accounting

  • Noelle Merwin
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Tax News: Amending Personal Income Tax Returns
Tax News: Amending Personal Income Tax Returns 266 266 Noelle Merwin

It is estimated that five million amended income tax returns are filed with the IRS annually. There are various circumstances why an amended Federal income tax return is filed by an individual taxpayer including:

•    To correct an error discovered after filing
•    Receipt of a corrected 1099 form, often from brokerage firms
•    Receipt of a third-party document such as a K-1 or 1099 form after filing
•    Receipt of an amended K-1 from a trust, estate, partnership or S corporation
•    To carryback credits in certain situations
•    To change one’s filing status – note that one cannot change from married joint to married separate after the due date.

There are circumstances where a Federal amended tax return also leads to the filing of amended state income tax returns. On the other hand, sometimes an amended state income tax return will be filed without the filing of an amended Federal income tax return. Case in point is where a nonresident personal income tax return is audited resulting in an increase in the nonresident tax liability. This often leads to a refund opportunity via the filing of an amended state income tax return for the resident state via claiming an increase in the credit for taxes paid to other jurisdictions.

The general time period for filing an amended income tax return is three years. If the original income tax return was filed prior to April 15 it is deemed filed on April 15. If the original income tax return was filed on extension, the three-year period is measured from the actual filing date. These rules apply not only for Federal purposes but for both New Jersey and New York. To illustrate, if an individual filed their 2022 personal income tax returns without going on extension, those income tax returns are deemed filed April 15, 2023. Thus, the three-year period has just expired. This not only applies to refunds but to tax deficiencies.

The IRS as well as the states have six years to conduct an audit if it is determined that there was an omission of gross income exceeding 25% of the reported gross income. For example, a taxpayer reports $400,000 of gross income. If it determined that there was an omission of income exceeding $100,000 then the statute of limitations becomes six years. Taxpayers cannot use this longer period to file amended tax returns.

If you have questions or need assistance, please contact your Smolin representative.

  • Noelle Merwin
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When Numbers Lie: Detecting Overstated Assets and Underreported Liabilities
When Numbers Lie: Detecting Overstated Assets and Underreported Liabilities 266 266 Noelle Merwin

Welcome back to Follow the Money. In the first article, we looked at how hidden transactions can shift the entire direction of a case. This month, we’re turning to something that tends to be quieter, harder to spot, and often more damaging in the long run: companies inflating what they own and downplaying what they owe.

These issues arise regularly in shareholder disputes, post-acquisition cases, and partnership breakups. On the surface, the financials may look polished. But once you start testing the numbers, you see where the story falls apart. That’s where forensic accounting becomes less about crunching numbers and more about understanding what someone was trying to achieve—and how far they were willing to go to get there.

Why Inflate Assets or Hide Liabilities?

Most of the time, the motivation is simple: to look better than you really are.

  • Higher asset values mean stronger leverage positions, better ratios, and more attractive sale or investment prices.
  • Lower liabilities reduce the perception of risk and make earnings appear healthier.

When litigation enters the picture, these distortions can change the economic landscape of a dispute. A couple examples that show up often:

  • A seller in an M&A transaction quietly boosts inventory figures to support a higher purchase price.
  • Executives stretching accounting policies and recognition of assets and liabilities to satisfy loan covenants or bonus thresholds.

We’ve all seen what happens when this behavior scales. WorldCom capitalized billions of expenses. Enron shifted debt and investment risk into entities no one was meant to scrutinize. While most cases aren’t that dramatic, the underlying tactic is familiar—polished numbers masking fragile foundations.

Red Flags and Techniques Used to Manipulate Statements

In practice, certain patterns show up again and again. Some of the most common include:

  1. Inflated Asset Values
  • Inventory that hasn’t been written down despite being overvalued, obsolete, or unsellable.
  • Fixed assets are staying on the books far past their useful lives.
  • Receivables are reported as current even when collection is doubtful.

A simple indicator: sudden appreciation or revaluation adjustments inconsistent with history.

2. Improper Capitalization

When expenses that should be recorded in the income statement are instead booked as assets, earnings immediately look better. Repairs, routine maintenance, and certain development costs are frequent targets.

