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Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.

Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.

Pursuant to the rules of Code Sec. 530A, distributions from Trump accounts are limited during the growth period, which is the period ending on January 1 of the year in which the account beneficiary attains age 18. During the growth period, annual contributions are limited to $5,000 per year, as adjusted for inflation after 2027. Gifts of future interests in property are not eligible for the annual gift tax exclusion and must be reported on a federal gift tax return.

The safe harbor applies for a particular year if the following requirements of section 4.02 are met:

• The taxpayer is an individual;
• The only taxable gifts made by the taxpayer during the calendar year are cash contributions to one or more Trump accounts, each made before the calendar year in which the account beneficiary attains age 18;
• The taxpayer's total gifts during the calendar year to each individual who is an account beneficiary, including contributions to that individual beneficiary's Trump account, do not exceed the Code Sec. 2503(b) annual exclusion;
• Such contributions to Trump accounts during the calendar year do not generate for that year either a gift or generation-skipping transfer (GST) tax liability after application of the taxpayer's remaining applicable credit amount against the gift tax or remaining GST exemption; and
• Disregarding the Trump account contributions described in section 4.02(2) of the revenue procedure, a gift tax return is not required to be filed, and no gift tax return is otherwise filed for that calendar year by or on behalf of the taxpayer for any other purposes.

If these requirements are satisfied, each Trump account contribution made by the taxpayer during the calendar year will be treated as a completed gift to the account beneficiary that is not a future interest in property and to which the annual exclusion applies for purposes of gift and GST tax reporting. As a result, taxpayers within the scope of the safe harbor will not be required to file a gift tax return reporting the such contributions.

Rev. Proc. 2026-25

IR 2026-80

The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.

The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.

Under Code Secs. 6011 and 6707A, the IRS may identify transactions with tax avoidance potential as listed transactions. The final regulations add Reg. §1.6011-15, identifying transactions in which appreciated property is contributed to a purported CRAT, sold by the trust, and the sale proceeds are used to purchase an annuity, with the beneficiary improperly treating the annuity payments under Code Sec. 72 instead of applying the distribution ordering rules of Code Sec. 664(b).

Although participants and material advisors remain subject to the applicable disclosure requirements, organizations described in Code Sec. 170(c) that merely receive the charitable remainder interest are excluded from participant status and are not treated as parties to prohibited tax shelter transactions under Code Sec. 4965 solely because of that interest. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2024.

T.D. 10051

IR 2026-82

A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.

A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.

Background

The taxpayers sued multiple credit reporting agencies under FCRA provisions. They eventually settled with each agency. In all relevant Forms 1099–MISC the settlement amounts were reflected without the attorney’s fees and costs.

Civil Rights Interpretation for FCRA Claims Denied

The taxpayers’ FCRA claims of unlawful discrimination did not fall under Code Sec. 62(e)(18)(i). Said claims were based on fair and accurate credit reporting and not consumer privacy. Particularly, the taxpayers’ concerns did not fall under “highly sensitive” and “intimate personal information” categories.

J.W. Eiler, 167 T.C. No. 3, Dec. 62,865

The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status.

The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status. A name change following marriage should be reported to the Social Security Administration so the updated name matches Social Security records. An address change should be reported to the IRS by filing Form 8822, Change of Address, and employers, financial institutions and the U.S. Postal Service should also be notified. Marriage may also require submission of a new Form W-4, Employee's Withholding Certificate, to ensure the correct amount of tax is withheld.

Additionally, the IRS noted that the birth or adoption of a child may make a taxpayer eligible for valuable tax benefits, including the Child Tax Credit, Adoption Credit and Child and Dependent Care Credit, if applicable requirements are satisfied. Divorce or the death of a spouse may also affect filing status, tax withholding and eligibility for certain tax benefits. The IRS encouraged prompt updates to tax records, careful evaluation of changes affecting tax obligations and use of available IRS resources to better understand the tax consequences of major life events. Early action can help avoid filing issues, support accurate tax reporting, maximize available tax benefits and improve preparation for the next tax filing season.

IRS Tax Tip 2026-55

The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.

The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.

In a recently released report, TIGTA stated that from March 1, 2025, through February 28, 2026, the IRS received 51.5 million tax returns, down from 52. 4 million in the previous year, though it did see a significant drop in paper returns received from 1.2 million in 2025 to 618,000 in 2026. Of the returns received in 2026, the agency processed 50.9 million returns, down from 51.8 million.

From the beginning of the 2026 tax filing season to the end of February 2026, TIGTA reported that the inventory backlog in key tax return processing programs increased from 1.9 million to 2.4 million. Additionally, nearly 75 percent of the amended return inventory is over-aged during the 2026 tax filing season.

