Tax Archives - Atherton & Associates, LLP

Living trust myths vs. reality: what a revocable trust really does

Posted on March 25, 2026February 25, 2026 by don@mbn.io

March 25, 2026 | by Atherton & Associates, LLP

Revocable living trusts (RLTs) are common in estate planning, and commonly misunderstood. They’re sometimes presented as a clean, all-purpose solution that avoids probate, reduces taxes, and simplifies everything after death. In reality, they’re more nuanced than that.

This article isn’t meant to argue for or against revocable living trusts. Instead, the goal is to explain what they actually do, what they don’t do, and what’s worth paying attention to if you already have one or are considering setting one up. Like most legal and tax tools, their effectiveness depends heavily on individual facts and circumstances.

What is a revocable living trust?

An RLT is a trust created during an individual’s lifetime that can be amended, restated, or revoked at any time while the grantor (the person who creates it) is alive and competent. In most cases, the grantor also serves as the initial trustee and beneficiary during life – meaning they retain control over the trust and continue to benefit from the assets held in it.

From a practical standpoint, this usually means day-to-day control usually doesn’t change. Assets can still be bought, sold, and managed as before. The trust becomes more relevant if the grantor becomes incapacitated or dies, when a successor trustee steps in to manage or distribute assets under the trust’s terms.

Myth #1: “A revocable living trust automatically avoids probate.”

Reality: Only assets that are actually owned by the trust avoid probate.

Creating the trust document alone isn’t enough. Assets must be properly titled in the name of the trust (often referred to as “funding” the trust). If a home, investment account, or business interest remains in an individual’s name, that asset may still be subject to probate, even if a trust exists.

This is one of the most common disconnects. Many trusts are only partially funded, which can result in a mix of probate and non-probate administration. A revocable trust can help avoid probate, but only for assets that are correctly aligned with it.

It’s also worth noting that probate itself varies widely by state. In some jurisdictions, probate is relatively streamlined and inexpensive. In others, it can be slow, formal, and costly – particularly for real estate. Whether probate avoidance is a meaningful benefit often depends on where the grantor lives and what assets they own.

Myth #2: “A revocable trust reduces estate taxes.”

Reality: In most cases, it does not.

Because the grantor retains the power to revoke or change the trust, assets held in a revocable living trust are generally still included in the grantor’s taxable estate. From a federal estate tax perspective, ownership hasn’t really shifted.

During life, revocable trusts are usually treated as “grantor trusts” for income tax purposes. Income, deductions, and credits are typically reported on the individual’s personal return, just as they would be if the trust didn’t exist. This treatment is outlined in guidance from the IRS.

That said, while a revocable trust usually doesn’t reduce estate taxes, it may help reduce other estate-related costs. In states where probate is expensive or attorney-intensive, avoiding or minimizing probate can result in lower administrative fees, court costs, and delays. These savings aren’t tax savings, but they can still be meaningful.

Estate tax planning, when needed, generally requires additional strategies beyond a standard revocable trust.

Myth #3: “A revocable trust protects assets from creditors or lawsuits.”

Reality: Generally, it does not – but there are limited, situational benefits worth understanding.

Because the grantor can revoke the trust and reclaim the assets, creditors are usually able to reach trust assets to the same extent they could reach assets owned outright. For this reason, RLTs aren’t considered asset-protection vehicles in the traditional sense.

However, there are narrow circumstances where an RLT can indirectly help preserve assets – not by blocking creditors, but by improving control and administration. For example:

Incapacity planning: a well-drafted trust can ensure that a successor trustee steps in seamlessly if the grantor becomes incapacitated, reducing the risk of court-appointed guardianship or mismanagement.
Trustee succession safeguards: trust terms can be written to bypass an otherwise-named successor trustee if that person is unable or unsuitable to serve (for example, due to legal financial, or personal issues), allowing an alternate or professional trustee to step in.

These are not creditor-protection strategies in the strict legal sense, but they can matter in preserving assets through orderly management during vulnerable periods.

Myth #4: “Once there’s a trust, beneficiary designations don’t matter.”

Reality: Beneficiary designations often control how assets pass and can override the trust.

Retirement accounts, life insurance policies, and many financial accounts transfer by beneficiary designation. If those designations don’t align with the trust, the trust may not govern those assets at all.

Coordination is key – and it isn’t always intuitive. For example, certain assets, like ordinary bank or brokerage accounts, may be titled in the name of the trust. Others, such as retirement accounts or life insurance policies, are often better left payable directly to individuals, depending on tax, distribution, and planning goals. In some cases, a trust may be named as beneficiary, but only if it’s properly drafted to handle those assets.

There’s no universal rule here. The “right” approach depends on the type of asset, the beneficiaries involved, and the broader estate and tax plan.

Myth #5: “A revocable trust eliminates all court involvement and delays.”

Reality: It can reduce probate involvement, but administration still takes time and effort.

Even without probate, someone must gather assets, pay expenses, handle tax filings, and carry out the terms of the trust. A revocable trust can streamline this process, especially for more complex estates, but it doesn’t eliminate administrative responsibility.

One of the underappreciated benefits of an RLT is that it allows for more detailed and customized instructions than a simple will. This can be particularly helpful when the estate includes a closely held business, multiple properties, or assets that require ongoing management. Clear instructions can reduce uncertainty, minimize disputes, and give successor trustees a practical roadmap during administration.

It changes the process; it doesn’t remove it.

Myth #6: “Revocable trusts guarantee privacy.”

Reality: Privacy is generally the rule, but there are important exceptions.

Unlike probate proceedings, trust documents typically aren’t filed with the court, which helps keep estate details out of the public record. This is one of the most cited advantages of revocable trusts.

However, privacy isn’t absolute. Trustees have disclosure obligations to beneficiaries, and disputes over the trust can lead to litigation. In those cases, certain information may become part of a court record. Even then, trusts are rarely made public in their entirety, but some loss of privacy is possible.

The takeaway: RLTs usually enhance privacy, but they don’t guarantee complete confidentiality in every scenario.

When a revocable living trust can be a good fit

Revocable trusts tend to be most useful when one or more of the following apply:

Real estate is owned in more than one state
Avoiding probate is a high priority, particularly in states with complex or costly probate systems
Continuity is important in the event of incapacity
The estate includes complex, illiquid, or hard-to-administer assets
Privacy is a meaningful concern
Distributions are uneven, long-term, or likely to cause friction among heirs

They can also help reduce the risk of disputes by allowing the grantor to leave clearer, more detailed instructions than would typically appear in a basic will.

In contrast, an RLT may offer limited additional value when an estate is simple, most assets already pass efficiently by beneficiary designation, and state probate rules provide for a streamlined or expedited administration process. Probate varies significantly by state, and in some jurisdictions, the process can be far more burdensome than many people expect.

The most common issue to watch for: trust funding and maintenance

The biggest practical risk with revocable living trusts isn’t the document itself; it’s follow-through.

Assets need to be retitled, beneficiary designations coordinated, and the trust revisited periodically as circumstances change. New accounts, real estate purchases, family changes, or changes in state law can all affect how well the trust works in practice.

The good news is that revocable trusts are flexible. If issues are identified, they can usually be addressed during the grantor’s lifetime through amendments, restatements, or improved coordination.

Practical takeaway

Revocable living trusts are neither a universal solution nor something to dismiss outright. They’re one tool among many, and their effectiveness depends on how they’re designed, funded, and maintained – and on the individual facts involved.

For those who already have a trust, periodic review can help ensure it still aligns with current goals, assets, and family dynamics. For those considering one, understanding what the trust does – and just as importantly, what it doesn’t do – can prevent surprises later.

