Year-End Plan Amendments: What Advisors Need to Know Before December 31

The IRS recently clarified the deadline for adopting plan amendments implementing SECURE and SECURE 2.0 Acts. Although the bulletin generally gives plan sponsors additional time to adopt required amendments under the acts, the deadline remains December 31, 2026, for most private-sector retirement plans to adopt written amendments reflecting discretionary changes under the SECURE Act and SECURE 2.0, as well as any CARES Act provisions the plan adopted. Advisors who help plan sponsor clients stay ahead of this deadline will protect their clients from unnecessary compliance risk and demonstrate the kind of proactive guidance that strengthens long-term relationships.

IRS Clarification on the Amendment Deadline

On September 16, 2026, the IRS issued guidance clarifying how amendment deadlines work under the SECURE and SECURE 2.0 Acts. The guidance separates required amendments from discretionary amendments.

For required amendments, the deadline follows the annual Required Amendments List. Once a provision appears on the list, plan sponsors generally have until the end of the second calendar year after publication to adopt the amendment. If the IRS expects to issue guidance needed to draft a provision, the IRS indicates that the provision will not appear on the list until that guidance is issued and becomes applicable.

For discretionary amendments under these acts (new features a plan chooses to adopt, but which are not legally required), the deadline generally remains December 31, 2026 for most private-sector plans. Later deadlines apply to applicable collectively bargained plans (December 31, 2028) and governmental plans (generally December 31, 2029). Discretionary features themselves will not appear on a Required Amendments List, but later guidance governing adopted features may.

Although the guidance effectively extends the deadline to adopt required amendments under SECURE and SECURE 2.0, most of these provisions are already required to be operationally effective. Accordingly, formalizing those provisions in plan amendments is the most practical next step, if not already complete.

With those distinctions in mind, some of the key amendment categories are summarized below:

Discretionary provisions the sponsor chose to adopt. If the sponsor elected optional features, such as enhanced catch-up limits for ages 60-63, student loan matching, pension-linked emergency savings accounts, an increased involuntary cash-out threshold, Roth treatment of employer contributions, or other optional features, the adopted provisions generally must be documented by December 31, 2026.

CARES Act provisions. If the plan adopted coronavirus-related distributions, expanded loan limits, loan repayment suspensions, or the waiver of 2020 required minimum distributions, those time-limited provisions generally must be documented in the plan’s written amendment by December 31, 2026, even though these provisions have expired.

Changes to required minimum distribution rules. The age at which participants generally must begin taking distributions from their retirement accounts has changed twice in recent years. It moved from 70½ to 72, and then from 72 to 73 (and eventually to 75). Other changes include beneficiary distribution rules and the elimination of lifetime RMDs from designated Roth accounts. For changes covered by the 2025 Required Amendments List, the amendment deadline generally is December 31, 2027. Remaining RMD changes await a future list.

Mandatory Roth treatment of catch-up contributions for higher-earning participants. Beginning in 2026, participants in 401(k), 403(b), and governmental 457(b) plans whose prior-year FICA wages from the plan sponsor exceeded $150,000 (the 2026 threshold, indexed for future years) generally must make age-based catch-up contributions on a Roth (after-tax) basis. Plans that allow catch-up contributions must either offer a Roth option or eliminate catch-up contributions for affected participants, subject to applicable nondiscrimination rules. Per the IRS, this change is expected to appear on the 2027 Required Amendments List. As such, the amendment deadline for most 401(k) and 403(b) plans is expected to be December 31, 2029.

Eligibility for long-term, part-time employees. This provision is operationally effective for plan years beginning after December 31, 2024. The 401(k) eligibility threshold for elective deferrals by long-term, part-time employees was reduced from three consecutive years of 500 or more hours of service to two consecutive years. The two-year rule also applies to ERISA-covered 403(b) plans and must be reflected in the plan document. The formal amendment deadline for this change will be set by a future Required Amendments List after final regulations are issued and become applicable.

Mandatory automatic enrollment for new plans. New 401(k) and 403(b) plans established on or after December 29, 2022 are generally required, for plan years beginning after 2024, to include an automatic enrollment feature with an initial default deferral rate of at least 3% (but not more than 10%), escalating by 1% annually to at least 10%, with a 15% maximum. Exceptions include SIMPLE 401(k), governmental and church plans, and certain small or new employers. If a plan was required to include this feature, the plan document must reflect it. The formal amendment deadline for this change will be set by a future Required Amendments List after final regulations are issued and become applicable.

Accordingly, December 31, 2026 is primarily a deadline for discretionary and CARES Act amendments. Required amendments on the 2024 Required Amendments List also generally remain due then. Regardless of when the formal deadlines land for required amendments, these provisions are already governing plan operations. The most prudent approach is to treat year-end 2026 as the working deadline for all amendments, required and discretionary alike, where amendment language is available. The IRS indicated that the upcoming 2026 Required Amendments List will include additional clarification consistent with their recent bulletin.

What Advisors Can Do Now

Advisors are well-positioned to help plan sponsor clients navigate these deadlines. The single most important step is to encourage clients to engage with their third-party administrator, document provider, and legal counsel now, not in December. By raising this issue proactively and helping clients coordinate with their service providers, advisors can prevent last-minute scrambles.

Upcoming deadlines:

October 15. For calendar-year plans, deadline to adopt and implement a corrective amendment to correct a Code Section 410(b) coverage failure or a Code Section 401(a)(4) nondiscrimination failure for the 2025 plan year.

October 15. Extended deadline for filing 2025 Form 5500 for calendar-year plans that received an extension.

December 2. General deadline to distribute applicable safe harbor, QDIA, QACA, and automatic enrollment annual notices to participants for the 2027 calendar plan year.

Construction Accounting That Reveals Problems Early: Job Costing, Change Orders, and WIP Reporting

Posted on September 25, 2026

A contractor can have a full backlog, crews working overtime, and plenty of invoices going out while profitability quietly gets worse. That is one of the challenges of running a construction business. Revenue, costs, and cash rarely move in a clean sequence. You may incur labor and material costs weeks before you can bill for them. A project manager may authorize extra work while the customer is still reviewing the price. A job that looked like a 20% gross-margin project at kickoff may be headed toward 12% by the time anyone notices. Good construction accounting should make those problems visible early. For established contractors, three disciplines are especially important: job costing, change-order management and work-in-progress reporting. When those systems work together, management gets a much clearer picture of the business.

