• Many estate plans are outdated, improperly executed, or non-existent.

• Trusts can protect family assets and support responsible inheritance.

• Open communication with heirs about roles and expectations can reduce future conflicts and confusion.

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According to a survey from LegalShield, nearly 60% of U.S. adults don’t have a will — even though 90% acknowledge they need one. Even among those with estate planning documents in place, 22% have never updated them. They may have missing or incorrect beneficiaries or improperly titled assets, diminishing the legal protection those documents were designed to protect from probate.

These numbers tell us that a significant number of families are unprepared to transfer wealth effectively or protect it for future generations. Many beneficiaries also mistakenly believe that what they inherit will be taxed as income — a common misconception that can add unnecessary confusion to the process.

For families looking to preserve wealth while empowering heirs to manage their inheritance responsibly, trusts can offer long-term benefits when implemented with care and updated regularly. In this article, we’ll examine several potential trust structures and provide guidance to help your family achieve its wealth preservation goals.

Why Trusts Matter for Generational Wealth

A well-structured trust can:

• Safeguard assets from creditors, lawsuits, and potential divorces

• Provide a framework for responsible access to funds

• Support heirs with varying levels of financial maturity

• Maintain family intentions across multiple generations

• Reduce the administrative burden on surviving family members

But the real value lies in thoughtful design and consistent maintenance. Setting up a trust isn’t a one-time activity; you must revisit and update it periodically to reflect changes in your growing family, financial circumstances, and state laws.

Here are a few different trust structures that can help you achieve your goals:

Dynasty Trusts

A dynasty trust can last multiple generations — potentially hundreds of years in some cases. These trusts keep inherited assets outside of each heir’s taxable estate, reducing exposure to estate taxes over time. They can also be structured to distribute income or principal according to specific rules, helping beneficiaries avoid overspending or becoming financially dependent on the trust.

These trusts help preserve the value of large estates across generations by shielding inherited assets from estate taxes, creditors, or future divorces. They also allow grantors to express family values through distribution requirements — like completing college or maintaining employment.

Because a dynasty trust can span decades, it’s crucial to choose a trustee (or succession of trustees) with clear oversight protocols.

Spendthrift Trusts

For families concerned about a beneficiary’s spending habits or personal stability, a spendthrift trust adds another layer of protection. These trusts restrict a beneficiary’s ability to access or assign their interest in the trust to others, preventing them from squandering the funds or using them as collateral for personal loans.

Spendthrift provisions can stand alone or be added to a broader irrevocable trust. They are especially helpful when a beneficiary struggles with addiction, financial discipline, or legal troubles.

This type of trust requires a trustee who can exercise discretion over distributions, so it’s usually best handled by a neutral third party rather than an heir.

Irrevocable Trusts

An irrevocable trust permanently transfers ownership of assets out of the grantor’s estate. Once established, the grantor no longer has control over the assets and changes generally require court approval or beneficiary consent.

Though less flexible than revocable living trusts, irrevocable trusts are often used to reduce estate tax exposure, protect assets from lawsuits or future claims, or facilitate Medicaid planning or other eligibility-based programs.

They can also hold life insurance policies, real estate, or business interests, helping families plan for liquidity and facilitate a smooth transition across generations.

Addressing Common Estate Planning Pitfalls

Even when a trust is in place, several issues can undermine its effectiveness:

• Improper titling of assets: Assets must be formally retitled into the name of the trust. A mismatch between legal documents and account ownership may derail the estate plan.

• Beneficiary adjustments: Make sure the beneficiary designations on accounts like life insurance and retirement are aligned with the beneficiary on the trust. Mismatches are common and can undermine your estate plan.

• Outdated documents: Wills and trusts prepared a decade ago most likely do not reflect your family’s current situation. Review and update the plan after life events like marriage, divorce, births, deaths, disability, or significant changes in assets.

• Lack of preparedness: Set to take place over the next two decades, the Baby Boomer generation’s “Great Wealth Transfer” will move an estimated $84 trillion to spouses, dependents, and charities. Most heirs have no idea how much they will inherit, or even where to find estate documents in the event of a parent’s death or incapacity. At a minimum, connect heirs with the estate attorney who has the documents.

• Lack of communication: In many cases, family conflicts arise not from a lack of resources but from a lack of communication. Parents who explain their estate decisions ahead of time, such as why they selected a particular child to be an executor or trustee or how real estate will be divided, help reduce confusion and resentment. Including a written letter of intent with estate documents provides additional context beyond the legal language.

• Naming multiple co-executors: Many parents name two or more adult children as co-executors or trustees to be “fair”. In reality, this creates gridlock when siblings can’t agree on next steps. If you believe putting one sibling in charge will breed conflict, consider naming an independent trustee — like a corporate trustee service — instead.

