Month: May 2026

Let’s turn our attention to an increasingly valuable tax planning opportunity involving qualified small business corporation (QSBC) stock, especially in light of recent law changes.

QSBCs—essentially, certain qualifying C corporations—offer powerful tax advantages. Most notably, you may be able to exclude up to 100 percent of the gain on the sale of QSBC stock if you hold it for at least five years. In addition, partial exclusions are now available for shorter holding periods (50 percent after three years and 75 percent after four years), making this strategy more flexible than ever.

There are also generous limits on the amount of gain that you can exclude. Depending on your situation, you may exclude the greater of $15 million (indexed for inflation) or 10 times your investment basis.

Another significant benefit is the ability to defer gains by reinvesting proceeds into other QSBC stock within a specified time frame.

But QSBC status applies only to C corporations—not S corporations. This raises an important question: how can you take advantage if your business currently operates as an S corporation?

There are several potential strategies:

• Revoking S corporation status to convert back to C corporation status
• Forming a new C corporation and transferring assets
• Creating a C corporation subsidiary that qualifies as a QSBC
• Using an asset “drop-down” structure to shift future growth into a QSBC entity

Each option has unique tax implications, including possible recognition of gains during restructuring. In many cases, only newly issued shares will qualify for QSBC benefits, making timing especially important.

In summary, QSBC planning can provide substantial long-term tax savings, particularly for businesses anticipating significant growth or a future sale.

If you want to discuss the QSBC tool, please call me directly at 408-778-9651.

• By Leon Clinton
• May 15, 2026

Here’s an often-overlooked tax strategy that can generate substantial family tax savings when handled correctly. If you pay a family member (or even a non-relative) for a one-time project, the tax treatment can be highly favorable—but only if you follow the proper reporting rules.

For example, paying a college-aged child $23,255 for legitimate services can produce significant benefits. In one case, this created an $8,593 tax deduction for the payor, while the student owed only $713 in tax—resulting in a net family tax savings of $7,880. And of course, the student has the $23,255.

But beware. There are three critical areas where mistakes commonly occur.

1. Form 1099 Reporting

Unlike typical contractor payments, you do not report this income on IRS Form 1099-NEC. Instead, because it is not subject to self-employment tax, you report it in box 3 of IRS Form 1099-MISC. This distinction is essential.

2. Kiddie Tax Treatment

Although many assume the kiddie tax applies, it does not in this case. The income qualifies as earned income because it is payment for actual services performed. Kiddie tax rules apply only to unearned income (such as investment income).

3. IRA Contribution Opportunity

This earned income qualifies as “compensation,” meaning the recipient can contribute up to $7,500 (2026 limit) to a traditional or Roth IRA.

If you want to discuss this one-time project strategy, please call me directly at 408-778-9651.

• By Leon Clinton
• May 15, 2026

There is an ugly tax law change taking effect in 2026 that could affect a common workplace practice: providing coffee, snacks, and other small refreshments to employees.

For years, these items have been treated as de minimis fringe benefits, meaning employees are not taxed on them, and employers were generally allowed a deduction. But beginning in 2026, the tax code eliminates the employer deduction, even though the benefit remains tax-free to employees.

This change stems from the Tax Cuts and Jobs Act, which gradually phased out the deduction. While employers could deduct 50 percent of these costs through 2025, the deduction drops to 0 percent starting in 2026.

As a result, your business will now bear the full cost of providing break-room refreshments. This creates an unusual mismatch: employees still receive a tax-free benefit, but employers receive no tax relief for providing it.

From a practical standpoint, this rule may influence how businesses approach workplace amenities. Many employers offer coffee and snacks to improve productivity, encourage collaboration, and keep employees on-site. Eliminating the deduction may lead some businesses to scale back these offerings, though doing so could negatively affect morale and efficiency.

What should you do now?

• Review your current spending on employee refreshments.
• Evaluate the increased cost beginning in 2026.
• Consider whether the benefits in productivity and workplace culture justify continuing the practice.
• Ensure your accounting properly reflects the non-deductible nature of these expenses.

While this tax law change may seem minor, it has real cost implications and may require thoughtful planning.

If you want to discuss how to handle break-room refreshments, please call me directly at 408-778-9651.

• By Leon Clinton
• May 12, 2026