“Generally, inventories increase during the filing season as the IRS balances efforts to answer phone calls and reduce inventories,” TIGTA stated in the report. “However, with the reduction in staff, increases in key inventories could become a concern.”

The number of refunds dipped to 36.5 million from 36.9 million, although there was a $360 increase in the average refund from $3,382 in 2025 to $3,742.

TIGTA also reported that the IRS did not meet its hiring goals for the 2026 tax filing season. The agency had been approved to hire 1,900 employees for submission processing (these workers process original and amended returns and resolve tax return errors) but only onboarded 800 individuals. Likewise, it was approved to hire 3,500 account management employees (handlers of taxpayer contacts through telephone and mail and process adjustments) but brought 2,300 on board.

Submission processing management said it would be onboarding new hires throughout the tax season, while account management leadership had no plans to hire new employees and would only be onboarding those who previously received offers but had delays in the hiring process.

In a positive from the 2026 season, TIGTA reported that the new and modified “e-file business rules associated with the child tax Credit, state and local tax deduction, and adoption credit are working as intended.”

Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.

Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.

According to a recent TIGTA report, during the 2025 tax filing season, the Treasury watchdog made 91 unannounced visits to TACs nationwide at various time (regular and extended hours), at the 61 visits where TIGTA staff did receive assistance, “TAC employees did not provide the correct tax law guidance during 28 of those visits (46 percent).”

TAC employees were presented with questions across one of the three areas – injured spouse, selling your main home, and American Opportunity Tax Credit. The report notes that for questions related to tax law topics, “TAC employees must use the Interactive Tax Law Assistant ITLA) tool to respond to taxpayers. The ITLA tool asks a series of questions, then generates accurate and complete responses based on the taxpayer’s situation. The tool is designed for TAC employees and is intended to improve operational performance in the areas of quality, efficiency, customers satisfaction, and employee satisfaction.”

TIGTA noted that during the 2025 filing season, “managers counseled several TAC employees for not using the ITLA tool during taxpayer interactions. During our site visits, we also observed that TAC employees did not always the ITLA tool to answer our tax law questions.”

Additionally, of those 91 visits, TIGTA “did not receive full assistance during 30 of our 91 visits due to incomplete or inaccurate responses to tax law questions, denial of entry by security or unexpected TAC closures.”

The ACA created Code Sec. 5000A. Individuals must have minimum essential health insurance coverage, qualify for a health coverage exemption, or make an individual shared responsibility payment. Minimum essential coverage includes most government-sponsored health care programs, such as Medicaid, Medicare, and TRICARE.  Eligible employer-sponsored plans; individual market plans, including plans obtained through the ACA Heath Insurance Marketplace, and grandfathered plans provide minimum essential coverage.

The ACA created Code Sec. 5000A. Individuals must have minimum essential health insurance coverage, qualify for a health coverage exemption, or make an individual shared responsibility payment. Minimum essential coverage includes most government-sponsored health care programs, such as Medicaid, Medicare, and TRICARE.  Eligible employer-sponsored plans; individual market plans, including plans obtained through the ACA Heath Insurance Marketplace, and grandfathered plans provide minimum essential coverage.

The ACA also provided that certain types of coverage are not treated as minimum essential coverage. These benefits are known as “excepted benefits.”

There are a number of types of excepted benefits for ACA purposes. They include (not an exhaustive list):

• Coverage only for accident, including accidental death and dismemberment;
• Disability income insurance;
• Liability insurance, including general liability insurance and automobile liability insurance;
• Coverage issued as a supplement to liability insurance;
• Workers' compensation or similar insurance;
• Automobile medical payment insurance;
• Credit-only insurance, such as, mortgage insurance; and 
• Coverage for on-site medical clinics

Additionally, the ACA created a number of health insurance market reforms.  These reforms impose new minimum requirements related to coverage, premiums, benefits, cost sharing, and consumer protections. Generally, health plans must comply with the market reforms. The market reforms generally affect insurance offered to groups and individuals. The market reforms generally do not apply to excepted benefits.

After passage of the ACA, questions arose if Employee Assistance Programs (EAPs) were excepted benefits. EAPs are programs offered by employers, which frequently provide a wide-ranging set of benefits. Benefits may include referral services and short-term substance use disorder or mental health counseling, as well as financial counseling and legal services. They are typically available free of charge to employees and are often provided through third-party vendors. The IRS has issued guidance, explaining that generally EAPs are excepted benefits.

Please contact our office for more details about excepted benefits and the ACA.

With the soaring cost of college tuition rising on a yearly basis, tax-free tuition gifts to children and grandchildren can help them afford such an expensive endeavor, as well as save the generous taxpayers in gift and generation skipping taxes. Under federal law, tuition payments that are made directly to an educational institution on behalf of a student are not considered to be taxable gifts, regardless of how large, or small, the payment may be.

