November 11, 2025 • 41 mins
On this episode, we’ll dive into year-end planning and the strategies you could consider heading into 2026. We welcome Spencer Heywood and Michael Cornett to highlight planning topics to be aware of for the new year.
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(00:00):
On this episode, we'll dive into year-endplanning
and what strategiesyou could consider heading into 2026.
We welcome Spencer Heywood and MichaelCornett, our colleagues in the firm's
Washington National Tax Office,to talk about the action
items and planning topicsto be aware of for the new year.
From your one stop for taxupdates and analysis, I’m Iris.
(00:21):
And I'm Devin.
It's Tuesday November 11thand this is Tackling Tax.
Before we get startedwith our much-anticipated
(00:42):
guest, we normally start our showwith our Fast Four stories.
This week, however,we want to focus a little bit more on
last week'sSupreme Court case about tariffs.
So as a first for Tackling Tax,let's get started with what we are
calling our Tuesday Spotlight,a deeper dive into the tariff case.
(01:04):
Last week, the
Supreme Court heard oral arguments forand against upholding President Trump's
tariffs implementedunder the International Emergency
Economic Powers Act,or IEEPA as we'll call it.
So, Devin, I know thisprobably makes me a nerd, but here I am.
I have to admit,it was super interesting to me.
So not to bore youwith all of the specifics,
(01:26):
but I do think it's helpfuland kind of an interesting exercise
to understand some of the pointsthat are being considered in here.
So that being said,for the sake of brevity, I'll focus
on three of the points they spentmost of their time on in the hearing.
The first of which was a discussion ofthe plain text language of IEEPA itself.
(01:46):
So part of the wording of IEEPA givesthe president the power,
to quote “regulate importation,” sort of,among other things, a list of things.
The questionthen is whether the term “regulate”
in its nature implies tariff or tax.
Well, Iris,let me just say that you are a nerd,
(02:06):
but it's not just because of your interestin the tariff.
There you go.
All right.But no. So that's a very good point.
I think that's the primary pointhere, right?
Is this question of what doesregulate importation mean?
So what are the positionsthat are being taken on both sides?
Yeah,I mean, the point that the government is
making in defense of the IEEPA tariffsis that, you know,
(02:29):
what else would it meanif not tariff or tax, like what are the
other things that they would thinkabout “regulate” covering.
But the plaintiffs are arguingthat IEEPA gives the president sort
of a variety of powersto regulate importation,
but not the power to raise incomeor in this case
tariffs is their way of quote,“raising income.” So
(02:52):
they're holding that it'sa different sort of bucket altogether.
That it's not includedin the text of IEEPA itself
and therefore should not be upheld.
So is this where the majority of the timewas spent
then in the hearingwas focusing on this argument?
Yeah. I mean, I’dprobably agree with that.
Outside the debate about regulate, too,there were some other discussions
(03:14):
on, you know, technical terminologywithin the statute.
So, there was some discussionabout the terminology
about what the term “licenses”implies in the context of IEEPA.
You know, actually, one of the justicesmentioned that the license
point of what that meansis important to that justice.
(03:35):
So we'll see what that means as well,with how the outcome comes.
Okay.
So our primary point was related to theinterpretation of that language in IEEPA.
What is the second issuethat was focused on in this hearing?
Sure.
The second, I would say, actuallyis somewhat connected to the first
when you look at the arguments.
But the argumentis that no one disagrees,
(03:58):
sort of that baselinewith the power of the president to embargo
importation of goods from certain nationsall together.
So meaning they could, you know,President Trump can stop all importation
from, say, I don't know, for example,Canada or something, if he wants.
So that's kind of like the extreme option.
(04:19):
So if that's the case, the argument goes,
why shouldn't hetherefore have the power to tariff?
So arguably the more diplomaticor less extreme option.
You knowI think that that's an interesting one.
And, and they do go into it
to a certain extent, sort of backand forth about about that argument.
(04:41):
Okay.
So from what we just talked about thatI'm guessing the plaintiff’s position
is that the embargoesand tariffs are different.
One is raising revenuewhile the other is not.
Right. Nailed it. Yep.That's the argument. Right?
I think probably my favorite quote fromthe hearing was in response to the point
that, the difference between embargoesand tariffs are, quote, “an
(05:02):
odd donut hole.” So that's obviouslyfrom the government, right?
But the Oregon SolicitorGeneral, Benjamin Guttman,
Gutmannresponded that, to that odd donut hole
sort of quote saying, “It's not a donuthole, It's
a whole different kind of pastry.”So basically emphasizing, of course, that
(05:22):
the difference between revenue raisingand not is really the point
that they're making here.
Well, you got a lot of good play on words.
So I think that then brings usto our last point.
You want to walk us through then whatthe third item was that was focused on?
Yeah, sure.
The last point actually focuses more on
the question of IEEPA’sconstitutional bounds
(05:42):
to allow the presidentto levy these tariffs.
So there is a concept calledthe non-delegation doctrine.
That basically says that if Congress,
which has the constitutional powerto levy tariffs, delegates its powers,
then it has to do so withinsort of a reasonable limit.
There has to be limitations.
(06:03):
There has to be checks to that delegation.
So looking at other pieces of tradelegislation that are currently in place,
you'll see those limitations.
So there could be a requirementfor an investigation.
There could be a limit
to the amount of the tariffor the time that the tariffs are in place.
So it sounds like in other areas there arecertain limitations that are imposed.
(06:24):
But is that not the casethen with IEEPA? Right.
Not specifically.
The government is arguing, though,that the president's role in foreign
policy,has generally been pretty broad, right?
So he has broad powersin the realm of foreign policy.
And they're arguing thatthat should lower the bar significantly
for the non-delegation doctrine,essentially saying that,
(06:47):
in this case, non-delegationdoctrine should not pose a problem.
Okay. Well that's interesting.
I think I have a fair idea then of thethree main points that were discussed.
But for our listeners,really from a practical insight,
what does that actually mean?What's to come?
What should we expect?
Right.
So the big takeaway here isif they do overturn the IEEPA tariffs,
(07:10):
then importers of recordmay be due a refund.
And I'm going to saymay be due a refund here
because one of the plaintiff’s
arguments actually in the case itselfposed the possibility of maybe
the justices implementing an overturnof IEEPA on a prospective basis
(07:32):
without issuing refunds, retrospectively.
So we'll see what happens there.
All right.
Well, let's say refunds are issued.
Does that include everyonewho's been paying tariffs on everything?
Consumers?
What does that refund actually apply to?
Right.
So if it is we would anticipate thatit would be for the importers of record.
(07:56):
So it's those people who are sortof legally required to pay the tariff
when they're importing,not necessarily the end consumer.
So those importers might be passingon higher prices.
Right?
I think some of us have experienced thatjust sort of in everyday life.
You know,
we'll have to see whether the consumerwould get any sort of benefit.
(08:16):
It would probably be up to those importersbased on either their agreements
or just sort of their goodwillof how they handle that.
Well, what should our listeners doif they haven't paid a tariff yet,
but are anticipating that they will, before the court issues their opinion?
It's a great question, right,because you want to avoid the situation
of paying the tariff,filing for a refund, waiting for cash,
(08:38):
or even the possibility,that no refund will be provided at all
depending on how the Supreme Court rulesso there is something called entry
liquidation, which is essentially thefinal calculation of the tariff amount.
It's interesting, you can actually filefor an extension of liquidation
for up to a three-year period.
So that could be something to consider.
(09:00):
It would give you the option right
to pause on paying the tariffuntil the opinion is issued.
Now, you mentioned that time periodwhere we were
waiting to hear how the court will rule.
How long are we actually goingto be waiting for?
There isn't a set timeline here.
I know, that's unfortunate.
If we look to sort of trendsand recent cases
and how long that's been taking,you know, best
(09:20):
guess we're probably looking somewherebetween 2 to 4 months.
But this was done on an expedited basis,so that could be different
or because of the gravity of the situationmaybe they take longer.
You know,we just really have to wait and see.
Yeah.
Certainly does seem likeit could be a fairly long time.
Why is that? You know,it is a process, right.
So it does take some time.
(09:41):
Following the hearing,they'll take a vote internally,
the justices well, and then assign certainjustices to be drafters of the opinions.
For sure they'll be a majority opinion,which sort of is, quote, “the
winner,” right?
