Insights

Why Your Construction Tax Strategy Should Evolve With Every Project

Why Your Construction Tax Strategy Should Evolve With Every Project

No two construction projects are exactly alike. Every job has its own timeline, contract structure, payment schedule, and profitability profile. Yet many contractors approach tax planning the same way year after year, revisiting it only when it’s time to file a return.

In an industry where cash flow drives decision-making and profit margins can be tight, a static tax strategy can leave valuable opportunities unexplored.

A tax strategy shouldn’t be something you set once and forget. It should evolve alongside your business. As project types change, new contracts are signed, and operational goals shift, your tax plan should adapt as well. The contractors who treat tax planning as an ongoing process are often better positioned to manage cash flow, pursue growth opportunities, and avoid surprises at year-end.

Construction Businesses Change. Your Tax Strategy Should Too.

Construction companies rarely look the same from one year to the next. A contractor that once focused primarily on residential work may expand into commercial construction. A company accustomed to handling shorter projects may begin taking on longer-term contracts. Others may experience rapid growth, enter new markets, or take on public-sector work.

Each of these changes can affect how revenue is recognized, when tax liabilities arise, and what planning opportunities may be available.

Consider a contractor who selected an accounting method years ago and never revisited it. While that method may have aligned with the company’s operations at the time, changes in project mix, contract duration, or payment patterns could make it far less effective today.

Without regular reviews, contractors may find themselves paying taxes sooner than necessary, missing opportunities to defer taxable income, or overlooking strategies that could improve working capital.

The goal of construction tax planning is not simply to reduce taxes. It’s to better align tax obligations with the realities of your business and keep more cash available for operations and growth.

New Opportunities for Residential Contractors

Recent changes under the One Big Beautiful Bill Act have expanded tax planning opportunities for many residential contractors, particularly through the broader availability of the completed contract method for qualifying residential construction projects.

Historically, a residential contractor using the percentage-of-completion method often had limited flexibility in how project income was recognized for tax purposes. Under the new rules, qualifying residential contractors may be able to elect a non-POC method for new residential projects, including the cash basis or completed contract method.

This creates opportunities to better align tax obligations with cash flow and project timing.

Cash Basis

Under the cash basis method, income generally is not recognized until payment is received, and expenses generally are not deducted until they are paid.

For some contractors, this creates valuable flexibility because taxable income more closely follows actual cash flow. This may allow certain contractors to defer recognition of income until payment is received, depending on their specific tax circumstances.

However, timing matters. An unexpected customer payment received late in the year can significantly affect taxable income. Contractors who successfully use the cash method typically maintain strong visibility into upcoming collections and communicate regularly with customers about payment schedules.

Understanding the differences between these methods is important, as each can impact the timing of taxable income and cash flow in very different ways.

Completed Contract

The completed contract method generally allows contractors to defer recognizing revenue and expenses until a project is substantially complete.

For businesses with longer project durations, this can create meaningful tax deferral opportunities. Delaying tax liability may improve cash flow and leave more capital available to support ongoing operations throughout the life of the project.

However, deferred taxes are not eliminated. They are simply postponed until the project is completed. Contractors should regularly evaluate future tax obligations and avoid treating deferred tax dollars as excess cash available for spending.

The right method depends on your specific operations, project pipeline, and business objectives. What works well for one contractor may not be the best fit for another.

Don’t Overlook the 10% Method

Contractors who remain on the percentage-of-completion method may still have access to a valuable and often-overlooked tax deferral opportunity: the 10% method.

This election allows contractors to defer recognizing gross profit on contracts that are less than 10% complete at year-end.

While the impact on a single project may seem modest, the combined effect across multiple projects can be substantial. For contractors with several contracts in the early stages of completion, the resulting deferral can preserve valuable working capital.

That capital can be reinvested into equipment, workforce development, bonding capacity, technology improvements, or future projects instead of being paid to the IRS earlier than necessary.

