Financial Planning

  • Noelle Merwin
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Hit the Jackpot? Don’t Forget About the Tax Bill
Hit the Jackpot? Don’t Forget About the Tax Bill 266 266 Noelle Merwin

It’s easy to focus on the excitement of a big win. But federal tax law generally treats lottery prizes, gambling winnings and other awards as taxable income. Knowing the basic rules can help you avoid surprises when you file your 2026 return next year.

Lottery prizes

Of course, the chances of winning big in the lottery are slim. But many people win smaller, yet not insignificant, amounts that can increase their tax liability — in some cases, substantially.

Lottery winnings are taxable for federal purposes. This is the case for both cash prizes and the fair market value of noncash prizes, such as a car or vacation. Depending on the amount won and your other income, the winnings could push you into a federal tax bracket as high as 37%. Your winnings may also be subject to state income tax.

You must report lottery winnings as income in the year, or years, you actually receive them. In the case of noncash prizes, this would be the year you receive the prize. With cash, if you take the winnings in annual installments, you report each year’s installment as income for that year.

Gambling winnings

For federal tax purposes, it doesn’t matter if you win at the casino, a bingo hall or elsewhere. You must report 100% of your gambling winnings as taxable income. They’re reported on an “Other income” line of your 1040 tax return. To measure your winnings on a particular wager, use the net gain. For example, if a $50 bet at the racetrack turns into a $150 win, you’ve won $100, not $150.

You must separately keep track of losses. They may be deductible, but only if you itemize deductions. Therefore, if you take the standard deduction, you can’t deduct gambling losses.

In addition, you can deduct only 90% of gambling losses, and only up to the amount of gambling winnings. So if your losses exceed your winnings, you might be able use losses to “wipe out” gambling income — but you can’t offset other income with the losses.

Maintain good records of your losses during the year. Keep a detailed diary in which you note the date, place, amount and type of loss, as well as the name of anyone who was with you. Save all documentation, such as checks or credit slips.

Note: Different rules apply to people who qualify as professional gamblers.

Withholding and estimated tax payments

If you win more than $5,000 in the lottery or certain types of gambling, 24% must be withheld for federal tax purposes. You’ll receive a Form W-2G from the payer (lottery agency, casino, etc.) showing the amount paid to you and the federal tax withheld. (The payer also sends this information to the IRS.) If state tax is withheld, that amount may also be shown on Form W-2G.

Because your federal tax rate can be up to 37%, which is well above the 24% withheld, the withholding may not be enough to cover your federal tax bill. Therefore, you may have to make estimated tax payments to cover the rest of the liability — and you might be assessed a penalty if you fail to do so.

Have you won big?

Lottery, gambling or other winnings can increase income taxes and create estimated tax obligations. (There might also be state and local tax consequences.) If the winnings are large enough, you may need to revisit your wealth management strategy and revise your estate plan. Please contact a Smolin representative if have questions. We’ll help you understand the tax impact and meet your tax obligations.

  • Noelle Merwin
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Could Your Business Be Ready for an IRS Audit?
Could Your Business Be Ready for an IRS Audit? 266 266 Noelle Merwin

IRS audit rates remain relatively low, but that’s little consolation if the IRS selects your return for an examination. Although most taxpayers will never face an audit, business owners often have more complex tax situations that can attract IRS attention. The good news is that with proper preparation, detailed records and professional guidance, you can make the process far less stressful.

Am I at risk for an IRS audit?

The IRS accepts most returns as filed. However, your return may be selected for examination because of discrepancies identified by IRS systems, unusual reporting patterns, information reported by third parties or, in some cases, random statistical sampling.

Business owners should remember that an IRS examination may not be limited to a business tax return. Many small businesses operate as sole proprietorships, partnerships or S corporations (or as limited liability companies taxed as one of those structures). For these entities, business income, deductions and credits flow through to the owners’ individual returns. As a result, IRS questions about business activities may arise during an examination of either a business return or an owner’s individual return.

While there’s no guaranteed way to eliminate your audit risk, the best way to manage an audit is to be prepared. Maintain organized records throughout the year, including invoices, receipts, bank statements, payroll records, canceled checks and other documentation supporting items reported on your tax returns. Keeping complete records in a central location, whether physical or electronic, can make responding to IRS inquiries much easier.

Which issues does the IRS target?

Some returns are more likely to attract IRS scrutiny than others. Common issues that may lead to questions include:

  • Significant inconsistencies between current and prior-year returns,
  • Income reported on a tax return that doesn’t match Forms W-2, 1099 or other information returns received by the IRS,
  • Gross profit margins or expense levels that differ substantially from similar businesses in the same industry,
  • Large or unusual deductions compared to income,
  • Repeated business losses, and
  • Mathematical errors or incomplete information on a return.