And then there could also bea concurring opinion
like what we saw with this casein the appeals court.
Then there could also bea dissenting opinion for those that don't
(10:04):
possibly agree with the majority.
So lots of drafting, lots of revisions,that kind of thing to go on.
Well, Iris,what happens if SCOTUS does rule against
thisand strikes down these IEEPA tariffs?
What does that mean moving forward then?
Are tariffs gone across the board?
You know, I know most of our listenerswould hope that that's the case.
(10:28):
Unfortunately that's not what's going to be reality.
So this is specific to IEEPA tariffs.
So, those reciprocal tariffsthat President Trump, you know,
held up on what he is calling LiberationDay is the big chart
with all the different tariff rates.
Some of the what quote“trafficking tariffs,” which are related
to fentanyl per his executive order,those kinds of things.
(10:51):
What's not impacted are the tariffslike on China under Section 301.
Some of the tariffswe've heard on copper, on autos,
on aluminum,that kind of thing, which is under 232.
I also think it's an interesting pointto make that the recent tariffs
that have been issued, President Trumphas strategically not implemented
(11:14):
them under IEEPA and insteadhas implemented them under 232.
And so whether that's an indication of hisfeeling about the case
or he's just kind of covering himself regardless of how the outcome is,
there will be tariffsimplemented moving forward.
So, be sure to take a look at our websitefor further discussion
(11:35):
about some of the strategies
that go into placefor mitigating tariffs on a broader level.
We actually had Michael Cornett
on one of our earliest episodesto talk about tariff strategies.
So that's things like unbundling,transfer pricing, classification,
or, you know, country of origin,some of that good stuff.
So there's a lot to unpack there.
(11:56):
And, you know, more to come.
We'll be monitoring this foryou guys for sure.
Well, I really appreciateyour practical insight on this.
And well, that's a wrapfor our first Tuesday spotlight.
Stay tuned for the main event,a discussion about year-end planning.
(12:17):
Well, today
we're goingto be talking all about year-end planning.
And we're so excited
to welcome Michael Cornettand Spencer Heywood for the discussion.
Mike Cornett is a managing directorwith the Washington National Tax Office
here at Forvis Mazars.
He focuses on international tax andtariffs, while Spencer is also with WNTO.
He's a senior managerfocused on technical tax
(12:40):
writing and is also a specialistwith our private client sector.
So welcome to Tackling Tax,Mike and Spencer.
Thanks, Iris. Yeah, thanks for having us.
Before we get started,I did want to share sort of a shameless
plug with the audience for our webinarabout year-end planning with these folks
that serves as a companion to the podcasttoday.
We're going to be focusing todayon our top five planning points.
(13:04):
But please be sure to tune into that webinar
for a more full discussion of the pointswe're talking about today.
And then also five additional pointsto come in at our top ten going into 2026.
So that being said, I turn to Mike
for our first sort of topfive planning points of the year.
(13:24):
The first on my list,which I think everyone who knows you
is aware that this is your new favoriteslogan is model, model, model.
So for those in the back,why has the tagline
become such an important thingfor clients?
Well, it's become an important thingbecause, you know, when you look at the
(13:44):
bill,the OB3, in isolation each provision
looks beneficial, or at leastmost of the major ones look beneficial.
But when you start seeing
how they interact with each otherand different limitations,
the only way you can seethat is by modeling.
So you really have to do modelingto figure out, you know, what is the best
decision for me to make when it comesto the elective provisions of this?
(14:06):
Because while it may soundgood on one end, when you push that
election through, it may cause an answeryou weren't anticipating.
So is that just for, I mean,you speak international tax, right.
Is that true for internationaland domestic-only entities?
Or would you say it's more applicableto one or the other?
It's really applicable to both.
(14:27):
I mean, yes,with international it's extremely critical
because of the differentinternational provisions
and the interaction with some of thesechanges on the domestic side.
But even for domestic,it is really kind of critical
to do some modeling because, you know,you could put yourself in a situation
where I take all these extra deductionsbecause it's like, great,
I don't have to pay any tax this year.
(14:49):
But then you may have created,for example, a net operating loss,
and that means next year you only get 80%of that deduction next year.
Right.
So you’re really sacrificing,you know, potentially expenses.
And we've talked about rightbefore like partnership tax.
Are we going to run into basis situations?
Are we going to kick into a different waterfall part of
the agreement, that kind of thing.
(15:09):
But you spoke about elections.
There are sort of two areas, right,that we think about
are the biggest sort of decision pointsright now
that clients are going to be modeling andmaybe toggling between different options.
What are those two for the group?
Probably the two biggest ones out thereare, you know, bonus depreciation.
Do you want to electto take 100% depreciation on
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tangible personal propertypurchased after 1/19/2025?
The other one being capitalized domestic
R&D expenses that you're now allowed to
either immediately write off here in 2025
or ratably between ‘25 and ’26.
Perfect.
So we've talked international and federaland some of those decisions, but
(15:53):
we haven't touched on state.
And I haven't seen a tonin the traditional
media, that kind of thing,about how OB3 affects states.
Can you speak to that a little bit?
You know, the statesa lot of times, you know, do
follow federal law or startwith federal adjusted gross income.
States right now trying to figure out
do they want to, in essence,follow the changes of OB3.
(16:14):
And it's a problem right now for states,because a lot of the states are running
budget deficitsor projected to run budget deficits.
So we're starting to see some statessaying, hey, we're not going to adopt
the OB3 provision of, let's say,bonus depreciation, or we may not adopt
the taking the capitalized domestic R&Dand allowing for an immediate deduction
because it would justincrease their deficit.
(16:34):
So we are seeing statesgoing through that process right now.
Do we want to follow it or not?
Do we know when we'll have an answer?
One way or the other?
Is there like a time frameor are we just kind of waiting to see?
Every state,
I mean, you're starting to seea few states
have already started to do somethingon this.
You know, Michigan's put something outthere, Colorado's done something.
But, you know,depending on how they use the word,
(16:57):
it's the word conformity is what they usein the vernacular.
Here is how they how they do it.
They may have to call a special session
of their legislatureto come back and look at it.
It may just be automatic.
It may not even be automatic at alland stuff
will just happen, you know, 2 or 3 yearsdown the road, like California did.
So every state's will be different.
(17:17):
I would suspect,if I was just looking at my crystal ball,
you know, sometime within the next year,every state will do something because,
you know,we're not having to do anything really
until the 2025 filing seasonkicks off here,
which will of course be until sometimein 2026 for a lot of you taxpayers.
Well, the federal law was not complicatedenough.
(17:37):
It sounds like with the state
conformity issue,modeling is going to be very important.
So for our next year-end planning point,we want to talk about charitable
contributions.
Now, Spencer,I want to go to you with this one.
There was a big change under OB3 impactingcharitable
contributions, that impactedboth individuals and corporations.
Can you walk us through whatthat change was?
(17:59):
Sure thing. Devin.
It's a good question.Many people have been asking us.
So let's let me startwith the foreign corporations.
So for tax years beginning after December31st, 2025, charitable
contributionsmade by corporations will be subject
to a 1% floor limitation.
So this means that only contributionsin excess
(18:20):
of 1% of a corporation'staxable income will be deductible.
So Devin, let me give you a quick example.
Let's say a corporation's taxableincome for the year is $1 million.
Only the portion of charitablecontributions in excess of 1%
or $10,000would be deductible by the corporation.
So if the corporation made $50,000of charitable contributions
(18:44):
for the year, only $40,000would be deductible for tax purposes.
And the same concept goes for individualtax return filers claiming
itemized deductions,except that that limitation is a half
percent floor measuredagainst their adjusted gross income.
I'll also add that in additionto the floor limitations,
(19:04):
both corporations and individual taxpayersshould also consider
the ceiling limitations that are in placerelated to charitable contributions.
So this isn't new, but just a reminderthat corporations can't deduct
charitable contributionsin excess of 10% of their taxable income.
Something that is new,however, is that beginning in 2026,
(19:28):
individuals that itemize their deductionsand that are in the top
37% tax bracketwill have their itemized deductions,
which includes charitable contributionsof course,
those will be limited to a 35%
benefit rather than a 37% benefit,
which is reflective of the tax bracketthat they're in know.
(19:49):
So there's a lot of significant changeshere that are going to impact
the deduction that, you know,both individuals and corporations alike
are going to be able to take as a resultof their charitable contributions.
