Time College Expenses for Tax Savings

Higher education can be hard on your wallet. Fortunately, federal tax breaks may ease the burden. As year end approaches, carefully timing qualified expenses and coordinating education tax credits, scholarships and Section 529 plan withdrawals may help your family maximize these tax-saving opportunities.

Consider Year-End Payments

For education credits, timing is critical because expenses generally count in the year they’re paid. Qualified expenses paid in 2026 can support a 2026 American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC) if they’re for an academic period beginning in 2026 or during the first three months of 2027.

That rule may create a year-end planning opportunity. Suppose a college’s spring semester begins in January 2027, and tuition is due in January. Paying the bill in December 2026 could make the eligible expense available for a 2026 credit rather than a 2027 credit.

The AOTC equals 100% of the first $2,000 of qualified tuition and related expenses and 25% of the next $2,000, for a maximum credit of $2,500 per eligible student per year. The LLC equals 20% of up to $10,000 of qualified expenses, for a maximum $2,000 credit per tax return per year. Additional eligibility requirements apply, and the credits begin to phase out when modified adjusted gross income (MAGI) exceeds $80,000 and are eliminated at MAGI of $90,000 (twice these amounts for married couples filing jointly). Married taxpayers filing separately aren’t eligible.

If an income spike in 2026 will cause your credit to be eliminated this year but you expect to be fully eligible next year, consider the opposite approach: Hold off on paying the spring semester tuition until January 2027.

Leverage the Tax-Saving Power of 529 Plans

Section 529 plans provide a valuable tax-advantaged way to fund education expenses. Although contributions aren’t deductible for federal purposes, any growth is tax-deferred. Distributions used to pay qualified expenses are income-tax-free for federal purposes and potentially also for state purposes.

A 529 plan can cover a broader range of college costs than education tax credits can. Qualified 529 plan expenses generally include tuition, required fees, books, supplies and equipment, as well as room-and-board costs for students enrolled at least half time. Education credits generally don’t cover room and board.

Coordinate Education Benefits

Because the same education expense generally can’t support more than one federal tax benefit, careful coordination is important. For example, you can’t use the same $4,000 of tuition both to claim the AOTC and to support a tax-free 529 plan distribution.

If a student has enough eligible expenses, consider reserving tuition and other credit-eligible costs for an education credit and using 529 plan funds for other qualified expenses that don’t support the credit. Before taking a 529 plan distribution, also account for scholarships and grants, and make sure you have sufficient qualified expenses in the same tax year as the withdrawal. If distributions exceed adjusted qualified expenses, part of the earnings portion will be taxable and may also be subject to a 10% penalty.

Seeking Guidance

Before making a year-end tuition payment or 529 plan withdrawal, total the student’s expected expenses, scholarships and other educational assistance. Then determine which expenses should be assigned to each available tax benefit. Contact the office to discuss how the rules apply to your family.

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Navigating the Excess Business Loss Limit

If your business is anticipating a loss in 2026, you may expect to use that loss to offset income from other sources on your individual tax return. But if you operate as a sole proprietor or a pass-through entity, the excess business loss limitation could prevent you from deducting the full amount currently. The limit has been reduced for 2026, making year-end tax planning especially important this year.

How the Limit Works

A loss occurs when a business’s expenses and other deductions for the year exceed its revenue. Such losses generally can offset a sole proprietor’s or pass-through business owner’s income from other sources — such as salary, self-employment income, interest, dividends and capital gains — only up to the annual excess business loss limit.

Before applying that limit, you must factor in any other restrictions that may reduce your deductible business loss. These include basis, at-risk and passive activity loss rules.

If you still have a deductible loss after those rules have been applied, the excess business loss limit kicks in. For 2026, the current deduction limit for eligible business losses is $256,000, or $512,000 for married couples filing jointly — down from $313,000 and $626,000, respectively, for 2025. The 2026 amounts will be adjusted for inflation starting in 2027. (If you own multiple businesses, the calculation considers your combined business activities rather than applying a separate limit to each business.)

Any loss disallowed under this rule isn’t lost. Instead, it’s treated as a net operating loss (NOL) carryover to the following tax year. NOLs generally can be carried forward indefinitely, though the NOL deduction generally can’t exceed 80% of taxable income for the year, subject to various exceptions and transition rules.