With the soaring cost of college tuition rising on a yearly basis, tax-free tuition gifts to children and grandchildren can help them afford such an expensive endeavor, as well as save the generous taxpayers in gift and generation skipping taxes. Under federal law, tuition payments that are made directly to an educational institution on behalf of a student are not considered to be taxable gifts, regardless of how large, or small, the payment may be.

Code Sec. 2503(e) allows taxpayers the benefit of an unlimited gift tax exclusion for payment of tuition to colleges for students. In this way, a taxpayer can navigate around the annual gift tax exclusion limit. By so doing, a taxpayer can both give an unlimited amount of money for a student’s tuition costs without incurring a gift tax penalty. In addition, a taxpayer can then directly provide that same student with an outright cash gift up to the annual gift tax exclusion amount, without a tax penalty for doing so.

However, a direct tuition payment might prompt a college to reduce any potential grant award in your grandchild's financial aid package, so make sure to ask the college about the financial aid impact of your gift.

Requirements

In order to qualify for the gift tax exclusion, the tuition payments must be made directly to a qualifying organization, which is defined in Code Sec. 170(b). A qualifying organization is an institution that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Therefore, such organizations are not limited to colleges and universities, but may include various types and levels of education institutions.

The donor of the gift of tuition does not have to be related to the beneficiary for the gift to be considered tax-free. However, the tuition must be directly paid to the institution. The donee may be enrolled either part-time or full-time. 

Amounts ineligible for exclusion

Of important note, reimbursements for tuition paid by someone else is ineligible for tax-free gift exclusion treatment. Further, a transfer to an irrevocable trust established to pay tuition expenses of trust beneficiaries does not qualify for the unlimited exclusion, even if the trustee makes payments directly to the educational institution. In addition, amounts paid for fees, books, supplies or the donee’s living expenses while in school do not qualify for tax-free treatment.

Any contribution to a qualified tuition program on behalf of a designated beneficiary, as well as any contribution to a Coverdell Education Savings Account, is a completed gift of a present interest eligible for the annual gift tax exclusion at the time the contribution is made. However, such contributions are not treated as qualified transfers that are eligible for the educational expense unlimited gift tax exclusion.

An early glimpse at the income tax picture for 2017 is now available. The new information includes estimated ranges for each 2017 tax bracket as well as projections for a growing number of inflation-sensitive tax figures, such as the tax rate brackets, personal exemption and the standard deduction. Projections – made available by Wolters Kluwer Tax & Accounting US – are based on the relevant inflation data recently released by the U.S. Department of Labor. The IRS is expected to release the official figures by early November. Here are a few of the more widely-applicable projected amounts: 

An early glimpse at the income tax picture for 2017 is now available. The new information includes estimated ranges for each 2017 tax bracket as well as projections for a growing number of inflation-sensitive tax figures, such as the tax rate brackets, personal exemption and the standard deduction. Projections – made available by Wolters Kluwer Tax & Accounting US – are based on the relevant inflation data recently released by the U.S. Department of Labor. The IRS is expected to release the official figures by early November. Here are a few of the more widely-applicable projected amounts:

Tax Brackets

For 2017, for married taxpayers filing jointly and surviving spouses, the maximum taxable income for the:

• 10-percent bracket is $18,650, (up from $18,550 for 2016);
• 15-percent tax bracket, $75,900 (up from $75,300 for 2016);
• 25-percent tax bracket, $153,100 (up from $151,900 for 2016);
• 28-percent tax bracket, $233,350 (up from $231,450 for 2016);
• 33-percent tax bracket, $416,700 (up from $413,350 for 2016);
• 35-percent tax bracket, $470,700 (up from $466,950 for 2016); and
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

For heads of household, the maximum taxable income for the:

• 10-percent bracket is $13,350 (up from $13,250 for 2016);
• 15-percent tax bracket, $50,800 (up from $50,400 for 2016);
• 25-percent tax bracket, $131,201 (up from $130,150 for 2016);
• 28-percent tax bracket, $212,500 (up from $210,800 for 2016);
• 33-percent tax bracket, $416,700 (up from $413,350 for 2016);
• 35-percent tax bracket, $446,700 (up from $441,000 for 2016);
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

For unmarried, single filers who are not heads of household or surviving spouses, the maximum taxable income for the:

• 10-percent bracket is $9,325 (up from $9,275 for 2016);
• 15-percent tax bracket, $37,950 (up from $37,650 for 2016);
• 25-percent tax bracket, $91,900 (up from $91,150 for 2016);
• 28-percent tax bracket, $191,650 (up from $190,150 for 2016);
• 33-percent tax bracket, $416,700 (up from $413,350 for 2016);
• 35-percent tax bracket, $418,400 (up from $415,050 for 2016); and
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