3. Hidden or Understated Liabilities

  • Contingent liabilities are not recognized on the balance sheet.
  • Related-party loans or guarantees are buried in footnotes—or not disclosed at all.
  • Reserves are manipulated to keep earnings smooth and predictable.

Pressure from lenders, investors, and internal performance metrics often influences poor management’s decisions.

4. Numbers That Don’t Match Behavior

This includes:

  • Declining asset turnover despite reported growth.
  • Healthy profits paired with stagnant or negative cash flow.
  • Growth of Accounts Receivable and Inventory Accounts paired with stagnant sales
  • Frequent shifts in accounting policies or large manual journal entries at month-end or year-end.

When the story being told by the numbers doesn’t align with economic reality, it’s worth taking a closer look.

How Forensic Accountants Uncover the Truth

Our work isn’t about catching someone with a single “gotcha” moment. It’s a layered approach—building a full picture from many angles:

1. Source Document Testing

Invoices, contracts, appraisals, and inventory counts—what’s on paper often contradicts what’s recorded in the system. In one matter I handled, a physical inventory walkthrough immediately revealed discrepancies that the books had masked for years.

2. Analytical Testing

Ratio analysis, trend reviews, and comparisons to industry benchmarks highlight where numbers diverge from what’s typical or expected.

3. Data Analytics

Transaction-level records often show timing issues or unusual behavior. Deleted entries, edited fields, or clusters of adjustments around financial close dates can be especially telling.

4. Lifestyle or Net Worth Comparisons

Sometimes, the simplest test is comparing reported income to public or observable spending patterns. When someone shows a lifestyle their reported income can’t support, it’s usually not because they found coupons or received discounts.

5. Third-Party Confirmation

Banks, vendors, customers, appraisers—independent sources help confirm or contradict what the company has represented.

Visual tools—charts, schedules, and flow diagrams—help clarify patterns that otherwise get lost in spreadsheets.

How This Matters in Litigation

Uncovering asset inflation or hidden liabilities doesn’t just adjust the math—it changes the interpretation of events:

  • Fraud or breach becomes clearer.
  • Valuations shift, potentially significantly.
  • Earn-outs, indemnification, or clawback provisions can swing drastically.
  • Scenarios may become criminal.

Early forensic involvement prevents parties from anchoring themselves to numbers that shouldn’t have been trusted in the first place.

Key Takeaways for Litigators and Business Owners

  • Establish strong internal controls and maintain them consistently.
  • Don’t rely solely on management’s representations—verify.
  • In disputes, bring a forensic accountant in early rather than waiting for discovery to reveal surprises.

Financial statements are supposed to reflect the truth. But when someone chooses to manipulate them, the inconsistencies eventually surface. The challenge is knowing where to look—and asking the right questions at the right time.

 

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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Protect Your Estate and Your Family with Co‑Executors
Protect Your Estate and Your Family with Co‑Executors 266 266 Noelle Merwin

Choosing an executor is one of the most important decisions in the estate planning process. This person (or institution) will be responsible for carrying out your wishes, managing assets, paying debts and taxes, distributing property to beneficiaries and more.

Your first instinct may be to name your spouse, adult child or other close family member as executor. While that decision may feel natural, it’s not always the best choice. Co-appointing a professional advisor alongside a trusted family member can provide a more effective and balanced solution.

An executor’s duties

Your executor has a variety of important duties, including:

  • Arranging for probate of your will and obtaining court approval to administer your estate (if necessary),
  • Taking inventory of — and collecting, recovering or maintaining — your assets, including life insurance proceeds and retirement plan benefits,
  • Obtaining valuations of your assets where required,
  • Preparing a schedule of assets and liabilities,
  • Arranging for the safekeeping of personal property,
  • Contacting your beneficiaries to advise them of their entitlements under your will,
  • Paying any debts incurred by you or your estate and handling creditors’ claims,
  • Defending your will in the event of litigation,
  • Filing tax returns on behalf of your estate, and
  • Distributing your assets among your beneficiaries according to the terms of your will.

For someone without financial, legal or tax expertise, these responsibilities can feel overwhelming — especially while grieving. Even highly capable family members may lack the time or experience needed to administer an estate efficiently.

Mistakes can result in delays, disputes or even personal liability. Executors are legally responsible for acting in the best interests of the estate and its beneficiaries. If errors occur — such as missed tax deadlines or improper distributions — the executor may be held accountable.