The key is identifying these opportunities before year-end. By reviewing project statuses throughout the year, contractors can make proactive decisions rather than scrambling during tax season.

Questions Every Contractor Should Be Asking

Effective tax planning starts with understanding your business, not filling out tax forms.

As your company evolves, consider asking the following questions:

  • Has our project mix changed over the past year?
  • Are we taking on larger or longer-duration contracts?
  • Have our payment cycles changed?
  • Do we have visibility into year-end cash receipts?
  • Are we planning equipment purchases before year-end?
  • Are there projects that may qualify for tax incentives or specialized deductions?
  • Have recent legislative changes created new planning opportunities?

If the answer to any of these questions is yes, your current tax strategy may no longer reflect the realities of your business.

Waiting until tax season often limits your options. Reviewing your tax position throughout the year can help uncover planning opportunities while there is still time to act.

Tax Planning as a Competitive Advantage

For construction companies, effective tax planning is ultimately a cash flow strategy.

The capital preserved through effective tax planning can be used to purchase equipment, strengthen bonding capacity, hire employees, invest in technology, or pursue new opportunities. Those resources can provide a meaningful competitive advantage in an industry where liquidity and flexibility often drive success.

The most effective construction tax strategies are not created once and left unchanged. They are reviewed regularly, adjusted as projects evolve, and aligned with the company’s broader goals.

How HTB Can Help

Construction tax planning works best when it’s proactive, not reactive. As projects, timelines, and business objectives evolve, your tax strategy should evolve with them. That’s why we work with contractors throughout the year to identify planning opportunities, evaluate accounting methods, and help ensure tax decisions support broader business goals.

Our construction professionals understand the unique challenges contractors face, from managing cash flow and bonding capacity to navigating revenue recognition and changing tax regulations. Whether you’re reviewing your current tax approach or evaluating new opportunities created by recent legislation, we’re here to help. Contact us today to start the conversation.

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Section 179D Energy-Efficient Commercial Building Deduction: A Reminder for Projects Already Underway

Section 179D Energy-Efficient Commercial Building Deduction: A Reminder for Projects Already Underway

The June 30, 2026 deadline for Section 179D has come and gone. As a result, energy-efficient commercial building projects that begin construction after that date generally will not qualify for the deduction.

However, that does not mean the opportunity has disappeared for every project.

If construction began on or before June 30, 2026, a project may still be eligible for the Section 179D deduction, provided all applicable requirements are met. For businesses, building owners, designers, and organizations that have recently completed or are currently constructing commercial buildings, now is a good time to determine whether a benefit may still be available.

What Types of Projects May Qualify?

Section 179D is designed to encourage energy-efficient improvements in commercial buildings. While many taxpayers associate energy incentives with solar or renewable energy projects, Section 179D often applies to more common building upgrades that improve overall energy performance.

Potentially qualifying improvements may include:

  • Interior lighting systems, including LED conversions, lighting retrofits, and lighting controls
  • Heating, cooling, ventilation, and hot water systems, including certain HVAC upgrades and control systems
  • Building envelope improvements, such as qualifying upgrades to roofs, walls, windows, doors, and insulation

The deduction may be available for qualifying improvements made as part of new construction projects or renovations to existing commercial buildings. For projects currently under review, one of the most important considerations is whether construction began on or before June 30, 2026.

Understanding the Potential Tax Benefit

The amount of the Section 179D deduction depends on several factors, including the building’s energy savings and whether prevailing wage and apprenticeship requirements are satisfied.

For taxable years beginning in 2026, the deduction generally ranges from:

  • $0.59 to $1.19 per square foot under the standard rules
  • $2.97 to $5.94 per square foot for projects that meet prevailing wage and apprenticeship requirements

Because the deduction is calculated on a per-square-foot basis, the potential benefit can be significant. For example, a qualifying 100,000-square-foot building could generate a deduction of up to $119,000 under the standard maximum rate or as much as $594,000 under the enhanced rate.

Actual deduction amounts will vary based on the specific facts of the project, energy performance results, certification requirements, and other applicable limitations.