So is there any planning that we canthen do?
We are in our topfive planning items here.
So what can individualsand corporations do?
To hopefully maybe mitigate some ofthe effect of, you know, these new floors?
(20:14):
Yeah.
So as I mentioned, the new floorsaren't applicable until tax years
beginning after December 31st, 2025.
So both corporate and individual taxpayersstill have some time
this year to make contributionsthat won't be subject to the floor.
Now for this year and going forward,something we've been talking to
our clients aboutis the concept of bunching contributions.
(20:38):
So let's say you're accustomed tocontributing $10,000 every year
to charity.
What you might think about doing iscombining your charitable contributions,
say for the next three years,into one contribution in a single year.
So you contribute
$30,000, let's say, in 2025.
(20:59):
So you aren't subject to the floor.
Or if you did it in 2026, then you wouldonly be subject to the floor one time.
So that way you can make three years’worth of contributions
in one yearand either avoid or minimize the floor.
Now remember the ceilings.
If you're bunching and
increasing your charitable contribution,you got to remember those ceilings, right?
(21:19):
The 10% ceiling for corporations, 35%
ceiling for individuals beginning in 2026.
So as Mike mentioned,you really got to model this out
and try to hit that sweet spotof enough contributions, but not too much.
Now if you did end up with excesscontributions, that's not the end
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of the world, because those excessdo carry forward for five years.
Which, that also actually brings upan additional interesting consideration.
If an excess contribution is generated,so if you exceed that ceiling,
not only canyou carry forward that excess,
but you can also carry forward the amountlimited by the floor.
(22:00):
So again, you'd have to do some modeling.
And I think the IRS is going to needto provide some more guidance on whether
the floor appliesevery year on the carry forward amounts,
but there may be a planning opportunityhere as well.
You know, it's an interesting concept.
I don't knowhow many corporations out there are,
you know,doing over 10% of taxable income per year.
But for those that are for each year
(22:23):
that you continue to exceed that 10%taxable income threshold,
you're really only getting hitwith that 1% floor once,
because that 1% will continue
to carry over and effectivelycover the 1%, and the subsequent years
that should carry forward thenas long as you are staying over the 10%.
But I'm not sureif there's a ton of clients
(22:43):
and taxpayers that are paying over10% of taxable income.
But it certainly is somethingI think that they should consider.
Yeah. That's right. And and let me
just speak a
little more to the concept of bunching.
A real neat way to dothis is by using a donor advised fund.
These are relatively easyand quick to set up.
(23:06):
And with these funds,what you can do is you can make,
let's say, your bunched contributions.
So going back to my example of three
years worth of contributionsput into one year.
So $30,000,you can contribute that to a donor advised
fund, you get the deduction in the yearthat you make the contribution.
But you can advise that fundto spread those contributions over,
(23:31):
you know, the time that you decide.
So in this case,you could still make your contributions,
$10,000 contributions every yearfor three years using a fund like that.
So it's it's a really neat, clean wayto incorporate this bunching technique.
So Spencer,
(23:51):
my husband is a big golfer, and he,you know, all the time he goes to
these charitable sort of golf tournamentsand there's all these corporate sponsors.
Is there sort of a play
that I've heard you talk about withregards to the corporate contributions
and whether they can be classifiedas advertising versus charity?
Like, is there something there?
(24:13):
Yeah.
So it just makes the,
you know, detailing these contributions, a little more important.
So using your example of a golf tournamentthat's often put on by charity,
there's typicallywhen you make those contributions, there's
typically a portionthat can be applied to advertising
(24:35):
and a portion that could be appliedto charitable contributions.
And so really making sure instead ofjust kind of dumping it all into
the charitable contribution basket,which might be limited by the floor
or the ceiling, you'd want to break outwhatever is truly advertising.
Let's say you get some signageas part of your sponsorship or,
(24:56):
you know, some sort of advertisingthat comes along with it.
You want to make sure that that's
categorized within advertising,so you're not subject to those limits.
Well, thanks for that.
And, I think that brings us
to our third planning point, which, Mike,looking at you
and I did one sort of broadcastingnote here at the time of this episode.
(25:17):
I just wanted to saythat the Supreme Court has not yet heard
the case about President Trump'sIEEPA tariffs.
And so, that's just we don't know how that went.
We don't know the argumentsthat were brought up, all that good stuff.
But that being said,before we dive into sort of tariff
mitigation strategies, which is sort of the more practical side of
like how companies can think about tariffsand plan looking into 2026.
(25:41):
Mike, could you give usa quick overview of the case and,
and what might happenif the tariffs are overturned?
Yeah Iris, the case is arisen out of,you know,
PresidentTrump has used the International Emergency
Economic Powers Act or IEEPAto impose many of his tariffs here
during his first few monthsof his administration.
(26:04):
Several companies have challengedthose tariffs,
along with state attorney generals.
There were cases filed.
The International Trade Courtheard the original case and found against
the president's use of those tariffsunder a couple different theories.
Case then went up on appeal to the U.S.
Court of Appeals for the Federal Circuit,where, again,
(26:24):
they found in a split decision, 7-to-4against the president.
And so then the president appealedto the Supreme Court, as you said.
That'll be later on November 5th; it'll be interesting to see where it goes.
The split court,was an interesting decision because,
you know, on the seven, it was basically,you know, to put it easily
they just said that IEEPA didn'tprovide for tariffs to be issued.
(26:47):
I mean, there is some nuance to that.
Whereas the four said
of course IEEPA allows for tariffsto be imposed by the president.
So it'll be a very interesting argument, as to what
people should be thinking about doing.
I mean, if the Supreme Court does findthat the tariffs were illegal,
there certainly will have to be refundopportunities.
Now, maybe that means you actually filea refund claim.
(27:10):
Maybe it means, you know,
you'll need to file an actual protestwith a court to get your money back.
We've heard that the other processis what they call liquidation,
where, you know,you may have not paid the tariffs yet
to, the Customs Border Protection.
And so you can ask for thatperiod of payment to be extended there.
So it’ll be very interesting.
(27:30):
The key thing there is
make sure you have your documentation,you know, know what you pay tariffs on.
Make sure they were tariffscovered by IEEPA because this court case
really is only dealing
with certain tariffs under IEEPAand is not that dealing with other tariffs
referred to as 232 or 301,which is like steel, copper or aluminum.
Some of the tariffs on Chinaare also not covered, even though
(27:52):
there are some tariffs on Chinathat were IEEPA-based.
Perfect.
So outside of the casethen, it sounds like
I haven't ever heard you say thatyou think tariffs are going away, right?
Like to your point,you just said 232 and 301.
They're still going to be there.
How do we think,if they are overturned, are companies
(28:13):
still going to be affected by tariffsmore generally?
Yeah I think you know, this presidenthas certainly indicated
if he were to lose his case,
he will look for other avenues,whether it's 232, 301-type tariffs.
So I think, you know,you still need to be prepared
that we're going to be in a tariff-basedeconomy.
Also,you know, he's negotiated trade deals
(28:33):
in the meantime and those trade dealshave tariffs being imposed.
And the thought is,even if the president were to lose
these cases,deals will still stay in place.
And so you will still see tariffs,you know,
coming from those countrieswhere the trade deals are in place.
So tariffs are here to stay.
How can we mitigate them?
Let's jump right into that.
Yeah. How to mitigate.
You knowI mean of course the easy thing to do,
(28:55):
well easy is probably to not the proper word.
But, you know,you look at your classifications,
look at your country of origin,look at your valuations.
I mean, that's how tariffs are determinedanyway.
Make sure you classify the product right.
Because that could impact the tariff.
Other strategies are,if you're dealing with related parties,
also looking at your transfer pricing,see if you can reduce transfer pricing,
(29:18):
which would helpmaybe reduce the customs valuations.
A couple other strategies people areusing is a concept called first sale,
which means generally
when you have a situationwhere you have a manufacturer or middleman
and then importer of record,that you try to base the customs value
on that price between the manufacturerand the middleman.
(29:39):
That requires you get
a lot of documentation, but,again, that's possible.
And then another one we're seeing a lot ofis what I call unbundling of services,
because we didn't impose a lot of tariffsprior to President Trump.
People would maybe bury servicesin the price on the invoice for the good.
You know, after,you know, purchased services
(30:00):
like installation, warrantyservices, maintenance contract.