Start with job costs you can actually trust

Every useful construction report starts with accurate job costing. At a basic level, that means assigning costs to the project that created them. But you’ll usually need more detail than one expense bucket for each job. You may track field labor, materials, subcontractors, equipment and other direct costs separately. You may also break them down by phase or cost code. That detail matters because knowing that a project is $80,000 over budget does not tell you what went wrong.

For example, suppose a $2 million mechanical project was estimated to produce a $400,000 gross profit. Halfway through the job, labor is $70,000 over budget while materials and subcontractor costs remain close to plan. That points management toward labor productivity, overtime, or an estimating problem.

Timing matters too. A job can appear more profitable than it really is when vendor invoices, payroll, or subcontractor commitments have not reached the system yet. So the goal is not just detailed job costing; you want complete and timely job costing. Review your cost codes and reporting process with project managers. The categories you track should be detailed enough to explain why a job is gaining or losing margin, not merely whether it is.

Make the estimate to complete a management responsibility

Historical cost tells you what happened, but management also needs to know what’s likely to happen next. That’s where the estimated cost to complete becomes critical. Consider a project with $1 million of costs incurred so far. The original budget called for another $500,000 of cost. But the project manager now expects the remaining work to cost $700,000. If accounting continues using the old estimate, the job may appear more profitable than the operating team expects it to be. That can distort WIP reporting and delay recognition of deteriorating performance.

Project managers usually know first when productivity is slipping, material requirements have changed, or a subcontractor issue is likely to increase costs. Finance needs that information on a regular schedule. For many contractors, a monthly review is a practical way to do that. Project managers can update costs to complete and explain significant changes in labor assumptions, subcontractor commitments, unrecorded costs, or expected gross margin. Pay particular attention to margin fade. If a job begins at an expected 18% margin, falls to 15%, and then drops to 12%, management should understand why. The issue may be estimating, execution, scope control, or several factors at once. Require meaningful changes in projected cost or gross profit to be explained while there is still time to respond.

Keep change orders from becoming invisible work

Change orders sit directly between project operations, billing, and accounting. That makes them a common source of financial surprises. The problem is easy to recognize: a customer asks for additional work; the field team needs to keep the project moving, so the contractor performs it. Pricing gets worked out later. Meanwhile, labor, materials, and subcontractor costs start accumulating. If those costs reach the job-cost system but the potential contract adjustment is not tracked properly, the project can appear to be deteriorating. If the change is never approved or billed, the contractor may end up funding work it cannot fully recover. A disciplined process keeps that work visible. One change-order log used by both operations and accounting can show whether an item is proposed, submitted, approved, rejected, or still being negotiated. It can also track expected revenue and cost, the responsible person, and how long the item has been outstanding. That gives management a clearer view of how much work is being performed without final approval and whether unresolved changes are creating billing or collection problems. The accounting treatment of pending or disputed changes may depend on the facts of the contract and the applicable revenue-recognition guidance. But the operating objective is simpler: do not let added scope disappear between the jobsite, project management, and accounting.

Use the WIP report to connect the pieces

The WIP schedule is where job costs, current estimates, revenue, and billing come together. Suppose a contractor has completed roughly half the work on a $1 million project. Based on current estimates, the company has earned about $500,000 of revenue. If it has billed $425,000, there is a $75,000 gap between earned revenue and billing. If it has billed $575,000, the gap runs in the other direction. Those differences are commonly described as underbilling and overbilling. The calculation matters, but the more useful question is why the difference exists.

Underbilling can point to a cash-flow problem

An underbilling does not automatically mean a job is in trouble. There may be a reasonable timing difference between when work is performed and when the contract allows billing. Management should understand the cause. A billing milestone may have been missed. Work may be proceeding under an unapproved change order. Costs may have been recorded faster than expected. The current forecast may also be too optimistic. Sustained underbilling can create cash pressure because the contractor may be funding work before collecting for it. For significant underbilling, identify the reason, who owns the next step, and when the amount is expected to become an invoice and then cash.

Overbilling is not the same as profit

Billing ahead can improve cash flow, but the extra cash does not necessarily represent profit. Suppose a job is $200,000 overbilled. That cash may help fund current operations. But if the projected cost to finish the job increases materially, part of that apparent cushion may already be spoken for. Large overbillings therefore need context. They may reflect favorable billing terms and good cash management. They can also create a false sense of available cash if management is not considering the remaining cost to finish the job. A WIP review should ask what is driving each position and whether it points to a billing issue, forecasting problem, change-order problem, or genuine cash advantage.

Make WIP review an operating meeting, not an accounting task

A useful WIP process requires people outside the accounting department. Accounting knows what has been recorded and billed. Project managers know what is happening in the field. Estimators know the assumptions behind the original budget. Leadership understands cash requirements and portfolio risk. Those perspectives need to come together. A monthly WIP meeting does not have to give every project equal attention. Focus on jobs with the largest exposure, biggest change in projected margin, significant underbilling or overbilling, or large amounts of unresolved change-order work.

For those jobs, management should ask:

Has the estimated cost to complete changed?
Is projected gross margin moving?
Are material costs or commitments missing?
Are there unresolved change orders?
What is driving the billing position?
Does the current forecast still make sense to the project manager?

The point is not to make accounting responsible for predicting construction outcomes. It’s to ensure information from the field reaches the financial reporting process while there is still time to act.

Make sure all three systems tell the same story

Job costing, change-order controls, and WIP reporting solve different parts of the same problem: understanding what a job is really worth before it ends. Job costing shows where the money is going. Updated forecasts show where the job appears to be headed. Change-order controls keep changes in scope and price visible. WIP reporting shows how those developments affect revenue, billing, expected profit, and cash. When one piece is weak, the others become less reliable. A well-prepared WIP schedule cannot compensate for incomplete job costs. Accurate job costs cannot compensate for a six-month-old estimate to complete. And neither will protect your margin if significant extra work is being performed without a disciplined change-order process. One useful test is to take your five largest active projects and compare the job-cost report, change-order log, current estimate to complete, and WIP schedule side by side. If they do not tell the same story, the differences are worth investigating.