Documentation Matters

One of the most common misconceptions about Section 179D is that a taxpayer can simply determine that a building is energy efficient and claim the deduction.

In reality, Section 179D requires technical analysis and supporting documentation. Energy savings must generally be evaluated using approved methodologies, and the deduction requires certification from a qualified third party. Taxpayers claiming the deduction must also file Form 7205, Energy Efficient Commercial Buildings Deduction, with their tax return.

Given these requirements, maintaining complete project documentation is critical. Relevant records may include:

  • Construction-start documentation
  • Placed-in-service dates
  • Energy modeling reports or retrofit analyses
  • Third-party certification materials
  • Square footage calculations
  • Allocation documentation for qualifying tax-exempt building projects

Projects that may otherwise qualify can encounter challenges if supporting documentation is incomplete or unavailable.

Now Is the Time to Evaluate Existing Projects

With the construction-start deadline now behind us, the focus has shifted from planning future projects to identifying and preserving deductions tied to projects already underway before June 30, 2026.

Building owners, developers, architects, engineers, and organizations involved in commercial construction should consider whether their projects have been evaluated for Section 179D eligibility and whether the necessary documentation and certification requirements have been addressed.

At HTB, we help clients navigate complex tax incentives and identify opportunities that can support their overall tax strategy. Whether you’re evaluating a recently completed project, reviewing documentation requirements, or determining whether a project may qualify for the Section 179D deduction, our team can help you understand the rules and assess the next steps. Contact us today to start the conversation.

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Financial Planning for Pre-Retirement: Preparing for the Transition

The pre-retirement years are a critical time to evaluate readiness, optimize financial strategies, and prepare for the next phase of life. Discover how a coordinated approach to retirement planning can help maximize opportunities, reduce surprises, and support long-term financial security.

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HTB Named to INSIDE Public Accounting’s Top 200 List

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Hannis T. Bourgeois, LLP has once again been named one of the Top 200 Accounting Firms in the U.S. by INSIDE Public Accounting, recognizing the firm’s excellence and continued growth.

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IRS Increases Standard Mileage Rates for the Remainder of 2026

IRS Increases Standard Mileage Rates for the Remainder of 2026

The IRS increased the standard business mileage rate from 72.5 cents per mile to 76 cents per mile, effective July 1, 2026. The medical and moving mileage rate also increased from 20.5 cents per mile to 23.5 cents per mile. The charitable mileage rate remains 14 cents per mile.

What This Means for Taxpayers

The higher rates may result in larger tax deductions and higher reimbursements for miles driven after July 1, 2026.

For business mileage:

  • January 1 – June 30, 2026: 72.5 cents per mile
  • July 1 – December 31, 2026: 76 cents per mile

Self-employed individuals who use the standard mileage method may be able to claim larger deductions for eligible business travel during the second half of the year. Employees who are reimbursed for business mileage may also receive higher reimbursements, depending on their employer’s policy.

Taxpayers should continue keeping detailed mileage records and apply the correct rate based on when the miles were driven.

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How to Automate Your Accounting Workflows Without Losing Control

How to Automate Your Accounting Workflows Without Losing Control

Accounting automation can help businesses improve efficiency, reduce manual data entry, and create more consistent processes. However, automation is only effective when implemented thoughtfully. Without proper oversight, automated workflows can lead to miscoded transactions, inaccurate financial reporting, and tax compliance issues that may go unnoticed until they become more costly and time-consuming to correct.

The question is not whether to automate your accounting processes. The question is how to implement automation while maintaining accuracy, visibility, and control. The most successful organizations are not eliminating human involvement entirely. Instead, they are using technology to handle routine tasks so their accounting professionals can focus on analysis, decision-making, and other higher-value responsibilities.

Not All Automation Carries the Same Level of Risk

Accounting automation exists on a spectrum. Some tools offer significant efficiency gains with relatively low risk. Others require ongoing review and professional judgment to ensure accuracy.