For married taxpayers filing separately, the maximum taxable income for the:

• 10-percent bracket is $9,325 (up from $9,275 for 2016);
• 15-percent tax bracket, $37,950 (up from $37,650 for 2016);
• 25-percent tax bracket, $76,550 (up from $75,950 for 2016);
• 28-percent tax bracket, $116,675 (up from $115,725 for 2016);
• 33-percent tax bracket, $208,350 (up from $206,675 for 2016);
• 35-percent tax bracket, $235,350 (up from $233,475 for 2016); and
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

Standard Deduction

The 2017 standard deduction will rise $50, to $6,350 for single taxpayers. For married joint filers, the standard deduction will rise $100, to $12,700. For heads of household, the standard deduction will rise to $9,350, up from $9,300 for 2016. The additional standard deduction for blind and aged married taxpayers will remain at $1,250. For unmarried taxpayers who are blind or aged, the amount of the additional standard deduction will also remain the same ($1,550).

For 2017 the so-called "kiddie" deduction used on the returns of children claimed as dependents on their parents’ returns remains $1,050 or $350 plus the individual’s earned income.

Personal Exemptions

The personal exemption will be $4,050 for 2017, the same as for 2016. The phaseout of the personal exemption for higher-income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.

Limitation on Itemized Deductions

For higher-income taxpayers who itemize their deductions, the limitation on itemized deductions will be imposed as follows:

• For married couples filing joint returns or surviving spouses, the income threshold will begin to phase out at income over $313,800, up from $311,300 for 2016.
• For heads of household, the beginning threshold will be $287,650 in 2016, up from $285,350 for 2016.
• For single taxpayers, the beginning threshold will be $261,500, up from $259,400 for 2016.
• For married taxpayers filing separate returns, the 2016 threshold will be $156,900, up from $155,650 for 2016.

Estate and Gift Tax

Gift Tax. The 2017 gift tax annual exemption will remain the same as for 2016, at $14,000.

Estate Tax. The estate and gift tax applicable exclusion will increase from $5,450,000 in 2016 to $5,490,000 in 2017.

Gifts to Noncitizen Spouses. The first $149,000 of gifts made in 2017 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $1,000 from $148,000 for 2016.

AMT Exemptions

The American Taxpayer Relief Act of 2012 provided for the annual inflation adjustment of the exemption from alternative minimum tax (AMT) income. Previously, this inflation adjustment had to be enacted by Congress each year. For 2017, the AMT exemption for married joint filers and surviving spouses is projected to be $84,500 (up from $83,800 for 2016). For heads of household and unmarried single filers, the exemption will be $54,300 (up from $53,900 for 2016). For married separate filers, the exemption will be $42,250 (up from $41,900 for 2016).

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of July 2016.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of July 2016.

July 1
Employers. Semi-weekly depositors must deposit employment taxes for Jun 25–28.

July 7
Employers. Semi-weekly depositors must deposit employment taxes for Jun 29–Jul 1.

July 8
Employers. Semi-weekly depositors must deposit employment taxes for Jul 2–5. 

July 11
Employees who work for tips. Employees who received $20 or more in tips during June must report them to their employer using Form 4070.

July 13
Employers. Semi-weekly depositors must deposit employment taxes for Jul 6–8.

July 15
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in June.

Employers. Semi-weekly depositors must deposit employment taxes for Jul 9–12.

July 20
Employers. Semi-weekly depositors must deposit employment taxes for Jul 13–15.

July 22
Employers. Semi-weekly depositors must deposit employment taxes for Jul 16–19.

July 27
Employers. Semi-weekly depositors must deposit employment taxes for Jul 20–22.

July 29
Employers. Semi-weekly depositors must deposit employment taxes for Jul 23–26.

July 31
Employers. Form 941, Employer’s Quarterly Federal Tax Return, due for the second quarter of 2016.

August 3
Employers. Semi-weekly depositors must deposit employment taxes for Jul 27–29.

August 3
Employers. Semi-weekly depositors must deposit employment taxes for Jul 30–Aug 2. 

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The House also took up a bill expanding disclosure of taxpayer information in cases involving missing children and the Ways and Means Committee approved a bill impacting disclosures by exempt organizations.

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The House also took up a bill expanding disclosure of taxpayer information in cases involving missing children and the Ways and Means Committee approved a bill impacting disclosures by exempt organizations.

Stolen identity refund fraud

Tax-related identity theft occurs when a criminal uses the personal identification of another to obtain a fraudulent refund. According to the IRS and the Treasury Inspector General for Tax Administration (TIGTA), tax-related identity theft continues to grow despite efforts to uncover and apprehend criminals. In 2014, the IRS estimated that it prevented the issuance of nearly $25 billion in fraudulent refunds. However, criminals obtained more than $5 billion in fraudulent refunds.