If you have questions about how a revocable living trust fits into your broader tax and estate plan, or whether your existing trust is properly aligned with your current circumstances, please contact our office. We’re happy to work with you and your estate planning attorney to ensure asset ownership and tax considerations are coordinated and working as intended.

This article is provided for general informational purposes only and should not be relied upon as legal or tax advice. Estate planning strategies should always be evaluated with qualified professionals in light of your individual facts and state laws.

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Understanding the IRS’s new deduction for qualified overtime compensation

Posted on March 18, 2026February 24, 2026 by don@mbn.io

March 18, 2026 | by Atherton & Associates, LLP

The IRS has issued detailed guidance on a new federal income tax deduction for qualified overtime compensation. This measure, effective for tax years 2025 through 2028, provides a federal income tax deduction that allows eligible individuals to deduct certain qualified overtime compensation.

What is qualified overtime compensation?

Under the new rules, qualified overtime compensation is defined as the portion of overtime pay that exceeds an employee’s regular rate of pay and is required under the Fair Labor Standards Act (FLSA). Essentially, this is the extra half-time in a time-and-a-half overtime wage, rather than the entire overtime payment.

For example, if an employee’s regular rate of pay is $20 per hour and they receive $30 per hour for overtime hours worked, the $10 premium above the regular rate constitutes qualified overtime compensation eligible for the deduction.

Notably, only FLSA-required overtime qualifies. Amounts paid as overtime for other reasons (e.g., solely under state law or employer policy) may not qualify unless they are FLSA-required overtime premium.

Who is eligible?

Eligibility for this deduction hinges on several key factors:

FLSA overtime eligibility: the taxpayer must be covered by and not exempt from the FLSA’s overtime rules (29 USC §207). Coverage depends on job duties, earnings level, and employer size.
Valid Social Security number: the employee must have a Social Security number that’s valid for employment.
Filing status: married taxpayers must file a joint return to claim the deduction. Both spouses, if they received qualified overtime compensation, must include valid SSNs on the return.

How much can you deduct?

For tax year 2025 (and continuing through 2028), the deduction limits are:

Up to $12,500 of qualified overtime compensation per individual tax return, and
Up to $25,000 on a joint return.

The deduction is claimed on the individual income tax return in computing taxable income, rather than as an adjustment to gross income. As a result, the deduction does not reduce AGI.

Importantly, taxpayers do not need to itemize deductions to claim the qualified overtime compensation deduction. It may be claimed in addition to the standard deduction, subject to the applicable dollar limits and income phase-outs.

Income phase-out rules

The threshold for the phase-out begins at $150,000 modified adjusted gross income (MAGI) for single filers and $300,000 for joint filers.

Detailed phase-out computations and definitions of MAGI are provided in IRS Notice 2025-69, which should be consulted for precise planning and compliance.

Reporting and compliance

For the 2025 tax year, employers are not required to separately report qualified overtime compensation on Forms W-2, 1099-NEC, or 1099-MISC. Taxpayers should therefore use their payroll records and the guidance in Notice 2025-69 to calculate the deduction.

Beginning tax year 2026, employers will be required to separately report qualified overtime compensation on updated tax forms.

Looking ahead

The IRS’s qualified overtime compensation deduction represents a significant tax change for workers who earn overtime pay and meet specific eligibility requirements. Taxpayers should carefully review the IRS FAQs, Notice 2025-69, and supporting FLSA guidance to ensure accurate calculation and compliance, while incorporating this planning opportunity into broader tax strategy discussions.

For more personalized guidance, please contact our office.

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S-corporations 101: FAQs for business owners

Posted on March 11, 2026February 24, 2026 by don@mbn.io

March 11, 2026 | by Atherton & Associates, LLP

S-corporations are one of the most frequently discussed (but often misunderstood) tax structures for small business owners. You’ve likely heard that they can help reduce taxes, especially self-employment taxes. And in some cases, that’s true. But the rules are nuanced, and the benefits aren’t automatic.

An S-corporation (or S-corp) isn’t a separate type of business entity. It is a tax classification that eligible businesses can elect by filing Form 2553 with the IRS.

Many small businesses are already taxed as pass-through entities, meaning their income is reported on the owners’ personal tax returns and taxed at individual rates. Electing S-corp status doesn’t change that pass-through treatment. What it changes is how the income flowing through is characterized for tax purposes, particularly for owners who are actively involved in the business.

This is a 101-level overview designed to answer common questions and clear up misconceptions about S corporations. It’s not a substitute for tax or legal advice. The goal is to help you understand the basics so you can have a more informed, productive conversation with your advisor if you’re thinking about making the election.

What is an S-corporation?

An S-corporation isn’t a separate type of legal entity. It’s a tax election made under Subchapter S of the Internal Revenue Code. Both corporations and limited liability companies (LLCs) can apply for S-corp status if they meet eligibility requirements.

With an S-corp election, a business is treated as a pass-through entity for federal income tax purposes. But unlike a sole proprietorship or default LLC, an S-corp allows owner-employees to split income between:

Wages (subject to payroll/FICA taxes), and
Distributions (which avoid FICA taxes and are generally not subject to income taxes unless they exceed the shareholder’s stock basis)

This structural split is what creates potential tax advantages, particularly for profitable businesses with actively involved owners.

Can I convert my LLC to an S-corp?

Many business owners start out as single-member LLCs and later elect S-corp status once the economics make sense for their situation. You’re not changing your legal entity; just how it’s taxed.

There’s no hard threshold for when to make the switch, but the structure typically starts making sense when:

You’re consistently earning net profit above what would be considered a reasonable salary
You’re actively working in the business and prepared to take reasonable compensation as wages for your services
You’re ready to take on the added responsibilities of running payroll and filing a separate corporate return (Form 1120-S)

If your income is modest, inconsistent, or your reasonable salary would consume most of your profit, it may make sense to wait before making the election.

Quick note on LLCs: “LLC” refers to a legal entity under state law, but for federal tax purposes, an LLC can be treated as a sole proprietorship (single-member), a partnership (multi-member), or a corporation (if an election is made). Most examples in this article assume a single-member LLC scenario to keep the math simple. If your LLC is taxed as a partnership, the same concepts apply, but the mechanics can differ – so you’ll want to model the election with your advisor.

Why do some business owners elect S-corp status?

The primary reason for electing S-corp status is the opportunity to reduce self-employment taxes, though the actual benefit depends heavily on the nature and profitability of the business.

This is especially true for business owners who are currently taxed as sole proprietors or default LLCs, where all net income is subject to self-employment tax.

If your business is taxed as a C-corporation, the motivation can be different: C-corps generally pay tax at the corporate level, and shareholders can pay tax again when profits are distributed as dividends. An S-corp election (for eligible corporations) is one way to shift from a “two-level” tax structure to a pass-through structure, where income is generally taxed once at the shareholder level. For many closely held corporations that expect to distribute most of their profits to owners, that shift (moving away from double taxation) can be a primary reason to elect S-corp status.

Understanding FICA taxes

To understand an S-corp, it helps to understand how FICA (Federal Insurance Contributions Act) taxes work. These taxes fund Social Security and Medicare and work the same way whether you’re an employee or self-employed – but who pays them differs.

For W-2 employees, FICA taxes are split: the employee pays 7.65% (6.2% for Social Security, 1.45% for Medicare), and the employer matches that with another 7.65%.

For self-employed individuals (sole proprietors and single-member LLC owners), you pay both the 7.65% employee and employer shares, since you are considered both the employee and the employer, resulting in a total of 15.3% self-employment tax.

Note: Social Security tax applies only to wages up to an annual cap ($184,500 for 2026), while Medicare tax applies to all earnings. An additional 0.9% Medicare surtax may apply to higher earners.

