance
Utilities — electricity, gas, water
Home internet and Wi-Fi
Security system and alarm monitoring
General home repairs and maintenance
Depreciation on the home office space

Example: Let’s say your total annual home costs — mortgage interest, property taxes, utilities, insurance — add up to $48,000. Your home office is 12% of your home’s square footage. Your S corporation can reimburse you $5,760 tax-free , deduct the same amount as a business expense, and you never see a dime of tax on that money. That’s real money. Year after year.

Add in direct expenses, allocation adjustments and method modifications we can get this allocated number significantly higher while still adhering to the law as written.

The Three IRS Requirements: Non-Negotiable

An Accountable Plan is not a free pass. It has to be built right, or the IRS will reclassify your reimbursements as taxable wages which means income tax AND payroll tax on every dollar. Here are the three requirements you must satisfy:

Requirement 1. Business Connection

Every expense reimbursed must have a direct, legitimate business purpose. You cannot reimburse personal expenses. Mixed-use expenses (cell phone, internet, home) require a documented allocation between personal and business use. The IRS applies the IRC §162 ordinary and necessary standard. The expense must be common in your industry and helpful for your business.

Requirement 2. Adequate Substantiation

You must document each expense with: the amount, the date, the business purpose, etc.

Requirement 3. Return of Excess Reimbursements

If your corporation provides an advance that exceeds actual expenses, the excess must be returned within a reasonable period, generally within 120 days. Under the IRS safe harbor, this means 30 days to receive an advance, 60 days to substantiate, and 120 days to return any excess. If excess amounts aren’t returned, they become taxable wages and nobody wants that phone call.

Pro Tip: Written accountable plan documents aren’t technically required by the IRS, but they are absolutely required by common sense. A one-to-two page written plan document, dated and kept with your corporate records, is your first and best line of defense in any IRS inquiry. Adopt it formally. Date it. Keep it with your corporate minutes.

Who Benefits Most: The Ideal Accountable Plan Candidate

Here’s the beautiful thing is almost every S corporation owner benefits from an Accountable Plan. But some situations create particularly compelling opportunities:

The Owner Who Works from Home:

This is the most obvious and often the most valuable use case. If you work from a dedicated home office, even a portion of a room used exclusively and regularly for business, you have reimbursable home office expenses. The exclusive use requirement is real and must be respected, but for business owners who have a dedicated office space, this is money being left on the table every month.

The High-Mileage Business Owner:

If you’re driving 15,000-20,000 business miles per year in your personal vehicle (client visits, site inspections, professional meetings) the mileage reimbursement alone can generate $10,000+ annually in tax-free payments from your S corporation. Combined with proper vehicle expense planning, this is a significant planning area.

The S Corp Owner With Significant Mixed-Use Expenses:

Cell phones, home internet, professional subscriptions, technology tools are the daily overhead of modern business. If you’re paying for them personally and not getting reimbursed through an Accountable Plan, every dollar is wasted from a tax efficiency standpoint.

The Owner-Spouse Team:

If your spouse is also an employee of your S corporation, each person can be running their own expense reports through the Accountable Plan. Two sets of home office calculations, two sets of mileage logs, two sets of professional expenses. The math adds up fast.

The Professional Service Provider:

CPAs, attorneys, consultants, physicians, financial advisors: professionals who regularly invest in continuing education, professional development, licensing fees, and professional subscriptions have a rich pool of reimbursable expenses. These are people who should absolutely have an Accountable Plan operating at all times.

How to Set It Up: The Practical Implementation Guide

Setting up an Accountable Plan is genuinely simple — but it must be done deliberately and consistently. Here’s the implementation roadmap:

Step 1: Draft and Adopt the Written Plan Document

Create a written document that specifies: the purpose of the plan, the eligible expense categories, documentation requirements, the submission timeline (60 days to substantiate), the return-of-excess timeline (120 days), and the reimbursement payment process. This document should be dated, signed by the corporate officer, and kept with your corporate records.

Step 2: Calculate Your Home Office Percentage

Measure the square footage of your dedicated home office space. Divide by the total square footage of your home. This is your business-use percentage. Apply it to your indirect home expenses (mortgage interest, taxes, utilities, insurance, repairs). This is your monthly reimbursement amount. Run it through Form 8829 methodology for the annual calculation. There are many other allowable calculation methods so determine the best one and don’t forget about special allocations and direct expenses.

Step 3: Establish a Monthly Expense Report Process

This is where most people fail, not in the setup, but in the execution. You need a monthly expense report form. Every month: mileage, home office proration, cell phone business percentage, internet, out-of-pocket expenses. Attach receipts. Submit to the corporation. Get reimbursed. This discipline is what protects you in an IRS examination and what captures every dollar you’re entitled to. However, I think this is for audit defense but there is nothing statutory here that requires monthly. Quarterly and annually reimbursements will work inside the construct of the law and is allowable.

Step 4: Reimburse from the Corporate Bank Account

The reimbursement must flow from the S corporation’s bank account directly to your personal account. Keep it completely separate from payroll and distributions. These are categorically different transactions. Mixing them creates the exact ambiguity the IRS looks for to reclassify reimbursements as wages.

Step 5: Record It Correctly on the Books

The S corporation should record these reimbursements as deductible business expenses on the corporate books — not as distributions, loans, or officer compensation. Your CPA needs to code these correctly on the tax return. If they’re showing up as distributions, you have a problem.

Step 6: Reduce Offsetting Personal Deductions Accordingly

This is a step most business owners miss. When your S corporation reimburses you for mortgage interest and property taxes through the home office calculation, you must reduce your personal Schedule A deduction for those same amounts. You can’t deduct the same dollar twice. A properly coordinated tax return handles this automatically, but only if your CPA knows the Accountable Plan is in place.

The Numbers Don’t Lie: A Real-World Example

Let me paint a picture. Meet Maria. She’s the sole owner and only employee of an S corporation that generates $300,000 in annual net income. She pays herself a reasonable W-2 salary of $120,000. She works from a dedicated home office that is 15% of her 2,000 square foot home. She drives 18,000 business miles per year in her personal vehicle. She pays for her own cell phone, internet, and professional subscriptions.

