Author: Leon Clinton

If you plan to sell a business or an intangible asset, you need to understand a critical tax rule that can significantly increase your tax bill.

Tax law treats many self-created intangible assets as non-capital assets. This treatment means you must report the gain as ordinary income instead of lower-taxed long-term capital gain.

This rule applies to assets you create through your own efforts, including patents, inventions, designs, copyrights, and creative works. When you sell these assets, the IRS taxes your gain at ordinary income rates.

But don’t assume that all intangibles receive unfavorable treatment. Many valuable business assets still qualify for capital gains treatment. These include client lists, goodwill, supplier relationships, and similar items. These assets usually produce favorable tax results when you sell them or your business.

Ownership structure also plays an important role. If a corporation or partnership creates an intangible asset through its employees, it may qualify for capital gains treatment. In contrast, if you create the asset personally through a sole proprietorship, the IRS will likely treat the gain as ordinary income.

You can also find planning opportunities in specific situations. For example, tax law allows favorable treatment for certain transferred patents and permits an election for musical compositions.

You should evaluate your situation before you sell. You can often reduce taxes by properly structuring ownership, documenting how the asset was created, and allocating the purchase price among assets in a tax-efficient manner.

If you want to discuss intangible assets, please call me directly at 408-778-9651

• By Leon Clinton
• April 24, 2026

Recent tax law changes under the One Big Beautiful Bill Act created powerful opportunities to write off business assets faster than ever. You now face an important decision: should you use Section 179 expensing or 100 percent bonus depreciation?

The law restored 100 percent bonus depreciation for qualifying assets placed in service after January 19, 2025. This rule allows you to deduct the full cost of equipment, software, certain vehicles, and qualified improvements in the first year.

At the same time, Congress expanded Section 179. You can now expense up to $2.5 million of eligible assets, subject to a phaseout if total purchases exceed $4 million.

While both options offer large upfront deductions, key differences should guide your decision:

• Bonus depreciation advantages. Bonus depreciation has no income limits and no annual cap. You can create a business loss and potentially generate a net operating loss (NOL). This flexibility makes bonus depreciation the default choice in many situations.
• Section 179 limitations. Section 179 includes several restrictions. Your deduction cannot exceed your business income, and phaseout rules may reduce your benefit. These limits can delay tax savings through carryovers.
• Important trade-off. Bonus depreciation can create an NOL, but that NOL will not reduce your self-employment income in future years. In contrast, Section 179 carryovers can reduce both taxable income and self-employment income later.

Bottom line. Most businesses benefit from bonus depreciation because it delivers immediate, unrestricted deductions. However, Section 179 can still add value when future income and self-employment tax savings matter.

If you want to discuss bonus depreciation versus Section 179 expensing, please call me directly at 408-778-9651

• By Leon Clinton
• April 21, 2026

The One Big Beautiful Bill Act (OBBBA) permanently increased the federal estate and gift tax exemption to a whopping $15 million per person for 2026 and later. You can give away while alive and/or bequeath at death this much money or property free of federal estate and gift tax.

If you’re married, you and your spouse each get a $15 million exemption. Thus, your combined estate and gift tax exemption is $30 million for 2026 (it’s adjusted for inflation each year).

But married couples don’t automatically get the combined exemption of up to $30 million. Rather, when one spouse dies, the executor of their estate must file an estate tax return, even if it isn’t otherwise required, and make a “portability election”—that is, they must direct the IRS to “port” (transfer) the deceased spouse’s unused exemption to the living spouse.

A recent Tax Court case shows that making a portability election can be fraught with risk.

To make filing an estate tax return solely to elect portability as simple as possible, the IRS allows the executor to use a simplified reporting procedure and provide a single estimate of the entire estate’s value instead of providing fair market values of all the estate’s assets.

Key point. The executor can use simplified reporting only if the entire estate is left to the surviving spouse and/or to charity.

The Tax Court (in Estate of Rowland) recently held that the executor improperly used simplified reporting where a deceased spouse left property in trust to grandchildren. As a result, the court disallowed the executor’s portability election, and the surviving spouse lost the deceased spouse’s $3.7 million unused estate tax exemption, resulting in $1.5 million in extra estate tax due when the surviving spouse died.

This case is a wake-up call to all married couples and their estate planners. Portability offers the simplest planning strategy to maximize the couple’s combined exclusion amount. But the executor of the deceased spouse’s estate must follow the proper reporting procedures to make a valid portability election.

Executor instructions for a portability election are now especially important after Rowland, to ensure that portability is not lost entirely due to inadequate estate return preparation.

If you want to discuss the portability election, please call me directly at 408-778-9651

• By Leon Clinton
• April 17, 2026