How an S-corp changes the tax structure

An S-corp allows owners who actively work in the business to pay themselves a reasonable W-2 salary and then take additional profits as distributions. Here’s how that affects FICA taxes:

The salary is treated just like any other employee’s wages – subject to payroll tax (FICA), split between the employee and employer (though both portions are ultimately paid from your business).
The distributions, however, are not subject to FICA taxes.

This allows a business owner to limit FICA exposure to only the portion of income paid as wages, potentially reducing total payroll tax liability, as long as the salary is reasonable for the work performed.

Side-by-side comparison

Let’s say a business generates $150,000 in net income, and the owner is actively working in the business.

Sole Proprietor/Default LLC:

Entire $150,000 subject to self-employment tax (15.3%)
Self-employment tax: $22,950
The full $150,000 is also included in the owner’s taxable income and subject to federal (and possibly state) income tax, based on the owner’s individual tax situation.

S-Corporation (with $100,000 reasonable salary):

$100,000 salary subject to payroll tax (15.3%): $15,300
$50,000 distribution: $0 in FICA taxes
The full $150,000 is still included in the owner’s taxable income, just as it would be in the sole proprietor scenario.

Payroll tax savings (before other adjustments): approximately $7,650.

Note: sole proprietors generally receive an above-the-line deduction for half of their self-employment tax, which can slightly reduce taxable income and narrow the net difference when comparing total tax cost.

This split doesn’t necessarily reduce income tax; it changes how payroll taxes apply. That distinction can create planning opportunities for businesses that consistently earn more than what would be considered a reasonable wage for the owner’s role.

Reasonable compensation is non-negotiable

If you’re an S-corp owner who actively works in the business, the IRS expects you to pay yourself a reasonable salary before taking any distributions. This is one of the most important (and most scrutinized) requirements of the S-corp structure.

But what exactly counts as “reasonable”?

The IRS doesn’t provide a fixed formula or salary table. Instead, it expects business owners to base compensation on what they would pay someone else to do the same job under similar circumstances. Factors to consider include:

Industry standards for comparable roles
Geographic location and cost of living
The size, complexity, and profitability of the business
Your role and responsibilities
Time spent actively working in the business

For example, a solo consultant generating $150,000 in net income might reasonably take a salary of $70,000–$90,000, depending on their experience, hours worked, and market norms. But a physician earning the same amount may be expected to take a significantly higher salary due to specialized training and licensing.

There’s no bright-line test, but undercompensating yourself increases the risk of IRS scrutiny. If the IRS determines that your salary is unreasonably low, it can reclassify prior distributions as wages, assess back payroll taxes, and impose penalties.

Determining your reasonable salary

To support your salary, it’s helpful to research market compensation using resources like the Bureau of Labor Statistics (BLS), Glassdoor, or industry-specific surveys – and to document factors such as your role, hours worked, credentials, and the complexity and profitability of your business. A CPA can help you develop a defensible salary figure that balances tax efficiency with compliance.

How do I pay myself from an S-corp?

When paying yourself from an S-corp, you’ll need to run payroll, just like a regular employer – even if you’re the only employee. That means withholding federal and state income and unemployment taxes, Social Security and Medicare taxes, and issuing yourself a W-2 at year-end. Most S-corp owners use a payroll service to manage this.

After your salary is paid, any remaining business profit can be taken as distributions. These are not subject to self-employment tax, but they do reduce your basis in the S-corp.

Distributions are generally a return of previously taxed earnings and don’t trigger additional tax unless they exceed your basis. Here’s what that means:

Your basis in an S-corp starts with your initial investment and increases when the company earns income (which you pay taxes on) or you contribute additional capital. It decreases when you take distributions or the company has losses. If you take out more than your basis, the excess is taxed as a capital gain.

What are the limitations of an S-corp?

While S-corps can offer tax planning opportunities in the right context, the structure isn’t suitable for every business. There are several important limitations to be aware of.

First, only U.S. citizens or resident aliens can be shareholders. S-corps are also limited to a maximum of 100 shareholders and may only issue one class of stock, which can limit flexibility in ownership structures and profit-sharing arrangements. Certain types of businesses, such as some financial institutions and insurance companies, are not eligible to elect S-corp status at all.

Beyond these eligibility restrictions, the S-corp structure may not be a good fit for businesses that are operating at a loss, because losses can only be deducted to the extent of your basis, which does not include entity-level debt.

If your business is still ramping up, operating at a loss, or reinvesting heavily in growth, the tax benefits of an S-corp may be limited or nonexistent in the short term.

Administrative requirements

S-corps require maintenance, including:

Monthly or quarterly payroll processing
Separate corporate tax return (Form 1120-S) in addition to your personal return
Stricter bookkeeping and accounting requirements, including maintaining corporate records such as meeting minutes
Potential state-level taxes or fees in some jurisdictions

These ongoing costs and complexity mean S-corp status only makes financial sense when the tax savings outweigh the additional administrative burden.

Is an S-corp right for you?

S-corps offer a unique blend of pass-through taxation and structured compensation. But they’re not automatically advantageous, and they’re not designed for every business.

If you’re earning strong profits, actively involved in your business, and ready to formalize how you pay yourself, it may be worth exploring the switch. But like most tax strategies, it’s not one-size-fits-all.

Before you file anything with the IRS, contact one of our expert advisors. We’ll help you run the numbers, weigh the trade-offs, and determine whether an S-corp election makes sense for your goals.

Let’s Talk!

Call us at (209) 577-4800 or fill out the form below and we’ll contact you to discuss your specific situation.

Can you be freed from a spouse’s tax debt? Understanding innocent spouse relief

Posted on March 4, 2026February 24, 2026 by don@mbn.io

March 04, 2026 | by Atherton & Associates, LLP

When you file a joint tax return with your spouse, both of you are legally responsible for everything on that return. That means if there’s a mistake or unpaid tax (even if you didn’t earn the income or weren’t involved in the finances), the IRS can come after you for the full amount. This is referred to as “joint and several liability.”

For many people, that’s a surprise. And when a marriage ends, or a spouse’s financial behavior comes to light, that surprise can turn into serious stress.

Fortunately, the IRS offers something called innocent spouse relief. It’s a way to ask for protection from a tax bill that shouldn’t be your responsibility. But the rules are strict, and not everyone qualifies.

In this article, we’ll explain what innocent spouse relief is, when it matters, and what steps to take if you think you might need it.

What is innocent spouse relief?

Innocent spouse relief is a tax rule that lets someone avoid being held responsible for a joint tax debt when the problem was caused by their spouse or former spouse. It applies in cases where one person reported income incorrectly, claimed deductions they shouldn’t have, or otherwise caused a tax bill the other person didn’t know about.

Importantly, innocent spouse relief is available only for “understatements” of tax due to erroneous items (such as unreported income or improper deductions) attributable to the other spouse, not for “underpayments” (where the tax was reported but not paid).

This type of relief exists because the IRS recognizes that it’s not always fair to hold both people responsible for a mistake one of them made. That said, the process isn’t automatic. You have to apply, meet specific requirements, and show that it would be unfair to hold you liable for the tax.

Types of relief available

The IRS offers three kinds of innocent spouse relief under Internal Revenue Code §6015. Each one applies in different situations, and the rules for qualifying are specific. What follows is a general overview based on how the IRS and the courts have applied these rules in the past. Every case is fact-specific, so these examples are meant to be guidelines, not guarantees.

Innocent spouse relief

Innocent spouse relief applies when there’s a mistake on a joint tax return (usually unreported income or an incorrect deduction), and one spouse didn’t know and had no reason to know it was wrong.