Automate with confidence:

  • Bank feeds: Direct connections between financial institutions and accounting software reduce manual entry and improve efficiency with minimal risk.
  • Coding rules: Recurring transactions, such as monthly utility or telecommunications expenses, can be consistently assigned to the appropriate account.
  • Receipt capture: Optical character recognition (OCR) technology can extract key information from invoices and receipts, helping maintain organized digital records.
  • Recurring transactions: Fixed expenses such as rent, subscriptions, and loan payments can be scheduled to post automatically.

Automate carefully, with regular review:

  • Auto-reconciliation: Automated matching tools can efficiently process straightforward transactions, but exceptions and unusual items should be reviewed regularly.
  • Transaction categorization for new or infrequent vendors: Automation works best when clear patterns exist. New vendors and unique transactions typically require human review until reliable coding rules can be established.

Functions that should remain under professional oversight:

  • Tax return preparation and filing
  • Changes to the chart of accounts
  • Journal entries and adjustments
  • Intercompany transactions within multi-entity organizations
  • Transactions involving complex or unclear tax treatment

Tax treatment is a particularly important consideration. If an automated rule applies an incorrect tax classification, that error can be repeated across multiple transactions before it is identified and corrected.

The Management-by-Exception Approach

One of the most effective ways to use automation is through a management-by-exception model. Instead of manually entering hundreds of transactions each month, accounting professionals review transactions that have already been processed by the system.

This approach saves time, but it does not eliminate the need for oversight.

Review efforts should focus on:

  • Transactions flagged by the system for review
  • Amounts that fall outside normal patterns or thresholds
  • New vendors that do not yet have established coding rules
  • Transactions that require professional judgment, particularly regarding tax treatment

When used effectively, automation allows accounting professionals to spend less time on routine processing and more time addressing exceptions, risks, and strategic decision-making.

A consistent review process remains essential. Someone with accounting knowledge should regularly verify transaction coding, review reconciliation results, clear items from suspense accounts, and investigate unusual activity. Without that oversight, automation can introduce inaccuracies that accumulate over time.

Building an Automation System That Works

Successful automation begins with a solid accounting foundation.

Automation tends to amplify existing processes, whether those processes are effective or not. Businesses with an outdated or poorly organized chart of accounts may find that automation simply increases the volume of misclassified transactions. Before implementing automation, it is important to ensure that the underlying accounting structure is accurate and aligned with how the business operates.

From there, consider a phased approach:

  1. Connect bank feeds for all business accounts and reconcile the initial period manually to establish a reliable baseline.
  2. Create coding rules using actual transaction history and established patterns. Start with straightforward, recurring items and expand gradually.
  3. Implement document capture tools and allow time for the system to learn and improve accuracy.
  4. Establish a weekly review process to identify exceptions and validate automated activity.

What Losing Control Really Looks Like

In most cases, automation failures do not happen overnight. They develop gradually.

A business may implement automation, become comfortable with the process, and reduce the frequency of reviews. Over time, coding errors, reconciliation issues, and tax classification mistakes can accumulate. Financial reports may appear reasonable at a glance while containing underlying inaccuracies that affect decision-making and compliance.

Correcting these issues often requires a significant investment of time and professional resources. In many cases, the cost of remediation exceeds the cost of maintaining proper oversight from the beginning.

The Right Balance: Technology and Professional Oversight

The goal of accounting automation is not to replace professional expertise. It is to enhance it.

At HTB, we help business owners make the most of accounting technology without losing visibility into their financial data. Our Client Accounting & Advisory Services (CAAS) team can help you evaluate which processes are appropriate for automation, implement solutions that support accuracy and efficiency, and establish the oversight needed to keep your financial information reliable. Whether you’re considering automation for the first time or looking to improve an existing process, our team is here to serve as your trusted advisor. Contact us today to start the conversation.