Certain deductions often receive closer scrutiny because they have strict substantiation requirements. Examples include deductions for vehicles, travel, meals and home offices.

Pass-through entities also present special audit risks. For example, the IRS may examine whether S corporation shareholder-employees are receiving reasonable compensation or whether owners have sufficient tax basis to claim losses and deductions. Proper documentation is essential in these areas.

How should I respond to an IRS notice?

If your return is selected for examination, you’ll generally be notified by mail. The IRS doesn’t initiate audits through email, text messages or social media. Be wary of unsolicited messages claiming to be from the IRS — these are likely scams.

Many audits involve a request for documentation supporting specific items reported on a tax return. In some cases, taxpayers may be asked to meet with an IRS representative at a local office. More complex examinations may involve a field audit conducted at the taxpayer’s home, business or representative’s office. However, most examinations are handled through correspondence rather than in-person visits.

If you receive an IRS notice, it will explain any discrepancies and give you time to respond. Carefully review the request and gather all documents relevant to the items in question. If records are missing, you’ll have to reconstruct the information using other available documentation.

If you’re selected for an audit, call us as soon as possible. By involving us early in the process, our experienced tax professionals can help you:

  • Understand the issues the IRS is examining,
  • Gather and organize the necessary records,
  • Communicate with the IRS on your behalf when appropriate, and
  • Respond to the examination efficiently and effectively.

In most situations, the IRS has three years after a return is filed to assess additional tax, though longer periods may apply in certain circumstances. Because examinations often occur well after a return has been filed, you should retain finished returns and any supporting documentation for the appropriate period. As a general rule, you should hold on to tax records for at least six years after they’re due or filed, whichever is later.

However, you should keep certain tax-related records longer. For example, keep records related to a bad debt deduction for seven years. And keep copies of your tax returns and other proof of filing indefinitely to document that you filed. (There’s no statute of limitations for the IRS to assess tax if you didn’t file a return or you filed a fraudulent one.)

Am I audit ready?

Don’t let the possibility of an audit keep you up at night. Most IRS examinations are routine and manageable when taxpayers maintain accurate, detailed records and respond promptly to IRS inquiries.

If you receive an IRS notice, we can help you prepare for an examination and represent your interests throughout the audit process. Or if you simply want to strengthen your recordkeeping and tax compliance processes, contact us to assess your audit readiness and identify opportunities for improvement.

  • Noelle Merwin
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Passing Down Wealth? Don’t Forget the GST Tax
Passing Down Wealth? Don’t Forget the GST Tax 266 266 Noelle Merwin

If your estate plan includes gifts, bequests or other transfers to grandchildren, great-grandchildren or other beneficiaries decades younger than you, the generation-skipping transfer (GST) tax deserves careful attention. Without proper planning, transfers that skip a generation can potentially trigger a significant federal tax in addition to gift or estate taxes.

GST tax rules at a glance

The GST tax is designed to prevent families from avoiding transfer tax at one or more generational levels. Generally, this tax applies to certain transfers to a “skip person.” A skip person may be a grandchild or another family member who’s two or more generations below the person making the transfer. An unrelated individual generally is considered a skip person if he or she is more than 37½ years younger than the transferor.

GSTs generally fall into three categories: direct skips, taxable distributions and taxable terminations. Depending on the circumstances, the GST tax may apply to an outright gift or bequest to a skip person, a distribution from a trust, or a termination of a beneficiary’s interest that leaves only skip persons with interests in the trust.

The GST tax rate is 40%. Fortunately, a $15 million GST tax exemption is available. It’s separate from the $15 million gift and estate tax exemption.

But under the annual gift tax exclusion, you can exclude from gift tax certain gifts of up to the annual exclusion amount — $19,000 per recipient for 2026 (twice that if your spouse elects to split the gift with you or you’re giving community property) — without using up any of your gift and estate tax exemption. And annual exclusion gifts are generally also exempt from the GST tax.

Beware of a few pitfalls

Automatic allocation rules for the GST tax exemption can reduce the risk that you’ll inadvertently fail to allocate it to GSTs. For example, the GST tax exemption generally will be automatically allocated to certain direct skips and to transfers to trusts that meet the definition of a “GST trust.”

Automatic allocation can be useful, but it doesn’t always produce the desired result. For example, depending on the trust’s beneficiaries and your estate planning objectives, the exemption may be allocated to a trust that has little chance of generating a GST tax, wasting your exemption.

