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  • Noelle Merwin
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Will Your Disability Benefits Be Taxable? Understanding the Rules
Will Your Disability Benefits Be Taxable? Understanding the Rules 266 266 Noelle Merwin

Disability insurance is a valuable benefit provided by many employers. It replaces a portion of the insured person’s income — typically 45% to 65% of pre-disability earnings — after a specified waiting period that starts when the person becomes disabled (as defined by the policy’s terms). Whether you’re just beginning to receive disability benefits or you’re evaluating your long-term financial security, it’s important to understand the tax implications of these benefits.

Payment of premiums

Taxability of disability insurance benefits usually hinges on who paid the premiums. If your employer paid the premiums, then payouts from the policy generally will be taxed to you just as if the income were paid directly to you by your employer. If you paid the premiums, the payments you receive generally won’t be taxable.

Even if your employer arranges for the coverage (in other words, it’s a policy made available to you at work), as long as you pay the premiums, the benefits generally won’t be taxable. For these purposes, if the premiums are paid by your employer but the amount paid is included in your taxable income from work, the premiums will be treated as paid by you.

The rules in action

Let’s say your salary is $1,500 a week ($78,000 a year). Under a disability insurance arrangement made available to you by your employer, $20 a week ($1,040 annually) is paid on your behalf by your employer to an insurance company. Your Form W-2 reports $79,040 in income as your wages for the year ($78,000 paid to you plus $1,040 in disability insurance premiums). Under these circumstances, the insurance is treated as paid for by you. If you become disabled and receive benefits under the policy, the benefits won’t be taxable income to you.

Now assume that only $78,000 is reported on your W-2 as your wages for the year because your employer treats the amount paid for the insurance coverage as excludable under the rules for employer-provided health and accident plans or because the coverage is paid through a cafeteria plan. In this case, the insurance is treated as paid for by your employer. If you become disabled and receive benefits under the policy, the benefits will be taxable income to you.

Special rules apply if there’s a permanent loss (or loss of the use) of a part or function of the body or a permanent disfigurement.

Other disability benefits

If disability income is paid directly to you by your employer, rather than by an insurance company, it’s generally taxable to you just as your ordinary pay would be. Taxable benefits are also subject to federal income tax withholding. However, depending on your employer’s disability plan, these benefits might not be subject to Social Security tax.

Different rules apply to the tax treatment of Social Security Disability Insurance (SSDI) benefits. SSDI benefits are taxed under the same rules that apply to Social Security benefits. Depending on your income and filing status, some of your SSDI benefits may be taxable.

More considerations

The tax treatment of disability benefits can have a major impact on what you’ll end up with in your pocket. So it’s important to consider taxes when determining how much disability coverage you need. Keep in mind that state tax treatment of disability benefits varies.

If you’re paying the premiums, you have to replace only your “after tax” (take-home) income because your benefits won’t be taxed. But if your employer is paying the premiums, you’ll lose a percentage of your benefits to taxes and may need more coverage. We can help you assess how much disability coverage you need depending on the tax consequences and other factors, contact your Smolin representative.

  • Noelle Merwin
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Fraud in the Shadows: Uncovering Embezzlement and Asset Misappropriation in Business Disputes
Fraud in the Shadows: Uncovering Embezzlement and Asset Misappropriation in Business Disputes 266 266 Noelle Merwin

Welcome back to Follow the Money. Over the past few months, we’ve gone over hidden transactions, overstated assets, and how value gets quietly shifted in shareholder and partnership disputes. This time, we’re focusing on a type of fraud that shows up far more often than people realize, usually at the hands of someone who was trusted for years: embezzlement and asset misappropriation.

These schemes tend to unfold slowly. A partner starts paying personal expenses out of the business. A long-time bookkeeper creates a vendor “just to get through a tough month.” An executive begins moving funds into a fictitious side entity because they believe the company “owes them.” In closely held businesses, especially family-run or partnership-based operations, the lack of formal controls gives these problems room to grow. By the time anyone notices, the losses may span years, and disputes may already be underway.

