Tax

Family relationships and overlapping ownership can quietly sabotage well-intentioned tax planning. Internal Revenue Code Section 267 often causes the damage. 

This rule does not announce itself with penalties or warnings. Instead, it erases deductions, disallows losses, and delays expenses after the transaction feels complete.

Section 267 targets transactions between related parties. The law focuses on who the parties are, not on whether the deal looks fair. When you sell property to a related person or entity at a loss, the IRS disallows the loss even if you used fair market value and arm’s-length terms. 

For example, if you sell stock to a sibling at a loss, you lose the deduction simply because of the family connection.

Section 267 also disrupts expense deductions. If you use the accrual method and owe expenses or interest to a related party who uses the cash method, you cannot deduct the expense until the other party reports the income. This timing mismatch often surprises taxpayers after year-end.

The real trap lies in the attribution rules. These rules treat you as owning interests held by family members, trusts, partnerships, or corporations. As a result, transactions that appear unrelated on paper can suddenly cross the 50 percent ownership threshold, triggering related-party treatment.

Good planning avoids these outcomes. Identify related parties before you act. Review family ownership, trust interests, and entity structures together. Sell loss assets to unrelated buyers. Structure ownership to stay below control thresholds. Coordinate expense deductions with the other party’s income recognition.

Section 267 rewards foresight and punishes assumptions.

If you want to discuss Section 267 attribution rules, please call me directly at 408-778-9651

• By Leon Clinton
• February 24, 2026

Many charitably minded individual retirement account (IRA) owners use qualified charitable distributions (QCDs) to satisfy required minimum distributions while avoiding income tax. One simple mistake, however, can turn an otherwise tax-free QCD into fully taxable income.

After age 70 1/2, you may direct up to $111,000 in 2026 from your traditional IRA to a qualified charity; for married couples, each spouse may give that amount from their own IRA. 

The QCD can count toward your RMD once you reach age 73, and the QCD stays out of your adjusted gross income. Lower adjusted gross income can help you avoid higher tax brackets, higher Medicare premiums, and taxation of Social Security benefits.

The trouble arises under the strict no-benefit rule. 

You must send a QCD directly to a Section 501(c)(3) charity, not to a donor-advised fund. More important, you must not receive anything of value in return. If you do, the IRS treats the entire distribution as taxable. Even a small benefit can spoil the result. For example, a $250 ticket to a charity dinner will cause a $5,000 QCD to become fully taxable.

Charities must provide written acknowledgements for QCDs of $250 or more. If that acknowledgement lists goods or services received, the tax-free treatment disappears.

The IRS allows limited exceptions. You may receive insubstantial benefits without harming a QCD, such as low-value items or token merchandise, generally capped at $139 in 2026 ($136 in 2025) and subject to percentage limits. Intangible religious benefits from churches also remain acceptable.

Before you authorize a QCD, confirm that you will receive nothing of value beyond these exceptions. Careful planning protects the tax advantages QCDs can provide.

If you want to discuss QCDs, call me directly at 408-778-9651

• By Leon Clinton
• February 20, 2026

The One Big Beautiful Bill Act (OBBBA) dramatically expanded the employer childcare credit starting in 2026, turning a modest tax break into a significant planning opportunity for many businesses.

The employer childcare credit allows businesses to claim a general business tax credit for qualified childcare expenses paid for employees. Qualifying costs include 

• building, expanding, or operating an on-site childcare facility; 
• contracting with licensed off-site childcare providers such as day care centers or preschools; 
• working with third-party childcare platforms or “intermediate entities”; and 
• paying for childcare referral services. 

Businesses do not need to own or operate a childcare facility to qualify.

Beginning in 2026, small businesses with average annual gross receipts under $32 million may claim a 50 percent credit on qualified childcare expenses, up to a maximum annual credit of $600,000. 

Large businesses may claim a 40 percent credit, capped at $500,000 per year. 

By comparison, the credit for 2025 and earlier years maxed out at $150,000, making the new credit up to four times larger. Congress will adjust these limits for inflation starting in 2027.

OBBBA also makes the credit far more accessible for small employers. Businesses may now pool resources to contract jointly with licensed childcare providers or to jointly own or operate a childcare facility. Each business may claim its share of the credit, helping reduce both costs and administrative complexity.

Any business with W-2 employees can qualify, including sole proprietors, partnerships, LLCs, and S corporations. Owners generally cannot claim the credit for their own childcare costs, but they can claim it for qualified expenses paid on behalf of employees, including spouse-employees. 

Even when childcare benefits remain taxable to the employee or owner-employee, the credit often produces significant net tax savings.

Employers must include the value of employer-provided childcare in employee income unless the benefits qualify under a dependent care assistance program (DCAP). DCAPs allow limited tax-free benefits but impose strict non-discrimination rules that eliminate many small-business owners.

If you pay for employee childcare in any form, this expanded credit deserves immediate close attention.

If you want to discuss childcare benefits for your business, please call me directly at 408-778-9651

• By Leon Clinton
• February 17, 2026