So it's important to go backand pull out all those services,
which shouldn't be subject, or consideredprice of the product, and get them
separately stated and then you won't paytariffs on services.
Well Spencer, I want to kick itback to you for our fourth year-end
planning point.
And that againis another opportunity from OB3.
(30:23):
And it's related to compensation
and benefit offerings for employersand their employees.
And you know,our team has been traveling a lot.
Michael'sbasically been living out of a hotel.
But over the last two months,we've been speaking
with a lot of conferencesand with clients and
there is one topic that seems
to be very importantno matter where we go.
(30:48):
And that's no tax on tipsand no tax on overtime.
A lot of time is being spent in these
presentations and conversationstalking about these provisions.
You know, we've got our 25 transitionguidance considerations,
but we also have items of considerationmoving forward and working with payroll.
(31:09):
So can youmaybe just talk us through a little bit.
You know, what employers should beconsidering as an opportunity standpoint
in year-end planning as it relates tothere's no tax on tips and overtime.
Yeah, sure. Devin, it's true.
Business owners have really,keyed into this issue.
Not so much because the deductionsavailable or to them for tip and overtime
(31:30):
deduction, but to their employees,like you mentioned.
And how to handle thatwithin their payroll.
So I think the important thingthat business owners and executives
may want to let their employees knowis that not over,
not all of their overtimemay be eligible for the deduction.
So there are limits, right?
There's a limit of $12,500for single filers,
(31:53):
25,000for those who are filing married joint.
And the deduction begins to phase outat $150,000 of modified
adjusted gross income for single filersand 300,000 for joint filers.
So employees should know thatperhaps not all of their overtime
compensationmay be eligible for the deduction.
(32:14):
Also, the deductiononly applies to overtime paid
as required under the FairLabor Standards Act.
So just to give an example,we'll use an easy number here.
Let's say you have an employeethat makes $10 per hour.
If the FLSA, the Fair Labor
Standards Act requires time and a half
(32:35):
paid on that on those overtime hours.
And so you pay them $15 an hour,
only the amount in excessof the employee's normal rate
that's required to be
paid underthe FLSA is eligible for the deduction.
So in this example, only $5 per hourwould be eligible for the deduction.
(32:59):
Yeah, it's a really good point.
I've had questions on collectivebargaining agreements.
Or maybe they have a higher overtime ratethat's been negotiated
with the union or other jurisdictionsthat have higher rates.
And no, this is limited to FLSA requiredovertime in that one-and-a-half
and only the additionalincremental amount.
(33:19):
What about tips?
What is the primaryconsideration on that front?
Yeah.
So, youknow, some of the same considerations.
It's important for employers to understandwhat tips
may qualify for the deductionand which tips don't
so they can properly reportthat information to their employees.
The IRS did releasesome proposed regulations which identify
(33:42):
different qualifying occupationsand other technicalities surrounding tips.
One of those, for example,is that tips must be paid voluntarily.
So, think about automatic gratuities.
Say you have a large party at a restaurant
and there's a mandatory automatic gratuitycharged.
That kind of tipwould not qualify for the deduction
(34:05):
because it wasn't paid voluntarily.
There's other limits.
So similar to the overtime wages.
A little bit different, though for tips.
The tips limit is $25,000.
And that's true whether you're filingsingle or filing joint.
And then the modified AGI
limits are the same (34:25):
$150,000 and $300,000
when the phaseout of the deductionbegins.
So, again, employees should know thatnot all of their
tip income may be eligiblefor the deduction.
Yeah, I think that's definitely important.
And one itemI want to point out is, you know, there
(34:47):
really is not much guidance right nowfor tips or overtime,
particularly as it relates to 2025guidance or transition.
So what I have been telling employersas we travel and do these presentations
is for 2025, just do a good faith effort
to provide like a reasonable approximationto your employees of what you believe
(35:10):
that overtime amount is,
you know, certainly inform themto consult their own tax advisors.
But I think a lack of guidance for 2025,good faith effort,
reasonable approximationwill probably cover you on that front.
And then we have a revised 2026 form W-2.
So, you know, reach out to your payrollproviders, and, you know, see how they're
(35:31):
revising their systems to kind of helpyou track this moving forward.
And, you know, going back to the overtime,I think to the extent you have,
concerns about,well, what's our regular rate of pay
to calculate the overtime based onor who is ultimately required to do it?
You know, certainly
I would advise, you know,consulting your internal legal counsel
(35:52):
to potentially then engage external legalcounsel from, you know, that's labor law
to kind of look into that so you can geta little bit more comfortable
on who you should and what you should be,you know, reporting.
Well, that brings us to our fifthand final planning tip for 2025.
Mike, this is going to bea little bit of a preview
for one of our upcoming episodesand that's about section 1202.
(36:17):
For those who aren't code headswho can rattle off,
you know, IRC sections in their sleep,
what is 1202 and what's reallythe opportunity for folks here?
Yeah, the opportunity for folks hereis if they own stock,
at the time, meets certain requirementsat the time they originally bought it,
(36:39):
they have the ability to excludegain earned
when they dispose of that stock laterat a very high level.
This isn't new, though, right?
I mean, I've heard folks trying toto qualify for this for a while,
so why is it in our top ten,I guess really is the question, right.
Yeah. You're right Iris.
This is not new.
It's been around,but what they did here in OB3 was,
(37:02):
expand the benefits and change somethe limitation.
So now it's more available for more peoplethan it was before.
Now to apply to,you know, these new rules apply for
stock issued after July 4th of 2025.
And what they did is they
expand the asset base,as they call it, for individuals.
(37:23):
So it would be on companieswhose assets, at the time of the issuance
of the stock were $75 millionor less, up from $50 million.
And then increase the gain, the eligibleexclusion from, the greater of ten times
basis or $15 million hits now, ten, which is the current rule or the new rule.
And then the overall was 10 million.
So ten times basis or 10 million.
(37:44):
So they've allowed the pool to be biggeron the people who were there.
And then they gave some graduated scales,depending on
whether you filed for three, five,or three or four or five years.
So, you know, all of our listenersare, have a to-do list
however long and a lot of them are saying,hey, with these planning points,
what should I actually addas an action item to my to-do list?
(38:06):
What's your answer for this one?
My favorite one is model, model model,but I can't use that here.
So I think for this one,the thing to do is go back
and work with your advisor to figure out,you know, the stock that I have held in
maybe this small company.
Do I have the proper documentation for it?
When did I buy it?
If I'm going to go forward and investin a smaller company, make sure again
(38:28):
that I do have that proper documentationto support that I qualify
for this provision.
And potentially right,if you're holding qualifying
stock at the momentand considering a transaction,
be sure to work with your advisorto make sure you're not blowing any sort
of, one of the rulesto to keep from your qualification, right?
Yeah, absolutely.
The rules are often complex in this area.
(38:51):
And it'll all depend.
There's certain things,whether you own it directly,
you own it through a partnership.
There's just a lot that goes into this.
So you definitely need to workwith an advisor to make sure
that you're going to qualify,or you don't lose your qualification.
Well, perfect. I think that wraps it up.
If you're interested in 1202,be sure to keep an eye
out for our upcoming episode,all specific to that topic.
(39:14):
But without further ado,I just wanted to say thank you.
Mike and Spencer,this has been very insightful.
And we hope to see you again on our show.
Thanks, Iris.
Appreciate it.
And stick aroundfor our Focused FORsight of the week.
Each episode will bring you what we calla Focused FORsight of the week,
(39:37):
an article or webinarthat might be of interest to you.
This week's FocusedFORsight is actually a webinar
that is going to be happening tomorrow,November 12th,
where we, and that also includes meas one of the presenters,
will be going into our topten planning points heading into 2026.
So if you enjoyed our episode today,it is not too late to register
(39:58):
for that event on our websiteand I really hope to see you there.
And that's our show. Thanks for joining!
Remember to subscribe and listen infor the next episode of the podcast.
Until next time.
The information set forth in this podcastcontains the analysis and conclusions
of the panelists based upon his, her,or their research
(40:18):
and analysis of industryinformation and legal authorities.
Such analysis and conclusionsshould not be deemed
opinions or conclusions by Forvis Mazarsor the panelists
as to any individual situationas situations are fact-specific.
The listener should performtheir own analysis and form
their own conclusionsregarding any specific situation.