Forensic accounting becomes crucial at that point. Uncovering and properly investigating the embezzlement schemes helps prove breaches of loyalty and fiduciary duty, quantify damages, and determine how money moved and who benefited.

Why Embezzlement Often Goes Undetected

Embezzlement schemes work because they rely on three predictable ingredients: trust, access, and opportunity. And in the middle of business disputes, especially dissolutions or partner fallouts, suspicions escalate. One side begins to question unusual transactions, missing cash, or lifestyle changes that don’t match.

Some motivations we’ve seen in real matters include:

  • The majority owners extracting value before a forced buyout
  • Partners using side companies to divert revenue or inflate expenses
  • Employees quietly approve payments to entities they control

These aren’t always dramatic schemes you would see in the movies. More often, they’re a series of small, repeated acts that add up to significant financial losses over time.

How Embezzlement Typically Happens

Drawing on what regularly appears in litigation, several patterns stand out:

  1. Billing Schemes

One of the most common and costly categories. These include fictitious vendors, fake invoices, inflated charges, or kickback arrangements.

For example, a manager sets up a shell company and submits invoices for “consulting services” that never occurred.

  1. Check and Payment Tampering

Unauthorized checks, altered payees, and unapproved wire transfers. This type of fraud is especially prevalent in smaller businesses where one person controls the payment process.

  1. Payroll Schemes

Ghost employees, manipulated hours, and unauthorized bonuses—often by those responsible for payroll processing.

  1. Skimming and Cash Larceny

Cash taken before it is entered into the accounting system. Hard to detect without strong controls or frequent reconciliation.

  1. Expense Reimbursement Abuse

Employees masking personal spending as business-related, or submitting expense reports for inflated or fictitious expenses.

  1. Theft of Non-Cash Assets

Inventory or equipment disappearing over time—sometimes explained away as “breakage” or “shrinkage.”

In family-owned or partner-run companies, these schemes often overlap with related-party activity, blurring the line between personal and business spending.

How Forensic Accountants Uncover the Scheme

The investigative process is rarely a single breakthrough. Instead, it’s a combination of examining patterns, inconsistencies, and the way money actually moved:

  1. Transaction-Level Review

Reviewing every transaction that matters. Bank statements, ledger entries, and supporting documents are compared line by line.

  1. Vendor and Payroll Analytics

Looking for duplicate vendors, unusual addresses, missing tax information, or invoices that fall just below approval thresholds.

  1. Anomaly and Pattern Detection

Tools like Benford’s Law can flag unusual digit patterns in large datasets, but the real insight often comes from understanding the context behind those anomalies.

  1. Funds Tracing

Following the flow of money using structured methods to show how funds were moved, commingled, and ultimately used.

  1. Lifestyle Assessments

When someone’s spending outpaces their salary, the explanation usually resides in the financial records.

  1. Digital Forensics

Audit logs, email records, metadata, and even deleted documents often reveal deliberate attempts to conceal illicit activity.

  1. Interviews and Third-Party Confirmation

Speaking with employees, requesting vendor confirmations, or subpoenaing bank records often clarifies the story.

How These Findings Shape Litigation

Uncovering embezzlement changes the direction of a case:

  • It supports claims of fiduciary breach, oppression, or unjust enrichment.
  • It identifies how assets were misappropriated.
  • It justifies the removal of the wrongdoer or dissolution of the business.
  • In some situations, the case becomes criminal.

Early forensic involvement also helps preserve evidence—something that becomes critical if parties begin deleting data or changing access rights.

Preventing Problems Before They Start

While no system is perfect, several basic steps dramatically reduce risk:

  • Segregation of duties
  • Dual approvals for payments
  • Regular reconciliations
  • Surprise audits
  • Anonymous reporting channels

It is important to act quickly. Preserve digital records, secure financial data, and engage forensic experts before documents are altered or destroyed.