More often than not, individuals are unware they have been victims until they file their return and discover that a return has already been filed by an identity thief. In some cases, the IRS may send a letter to the taxpayer reporting that the agency identified a suspicious return using the individual’s personal information.

On May 19, the House approved the Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832). HR 3832 would require the IRS to notify victims of tax-related identity theft as soon as practicable that his or her personal information was used without authorization. The IRS also would be required to notify victims of tax-related identity theft of any criminal changes brought against the alleged identity thief.

Additionally, the bill would create a centralized point of contact for victims of identity theft. The centralized point of contact may be a team or subset of specially trained employees who can work across functions to resolve problems for the victim and who is accountable for handling the case to completion. The makeup of the team may change as required to meet IRS needs, but the procedures must ensure continuity of records and case history and may require notice to the taxpayer in appropriate instances.

The bill also would make willful misappropriation of a taxpayer’s identity for the purpose of making any return a felony. Under the bill, this offense would be punishable by a fine of up to $250,000 ($500,000 for a corporation), imprisonment for up to five years, or both, plus prosecution costs.

Disclosures

The House approved the bipartisan Recovering Missing Children Bill (HR 3209) on May 10. The bill amends the Tax Code to grant law enforcement access to taxpayer information while investigating missing and exploited children. Under Code Sec. 6103, return information is confidential.

Exempt organizations

The Preventing IRS Abuse and Protecting Free Speech Bill (HR 5053) limits the contributor information that must be reported by a Code Sec. 501(c) on its annual return. Generally, the IRS may not require an exempt organization to report the name, address, or other identifying information of any contributor to the organization with respect to any contribution, grant, bequest, devise, or gift of money or property, regardless of amount. The bill is awaiting action by the full House after having been approved by the Ways and Means Committee.

If you have any questions about these or other pending bills, please contact our office.

Money spent to sell your company's product or service, or to develop goodwill in the community, can be deducted from business income. Advertising costs, like other ordinary and necessary business expenses, are generally deductible so long as the advertising expense is reasonably related to your trade or business. There are a few caveats, however, depending on the type of advertising and its expected usefulness. Take stock of your business advertising expenditures to maximize the benefits for your bottom line.

Advertising expenses

Direct advertising costs for ads targeted to a specific customer group are generally deductible. Certain indirect advertising costs are deductible as well. For example, business owners can deduct amounts paid to a merchant association, so long as the money is ultimately used for an advertising campaign within a certain geographic area. Promotional expenses incurred in developing goodwill for your business are deductible, just like money spent in gaining immediate sales. Even the cost of designing the advertising can be deducted.

Partial deduction and the "one-year rule"

Most advertising costs are deductible, even though the advertising may have some future effect on business activities. However, expenses are only partially deductible when the time period in which the business will benefit from the advertising definitely extends beyond the year in which the cost is incurred (the "one-year rule"). For example, the cost of permanent signage that is expected to last for more than one year must be capitalized. Any deduction must be spread out over the life-expectancy of the sign.

The "one-year rule" notwithstanding, some courts have held that advertising expenses can be deducted even when the expected benefits of advertising extend over a period of several years, provided the period of benefit is not definitely ascertainable. Two types of advertising that face the "one-year rule" are:

• Catalogs. A business can deduct the cost of producing and mailing trade catalogs if the useful life of the catalog is less than one year. A business must capitalize the costs of producing and mailing trade catalogs that have a useful life of greater than one year. Some courts, however, have allowed a full deduction in the year the catalog costs were incurred.
• Web site content. The costs of creating and installing internet web site content that has a useful life of less than one year is probably a currently deductible advertising expense. However, advertising elements that are displayed on a web site for more than one year may need to be capitalized. Long-lasting web site ads can be compared to billboards, which have been treated as capital assets since they have a useful life in excess of one year.

Goodwill advertising

Goodwill advertising - ads that spread the "good word" about your business rather than sell a particular product or service - are also deductible. The following expenses, among others, are deductible as goodwill advertising:

• Contributions to a qualifying charity;
• Civic activity expenses;
• Sponsorship of community organizations, like Little League; and
• Impartial public service advertising.

Goodwill advertising costs are deductible as ordinary and necessary business expenses even though they have some effect beyond the current tax year.

Nondeductible advertising expenses

Not all advertising costs are tax deductible. If advertising or promotional expenses are not related to a taxpayer's trade, business or investments, then the expense is not eligible for a tax deduction. For example, promotional expenses incurred in setting up a new business because a new business is not an existing trade or business. Likewise, expenses incurred in recreational pursuits are not deductible as advertising expenses unless the company can show a sufficient relationship between the recreational activity and the business. However, there also may be a gray line between a "soft sell," which can be very effective at times, and expenses that do not put your business in enough of a spotlight to potential customers to qualify as a business expense.