For more personalized guidance, please feel free to reach out to your trusted TBC advisor. They can help you evaluate whether your construction accounting and WIP process are giving management a reliable view of job performance. The best time to have that conversation is during the year, while you still have time to address margin erosion, billing issues, and forecasting problems before they become year-end surprises.

Divorce and Your Tax Return: What the Settlement May Not Resolve

Posted on September 09, 2026

A divorce settlement can divide every major asset and still leave many tax questions unanswered. The underlying mistake is treating the settlement agreement like a set of tax instructions, when it is not. A settlement agreement establishes legal rights between two people, but tax law decides how the IRS treats the result. Here are a few areas that deserve a separate tax review before the first post-divorce return gets filed.

Your filing status and child-related tax benefits follow different rules

First, understand that your filing status and child-related tax benefits follow different rules. Your filing status generally depends on your marital status on the last day of the year. Let’s say your divorce becomes final on December 30th. Even though you were married for almost the entire year, you are generally considered unmarried for federal tax purposes. You’ll likely file as single now, but you may also qualify to file as head of household if you have dependents. To qualify, you typically have to pay more than half the cost of maintaining the home and the home must also be the dependent’s primary home for more than half the year. However, other requirements can apply depending on the qualifying person.

A child’s tax treatment is more complicated. The divorce decree might say that each parent can claim the child in alternating years, but the IRS does not treat the decree itself as controlling. The custodial parent is generally the parent with whom the child spent more nights during the year. They normally have the initial right to claim the child. But when parents alternate the claim, the tax treatment isn’t automatic and the custodial parent will usually need to sign Form 8332. The noncustodial parent then attaches the required release to their tax return. The release is important because the tax benefits do not all move together.

For example, the noncustodial parent may be allowed to claim the child tax credit, which is based on claiming an eligible child. The custodial parent may still qualify for head of household status. The custodial parent may also qualify for the child and dependent care credit if they paid eligible care expenses so they could work. In other words, one parent does not necessarily receive every tax benefit connected to the child. That distinction makes coordination essential. Both parents should confirm who will claim each benefit and whether Form 8332 is required. When both returns claim the same child incorrectly, the IRS may review the competing claims. The parent whose claim is denied could owe additional tax and interest. Penalties may also apply when a benefit was claimed improperly.

Equal asset values can produce unequal tax results

Property division creates a different problem. Transfers of property between spouses are generally not taxable at the time of transfer. Transfers to a former spouse can receive the same treatment when they are “incident to the divorce.” That phrase matters. A transfer generally qualifies if it occurs within one year after the marriage ends. A later transfer can also qualify when it is tied to the divorce instrument, generally within six years. Transfers delayed beyond those rules deserve additional review rather than an assumption that they remain tax-free.

But there may still be tax considerations even if the transfer isn’t taxed at the time of transfer. Suppose one spouse receives $500,000 in cash as part of the property settlement. The receipt of that cash is generally not federal taxable income. The spouse making the payment generally does not receive a deduction either. Now compare that with an investment account worth the same $500,000, but the original cost basis was only $200,000. In this case, the receiving spouse absorbs about $300,000 of unrealized gain. The transfer itself generally doesn’t trigger that gain, but when the investments are eventually sold, the receiving spouse may recognize some or all of that built-in gain. The eventual tax rate will depend on income, filing status, the type of investment, how long it was held, and other factors.

The point is that $500,000 in cash and an investment account may look equal on the settlement statement, but they aren’t necessarily equal after tax. The same problem can appear with rental property, a business interest, or any other appreciated asset. The divorce balance sheet shows current value, but your tax review should also consider the embedded future liability.

The home needs a post-divorce tax plan

The marital home adds another layer. A married couple filing jointly may qualify to exclude up to $500,000 of gain upon selling their house if they satisfy the applicable ownership and use requirements. After the divorce, the maximum exclusion is generally $250,000 for each qualifying former spouse. But divorce creates special rules around ownership and occupancy. If one spouse receives the home, that spouse can generally count the former spouse’s ownership period toward the ownership requirement. In some cases, a former spouse’s continued occupancy under the divorce agreement can also count toward the owner’s use requirement. That means the title alone doesn’t answer the tax question.

If the divorce is already final, the practical step is to reconstruct the records before listing the home. Confirm the original purchase price. Locate documentation for major improvements. Review any prior refinancing or partial business use. Confirm when each spouse owned and occupied the property. For someone still negotiating the settlement, the likely sale timing and responsibility for maintaining those records should be discussed before the agreement is signed.

Retirement awards require implementation

Retirement assets create a different gap between the settlement and tax return. A settlement may award one spouse part of the other spouse’s workplace retirement plan. But the plan administrator doesn’t simply read the divorce decree and transfer the money. Most qualified employer plans require a qualified domestic relations order (QDRO). Governmental, church, and certain other plans may use different procedures. Suppose the agreement awards a former spouse $200,000 from a 401(k). If the distribution is made under a QDRO, the spouse receiving the money generally reports the taxable distribution, rather than the original plan participant. However, the receiving spouse may be able to roll the money into an IRA or another eligible plan without immediate tax.

There is another important option. A taxable distribution made directly to a spouse or former spouse under a QDRO can generally avoid the additional 10% early-distribution tax, even if that person is under age 59.5. That can create a valuable liquidity opportunity for someone who needs part of the retirement award in cash.

IRAs work differently. An IRA transfer incident to divorce can generally be completed without current tax if handled correctly. But IRAs do not use QDROs, and the special QDRO exemption from the 10% early-distribution tax does not apply. Essentially, the settlement creates the legal right to the retirement asset but it’s the account-level paperwork that determines whether the transfer receives the intended tax treatment. Beneficiary designations also need a separate review. Divorce doesn’t automatically update every retirement plan, life insurance policy, or transfer-on-death account.