How MGO Can Help

Trusts can protect wealth, but the real protection comes from thoughtful planning, proactive communication, and timely updates.

At MGO, we work with families to assess current estate tax exposure and identify and design appropriate estate tax minimization structures to align with your ultimate goal. We also help facilitate family discussions and connect heirs with the right advisors to assist in smooth transitions of estates.

Whether you’re establishing a trust for the first time or reevaluating an outdated estate plan, our team can provide insight into trust strategies tailored to your family’s values, financial goals, and long-term objectives.

Contact us today to explore how we can support your family with your estate planning.

The post Trust Structures to Protect Your Family Wealth and Empower the Next Generation appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• High-net-worth individuals often have multiple income streams and need to coordinate tax strategies across entity types and asset classes.

• The proper structuring of investments can often have a significant positive impact on the economic gain realized.

• Start to plan at least 18 to 24 months before the sale of a closely held business to ensure proper structure, boost business valuation, and improve after-tax outcomes.

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You’ve built significant wealth. As a result, taxes have become more than just a line item in your budget — they’re a force that can quietly erode your returns, complicate your business exit, and reshape your legacy.

Fortunately, you have a window of opportunity to take control. Proactive tax planning can help you align today’s strategies with tomorrow’s vision — whether you’re juggling multiple businesses, eyeing a potential sale of an investment, or preparing to transition out of your company.

This article examines how to approach tax planning to maximize your earnings and stay ahead as tax laws shift.

Understanding the Tax Implications of Different Income Streams

The average high-net-worth individual typically has around seven income streams. These can include salaries and wages, pensions and annuities, interest, dividends, capital gains, rental and royalties, business profits, and more.

Each type of income can face different tax rules and rates — which makes planning across all sources critical.

For example, you might defer income into years where your marginal rate is lower (such as in retirement or during a gap year after a business sale), accelerate deductions in high-income years to offset earnings, or swap investment property using a 1031 like-kind exchange to defer recognition of capital gains.

Strategically harvesting investment losses can also help manage bracket thresholds and your exposure to the net investment income tax (NIIT).

Also, consider how you generate income through various entities. Sometimes, an investment’s structure can have a greater impact on tax outcomes than the investment itself.

For example, at the federal level, income from a C corporation is taxed at both the corporate (21%) and shareholder levels (up to 23.8% on dividends), resulting in effective tax rates that leave less than half of earnings in your control once you layer in state taxes. In contrast, S corporations and other passthrough structures may offer favorable pass-through treatment and qualify for a QBI deduction (20% of the business income).

Planning for Business Exits with Taxes in Mind

Selling a closely held business may be a once-in-a-lifetime event. The company may make up a large portion of your net worth and, with so much at stake, the tax treatment of the sale can dramatically alter the outcome.

We recommend that business owners start preparing for a sale at least 18 to 24 months in advance. But even if a sale isn’t on the immediate horizon, business owners should operate as though the company is always “for sale”. Opportunities often arise unexpectedly and financials that aren’t sale-ready can delay or derail a deal. Minimize all working capital kept in the business for at least the year preceding a sale. You will not be paid any more money for a business with a ton of working capital versus the minimum.

A knowledgeable CPA can help you identify red flags, clean up reporting, and implement strategies that improve the business’s financial profile so you’re prepared to act when the timing is right.

A longer timeline gives you runway to halt unnecessary reinvestment and boost earnings before interest, taxes, depreciation, and amortization (EBITDA) — directly affecting the sale price and reducing excess working capital.

Structuring the Deal

The structure of a sale plays a crucial part in the tax treatment of potential gains. Many sales of closely held businesses take the form of asset sales rather than stock sales, mainly because asset purchases offer more favorable terms to the buyer. When a buyer purchases the company’s assets, they avoid inheriting legacy liabilities and can allocate the purchase price among depreciable assets for future tax benefits.

However, even for transactions legally structured as a stock sale, buyers may use a Section 338(h)(10) election to treat the deal as an asset sale for tax purposes. This hybrid structure provides the buyer with the benefits of an asset acquisition while technically acquiring the stock.

From the seller’s perspective, both methods can yield similar tax outcomes. The gain from the sale typically flows through to the owner as a capital gain. If any portion of the purchase price is allocated to depreciated fixed assets, there may be a small amount of ordinary income due to depreciation recapture. As long as the owner is actively involved in the business at the time of sale, it’s generally exempt from the 3.8% NIIT.

In some cases, especially in deals involving private equity, buyers want to retain the existing owner’s involvement, so the buyer may acquire a majority interest and require the seller to continue managing the business. This is often structured through an F-reorganization, which allows for tax deferral on the portion of the business not immediately sold.

Another common feature of modern deals is the earnout: a portion of the sale price that’s paid over time based on the company’s future performance — usually tied to EBITDA targets. Earnouts can create significant tax planning opportunities and risks when they extend over several years.

