EES Newsletter

October 2026

 

IRS Provides Guidance on Trump Accounts

New proposed regulations clarify rules

 

The Treasury Department has issued new proposed regulations on eligible investments and other issues relating to so-called “Trump accounts.” These new investment vehicles, authorized by the One Big Beautiful Bill Act (OBBBA), first became available in 2026.

 

Background: For starters, newborns and toddlers named as beneficiaries of Trump accounts get an extra boost from the federal government. For every qualified child born between January 1, 2025, and December 31, 2028, Uncle Sam will kick-start the account with a $1,000 contribution. Otherwise, annual contributions of up to $5,000 are allowed for eligible children.

 

To qualify to use a Trump account, your child must be under age 18 at the end of the year, be a U.S. citizen and have a Social Security number (SSN). Anyone who wants to contribute—say, a parent or grandparent—can contribute up to a combined $5,000 total for any tax year before the child turns age 18.

 

Your employer may also chip in $2,500 a year to a Trump account for a qualified child, although these contributions count towards the annual $5,000 threshold. In addition, contributions may be made on behalf of qualified children by nonprofit organizations or federal, state or local government units above and beyond the $5,000 limit.

 

The new proposed regulations clarify that the $2,500 limit on employer contributions apply per employee—not per child. Thus, if an employee has two qualified children, the annual limit on contributions remains $2,500. Similarly, under the new proposed regs, the limit remains at a total of $2,500 if an employee works for more than one employer during the year.

 

As with various other tax-favored savings accounts, such as IRAs and Section 529 plan accounts for education, contributions to a Trump account are invested and may compound without any current tax erosion, although the contributions are nondeductible. Typically, you can choose from a variety of mutual funds and exchange-traded funds (ETFs) that track an equity index. The proposed regulations establish guidelines for eligible investments.

 

Special rules: Generally, withdrawals are not permitted during the account’s initial build-up stage, which lasts until the end of the year the child reaches age 18. At that point, the account must be converted into an IRA and withdrawals may be made under traditional IRA rules. Distributions attributable to after-tax contributions are exempt from tax, but the portion allocable to earnings is taxable as ordinary income. The upshot: A beneficiary can expect to pay some tax on withdrawals from Trump accounts.

 

Furthermore, withdrawals made before age 59½ are generally hit with a 10% tax penalty in addition to regular income tax, unless one of the IRA exceptions applies. The account may be converted into a Roth IRA, subject to the usual tax on such conversions, to provide future tax-exempt payouts.

 

Note that a Trump account may be used to pay any type of expense. Unlike a 529 plan, the money does not have to go toward qualified education expenses, but there is no tax break for distributions.

 

Finally, the new proposed regulations provide more details on the types of permissible investments for Trump accounts as well as complex anti-discrimination rules for employers to follow. A public hearing on the proposed regulations is scheduled for October 15, 2026.

 

Practical advice: Do not make investments without understanding all the potential tax and financial implications. Consult with professionals concerning your situation.

 

 

Five Tax Breaks for the Older Generation

Tax law enhancements under OBBBA

 

The One Big Beautiful Bill Act (OBBBA) passed last year does not benefit only young children (see the article on Trump accounts) and middle-aged taxpayers. It also opens up more tax-saving opportunities for older Americans. Consider these five key tax breaks currently on the books for those in their sixties.

 

1. Extra standard deduction: Normally, if you do not itemize deductions on your personal tax return, you can claim a generous standard deduction instead. The standard deduction for 2026, as increased by the OBBBA, is $16,100 for single filers and $32,200 for joint filers. But the OBBBA authorized a special new rule, beginning in 2025. An individual who is age 65 or older (or is blind) in 2026 can pocket an extra “standard deduction” of $2,050 or $1,650 for each qualified spouse.