Support payments and old tax obligations follow their own rules

The settlement can also create ongoing payments, and those payments do not all receive the same tax treatment. For divorce or separation instruments executed after 2018, alimony is generally not deductible by the person paying it and is not taxable income to the person receiving it. Older agreements can follow the prior rules, unless they were later modified in a way that expressly adopts the newer treatment. Child support is different but simpler. It is generally neither deductible by the payer nor taxable to the recipient.

Prior joint tax returns create another loose end. When spouses file a joint return, both people are generally responsible for the tax, interest, and penalties connected with that return. A settlement might require one former spouse to pay an old tax balance. That can establish an obligation between the former spouses. It does not necessarily stop the IRS from pursuing either person. Relief may be available under the innocent spouse rules, but eligibility is fact-specific. Other tax items may also survive the divorce. Capital loss carryforwards, estimated payments, overpayments, and certain business or investment tax attributes may require separate review. Withholding should also be revisited. A withholding strategy designed around a joint return may no longer work once income and deductions are divided.

What to do now

A divorce settlement is the starting point, not the finish line, on your taxes. Before filing, confirm your filing status and coordinate each child-related benefit. Document the basis of every asset you received. Review the ownership, occupancy, and basis records for the home before a sale. Make sure every retirement transfer was completed through the correct account-level process. Review how support payments are treated under the date and terms of the agreement. Finally, revisit prior joint returns, current withholding, and any tax attributes that may carry forward. The goal is to avoid finding the tax consequences after the return is filed or an asset is sold. If you have questions or would like to discuss your unique situation, please contact our office to speak with one of our expert advisors.

This article is for general informational purposes only and is not legal advice. It focuses on selected federal income tax considerations related to divorce and separation. It does not address state or local tax consequences, state family-law issues, or every federal tax rule that may apply. Tax treatment can vary based on the specific facts, timing, assets involved, and terms of the divorce or separation agreement. For more information on what a settlement may not resolve please feel free to contact your trusted TBC advisor.

SECURE 2.0 Amendments and Provisions Now in Effect: An Overview

The SECURE 2.0 Act of 2022 brought sweeping changes to the retirement plan landscape. Many of those provisions are now operationally effective, and plan sponsors face a fast-approaching deadline to formalize the required written amendments. For advisors helping clients maintain compliant retirement plans, understanding what must happen, and when, is essential.

The December 31, 2026 Amendment Deadline

Since the passage of the SECURE Act (2019), the CARES Act (2020), and the SECURE 2.0 Act (2022), most qualified retirement plans have been operating under a “good faith compliance” standard, meaning plan sponsors have implemented required changes operationally without yet formalizing them in written plan documents. However, that runway is ending.

Under IRS Notice 2024-02, the deadline for most private-sector qualified retirement plans (including 401(k), profit sharing, money purchase, defined benefit (“DB”) plans, and nongovernmental 403(b) plans) to adopt written amendments reflecting these legislative changes is December 31, 2026. This generally applies to required and discretionary changes made under these three laws. Put simply, if a plan has been operating in compliance with the new rules but has not yet amended its plan document to reflect those rules, the amendment generally must be adopted by year-end 2026.

Certain types of plans have later amendment deadlines, including governmental and collectively bargained plans, as well as IRAs, SEP arrangements, and SIMPLE IRA plans. Moving forward, advisors should encourage plan sponsor clients to coordinate with their TPA, document provider, and ERISA counsel to ensure their plans stay up to date. Early engagement reduces the risk of missing the deadline.

SECURE 2.0 Provisions Now Effective

Several major SECURE 2.0 provisions have become operationally effective and must be reflected in current plan operations. Some notable examples include:

Required Minimum Distribution (“RMD”) Age. Effective January 1, 2020, the SECURE Act increased the applicable age used in determining when RMDs must begin from 70½ to 72 for individuals who reached age 70½ after December 31, 2019. SECURE 2.0 increased the applicable age again, generally to 73 for individuals born in 1951 through 1958 and to 75 for individuals born in 1960 or later. Proposed regulations would also apply age 73 to individuals born in 1959. It is important to note that the December 31, 2026, amendment deadline for most qualified retirement plans and nongovernmental 403(b) plans still applies to these changes.

Mandatory Roth catch-up contributions. Beginning in 2026, participants in 401(k), 403(b), and governmental 457(b) plans that allow catch-up contributions may be subject to mandatory Roth treatment of catch-up contributions. A participant whose prior-year FICA wages from the employer sponsoring the plan exceed an applicable threshold must make any catch-up contributions on a Roth basis. The statutory threshold is $145,000, as indexed, and the threshold for determining 2026 treatment is $150,000 in 2025 FICA wages. Plans that do not offer a Roth contribution feature must either add one or eliminate catch-up contributions for affected participants.

Long-term, part-time employee eligibility. Effective after December 31, 2024, SECURE 2.0 reduced the long-term, part-time eligibility requirement for 401(k) plans from three consecutive years of 500+ hours of service to two consecutive years and extended similar eligibility rules to ERISA-covered 403(b) plans.

Mandatory automatic enrollment. For plan years beginning after December 31, 2024, new 401(k) and 403(b) plans established after December 29, 2022, generally must include an eligible automatic contribution arrangement (“EACA”) with an initial default deferral rate of at least 3% (but not more than 10%). If set at less than 10%, the deferral rate must escalate by 1% annually until it reaches 10%. The automatic deferral has a 15% maximum. Exemptions apply to certain small employers and plan types.

Some provisions of SECURE 2.0 provide optional changes, which may still warrant additional discussion with plan sponsor clients. Some of the optional changes made by SECURE 2.0 are below:

Enhanced “super catch-up” for ages 60–63. Effective in 2025, participants who attain ages 60 through 63 during the taxable year and participate in 401(k), 403(b), or governmental 457(b) plans may make catch-up contributions up to a higher limit. The higher limit is $11,250 for 2025 and 2026. The regular age 50 catch-up limit is $7,500 for 2025 and $8,000 for 2026.