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Fund Balance Best Practices: Building Financial Resilience for Public Entities

Fund Balance Best Practices: Building Financial Resilience for Public Entities

For cities, parishes, school systems, and other public entities, fund balance is more than an accounting measure. It is a critical tool for maintaining financial stability and delivering services when unexpected challenges arise.

Whether facing a natural disaster, economic slowdown, delayed tax collections, or unexpected capital needs, organizations with a strong fund balance are better positioned to maintain operations without disrupting services or making rushed financial decisions.

The key is not simply accumulating reserves. It is maintaining the right amount of fund balance, supported by clear policies and a long-term financial strategy.

Why Fund Balance Matters

Fund balance represents the resources available to help a government manage financial uncertainty, maintain operations, and plan for future needs.

A healthy fund balance provides flexibility when revenues fall short of expectations and helps governments manage timing differences between collecting revenue and paying expenses. It also provides resources to respond to emergencies, reduces reliance on short-term borrowing, and can contribute to stronger bond ratings and lower borrowing costs. In many cases, a strong fund balance creates opportunities to fund future capital projects without taking on additional debt.

Without adequate reserves, even minor revenue fluctuations or unexpected expenditures can create significant budget challenges. Conversely, organizations with well-planned reserves are often better equipped to maintain service levels and make thoughtful financial decisions during periods of uncertainty.

Understanding Available Resources

One of the most common misconceptions about fund balance is that all reported balances are available to spend. In reality, some resources may be restricted by legal requirements, grant agreements, voter-approved measures, or formal actions of the governing body.

GASB Statement No. 54 established classifications that help governments identify the level of constraint placed on fund balance. Understanding these distinctions helps elected officials and administrators evaluate financial flexibility, make informed budgeting decisions, and avoid overestimating available resources.

How Much Fund Balance Is Enough?

One of the most common questions in governmental finance is how much fund balance should be maintained.

The answer depends on each entity’s unique circumstances. Governments with stable and predictable revenues may require smaller reserves than those that rely heavily on property taxes or other revenues collected at specific times during the year. Exposure to natural disasters, significant infrastructure needs, economic uncertainty, and other financial risks should also be considered when establishing fund balance targets.

Many governments establish minimum fund balance targets as a percentage of annual expenditures, but there is no universal standard that fits every organization. The goal is to maintain enough reserves to manage risk and support operations while ensuring resources remain available to meet community priorities.

Balancing Reserve Levels With Community Needs

While insufficient reserves create financial vulnerability, excessively large fund balances can also raise questions from taxpayers and stakeholders.

When reserve levels significantly exceed operational needs, governments should evaluate whether resources could be used to address deferred maintenance, fund capital improvements, reduce future borrowing needs, strengthen public services, or mitigate future tax and fee increases.

Fund balance should serve a purpose. The objective is to strike the right balance between preparedness and responsible stewardship of public resources.

Questions Every Public Entity Should Ask

Fund balance management should be reviewed regularly, not only during budget preparation or the annual audit. Leadership should periodically consider questions such as:

  • Does our current fund balance policy reflect today’s financial risks and economic conditions?
  • Could we continue providing essential services if revenues declined unexpectedly?
  • Are our reserve targets based on actual risks or simply historical practice?
  • Do we have a plan to replenish reserves if they are used?
  • Can we clearly explain our reserve levels and financial strategy to taxpayers and stakeholders?

Regularly evaluating these questions can help organizations identify gaps before financial challenges arise.

Establish a Formal Fund Balance Policy

One of the most effective steps a public entity can take is adopting a written fund balance policy.

A strong policy should:

  • Establish minimum and maximum fund balance targets.
  • Define the purpose of reserves.
  • Identify circumstances under which reserves may be used.
  • Outline how depleted reserves will be replenished.
  • Require periodic review and updates.

A formal policy promotes consistency, improves transparency, and provides decision-makers with a framework for navigating financial challenges.

Building Long-Term Financial Resilience

Fund balance management is most effective when it is integrated into broader financial planning. Public entities should regularly monitor fund balance levels, assess emerging risks, and evaluate whether reserve targets remain appropriate as operating conditions change.