Emotional dynamics can complicate matters

When a family member serves as sole executor, emotional tensions can arise. Sibling rivalries, blended family dynamics or disagreements about asset values can quickly escalate.

Even when everyone has good intentions, beneficiaries may question decisions about timing, asset sales or expense payments. The executor may feel caught between honoring the deceased’s wishes and preserving family harmony. Needless to say, these situations can strain relationships, sometimes permanently.

Two can be better than one

A practical alternative is to name both a trusted family member and a professional advisor, such as a CPA, estate planning attorney or corporate fiduciary, as co-executors. This structure can offer several key benefits, such as:

Technical expertise. A professional advisor can bring knowledge of tax law, probate procedures, accounting requirements and regulatory compliance. This reduces the risk of costly mistakes and helps ensure deadlines are met.

Objectivity. A neutral third party can help mediate disagreements and make decisions based on fiduciary standards rather than emotions. This can protect family relationships and minimize conflict.

Shared responsibility. Administering an estate can be time consuming. Dividing responsibilities allows the family member to focus on personal matters while the professional handles technical and administrative tasks.

Continuity and stability. If a family member becomes overwhelmed, ill or otherwise unavailable, a professional co-executor can provide continuity. Estates often take months — or even years — to settle.

A balanced approach

Co-appointing a professional doesn’t mean excluding family involvement. In fact, it often enhances it. The family member remains involved in decision-making and ensures that your personal wishes and family values are honored. Meanwhile, the professional ensures that legal and financial matters are handled efficiently and correctly.

For larger or more complex estates — such as those involving business ownership, multiple properties or significant investments — this collaborative model can be especially valuable. Contact a Smolin representative if you have questions about having co-executors or choosing them.

 

  • Noelle Merwin
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Tax News: Form 1040 refunds
Tax News: Form 1040 refunds 266 266 Noelle Merwin

IRS Refund Delays: What You Need to Know

Missing direct deposit information could delay your tax refund by six weeks or more.

The IRS has begun issuing CP53E notices to taxpayers who requested refunds but did not include bank account information for direct deposit on their 2025 Form 1040.

When bank information is missing from Form 1040, the IRS must issue a paper check instead of a direct deposit, resulting in significant refund delays and unnecessary follow‑up.

How to Avoid Delays

If you are expecting a refund, be sure your bank account information is included when your tax return is prepared. Direct deposit is the fastest way to receive your refund. Additionally, always review your Form 1040 carefully to ensure accuracy.

To learn more about CP53E notices and how to avoid refund delays, visit Understanding your CP53E notice.

If you have questions or need assistance, please contact your Smolin representative.

  • Noelle Merwin
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A Tax Decision Every Married Couple Should Revisit for 2025
A Tax Decision Every Married Couple Should Revisit for 2025 266 266 Noelle Merwin

Married couples have a choice when filing their 2025 federal income tax returns. They can file jointly or separately. What you choose will affect your standard deduction, eligibility for certain tax breaks, tax bracket and, ultimately, your tax liability. Which filing status is better for you depends on your specific situation.

Minimizing tax

In general, you should choose the filing status that results in the lowest tax. Typically, filing jointly will save tax compared to filing separately. This is especially true when the spouses have different income levels. Combining two incomes can bring some of the higher-earning spouse’s income into a lower tax bracket.

Also, some tax breaks aren’t available to separate filers. The child and dependent care credit, adoption expense credit, American Opportunity credit and Lifetime Learning credit are available to married couples only on joint returns. And some of the new tax deductions under 2025’s One Big Beautiful Bill Act (OBBBA) aren’t available to separate filers. These include the qualified tips deduction, the qualified overtime deduction and the senior deduction.

You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer-sponsored retirement plan such as a 401(k) and you file separate returns. And you can’t exclude adoption assistance payments or interest income from Series EE or Series I savings bonds used for higher education expenses if you file separately.

However, there are cases when married couples may save taxes by filing separately. An example is when one spouse has significant medical expenses. Medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in a larger total deduction.

Couples who got married in 2025

If you got married anytime in 2025, for federal tax purposes you’re considered to have been married for all of 2025 and must file either jointly or separately. And married filing separately status isn’t the same as single filing status. So you can’t assume that filing separately for 2025 will produce similar tax results to what you and your spouse each experienced for 2024 filing as singles, even if nothing has changed besides your marital status — especially if you have high incomes.