Student loan matching. Effective in 2024, plans may treat qualifying student loan payments as elective deferrals for purposes of receiving employer matching contributions, allowing participants who cannot afford both loan payments and retirement contributions to earn a match.

Pension-linked emergency savings accounts (“PLESAs”). Effective in 2024, plans may offer short-term emergency savings accounts for non-highly compensated employees, funded with after-tax Roth contributions up to a $2,600 cap for 2026. Withdrawals from PLESAs are tax- and penalty-free.

Elimination of RMDs from designated Roth accounts in employer plans. Effective in 2024, designated Roth accounts in 401(k), 403(b), and governmental 457(b) plans are no longer subject to required minimum distributions during the participant’s lifetime. This aligns Roth employer plan accounts with Roth IRAs.

Upcoming deadlines:

October 1. Adoption deadline for a new safe harbor 401(k) plan for the current plan year for a calendar-year employer with no existing plan or a profit-sharing-only plan.

October 15. Extended deadline for filing 2025 Form 5500 for calendar-year plans that received an extension.

IRS Raises the Standard Mileage Rates for the Second Half of 2026

Posted on August 26, 2026

If you use your vehicle for business, medical care, or certain qualifying moves, the standard mileage rate increased on July 1st, 2026. The IRS said the increases reflect recent increases in fuel prices.

The midyear change means 2026 has two sets of mileage rates, so taxpayers will need to distinguish between qualifying mileage from the first and second halves of the year.

2026 mileage rates changed on July 1st

For miles driven from January 1st through June 30th, 2026, the standard mileage rates are:

72.5 cents per mile for business use
20.5 cents per mile for medical purposes
20.5 cents per mile for qualifying moving purposes for eligible active-duty members of the Armed Forces and certain members of the intelligence community
14 cents per mile for charitable service

For miles driven from July 1st through December 31st, 2026, the rates are:

76 cents per mile for business use
23.5 cents per mile for medical purposes
23.5 cents per mile for qualifying moving purposes for eligible active-duty members of the Armed Forces and certain members of the intelligence community
14 cents per mile for charitable service

The charitable mileage rate did not change because it is set by federal law. If you track mileage through an app or accounting system, ensure the new rates were applied beginning July 1st.

The standard mileage rate is optional

Eligible taxpayers do not have to use the standard mileage method. The business rate is used by self-employed taxpayers and businesses and may also be used for qualifying employer reimbursements. With that being said, most employees cannot deduct unreimbursed business mileage on their individual returns. Depending on their situation, eligible taxpayers can instead deduct the business portion of actual vehicle expenses. Those expenses can include items such as gas, insurance, repairs, registration fees and depreciation.

There are also rules that can limit your ability to switch between the standard mileage and actual-expense methods. For example, if you own a vehicle and want to use the standard mileage rate, the IRS can require you to choose that method in the first year the vehicle is available for business use. If you lease a vehicle and choose the standard mileage rate, for the most part you must continue using that method for the entire lease period, including renewals. Before changing methods, compare the potential deduction and confirm that you remain eligible to make the switch.

Good mileage records still matter

The higher mileage rate does not change the need for good documentation. Your records should show the date, destination, business purpose, and number of miles for each trip. For example, an entry that says “client meeting, 42 miles, August 12th” is much more useful than trying to reconstruct months of driving at tax time.

If employees use personal vehicles for company business, businesses should also review their mileage reimbursement policies and systems. For the revised rate to apply to a mileage allowance, both the employee’s underlying transportation expense and the employer’s reimbursement must occur on or after July 1st. Review your mileage log and reimbursement settings now rather than waiting until year-end.

Compare your options before year-end

The standard mileage rate keeps the calculation relatively simple, but it is not always the best choice. A vehicle with high depreciation, insurance, repairs, or other operating costs may produce a different result under the actual-expense method. Feel free to contact your trusted TBC advisor, we can help you review your vehicle expenses, mileage records, and reimbursement policies to determine how the 2026 changes apply to you.

Turning Plan Costs into Tax Savings: A Retirement Plan Credits Guide for Advisors

Tax credits are one of the most compelling reasons a small employer will say “yes” to starting a retirement plan. Yet, many business owners never claim them because no one raised the topic. Advisors are uniquely positioned to educate clients on these incentives. Understanding the basics can help advisors turn a cost objection into a plan installation.

Why These Credits Matter

The federal government offers several business tax credits to offset the cost of starting, administering, and funding a retirement plan. These are dollar-for-dollar reductions of tax owed, not mere deductions. As a result, they are far more valuable than an equivalent deduction would be. For an eligible small employer, stacking the available credits can offset most or all of a new plan’s early costs.

The Startup Cost Credit

The startup cost credit was originally a modest incentive: 50% of qualified startup costs, capped at $500 per year for three years. Congress has since expanded it significantly.

SECURE Act. In 2019, the SECURE Act raised the annual cap to the greater of $500, or the lesser of (a) $250 multiplied by the number of non-highly compensated employees eligible to participate, or (b) $5,000. Put simply, this means an eligible employer can claim up to $5,000 per year in tax credits based on their new plan. The three-year limit still applies, meaning an eligible employer could claim up to $15,000 over three years!

Because the credit was still limited to 50% of qualified startup costs, an employer would have had to spend $30,000 in qualified startup costs to claim the full $15,000 credit.

SECURE 2.0 Act. For tax years beginning after 2022, the SECURE 2.0 Act increased the credit percentage from 50% to 100% of qualified startup costs (for employers with 50 or fewer employees who received at least $5,000 in compensation in the preceding year). Unfortunately, eligible employers with 51-100 such employees remain capped at 50%. The three-year credit period generally begins with the tax year in which the plan becomes effective, but the employer may elect the preceding tax year as the first credit year.

Qualified startup costs include ordinary and necessary expenses paid or incurred to establish or administer the plan and to educate employees about the plan. To be eligible for the startup cost credit, the employer must have had no more than 100 employees who received at least $5,000 in compensation in the tax year preceding the first credit year, must have at least one non-highly compensated employee eligible to participate, and during the three tax years preceding the first credit year, neither the employer, a related employer, nor a predecessor employer may have established or maintained a qualified employer plan under which contributions were made or benefits accrued for substantially the same employees.