The Limit in Action

Suppose you’re single and the sole owner of a pass-through business that generates a $600,000 loss in 2026, and you have no income or gains from other businesses. Assume the entire loss is otherwise deductible after applying the relevant basis, at-risk and passive activity loss rules.

Under the excess business loss limitation, you can deduct only $256,000 of the business loss currently. The remaining $344,000 is an excess business loss and is treated as an NOL carryover. So even if you have enough nonbusiness income in 2026 to absorb the entire $600,000 loss, you can’t use all of it to reduce your 2026 taxable income. But you’ll have an NOL you can deduct from your income in future years until the NOL is used up (subject to the various applicable rules and limits).

Planning Before Year End

If your business is expecting a substantial loss, consider estimating the impact before December 31. The timing of business income, gains and deductible expenses could affect the amount subject to the limitation. Other tax provisions also may affect your business loss deduction. Contact the office to determine how the rules apply to your situation and discuss year-end planning opportunities.

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Should Your Business Donate Excess Inventory?

If your business has inventory that’s unlikely to sell, donating the goods to charity before year end could help you clear space, support a charitable cause and potentially generate a tax deduction. But inventory contributions are subject to special rules, so consider the tax consequences before donating.

The Basics

Inventory is generally considered ordinary-income property. If donated inventory was included in your opening inventory for the year, your charitable deduction generally is limited to the lesser of its tax basis or fair market value (FMV). You generally must adjust your inventory and cost-of-goods-sold calculations so you don’t deduct the donated inventory twice.

If you donate items in the same year you bought them and their cost has already been reflected in cost of goods sold or otherwise recovered under your accounting method, you generally can’t also claim a charitable deduction for donating the inventory itself.

Keep in mind that slow-moving, obsolete or damaged goods may be worth less than their original cost, potentially reducing the deduction because it’s generally limited to the lesser of basis or FMV. So consider the goods’ current FMV when deciding whether donating them makes financial sense.

Enhanced Deductions

Certain donations may qualify for an enhanced deduction. For example, in some cases C corporations may be eligible to deduct the lesser of:

1. The inventory’s basis plus one-half of its appreciation, or
2. Twice its basis.

These higher limits may apply when qualifying inventory is donated to certain charitable organizations for the care of the ill, needy or infants. Specific requirements apply, including rules governing how the charity uses the property and a written statement from the charity.

Special enhanced-deduction rules also apply to donations of apparently wholesome food inventory and can benefit businesses other than C corporations.

Documentation and Filing

Proper documentation is essential. Generally, you’ll need a contemporaneous written acknowledgment from the charity.

You also may need to file Form 8283, “Noncash Charitable Contributions,” and obtain a qualified appraisal. Form 8283 filing requirements can vary for donated inventory, and certain inventory is exempt from the qualified appraisal requirement.

Year-End Considerations

Before donating excess inventory, determine its basis and FMV and confirm that the recipient and intended use satisfy applicable requirements. Contact the office for help evaluating the potential deduction and documentation requirements and determining whether a year-end donation fits your business’s tax strategy.

© 2026

Review Your Health Care FSA Before Year End

If you have an employer-sponsored Flexible Spending Account (FSA), now is a good time to check your balance. FSAs allow you to pay eligible health care expenses with pretax dollars, but they’re generally subject to a “use-it-or-lose-it” rule.

For 2026, the plan may allow you to carry over up to $680 of unused funds to 2027. Alternatively, it may provide a grace period of up to 2½ months after the year ends to incur eligible expenses. For a 2026 calendar-year plan that has a grace period, that period ends March 15, 2027. A plan can’t offer both a carryover and a grace period — only one or neither.

If you have a calendar-year plan and expect to forfeit funds, consider using the funds for eligible expenses before December 31, 2026. Some examples are deductibles and co-payments, dental and vision care (including glasses and contacts), medications and certain medical supplies.

IRS Updates Travel Per Diem Rates

The IRS has released its 2026–2027 per diem rates for certain business travel expenses, effective October 1, 2026. Under the high-low substantiation method, the rate for lodging, meals and incidental expenses for travel to high-cost localities within the continental United States (CONUS) rises to $329 per day, from $319. The rate for other CONUS localities rises to $230, from $225.

The portion attributable to meals remains $86 for high-cost areas and $74 for other areas. The incidental-expenses-only rate remains $5. Employers can pay more than the IRS per diem rates, but excess amounts generally must be substantiated or treated as taxable wages. Contact the office if you have any questions.