Without an Accountable Plan: Maria has no mechanism to extract these expenses from her corporation tax-efficiently. She overpays her taxes year after year. Her CPA files the return, she writes the check, everyone moves on.

With an Accountable Plan: Maria reimburses herself:

Home office (15% of $42,000 annual home costs): $6,300/year — tax-free
Business mileage (18,000 miles x $0.70): $12,600/year — tax-free
Cell phone (80% of $2,400/year): $1,920/year — tax-free
Internet (75% of $1,800/year): $1,350/year — tax-free
Professional subscriptions and books: $2,400/year — tax-free

Total annual tax-free reimbursements: approximately $24,570. Maria’s S corporation deducts all of it. Maria pays zero tax on any of it. At a combined marginal rate of 37% federal + 9.3% California = 46.3%, Maria saves roughly $11,400 per year in taxes she was previously paying unnecessarily. Over a 10-year period, that’s over $114,000 staying in Maria’s pocket. Holy cannoli.

The 2% Shareholder Wrinkle and Why the Plan Still Wins

Let’s be transparent about one nuance. For S corporation shareholders owning more than 2% of the corporation, certain fringe benefits (health insurance premiums, for example) are required to be included in W-2 wages and are not fully excludable under normal employee rules. This is the notorious 2% shareholder restriction under IRC §1372 and IRS Publication 15-B.

However, and this is critical, the Accountable Plan for business expense reimbursements is not subject to the 2% shareholder restrictions. Expense reimbursements under a properly structured Accountable Plan are treated as working condition fringe benefits , which are explicitly excluded from the 2% shareholder limitation. Home office reimbursements, mileage, cell phone, professional development and all of these can flow through the Accountable Plan tax-free, even for 100% shareholders.

This is precisely why the Administrative Office Reimbursement strategy is so powerful for S corporation owners. It gives you back a meaningful portion of the fringe benefit value that the 2% shareholder rules otherwise take away. Capisce?

Common Mistakes That Kill the Deduction

Let me save you from the pitfalls I’ve seen sink otherwise legitimate Accountable Plans:

No written plan document — the #1 compliance failure. If it’s not written and dated, it’s harder to defend.
Submitting expense reports at year-end only — the IRS expects timely, regular substantiation. Monthly or quarterly is best. Annual could cause issues.
Reimbursing personal expenses — even one clearly personal expense in the mix can taint the entire plan and give the IRS a foothold.
Mixing reimbursements with distributions or payroll — keep these completely separate on the books and in the bank.
Failing to reduce Schedule A deductions — if you’re being reimbursed for mortgage interest and property taxes, you cannot also deduct them personally.
No mileage log — the IRS is relentless on vehicle expenses. No contemporaneous mileage log = no deduction. Period.
Reimbursing expenses before adopting the written plan — the plan must be in place before the expenses are incurred. Retroactive plans don’t fly.

The Bottom Line

Friends, the Administrative Office Reimbursement / Accountable Plan strategy is not exotic tax planning. It’s not aggressive. It’s not complicated. It is the IRS’s own framework for making sure legitimate business expenses get legitimate business deductions at the corporate level, tax-free to you personally, with zero payroll tax impact. It is exactly the kind of planning that separates a tax strategist from a tax preparer.

If your S corporation is not running an Accountable Plan right now, you have been overpaying your taxes. Every. Single. Year. And the fix is genuinely simple — a properly drafted plan document, a consistent monthly expense report process, and clean bookkeeping. That’s it. The ROI on getting this right is extraordinary.

The tax code rewards the prepared. Be prepared.

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Ready to implement an Accountable Plan that actually captures everything you’re entitled to: home office, mileage, professional expenses, and more? Or wondering whether you’re leaving additional tax savings on the table across your S corporation structure? That’s exactly the kind of practical, high-value planning we deliver at Cordasco & Company.

Reach out at info@cordasco.cpa and let’s build a strategy that works as hard as you do.

Grazie mille — e a presto!

Winter Is Coming for “Limited Partners”: The Tax World’s Last 30 Days (and the Scams, Sanctions Bills, and OnlyFans Stars That Made It Weird)

Cordasco — Wed, 30 Sep 2026 19:00:28 +0000

If you thought September was going to be a quiet month where Washington dozed off before the midterms, I have news for you. In 30 days we got a federal appeals court taking a sledgehammer to one of the most popular self-employment tax positions in America, two new tax laws (one of them riding inside a Russia sanctions bill , because of course it did), a stack of One Big Beautiful Bill regulations, rising estate planning rates, and an IRS warning about a tax credit that literally does not exist.

The Big Picture: Five Things You Need to Know Right Now

Soroban is here, and it’s HUGE. The Second Circuit ruled that state law “limited partners” who actually run the business owe self-employment tax on their distributive shares. If your firm is structured as an LP to dodge SE tax, this is your wake up call.
Two new tax laws got signed. Disaster casualty loss relief is now law, and pre K teachers got a deduction tucked into a sanctions bill.
OBBB regulations keep landing. Final car loan interest rules, Trump Account investment rules, and new Opportunity Zone reporting are all on the board.
Estate planning math is shifting. The Section 7520 rate hit 5.6% for October. Good news for some techniques, bad news for others.
The weird stuff was really weird. Fake “Tribal Tax Credits,” OnlyFans creators going to prison, and a litigator who skipped eight years of returns while earning $5.6 million.

Part One: Soroban and the Night King of Self Employment Tax

What Happened

On September 17, the Second Circuit unanimously affirmed the Tax Court in Soroban Capital Partners LP v. Commissioner, holding that the limited partner exception in Section 1402(a)(13) applies only to a partner who “does not run, manage, or control the partnership’s business” ( Sullivan & Cromwell ). A state law label, standing alone, is not enough.

Here’s the deal on the facts. Soroban was a Delaware LP managing hedge funds. Its three principals worked full time, managed the portfolio, sat on nearly every governing committee, and made hiring and firing decisions. Soroban allocated roughly 99% of its remaining ordinary income to them as “limited partners” and reported only their guaranteed payments as self employment income. The court’s verdict? “Limited partners in name only.”