Example. Company K pays for a large public relations banner at a golf tournament. The banner announces Jim Smith's candidacy for president of the golf association. Jim is a Company K vice-president and principal shareholder. The banner, however, does not mention Company K or its services. Company K can't deduct the cost of the banner as an "advertising" expense because the expense was considered incurred to give personal publicity to the vice-president/shareholder, not publicity for the corporation. This is so even if becoming president of the golf association then puts Jim Smith in a great position to develop important business contacts.

Advertising expenses that are reasonably related to your trade or business are deductible in the year the costs were paid or incurred. This general rule holds true unless the expenses are capital expenditures, like billboards or other permanent signs. Some advertising expenses are only partially deductible on the current year's tax return if the promotional benefits last more than one year, like catalogs, web sites, or brochures with a shelf-life. There also are different rules that apply depending upon whether you are considered a "cash-basis" or an "accrual-basis" taxpayer by the IRS.

Figuring out what advertising costs are deductible, how much, and when can be complicated. Contact our office with your questions and concerns.

Parents typically encourage their children to save for college, for a house, or simply for a rainy day. A child's retirement, however, is a less common early savings goal. Too many other expenses are at the forefront. Yet, helping to plan for a youngster's retirement is a move that astute families are making. Individual retirement accounts (IRAs) for income-earning minors and young adults offer a head-start on life-long financial planning.

Parents typically encourage their children to save for college, for a house, or simply for a rainy day. A child's retirement, however, is a less common early savings goal. Too many other expenses are at the forefront. Yet, helping to plan for a youngster's retirement is a move that astute families are making. Individual retirement accounts (IRAs) for income-earning minors and young adults offer a head-start on life-long financial planning.

Traditional and Roth IRAs

Two types of individual retirement accounts are the traditional IRA and the Roth IRA. To contribute to an IRA account, whether it's a traditional or a Roth, an individual must have earned income. In general, the maximum amount that can be deposited in either type of IRA is $3,000 in 2004; $4,000 in 2005 through 2007.

Contributions to a traditional IRA are tax deductible. Amounts earned in a traditional IRA are not taxed until a distribution is made. If money is withdrawn from a traditional IRA before the individual reaches age 59 1/2, a 10 percent penalty applies to the principal. Mandatory withdrawals are required when the individual reaches age 70 1/2.

Contributions to Roth IRAs are not tax deductible, but all earnings are tax-free when the money is withdrawn from the account, if certain requirements are met. Tax-free withdrawals are a big advantage to the Roth IRA that will likely outweigh the lack of a tax deduction on contributions. Qualified distributions from a Roth IRA are not included in the individual's income if a five-year holding period and certain other requirements are met; otherwise, the 10 percent penalty applies. Unlike the traditional IRA, individuals can make contributions to a Roth IRA even after age 70 1/2.

Penalty flexibility

Both the traditional and the Roth IRAs offer some flexibility on the 10 percent penalty. Early withdrawals, without penalty, are allowed if the money is used for:

--College expenses;

--First home purchase (up to $10,000);

--Medical insurance in case of unemployment for a certain amount of time; or

--Expenses attributable to disability (Roth IRA).

Although designed for retirement planning, flexibility in how the money can be used makes IRAs very attractive for young family members.

Kid with a job

In order to contribute to an IRA, however, the child or young adult must have earned income. In other words, the kid needs a W-2, a 1099 or some other "proof" that wages were earned. Although occasional baby-sitting or lawn-mowing generally doesn't count, the money made on those jobs could qualify as earned income if adequate receipts and records are kept.

Working for the parents

Some moms and dads, who own their own businesses, are taking the "kiddy IRA" concept a step further: their sons and daughters come to work for the family business. The child earns income, making him or her eligible to contribute to an IRA. The parents, as their employers must pay employment tax and issue a W-2, but they can also make a business deduction for the child's wages, just like for any other employee. Parents should be mindful that the wage their child earns for the work performed is comparable to the going rate. If the child's wage is too large, the IRS will disallow the deduction.

Let's make a deal

The tough part of the plan may be getting the young person to "lock away" his or her hard-earned cash. After all, retirement is much harder to imagine compared to more pressing, front-burner issues like college expenses or a car. Some parents, however, are convincing their kids to put their earnings to work for their future in an IRA by promising to match their child's pay as an extra incentive to save. For example, if Susan earns $3,000, her dad promises to put $3,000 in her IRA. Susan keeps the money she made. There's no rule that restricts the origin of the IRA contribution, so long as the IRA owner earned at least that amount and the contribution doesn't exceed the cap for that year.