(40:39):
Further, the panelists’ conclusionsmay be revised without notice,
with or without changes in industryinformation and legal authorities.
On this episode, we'll dive into year-endplanning
and what strategiesyou could consider heading into 2026.
We welcome Spencer Heywood and MichaelCornett, our colleagues in the firm's
Washington National Tax Office,to talk about the action
items and planning topicsto be aware of for the new year.
From your one stop for taxupdates and analysis, I’m Iris.
(00:21):
And I'm Devin.
It's Tuesday November 11thand this is Tackling Tax.
Before we get startedwith our much-anticipated
(00:42):
guest, we normally start our showwith our Fast Four stories.
This week, however,we want to focus a little bit more on
last week'sSupreme Court case about tariffs.
So as a first for Tackling Tax,let's get started with what we are
calling our Tuesday Spotlight,a deeper dive into the tariff case.
(01:04):
Last week, the
Supreme Court heard oral arguments forand against upholding President Trump's
tariffs implementedunder the International Emergency
Economic Powers Act,or IEEPA as we'll call it.
So, Devin, I know thisprobably makes me a nerd, but here I am.
I have to admit,it was super interesting to me.
So not to bore youwith all of the specifics,
(01:26):
but I do think it's helpfuland kind of an interesting exercise
to understand some of the pointsthat are being considered in here.
So that being said,for the sake of brevity, I'll focus
on three of the points they spentmost of their time on in the hearing.
The first of which was a discussion ofthe plain text language of IEEPA itself.
(01:46):
So part of the wording of IEEPA givesthe president the power,
to quote “regulate importation,” sort of,among other things, a list of things.
The questionthen is whether the term “regulate”
in its nature implies tariff or tax.
Well, Iris,let me just say that you are a nerd,
(02:06):
but it's not just because of your interestin the tariff.
There you go.
All right.But no. So that's a very good point.
I think that's the primary pointhere, right?
Is this question of what doesregulate importation mean?
So what are the positionsthat are being taken on both sides?
Yeah,I mean, the point that the government is
making in defense of the IEEPA tariffsis that, you know,
(02:29):
what else would it meanif not tariff or tax, like what are the
other things that they would thinkabout “regulate” covering.
But the plaintiffs are arguingthat IEEPA gives the president sort
of a variety of powersto regulate importation,
but not the power to raise incomeor in this case
tariffs is their way of quote,“raising income.” So
(02:52):
they're holding that it'sa different sort of bucket altogether.
That it's not includedin the text of IEEPA itself
and therefore should not be upheld.
So is this where the majority of the timewas spent
then in the hearingwas focusing on this argument?
Yeah. I mean, I’dprobably agree with that.
Outside the debate about regulate, too,there were some other discussions
(03:14):
on, you know, technical terminologywithin the statute.
So, there was some discussionabout the terminology
about what the term “licenses”implies in the context of IEEPA.
You know, actually, one of the justicesmentioned that the license
point of what that meansis important to that justice.
(03:35):
So we'll see what that means as well,with how the outcome comes.
Okay.
So our primary point was related to theinterpretation of that language in IEEPA.
What is the second issuethat was focused on in this hearing?
Sure.
The second, I would say, actuallyis somewhat connected to the first
when you look at the arguments.
But the argumentis that no one disagrees,
(03:58):
sort of that baselinewith the power of the president to embargo
importation of goods from certain nationsall together.
So meaning they could, you know,President Trump can stop all importation
from, say, I don't know, for example,Canada or something, if he wants.
So that's kind of like the extreme option.
(04:19):
So if that's the case, the argument goes,
why shouldn't hetherefore have the power to tariff?
So arguably the more diplomaticor less extreme option.
You knowI think that that's an interesting one.
And, and they do go into it
to a certain extent, sort of backand forth about about that argument.
(04:41):
Okay.
So from what we just talked about thatI'm guessing the plaintiff’s position
is that the embargoesand tariffs are different.
One is raising revenuewhile the other is not.
Right. Nailed it. Yep.That's the argument. Right?
I think probably my favorite quote fromthe hearing was in response to the point
that, the difference between embargoesand tariffs are, quote, “an
(05:02):
odd donut hole.” So that's obviouslyfrom the government, right?
But the Oregon SolicitorGeneral, Benjamin Guttman,
Gutmannresponded that, to that odd donut hole
sort of quote saying, “It's not a donuthole, It's
a whole different kind of pastry.”So basically emphasizing, of course, that
(05:22):
the difference between revenue raisingand not is really the point
that they're making here.
Well, you got a lot of good play on words.
So I think that then brings usto our last point.
You want to walk us through then whatthe third item was that was focused on?
Yeah, sure.
The last point actually focuses more on
the question of IEEPA’sconstitutional bounds
(05:42):
to allow the presidentto levy these tariffs.
So there is a concept calledthe non-delegation doctrine.
That basically says that if Congress,
which has the constitutional powerto levy tariffs, delegates its powers,
then it has to do so withinsort of a reasonable limit.
There has to be limitations.
(06:03):
There has to be checks to that delegation.
So looking at other pieces of tradelegislation that are currently in place,
you'll see those limitations.
So there could be a requirementfor an investigation.
There could be a limit
to the amount of the tariffor the time that the tariffs are in place.
So it sounds like in other areas there arecertain limitations that are imposed.
(06:24):
But is that not the casethen with IEEPA? Right.
Not specifically.
The government is arguing, though,that the president's role in foreign
policy,has generally been pretty broad, right?
So he has broad powersin the realm of foreign policy.
And they're arguing thatthat should lower the bar significantly
for the non-delegation doctrine,essentially saying that,
(06:47):
in this case, non-delegationdoctrine should not pose a problem.
Okay. Well that's interesting.
I think I have a fair idea then of thethree main points that were discussed.
But for our listeners,really from a practical insight,
what does that actually mean?What's to come?
What should we expect?
Right.
So the big takeaway here isif they do overturn the IEEPA tariffs,
(07:10):
then importers of recordmay be due a refund.
And I'm going to saymay be due a refund here
because one of the plaintiff’s
arguments actually in the case itselfposed the possibility of maybe
the justices implementing an overturnof IEEPA on a prospective basis
(07:32):
without issuing refunds, retrospectively.
So we'll see what happens there.
All right.
Well, let's say refunds are issued.
Does that include everyonewho's been paying tariffs on everything?
Consumers?
What does that refund actually apply to?
Right.
So if it is we would anticipate thatit would be for the importers of record.
(07:56):
So it's those people who are sortof legally required to pay the tariff
when they're importing,not necessarily the end consumer.
So those importers might be passingon higher prices.
Right?
I think some of us have experienced thatjust sort of in everyday life.
You know,
we'll have to see whether the consumerwould get any sort of benefit.
(08:16):
It would probably be up to those importersbased on either their agreements
or just sort of their goodwillof how they handle that.
Well, what should our listeners doif they haven't paid a tariff yet,
but are anticipating that they will, before the court issues their opinion?
It's a great question, right,because you want to avoid the situation
of paying the tariff,filing for a refund, waiting for cash,
(08:38):
or even the possibility,that no refund will be provided at all
depending on how the Supreme Court rulesso there is something called entry
liquidation, which is essentially thefinal calculation of the tariff amount.
It's interesting, you can actually filefor an extension of liquidation
for up to a three-year period.
So that could be something to consider.
(09:00):
It would give you the option right
to pause on paying the tariffuntil the opinion is issued.
Now, you mentioned that time periodwhere we were
waiting to hear how the court will rule.
How long are we actually goingto be waiting for?
There isn't a set timeline here.
I know, that's unfortunate.
If we look to sort of trendsand recent cases
and how long that's been taking,you know, best
(09:20):
guess we're probably looking somewherebetween 2 to 4 months.
But this was done on an expedited basis,so that could be different
or because of the gravity of the situationmaybe they take longer.
You know,we just really have to wait and see.
Yeah.
Certainly does seem likeit could be a fairly long time.
Why is that? You know,it is a process, right.
So it does take some time.
(09:41):
Following the hearing,they'll take a vote internally,
the justices well, and then assign certainjustices to be drafters of the opinions.
For sure they'll be a majority opinion,which sort of is, quote, “the
winner,” right?
And then there could also bea concurring opinion
like what we saw with this casein the appeals court.
Then there could also bea dissenting opinion for those that don't
(10:04):
possibly agree with the majority.