My favorite line from the opinion, rejecting the argument that Congress should have said “passive investor” if it meant passive investor: “We do not require Congress to repeat itself several times over before we give its words effect”. Ouch. That’s the appellate equivalent of a nun with a ruler.

Why This Matters (a Lot)

This is no longer a one circuit story. The Fifth Circuit withdrew its taxpayer friendly January decision in K Alain (formerly Sirius Solutions) and reissued it last month, narrowing the exclusion to limited partners with “no significant role in managing or running a business.” The Second Circuit said there seems to be “little daylight” between the two tests, and the First Circuit’s Denham Capital decision is still pending.

Let’s be honest: in Game of Thrones terms, the Wall has fallen. The IRS now has two circuits in its corner, and the “we’re an LP so no SE tax” structure used by investment managers, law firms, consulting shops, and professional practices is on thin ice.

What’s the dollar impact? Take a principal with a $3 million distributive share who already maxes out the Social Security wage base through guaranteed payments. The remaining exposure is mostly the 2.9% Medicare piece plus the 0.9% Additional Medicare Tax on roughly 92.35% of that income. Back of the envelope, that’s north of $100,000 per year, per partner, before interest and penalties on open years. Multiply by three partners and a few open years, and holy cannoli, you’re talking real money.

What Did NOT Change

Providing some services is not automatically disqualifying. The Second Circuit said a limited partner can still participate to a degree, as long as that participation doesn’t amount to running, managing, or controlling the business. Genuinely passive capital partners still have a path. The functional test is what matters now.

Part Two: Congress Actually Did Some Things (Mamma Mia)

The Disaster Relief Bill Is Now Law

Remember last month when I told you the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366) was sitting on the President’s desk? BOOM. Signed September 11 . It extends the favorable personal casualty loss rules for major disasters and excludes certain wildfire compensation from income. The casualty loss piece generally covers disasters with incident periods between December 28, 2019 and January 1, 2027.

A Tax Deduction Walks Into a Sanctions Bill

This is my favorite legislative plot twist of the year. On September 18, the President signed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 (H.R. 5334). Division A imposes economic sanctions and energy export bans. And also? It expands the above the line educator expense deduction under Section 62(a)(2)(D) to include early childhood educators.

How did that happen? The Senate took a House passed bill about pre K teacher deductions and repurposed it as the vehicle for the sanctions package. The deduction is $350 per eligible educator for 2026. Sanctions on Moscow and Tehran, plus crayons for preschool teachers. Only in Washington. You can’t make this stuff up, and trust me, I’ve tried.

Part Three: The OBBB Regulation Parade

Treasury is cranking out guidance like a Neapolitan pizzeria on a Saturday night. The highlights:

Guidance

Date

What It Does

T.D. 10054 (car loan interest final regs)

Sept 4

Finalizes the $10,000 per return deduction for interest on new U.S. assembled vehicles; available to non itemizers; creates new Form 1098 VLI; effective November 9

Rev. Proc. 2026-32

Sept 4

Updates automatic method changes for domestic and foreign R&E (Sections 174 and 174A) and residential construction contracts; applies to Forms 3115 filed after Sept 4

Trump Account investment regs

IRB Sept 14

Index funds and ETFs only, fees capped at 0.1%; $5,000 annual limit from all sources; $1,000 pilot deposit for children born 2025 through 2028

Opportunity Zone reporting regs (REG-116506-25)

Sept 11

Expanded Form 8996 reporting, electronic filing, and investor statements generally due March 1

FDDEI and 951A expense allocation regs

Sept 11

Keeps interest and R&E out of FDDEI calculations; comments due November 10

Notice 2026-55

Sept 22

Requests comments on OZ rules covering interim gains, single family housing, and working capital safe harbors

Why the car loan rules matter for you: If you or your employees bought a new, U.S. assembled vehicle with a loan in 2025 or 2026, that interest is deductible up to $10,000, even if you take the standard deduction (subject to income phaseouts). The final regs clarify SUVs, pickups, and motorcycles qualify, and tackle messy items like negative equity rolled into the loan and refinancing.

Why the OZ rules matter for you: Opportunity Zones 2.0 designations take effect January 1, 2027. If you’re sitting on a large 2026 capital gain from a business sale, the reporting infrastructure is being built right now. Layering QSBS, OZs, and estate planning is where the real magic happens, and the reporting burden is about to get heavier for fund sponsors.

Part Four: Estate and Gift Tax, Where the Math Is Quietly Changing

The Foundation Hasn’t Moved

The OBBB locked in a $15 million per person, $30 million per couple exemption with no sunset ( IRS ), and the 2026 annual exclusion is $19,000 per recipient. So the question isn’t “will the window close?” anymore. It’s “how do we use it most efficiently?”

Rising Rates: Winners and Losers

The Section 7520 rate climbed to 5.4% for September and 5.6% for October under Rev. Rul. 2026-19, up from 4.6% in January. Here’s how that shakes out:

Harder: Your assets must beat a 5.6% hurdle before anything passes to the kids gift free. Charitable lead annuity trusts also get less attractive.
Better: QPRTs and charitable remainder annuity trusts. A higher rate shrinks the taxable gift on a QPRT and boosts the remainder deduction on a CRAT.
Intrafamily loans and installment sales to grantor trusts still work, but the AFR hurdle is higher than it was a year ago.

Concrete example: Parents transfer a $4 million beach house to a 10 year QPRT. As rates rise, the retained interest is worth more, so the taxable gift of the remainder shrinks. Same house, same family, less exemption consumed. That’s the beauty of rate sensitive planning, and why timing the month you fund matters.

Portability: The IRS Keeps Handing Out Mulligans

PLR 202636002, released September 4, granted yet another estate 120 days to file a late Form 706 and elect portability. This is the third one I’ve flagged in two months. Friends, with a $15 million DSUE on the line, filing a Form 706 at the first death is not optional. It’s the cheapest insurance policy in the Code.