Other Credits

In addition, several other tax credits are available to many small businesses sponsoring a retirement plan:

The Employer Contribution Credit – this credit is equal to an applicable percentage of employer contributions (excluding elective deferrals) to an eligible employer plan other than a defined benefit plan, capped at $1,000 per employee. The applicable percentage phases down over five years: 100% in Years 1 and 2, 75% in Year 3, 50% in Year 4, and 25% in Year 5. The full applicable percentage is available only for employers with 50 or fewer employees in the preceding tax year; the percentage is reduced by 2 percentage points for each employee over 50, counting all employees for this purpose. No credit is allowed for contributions on behalf of an employee who receives more than $110,000 in FICA wages from the employer in 2026.
The Auto-Enrollment Credit – this credit provides a flat $500 per year for three years to an employer that adds and maintains an Eligible Automatic Contribution Arrangement to a new or existing qualified plan. Unlike the startup cost credit, this credit does not require a non-highly compensated employee to be eligible to participate.
The Military Spouse Participation Credit – this credit applies to eligible small employers with defined contribution plans that (1) make military spouses eligible within two months of hire, (2) provide employer contributions at the level a similarly situated non-military-spouse would receive after two years of service, and (3) provide immediate full vesting. The credit equals $200 per participating military spouse plus up to $300 of employer contributions on their behalf, for the first three tax years of participation in an eligible plan. The military spouse must be a non-highly compensated employee who, when first employed or rehired, is married to a member of the uniformed services serving on active duty.

Stacking Credits and Practical Considerations

These credits can generally be stacked. Combining the enhanced startup credit ($5,000 per year) and the auto-enrollment credit ($500 per year) yields up to $5,500 per year for three years. And that is before adding the separate employer contribution credit!

When discussing credits with clients, advisors should keep several practical points in mind. First, for the startup cost and employer contribution credits, the otherwise allowable deduction must be reduced by the credit amount; a client may instead elect not to claim the credit. Second, controlled groups, common-control entities, and affiliated service groups are treated as a single employer for employee-count and credit-computation purposes. Third, these credits are nonrefundable, so a client with little or no tax liability may not benefit fully in a given year, although unused general business credits generally may be carried back one year and forward 20 years. Timing and entity structure matter!

If you have any questions or are looking for more information on turning plan costs into tax savings, feel free to reach out to your trusted TBC TPA.

Upcoming deadlines:

September 15. Deadline for employer contributions to be deductible for the prior tax year for calendar-year partnerships and S corporations that filed an extension; also, their extended deadline for funding SEP contributions.

September 30. Summary Annual Report (SAR) due to participants for calendar-year ERISA retirement plans subject to the SAR requirement whose 2025 Form 5500 was not extended.

October 1. Adoption deadline for a new safe harbor 401(k) plan for the current plan year for a calendar-year employer with no existing plan (or a profit-sharing-only plan).

Controlled Groups: What Every Advisor Should Know

Most advisors will encounter controlled group issues at some point. While the rules can become complex, understanding the basics can help identify potential problems early and ensure retirement plans remain compliant.

Why Controlled Group Rules Matter

The controlled group rules exist to prevent business owners from dividing employees among multiple entities to avoid retirement plan requirements. If related businesses are considered a controlled group, they are generally treated as a single employer for many qualified plan purposes, including coverage testing, nondiscrimination testing, minimum participation requirements, and contribution and benefit limitations.

Without these rules, an employer could potentially provide generous retirement benefits to one group of employees, such as the highly compensated employees, while excluding all non-highly compensated employees who work for another company.

Because controlled group status can significantly affect plan administration, advisors should be alert whenever a client owns interests in multiple businesses.

The Two Primary Controlled Group Tests

Parent-Subsidiary Controlled Groups

A parent-subsidiary controlled group generally exists when one company owns at least 80% of another company.

Common examples include:

Parent-subsidiary example 1: Company A owns 80% of Company B.

Parent-subsidiary example 2: Company A owns 80% of Company B. Company A also owns 80% of Company C.

Parent-subsidiary example 3: Company A owns 80% of Company B. Company B owns 80% of Company C.

In all of the above, each company is part of a single controlled group with the other companies in each example.

Brother-Sister Controlled Groups

A brother-sister controlled group exists when the same five or fewer individuals, estates, or trusts own multiple businesses and satisfy two ownership tests:

Together, they own at least 80% of each business; and
They have more than 50% identical ownership across the businesses.

The second requirement, identical ownership, is often the more challenging concept. In simple terms, an owner’s identical ownership is the lowest percentage they own in each company being tested, then added together. For example:

Individuals	Company A	Company B	Identical Ownership
Adam	50%	20%	20%
Ben	40%	60%	40%
Total	90% (common control, exceeds 80%)	80% (common control, meets 80%)	60% (identical ownership, exceeds 50%)

Because Adam and Ben collectively satisfy both the 80% and 50% tests, Companies A and B would generally be considered a controlled group.

Don’t Forget Family Attribution

One of the most common surprises in controlled group analyses involves family attribution rules.

In many situations, the IRS treats an individual as owning interests held by certain family members. As a result, ownership may be attributed between spouses, parents and children, as well as grandparents and grandchildren.

This means a controlled group may exist even when ownership appears sufficiently separated on paper. While there are exceptions, family ownership should always prompt additional review.

Practical Tips for Advisors

Controlled group issues often surface during new plan installations, annual compliance testing, or plan design discussions. Consider asking clients:

Do you own part of another business?
Do family members own related businesses?
Have ownership percentages changed recently?
Are employees working for more than one entity?

These simple questions can help uncover issues before they become compliance problems.

If you have any questions or are looking for more information on control groups, feel free to reach out to your trusted TBC TPA.