So lots of drafting, lots of revisions,that kind of thing to go on.
Well, Iris,what happens if SCOTUS does rule against
thisand strikes down these IEEPA tariffs?
What does that mean moving forward then?
Are tariffs gone across the board?
You know, I know most of our listenerswould hope that that's the case.
(10:28):
Unfortunately that's not what's going to be reality.
So this is specific to IEEPA tariffs.
So, those reciprocal tariffsthat President Trump, you know,
held up on what he is calling LiberationDay is the big chart
with all the different tariff rates.
Some of the what quote“trafficking tariffs,” which are related
to fentanyl per his executive order,those kinds of things.
(10:51):
What's not impacted are the tariffslike on China under Section 301.
Some of the tariffswe've heard on copper, on autos,
on aluminum,that kind of thing, which is under 232.
I also think it's an interesting pointto make that the recent tariffs
that have been issued, President Trumphas strategically not implemented
(11:14):
them under IEEPA and insteadhas implemented them under 232.
And so whether that's an indication of hisfeeling about the case
or he's just kind of covering himself regardless of how the outcome is,
there will be tariffsimplemented moving forward.
So, be sure to take a look at our websitefor further discussion
(11:35):
about some of the strategies
that go into placefor mitigating tariffs on a broader level.
We actually had Michael Cornett
on one of our earliest episodesto talk about tariff strategies.
So that's things like unbundling,transfer pricing, classification,
or, you know, country of origin,some of that good stuff.
So there's a lot to unpack there.
(11:56):
And, you know, more to come.
We'll be monitoring this foryou guys for sure.
Well, I really appreciateyour practical insight on this.
And well, that's a wrapfor our first Tuesday spotlight.
Stay tuned for the main event,a discussion about year-end planning.
(12:17):
Well, today
we're goingto be talking all about year-end planning.
And we're so excited
to welcome Michael Cornettand Spencer Heywood for the discussion.
Mike Cornett is a managing directorwith the Washington National Tax Office
here at Forvis Mazars.
He focuses on international tax andtariffs, while Spencer is also with WNTO.
He's a senior managerfocused on technical tax
(12:40):
writing and is also a specialistwith our private client sector.
So welcome to Tackling Tax,Mike and Spencer.
Thanks, Iris. Yeah, thanks for having us.
Before we get started,I did want to share sort of a shameless
plug with the audience for our webinarabout year-end planning with these folks
that serves as a companion to the podcasttoday.
We're going to be focusing todayon our top five planning points.
(13:04):
But please be sure to tune into that webinar
for a more full discussion of the pointswe're talking about today.
And then also five additional pointsto come in at our top ten going into 2026.
So that being said, I turn to Mike
for our first sort of topfive planning points of the year.
(13:24):
The first on my list,which I think everyone who knows you
is aware that this is your new favoriteslogan is model, model, model.
So for those in the back,why has the tagline
become such an important thingfor clients?
Well, it's become an important thingbecause, you know, when you look at the
(13:44):
bill,the OB3, in isolation each provision
looks beneficial, or at leastmost of the major ones look beneficial.
But when you start seeing
how they interact with each otherand different limitations,
the only way you can seethat is by modeling.
So you really have to do modelingto figure out, you know, what is the best
decision for me to make when it comesto the elective provisions of this?
(14:06):
Because while it may soundgood on one end, when you push that
election through, it may cause an answeryou weren't anticipating.
So is that just for, I mean,you speak international tax, right.
Is that true for internationaland domestic-only entities?
Or would you say it's more applicableto one or the other?
It's really applicable to both.
(14:27):
I mean, yes,with international it's extremely critical
because of the differentinternational provisions
and the interaction with some of thesechanges on the domestic side.
But even for domestic,it is really kind of critical
to do some modeling because, you know,you could put yourself in a situation
where I take all these extra deductionsbecause it's like, great,
I don't have to pay any tax this year.
(14:49):
But then you may have created,for example, a net operating loss,
and that means next year you only get 80%of that deduction next year.
Right.
So you’re really sacrificing,you know, potentially expenses.
And we've talked about rightbefore like partnership tax.
Are we going to run into basis situations?
Are we going to kick into a different waterfall part of
the agreement, that kind of thing.
(15:09):
But you spoke about elections.
There are sort of two areas, right,that we think about
are the biggest sort of decision pointsright now
that clients are going to be modeling andmaybe toggling between different options.
What are those two for the group?
Probably the two biggest ones out thereare, you know, bonus depreciation.
Do you want to electto take 100% depreciation on
(15:31):
tangible personal propertypurchased after 1/19/2025?
The other one being capitalized domestic
R&D expenses that you're now allowed to
either immediately write off here in 2025
or ratably between ‘25 and ’26.
Perfect.
So we've talked international and federaland some of those decisions, but
(15:53):
we haven't touched on state.
And I haven't seen a tonin the traditional
media, that kind of thing,about how OB3 affects states.
Can you speak to that a little bit?
You know, the statesa lot of times, you know, do
follow federal law or startwith federal adjusted gross income.
States right now trying to figure out
do they want to, in essence,follow the changes of OB3.
(16:14):
And it's a problem right now for states,because a lot of the states are running
budget deficitsor projected to run budget deficits.
So we're starting to see some statessaying, hey, we're not going to adopt
the OB3 provision of, let's say,bonus depreciation, or we may not adopt
the taking the capitalized domestic R&Dand allowing for an immediate deduction
because it would justincrease their deficit.
(16:34):
So we are seeing statesgoing through that process right now.
Do we want to follow it or not?
Do we know when we'll have an answer?
One way or the other?
Is there like a time frameor are we just kind of waiting to see?
Every state,
I mean, you're starting to seea few states
have already started to do somethingon this.
You know, Michigan's put something outthere, Colorado's done something.
But, you know,depending on how they use the word,
(16:57):
it's the word conformity is what they usein the vernacular.
Here is how they how they do it.
They may have to call a special session
of their legislatureto come back and look at it.
It may just be automatic.
It may not even be automatic at alland stuff
will just happen, you know, 2 or 3 yearsdown the road, like California did.
So every state's will be different.
(17:17):
I would suspect,if I was just looking at my crystal ball,
you know, sometime within the next year,every state will do something because,
you know,we're not having to do anything really
until the 2025 filing seasonkicks off here,
which will of course be until sometimein 2026 for a lot of you taxpayers.
Well, the federal law was not complicatedenough.
(17:37):
It sounds like with the state
conformity issue,modeling is going to be very important.
So for our next year-end planning point,we want to talk about charitable
contributions.
Now, Spencer,I want to go to you with this one.
There was a big change under OB3 impactingcharitable
contributions, that impactedboth individuals and corporations.
Can you walk us through whatthat change was?
(17:59):
Sure thing. Devin.
It's a good question.Many people have been asking us.
So let's let me startwith the foreign corporations.
So for tax years beginning after December31st, 2025, charitable
contributionsmade by corporations will be subject
to a 1% floor limitation.
So this means that only contributionsin excess
(18:20):
of 1% of a corporation'staxable income will be deductible.
So Devin, let me give you a quick example.
Let's say a corporation's taxableincome for the year is $1 million.
Only the portion of charitablecontributions in excess of 1%
or $10,000would be deductible by the corporation.
So if the corporation made $50,000of charitable contributions
(18:44):
for the year, only $40,000would be deductible for tax purposes.
And the same concept goes for individualtax return filers claiming
itemized deductions,except that that limitation is a half
percent floor measuredagainst their adjusted gross income.
I'll also add that in additionto the floor limitations,
(19:04):
both corporations and individual taxpayersshould also consider
the ceiling limitations that are in placerelated to charitable contributions.
So this isn't new, but just a reminderthat corporations can't deduct
charitable contributionsin excess of 10% of their taxable income.
Something that is new,however, is that beginning in 2026,
(19:28):
individuals that itemize their deductionsand that are in the top
37% tax bracketwill have their itemized deductions,
which includes charitable contributionsof course,
those will be limited to a 35%
benefit rather than a 37% benefit,
which is reflective of the tax bracketthat they're in know.
(19:49):
So there's a lot of significant changeshere that are going to impact
the deduction that, you know,both individuals and corporations alike
are going to be able to take as a resultof their charitable contributions.
So is there any planning that we canthen do?
We are in our topfive planning items here.
So what can individualsand corporations do?