Where the Profession Is Headed

The January 2027 Heckerling Institute agenda tells the story: sessions like “The Middle Rich After O3B: When Income Tax Beats Estate Tax” and retrofitting old dynasty trusts. Translation: for families under $30 million, basis planning, state taxes, and income tax efficiency now matter more than dodging the federal estate tax. That’s exactly where our planning conversations have shifted.

The $80,000 Check That Nobody Cashed

A cautionary tale from Montana: Bradley Haler got an $80,000 cashier’s check payable to himself, left it at home, and died a month later. His widow cashed it. His son sued. The Montana Supreme Court held the check was an estate asset, not a gift, because there was no communication, no endorsement, and no delivery. Lesson: intent without paperwork is just a family feud waiting for a courtroom. Ave Maria.

Part Five: The Bizarre, the Brazen, and the “You Can’t Make This Up”

The Tax Credit That Doesn’t Exist (and Its Awkward History)

On September 18, the IRS issued IR-2026-112 warning about promoters selling “Tribal Tax Credits,” “Native American Tax Credits,” and “Sovereign Tribal Tax Credits”. Promoters claim a secret agreement among Treasury, Interior, and tribal governments lets trust fund payments convert into federal credits. No such agreement exists. And no, the IRS accepting your return doesn’t mean it approved the credit; you still owe the tax, interest, and penalties.

The plot twist? These credits drew scrutiny during Billy Long’s 2025 confirmation as IRS Commissioner, when he testified he had “plugged” them to a select group of friends. The agency’s official line now: “Tribal credits aren’t real.” Controlled sarcasm mode: engaged.

OnlyFans, Meet IRS Criminal Investigation

Two content creators learned that “all income is taxable income” is not just a slogan:

Kylie Perez (“Natalie Monroe”), 31, of Tampa, earned more than $5.4 million from 2019 to 2023, filed a bogus 2019 return, and refused to pay at least $1.5 million. She got one year in prison. Meanwhile, a failed Florida gubernatorial candidate proposed a 50% “Sin Tax” on OnlyFans earnings, which creator Sophie Rain called “the dumbest thing I’ve ever heard.”
Seathra Orr , 39, of Stamford, pleaded guilty September 15 after earning over $3 million and using 12 EINs, 11 business bank accounts, and 8 personal accounts to shuffle money, including more than $110,000 on jewelry. Twelve EINs!

The Litigator Who Forgot to File (for Eight Years)

Michael Simes, a Connecticut commercial litigator and former Moses Singer partner, earned more than $5.6 million without filing returns for 2013 and 2016 through 2022. He requested extensions for five of those years and then… never filed. He got 10 months, well below his 24 to 30 month guideline range, plus nearly $2.9 million in restitution. An extension is a promise, not an absolution. Bless me, Father, for I have not filed.

The Question on Your 2026 Form 1040

The IRS released a draft 2026 Form 1040 that, for the first time, asks each filer whether they are a “U.S. citizen, U.S. national, or an alien lawfully authorized to work in the U.S.,” with a yes or no box. It sits right below the digital asset question. Expect lively debate before the final form drops.

Action Items: What You Need to Do Now

If you’re a “limited partner” in an operating business, review your SE tax position this quarter. Document who actually runs, manages, and controls the business. Consider whether guaranteed payments, restructuring, or reporting changes make sense, and assess exposure on open years.
Log your 2025 and 2026 vehicle loans. New, U.S. assembled, first lien, personal use. Save the Form 1098 VLI when it arrives.
Time your GRATs and QPRTs to the rate environment. At 5.6%, QPRTs and CRATs look better; GRATs need stronger growth assets.
File Form 706 at the first spouse’s death. Every time. Even if no tax is due.
Planning a 2026 exit? Map your OZ 2.0 strategy now, before January 1, 2027 designations take effect.
Fraud or theft losses in the family? Watch H.R. 9500 in the lame duck session. Keep documentation.
Anyone pitching you a tax credit with an NDA attached? Then call me.

Bottom Line

September proved that the OBBB era isn’t slowing down; it’s accelerating. The courts are tightening the screws on aggressive structures (looking at you, LPs), Treasury is building out rules at record pace, and the estate planning conversation has pivoted from “beat the sunset” to “optimize for income tax and basis.” Piano piano, but steadily, the landscape keeps shifting beneath everyone’s feet.

This is exactly why strategic planning beats reactive compliance every single time. A tax geek who reads the Second Circuit over morning cappuccino so you don’t have to? That’s a feature, not a bug.

Grazie Mille, Ciao!

Boot, Taxes, and Why This Old-School Term Still Matters

Cordasco — Tue, 29 Sep 2026 19:00:26 +0000

“Boot” sounds like something you’d wear to a ranch, kick under your desk, or maybe see in an old mob movie. In tax land, though, boot is the not-so-little extra that shows up in an exchange when the two sides of the deal do not match perfectly in value and yes, it can trigger current tax even when the broader transaction is supposed to be tax-deferred.

Let’s be honest: this is one of those terms that refuses to retire. It is old-school vernacular, not a defined term you will find neatly packaged in the Internal Revenue Code or Treasury Regulations, yet practitioners still use it constantly because it captures the concept with almost comic efficiency: someone got “something extra,” and the IRS would like a word. We’re guessing “you got something extra to boot”. The origins are traced back to “booty” from pirate times meaning treasure, goods, or valuables taken from a ship or cargo during a raid or plunder aka “you got something extra to boot”.

Where “Boot” Comes From—And Why the Name Stuck

The historical flavor of the word is wonderfully plainspoken. In legal and tax usage, boot refers to “something that is given in addition to,” meaning money or other property added to an exchange to equalize the value of a trade.

That old barter logic is exactly why the term survived. If two people trade assets of unequal value (think baseball cards, farmland, or business property) the side giving the lower-value asset may throw in cash or other property to make the deal even. That sweetener is boot.

And that, amici miei, is why the term has staying power. It is short, vivid, and far more memorable than saying “non-like-kind value received in a partially tax-deferred exchange.” Nobody wants that on a coffee mug.