Embezzlement doesn’t usually begin with one large theft—it grows from repeated acts hidden in routine transactions. But the traces are always there. When you follow them carefully, the real story becomes clear.

What red flags have you come across in your own work?

AUTHOR BIO:

Charles “CJ” Pulcine, CPA, CFF is a Manager in Smolin’s Forensic and Valuation Services practice, specializing in forensic accounting, fraud investigations, and litigation support. He is a licensed Certified Public Accountant in New Jersey and holds the Certified in Financial Forensics (CFF) credential.

With more than seven years of experience in forensic accounting, financial audits, and fraud investigation, CJ works with businesses and legal counsel on financial fraud investigations, commercial litigation support, matrimonial litigation, business valuation analyses, and shareholder disputes. His work focuses on uncovering hidden transactions, tracing assets, and analyzing financial misconduct.

As a member of Smolin’s forensic team, CJ supports attorneys throughout the litigation lifecycle, including asset tracing, damages analysis, and preparation of financial evidence for mediation, depositions, and trial. He practices out of Smolin’s Red Bank, New Jersey office.

 

 

 

  • Noelle Merwin
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Running a Business Solo? Here’s What You Need to Know About Taxes
Running a Business Solo? Here’s What You Need to Know About Taxes 266 266 Noelle Merwin

Many small businesses start out as sole proprietorships. This structure is simple and inexpensive to establish and maintain — and it gives the owner direct access to profits without having to take formal distributions. But it also makes your taxes more complicated than when you were a W-2 employee. Here are some federal tax issues to consider if your business operates as a sole proprietorship.

Reporting income and expenses

You’ll report income and expenses from your business activities on Schedule C of your personal return (Form 1040). The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income, not as itemized deductions. If you have losses, they’ll generally be deductible against your other income, subject to special rules related to hobby losses, “excess” business losses incurred by noncorporate taxpayers, passive activity losses and losses from activities in which you weren’t “at risk.”

Sole proprietors may be eligible for certain deductions that generally aren’t available to other individual taxpayers. For instance, you may qualify for an above-the-line self-employed health insurance deduction for premiums paid for medical, dental and qualifying long-term care coverage, subject to certain limitations. This means your deduction for medical insurance won’t be subject to the rule that limits itemized deductions for medical expenses.

In addition, you may be entitled to deduct home office expenses if:

  • A home office is your principal place of business (including when you perform management or administrative tasks there and have no other fixed place to perform them),
  • You use your home as a place to meet or deal with customers, clients or patients in the normal course of business, or
  • You store inventory or product samples at home.

In general, to qualify, the area must be used regularly and exclusively for business purposes.

The home office deduction may include an allocable part of mortgage interest or rent, insurance, utilities, repairs, maintenance and, if you own the home, depreciation. Alternatively, you can use a simplified method based on the square footage of the qualifying space. You may also be able to deduct travel expenses from your home office to another work location.

Be sure to keep complete records of your income and expenses. Proper documentation is needed to claim all the tax breaks to which you’re entitled. Certain expenses, such as automobile, travel, meals, and home office expenses, require extra attention because they’re subject to special recordkeeping rules or deductibility limits.

Claiming the QBI deduction

Another special tax break that you might qualify for as a sole proprietor is the Section 199A qualified business income (QBI) deduction. It generally equals 20% of QBI, not to exceed 20% of taxable income. QBI generally is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. QBI doesn’t include certain investment items or reasonable compensation paid to an owner for services rendered to the business.

This deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the QBI deduction even if you don’t itemize deductions and instead claim the standard deduction.

One word of caution: The QBI deduction is subject to additional limits at higher income levels. For 2026, these limitations generally begin to apply when taxable income (calculated before any QBI deduction) exceeds $201,750 ($403,500 for married couples filing jointly). For 2026, these limitations are fully phased in once taxable income exceeds $276,750 ($553,500 for joint filers). Contact us to learn more about the limitations that apply to your situation.