COVID-Era Tax Penalty Relief Denied?

Taxpayers who filed a refund or abatement claim based on Kwong v. United States may receive a denial from the IRS. In this case the court found that the IRS improperly assessed certain penalties and interest during the COVID-19 pandemic. The IRS has denied some Kwong claims, but that doesn’t necessarily end the matter. Litigation is ongoing.

If you received a denial letter, keep your records and check applicable deadlines. A formal claim disallowance notice generally starts a two-year period to file a refund lawsuit. If your abatement request was denied and you later pay the disputed amount, you may still be able to file a refund claim. Different rules apply to unpaid amounts. Don’t ignore collection notices. Contact the office for help reviewing your options.

7 Tips for Managing Cash Flow in QuickBooks Online

Cash flow and profitability are distinct indicators of a business’s financial health. Profitability refers to the revenue remaining after expenses are deducted. Cash flow, on the other hand, reflects how money moves into and out of the business. Cash flow affects liquidity — the ability to meet short-term financial obligations. For example, a profitable business may struggle to pay its bills if funds are tied up in unsold inventory or unpaid customer invoices.

QuickBooks Online offers several tools to help you monitor and manage cash flow. Reviewing cash flow alongside your profit and loss reports can provide a more complete picture of your business’s financial position and help identify potential cash shortages. Here are seven ways to manage your cash flow more effectively.

1. Review Account Balances

QuickBooks Online can import transactions from a credit card and other bank accounts. Knowing your current balances may not tell you how much money is available to pay expenses, but it’s still important. Review your cleared transactions regularly and confirm they’re categorized correctly so your reports accurately reflect your financial position.

Also, reconcile your accounts at least monthly. This process can find transactions that are missing, duplicated or have otherwise been recorded incorrectly. Errors can distort your cash flow reports.

2. Encourage Timely Payments

Sending an invoice promptly doesn’t guarantee timely payment, but there are ways to encourage faster payment. These include sending reminders, offering discounts for early payments and assessing finance charges on late payments. QuickBooks Online offers tools to help automate the process.

The software also offers two Accounts Receivable reports (summary and detail) that can show, in one view, who’s late with payments and by how much. Click Reports in the toolbar, then Standard reports | Who owes you.

3. Monitor Upcoming Bills

Review your pending bills to identify approaching due dates and determine whether you’ll have sufficient funds to meet your obligations. QuickBooks Online provides several ways to find this information.

Click All apps in the toolbar, then Expenses & Bills | Bills. Here, you can see the status of your bills: For review, Unpaid, Paid, and Recurring. You can also go to the Accounts payable aging summary or detail report (located under What you owe in the Standard reports list).

4. Consult the Profit and Loss Report

Cash flow and profitability are distinct, but reviewing your Profit and Loss report (under Reports | Business overview) alongside your accounts receivable, accounts payable and bank balances can provide a more complete picture of your business’s financial health.

5. Identify Unnecessary Expenses

As with bills, review your expenses regularly (Home | Expenses & Pay Bills | Expense transactions). Look for unexpected cost increases, unused subscriptions, unnecessary fees and small costs that add up.

Some expenses, such as office rent and utilities, may be essential, but reducing unnecessary costs can improve cash flow.

6. Explore Cash Flow Tools and Reports

QuickBooks Online offers two cash flow tools: the Cash flow overview and the Cash flow planner (hover your mouse over Reports, then click Financial planning). Another report, the Statement of Cash Flows, is under Reports | Business overview. Assistance is available if you need help creating, customizing and analyzing this report.

7. Establish a Weekly Routine

Regular cash flow monitoring is important. Set aside time each week to review your bank transactions, outstanding invoices, upcoming bills and cash balances. QuickBooks Online provides tools and information to help you evaluate where your cash is coming from, where it’s going and whether sufficient funds will be available when needed. Contact the office for assistance analyzing your cash flow and using QuickBooks Online to support your financial decisions.

Upcoming Tax Due Dates

November 16

Employers: Deposit Social Security, Medicare and withheld income taxes for October if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for October if the monthly deposit rule applies.

Calendar-year exempt organizations: File a 2025 information return (Form 990, Form 990-EZ or Form 990-PF) if a six-month extension was filed. Pay any tax, interest and penalties due.

December 10

Individuals: Report November tip income of $20 or more to employers (Form 4070).

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