The income ranges for the lower and middle tax brackets and the standard deductions are the same for single and separate filers. But the top tax rate of 37% kicks in at a much lower income level for separate filers than for single filers. So do the 20% top long-term capital gains rate, the 3.8% net investment income tax and the 0.9% additional Medicare tax. Alternative minimum tax (AMT) risk can also be much higher for separate filers than for singles.

Liability considerations

If you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. That means the IRS can come after either of you to collect the full amount.

Although there are “innocent spouse” provisions in the law that may offer relief, they have limitations. Therefore, even if a joint return results in less tax, some people may still choose to file separately if they want to be responsible only for their own tax. This might occur when a couple is separated.

Many factors

These are only some of the factors to consider when deciding whether to file jointly or separately. Contact a Smolin Representative to discuss the many factors that may affect your particular situation.

  • Noelle Merwin
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TRACING THE MONEY TRAIL: How Hidden Transactions Can Shape a Case
TRACING THE MONEY TRAIL: How Hidden Transactions Can Shape a Case 266 266 Noelle Merwin

Welcome to the first edition of Follow the Money—my new monthly series on the real world of forensic accounting. After years spent sifting through ledgers, bank statements, and the occasional financial garbage bag disguised as bookkeeping, I’ve come to appreciate just how much finding a single transaction or small series of transactions can change the direction of an investigation. This series is designed to share some of my professional real-life lessons: practical techniques, patterns that repeat across industries, and financial behavior that often says more than a witness.

For this opening article, I want to start with an issue that sits at the core of many disputes: Hidden Transactions. These aren’t simple mistakes or sloppy accounting.  I am talking about deliberate, deceptive financial moves designed to hide certain transactions and assets. Finding such evidence can transform a routine disagreement into something far more serious.

When the Transactions Tell a Different Story

Long before any issues surfaced publicly, Crazy Eddie appeared to be a growing and successful retail operation. Stores were expanding, sales were growing, and the company’s financial results seemed to support the growth and strength. What wasn’t visible was that cash was steadily being taken out of the business through sales that were never recorded.

As the company later positioned itself to go public, that earlier activity began to surface in a different form. Money that had previously been pulled out was routed back through foreign accounts and related entities, eventually reentering the company in ways that appeared legitimate on the books.

Viewed in isolation, none of these transactions drew much attention. The issue only became clear once investigators reconstructed the flow of funds and analyzed; where the money originated, how it moved, and why those movements occurred when they did. At that point, the reported financial performance no longer aligned with economic reality. What began as a routine securities review expanded into a far more serious fraud investigation that ultimately brought the entire company down.

That dynamic—where a pattern of seemingly ordinary transactions reshapes the entire understanding of a case—is something I see repeatedly in modern disputes.

What Exactly Are Hidden Transactions?

At its core, hidden transactions are financial activities that are intentionally structured to avoid detection. These might show up as:

  • Payments routed through unrelated entities
  • Invoices that look legitimate but aren’t tied to any actual service or purchase
  • Transfers timed to avoid financial reporting
  • Transactions “buried” in unrelated General Ledger accounts
  • Funds moved through a chain of entities and transactions, so no single step looks suspicious

One case that illustrates that and sticks with me involved a partnership dispute where everything looked perfectly normal—until we noticed a recurring payment labeled “subscription” to a vendor that, as it turned out, didn’t exist. The “vendor” entity had been formed three months earlier and dissolved quietly after the payments stopped. This forensic finding changed the entire direction of the case.

This scenario also illustrates how hidden transactions surface: often not with a dramatic revelation, but with a minor inconsistency, which, when investigated further, doesn’t line up with the story the numbers are supposed to tell.

Why Hidden Transactions Matter in Litigation

When a hidden transaction comes to light, it rarely stays isolated. Proverbially, if you see one cockroach, there are others! In my experience, these initial discoveries lead to:

  1. Reinforcement of allegations of fraud and self-dealing
    In shareholder disputes or partner conflicts, identifying undisclosed or hidden transfers often establishes breaches of fiduciary duty, embezzlement, and other illicit activities.
  2. Revelations of concealed or dissipated assets
    This situation comes up frequently in cases involving marital business interests, dissolving partnerships, or financial distress. Money that “disappears” rarely does so without a trail. As the saying goes…”Follow the money!”
  3. Point to regulatory issues no one initially expected
    Payments structured to appear innocuous may actually lead to price fixing, kickbacks, collusion, tax or monetary compliance violations.