The One Big Beautiful Bill Act (OBBBA) made the QBI deduction permanent. Starting in 2026, the OBBBA also expands the income ranges over which the limitations phase in, potentially allowing larger deductions for some taxpayers. And it provides a new minimum deduction of $400 for taxpayers who materially participate in an active trade or business if they have at least $1,000 of QBI from it. The minimum deduction will be annually adjusted for inflation after 2026.

Paying self-employment taxes

One downside of owning your own business is that you must pay self-employment taxes. These taxes are the equivalent of federal payroll taxes for employees, but self-employed people must pay both the employer’s and employee’s share of them. They’re imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.

For 2026, you must pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment up to $184,500, and Medicare tax only at a 2.9% rate on the excess. An additional 0.9% Medicare tax is imposed on self-employment income in excess of $250,000 for joint filers, $125,000 for married taxpayers filing separate returns and $200,000 in all other cases. The additional Medicare tax threshold isn’t adjusted for inflation.

Establishing a tax-advantaged retirement plan

You might also want to consider setting up a qualified retirement plan. The advantages are that amounts contributed to it are deductible at the time of the contributions and aren’t subject to income tax until they’re withdrawn.

One option is a Simplified Employee Pension (SEP) plan, which requires minimal paperwork. You generally can set up a SEP and make deductible contributions for the tax year as late as the due date of your income tax return for the year, including extensions. The contribution amounts are discretionary, and the annual limits are high. But, if you have employees, they generally must be included in the plan, provided they work enough hours and meet other qualification requirements.

If you don’t establish a qualified retirement plan, you may still be able to contribute to a traditional IRA. But your annual contribution limit will generally be significantly lower.

Making quarterly estimated payments

The U.S. tax system is considered “pay as you go.” So, you’ll probably have to make estimated tax payments each quarter. Estimates should include both federal income tax and self-employment taxes. Estimated payments are generally calculated using Form 1040-ES.

Quarterly payments are generally due on April 15, June 15 and September 15 of the current year and January 15 of the following year. If a due date falls on a weekend or legal holiday, the deadline generally moves to the next business day. Paying enough by each deadline is critical; if you fall behind, you’ll likely owe interest and penalties.

Applying for an EIN

Sole proprietors don’t automatically need an employer identification number (EIN). You can generally use your Social Security number for federal tax purposes — unless you hire employees. You might also need an EIN if your business:

  • Owes employment or excise taxes,
  • Withholds certain taxes on payments to a nonresident alien,
  • Establishes certain retirement plans, or
  • Changes its legal structure, such as incorporating or forming a partnership.

Additionally, you might consider obtaining an EIN voluntarily for banking or administrative purposes. An EIN is available at no cost through the IRS website. To apply, you’ll need to provide identifying information, including a valid Social Security number or other taxpayer identification number, and details about the business. Eligible U.S. applicants generally receive the EIN immediately after completing the online application. You can also submit Form SS-4 by fax or mail.

We can help

Even though your business may be small, tax compliance and planning are a big deal. These are just highlights of federal income tax issues sole proprietors face. State and local income, sales, payroll, and other tax requirements may also apply. Contact your Smolin representative if you’d like additional information regarding the tax aspects of your business.

 

  • Noelle Merwin
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NYC Pied-à-Terre Tax: What Property Owners Need to Know
NYC Pied-à-Terre Tax: What Property Owners Need to Know 266 266 Noelle Merwin

New York City has issued notices regarding the new Non-Primary Residence Surcharge, commonly referred to as the Pied-à-Terre (“foot on the ground”) Tax. The surcharge applies to certain non-primary residences located in New York City. In some cases, notices were also sent to New York City individuals whose properties qualify as their primary residence. Recipients of these notices who occupy the real estate as their primary residence or whose market value is less than the thresholds need to:

Response Deadline & Required Actions:

  • The response deadline has been extended to September 18, 2026.
  • The surcharge generally applies to non-primary residences with a market value of $5 million or more for 1–3 family homes and $1 million or more for condominiums and cooperative apartments.
  • Clients who receive a notice should log in to nyc.gov/npsurcharge and provide supporting documentation (tax return, driver’s license, or other acceptable proof) demonstrating that the property is their primary residence.