To hopefully maybe mitigate some ofthe effect of, you know, these new floors?
(20:14):
Yeah.
So as I mentioned, the new floorsaren't applicable until tax years
beginning after December 31st, 2025.
So both corporate and individual taxpayersstill have some time
this year to make contributionsthat won't be subject to the floor.
Now for this year and going forward,something we've been talking to
our clients aboutis the concept of bunching contributions.
(20:38):
So let's say you're accustomed tocontributing $10,000 every year
to charity.
What you might think about doing iscombining your charitable contributions,
say for the next three years,into one contribution in a single year.
So you contribute
$30,000, let's say, in 2025.
(20:59):
So you aren't subject to the floor.
Or if you did it in 2026, then you wouldonly be subject to the floor one time.
So that way you can make three years’worth of contributions
in one yearand either avoid or minimize the floor.
Now remember the ceilings.
If you're bunching and
increasing your charitable contribution,you got to remember those ceilings, right?
(21:19):
The 10% ceiling for corporations, 35%
ceiling for individuals beginning in 2026.
So as Mike mentioned,you really got to model this out
and try to hit that sweet spotof enough contributions, but not too much.
Now if you did end up with excesscontributions, that's not the end
(21:39):
of the world, because those excessdo carry forward for five years.
Which, that also actually brings upan additional interesting consideration.
If an excess contribution is generated,so if you exceed that ceiling,
not only canyou carry forward that excess,
but you can also carry forward the amountlimited by the floor.
(22:00):
So again, you'd have to do some modeling.
And I think the IRS is going to needto provide some more guidance on whether
the floor appliesevery year on the carry forward amounts,
but there may be a planning opportunityhere as well.
You know, it's an interesting concept.
I don't knowhow many corporations out there are,
you know,doing over 10% of taxable income per year.
But for those that are for each year
(22:23):
that you continue to exceed that 10%taxable income threshold,
you're really only getting hitwith that 1% floor once,
because that 1% will continue
to carry over and effectivelycover the 1%, and the subsequent years
that should carry forward thenas long as you are staying over the 10%.
But I'm not sureif there's a ton of clients
(22:43):
and taxpayers that are paying over10% of taxable income.
But it certainly is somethingI think that they should consider.
Yeah. That's right. And and let me
just speak a
little more to the concept of bunching.
A real neat way to dothis is by using a donor advised fund.
These are relatively easyand quick to set up.
(23:06):
And with these funds,what you can do is you can make,
let's say, your bunched contributions.
So going back to my example of three
years worth of contributionsput into one year.
So $30,000,you can contribute that to a donor advised
fund, you get the deduction in the yearthat you make the contribution.
But you can advise that fundto spread those contributions over,
(23:31):
you know, the time that you decide.
So in this case,you could still make your contributions,
$10,000 contributions every yearfor three years using a fund like that.
So it's it's a really neat, clean wayto incorporate this bunching technique.
So Spencer,
(23:51):
my husband is a big golfer, and he,you know, all the time he goes to
these charitable sort of golf tournamentsand there's all these corporate sponsors.
Is there sort of a play
that I've heard you talk about withregards to the corporate contributions
and whether they can be classifiedas advertising versus charity?
Like, is there something there?
(24:13):
Yeah.
So it just makes the,
you know, detailing these contributions, a little more important.
So using your example of a golf tournamentthat's often put on by charity,
there's typicallywhen you make those contributions, there's
typically a portionthat can be applied to advertising
(24:35):
and a portion that could be appliedto charitable contributions.
And so really making sure instead ofjust kind of dumping it all into
the charitable contribution basket,which might be limited by the floor
or the ceiling, you'd want to break outwhatever is truly advertising.
Let's say you get some signageas part of your sponsorship or,
(24:56):
you know, some sort of advertisingthat comes along with it.
You want to make sure that that's
categorized within advertising,so you're not subject to those limits.
Well, thanks for that.
And, I think that brings us
to our third planning point, which, Mike,looking at you
and I did one sort of broadcastingnote here at the time of this episode.
(25:17):
I just wanted to saythat the Supreme Court has not yet heard
the case about President Trump'sIEEPA tariffs.
And so, that's just we don't know how that went.
We don't know the argumentsthat were brought up, all that good stuff.
But that being said,before we dive into sort of tariff
mitigation strategies, which is sort of the more practical side of
like how companies can think about tariffsand plan looking into 2026.
(25:41):
Mike, could you give usa quick overview of the case and,
and what might happenif the tariffs are overturned?
Yeah Iris, the case is arisen out of,you know,
PresidentTrump has used the International Emergency
Economic Powers Act or IEEPAto impose many of his tariffs here
during his first few monthsof his administration.
(26:04):
Several companies have challengedthose tariffs,
along with state attorney generals.
There were cases filed.
The International Trade Courtheard the original case and found against
the president's use of those tariffsunder a couple different theories.
Case then went up on appeal to the U.S.
Court of Appeals for the Federal Circuit,where, again,
(26:24):
they found in a split decision, 7-to-4against the president.
And so then the president appealedto the Supreme Court, as you said.
That'll be later on November 5th; it'll be interesting to see where it goes.
The split court,was an interesting decision because,
you know, on the seven, it was basically,you know, to put it easily
they just said that IEEPA didn'tprovide for tariffs to be issued.
(26:47):
I mean, there is some nuance to that.
Whereas the four said
of course IEEPA allows for tariffsto be imposed by the president.
So it'll be a very interesting argument, as to what
people should be thinking about doing.
I mean, if the Supreme Court does findthat the tariffs were illegal,
there certainly will have to be refundopportunities.
Now, maybe that means you actually filea refund claim.
(27:10):
Maybe it means, you know,
you'll need to file an actual protestwith a court to get your money back.
We've heard that the other processis what they call liquidation,
where, you know,you may have not paid the tariffs yet
to, the Customs Border Protection.
And so you can ask for thatperiod of payment to be extended there.
So it’ll be very interesting.
(27:30):
The key thing there is
make sure you have your documentation,you know, know what you pay tariffs on.
Make sure they were tariffscovered by IEEPA because this court case
really is only dealing
with certain tariffs under IEEPAand is not that dealing with other tariffs
referred to as 232 or 301,which is like steel, copper or aluminum.
Some of the tariffs on Chinaare also not covered, even though
(27:52):
there are some tariffs on Chinathat were IEEPA-based.
Perfect.
So outside of the casethen, it sounds like
I haven't ever heard you say thatyou think tariffs are going away, right?
Like to your point,you just said 232 and 301.
They're still going to be there.
How do we think,if they are overturned, are companies
(28:13):
still going to be affected by tariffsmore generally?
Yeah I think you know, this presidenthas certainly indicated
if he were to lose his case,
he will look for other avenues,whether it's 232, 301-type tariffs.
So I think, you know,you still need to be prepared
that we're going to be in a tariff-basedeconomy.
Also,you know, he's negotiated trade deals
(28:33):
in the meantime and those trade dealshave tariffs being imposed.
And the thought is,even if the president were to lose
these cases,deals will still stay in place.
And so you will still see tariffs,you know,
coming from those countrieswhere the trade deals are in place.
So tariffs are here to stay.
How can we mitigate them?
Let's jump right into that.
Yeah. How to mitigate.
You knowI mean of course the easy thing to do,
(28:55):
well easy is probably to not the proper word.
But, you know,you look at your classifications,
look at your country of origin,look at your valuations.
I mean, that's how tariffs are determinedanyway.
Make sure you classify the product right.
Because that could impact the tariff.
Other strategies are,if you're dealing with related parties,
also looking at your transfer pricing,see if you can reduce transfer pricing,
(29:18):
which would helpmaybe reduce the customs valuations.
A couple other strategies people areusing is a concept called first sale,
which means generally
when you have a situationwhere you have a manufacturer or middleman
and then importer of record,that you try to base the customs value
on that price between the manufacturerand the middleman.
(29:39):
That requires you get
a lot of documentation, but,again, that's possible.
And then another one we're seeing a lot ofis what I call unbundling of services,
because we didn't impose a lot of tariffsprior to President Trump.
People would maybe bury servicesin the price on the invoice for the good.
You know, after,you know, purchased services
(30:00):
like installation, warrantyservices, maintenance contract.
So it's important to go backand pull out all those services,
which shouldn't be subject, or consideredprice of the product, and get them
separately stated and then you won't paytariffs on services.