For example, in Kraszewska v. Commissioner the Court found that a wife didn’t know and couldn’t have known about improper deductions her husband claimed. He had concealed all aspects of his business finances, kept separate bank accounts, and handled the tax filings entirely on his own. She provided her tax forms but wasn’t involved in preparing the return and didn’t even get a chance to review it before he submitted it electronically using her signature. The Court ruled she had no meaningful way to access the financial information behind the return, and granted her relief.

This case shows how the Court looks closely at whether someone had access to financial records, whether they participated in preparing the return, and whether they had any opportunity to spot the error.

However, innocent spouse relief isn’t a get-out-of-jail-free card. Courts have consistently denied relief when someone ignores warning signs, enjoys the benefits of unreported income, or lives a lifestyle that doesn’t match what was shown on the return. In short, you’re expected to exercise reasonable care. If you had access to financial records, helped prepare the return, or benefited from the income in ways that should have raised questions, the IRS is likely to say you should have known something was wrong, and relief will usually be denied.

Also, a request for innocent spouse relief must generally be made within two years of the IRS’s first collection activity related to the tax liability.

Separation of liability relief

Separation of liability relief is typically available when you’re divorced, legally separated, or widowed. Instead of being excused from the full debt, the IRS assigns you only the portion of the tax tied to your share of the income or deductions.

This relief doesn’t require the IRS to find that you were entirely unaware of the tax issue, just that you didn’t know about your spouse’s portion when you signed the return. It’s often easier to qualify for than innocent spouse relief, but it’s generally only available when the marriage has ended, or you’ve been living separately for at least a year.

Requests for separation of liability relief must also generally be made within two years of the IRS’s first collection activity.

Equitable relief

If you don’t qualify for either of the first two types, the IRS may still grant relief if it believes that holding you responsible would be unfair. This is called equitable relief. It’s the broadest form available and is unique in that it is available for both understatements and underpayments of tax, unlike the other two forms. This is because the IRS weighs many factors and reviews the full picture.

In deciding whether to grant equitable relief, the IRS looks at issues such as financial abuse, economic hardship, whether you received a benefit from the unreported income, and how you responded once you became aware of the problem.

In Di Giorgio v. Commissioner, the Tax Court granted relief to a spouse who had almost no involvement in her husband’s business activities, which turned out to involve concealed income and misused financial accounts. Although she was listed as an officer in some of his companies, the Court found she had no actual role in those entities, and it was not her signature on the related documents. The income from those businesses was deposited into accounts she didn’t control or access.

She had been financially dependent on her husband, who maintained sole control over their finances and led her to believe he was running a successful enterprise. English was not her first language, and she had limited financial experience. She only became aware of the true nature of the tax issues after her husband was sued by the SEC and a lender began foreclosure proceedings. Once she learned of the problems, she separated from him and initiated divorce.

The Court found that she lacked the sophistication and access needed to spot the tax issues and that denying relief would cause financial hardship and be inequitable under the circumstances.

Cases like this show how seriously the IRS and the courts consider the unique circumstances of each taxpayer. Equitable relief often turns on questions of access, intent, credibility, and fairness, not just technical compliance.

Because these cases are so fact-specific, no single issue determines the outcome. However, the IRS generally gives significant weight to whether abuse occurred, whether paying the tax would cause serious hardship, and whether the requesting spouse took reasonable steps to resolve the issue once they became aware of it.

Requests for equitable relief must be made within the period the IRS can collect the tax, which is generally 10 years from the date of assessment. If you live in a community property state, special rules may apply.

When to ask about innocent spouse relief

Innocent spouse relief tends to arise during major life changes, especially when one spouse handled most of the finances. If you’re no longer married and only now learning about past tax issues, it may be worth asking whether you qualify for relief.

You should consider speaking with a CPA or tax attorney if:

You recently divorced or separated and now face a tax bill tied to your ex-spouse’s income or deductions.
You weren’t involved in preparing your joint returns and didn’t have access to key financial information.
You signed returns under pressure, especially in a relationship where there was control, manipulation, or fear of retaliation.
You live in a community property state and are being held responsible for income or deductions that weren’t really shared.
You’ve received an IRS notice about an old return and had no idea there was an issue.

In some cases, relief may even apply after a spouse has passed away, as long as the request is made within the IRS’s time limits.

If any of this sounds familiar, it’s worth having a conversation. A CPA and tax attorney can help assess whether a claim is possible and guide you through the next steps.

How to request relief

If you think innocent spouse relief might apply to your situation, the process starts by filing Form 8857 with the IRS. This form lets you explain your situation and request that your portion of the tax debt be removed or reassigned. You must specify the tax year or years for which you are requesting relief from joint and several liability.

The IRS requires specific details, such as when you learned about the problem, what your role was in preparing the return, whether you had access to financial information, and whether there were other circumstances (like abuse or intimidation) that made it hard to speak up. It’s important to be thorough and honest, and to include any documents that support your case.

Be aware that the IRS is required by law to notify your spouse or ex-spouse and allow them to participate in the process, even if you are divorced or estranged.

Because this process involves both tax and legal issues, it’s often helpful to work with a qualified professional. A CPA can help you gather and organize financial records, assess your potential exposure, and ensure the numbers line up. If your case involves legal questions, it’s important to consult a tax attorney. In some cases, you may end up working with both an attorney and a CPA.

What if the IRS denies the request?

A denial isn’t always the end of the process. If the IRS denies your request, you can ask for an administrative appeal or take your case to the U.S. Tax Court. Generally, you’ll have 90 days from the date on the denial letter to act. However, some deadlines may be earlier, so it’s imperative to act quickly to preserve your rights.

If you receive a denial, it’s wise to speak with a tax attorney to evaluate your options.

Next steps

If you’ve received a notice from the IRS or are concerned about a past return, it’s important to speak with a qualified tax professional. Depending on your situation, that may mean working with a CPA, a tax attorney, or both.

We can help you review your tax history, gather the right documentation, and determine whether it makes sense to pursue relief.

The goal is to help you move forward with clarity and without carrying the burden of a tax issue that shouldn’t be yours.

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What Companies Need to Know About the Surge in Investment Scams

Posted on February 25, 2026February 2, 2026 by Aprio

February 25, 2026 | by Aprio

This article was originally published by Aprio on January 22, 2026.

Summary: Fraudsters often use advanced technology, AI, and psychological manipulation to target employees, compromise internal controls, and siphon funds under the guise of legitimate investment opportunities or executive directives.

According to the Federal Trade Commission (FTC), reported losses to fraud jumped to $12.5 billion in 2024. Investment scams accounted for the largest share, with losses reaching $5.7 billion. Scammers are no longer relying solely on poorly worded emails or obvious phishing attempts. Today’s bad actors utilize advanced technology, artificial intelligence (AI), and psychological manipulation to target employees, compromise internal controls, and siphon funds under the guise of legitimate investment opportunities or executive directives.

A compromised employee, a deceived executive, or a manipulated payment process can expose a company to significant financial liability and reputational damage. Understanding the mechanics of investment scams and implementing proactive controls is a critical component of financial governance.

Rising Cost of Investment Scams

While traditional checks and balances once slowed the movement of illicit funds, digital payment methods have accelerated the process. The FTC notes that in 2024, consumers and organizations lost more money to scams involving bank transfers and cryptocurrency than all other payment methods combined.

For business leaders, the risk is twofold. First, there is direct financial loss if company funds are diverted. Second, there is the operational disruption required to investigate the breach, the potential for regulatory scrutiny, and the exposure of control weaknesses that could affect future valuation or audit readiness.