Here is an illustration of a hypothetical scenario that mirrors situations I’ve investigated. A manufacturer suspects overbilling by a long-time supplier. The general ledger doesn’t show anything out of the ordinary. But once we trace the payments further, we find a pattern of rebates funneled back to a few executives through related vendors. Suddenly, the case is no longer about billing errors—it’s a deliberate kickback scheme.

How We Trace What’s Meant to Stay Hidden
Forensic accounting isn’t about having one magical tool. It’s about layering multiple approaches and methods until the picture becomes clear and the truth is revealed. Here is a sampling of the techniques we use:

Data Analytics and Pattern Recognition
Large datasets reveal behaviors people don’t expect anyone to notice: repeated transfers just under reporting thresholds, payments clustered around critical events, or unusual vendor activity.

Document Reconstruction
Pulling together shipping documents, invoices, emails, banking information, internal communications, and tracing transactions through the accounting processes often reveals inconsistencies that aren’t obvious in isolation. A two-line email can sometimes reveal what a hundred-page spreadsheet tries to obscure.

Interviews and Legal Tools
Speaking with employees, reviewing internal messages, or using subpoenas to obtain third-party records often provides the missing link between financial reality and illicit intent.

The investigative process requires systematic analysis and patience. Hidden transactions are built on complexity. Our job is to simplify that complexity until the economic reality is revealed.

What Businesses and Litigators Should Keep in Mind

If you’re involved in litigation—or operating a business where money flows through multiple hands—there are a few lessons worth remembering:

  • Strong, properly designed internal controls are cheaper than the cost of uncovered fraud.
  • Early forensic involvement often prevents wasted time and misdirected discovery.
  • Even the most carefully concealed transactions leave some form of footprint.
  • The objective isn’t just to find the money; it’s to understand the motivations and intentions behind it.

At the end of the day, tracing hidden transactions is less about fancy spreadsheets and more about clarity of what actually took place. When you uncover what a bad actor tried to hide, the rest of the case often begins to unfold and make sense.

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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Smolin Relocates Spring Lake Heights Office to Expanded Red Bank Location
Smolin Relocates Spring Lake Heights Office to Expanded Red Bank Location 266 266 Noelle Merwin
Smolin, Lupin & Co., LLC announces the relocation of its Spring Lake Heights office to its newly expanded Red Bank location. This strategic move supports the firm’s continued growth and strengthens its ability to serve clients.

Effective February 1, the Spring Lake Heights team joined the Red Bank office, now located on the third floor at:
331 Newman Springs Road
Suite 130
Red Bank, NJ 07701

This relocation strengthens collaboration, expands resources, and ensures the firm continues to deliver the responsive, high quality service clients rely on. The new, modernized space offers increased capacity and improved efficiencies, enabling Smolin to better support our client needs across the region.

“As our firm grows, it is essential that our teams are positioned to collaborate effectively and have access to the tools and environment necessary to support our clients,” said Paul Fried, CPA, CEO. “This move reflects our long-term commitment to delivering exceptional service and enhancing the client experience.”

Smolin is excited to welcome clients to the new office. Clients with questions regarding the move are encouraged to contact their Smolin advisor directly.

 

  • Noelle Merwin
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New Trump Accounts – What You Need to Know
New Trump Accounts – What You Need to Know 266 266 Noelle Merwin

Included in the One Big Beautiful Bill (OBBB) signed into law July 4, 2025 was the creation of a tax-advantaged savings account for children called “Trump accounts”. A Trump account is treated like an IRA with the following stipulations:

  • Must be created for the exclusive benefit of an individual who has not reached age 18 by the end of the year.
  • Must be designated as a Trump account at the time it is established.
  • No contributions will be accepted before July 4, 2026.
  • No distribution will be allowed before the year in which the beneficiary reaches age 18.
  • Contributions are limited to $5,000 per year, adjusted annually for inflation after 2027.
  • Employers can contribute up to $2,500 annually (adjusted annually for inflation after 2027) to a Trump account of an employee or an employee’s dependents that will be excludible from the employee’s gross income.
  • A one-time payment of $1,000 will be made by the Treasury to a Trump account for a child born during the period January 1, 2025 – December 31, 2028 if an election is made on the parents Form 1040 for the year of birth. This is referred to as a “Pilot Program Contribution”.
  • To open a Trump account for an eligible dependent child, new Form 4547 can be e-filed with Form 1040. Form 4547 can also be paper filed if so desired.