What Boot Means in Tax Practice

In the Section 1031 context, boot generally means cash or other property received that is not like-kind property, and that portion is taxable even if the rest of the exchange qualifies for deferral.

This is where tax professionals earn their espresso. A client hears “tax-deferred exchange” and thinks Netflix autoplay: sit back, press nothing, no tax. But the rules are more Broadway than background streaming. If the choreography is off, the taxable cameo enters stage left.

Common forms of boot include:

Cash boot, when sale proceeds are not fully reinvested into replacement property.
Mortgage or debt-relief boot, when the debt on the replacement property is lower on a net basis than the debt relieved on the relinquished property.
Personal property boot, when something received in the exchange is not qualifying real property.

The practical effect is straightforward: boot usually does not blow up the whole exchange, but it does cause gain recognition to the extent of the boot received. That is the tax equivalent of ordering the healthy entrée and then finishing with the giant cannoli, technically still dinner, but with consequences.

Why We Still Use the Term Today

Bottom line: we still use “boot” because it is efficient shorthand for a concept that comes up constantly in real-world transactions. Deals are rarely perfectly symmetrical, so the language of equalization still matters.

The term also remains relevant because tax planning is not performed in a vacuum. When property values, debt balances, closing adjustments, escrows, and side assets do not line up exactly, boot becomes the diagnostic word everyone in the room understands immediately—CPA, attorney, qualified intermediary, and client alike.

There is also a deeper reason the term survives: it reflects economic substance. If a taxpayer exits a transaction with cash, debt relief, or non-like-kind property, the IRS sees that as current economic benefit. Call it boot, call it “something extra,” call it a cannoli with a 1099 attitude. The point is the same.

Why Boot Is Still Relevant—Especially Now

This is HUGE!: Section 1031 now applies only to real property, which makes careful classification and transaction design more important than ever when exchanges involve anything around the edges that may not qualify.

That matters because modern deals are messy. A real estate transaction may include fixtures, equipment, security deposits, prorations, debt changes, or cash left over after acquisition. Any one of those can create unexpected taxable boot if the structure is sloppy.

For sophisticated owners and investors, boot is not just a vocabulary word; it is a planning trigger. It tells you where to look for leakage in an otherwise elegant deferral strategy, and that can mean the difference between preserving wealth and accidentally writing a check to the government because someone treated exchange math like improv night.

A Simple Example

Suppose a taxpayer sells relinquished property for $150,000 and acquires replacement property for $120,000. The $30,000 difference is treated as boot and is taxable, even if the rest of the exchange otherwise qualifies under Section 1031.

Or take the debt version: a taxpayer pays off a larger mortgage on the old property and replaces it with a smaller one on the new property. That net debt relief can create mortgage boot, which is also taxable unless properly offset under the transaction rules.

BOOM—that is why experienced advisors obsess over value, equity, debt, and closing detail. The phrase may be antique, but the tax bill is very modern.

What You Need to Do

Here are the action items in your next exchange:

Track value, debt, and equity separately; boot problems often hide in the gap between “sale price” and “what actually got reinvested.”
Review non-real-estate components carefully; not everything riding along in a deal is like-kind property.
Coordinate early with the tax advisor, attorney, and intermediary; boot is often preventable before documents are signed and much harder to fix afterward.
Use the term with confidence; it may be colloquial, but it remains one of the clearest labels in the exchange-planning toolbox.

Bottom line: boot comes from old trading language for the extra value added to balance a deal, and it remains relevant because tax law still cares deeply about that extra value when an exchange is supposed to be tax-deferred.

At Cordasco & Company, this is the kind of detail that makes my spreadsheet-loving heart sing because the best tax strategy is not about filling out forms after the fact; it is about seeing the trap before your client steps in it. Reach out to us at info@cordasco.cpa before your next exchange turns into a surprise plot twist. Grazie Mille, Caio.

Tax tips for parents with kids heading to college this fall

Cordasco — Mon, 28 Sep 2026 14:29:11 +0000

A higher education is expensive, and many parents spend years saving up. Others haven’t had the financial bandwidth to save or have hit unexpected financial roadblocks along the way. Regardless of your situation, current tax breaks may be available to you (or to your children or even their grandparents) once your child begins attending college or other post-secondary school. Here are some tax tips.

Claim tax credits

If you have one or more children in college — or graduate school — you might be eligible for valuable tax credits. Remember, credits reduce your tax liability dollar-for-dollar, so they’re more valuable than deductions of the same amount, which only reduce the amount of income subject to tax. So it’s important to see if you’re eligible for one or both of these credits:

American Opportunity Tax Credit (AOTC). You may be able to take this credit of up to $2,500 for the first four years of postsecondary education in pursuit of a degree or recognized credential — a 100% credit for the first $2,000 in tuition, fees and books, and a 25% credit for the second $2,000. The AOTC is 40% refundable, meaning you can get a refund if the credit amount is greater than your tax liability.

The credit is available on a per-student basis. For example, if you have a child who’s a freshman and another who’s a fourth-year senior, you can claim a credit of up to $2,500 for each child — as long as you otherwise qualify.

Lifetime Learning Credit (LLC). If your child is beyond the first four years of college or in graduate school, you may be able to take the LLC. It can be up to $2,000 for every additional year of college or graduate school — a 20% credit for up to $10,000 in tuition and fees.

However, only one LLC is available per tax return. If, say, you have one child in the fifth year of college finishing up his or her bachelor’s degree and another child in grad school, you can claim only one LLC of up to $2,000. But if the first child instead is in his or her first four years of college, you can potentially claim the AOTC for that child and the LLC for your child in graduate school, as long as you otherwise qualify for both credits.

Speaking of qualifying, both credits are phased out for married couples filing jointly with modified adjusted gross income (MAGI) between $160,000 and $180,000, and for singles and heads of household with MAGI between $80,000 and $90,000. (Married taxpayers filing separately can’t claim either credit.) If your income is too high for you to qualify, your child might be able to qualify on his or her own tax return.

Finally, only one education credit can be claimed for the same student in any given tax year. For instance, if your child graduated from college (in four years) in May of 2026 and starts graduate school in September of 2026, you can’t claim both the AOTC for the last semester of your child’s undergraduate education and the LLC for his or her first semester of graduate education. Other rules also apply to these credits.