We are also seeing a shift in the global regulatory environment regarding corporate responsibility. For example, recent legislative updates in the United Kingdom have introduced stricter requirements for companies to prevent fraud, potentially holding leadership accountable if they fail to implement reasonable prevention procedures. While regulations vary by jurisdiction, this trend suggests a growing expectation for boards and executives to take a more active role in fraud prevention, regardless of where they operate.

How Modern Investment Scams Infiltrate Organizations

Investment scams often begin with a breach of trust, rather than a breach of software. Scammers frequently target specific departments (e.g., finance, accounting, human resources) using social engineering tactics that exploit the desire to be responsive and efficient.

Imposter Scams

One of the most prevalent tactics involves imposter scams. In these scenarios, fraudsters pose as known and trusted figures: a CEO, a board member, a vendor, or even a bank representative. They may use spoofed email addresses or deepfake audio technology to issue urgent instructions regarding a confidential acquisition, a new investment opportunity, or a vendor payment change.

Consider the scenario of a non-profit organization where a trusted leader believes they have found a lucrative investment opportunity to grow the organization’s endowment. The leader, authorized to move funds, might transfer capital from the organization’s bank account to a mobile payment app, and subsequently to a cryptocurrency exchange, believing they are securing a high return. The reality is that the opportunity is a fabrication, and once the funds are converted to cryptocurrency, recovery becomes difficult and uncommon.

This type of authorized push payment fraud is particularly dangerous because the person initiating the transfer is authorized to do so, bypassing standard cybersecurity alerts.

Role of Technology and Cryptocurrency

Technology companies and platforms are often the unwitting facilitators of these crimes. Scammers leverage legitimate fintech applications, peer-to-peer (P2P) payment platforms, and cryptocurrency exchanges to move stolen funds quickly across borders.

For high-growth and tech-focused companies, this presents a unique challenge. Employees accustomed to moving fast and using modern financial tools may be less suspicious of requests to use non-traditional payment methods. Scammers exploit this comfort level, directing payments via wire transfers, ACH, or crypto under the pretense of modernizing the investment process, avoiding bureaucratic delays.

Why Employees Are Effective Targets

Detecting an investment scam requires looking beyond the transaction itself and to the behaviors and patterns surrounding it. Scammers rely on urgency, authority, and secrecy to override critical thinking. By training teams to recognize common red flags, companies can build a human firewall against fraud.

Behavioral Warning Signs

Scammers often coach their targets on how to respond to internal questions, creating a script that explains away irregularities. Leaders should be vigilant for specific changes in employee behavior or communication styles, such as:

Unusual Secrecy: An employee emphasizes that a transaction is highly confidential and should not be discussed with other team members or standard approvers.
Urgency and Pressure: There is an intense push to act quickly to secure a deal or avoid a penalty. Scammers know that if a target has time to think, the scheme often fails.
Resistance to Protocol: An employee or executive shows frustration with standard verification procedures and attempts to bypass established internal controls to expedite payment.
Scripted Responses: If questioned by finance or compliance teams, the individual requesting the payment offers vague, repetitive, or rehearsed answers that do not align with standard business logic.

Transactional Red Flags

Beyond behavior, the details of the transaction often contain clues that something is amiss. Companies should scrutinize any payment request that deviates from the norm. Take for example:

Test Transactions: Fraudsters often request an initial transfer to verify the account or process. Once this small amount clears without raising alarms, they follow up with a much larger request.
New Payment Methods: A request to send funds via cryptocurrency, gift cards, or to a new bank account that does not match the vendor’s typical profile is a major warning sign.
Misaligned Beneficiaries: Payment instructions where the beneficiary’s name does not strictly match the entity known to the company, or where the bank location does not match the vendor’s known geography.
Public Information Exploitation: Scams often take advantage of publicly available information about executive travel or company announcements to time their requests, adding a layer of credibility to the impersonation.

Controls and Prevention Strategies

Implementing Effective Financial Controls

Dual Approvals: Require two separate approvals for all wire and ACH transfers above a certain threshold. No single individual, regardless of rank, should have the ability to initiate and approve a significant outbound transaction. In addition, a second set of eyes often catches details that the primary initiator might miss due to pressure or distraction.
Verification Channels: Establish a strict policy that all changes to payment instructions (e.g., a new bank account number) must be verified through a secondary channel. If a request comes via email, the verification must happen via a phone call to a known contact at the organization, and never the number provided in the suspicious email.
Limit Payment Methods: Restrict the use of high-risk payment channels. Corporate funds should rarely, if ever, be transferred via P2P apps or converted to cryptocurrency without an extensive, multi-layer approval process.

Creating a Culture of Skepticism and Support

Employees in Finance, HR, and Executive Administration are often in the first line of defense against investment scams. This means that they are also the most frequently targeted. New hires, eager to please and unfamiliar with company norms, are particularly vulnerable.

Training programs should go beyond basic cybersecurity awareness. They must empower employees to question authority when financial protocols are challenged. An executive assistant should feel supported, not threatened, when verifying the CEO’s urgent request for a wire transfer. Building a culture where verification is praised rather than punished is essential for long-term security.

Immediate Steps When Fraud Is Suspected

Despite even the best controls, sophisticated investment scams can sometimes penetrate defenses. If a suspicious transaction is identified, speed is the critical factor in mitigating loss.

1. Stop or Recall Payments

Immediately contact the financial institution involved. If the funds were sent via wire transfer, request a recall. If sent via other methods, ask the provider to freeze the transaction if possible.

2. Notify Authorities

Report the incident to relevant law enforcement agencies and regulatory bodies. This creates an official record which is necessary for insurance claims.

3. Internal Review and Containment

Conduct an immediate internal review to understand the scope of the breach. Was it a compromised email account? A malicious insider? An external social engineering attack? Isolate affected systems to prevent further loss.

4. Engage Forensic Specialists

Third-party investigations are often necessary to trace complex financial flows, especially those involving cryptocurrency. Forensic specialists can prepare detailed reports for law enforcement, support insurance claims, and provide a clear summary of events for the Board of Directors.

Final Thoughts

Navigating the aftermath of an attempted or successful investment scam requires a partner who brings both technical precision and deep industry understanding.

Let’s Talk!

Call us at (209) 577-4800 or fill out the form below and we’ll contact you to discuss your specific situation.

This article was written by Aprio and originally appeared on 2026-01-22. Reprinted with permission from Aprio LLP.
© 2026 Aprio LLP. All rights reserved. https://www.aprio.com/insights-events/what-companies-need-to-know-about-the-surge-in-investment-scams-ins-article-adv/

“Aprio” is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC (and its subsidiaries), provide professional services. LLP and Advisory (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. LLP is a licensed independent CPA firm that provides attest services, and Advisory and its subsidiaries provide tax and business consulting services. Advisory and its subsidiaries are not licensed CPA firms.

This publication does not, and is not intended to, provide audit, tax, accounting, financial, investment, or legal advice. Readers should consult a qualified professional advisor before taking any action based on the information herein.

IRS clarifies 100% first-year bonus depreciation rules

Posted on February 18, 2026February 2, 2026 by don@mbn.io

February 18, 2026 | by Atherton & Associates, LLP

The IRS recently issued new guidance clarifying how the permanent 100% bonus depreciation deduction – part of the One Big Beautiful Bill Act (OBBBA) passed in 2025 – will work going forward. The latest IRS update (Notice 2026-11) explains how these rules apply starting with the 2025 tax year and outlines some important options that may help businesses better time and structure their deductions.

But before we get into the latest guidance, let’s review the previous bonus depreciation rules.

Refresher: what is bonus depreciation?