To avoid this result — and preserve your exemption for transfers that are more likely to trigger GST taxes — elect to opt out of automatic allocation on a timely filed gift tax return. If you neglect to opt out, you may still be able to obtain relief from the IRS. Doing so allows you to make a late election so long as you can demonstrate that you acted reasonably and in good faith.

Another potential issue can arise when a trust has both skip-person and non-skip-person beneficiaries and the GST exemption has been allocated to only part of the trust. The trust then will have an “inclusion ratio” between zero and one.

A trust’s inclusion ratio refers to the portion of a trust’s assets that will be subject to the GST tax if a taxable event occurs. If you haven’t allocated any of your exemption to a trust, its inclusion ratio is 1.0. If the exemption protects a trust’s assets, its inclusion ratio is 0.0. So, if the inclusion ratio is, for example, 0.5, then only 50% of the distributions to skip persons will be exempt from the GST tax.

In some situations, it may be possible to divide, or sever, a trust into separate trusts so that one has an inclusion ratio of zero and the other has an inclusion ratio of one. This approach may make it easier to administer the trusts and direct GST-exempt assets toward skip persons.

Review your GST tax strategy regularly

If your estate plan includes multigenerational trusts or significant transfers to grandchildren or other younger beneficiaries, review your GST exemption allocation, trust provisions and previous gift tax returns periodically. We can help determine whether your current strategy is using the available exemption effectively and identify opportunities to minimize unnecessary GST tax exposure. Contact your Smolin representative to start the conversation. 

  • Noelle Merwin
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4 Cash Flow Tips for Seasonal Businesses
4 Cash Flow Tips for Seasonal Businesses 266 266 Noelle Merwin

Most businesses experience cash-flow fluctuations, but the swings can be especially intense for seasonal businesses. Revenue may rise sharply during busy periods and fall in slower seasons, yet many expenses continue year-round — and some must be paid months before sales peak.

This timing mismatch can leave an otherwise profitable business short on cash. Here are four ways to make cash flow more predictable and reduce the risk of a shortfall.

  1. Map your cash-flow cycle

Start by identifying when cash typically flows in and out of your business. For example, a lawn-and-garden distributor might purchase materials and build inventory in the fall, ship products in the spring and wait until early summer to collect customer payments. In the meantime, it must cover payroll, storage, utilities, transportation and other overhead costs.

Don’t confuse profit with available cash. A credit sale may appear as revenue on the income statement weeks before the customer pays. Conversely, purchasing inventory reduces cash but generally doesn’t produce an immediate expense, and repaying loan principal reduces cash without affecting your bottom line.

Because an income statement doesn’t show the timing of cash receipts and payments, use it in conjunction with a rolling cash-flow forecast. A 13-week forecast can provide a detailed short-term view and can be supplemented by a 12-month forecast covering the full seasonal cycle. Update the forecasts using current revenue, receivables, inventory, payroll and upcoming payments.

A forecast reflects the conditions management expects and the actions it plans to take. You might also prepare cash-flow projections based on hypothetical assumptions to explore “what-if” scenarios. For instance, what would happen if demand falls short, customers pay late, costs rise or bad weather shortens your selling season? Projections can help you decide in advance which expenses you could defer or reduce in a pinch.

  1. Make data-driven spending decisions

A short selling season leaves little time to recover from excess spending. Use prior-year sales, current orders and other relevant data to develop realistic inventory and staffing plans. Track how quickly products are selling throughout the season. This gives you time to adjust future orders or promote slow-moving items before they lose value.

When planning seasonal staffing, consider the full cost — not just hourly wages. Recruiting, training, payroll taxes, workers’ compensation insurance and lower initial productivity may add to the cost of temporary workers.

Apply similar discipline to marketing. Establish a preseason budget and decide how you’ll measure results. Compare each campaign’s cost with the revenue and gross profit it helps generate, where measurable. This analysis can show which marketing activities are paying off and which should be adjusted or discontinued.

  1. Monitor working capital closely

Small changes in working capital can substantially affect available cash. To enhance collections, be sure to:

  • Invoice customers promptly,
  • Provide clear payment terms, and
  • Follow up consistently on overdue balances.

Depending on the business, deposits or advance payments on large orders may bring in cash before related bills are due. Early-payment discounts are another option, but weigh the cash-flow benefit against the effect on profit margins.

Also review vendor terms and volume discounts carefully. Buying more than you need ties up cash and may leave you with inventory that becomes obsolete or must be marked down. If your forecast indicates that you won’t have enough cash to pay an invoice on time, contact the supplier before it’s due to request an extension or payment plan. Delaying payment without a vendor’s approval could damage the relationship or trigger late fees.