Take advantage of tax-free 529 plan and ESA distributions

Does your child have a tax-advantaged education account, such as a Section 529 plan or Coverdell Education Savings Account (ESA)? Tax-free withdrawals can be taken to pay qualified expenses.

Section 529 plan distributions used to pay most postsecondary school expenses are income-tax-free for federal purposes and potentially for state purposes as well. Qualified expenses include tuition, mandatory fees, books, supplies, computer equipment, software, internet, and, for students enrolled at least half-time, room and board.

The postsecondary expenses that qualify for tax-free 529 plan distributions generally also qualify for tax-free ESA distributions. However, you can’t take tax-free distributions from both accounts for the same expenses. Also, expenses paid with tax-free distributions from a 529 plan or ESA can’t be used to claim education credits.

(If you have younger children and are deciding whether to contribute to a 529 plan or an ESA, keep in mind that there are other important differences to consider, such as the rules for using the funds for K-12 expenses, age-related limits for beneficiaries, and contribution limits — including income-based limits. Contact us to learn more.)

Think twice before tapping your retirement accounts

You can take money out of your traditional IRA or Roth IRA to pay college costs without incurring the 10% early withdrawal penalty that usually applies to distributions before age 59½. However, the distributions are subject to tax to the extent otherwise applicable.

You also may be able to borrow against your employer retirement plan, such as a 401(k) plan, or take withdrawals from it to pay for college. But before you do so, make sure you understand the tax implications, including any penalties you may incur.

And any time you make a withdrawal or take a loan from a retirement account, you’re sacrificing the tax-deferred (or tax-free in the case of a Roth account) potential growth on that money. So first think carefully about the future impact on your retirement security.

Be aware of scholarship tax treatment

Has your child been awarded a scholarship? Congratulations! But it’s also important to understand the tax impact.

Scholarships are exempt from income tax if certain conditions are satisfied. The three most significant are that, generally, the scholarship:

Must be for a student who is a degree candidate at an eligible educational institution,
Can’t be compensation for services, and
Must be used for tuition, fees, books and supplies (not for room and board).

Also, a tax-free scholarship reduces the amount of expenses that may be taken into account in computing the AOTC and LLC and may reduce or eliminate those credits.

Advise grandparents and others to pay tuition directly

If someone gives you or your child money to pay some or all of your child’s college expenses, it’s generally treated as a taxable gift to the extent the payments exceed the gift tax annual exclusion of $19,000 per recipient for 2026. Married couples who split gifts may exclude gifts of up to $38,000 for 2026. (Gift tax generally applies to the giver, not the recipient.)

However, if the person (say, a grandparent) pays your child’s tuition directly to an educational institution, it won’t be treated as a taxable gift regardless of the amount. This applies only to payments of direct tuition costs (not room and board, books, supplies, etc.).

Consider your specific situation

Additional rules apply to many of these tax breaks, and there are other tax consequences to consider when it comes to your children and their post-secondary education. Contact us for more information about these breaks and to discuss your specific situation. We can help you take advantage of all the breaks available to you and your family and avoid tax pitfalls.

Business and other mileage rates increase for the second half of 2026

Cordasco — Fri, 25 Sep 2026 14:23:07 +0000

The IRS has made a midyear increase in the standard mileage rate for business vehicle use, including for cars, SUVs, vans, pickup trucks and panel trucks. These rates apply to gasoline- and diesel-powered vehicles as well as electric and hybrid ones. But whether the rate increase will impact your business depends on the vehicle expense reporting method you choose. Also rising is the medical and moving mileage rate.

2 business vehicle expense reporting options

If you use a vehicle for business purposes, you generally have the option to deduct the actual expenses attributable to your business use. These include expenses such as gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you may claim a depreciation allowance for the vehicle based on the percentage of business use. However, annual write-offs for certain passenger autos are subject to “luxury car” limits that are indexed for inflation annually.

The maximum first-year depreciation deduction allowed for a passenger car subject to the luxury car limits and placed in service in 2026 is generally $20,300 ($12,300 + $8,000 assuming bonus depreciation is claimed). So the maximum first-year deduction for such a vehicle used 90% for business in 2026 would be limited to $18,270 (90% of $20,300). (Heavier SUVs, pickups, vans and panel trucks might be eligible for larger first-year depreciation deductions.)

Keeping track of every vehicle-related expense under the actual expense method can be burdensome, but you may have a simpler option. You potentially can use the IRS standard mileage rate. This shortcut is available to most taxpayers. However, you can’t use the standard mileage rate if you use five or more cars at the same time (such as in a fleet operation).

To use the standard mileage rate for a vehicle you own, you generally must choose it during the first year the vehicle is available for use in your business. In later years, you can choose to use the standard mileage rate or actual expenses. If you switch to actual expenses, however, special depreciation rules apply. For a leased vehicle, taxpayers electing the standard mileage rate must use that method for the entire lease period, including renewals.

With the standard mileage rate, you don’t have to account for all your actual expenses. But for each business trip you must still record the:

Mileage,
Dates,
Destinations,
Names and relationships of the business parties involved, and
Business purpose of the travel.

Most employees can’t deduct unreimbursed business mileage on their federal income tax returns. However, employers may use the standard mileage rate to reimburse employees tax-free under an accountable plan, provided applicable substantiation requirements are met.

Business rate adjustment

The IRS generally adjusts the standard mileage rates annually based on a study of vehicle operating costs. However, unusual circumstances may prompt a midyear change. The last time the IRS changed its mileage rates midyear was in 2022.

For 2026, the IRS initially established a standard mileage rate of 72.5 cents per mile for the business use of a vehicle. But recent increases in fuel prices prompted the midyear adjustment. Effective July 1, 2026, the standard rate for business vehicle use increased to 76 cents per mile — up 3.5 cents from the rate for the first half of the year. This rate is scheduled to remain in effect through year end.

