Month: December 2025

If you’re considering buying a business, it’s important to understand how the related investigation and acquisition costs are treated for federal income tax purposes—especially if a deal falls through. A recent example illustrates how these rules work.

Jim, an employee looking to become a business owner, spent $15,000 researching an industry and identifying a target company. Once he decided to acquire that business, he incurred an additional $35,000 in legal, accounting, and similar fees. When the purchase failed, the tax consequences depended on the nature of each cost:

• Initial investigation costs ($15,000). Because Jim never acquired the target business, his early research and start-up expenses are treated as personal and non-deductible. However, if he later buys a business in the same field, he may roll some or all of the costs into the new start-up and treat them as amortizable start-up costs.

• Acquisition-specific costs ($35,000). Professional fees incurred after Jim committed to the purchase must be capitalized. Since the deal collapsed within a year, he may treat these costs as a short-term capital loss, deductible against capital gains and up to $3,000 per year of ordinary income until fully used.

Bottom line. A failed acquisition can still produce valuable tax benefits. Start-up and transaction costs are handled differently, and proper classification helps ensure you capture all available deductions and losses.

If you want to discuss investigation and acquisition expenses, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• December 30, 2025

I want to alert you to an important deadline that affects your upcoming projects. The federal energy efficient home builder credit offers up to $5,000 per qualifying home, but the opportunity ends on June 30, 2026. You still have time to benefit, but you must act quickly.

This credit rewards builders and manufacturers who construct or substantially renovate energy-efficient single-family, multifamily, or manufactured homes. To qualify, you must own the home during construction, meet the required energy efficiency standards, and ensure that an individual purchases or leases the home as a residence no later than June 30, 2026.

The credit amount depends on the home type, its Energy Star or Zero Energy Ready Home certification, and whether you meet prevailing wage rules for multifamily projects. Credit amounts range from $500 to $5,000 per unit.

You must keep documentation that proves the home meets the required standards, that you qualify as the builder or producer, and that the buyer/tenant acquired or rented the home or apartment for residential use within the allowed period. You claim the credit on IRS Form 8908, and if your business operates as a partnership, an LLC, or an S corporation, the credit will flow through to you.

Keep in mind that claiming the credit requires a reduction to your basis in the home or building. Even so, the financial benefit usually far outweighs the adjustment.

If you plan to start or finalize projects in the coming months, I encourage you to review your timelines now. With only seven months left, efficient planning can help you secure these valuable credits before they disappear.

If you want to discuss eligible projects, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• December 26, 2025

If you give money or property, you may be legally required to file a gift tax return with the IRS—even if you owe no gift tax. 

In fact, most people who file gift tax returns do not pay any gift tax because each individual has a generous lifetime gift tax exemption of $13.99 million (for 2025). Married couples can effectively double this amount by combining their exemptions.

Even when no tax is due, you must file a gift tax return whenever you make a “reportable gift.” This allows the IRS to track both the total amount you have gifted during your lifetime and the remaining balance of your lifetime estate and gift tax exemption.

You are required to file a gift tax return if you do any of the following:

• Give any one person more than the annual exclusion amount ($19,000 in 2025).
• Elect to split gifts with your spouse.
• Make a gift of a future interest, such as certain transfers to a trust.
• Front-load multiple years of contributions into a Section 529 plan.
• Give certain types of gifts to your spouse.

If you must file a gift tax return, you also need to report any charitable gifts made during the year. These charitable gifts are not subject to gift tax and do not reduce your lifetime exemption, but you must disclose them on the gift tax return.

Gift tax returns are due at the same time as your income tax return. However, they must be filed separately on paper, as joint gift tax returns do not exist—each spouse must file individually.

Your return must include detailed information for each reportable gift, including its fair market value. Gifts that are difficult to value, such as business interests, require either a professional appraisal or a thorough explanation of how you determined the value.

The IRS may impose a failure-to-file penalty of 5 percent per month if you do not file a required gift tax return. But this penalty applies only when you owe gift tax, which is uncommon.

When no penalty applies, it is still wise to file a gift tax return when required. Filing starts the three-year statute of limitations during which the IRS may question your valuations. 

Without a filed return, the IRS has no time limit to challenge the value of your gifts. Filing also provides a clear record of your gifting history and helps you track your remaining lifetime exemption.

If you want to discuss gift taxes, please call me on my direct line at 408-778-9651  

• By Leon Clinton
• December 23, 2025