The IRS has announced that once the Treasury Department verifies that a Trump account was opened, the $1,000 of “seed money” for children born in 2025 will hit the accounts sometime after July 4, 2026. Michael and Susan Dell announced in December that they will personally be donating $6.25 billion to fund Trump accounts – $250 for 25 million children under age 11 in lower-income areas with median family income of $150,000 or less. Various large companies including Bank of America, Charles Schwab, Comcast, IBM, JPMorgan Chase and Wells Fargo have announced they will match the $1,000 contribution for the children of their employees.

Additional information can be found at www.trumpaccounts.gov.

When medical expenses are — and aren’t — tax deductible
When medical expenses are — and aren’t — tax deductible 266 266 Lindsay Yeager

If you had significant medical expenses last year, you may be wondering what you can deduct on your 2025 income tax return. Income-based thresholds and other rules can make it hard to claim the medical expense deduction. At the same time, more types of expenses may be eligible than you might expect.

Limits on the Deduction

Medical expenses are deductible only if they weren’t reimbursable by insurance or paid via tax-advantaged accounts (such as Flexible Spending Accounts or Health Savings Accounts). In addition, they’re deductible only to the extent that, in aggregate, they exceed 7.5% of your adjusted gross income (AGI).

For example, if your 2025 AGI was $100,000, your eligible medical expenses during the year would have to total more than $7,500 for you to claim the deduction — and only the amount in excess of that floor would be deductible. If you had $10,000 in eligible expenses, your potential deduction would be $2,500.

In addition, medical expenses are deductible only if you itemize deductions. For itemizing to be beneficial, your itemized deductions must exceed your standard deduction. Due to changes under the Tax Cuts and Jobs Act that were made permanent by last year’s One Big Beautiful Bill Act (OBBBA), many taxpayers no longer itemize.

However, some taxpayers who hadn’t been itemizing recently may benefit from itemizing for 2025 because of the OBBBA’s quadrupling of the state and local tax deduction limit. If you fall into that category, you should also revisit whether you can benefit from the medical expense deduction on your 2025 income tax return.

What Expenses are Eligible?

If you do expect to itemize deductions on your 2025 income tax return, now is a good time to review your medical expenses for the year and see if you had enough to exceed the 7.5% of AGI floor. Eligible expenses include many costs besides hospital and doctor bills. Here are some other types of expenses you may have had in 2025 that could be deductible:

Transportation. The cost of getting to and from medical treatment is an eligible expense. This includes taxi fares, public transportation or using your own vehicle. Your vehicle costs can be calculated at 21 cents per mile for medical miles driven in 2025, plus tolls and parking. Alternatively, you can deduct certain actual vehicle-related costs, including gas and oil, but not general costs such as insurance, depreciation and maintenance.

Insurance premiums. The cost of health insurance is a medical expense that can total thousands of dollars a year. Even if your employer provides you with coverage, you can deduct the portion of the premiums you paid — as long as it wasn’t paid pretax out of your paychecks.

Long-term care insurance premiums also qualify, subject to dollar limits based on age. Here are the 2025 Limits:

  • 40 and under: $480
  • 41 to 50: $900
  • 51 to 60: $1,800
  • 61 to 70: $4,810
  • Over 70: $6,020

Therapists and nurses. Services provided by individuals other than physicians can qualify if they relate to a medical condition and aren’t for general health. For example, the cost of physical therapy after knee surgery qualifies, but the cost of a personal trainer to help you get in shape doesn’t. Also qualifying are amounts paid for acupuncture and those paid to a psychologist for medical care. In addition, certain long-term care services required by chronically ill individuals are eligible.