Medical and moving rate adjustment

Also effective July 1 through December 31, 2026, the new rate for driving associated with qualifying medical care or moving is 23.5 cents per mile (up from 20.5 cents per mile for the first half of the year). This is significantly lower than the rate for business use because that rate takes into account depreciation, which isn’t an allowable vehicle expense deduction for medical or moving purposes.

You can deduct medical mileage only if you itemize deductions and only to the extent that your total eligible medical expenses for the year exceed 7.5% of your adjusted gross income. Moving expenses such as mileage are deductible only by certain active-duty military personnel and certain members of the intelligence community. But if you qualify, you don’t have to itemize to claim the moving expense deduction.

The 14-cents-per-mile rate for charitable use of a vehicle remains unchanged. It’s set by statute, so it can only be amended by Congress.

Navigating vehicle expense deductions can be tricky

Determining which business vehicle expense reporting option is right for you or whether you can benefit from medical or moving mileage deductions may not be easy. There are many variables involved. And the midyear rate changes further complicate matters. Contact us for help assessing your situation and implementing a tax strategy for the rest of the year.

Estate planning for foreign assets requires extra attention

Cordasco — Thu, 24 Sep 2026 12:54:12 +0000

Do you hold assets such as overseas real estate, foreign bank accounts or investments in international markets? Properly addressing foreign assets in your estate plan is essential to avoid unexpected tax consequences, legal complications and asset transfer delays for heirs.

Double taxation

If you’re a U.S. citizen, all your worldwide assets, regardless of where you live or where the assets are located, are potentially subject to federal gift and estate taxes to the extent they exceed your lifetime gift and estate tax exemption. So, if you own assets that are subject to estate, inheritance or other death taxes in those countries, there’s a risk of double taxation.

You may be entitled to a foreign death tax credit against your U.S. gift or estate tax liability — particularly in countries that have tax treaties with the United States. But in some cases, those credits aren’t available.

Even if you’re not a U.S. citizen, you may be subject to U.S. gift and estate taxes on your worldwide assets if you’re domiciled in the United States. Domicile is a somewhat subjective concept — essentially, it means you reside in a place with the intent to stay indefinitely and return to whenever you’re away. Once the United States becomes your domicile, its gift and estate taxes apply to your foreign assets, even if you leave the country, unless you take steps to change your domicile.

You might not feel concerned about federal gift and estate taxes if your estate is well within the 2026 $15 million gift and estate tax exemption (annually indexed for inflation going forward). But keep in mind that lawmakers could reduce the exemption in the future. So, it can still be a good idea to plan for a potential estate tax bill down the road. Further, for married couples, the rules are different — and potentially much more complex — if one spouse is neither a U.S. citizen nor considered domiciled in the United States for gift and estate tax purposes.

Consider drafting two wills

If you own foreign assets, your will must be drafted and executed in a manner that will be accepted in the United States and in the country or countries where those assets are located. Otherwise, your foreign assets may not be distributed according to your wishes.

Often, it’s possible to prepare a single will that meets the requirements of each jurisdiction. But it may be preferable to have separate wills for foreign assets. One advantage is that a separate will, written in the foreign country’s language (if not English), may help streamline the probate process.

If you prepare two or more wills, work with local counsel in each foreign jurisdiction to ensure the will meets that country’s requirements. And it’s critical for your U.S. and foreign advisors to coordinate their efforts so that one will doesn’t nullify the other.

Plan proactively

If you own foreign assets, proactive planning can help preserve your wealth and reduce the burden on heirs. We can explain the steps to help ensure all your assets are distributed in accordance with your wishes and in the most tax-efficient manner possible.

Should you make after-tax, non-Roth 401(k) contributions?

Cordasco — Wed, 23 Sep 2026 19:14:04 +0000

If you participate in a company 401(k) plan, you already know that you can make pre-tax contributions up to the annual elective deferral limit to a traditional, tax-deferred account. If your 401(k) plan offers a Roth option, you can use part or all of your limit to make after-tax contributions to a Roth account instead. But you may have a third option, if your 401(k) plan allows it: Make after-tax contributions to a traditional account.

Traditional vs. Roth deferrals

For 2026, 401(k) elective deferral contributions are generally limited to $24,500. If you’ll be 50 or older at year end, you can make additional elective deferral contributions, called “catch-up” contributions. The 2026 catch-up contribution limit is either $8,000 or $11,250, depending on your age. However, if your 2025 salary exceeded $150,000, any catch-up contributions must be made to a Roth 401(k) account.

When you make pre-tax elective deferrals to a traditional 401(k), the contributions aren’t included in your taxable income for the year, but they’re still subject to Social Security and Medicare taxes (collectively called FICA tax). The account funds can grow on a tax-deferred basis, and you’ll owe income taxes on distributions — both those attributable to contributions and those attributable to growth.

When you make after-tax Roth 401(k) elective deferrals, the contributions don’t reduce your taxable income. So, they’re subject to both income tax and FICA tax. The payoff is that earnings in your Roth 401(k) account are allowed to accumulate income-tax-free and you can take income-tax-free qualified withdrawals from the account once you meet the requirements. (Generally, qualified distributions are those after age 59½ if the account has been open at least five years.)

How after-tax contributions are different

If your 401(k) plan allows non-Roth after-tax contributions, they’re treated as part of your taxable wages. Therefore, these contributions are subject to income tax and FICA tax. You may owe state and local income taxes, too. Because they don’t go into a Roth account, they aren’t eligible for all the tax benefits Roth accounts offer.

So, you might be thinking, “why would I want to make after-tax contributions?” The answer is to get more money into your 401(k) account, where it can accumulate income and gains without being taxed until you start taking withdrawals. These contributions aren’t subject to the annual elective deferral limit. So you can make them after you’ve maxed out that limit, including catch-up contributions, if applicable.

However, there’s still a limit on total additions that can be made each year to your 401(k). Including your elective deferrals (except for any catch-up contributions), your after-tax contributions and any employer contributions, 2026 contributions can’t exceed the lesser of: 1) $72,000 or 2) 100% of your compensation.