Upcoming deadlines:

July 31. Form 5500-series returns are generally due the last day of the seventh month after the plan year ends. A calendar-year plan’s 2025 Form 5500 is due July 31, 2026, unless extended by Form 5558.
July 31. Form 8955-SSA (if required) is also generally due the last day of the seventh month after plan year-end. A calendar-year plan’s 2025 Form 8955-SSA is due July 31, 2026, unless extended by Form 5558.
July 31. File Form 5558 extension request by July 31 to extend Form 5500-series and/or Form 8955-SSA to October 15, 2026.

When and Why Every Business Owner Needs a Business Valuation

Posted on July 14, 2026

Most business owners have a rough number in their heads of what they think the business is worth. That number is usually based on some combination of what a competitor sold for, what a banker once mentioned, or a gut sense built over years of reinvestment. It is not a valuation, and the gap between that mental estimate and a defensible, documented figure has cost business owners real money in taxes, negotiations, and disputes.

A formal business valuation is an independent, methodology-based determination of what your business is worth under a specific standard of value at a specific point in time. “Fair market value,” for example, is considered the price at which a business would change hands between a willing buyer and a willing seller, neither under compulsion, both with reasonable knowledge of the relevant facts. While that definition may seem like legalese, it matters – because the IRS, courts, and lenders all hold valuations to it.

Here is when you need one, and why.

Sale, succession, or exit

The most obvious trigger is also the one most business owners think about too late. If you are planning to sell your business, whether to a third party, a private equity buyer, or a family member, you need a valuation before you enter negotiations, not during them.

A buyer will come with their own number, supported by their own analysis. Without an independent valuation in hand, you are negotiating from memory and instinct. With one, you have documentation of your earnings, a reasoned view of what drives your value, and the foundation to push back when a buyer’s adjustments do not hold up.

The same applies to succession planning. If you are transferring ownership to a co-owner, a key employee, or a next-generation family member through a structured buyout, the purchase price has to be grounded in something. A valuation protects both sides and reduces the likelihood that the transaction gets challenged later by the other party, or the IRS.

Buy-sell agreements

If your business has more than one owner, you almost certainly have (or should have) a buy-sell agreement. That document governs what happens when an owner wants to leave, becomes disabled, dies, or is forced out. It is one of the most important contracts a business can have.

The problem is that many buy-sell agreements are written with valuation language that becomes unworkable over time. A fixed price set years ago no longer reflects current reality. A formula tied to a multiple of earnings may produce a number that is easy to calculate but difficult to defend. And when the triggering event actually happens, that is exactly the wrong time to be arguing about what the business is worth.

A current, third-party valuation, updated on a regular schedule, eliminates most of that friction. It also gives life insurance coverage a defensible target, which matters when funding a buyout.

Estate planning and gifting

Revenue Ruling 59-60, which the IRS has used since 1959 to evaluate closely held business interests for estate and gift tax purposes, sets out factors for determining fair market value. When a business interest transfers at death or through a gifting strategy, the IRS can, and does, challenge valuations it considers aggressive.

If you are transferring business interests to family members, establishing a family limited partnership, or using a trust structure that includes a business stake, the valuation underlying those transfers will be scrutinized. In this context, a well-supported valuation is not a formality. It’s the documentation that helps the transaction withstand IRS review.

Discounts for lack of marketability and lack of control, which reflect the reality that a minority interest in a closely held business is worth less than a proportionate share of the whole, are legitimate and recognized under federal tax law. But they require professional support to withstand IRS review. An undocumented discount is not a discount; it’s an audit finding waiting to happen.

Consider a business owner with an estate that includes a 40% interest in an S corporation worth $5 million as a whole. A properly supported valuation with applicable discounts might value that 40% interest at $1.6 million rather than $2 million – a $400,000 difference in the taxable estate. That difference, at the federal estate tax rate, is material. But, without documentation, it does not exist.

SBA and commercial lending

When a business is acquired using an SBA loan, the lender is required in many cases to obtain an independent business valuation. This protects the lender and, indirectly, the buyer, from overpaying for a business relative to its actual income-producing capacity.

Even outside of SBA transactions, commercial lenders often request valuations when a business is pledged as collateral, when a significant change of ownership is involved, or when the loan amount is large relative to verifiable business income. Having a current valuation on file can accelerate this process and reduce friction at closing.

Divorce and shareholder disputes

A business interest is a marital asset in most states. When a business owner divorces, the business has to be valued by someone. If both spouses commission their own valuations, those numbers frequently differ by significant margins, and litigation becomes the mechanism for resolving the gap.

The same dynamic plays out in shareholder disputes. When a minority shareholder claims they are being squeezed out, or when a departing partner disputes the buyout price, the absence of a current, agreed-upon valuation turns a business disagreement into prolonged legal conflict.

A periodically updated valuation (ideally one that all owners have reviewed and accepted) reduces that exposure. It does not eliminate the possibility of conflict, but it can remove the question of value from the center of the dispute.

Equity compensation

If your business grants stock options or other equity-based compensation to employees, IRC Section 409A requires that the strike price of those options be set at no less than the fair market value of the underlying stock at the time of grant. For private companies, that typically requires a properly supported independent appraisal or valuation process that meets the applicable 409A requirements.

Getting this wrong has consequences for both the employee and the company: accelerated income recognition, excise taxes, and penalties. A 409A valuation is not expensive relative to those risks, and it needs to be updated whenever there is a material change in the business.

Strategic planning and benchmarking

Valuations are not exclusively triggered by transactions or legal requirements. A business owner who understands what drives their company’s value is in a better position to make decisions.

If your business relies heavily on a single customer, employee, or product line, a valuator can reflect that concentration risk in the number. If your EBITDA margins are below what buyers in your industry typically pay for, that gap will be visible. Understanding these factors while you have time to address them is different from learning about them at the closing table.

Some owners commission informal valuations every three to five years simply to track progress and understand where they stand relative to an eventual exit goal. This isn’t excessive; it is the kind of planning that makes exits go smoothly.

What makes a valuation defensible

Not every valuation carries the same weight. The level of support needed depends on the purpose. A valuation used for estate or gift tax planning, a shareholder dispute, divorce, SBA financing, or equity compensation generally needs more formal documentation than an internal planning estimate.