Open communication with governing boards, elected officials, and the public is equally important. Transparent discussions about reserve levels and financial policies help build trust and reinforce confidence in the organization’s stewardship of public resources.

Key Takeaway

Strong fund balance management is a cornerstone of long-term financial health for public entities. By establishing clear policies, maintaining appropriate reserve levels, regularly assessing financial risks, and incorporating fund balance into ongoing planning efforts, governments can strengthen their ability to navigate uncertainty while continuing to serve their communities effectively.

How HTB Can Help

At HTB, our team works with public entities to evaluate fund balance levels, develop reserve policies, strengthen financial planning processes, and ensure compliance with governmental accounting standards. Whether your organization is establishing its first formal fund balance policy or reassessing existing reserve targets, our governmental services team can help develop practical strategies that support long-term financial stability, sound decision-making, and community trust.

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Financial Planning for Mid-Career Professionals and Peak Earning Years

Financial Planning for Mid-Career Professionals and Peak Earning Years

The mid-career years often bring increased income, greater professional responsibility, and growing financial complexity. For many individuals and families, this stage represents a shift from building financial habits to making strategic decisions that can have a meaningful impact on long-term wealth.

As earnings grow, so do the opportunities and challenges that come with managing them. Tax planning, investing, risk management, and retirement preparation all become increasingly important. Taking a coordinated approach can help ensure that the progress you’ve made today supports the goals you have for the future.

Tax Strategy Becomes Central

As income rises, tax planning often becomes a much larger part of the financial conversation.

Higher tax rates can increase the cost of inefficiencies and make proactive planning more valuable. Decisions surrounding compensation, retirement contributions, and investment accounts can all influence how much of your income remains available to support future goals.

For many individuals, this is an appropriate time to evaluate strategies such as maximizing pre-tax retirement contributions, exploring deferred compensation opportunities, and creating tax diversification across pre-tax, Roth, and taxable accounts.

The objective is not simply to reduce taxes in the current year, but to manage tax exposure over time in a way that creates greater flexibility in the future.

Maximize Tax-Advantaged Savings Opportunities

During peak earning years, tax-advantaged accounts can become powerful planning tools.

Employer-sponsored retirement plans remain a cornerstone of long-term savings, particularly as contribution limits increase and catch-up contributions become available. For those who qualify, strategies such as backdoor Roth contributions may provide additional opportunities to build tax-advantaged assets.

Health Savings Accounts also deserve consideration. When used strategically, HSAs offer a unique combination of benefits, including tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. For individuals who can cover current healthcare costs from other resources, an HSA may serve as an effective long-term savings vehicle.

Be Intentional as Income Grows

As income increases, it is natural for spending to increase as well.

A larger home, more travel, or greater discretionary spending are often signs of financial progress. However, if every increase in income is matched by higher spending, it can become more difficult to make progress toward long-term financial goals.

Being intentional about how additional income is used can help maintain financial momentum. Allocating a portion of future raises and bonuses toward saving and investing may help ensure that increased earnings translate into lasting financial progress.

Investment Strategy Needs to Evolve Too

As portfolios grow, investment decisions often become more nuanced.

Tax efficiency may play a larger role when assets are spread across both taxable and tax-advantaged accounts. Strategies such as asset location can help improve after-tax outcomes by placing investments in the accounts where they may receive the most favorable tax treatment.

This is also a stage when concentrated risk can become more significant. Equity compensation, employer stock, or business ownership can create unintended exposure if too much of a portfolio is tied to a single source.

A well-rounded investment strategy should seek not only growth, but also diversification, tax efficiency, and appropriate risk management.

Protect What You’ve Built

As income and assets increase, protecting financial progress becomes increasingly important.

Insurance coverage should be reviewed periodically to ensure it reflects current circumstances rather than those of several years ago. This often includes evaluating life insurance, disability coverage, and umbrella liability protection.

