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.

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

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.

It’s Wedding Season! The Tax Changes Couples Miss

Posted on June 15, 2026

Are you newly married or about to get married this year? Congratulations! But somewhere between the honeymoon and unpacking, there’s a list of tax changes that most couples simply don’t think about. And that’s exactly the problem. The IRS treats marriage as a significant life event, which means your tax situation changes whether you’re ready for it or not. For many couples, especially dual-income earners, missing these changes can mean a surprise tax bill in April.

The good news is that many of these issues are straightforward to address now, before the year ends. Handling them proactively keeps you from scrambling in March or discovering problems when you file. Here’s what you need to know.

Your filing status just changed, even if nothing else did

Your marital status on December 31st determines your filing status for the entire tax year. Even if you get married later this year, you’ll file as married for 2026. This single change affects your tax brackets, standard deduction, and eligibility for certain credits, which is why it matters far more than most couples realize.

For most married couples, filing jointly is the right move. You’ll benefit from wider tax brackets, a higher standard deduction, and access to valuable credits like the child tax credit and education credits that may not be available if you file separately. Filing jointly also simplifies your return and often results in a lower overall tax bill.

However, there are situations where married filing separately deserves consideration. If one spouse is pursuing income-driven repayment on federal student loans, filing separately can keep that spouse’s income lower on their individual return, which directly lowers their monthly payment obligation. Similarly, if one spouse has significant liability concerns or anticipates collection issues, filing separately can provide a layer of protection. These scenarios are nuanced, and the decision hinges on your specific circumstances. Before you choose to file separately, talk to your TBC advisor. The tax savings or liability protection may be real, but so are the downsides you might not see coming.

The withholding problem no one warns you about

Once your filing status is settled, the next thing to address is your withholding. And for two-income couples, this is where the most expensive surprises tend to hide.

Federal income tax is a pay-as-you-go system. Your employer withholds tax from each paycheck based on the information you provide on Form W-4, and the default withholding tables were designed with a single income in mind. When two earners file jointly, their combined income gets taxed at rates that reflect the full household total, but each employer is only withholding based on one salary in isolation.

Here’s what that looks like in practice: if you each earn $70,000, your household income is $140,000. The marginal rate that applies to the top portion of $140,000 is higher than what either employer assumed when calculating withholding for a $70,000 earner on their own. Unless you both update your W-4s to account for this, you will likely end up owing money next April.

The IRS has a free withholding estimator at that walks through this calculation. It takes about ten minutes and tells you exactly how much additional withholding to request on each spouse’s W-4. Federal underpayment penalties are modest but entirely avoidable, and discovering a large tax balance due on April 15th is a stressful way to start a marriage.

One additional note for couples with self-employment income or significant non-W-2 earnings: estimated quarterly payments may also need to be revisited. Underpaying throughout the year can trigger penalties even if you settle the full balance when you file.

Update your name and address in the right order

If you changed your name after marriage, the Social Security Administration needs to hear about it before you file your tax return. Your name on the return must match what is on file with Social Security. A mismatch will delay your refund and can generate a notice that takes time and paperwork to resolve.

The fix is straightforward: file Form SS-5 with the SSA to update your records. Do this first, then update your name with your employer for W-2 purposes.

Address changes are simpler. If you moved, file Form 8822 with the IRS to update your address on file. This is not just administrative tidiness. Notices, refund checks, and correspondence go to the address the IRS has on record. If a notice sits undelivered at an old address, response deadlines keep running regardless.

Healthcare coverage gets more complicated

Marriage is a qualifying life event that allows both spouses to make mid-year changes to employer-sponsored health plans. That flexibility is valuable, but the decisions that follow it have real tax implications.

If you both carry employer-sponsored coverage, consider whether it makes more financial sense to consolidate onto one plan or maintain separate coverage. The answer depends on the quality and cost of each plan, but do not overlook the tax treatment of premiums. Employer-paid premiums are excluded from your taxable income. If one spouse’s employer offers a significantly better or cheaper plan, consolidating may reduce your combined tax liability in addition to simplifying your coverage.

If either spouse has a Health Savings Account (HSA), marriage changes the contribution limits and household eligibility rules in ways that are easy to mishandle. HSA eligibility requires enrollment in a High Deductible Health Plan (HDHP). If one spouse moves to a non-HDHP plan, they can no longer contribute to their HSA going forward, and the timing of that change matters for calculating the annual contribution limit. Excess HSA contributions carry a 6% excise tax, so getting this right before year-end is worth a quick review.

Dependents: who claims whom, and what changes

If either spouse has children from a prior relationship, the dependency picture becomes more layered. Dependency exemptions have been eliminated under current law, but the child tax credit, the child and dependent care credit, and head-of-household filing status all hinge on who qualifies as a dependent on whose return.

Generally, the custodial parent claims the child unless there is a written agreement or court order directing otherwise. That arrangement may have worked cleanly when each parent filed as a single individual, but it interacts with your new joint return and your spouse’s income in ways that can affect credit eligibility. The child tax credit, for instance, phases out at higher income levels. Adding a second income to the household may reduce or eliminate credits that were previously available.

If your spouse has no children but you do, updating your W-4 to reflect dependent-related credits is one of the withholding adjustments that often gets missed in the transition.

A note on state taxes

This article focuses on federal taxes, but your state may have its own wrinkles. Some states do not conform to federal filing status rules. A small number of states require or allow separate returns regardless of federal treatment. If you moved to a new state in connection with your marriage, you may have a part-year residency situation on both state returns. These scenarios are worth confirming before you assume your federal approach carries over cleanly.

What to do now

The adjustments covered here are time-sensitive because withholding corrections and benefits elections need to happen before year-end to affect your current-year return. Waiting until you sit down to file in February or March means absorbing any underpayment consequences rather than preventing them.

Getting these details right in year one sets a much cleaner foundation for everything that follows. If you have questions about what you need to do contact your TBC Advisor to help you to work through it.