Conclusion

Individual retirement accounts for children and young adults are a growing part of family financial planning. A potential hazard, however, is that the money in the IRA belongs to the child. The child, or young adult, has the right to do whatever they wish with the IRA and its assets, including making a withdrawal for a new car or exotic trip. Parents do not "own" the IRA, even if they contributed the dollars as a match to their child's earnings. Families who utilize IRAs for their offspring will have to consider the risk and stress to the youngsters that the money is better off in the IRA. Through investing in an IRA, a young person's earnings from working part-time at the local ice cream parlor, or a summer job loading trucks, can have lasting effects.

Please feel free to contact this office for advice more specific to your family situation.

The bartering system is an ancient form of commerce that still thrives today. From livestock in exchange for grain, to legal advice in exchange for accounting services, money-less trades are still common. However, a major difference between bartering in antiquity versus modern American times is that the IRS wants in on the deal. Just because money does not change hands, does not mean that a traded good or service loses its value, or its taxability. And, unfortunately, the IRS won't accept a pig or a mule for its payment, making cash a necessary part of any barter arrangement when it's time to pay tax on it.

The bartering system is an ancient form of commerce that still thrives today. From livestock in exchange for grain, to legal advice in exchange for accounting services, money-less trades are still common. However, a major difference between bartering in antiquity versus modern American times is that the IRS wants in on the deal. Just because money does not change hands, does not mean that a traded good or service loses its value, or its taxability. And, unfortunately, the IRS won't accept a pig or a mule for its payment, making cash a necessary part of any barter arrangement when it's time to pay tax on it.

The IRS requires that the fair market value of bartered property or services be included in the recipient's income. In general, the value must be included in income in the same year the property or service is received. The income is typically reported on Schedule C (Profit or Loss From Business) or Schedule C-EZ of Form 1040. However, depending on the item exchanged, you may have to use a different form, as illustrated below.

Services for goods

An accountant performs accounting services for a small company. In exchange for her work, the company gives her shares of its stock. The accountant must include the fair market value of the shares as part of her income and report it on Schedule C or Schedule C-EZ (Form 1040) in the year she received them. In another example, a landlord trades three months rent-free use of a studio space in exchange for a custom-made stained-glass window. The landlord must report the value the stained-glass window as rental income on Schedule E (Supplemental Income and Loss). The glass artist must report the fair rental value of the studio space as income on Schedule C or Schedule C-EZ.

Goods for goods

A specialty produce farmer and a restaurant owner strike a deal. The farmer exchanges a specified amount of produce over the course of the growing season in exchange for a catered wedding reception for his youngest daughter. The farmer reports the value of the reception as income on Schedule F (Profit or Loss From Farming) and the restaurateur reports the value of the produce as income on Schedule C. In another scenario, a custom cabinetmaker and a welder exchanged furniture for an ornate gate. Both craftsmen would report their barter income on schedule C or C-EZ.

Barter credits

A landscaper, a travel agent, and an attorney are all members of barter club. The club members periodically exchange services. Each individual must report the value of services received on his or her Schedule C or Schedule C-EZ. Later, they decide to exchange their services for "credits" with each other. The value of the credits for future services must be reported as income at the time the credits are received, even if the bargained-for service is not delivered until a later date.

Organized barter exchange

A barter exchange is an organized group of individuals that contract with each other to trade or barter property or services on a commercial basis. Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met. For example, no 1099-B is required if there are fewer than 100 exchange transactions per year, or exchanged items have a fair market value of less than $1.00. Form 1099-B shows the value of cash, property, services, credits, or scrip you received from exchanges during the year. The IRS also gets a copy of the Form 1099.

State tax on barter transactions

State taxes also apply to barter transactions. The value of the traded property or service is included in the recipient's income for state tax purposes. Some states, however, base the tax calculation on the value of the receipt or the exchange, whichever is more clearly evident, if you do not keep good records of your barter transactions. In addition, some states allow greater flexibility than the IRS in valuing bartered goods and services.

In many parts of the country, residential property has seen steady and strong appreciation for some time now. In an estate planning context, however, increasing property values could mean a potential increase in federal estate tax liability for the property owner's estate. Many homeowners, who desire to pass their appreciating residential property on to their children and save federal estate and gift taxes at the same time, have utilized qualified personal residence trusts.

In many parts of the country, residential property has seen steady and strong appreciation for some time now. In an estate planning context, however, increasing property values could mean a potential increase in federal estate tax liability for the property owner's estate. Many homeowners, who desire to pass their appreciating residential property on to their children and save federal estate and gift taxes at the same time, have utilized qualified personal residence trusts.