Additional information and surcharge rates are available on the New York City website: NYC Non-Primary Residence Surcharge Information

If you have questions regarding applicability or response requirements, please contact your Smolin representative.

  • Noelle Merwin
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IRS Scam Alert: Protect Your Information
IRS Scam Alert: Protect Your Information 266 266 Noelle Merwin

We want to make you aware of a new scam targeting taxpayers that involves criminals impersonating the Internal Revenue Service (IRS). Scammers are sending fraudulent letters, emails, and text messages claiming recipients must enroll in a so-called “Digital Asset Compliance Portal” before a specified deadline. These communications may include QR codes or links designed to steal sensitive personal and financial information.

Please remember:

  • Do not scan QR codes from unsolicited letters, emails, or text messages.
  • Do not click on links or provide personal information in response to unexpected communications claiming to be from the IRS.
  • Be cautious of any message that creates a sense of urgency or threatens penalties if immediate action is not taken.
  • Always verify tax-related communications directly through official IRS channels.

The IRS has warned taxpayers about this and similar impersonation schemes. Fraudsters frequently use fake notices, QR codes, and websites to obtain sensitive information.

If you receive a suspicious communication claiming to be from the IRS regarding a “Digital Asset Compliance Portal” or any other tax matter, do not respond. Instead, contact your Smolin advisor for guidance or visit the official IRS website for information about current tax scams.

For more information, visit the IRS Tax Scams page: https://www.irs.gov/newsroom/tax-scams-consumer-alerts.

Thank you for staying vigilant and helping protect your personal and financial information.

  • Noelle Merwin
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Sending a Child to College This Fall? Don’t Overlook These Valuable Tax Breaks
Sending a Child to College This Fall? Don’t Overlook These Valuable Tax Breaks 266 266 Noelle Merwin

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

Claim tax credits

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

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

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

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

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

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

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

Take advantage of tax-free 529 plan and ESA distributions

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

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

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

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

Think twice before tapping your retirement accounts

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

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

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

Be aware of scholarship tax treatment

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

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

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

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

Advise grandparents and others to pay tuition directly

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

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

Consider your specific situation

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

  • Noelle Merwin
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Before You Donate: Know the Tax Rules
Before You Donate: Know the Tax Rules 266 266 Noelle Merwin

Have you already made contributions to charity this year? Are you considering making more between now and year end? If so, it’s important to be familiar with the tax rules for different types of donations so you can maximize your tax benefit or at least avoid finding out at tax filing time that your charitable deductions are smaller than you expected.

For example, be aware that a new limit goes into effect this year: a 0.5% floor on the charitable deduction for itemizers. This generally means that only charitable donations in excess of 0.5% of your adjusted gross income (AGI) will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible.

Let’s take a look at some of the other significant rules, limits and changes affecting different types of donations.

Cash contribution

When you make a cash or cash-equivalent contribution to a qualified charitable organization, if you don’t itemize deductions, you can claim the new charitable deduction for nonitemizers of up to $1,000 ($2,000 for married couples filing jointly). Only cash donations qualify.

If you do itemize deductions, you can generally deduct the full amount of cash contributions once you’ve surpassed the new 0.5% floor. But, your annual deduction is generally limited to 60% of your AGI. Any excess may be carried forward for up to five years.

Be aware that the IRS imposes strict recordkeeping rules for cash contributions. For instance, for cash donations of $250 or more, you must obtain a contemporaneous written acknowledgment from the charity before filing your income tax return.

Donating property

Several special rules apply to charitable gifts of property. For starters, property donations are subject to lower annual deduction limits (which we’ll detail shortly).