Well Spencer, I want to kick itback to you for our fourth year-end
planning point.
And that againis another opportunity from OB3.
(30:23):
And it's related to compensation
and benefit offerings for employersand their employees.
And you know,our team has been traveling a lot.
Michael'sbasically been living out of a hotel.
But over the last two months,we've been speaking
with a lot of conferencesand with clients and
there is one topic that seems
to be very importantno matter where we go.
(30:48):
And that's no tax on tipsand no tax on overtime.
A lot of time is being spent in these
presentations and conversationstalking about these provisions.
You know, we've got our 25 transitionguidance considerations,
but we also have items of considerationmoving forward and working with payroll.
(31:09):
So can youmaybe just talk us through a little bit.
You know, what employers should beconsidering as an opportunity standpoint
in year-end planning as it relates tothere's no tax on tips and overtime.
Yeah, sure. Devin, it's true.
Business owners have really,keyed into this issue.
Not so much because the deductionsavailable or to them for tip and overtime
(31:30):
deduction, but to their employees,like you mentioned.
And how to handle thatwithin their payroll.
So I think the important thingthat business owners and executives
may want to let their employees knowis that not over,
not all of their overtimemay be eligible for the deduction.
So there are limits, right?
There's a limit of $12,500for single filers,
(31:53):
25,000for those who are filing married joint.
And the deduction begins to phase outat $150,000 of modified
adjusted gross income for single filersand 300,000 for joint filers.
So employees should know thatperhaps not all of their overtime
compensationmay be eligible for the deduction.
(32:14):
Also, the deductiononly applies to overtime paid
as required under the FairLabor Standards Act.
So just to give an example,we'll use an easy number here.
Let's say you have an employeethat makes $10 per hour.
If the FLSA, the Fair Labor
Standards Act requires time and a half
(32:35):
paid on that on those overtime hours.
And so you pay them $15 an hour,
only the amount in excessof the employee's normal rate
that's required to be
paid underthe FLSA is eligible for the deduction.
So in this example, only $5 per hourwould be eligible for the deduction.
(32:59):
Yeah, it's a really good point.
I've had questions on collectivebargaining agreements.
Or maybe they have a higher overtime ratethat's been negotiated
with the union or other jurisdictionsthat have higher rates.
And no, this is limited to FLSA requiredovertime in that one-and-a-half
and only the additionalincremental amount.
(33:19):
What about tips?
What is the primaryconsideration on that front?
Yeah.
So, youknow, some of the same considerations.
It's important for employers to understandwhat tips
may qualify for the deductionand which tips don't
so they can properly reportthat information to their employees.
The IRS did releasesome proposed regulations which identify
(33:42):
different qualifying occupationsand other technicalities surrounding tips.
One of those, for example,is that tips must be paid voluntarily.
So, think about automatic gratuities.
Say you have a large party at a restaurant
and there's a mandatory automatic gratuitycharged.
That kind of tipwould not qualify for the deduction
(34:05):
because it wasn't paid voluntarily.
There's other limits.
So similar to the overtime wages.
A little bit different, though for tips.
The tips limit is $25,000.
And that's true whether you're filingsingle or filing joint.
And then the modified AGI
limits are the same (34:25):
$150,000 and $300,000
when the phaseout of the deductionbegins.
So, again, employees should know thatnot all of their
tip income may be eligiblefor the deduction.
Yeah, I think that's definitely important.
And one itemI want to point out is, you know, there
(34:47):
really is not much guidance right nowfor tips or overtime,
particularly as it relates to 2025guidance or transition.
So what I have been telling employersas we travel and do these presentations
is for 2025, just do a good faith effort
to provide like a reasonable approximationto your employees of what you believe
(35:10):
that overtime amount is,
you know, certainly inform themto consult their own tax advisors.
But I think a lack of guidance for 2025,good faith effort,
reasonable approximationwill probably cover you on that front.
And then we have a revised 2026 form W-2.
So, you know, reach out to your payrollproviders, and, you know, see how they're
(35:31):
revising their systems to kind of helpyou track this moving forward.
And, you know, going back to the overtime,I think to the extent you have,
concerns about,well, what's our regular rate of pay
to calculate the overtime based onor who is ultimately required to do it?
You know, certainly
I would advise, you know,consulting your internal legal counsel
(35:52):
to potentially then engage external legalcounsel from, you know, that's labor law
to kind of look into that so you can geta little bit more comfortable
on who you should and what you should be,you know, reporting.
Well, that brings us to our fifthand final planning tip for 2025.
Mike, this is going to bea little bit of a preview
for one of our upcoming episodesand that's about section 1202.
(36:17):
For those who aren't code headswho can rattle off,
you know, IRC sections in their sleep,
what is 1202 and what's reallythe opportunity for folks here?
Yeah, the opportunity for folks hereis if they own stock,
at the time, meets certain requirementsat the time they originally bought it,
(36:39):
they have the ability to excludegain earned
when they dispose of that stock laterat a very high level.
This isn't new, though, right?
I mean, I've heard folks trying toto qualify for this for a while,
so why is it in our top ten,I guess really is the question, right.
Yeah. You're right Iris.
This is not new.
It's been around,but what they did here in OB3 was,
(37:02):
expand the benefits and change somethe limitation.
So now it's more available for more peoplethan it was before.
Now to apply to,you know, these new rules apply for
stock issued after July 4th of 2025.
And what they did is they
expand the asset base,as they call it, for individuals.
(37:23):
So it would be on companieswhose assets, at the time of the issuance
of the stock were $75 millionor less, up from $50 million.
And then increase the gain, the eligibleexclusion from, the greater of ten times
basis or $15 million hits now, ten, which is the current rule or the new rule.
And then the overall was 10 million.
So ten times basis or 10 million.
(37:44):
So they've allowed the pool to be biggeron the people who were there.
And then they gave some graduated scales,depending on
whether you filed for three, five,or three or four or five years.
So, you know, all of our listenersare, have a to-do list
however long and a lot of them are saying,hey, with these planning points,
what should I actually addas an action item to my to-do list?
(38:06):
What's your answer for this one?
My favorite one is model, model model,but I can't use that here.
So I think for this one,the thing to do is go back
and work with your advisor to figure out,you know, the stock that I have held in
maybe this small company.
Do I have the proper documentation for it?
When did I buy it?
If I'm going to go forward and investin a smaller company, make sure again
(38:28):
that I do have that proper documentationto support that I qualify
for this provision.
And potentially right,if you're holding qualifying
stock at the momentand considering a transaction,
be sure to work with your advisorto make sure you're not blowing any sort
of, one of the rulesto to keep from your qualification, right?
Yeah, absolutely.
The rules are often complex in this area.
(38:51):
And it'll all depend.
There's certain things,whether you own it directly,
you own it through a partnership.
There's just a lot that goes into this.
So you definitely need to workwith an advisor to make sure
that you're going to qualify,or you don't lose your qualification.
Well, perfect. I think that wraps it up.
If you're interested in 1202,be sure to keep an eye
out for our upcoming episode,all specific to that topic.
(39:14):
But without further ado,I just wanted to say thank you.
Mike and Spencer,this has been very insightful.
And we hope to see you again on our show.
Thanks, Iris.
Appreciate it.
And stick aroundfor our Focused FORsight of the week.
Each episode will bring you what we calla Focused FORsight of the week,
(39:37):
an article or webinarthat might be of interest to you.
This week's FocusedFORsight is actually a webinar
that is going to be happening tomorrow,November 12th,
where we, and that also includes meas one of the presenters,
will be going into our topten planning points heading into 2026.
So if you enjoyed our episode today,it is not too late to register
(39:58):
for that event on our websiteand I really hope to see you there.
And that's our show. Thanks for joining!
Remember to subscribe and listen infor the next episode of the podcast.
Until next time.
The information set forth in this podcastcontains the analysis and conclusions
of the panelists based upon his, her,or their research
(40:18):
and analysis of industryinformation and legal authorities.
Such analysis and conclusionsshould not be deemed
opinions or conclusions by Forvis Mazarsor the panelists
as to any individual situationas situations are fact-specific.
The listener should performtheir own analysis and form
their own conclusionsregarding any specific situation.
(40:39):
Further, the panelists’ conclusionsmay be revised without notice,
with or without changes in industryinformation and legal authorities.
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