Month: March 2026

Beginning in 2026, the One Big Beautiful Bill Act increases the employer childcare credit for small businesses to 50 percent of qualified expenses, up to $600,000 per year. Even one-owner businesses can benefit—and the savings are substantial.

If you operate as a sole proprietor, you cannot claim the credit for your own childcare because you are not an employee. But if you hire your spouse as a legitimate W-2 employee, your business qualifies.

For example, on $20,000 in childcare expenses, the 50 percent credit results in a $10,000 dollar-for-dollar tax reduction. The remaining $10,000 is deductible, producing additional tax savings. After your spouse pays tax on the wages, the household comes out thousands of dollars ahead.

Solo S corporation owner-employees also win. Although a more-than-5-percent owner must include the childcare benefit in W-2 wages, the combination of the 50 percent credit plus the deduction outweighs taxes paid on wage inclusion, resulting in thousands in savings.

The key driver is the 50 percent credit. When paired with a deduction for the remaining expense, the math is strongly favorable, despite the benefit being taxable.

If you want to discuss the new childcare credit, please call me directly at 408-778-9651  

• By Leon Clinton
• March 13, 2026

Fighting the IRS can be extremely time-consuming and expensive. But if you prevail against the IRS, it is possible to get the court to make an award of attorney fees so you don’t have to pay them all out of your own pocket.

It’s not easy to get a court to award attorney fees against the IRS. Ordinarily, you must not only win your case, but also show that the IRS’s position was not “substantially justified”—something that is very hard to do in most cases.

But there is a way to get around the substantially justified requirement: make a “qualified offer” to the IRS. This is an offer to settle the case for a specified amount. When you do this, you can get an award of attorney fees if you ultimately prevail in the case—that is, if the IRS’s final result is no better than your offer.

You can make a qualified offer

• during the IRS examination (audit) after a 30-day letter,
• while the case is being appealed,
• after filing a Tax Court petition,
• during Tax Court litigation, or
• in a refund suit in the district court or the Court of Federal Claims.

A recent Tax Court case shows how powerful a qualified offer can be.

Crystal Greenwald claimed a $5,920 earned income tax credit and a $2,050 additional child tax credit on her tax return. When the IRS denied the credits because she couldn’t prove the children involved lived with her for more than six months during the year, she appealed to the IRS Office of Appeals. Her attorney made a qualified offer to the office for the full amount of the credits.

Appeals disregarded the offer—apparently because it was misplaced—but ultimately chose to pay Crystal the credits rather than continue the dispute in district court.

Because her attorney had made a valid qualified offer and Crystal ultimately prevailed, the district court awarded her $34,081 in attorney fees. She was not required to prove that the IRS’s position lacked substantial justification—something she likely could not have established, since she never provided evidence that her children lived with her for more than six months.

Most IRS cases settle, so even with a qualified offer, you can’t get attorney fees following a settlement unless you show that the IRS’s position was not substantially justified (which is very difficult to show). Even so, making a qualified offer is worthwhile because it encourages the IRS to settle, knowing it could be on the hook for attorney fees if it doesn’t settle and loses the case.

• By Leon Clinton
• March 10, 2026

If you are a sole proprietor and considering converting a business vehicle to personal use, it’s important to understand the tax consequences before making the switch.

While the conversion itself may appear simple, the tax impact can arise either immediately or later—and sometimes in unexpected ways.

If you used the IRS standard mileage rate for the business vehicle, the conversion to personal use is generally not a taxable event. But depreciation is built into each mileage deduction (for example, 35 cents of the 72.5-cent 2026 rate counts as depreciation).

When you later sell the vehicle, you must calculate a gain or loss based on the vehicle’s adjusted business basis. Many taxpayers overlook the fact that a deductible business loss may still be available years after conversion. Importantly, only the business portion of the loss is deductible, and any gain attributable to the business portion is taxable.

By contrast, if you used the actual expense method—especially with bonus depreciation or Section 179 expensing—the rules are less forgiving. A drop in business use to 50 percent or less triggers Section 280F recapture immediately.

This requires you to recompute depreciation using the straight-line method and pay tax on any excess previously deducted. Later, when you sell the vehicle, you must again calculate gain or loss based on the adjusted basis. In these cases, converting the vehicle creates a two-step tax consequence: recapture now, and potential gain or loss later.

One final caution: selling the vehicle to a related party (such as a spouse, parent, child, or sibling, or a corporation you control) can permanently disallow a loss deduction. To preserve potential tax benefits, make your sale to an unrelated third party.

If you want to discuss converting your business vehicle to personal use, please call me directly at 408-778-9651  

• By Leon Clinton
• March 6, 2026