Donating appreciated property you’ve held for more than one year can provide a significant tax benefit. This applies to assets that would have qualified for long-term capital gains tax rates if sold instead of donated.

In this case, you can deduct the property’s current fair market value. Thus, any appreciation in value while you owned the property will be untaxed. Examples of eligible property include publicly traded securities and mutual funds. However, your annual deduction for such donations is typically limited to 30% of AGI.

For tangible property, how the charity uses the property may affect the amount of your deduction. For example, if you donate a car, your deduction is generally limited to the amount the charity receives from its sale. An exception may apply if the charity uses the vehicle to support its mission. But a 50% of AGI limit typically applies to deductions for donations where you can’t deduct the fair market value, rather than the 30% limit.

These are just a few examples of rules that apply to deductions for property donations. Contact us to find out the rules for specific property you’re considering giving to charity.

Making quid pro quo contributions

Generally, if you receive a benefit in return for making a donation, your deduction amount is reduced. For such a “quid pro quo contribution,” the charity must provide a good-faith estimate of the goods and services you received. You can deduct the difference between the amount you donated and the value of the benefit you received — nothing more.

For example, let’s say you attend a fundraising dinner cruise costing $300. If the charity values the meal and boat ride at $100 per person, your deduction is limited to $200. However, most low-cost items, featuring the charity’s logo, don’t have to be subtracted from your deduction.

Volunteering

You can’t deduct the value of the time you spend helping a charity. But you can write off related out-of-pocket expenses, such as supplies and mileage, if you itemize deductions. The deductible mileage rate for charitable miles driven is 14 cents per mile.

Travel and lodging expenses can qualify, such as if you attend a convention as a delegate for the charity. However, travel expenses can’t be deducted if the trip is merely a disguised vacation.

Achieving your goals

If you itemize deductions, charitable donations can be a powerful tax-saving tool. But, as you can see, there’s much to consider as you plan your giving for the rest of the year. We can help you create a charitable giving strategy for the remainder of 2026, contact your Smolin representative.

  • Tonni
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Vitolo & Associates Joins Smolin, Expanding Tax and Advisory Capabilities
Vitolo & Associates Joins Smolin, Expanding Tax and Advisory Capabilities 150 150 Tonni

Red Bank, NJ — July 8, 2026 — Smolin, Lupin & Co., LLC (Smolin), a leading advisory, tax, and accounting firm, announces that Vitolo & Associates has joined the firm, marking a strategic alignment between two companies dedicated to delivering exceptional client service.

Vitolo & Associates brings deep tax expertise and a well-established Client Accounting and Advisory Services (CAAS) practice, with capabilities spanning accounting, bookkeeping, advisory, and controllership support. This addition enhances Smolin’s ability to provide clients with expanded resources, advanced technology, and a broader suite of services while maintaining the personalized approach they value.

As part of the transition, clients of Vitolo & Associates will continue working with their trusted advisors, now supported by the collective strength and infrastructure of Smolin.

“Welcoming Vitolo & Associates marks an exciting step forward for Smolin,” said Paul Fried, CPA, CEO of Smolin. “We are building a firm designed for the future, where strong advisory relationships are at the center of everything we do. This combination expands our resources and allows us to deliver more strategic, forward-looking guidance that helps our clients grow, adapt, and succeed in a changing environment.”

Joining Smolin from Vitolo & Associates are:

  • Michael Vitolo, CPA, Member of the Firm
  • Michael Vincent, CPA, Tax Manager
  • Rachel Baldino, CAAS Bookkeeper
  • Shelley Carlock, CPA, CAAS Senior Accountant
  • Daisy Haffner, CAAS Bookkeeper
  • Carla Oliveira, CAAS Bookkeeper

This combination reflects Smolin’s continued growth strategy and commitment to strengthening its advisory and accounting capabilities to better serve clients across industries.