Eyeglasses, hearing aids, dental work and prescriptions. Deductible expenses include the cost of glasses, contacts, hearing aids, dentures and most dental work. Purely cosmetic expenses (such as teeth whitening) don’t qualify, but certain medically necessary cosmetic surgery is deductible. Prescription drugs qualify, but nonprescription drugs such as aspirin don’t, even if a physician recommends them.

Smoking-cessation programs. Amounts paid to participate in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible expenses. However, nonprescription gum and certain nicotine patches aren’t.

Weight-loss programs. A weight-loss program is a deductible expense if undertaken as treatment for a disease diagnosed by a physician. This could be obesity or another disease, such as hypertension, for which a doctor directs you to lose weight. It’s a good idea to get a written diagnosis. In these cases, deductible expenses include fees paid to join a weight-loss program and attend meetings. However, foods for a weight-loss program generally aren’t deductible.

Dependents and others. You can deduct the medical expenses you pay for dependents, such as your children. Additionally, you may be able to deduct medical expenses you pay for an individual, such as a parent or grandparent, who would qualify as your dependent except that he or she has too much gross income or files jointly. In most cases, the medical expenses of a child of divorced parents can be claimed by the parent who pays them.

Determining if you can Benefit

After reviewing this list of eligible expenses, do you think you had enough in 2025 to exceed the 7.5% of AGI floor? Or do you have questions about whether specific expenses qualify? Contact a Smolin Representative. We can determine if you can benefit from the medical expense deduction — and other tax breaks — on your 2025 income tax return.

How auditors evaluate accounting estimates
How auditors evaluate accounting estimates 266 266 Lindsay Yeager

Financial statements aren’t built solely on fixed numbers and historical facts. Many reported amounts rely on accounting estimates — management’s best judgments about uncertain future outcomes. Estimates are inherently subjective and can significantly affect reported results. How do external auditors evaluate whether amounts reported on financial statements seem reasonable?

Understanding Management’s Assumptions and Data

External auditors pay close attention to accounting estimates during audit fieldwork. They review the methods and models used to create estimates, along with supporting documentation, to ensure they’re appropriate for the specific accounting requirements. In addition, auditors examine the company’s internal controls over the estimation process to ensure they’re robust and designed to prevent errors or manipulation.

For instance, they may inquire about the underlying assumptions (or inputs) used to make estimates to determine whether the inputs seem complete, accurate and relevant. Estimates based on objective inputs, such as published interest rates or percentages observed in previous reporting periods, are generally less susceptible to bias than those based on speculative, unobservable inputs. This is especially true if management lacks experience making similar estimates.

Challenging Estimates and Assessing Bias

When testing inputs, auditors assess the accuracy, reliability and relevance of the data used. Whenever possible, auditors try to recreate management’s estimate using the same assumptions (or their own). If an auditor’s independent estimate differs substantially from what’s reported on the financial statements, the auditor will ask management to explain the discrepancy. In some cases, an external specialist, such as an appraiser or engineer, may be called in to estimate complex items.

Auditors also may conduct a “sensitivity analysis” to see if management’s estimate is reasonable. A sensitivity analysis shows how changes in key assumptions affect an estimate, helping to evaluate the risk of material misstatement.

In addition, auditors watch for signs of management bias, such as overly optimistic or conservative assumptions that could distort the financial statements. They also consider the objectivity of those involved in the estimation process, ensuring there’s no undue influence or pressure that could affect the estimate’s outcome.

Assessing the Accuracy of Prior Estimates to Inform Current Judgments

Auditors also may compare past estimates to what happened after the financial statement date. The outcome of an estimate is often different from management’s preliminary estimate. Possible explanations include errors, unforeseeable subsequent events and management bias. If management’s estimates are consistently similar to actual outcomes, it adds credibility to management’s prior estimates. But if significant differences are found, the auditor may be more skeptical of management’s current estimates, necessitating the use of additional audit procedures.

Why Estimates Matter

Accounting estimates are a key focus area for auditors because small changes in management’s assumptions can have material effects on a company’s financial statements. Through rigorous testing, professional skepticism and independent analysis, auditors can help promote accurate, reliable financial reporting.

As audit season gets underway for calendar-year businesses, now’s a good time to review significant accounting estimates and address gaps in documentation. Taking these proactive measures can help streamline the audit process and reduce the risk of unnecessary delays. Contact a Smolin Representative with questions or for assistance preparing for your audit.

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