Bonus depreciation is a tax provision that allows businesses to write off the full cost of certain capital assets in the year they’re placed in service, rather than spreading the expense over the asset’s useful life. It’s been around in various forms for years and was most recently expanded under the Tax Cuts and Jobs Act (TCJA) in 2017.

Under the TCJA, businesses could take 100% bonus depreciation on qualified property placed in service from September 27, 2017, through the end of 2022. However, that law included a phase-out schedule that gradually reduced the deduction starting in 2023. By 2027, bonus depreciation was set to disappear entirely.

However, in July 2025, the OBBBA made 100% bonus depreciation permanent for property placed in service after January 19, 2025. So instead of watching bonus depreciation wind down, businesses can continue to take full deductions in the first year.

It’s worth noting that bonus depreciation isn’t the only option for accelerated deductions. Section 179 also allows for immediate expensing of certain capital assets, though it has different limits and rules, including income caps and maximum deduction thresholds. In practice, many businesses use both provisions strategically depending on their needs and eligibility.

What the IRS just clarified

Under the OBBBA, businesses can continue to take 100% first-year depreciation on most new or used business assets with a recovery period of 20 years or less – permanently.

This includes things like:

Equipment
Machinery
Certain vehicles
Computer systems
Furniture
Some leasehold improvements

To qualify, the asset must be acquired and placed in service after January 19, 2025.

IRS confirms which property qualifies

The IRS confirmed that the rules are largely the same as in previous years. To qualify, property generally must:

Be tangible and depreciable under the Modified Accelerated Cost Recovery System (MACRS)
Have a recovery period of 20 years or less (most standard business property fits this)
Be placed in service after January 19, 2025
Be purchased new or used (with some limitations)

There are a few new categories of property now eligible under the updated law, including qualified sound recordings, which could be relevant for media, entertainment, and advertising businesses.

Special elections are still available

You’re not locked into taking the full 100% deduction. The IRS continues to allow several elections, including:

Electing a reduced first-year deduction (40% instead of 100%)
Opting out of bonus depreciation altogether for certain classes of property
Electing to expense specific components of self-constructed property
For farming and media businesses: electing bonus depreciation on qualified plants or production assets

For example, if you’re expecting higher income in future years, you might not want to take the full deduction this year. In that case, electing a smaller deduction or opting out could help you smooth out taxable income over time.

These elections are made on your tax return for the year the asset is placed in service, and once made, they are generally irrevocable. So it’s worth discussing this with your CPA before making an election.

Special rules for farming and long-production assets

The IRS also clarified special rules for two categories:

Specified plants for farming businesses – farmers can elect to claim 100% bonus depreciation when specified plants (such as fruit-bearing trees, vines, or nut trees) are planted or grafted, rather than waiting until they’re placed in service.

Long-production-period property and certain aircraft – for property that takes an extended time to construct or manufacture, taxpayers may elect a reduced 60% bonus depreciation rate (instead of 100%) for the first taxable year ending after January 19, 2025.

Planning ahead

Although the IRS calls this “interim guidance,” it provides a reliable framework for this filing season.

If you’re considering large purchases or construction projects, it’s a good time to talk with your tax advisor. The reinstatement of permanent 100% bonus depreciation is a valuable opportunity for businesses of all sizes. But like many tax benefits, how you use it can affect both your current and future tax bills.

If you’re planning capital investments, reach out to discuss the best strategy for your situation. We can help you evaluate whether to take the full deduction now, spread it out over time, or coordinate it with other tax-saving opportunities.

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Understanding Trump Accounts: what parents need to know about the new child-focused IRA

Posted on February 11, 2026February 2, 2026 by don@mbn.io

February 11, 2026 | by Atherton & Associates, LLP

The IRS has released a new round of guidance (IR-2025-117 and Notice 2025-68, both issued December 2, 2025) clarifying how a new type of retirement account, called a Trump Account, will work when it becomes available in 2026.

What is a Trump Account?

A Trump Account is a new type of tax-advantaged individual retirement account (IRA) designed for children under age 18, created by the One Big Beautiful Bill Act (OBBBA) and now governed by Section 530A of the Internal Revenue Code.

At its core, a Trump Account is intended to help families begin long-term investing for a child well before adulthood. Unlike traditional or Roth IRAs, Trump Accounts do not require the child to have earned income. Instead, parents and other permitted contributors may fund the account on the child’s behalf.

The IRS has confirmed that contributions cannot begin until July 4, 2026, and many administrative details are still being finalized.

Eligibility

A Trump Account may be established for an individual with a social security number who has not turned 18 before the end of the calendar year in which the election to open the account is made. The election is expected to be made by a parent, legal guardian, adult sibling, or grandparent using Form 4547, which the IRS has released in draft form but has not yet finalized.

Although the IRS has not yet published full custodial rules, Trump Accounts are expected to operate similarly to custodial IRAs, with an adult acting as trustee or custodian until the child is legally permitted to control the account.

How do Trump Accounts work?

Contributions

Under current guidance, total contributions to a Trump Account are generally capped at $5,000 per year, aggregated across all sources. This limit applies regardless of whether contributions come from parents, relatives, employers, or other eligible contributors. Exceptions to the $5,000 cap include the $1,000 pilot program contribution (discussed below) and qualified general contributions from governments or charities, such as the recent $6.25 billion pledge from Michael and Susan Dell. Beginning after 2027, this annual limit will be indexed for inflation.

Employers may contribute up to $2,500 per year to a Trump Account for an employee’s child through an employer Trump Account contribution program. These contributions are excluded from the employee’s taxable income, but they do count toward the $5,000 annual limit. Employers can also offer contributions to a dependent’s Trump Account through a salary reduction arrangement under a Section 125 cafeteria plan, which would allow employees to redirect salary on a pre-tax basis into the account.

Certain governmental entities and charitable organizations may also make contributions to Trump Accounts for a qualified group of beneficiaries, such as children in foster care or other defined populations.

Investments

Funds held in a Trump Account must be invested in broad-based U.S. equity index funds, such as mutual funds or exchange-traded funds that track the S&P 500 or another index primarily composed of American companies. Individual stocks, cryptocurrencies, and alternative investments are not permitted under current rules.

Withdrawals and tax treatment

Trump Accounts are subject to strict withdrawal limitations. No distributions may be taken before January 1 of the year in which the child turns 18, except for limited circumstances that have not yet been fully defined by the IRS.

After the child reaches that threshold, the account is generally treated as a traditional IRA. Withdrawals are taxed as ordinary income, and early withdrawal penalties may apply if funds are accessed before age 59½, unless a qualifying exception applies. IRA basis rules also apply, which only tax the earnings and pre-tax contributions portion of withdrawals.

$1,000 pilot program contribution

Separate from regular contributions, the federal government will make a one-time $1,000 pilot contribution to certain Trump Accounts. This feature has received much attention, but it applies only to a limited group of children.

To qualify, the child must be:

A U.S. citizen, and
Born between January 1, 2025, and December 31, 2028, and
Properly enrolled through a timely Trump Account election completed by the qualifying child’s parent or legal guardian.

This $1,000 contribution does not count toward the annual $5,000 contribution limit. However, children born outside the 2025–2028 window will not receive this federal deposit unless Congress extends or modifies the program in the future.

How Trump accounts compare to other common options

Many parents are already familiar with Roth IRAs, custodial Roth IRAs, and 529 plans, and may wonder how Trump Accounts fit alongside or compete with those tools.