Current accounting records are essential. Regularly review receivables and payables aging schedules, inventory reports, bank balances and upcoming obligations. Reconcile bank and credit card accounts promptly so you can investigate errors or unexpected charges.

  1. Build reserves and arrange financing early

Ideally, cash retained from the peak season will cover slow-season expenses and help you prepare for the next cycle. Establish a reserve target that includes a cushion for unexpected costs or weaker-than-anticipated demand. Consider designating a separate account for those funds to discourage discretionary spending.

If your reserves aren’t enough to cover your next cycle, consider applying for a line of credit before cash becomes tight. Lenders may request current and historical financial statements, cash-flow projections, tax returns, debt information, inventory reports, and receivables and payables aging schedules. Accurate, timely records can strengthen your application.

Review interest rates, fees, collateral requirements, repayment terms and financial covenants carefully. A line of credit should cover temporary working-capital gaps, not ongoing operating losses.

Are you ready for your next busy season?

After the busy season, compare actual results with your budget and forecast. Review revenue, gross margins, labor costs, inventory levels, collections and marketing performance. Apply what you learn to your next cycle.

We can help you analyze your operating cycle, prepare rolling forecasts and maintain accounting records that provide a clearer view of your cash-flow needs. Contact your Smolin representative to get started. 

  • Noelle Merwin
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Tax Planning Strategies Every Real Estate Investor Should Know
Tax Planning Strategies Every Real Estate Investor Should Know 266 266 Noelle Merwin

Many individuals invest in real estate to help diversify their portfolio, create an income stream for themselves from rental income and build net worth over time. Often, this is a side activity to a career in another field or running another type of business — not the individual’s primary source of income. Holdings might range from a condo or small house you rent out to a multifamily residential building or even a commercial property.

Whatever type of property you own, investment real estate comes with special tax considerations you need to be aware of. With proper planning, you can maximize your after-tax returns.

Rental activity rules

One important consideration is the tax treatment of income and losses from rental properties. They’re considered passive by definition — unless you’re a real estate professional. Even then, you generally must “materially participate” in a rental activity for it to be treated as nonpassive. Why is this important? Passive income may be subject to the 3.8% net investment income tax (NIIT) on top of any income tax otherwise due, and passive losses are deductible only against passive income, with the excess being carried forward.

For investors who have another primary occupation, qualifying as a real estate professional can be difficult. To qualify, you must annually perform:

  • More than 50% of your personal services in real property trades or businesses in which you materially participate, and
  • More than 750 hours of service in these businesses during the year.

Each year stands on its own, and there are other nuances to keep in mind.

To materially participate in an activity, generally you must participate more than 500 hours during the year or demonstrate that your involvement constitutes substantially all of the participation in the activity. But there are other ways to meet the material participation test.

Carefully track the time you spend on your real estate activities. If you own rental properties in addition to working in another business or profession, also carefully track the time spent on those non-real-estate activities, so you can see if you spend a small enough portion of your time on them vs. real-estate activities that you can pass the first real estate professional test.

Although your spouse’s hours can’t be counted toward the tests for qualifying as a real estate professional, special rules for spouses may help you meet the material participation test: Generally, your spouse’s participation can be counted when determining whether you materially participate.

Depreciation breaks

Buying an investment property may be only the beginning of your expenditures. If you renovate or improve a property, the tax treatment of those costs can vary depending on the type of property and improvement. Generally, residential real estate, including improvements, must be depreciated over 27.5 years and commercial real estate over 39 years. But three valuable depreciation-related breaks may be available to real estate investors:

  1. Qualified improvement property (QIP) deduction. QIP is defined as an improvement to an interior portion of a nonresidential building placed in service after the building was initially put into use. So these rules can apply to qualifying improvements to commercial real estate, but not to improvements to a residential rental property. QIP has a 15-year Modified Accelerated Cost Recovery System (MACRS) recovery period and qualifies for bonus depreciation and Section 179 expensing.

However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP. They usually must be depreciated over 39 years.

  1. Bonus depreciation. This additional first-year depreciation allowance is available for qualified assets, including QIP. Bonus depreciation is 100% for eligible assets acquired and placed in service after January 19, 2025.
  2. Section 179 expensing election. This allows you to currently deduct qualified property, subject to certain limits. This includes QIP, certain depreciable tangible personal property used predominantly to furnish lodging and for the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems For 2026, the maximum Sec. 179 deduction is $2.56 million. The deduction begins to phase out if the cost of qualifying property placed in service during the year exceeds $4.09 million.