 

2. Senior citizen deduction: At the same time, the OBBBA authorizes a deduction of up to $6,000 for each qualified individual age 65 or over. Thus, if both you and your spouse are age 65 or older, you can add $12,000 to your existing standard deductions or itemized deductions. On the downside, this deduction for senior citizens begins to phase out for a modified adjusted gross income (MAGI) above $75,000 for single filers and $150,000 for joint filers. Note: The senior citizens deduction only lasts from 2025 through 2028.

 

3. Super catch-up contributions: Although you may benefit from generous annual limits on contributions to qualified retirement plans, like a 401(k) plan, older retirement-savers can aim even higher. First, you could already benefit from catch-up contributions of up to $8,000 in 2026 for individuals age 50 older. Second, under the OBBBA, employees age 60 to 63 can make “super catch-up contributions” of up to $11,250 (instead of $8,000) in 2026. Once an employe reaches age 64, the regular catch-up contribution limit is reinstated.

 

Caveat: If you earned more than $150,000 in wages last year, all of your catch-up contributions must be made to a Roth-type 401(k).

 

4. Penalty-free distributions: Senior citizens may qualify for favorable tax treatment when they take distributions from qualified retirement plans and IRAs. Barring a tax law exception, if you make withdrawals before age 59½ you owe a 10% tax penalty on top of regular income tax. But taxpayers in their sixties or older do not have to worry about the 10% penalty.

 

5. Qualified charitable distributions: Generally, distributions from traditional IRAs are taxable at ordinary income rates, even if you subsequently donate the funds to charity. Charitable contributions may be deductible if you itemize. (A more limited deduction is now available to non-itemizers.) However, if you are older than age 70½, you can transfer IRA funds directly to a charity with no tax consequences. To top things off, this “qualified charitable distribution” (QCD) counts as a required minimum distribution (RMD) for other tax purposes. 

 

Under the OBBBA, the annual limit on QCDs in 2026 is $111,000, including the potential to allocate up to $55,000 to a charitable gift annuity (CGA).

 

Bottom line: Regardless of your age, make sure you collect all the tax breaks you are legally entitled to claim. Your professional tax advisor can review the particulars with you.

 

 

Cash Flow Vs. Profit: The Differences

Aspects for a small business operation

 

Don’t be fooled into thinking that cash flow and profit are the same thing. In fact, there are major differences. Cash flow is dynamic and moves daily while profit is a snapshot of income and expenses at a specific point in time. Understanding this distinction, and acting upon it, can be significant for a small business operation.

 

Background: Essentially, cash flow represents the difference in cash on hand from the beginning of an accounting period to the end. While cash comes “in” from sales, loan proceeds and investments, it also goes “out” to pay operating expenses, loans and asset acquisition. This can be reflected in a cash flow forecast.

 

Conversely, profit is the amount left over after business expenses have been paid. It is reflected on a profit and loss (P&L) statement.

 

Assuming you are using the cash method of accounting, you might have a relatively good handle on cash flow. But are you actually turning a profit? You could operate for long stretches without knowing the answer. Conversely, if your entire focus is on profit, as shown in the P&L statement, you might run out of cash when you need it the most. Let us take a closer look.

 

The cash flow forecast only records actual cash transactions. It may be affected by a capital contribution by the business’ owners or investors or the sale of assets. Although these events increase cash flow, they do not result in more profit. Reason: Income is not being generated from normal business activity. It is possible to be suffering a loss even if you have plenty of cash in the business account.

 

Similarly, if you buy expensive equipment or extensive inventory during the year without enough sales, you could be showing a profit but still be in a dangerous cash flow position. Unlike a cash flow forecast, the P&L statement includes adjustments other than cash transactions. This includes the following items:

 

·         Depreciation expenses on capital assets such as equipment

·         Debts written down (e.g., on an uncollectible account receivable owed by a customer or client)

·         Assets sold at a loss or profit

·         Build-up of inventory

 

If you are not careful, you can easily confuse “being busy” with being profitable, especially when your business is starting out. Remember that your profit is the amount left after all costs have been deducted. If you have not calculated sales prices correctly, a thriving business may, in fact, be operating at a loss. Despite a favorable cash flow, the P&L statement depicts a more accurate picture.