Estate planning also deserves ongoing attention. Wills, powers of attorney, beneficiary designations, and other key documents should be reviewed as assets grow and family circumstances evolve. HTB’s Trust and Estate Planning team works with clients to help ensure that wealth accumulated during peak earning years is protected and positioned for the future.

Start Building Flexibility for Later

Retirement may still be years away, but the decisions made today can significantly influence future options.

Rather than focusing exclusively on a retirement date, it can be helpful to consider broader questions. When would you like the flexibility to reduce your workload? What sources of income will support your lifestyle? How can today’s decisions increase your future choices?

Savings, tax planning, and investment strategy all contribute to these outcomes. The more intentional the planning process, the more flexibility individuals often have later in life.

A More Coordinated Approach

As financial complexity increases, individual decisions become more interconnected.

Tax planning influences investment strategy. Investment decisions affect long-term income planning. Insurance and estate planning play an important role in protecting and transferring wealth. Looking at each area independently can make it difficult to understand how those decisions work together.

At HTB Wealth Advisors, we take a holistic approach to financial planning that brings together wealth management, tax strategy, and trust and estate planning. As a CPA-backed firm, we understand how financial decisions intersect and work with clients to develop strategies that address those connections in a thoughtful and intentional way.

If you are wondering whether your current plan is truly working the way it should, we invite you to start with a no-cost investment assessment to evaluate your current strategy and determine whether it is fully aligned with your financial goals.

The information contained in this article is provided by HTB Wealth Advisors for general informational purposes only and should not be considered personalized investment advice. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Consult your financial, tax, and legal advisors before making any investment decisions.

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Financial Planning for Early-Career Professionals and Young Families

The early-career and young-family years are some of the most important for establishing lasting financial habits and building long-term wealth. Learn how strategic planning can help you navigate competing priorities while creating a stronger financial future for yourself and your family.

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2026 Tax Planning Under OBBBA: Key Provisions Now Taking Effect

2026 Tax Planning Under OBBBA: Key Provisions Now Taking Effect

The One Big Beautiful Bill Act (OBBBA) has been a major focus of tax planning discussions since its enactment. While many provisions took effect immediately, others were delayed until 2026. As taxpayers and businesses move further into the year, now is a good time to revisit the law’s lesser-known provisions and evaluate potential planning opportunities before year-end.

Below are several of the most significant OBBBA provisions individuals and businesses should revisit as they plan for the remainder of 2026.

Individual Tax Provisions

Charitable Contributions

Non-itemizers can now deduct up to $1,000 ($2,000 for married filing jointly) for charitable contributions. This is a below-the-line deduction, meaning it does not reduce adjusted gross income but still lowers overall tax liability.

For those who do itemize, a new 0.5% floor applies, meaning only contributions exceeding that threshold are deductible. Taxpayers who regularly make charitable gifts may want to review their giving strategy to maximize the available tax benefit.

Itemized Deduction Limitation for High Earners

Taxpayers in the 37% bracket now have their itemized deductions capped at the 35% benefit rate. In practical terms, this means the tax savings from deductions like mortgage interest, state taxes, and charitable gifts are slightly reduced for the highest earners.

Estate and Gift Tax Exclusion

The exclusion amount is set at $15 million per person for 2026 (adjusted for inflation in later years), giving married couples a potential combined exclusion of $30 million with proper planning. Families with large estates should revisit their plans to ensure existing strategies remain optimized under the new baseline.

529 Plans and Education Credits

The annual limit for K-12 qualified distributions from 529 plans doubles from $10,000 to $20,000 starting in 2026. Families with children in private school should review whether their state conforms to this federal expansion before assuming state tax benefits apply as well.

Effective after 2025, a Social Security number is required for any child with respect to whom an American Opportunity Tax Credit or Lifetime Learning Credit is claimed.

New Children’s Savings Accounts (Trump Accounts)

These new savings accounts officially became operational on July 4, 2026. The annual contribution limit is $5,000 for qualifying children under age 18. Contributions from parents, employers, governments, and charitable organizations all count toward that limit. Families with children born between 2025 and 2028 who received the initial $1,000 government contribution should now evaluate whether to make additional contributions.