Deferring gains

Eventually, you may decide to sell an appreciated rental or other investment property. You might be able to structure the transaction to defer some or all of the taxable gain. Such strategies may even help you keep your income low enough to avoid triggering the 3.8% NIIT and the 20% long-term capital gains rate.

One example is an installment sale. It allows you to defer gains by spreading them over several years as you receive the proceeds. But ordinary gain from certain depreciation recapture is recognized in the year of sale, even if you receive no cash.

Another option is a Section 1031 exchange. Also known as a “like-kind” exchange, this technique allows you to exchange one real estate investment property for another and defer paying tax on any gain until you sell the replacement property. If you receive cash or other non-like-kind property as part of the exchange, however, you generally must recognize gain to that extent.

These tax deferral strategies aren’t without risks. For example, if tax rates go up, you could ultimately end up paying more in taxes. They also have detailed requirements, so it’s important to consider the tax consequences before completing a sale or exchange.

Tax-smart decisions

Taxes can affect the economics of an investment property from the time you buy it through the time you sell it. Decisions about your involvement in rental activities, improvements to the property, and the timing and structure of a sale can all have tax consequences.

Contact your Smolin representative to discuss tax planning related to your investment real estate. We can help you identify potential tax-saving opportunities and avoid tax pitfalls.

  • Noelle Merwin
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Teachers, take note! New Tax Deductions for Teachers in 2026
Teachers, take note! New Tax Deductions for Teachers in 2026 266 266 Noelle Merwin

Teachers and other educators often spend their own money on books, supplies, equipment and other classroom needs. For 2026, eligible educators may have two ways to deduct qualifying unreimbursed expenses. One deduction is available whether or not they itemize, and a new deduction under the One Big Beautiful Bill Act (OBBBA) is available to itemizers.

The long-time deduction for nonitemizers and itemizers

Eligible educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize to claim it and it reduces your adjusted gross income (AGI), which has an added benefit: AGI-based limits affect a variety of tax breaks, so lowering your AGI might help you maximize your tax breaks overall.

To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. Also, they must work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

For 2026, up to $350 of qualified expenses paid during the year that weren’t reimbursed can be deducted. (The deduction limit is $700 for married couples filing a joint return if both spouses are eligible educators, but they can’t deduct more than $350 each.) The limit is annually indexed for inflation and was $300 for 2025. But it typically doesn’t go up every year.

Examples of qualified expenses include books, classroom supplies, computer equipment (including software), other materials used in the classroom, and professional development courses. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.

The new deduction for itemizers

The OBBBA made permanent the Tax Cut and Jobs Act’s (TCJA’s) suspension of miscellaneous itemized deductions subject to the 2% of AGI floor. This had included unreimbursed employee business expenses such as teachers’ out-of-pocket classroom expenses. The suspension had been in place since 2018.

But the OBBBA created a new miscellaneous itemized deduction for educator expenses. And this deduction isn’t subject to the 2% of AGI floor or a specific dollar limit. The new deduction is available for eligible expenses incurred after December 31, 2025.

This is in addition to the $350 above-the-line deduction. So educators eligible for both deductions can first claim the above-the-line deduction and reap the benefits of reducing their AGI and, if they have eligible expenses in excess of $350, claim the itemized deduction for those excess expenses. (Educators can’t claim both deductions for the same expenses.)

Who is eligible and what expenses qualify are a little broader for the itemized deduction than for the above-the-line deduction. For example, interscholastic sports administrators and coaches are also eligible. And, for courses in health and physical education, the supplies don’t have to be related to athletics.

Before deciding to claim the itemized deduction, you need to determine whether itemizing makes sense for you overall. Taxpayers can choose to itemize this and certain other deductions (such as mortgage interest, property tax and charitable donations) or to take the standard deduction based on their filing status.

Itemizing deductions saves tax only when the total is greater than the standard deduction. The OBBBA made the nearly doubled standard deductions under the TCJA permanent, so fewer taxpayers benefit from itemizing. For 2026, the standard deduction is $16,100 for singles and married taxpayers filing separately, $24,150 for heads of household and $32,200 for married couples filing jointly.

Keeping good records

Do you expect to qualify for one or both of these deductions? Be sure to track your qualifying expenses carefully. Save your receipts to document the date and amount of each purchase, and note the purpose. Good records are especially important now that there are two educator deductions with differing rules. Contact your Smolin representative to discuss which educator expenses you can deduct and how the deductions may affect your 2026 taxes and planning strategies. 

  • 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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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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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.

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