A defensible valuation will apply one or more standard approaches – the income approach, based on earnings capacity; the market approach, based on comparable transactions or public company multiples; or the asset approach, based on the fair value of underlying assets. It should also explain why the selected methodology is appropriate for your business, document key assumptions, address risk factors, and produce a written report that can be reviewed by the relevant parties, whether that is a buyer, lender, court, tax authority, or other stakeholder.

An informal estimate from a broker, banker, or industry rule of thumb may be useful as a starting point for discussion. But when the number will be relied on for tax, legal, lending, or transaction purposes, it should be supported by appropriate valuation analysis and documentation.

How your CPA fits in

Your CPA is often the right starting point when a valuation is needed. A CPA who knows your business can help you understand why the valuation is being requested, what type of report or analysis may be appropriate, and what financial information will be needed to support the process.

If you have not had a business valuation performed, it’s worth a conversation. The right time to know what your business is worth is before you need to act on that number. For more personalized guidance, please contact your trusted TBC advisor.

S Corporations 101: FAQs for Business Owners

S-corporations 101: FAQs for business owners

Posted on July 14, 2026

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 % (6.2% for Social Security, % for Medicare), and the employer matches that with another %.

For self-employed individuals (sole proprietors and single-member LLC owners), you pay both the % 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, feel free to contact your trusted TBC advisor. We’ll help you run the numbers, weigh the trade-offs, and determine whether an S-corp election makes sense for your goals.

Financial Strategy When Preparing for Retirement

Posted on June 16, 2026

The years leading up to retirement can be some of the most important in financial planning.

For many people, income is still strong, some major expenses may be easing, and retirement is close enough that decisions made now can have a real impact on what the next phase looks like. This is the point where financial planning becomes less about simply accumulating more and more about getting organized for what comes next.

Shift from accumulation to preparation

As retirement approaches, the planning focus starts to change.

Growth still matters, but now it has to be balanced with income planning, tax strategy, and risk management. You’re no longer planning in the abstract. You’re getting closer to the point where your assets may need to support your lifestyle rather than just grow in the background.

That makes this a good time to get more specific about what retirement may actually require. What will spending realistically look like? When will you need income to begin? Which accounts will you draw from first, and how might those decisions affect taxes over time?

Evaluate retirement readiness

Once those questions come into view, retirement readiness becomes easier to evaluate in a meaningful way.

This is where general benchmarks start to matter less and personal projections start to matter more. The real issue is whether your current savings, expected timeline, and likely spending levels are aligned. It is also worth asking how much pressure inflation, market volatility, or healthcare costs could put on the plan, and whether even a modest change in retirement timing would materially improve the outcome.

In many cases, this is where a few well-timed adjustments can make a real difference. Saving more in the final working years, delaying retirement slightly, or changing the withdrawal strategy may all strengthen the picture.

Use the final high-earning years wisely

If retirement is getting closer and income is still strong, the final working years can be especially valuable.

For many people, this is the last clear opportunity to meaningfully increase retirement savings while earned income remains high. Catch-up contributions can create additional room to save on a tax-advantaged basis, and those extra contributions can matter more than people expect.

Health Savings Accounts may also deserve more attention here. If you’re eligible and able to leave those funds invested, an HSA can be an efficient way to prepare for future healthcare costs, which are often one of the more significant expenses in retirement.

At this stage, the goal is not just to save consistently. It’s to make full use of the opportunities that are still available while you have the income to support them.

Take advantage of strategic tax planning windows

The years just before retirement can also create an important tax-planning window. In many cases, income is still relatively high, but required minimum distributions have not started and Social Security may not have been claimed yet. That gap can create room for strategies that may be harder to use later.

Roth conversions are one example. When done thoughtfully, they may help reduce future tax pressure and create more flexibility once retirement distributions begin. Depending on the situation, this may also be the right time to look at the timing of income, deductions, charitable giving, or capital gains.

The bigger point is that these decisions shouldn’t be made in isolation. A tax strategy is most useful when it is coordinated with the way retirement income will eventually be structured.

Reassess investment risk and portfolio structure

As the time horizon to retirement shortens, portfolio risk can have more immediate consequences. That doesn’t necessarily mean moving everything into conservative investments. But it does mean taking a closer look at whether the portfolio is positioned appropriately for the years right before and right after retirement, when market declines can be especially disruptive.

This is also a good time to review diversification, rebalancing, and how assets are spread across taxable and tax-advantaged accounts. It’s not just about what you own, it’s also about where you own it, how easily those assets can be accessed, and how they may be taxed when you start using them.

The goal is to build a portfolio that still supports growth, but also gives more stability as retirement approaches.

Plan for social security and healthcare

Social security and healthcare planning also start to matter more as you transition closer to retirement.

When to claim Social Security can affect lifetime benefits in a meaningful way, and the right answer depends on more than one variable. Income needs, health, longevity expectations, marital status, and other available assets can all influence that decision.

Healthcare planning is just as important. Understanding Medicare timing, supplemental coverage options, and likely out-of-pocket costs can help reduce surprises and make the transition into retirement more manageable.

These choices are closely connected to the broader retirement income strategy, which is why they should be evaluated in context rather than one at a time.

Update estate and legacy planning

This is also a good point to revisit estate planning.

That may mean reviewing wills, trusts, powers of attorney, healthcare directives, and beneficiary designations to make sure they still reflect your wishes and your current financial reality. As assets grow and priorities shift, older documents often stop matching the plan you would make today.

For some families, this is also when charitable goals, gifting strategies, or broader legacy planning start becoming more relevant.

A critical window for planning

Taken together, the pre-retirement years offer an important chance to make thoughtful adjustments while there is still time to act on them.

Decisions around savings, taxes, investment structure, healthcare, and retirement timing all start to matter more because the window for course correction becomes smaller. That is why this phase often benefits from a more detailed and coordinated approach.

If retirement is on the horizon in the next several years, this may be the right time to step back and evaluate how well your current strategy supports that transition. Our team works with individuals and families to assess readiness, identify planning opportunities, and align financial decisions with the realities of retirement.

Please contact your TBC Advisor for more personalized guidance.