Feature	Trump Account (as of Dec. 2025)	Custodial Roth IRA	Roth IRA	529 Plan
Eligible Owner	Child under 18 with social security number	Minor with earned income	Adult with earned income	Anyone (beneficiary designated)
Earned Income Required	No	Yes	Yes	No
Annual Contribution Limit	$5,000	$7,000 (2025)	$7,000 (2025)	High lifetime limits (state-specific)
Tax Treatment	Tax-deferred (traditional IRA rules)	Tax-free growth if qualified	Tax-free growth if qualified	Tax-free for education
Investment Restrictions	U.S. equity index funds only	Broad	Broad	Plan-dependent
Withdrawals Before 18	Generally prohibited	Contributions can be withdrawn	N/A	Allowed for education
Federal Seed Money	$1,000 (limited pilot)	None	None	None

This comparison reflects current guidance and highlights a key point: Trump Accounts are designed for long-term retirement-style savings, not education funding or short-term flexibility.

What we don’t know yet

Although the December 2025 guidance answers many foundational questions, uncertainties remain. The IRS has not yet finalized rules addressing:

Whether funds can be rolled into Trump Accounts from 529 plans or other custodial accounts
How Trump Accounts will be treated for state income tax purposes
Detailed trustee and custodial requirements

The IRS has explicitly requested public comments on several of these issues, signaling that additional guidance is expected in 2026.

What can parents do now?

Even though contributions cannot begin until July 2026, families can take steps now by familiarizing themselves with the rules, tracking eligibility for children born between 2025 and 2028, and speaking with a tax or financial advisor about how Trump Accounts may fit into their broader planning strategy.

Parents who already use 529 plans or custodial Roth IRAs should be especially cautious about assuming Trump Accounts are a replacement. At least for now, they appear to serve a distinct and more restrictive purpose.

A new tool, still taking shape

Trump Accounts are still very much a work in progress. The IRS’s December 2, 2025, notice provides clarity on structure and intent, while also making clear that important questions remain unresolved.

For families trying to make sense of these accounts, the key takeaway is this: Trump Accounts are real, they are coming, and they may be useful – but the full picture will not be clear until additional IRS guidance is released.

Let’s Talk!

Call us at (209) 577-4800 or fill out the form below and we’ll contact you to discuss your specific situation.

Your 2026 tax season survival guide

Posted on February 4, 2026February 2, 2026 by don@mbn.io

February 04, 2026 | by Atherton & Associates, LLP

For most people, tax season brings a quiet panic about what they might be forgetting and a last-minute rush to pull everything together before the deadline. But it doesn’t have to be that way. With just a little preparation, you can avoid surprises, minimize your tax bill, and make the entire process smoother for both you and your advisor.

Here are a few simple ways to stay ahead this year.

Start with the basics: what documents you’ll need

First things first: tax season is mostly about documentation. If you can gather what’s needed early, the rest of the process tends to fall into place.

You’ll need your Social Security number, address, and details for any dependents. Collect documents for all income, which include W-2s, 1099s, K-1s, and brokerage statements. For above-the-line deductions, collect IRA and HSA contribution statements and any student loan interest. For itemized deductions, gather your mortgage statement, property tax payments, state and local tax payments, charitable donations, and all medical expenses. Don’t forget to compile health insurance details if you’re self-employed or bought coverage through the marketplace. Collect childcare expenses, education expenses, and any expenditures on energy efficiency. Finally, note any major events that may have occurred, such as a birth, death, change in marital status, sale of a home, or sale of a business.

Be patient with late or corrected forms

Once you have your paperwork together, the next step is knowing when to use it. It’s tempting to file early and check taxes off your list, but sometimes that can cause more harm than good. This is especially true if you have investments or receive K-1s from partnerships. Some custodians don’t have to issue 1099s until mid-February or later. And even then, corrected forms may show up weeks later.

While early organization is key, it’s wise to wait until everything is in before filing. That way, you avoid the hassle of filing an amended return due to late or revised documents.

Don’t miss these overlooked deductions and credits

This is the time of year when easy wins are often missed.

If you’re self-employed and paying for your own health insurance, those premiums are likely deductible. Health Savings Account contributions are another overlooked tool for reducing taxable income. Childcare expenses, educational costs, and charitable donations can all provide added tax relief.

If you made retirement contributions to a SEP IRA, solo 401(k), or traditional IRA, those may be deductible as well, depending on your income and the type of plan. Even if you haven’t claimed these deductions in past years, it’s worth revisiting them now. Tax laws change, and so does life.

New deductions under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduced several new deductions that could meaningfully reduce your taxable income this year. Here’s what to know.

Tip income. Workers in tipped occupations may deduct qualified tips from federal taxable income, up to $25,000 for married couples filing jointly, with lower limits for other filers. This deduction phases out for taxpayers with modified adjusted gross income above $150,000 (or $300,000 for joint filers). Strict eligibility criteria apply, so verify you meet the requirements before claiming it.

Overtime pay. The premium portion of overtime compensation—such as the “half” in time-and-a-half—may now be deductible, up to $12,500 annually ($25,000 for joint filers). This applies to overtime required under the Fair Labor Standards Act and is subject to the same income phase-outs as the tip deduction.

Car loan interest. Individuals may now deduct up to $10,000 in interest paid on loans used to purchase a new vehicle for personal use. The vehicle must be new, and the deduction phases out for taxpayers with modified adjusted gross income above $100,000 ($200,000 for joint filers). Lease payments do not qualify.

Additional deduction for seniors. Individuals age 65 and older may claim an additional $6,000 deduction on top of the standard deduction ($12,000 for married couples where both spouses qualify). This begins to phase out for taxpayers with modified adjusted gross income above $75,000, or $150,000 for joint filers.

These provisions have detailed requirements, income limits, and documentation standards. Working with a qualified tax advisor is the best way to ensure you’re both complying with the latest rules and making the most of every available deduction.

If you run a business, don’t overlook these tasks

If you own a business, there are a few extra steps to keep in mind.

File your business return first if you’re an S corporation or partnership. Your business return typically needs to be filed before your personal return, because the K-1 that reports your share of the company’s income, deductions, and credits flows through to your individual tax return. Delays in filing your business return can delay the rest of your tax process.

Make sure your books are up to date, or that your bookkeeper has everything they need to close out the year. That means reconciling bank accounts, categorizing expenses, and flagging any unusual income or reimbursements.

If you paid independent contractors more than $600 last year, you’re likely required to send them a 1099-NEC by February 2nd. Missing that deadline can result in penalties, so confirm that those forms have been issued.

It’s also a good time to review your mileage logs, home office expenses, and any business-related travel or meals you may have paid for out of pocket. Better records mean more deductions—and more confidence if your return is ever audited.

Understand your deadlines – and what an extension really means

As you organize your documents, keep an eye on key deadlines. For most taxpayers, the filing deadline this year is April 15, 2026. Some states may have different dates, especially if disaster declarations are involved.

If you’re not ready to file by then, you can request an extension—but remember: an extension gives you more time to file, not more time to pay. If you expect to owe taxes and don’t make a payment by April 15, interest and penalties can still apply. That’s why it’s often better to send in an estimated payment with your extension rather than underestimate and come up short.

Why professional guidance matters

Even seemingly simple returns can involve layers of complexity. If you’ve experienced a major life event—a marriage, divorce, inheritance, or the sale of a business—those changes often have tax consequences that aren’t always obvious upfront.

Equity compensation like stock options and RSUs, cryptocurrency transactions, and passive income from K-1s are all examples where thorough documentation and nuanced reporting are critical. Multi-state income and prior IRS notices also call for a closer look.

Tax software can’t always spot issues—or opportunities—that an experienced CPA will catch. And by the time errors show up, they can be expensive to fix. Bringing in a professional early helps ensure you’re complying with the latest rules, optimizing your outcome, and avoiding unpleasant surprises down the road.

A little preparation goes a long way

The more organized you are now, the less time you’ll spend hunting down paperwork or worrying about what you might have missed. Filing on time and accurately reduces your chances of missing deductions, triggering penalties, or rushing decisions that can’t be undone later.