Dependent Care and Child Care Credit

The employer-sponsored dependent care assistance limit increases from $5,000 to $7,500, while the maximum Child and Dependent Care Credit percentage rises from 35% to 50%.

Together, these enhancements provide meaningful relief for working families, though the two benefits must be coordinated carefully because you cannot claim the credit for expenses already covered by an employer-sponsored plan.

Health Savings Accounts

Bronze and catastrophic health plans now qualify as high-deductible health plans for HSA purposes, opening HSA eligibility to more individuals. Separately, enrolling in a direct primary care arrangement no longer disqualifies an individual from contributing to an HSA. Taxpayers who were previously ineligible may want to revisit whether an HSA now fits into their overall healthcare and tax strategy.

Additional Individual Tax Changes

  • Gambling losses are now limited to 90% of losses that do not exceed winnings, meaning even break-even gamblers will have some net taxable income.
  • Educators can now claim both the above-the-line deduction and a new itemized deduction for out-of-pocket classroom expenses.
  • Overseas remittances are subject to a new 1% excise tax on cash and similar transfers sent abroad.

Business and Corporate Tax Provisions

Tips and Overtime Reporting

The IRS grace period for W-2 reporting of qualified tips and overtime ends with the 2026 tax year. Employers must now report qualified tips in Box 12 using Code TP and qualified overtime using Code TT. Businesses in restaurants, hospitality, healthcare, and manufacturing should confirm their payroll systems are ready to handle these requirements.

Section 179 Expensing

The expensing limit increases to $2.5 million, with a $4 million investment phase-out threshold, both indexed for inflation after 2026. For businesses planning equipment purchases or upgrades, the higher limits make 2026 an attractive year to invest.

Corporate Charitable Contributions

Corporations may now only deduct charitable contributions that exceed 1% of taxable income, while the existing 10% ceiling remains in place. Closely held businesses should weigh whether giving at the corporate or personal level produces a better outcome.

Clean Energy Incentives

Several Inflation Reduction Act credits are being phased out or modified. 

Key deadlines include:

  • The Energy Efficient Commercial Buildings Deduction (Section 179D) expires for property beginning construction after June 30, 2026.
  • The Alternative Fuel Vehicle Refueling Property Credit terminates after June 30, 2026.
  • The Advanced Manufacturing Investment Credit increases from 25% to 35% for eligible property placed in service after December 31, 2025.

Information Reporting Thresholds

The filing threshold for Forms 1099-MISC and 1099-NEC increases from $600 to $2,000, reducing the volume of information returns many businesses must prepare. For Form 1099-K, the OBBBA restores the $20,000 gross receipts and 200-transaction tests for third-party payment providers, replacing the lower threshold that had been phased in.

While the higher thresholds may reduce filing burdens, businesses should review vendor payment and reporting procedures to ensure systems are updated appropriately for the new requirements.

Additional Business Tax Changes

  • Residential contractors are no longer required to use the percentage of completion method, reducing complexity for homebuilders and smaller contractors.
  • Employee compensation deductions: A new aggregation rule applies to the $1 million deduction limit, requiring related entities to combine compensation when evaluating the cap.
  • Publicly traded partnerships benefit from an expansion of qualifying income types effective after 2025.

Plan Ahead Now

While many of these provisions became law months ago, several are only now affecting tax planning decisions in 2026. Revisiting these changes can help taxpayers identify opportunities, avoid surprises, and make more informed financial decisions.

At HTB, our advisors help individuals and businesses stay ahead of tax law changes and make informed planning decisions throughout the year. As additional OBBBA provisions take effect in 2026, now is an ideal time to review your tax strategy and evaluate potential opportunities. Whether you’re planning for a major business investment, reassessing your estate plan, or navigating new reporting requirements, our team can help you understand the impact and develop a tailored approach. Contact us today to start the conversation.

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