  • Noelle Merwin
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IRS Provides Gift Tax Filing Relief for Certain Trump Account Contributions
IRS Provides Gift Tax Filing Relief for Certain Trump Account Contributions 266 266 Noelle Merwin

The IRS has issued Revenue Procedure 2026-25, providing gift tax reporting relief for certain individuals who contribute to Trump Accounts established for eligible children. Under the new safe harbor, qualifying contributions will be treated as completed gifts that are not future interests in property and that qualify for the annual per donee gift tax exclusion. This means that, if all requirements are met, donors will not need to file a federal gift tax return solely because they contributed to a Trump Account.

As a refresher, Trump Accounts are a new type of individual retirement account created under IRC §530A for eligible children. Because account beneficiaries generally cannot access the funds during the account’s “growth period,” there was concern that contributions could be treated as future-interest gifts. Future-interest gifts generally do not qualify for the annual gift tax exclusion and can require Form 709 reporting, even when no tax is ultimately due. The new IRS guidance is intended to reduce that compliance concern for qualifying donors.

To qualify for the safe harbor,

  1. The donor must be an individual.
  2. The donor’s only taxable gifts for the year must be cash, check, money order, or electronic funds transfer contributions to one or more Trump Accounts and each contribution must be made before the calendar year in which the account beneficiary turns age 18.
  3. The donor’s total gifts to each beneficiary, including Trump Account contributions, must not exceed the annual gift tax exclusion amount, which is $19,000 for 2026.
  4. Contributions do not create gift or generation-skipping transfer tax liability after applying the donor’s available exemptions.
  5. No gift tax return is otherwise required or filed for that year. For example, if a donor makes other reportable gifts or needs to make certain GST elections, Form 709 may still be required.

For families, grandparents, and others considering contributions to Trump Accounts, this guidance removes a significant reporting concern—but the rules are technical. Before making larger gifts or coordinating Trump Account contributions with other estate or gift planning, please consult your Smolin professional to confirm whether the safe harbor applies.

 

  • Noelle Merwin
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Beyond the Balance Sheet: Tracing True Value in Shareholder and Partnership Battles
Beyond the Balance Sheet: Tracing True Value in Shareholder and Partnership Battles 266 266 Noelle Merwin

Welcome back to Follow the Money. In the last article, we dug into how inflated assets and hidden liabilities can distort a company’s financial picture. This month, we’re shifting to a problem that shows up just as frequently in shareholder and partnership disputes but is often much harder to see at first glance: the value that exists outside the balance sheet. Value that’s moved, suppressed, or withheld long before a case ever lands in court.

In closely held companies, disputes can quickly become close and personal. Minority shareholders feel squeezed out. Partners stop communicating. Financial statements arrive late or not at all. And while the official records may look stable or even healthy, the economic reality behind them often tells a very different story. That’s where forensic accountants step in, not as advocates, but as the professionals responsible for figuring out what actually happened.

The Balance Sheet Rarely Tells the Full Story

GAAP financials have their own place and time, but they don’t necessarily reflect how owner‑managed companies actually operate. In the disputes I’ve worked on, it’s common to see:

  • Minority interests are undervalued due to overly aggressive discounts.
  • Revenue or intellectual property is diverted to related entities owned by the adversary, who is also the controlling party.
  • Controlling shareholders are taking compensation or perks that reduce profits and benefit them personally to the unfair disadvantage of other shareholders.
  • Minority interests are denied information or fed selectively incomplete data.

In many jurisdictions, courts award fair value in oppression cases and not heavily discounted value. That makes it critical to rebuild what the ownership stake should have been worth without the controlling influence.

Red Flags That Something Doesn’t Add Up

Here are patterns that often indicate value is being stifled:

1. Limited or Delayed Access to Information

Records show up late, are incomplete, or key schedules are “missing.” This experience is usually the first sign that something needs closer scrutiny.

2. Unequal Financial Benefits

Majority owners pay themselves unusually high salaries or bonuses, taking shareholder loans, or using company funds for personal expenses, all while minority owners are denied distributions.