If you’re not sure whether your current process is still serving you well, this is a great time to ask. A little help now can prevent a lot of cleanup later.

For more personalized guidance, please contact our office. We’re happy to help through this tax season and beyond.

Let’s Talk!

Call us at (209) 577-4800 or fill out the form below and we’ll contact you to discuss your specific situation.

1099 season is here: what employers need to know

Posted on February 2, 2026February 13, 2026 by don@mbn.io

February 02, 2026 | by Atherton & Associates, LLP

It’s the start of a new year, which means it’s time to get your 1099s in order. If you paid any contractors in 2025, paid office rent, or received royalties, there’s a good chance you’ve got some forms to file. The rules aren’t complicated once you break them down – but waiting too long can lead to mistakes, missed deadlines, and penalties. So let’s walk through the basics of who gets a 1099, which forms to use, and what deadlines you need to meet.

Who gets a 1099, and which form?

There are more than a dozen types of 1099s, but most small businesses deal with just a few. The most common are the 1099-NEC for nonemployee compensation, the 1099-MISC for rent and other miscellaneous payments, and the 1099-K for payments processed through third-party networks.

While the deadline for issuing most 1099s is usually January 31st, that date falls on a weekend, so the deadline has been pushed back to February 2, 2026.

1099-NEC: nonemployee compensation

You’ll likely need to issue a 1099-NEC if your business paid $600 or more to a nonemployee, like a freelancer, consultant, contractor, or service provider.

This form applies when:

The service provider is not your employee,
The payment was made in exchange for services, and
The payee is an individual, sole proprietorship, or partnership. If you’re unsure how they’re taxed, check their W-9 to confirm.

You typically don’t issue a 1099-NEC to C or S corporations, but there are some exceptions. For example, if your business paid an attorney or law firm for legal services, you may still need to issue a 1099-NEC, even if they’re incorporated.

LLCs can also be tricky. If the contractor’s LLC is taxed as a sole proprietorship or partnership and they meet the $600 threshold, you must issue a Form 1099-NEC. If they’re taxed as a corporation, you typically do not, unless a rare exception applies.

1099-NEC forms must be delivered to both the recipients and the IRS by February 2, 2026.

1099-MISC: miscellaneous income

You’ll use Form 1099-MISC to report certain business payments that don’t fall under nonemployee compensation. This typically includes rent payments of $600 or more for office space or equipment leases, royalty payments of $10 or more, and prizes or awards.

Just like with the 1099-NEC, you usually don’t need to issue a 1099-MISC to a C or S corporation, but there are important exceptions. One of the most common exceptions is for business-related medical or healthcare payments. For example, if you paid for employee drug testing or occupational health visits, that will probably require a 1099-MISC.

You’ll need to provide recipients with their 1099-MISC by February 2, 2026. However, there are different deadlines for filing with the IRS. For paper filing, the deadline is March 2nd; for electronic filing, it’s March 31st.

1099-K: Third-party payment processors

If you pay a vendor through a third-party platform such as PayPal, Venmo Business, Square, or a credit card, you generally do not issue a Form 1099 for those payments. Instead, the payment processor is responsible for issuing Form 1099-K.

This avoids double-reporting the same income. Make sure your bookkeeping distinguishes between payments made directly to a vendor and payments made through third-party payment processors so you don’t issue duplicate forms by mistake.

Tips for a smoother 1099 season

A successful 1099 season starts with good recordkeeping.

First, make sure you have a current W-9 for every vendor or contractor you’ve paid in 2025. Pay close attention to how LLCs are taxed on their W-9, because you may not need to issue 1099s for those taxed as corporations.

Second, ensure your vendor records are up-to-date. Confirm business names, mailing addresses, and taxpayer identification numbers. A quick check now can prevent notices and complications later.

Finally, it helps stay organized. Create a checklist of which vendors need 1099s and for which types of payments. This may even help you get a head start on the 2026 tax year.

Plan ahead to avoid penalties

IRS penalties for late or incorrect 1099s can add up quickly, ranging from $60 to $330 per form, depending on how late they are filed.

Avoid the scramble by reviewing your records now, confirming who needs a form, and getting everything in order before February 2, 2026.

If you need help issuing 1099s or reviewing vendor classifications, please contact one of our expert advisors. We’re always happy to help.

Let’s Talk!

Call us at (209) 577-4800 or fill out the form below and we’ll contact you to discuss your specific situation.

California Updates IRC Conformity with SB 711, but Many Differences Still Remain

Posted on January 14, 2026January 8, 2026 by Aprio

January 14, 2026 | by Aprio

This article was originally published by Aprio on December 29, 2025.

Summary: California updated its Internal Revenue Code conformity date for the first time in 10 years, bringing the state in line with many federal income tax provisions. However, many differences still remain, including those federal tax provisions enacted by the One Big Beautiful Bill.

On October 1, 2025, California Governor Gavin Newsom signed Senate Bill 711 (SB 711), which updates California’s tax code by advancing the state’s conformity date with the Internal Revenue Code (IRC) by a decade. Prior to this legislation, California followed the IRC as of January 1, 2015, which created many differences between the federal and California income tax rules over that 10-year period. Applicable for tax years beginning on or after January 1, 2025, the new law adopts the provisions of the IRC as enacted on January 1, 2025.

By adopting this legislation, California will now incorporate many federal tax law provisions that were enacted over the last 10 years. However, the state will still decouple from certain federal changes, including select provisions enacted by the Tax Cuts and Jobs Acts (TCJA) in 2017. It’s important to note that California will not conform to the One Big Beautiful Bill (OBBB), as its new conformity date precedes that legislation.^[1]

Key Federal Tax Provisions Now Adopted by California

Significant items that California will now follow include:

Limitation of 1031 exchanges to real property
Treatment of gain for interests in partnerships connected to performance of services
Treatment of certain self-created property as capital assets under TCJA
Modified percentages of the California alternative incremental research expense credit
Limitation on gain exclusion for sale of stock to employee stock ownership plans to which IRC 1042(h) applies to the sale of stock in an S corporation
Deductibility of loan expenses under the Paycheck Protection Program
Treatment of alimony

Significant Federal Provisions California Will Not Adopt

Provisions that California continues to not adopt include:

Amortization of foreign research and experimentation expenses
Benefits for qualified business income
Bonus depreciation for qualified property and 15-year life for qualified improvement property
Increased expensing under IRC 179 for allowed business property
Capital gain treatment of qualified opportunity zone investments
Alternative minimum tax provisions enacted after January 1, 2015
Business interest expense limitations under IRC 163(j) for corporations
Section 382 provisions under TCJA
Limitation of deductions of excess business loss for noncorporate taxpayers

Final Thoughts: What California Taxpayers Need to Know

Due to the multitude of changes brought on by SB 711, it is important for California taxpayers to evaluate the impacts of this legislation for fourth quarter payments as well as extension payments due for 2025.

Please connect with your advisor if you have any questions about this article.

[1] For more information on how states are addressing the provisions enacted under OBBBA, particularly as it relates to R&D expenses, please see our article: Some States are Splitting from the OBBB – Is Yours?

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This article was written by Aprio and originally appeared on 2025-12-29. Reprinted with permission from Aprio LLP.
© 2025 Aprio LLP. All rights reserved. https://www.aprio.com/insights-events/california-updates-irc-conformity-with-sb-711-but-many-differences-still-remain-ins-article-tax/

This publication does not, and is not intended to, provide audit, tax, accounting, financial, investment, or legal advice. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Readers should consult a qualified tax advisor before taking any action based on the information herein.