 

In other words, do not set prices without factoring in all the costs. Otherwise, you may end up operating at a loss or at small profit level that cannot be sustained over time.

 

In summary: This is only a brief overview and there could be other complications. For example, timing is often an issue or the business may be using the accrual method of accounting. Rely on your business advisors for assistance. 

 

 

How Long Should You Keep Tax Records?

Evaluating the type of tax document

 

As the end of the year approaches, you may decide to remove some of the clutter in your home. But what about the copies of tax returns that have been piling up in your closet or file cabinets? Do you need to hold onto them or should you run them through the shredder?

 

Simple answer: Regardless of your inclinations, keep tax records for at least three years after the filing due date. Why three years? That is the statute of limitations for the IRS to audit your return. So, it makes sense to hold onto tax records for at least this long in case the IRS ever challenges any items in your return for those tax years.

 

However, you might hold onto some records even longer, especially if you’re risk-averse. Note: The three-year audit period is extended to six years if gross income is understated by more than 25%. If tax fraud is involved, returns may be challenged indefinitely.

 

Furthermore, the length that you keep tax records may depend on the type of records. Here are several common situations to consider.

 

Supporting documents: You probably have written evidence that supports claims made on your tax return, such as receipts, expense logs, bank statements and sales records. Keep these for at least the three-year period.

 

Home records: Hold on to these until three years have passed from the time you sell the home. The records, including expenditures for home improvements, can help establish your basis for the purposes of determining gain or loss. This may preserve the full amount of the home sale exclusion ($250,000 for single filers; $500,000 for joint filers).

 

Bad debts: Generally, you have three years to amend your return, the same as the IRS audit period. But you can take up to seven years to stake your claim to deductions for bad debts or worthless securities. Do not be so quick to shred these records.

 

Securities: Typically, you must report transactions involving stocks, bonds and other securities. Maintain detailed records of acquisitions and sales including dates, amounts, prices, dividend reinvestments and investment expenses (e.g., broker fees). Hold onto the records for while you own the investments plus the three-year statute of limitations.

 

IRAs: Unfortunately, this may seem never-ending. You should keep records of traditional IRAs, including required minimum distributions (RMDs) and payouts from inherited accounts. Also, maintain records for Roth IRAs that provide tax-exempt distributions. Again, do not discard records for at least three years after the account is emptied out.

 

In the end, it is better to be safe than sorry. Err on the side of keeping tax records a little longer than legally required. Once you are sure you longer need them, you can dump them on the scrap heap.

 

Reminder: If you have your returns professionally prepared, the tax return professional will also have a record of them. Or you may access them from the IRS in a pinch.

 

 

Don’t Be Tricked by Spoofers

 

With Halloween coming soon, watch out for “spoofers.” How it works: An imposter sends you an email that appears to come from somebody you know well. But when you click on the link in the message, your personal information may be compromised.

 

Be especially suspicious about messages from people who do not normally send you emails. Confirm that the communication is legitimate before you react.

 

 

Facts and Figures

Timely points of particular interest

 

HOA Fees—Say that you own a condo, townhouse or other home in a community where you pay monthly homeowner association (HOA) fees. Are these fees tax deductible? Generally, the answer is “no” if the residence is your primary or secondary home. As with most utility expenses, HOA fees are treated as nondeductible personal expenses. However, the fees may be deductible if you use the home for investment or business purposes, such as renting it out to tenants. 

 

Qualified Dividends—The maximum tax rate on long-term capital gains from securities sales is 15% or 20% for certain high-income taxpayers. Recipients of “qualified dividends” are in line for the same tax break. This includes dividends paid by U.S. corporations and certain foreign corporations. Key requirement: You must own the stock for more than 60 days during a 121-day period that began 60 days before the ex-dividend date. Foreign corporations must meet other requirements (e,g., the stock is readily tradable in the U.S.).