3. Related‑Party Deals

Rents paid to a building owned by the majority shareholder, management fees to an affiliate, or contracts directed to side commonly controlled entities. These maneuvers can quietly drain the company’s value.

4. Suppressed Dividends Despite Strong Results

Profits keep accumulating on the books, but somehow never make their way to minority owners as dividends.

5. Business Opportunities Redirected Elsewhere

A new contract or customer is assigned to a different entity owned by the controlling group, leaving the company’s reported revenue flat.

6. Financial Patterns That Don’t Match the Market

When revenue stalls while the industry grows, or when “consulting expenses” spike out of nowhere, it’s worth asking why.

Not all of these are classic fraud and they can be smaller, ongoing breaches of trust that nevertheless cause significant economic harm over time.

How We Reconstruct the Truth Behind the Numbers

Revealing the company’s real economic picture requires combining valuation methods with investigative accounting.

1. Normalizing Earnings

We adjust the historical income statement to remove one-time events, reverse excessive owner compensation, and correct transactions made at below‑ – or above-market rates.

2. Tracing Cash Flows

This step goes beyond reviewing summarized statements. We track money movements across accounts, identify hidden transfers and side accounts, and reconcile discrepancies between bank activity, tax returns, and internal records.

3. Applying Adjusted Valuation Approaches

Traditional valuation models (income, market, asset) get combined with forensic adjustments that quantify the impact of:

  • diverted profits
  • suppressed dividends
  • related‑party transactions
  • removed corporate opportunities

4. Reviewing Lifestyle and Net Worth

When majority owners claim modest compensation but show significant lifestyle and personal asset growth, that’s a financial anomaly worth exploring.

5. Third‑Party Verification

We often confirm vendor relationships, customer contracts, property ownership, and related‑entity activity. Independent sources often break a case open.

Clear visual summaries such as cash flow maps or adjusted earnings models often help the triers of fact better understand the financial picture than pages of spreadsheets.

How These Findings Shape Litigation Outcomes

Once the true economic picture is reconstructed, the impact can be significant:

Claims of shareholder oppression gain support when the financial harm becomes quantifiable.
Buyouts are recalculated at fair value rather than discounted figures.
Damages for lost profits, diverted opportunities, or reduced distributions become easier to demonstrate.

Many cases settle once forensic analysis reveals discrepancies that the controlling party cannot explain away.

In many closely held companies, adjusting for these issues can increase the true value of a minority equity interest by 20% to 50%.

Advice for Shareholders, Partners, and Attorneys

· Document concerns early—emails, tax filings, and financial statements all matter.

· Preserve records before a dispute escalates.

· Don’t rely solely on the numbers presented by the controlling party.

· In litigation, bringing in forensic expertise after discovery deadlines makes the investigative work harder.

A balance sheet can only tell you so much. The real story lies in the flow of money—often hidden in places that traditional financial statements don’t capture or present.

What signs of value suppression have you seen in the matters you’ve handled?

AUTHOR BIO:

Charles “CJ” Pulcine, CPA, CFF is a Manager in Smolin’s Forensic and Valuation Services practice, specializing in forensic accounting, fraud investigations, and litigation support. He is a licensed Certified Public Accountant in New Jersey and holds the Certified in Financial Forensics (CFF) credential.

With more than seven years of experience in forensic accounting, financial audits, and fraud investigation, CJ works with businesses and legal counsel on financial fraud investigations, commercial litigation support, matrimonial litigation, business valuation analyses, and shareholder disputes. His work focuses on uncovering hidden transactions, tracing assets, and analyzing financial misconduct.

As a member of Smolin’s forensic team, CJ supports attorneys throughout the litigation lifecycle, including asset tracing, damages analysis, and preparation of financial evidence for mediation, depositions, and trial. He practices out of Smolin’s Red Bank, New Jersey office.

 

 

 

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