What is a QPRT?

The qualified personal residence trust, referred to as a "QPRT," is an estate planning technique used to transfer a personal residence from one generation to the next without incurring federal estate tax on the trust property. This type of irrevocable trust allows a homeowner to make a future gift of the family home or a vacation property to his or her children, while retaining the right to continue living in the home for a term of years that the homeowner selects.

Creating a QPRT

The homeowner transfers title to his or her residence into trust for a set time period (for example, 10 years), but retains the right to live in the house during the trust term. At the end of the term, the trust property is distributed to the donor's children without passing through the donor's estate, thereby avoiding federal estate tax on the trust assets. However, if the donor wishes to continue living in the residence after the end of the trust term, the donor must pay fair market rent to his or her children, the new owners of the residence.

Gift tax advantage

Through the use of a QPRT, the full value of your residence can be transferred to your children. However, for federal gift tax purposes, the property is valued at a discount. The actual value of the gift (and the gift tax savings) depends upon your age, the length of the QPRT term, and the federal interest rates in effect at the time you transfer the house to the trust. For example, the longer the trust term, the lower the gift value for gift tax purposes and the greater the gift tax savings. Also, the higher the applicable federal interest rate, the greater the potential gift tax savings.

If you would like to discuss how a QPRT might work for you as part of your overall estate plan, or if you currently have an established QPRT and you wish to review its effect in light of current interest rates and other factors, please do not hesitate to contact this office.

Although taxes may take a back seat to the basic issue of whether refinancing saves enough money to be worthwhile, you should be aware of the basic tax rules that come into play. Sometimes, you can immediately deduct some of the costs of refinancing.

With mortgage rates at the lowest level in years, you may be debating whether to refinance your adjustable-rate or higher-interest fixed-rate mortgage to lock in what looks like a real bargain. Although taxes may take a back seat to the basic issue of whether refinancing saves enough money to be worthwhile, you should be aware of the basic tax rules that come into play. Sometimes, you can immediately deduct some of the costs of refinancing.

Boom in refinancing

Escalating home prices in many parts of the country have motivated many homeowners to refinance their existing mortgages. Many people are refinancing to secure cash for home improvements or to pay debts. These are often called "cash-out" refinancings because you receive cash back from the lender based upon the difference between the old and new mortgages.

Example. You have an existing mortgage of $195,000. Your home is valued at $325,000. You refinance and take a new mortgage for $225,000. You receive $30,000 from the lender and use the money to pay for home improvements.

Cash-out refinancings account for more than one-half of all refinancings. Some estimates pegged the value of "cash-out" refinancings at more than $100 billion in 2001.

Original mortgage points

The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a mortgage. Generally, for individuals who itemize, points paid by a borrower at the time a home is purchased are immediately deductible as interest if they are charged solely for the use or forbearance of the lender's money. Points for this purpose include:

• Loan origination fees;

• Processing fees;

• Maximum loan charges; and

• Premium fees.

Amounts paid for services provided by the lender, however, are not deductible as interest. These services include:

• Appraisal fees;

• Credit investigation charges;

• Recording fees; and

• Inspection fees.

Refinancing points

Unlike points paid on an original mortgage, you cannot immediately deduct points paid for refinancing. However, if refinancing proceeds are used to refinance an existing mortgage and to pay for improvements, the portion of points attributable to the improvements is immediately deductible.

With interest rates so low, many homeowners are refinancing for the second or even third time. If you are refinancing for a second time, you may immediately deduct points paid and not yet deducted from the previously refinanced mortgage.

Example. You refinanced your home mortgage several years ago and used the proceeds to pay off your first mortgage. Your refinancing mortgage (loan #2) was a 30-year fixed-rate loan for $100,000. You paid three points ($3,000) on the refinancing. Because all of the loan proceeds were used to pay off the original mortgage and none were used to buy or substantially improve your home, all of the points on the refinancing loan must be deducted over the loan term. This year, you refinance again (loan #3) when there's a remaining (not-yet-deducted) points balance of $2,400 on loan #2. You can deduct the $2,400 as home mortgage interest on your 2003 return.

Deducting interest

Generally, home mortgage interest is any interest you pay on a loan secured by your home. The loan may be a first mortgage, a second mortgage, a line of credit, or a home equity loan.

The interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. Usually, this information is available from lenders. You may deduct points only for those payments made in the tax year.

Example. You paid $2,000 in points. You will make 360 payments on a 30-year mortgage. You may deduct $5.65 per monthly payment, or a total of $66.72, if you make 12 payments in one year.

Refinancing is anything but simple. There may be additional complications if there are several mortgages on your home or if you own a vacation home as well as a principal home. Please contact this office if you are considering refinancing now or in the near future.