Also, after-tax contributions create tax basis in your account, which means that the after-tax amount contributed can eventually be withdrawn tax-free. (But withdrawals attributable to growth on that amount will be taxable, a significant difference from qualified Roth distributions.)

After-tax contributions in action

To illustrate how these contributions work, here’s an example: Let’s say your employer sponsors a 401(k) plan with a 50% company match, your 2026 salary is $150,000 and you’re under age 50. The plan allows employees to make after-tax contributions. You max out your elective deferral limit by contributing $24,500 to your traditional 401(k) account. Your employer makes a matching contribution of $12,250. That means you’re allowed to make up to $35,250 in after-tax contributions ($72,000 – $24,500 – $12,250) this year. You decide to make $10,000 of after-tax contributions.

Your $24,500 of elective deferral contributions aren’t included in your taxable wages for federal income tax purposes but they are subject to FICA tax withholding.
Your employer’s $12,250 matching contribution is exempt from federal income tax and FICA tax.
Your $10,000 after-tax contribution is included in your taxable income and is subject to federal income tax and FICA tax. But it creates $10,000 of tax basis in your 401(k) account, which can be withdrawn tax-free.

Be aware that 401(k) plans are subject to complicated nondiscrimination rules intended to prevent plans from operating in favor of highly compensated employees as opposed to rank-and-file workers. In most cases, nondiscrimination rules won’t impact the ability of an employee to make after-tax contributions, but there may be exceptions.

Beyond elective deferrals

If you’ve been maxing out your elective deferrals, after-tax 401(k) contributions can be a tax-efficient way to add to your retirement nest egg. We can review your situation and help you determine whether you might benefit.

Protect yourself from fraudsters impersonating the IRS and other tax scams

Cordasco — Tue, 22 Sep 2026 12:52:04 +0000

Tax scammers continue to target taxpayers through email, text messages, phone calls and regular mail. They often try to create urgency or fear to trick victims into sharing sensitive information or sending money. The IRS warns taxpayers to remain cautious because scammers continually change tactics to steal personal and financial information.

IRS impersonation scams

First and foremost, know that the IRS will never contact you by email, text or social media channels about a tax bill or refund. Most IRS initial communications are sent through regular mail. So if you get a call or message saying it’s the IRS and asking for your Social Security number, it’s someone trying to steal your identity and defraud you. Remember that the IRS already has your Social Security number.

Here are some common impersonation-related schemes to be aware of:

Phone calls. AI-generated voices and spoofed caller IDs to impersonate IRS agents are becoming more common. Scammers may leave urgent messages threatening arrest, penalties or legal action unless immediate payment is made. The IRS stresses that it won’t demand immediate payment over the phone.

Text messages and emails. Scammers use text messages and emails containing fake IRS links or QR codes to direct taxpayers to fraudulent websites designed to steal personal or financial information. These messages often claim there’s a problem with a refund, tax return or IRS account to try to create panic and pressure taxpayers into responding quickly.

Fake IRS notices. One current scheme takes advantage of growing confusion about the IRS CP53E notice. This is a notice related to tax refunds and bank account information. As the IRS shifts from paper checks to direct deposit, it’s mailing these notices to taxpayers who may need to add or update their banking details. Unfortunately, the IRS is sometimes mistakenly sending the notices when a taxpayer has already provided this information, creating confusion. Now fraudsters are sending fake versions of the notice in an attempt to steal taxpayers’ sensitive information. If you receive an IRS CP53E notice, verify its authenticity before acting. Don’t click links or scan QR codes.

Malware. In scams to infect computers and phones with malicious software, a phony email claims to come from the IRS. The subject line often states that the message is a notice of underreported income or a refund. There may be an attachment or a link to a bogus web page with your “tax statement.” When you open the attachment or click on the link, malware is downloaded to your device. This malware can give criminals remote access to your device and allow them to search for passwords, banking information and other sensitive data to help them steal your assets or your identity.

Other tax scams

The IRS recommends that taxpayers create an account to securely access their tax information. The account lets you view your refund status, make payments, check your balance and more. But be cautious. Scammers may offer account setup “help” so they can collect your sensitive data. Or they may use stolen personal information to access your account without authorization. Once inside an account, they may attempt to redirect refunds, obtain tax records or use the information to commit additional identity theft. Create and always access your account directly through IRS.gov, don’t share your information with unsolicited third parties, and check your account regularly.

Also watch out for fake online tax deduction calculators. These digital tools are intended to steal personal information and money from unsuspecting users. They’re often accompanied by false promises about new or expanded tax credits and deductions. The IRS says you should use calculators only on sites that end in .gov (such as irs.gov) or of well-known tax software companies. Also, be wary of any calculator that guarantees its result. Legitimate calculators can only produce estimates. And, as always, be suspicious of claims that seem “too good to be true,” such as unusually large tax savings.

The IRS also warns taxpayers to avoid other schemes involving questionable refund claims or credits promoted online or through social media. Promoters may encourage taxpayers to file inaccurate forms or claim credits they don’t qualify for. Improper claims can lead to refund delays, audits, penalties and other enforcement actions.

Reporting fraud

The IRS has launched a “Report fraud” webpage to simplify confidential reporting of suspected tax fraud or scams. It consolidates multiple IRS fraud-reporting options into a single location, allowing taxpayers to report suspected scams, tax evasion or other tax-related misconduct in one place: irs.gov/help/report-fraud.

If you’ve been a victim of identity theft, consider obtaining an Identity Protection Personal Identification Number (IP PIN). Issued by the IRS, this unique six-digit number helps prevent criminals from filing a fraudulent tax return using your Social Security number. It’s valid for one year and is automatically replaced after expiration. You can expect to receive a new one each year in mid-December to early January. You can apply online or get one at a Taxpayer Assistance Center. Once you receive your IP PIN, be sure to safeguard it. Use it only on Forms 1040.

Stay alert

Tax-related scams continue to evolve, so it’s important to be cautious when receiving unexpected phone calls, messages or even letters involving taxes, refunds or financial information. If you receive a questionable communication related to a tax return we prepared, contact us before responding. We can also answer other questions you have about protecting yourself from tax-related fraud.

Cordasco & Company

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