Finally, for owners concerned about a large tax hit, investing the gain into Qualified Opportunity Zone (QOZ) funds can provide a way to defer capital gains and potentially reduce future taxes. This benefit was made permanent by the One Big Beautiful Bill Act.

Working closely with a CPA who understands these nuances allows you to align the terms of the sale with your broader financial goals.

Potential Section 1202 Tax Saving Strategies

Selling qualified small business stock (QSBS) may qualify for Section 1202 treatment. This tax provision allows individuals to avoid paying taxes on up to 100% of the taxable gain recognized on the sale of QSBS. The gain exclusion is worth $10 million or 10 times investment basis and applies to C Corporation stock issued after August 10, 1993, and before July 4, 2025, held for at least five years.

The recently passed One Big Beautiful Bill Act increases the Section 1202 exclusion for gain to $15 million or 10 times basis for QSBS acquired after July 4, 2025, and held for at least five years. There is a reduced gain excluded if the stock issued after July 4, 2025, is only held for three years (50% exclusion) or four years (75% exclusion).

Section 1202 creates an effective tax rate savings of up to 23.8% for federal income tax, and many states follow the federal treatment — resulting in even more substantial savings.

How MGO Can Help

Tax outcomes are rarely 100% predictable, but we can help shape them with foresight and planning.

Now is the time to take a closer look at your income, investments, and business interests. Don’t wait until the tax code changes. Schedule a planning session with an MGO advisor to start building a roadmap today.

The post Proactive Tax Planning Strategies for Exiting Your Closely Held Business appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Most Americans lack an up-to-date estate plan, leaving inheritances at risk of delays, disputes, and unintended distributions.

• Wills and trusts help clarify intentions, avoid probate, and protect beneficiaries.

• Review and update estate plans regularly — especially after major life events — to reflect changes in family structure, assets, and federal and state laws.

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The U.S. is on the precipice of the largest generational transfer of wealth in history. Baby Boomers account for 51.8% of the country’s total wealth, and over the next two decades (through 2045) an estimated $68-84 trillion will transfer to their spouses, descendants, trusts, and family foundations.

This massive shift will affect millions of families, yet too many are unprepared — both those who will pass on wealth and those who will inherit it. Despite rising awareness of the importance of estate planning, an estimated two-thirds of Americans don’t have any estate planning documents (wills, living trusts, healthcare directive, durable power of attorney, etc.), and won’t bother until a medical diagnosis or the death of a family member compels them. And those who do prepare estate planning documents typically either: (1) fail to update them on a regular basis, or (2) don’t place their assets in the trust’s name — subjecting those assets to probate and court proceedings.

One recent development adds even more urgency to the need for estate planning conversations. The newly enacted One Big Beautiful Bill Act (OBBBA) permanently raises the federal estate tax exemption to $15 million per person or $30 million for married couples (with proper planning) starting in 2026. This increase shields more wealth from the 40% federal estate tax and creates new planning opportunities for high-net-worth families.

With more flexibility under the new exemption levels, now is the time to take a look at your estate plan. A thoughtful and regularly updated estate plan is essential for families looking to preserve and pass on wealth. Here’s what that entails:

Start With the Fundamentals: Wills and Trusts

A will outlines how you want your assets distributed after your death and names guardians for minor children (if applicable). Without one, the state’s intestacy laws take over — which can delay the process and distribute assets in ways you may not have intended.

Certain trust structures take it a step further by allowing assets to bypass probate. This saves time, reduces legal and administrative fees, and helps maintain privacy. Trusts also offer greater control over how and when beneficiaries receive assets. This is particularly important for families with minor beneficiaries, blended families, or those with concerns about their heirs’ financial readiness.

Creating these documents is only the beginning. One common breakdown in estate plans comes from mismatched asset titling. For example, a trust may be established to hold real estate or investment accounts. But, if the assets are still titled in the individual’s name, they may fall outside the scope of the trust — requiring them to go through probate like any other asset.

After establishing a trust, review every asset — including bank accounts, brokerage accounts, and real property, to ensure correct titling and beneficiary designations.

Revisit and Refresh as Life Changes

Estate planning is not a one-time task. Documents drafted years ago may no longer reflect your current family structure, financial picture, or wishes.

Too often, we see wills and trusts that were never updated after:

• Marriage, divorce, or remarriage

• Birth or adoption of children or grandchildren

• Total disability of a beneficiary

• Death of a named trustee or beneficiary

• Significant changes in wealth or business ownership

Additionally, federal and state laws are constantly evolving — and these changes can have profound effects on your estate plan. Schedule time for a full estate plan review every three to five years, or after major life events.

Leverage Gifting to Reduce Estate Size

Structured gifting can be a powerful yet simple way to reduce the taxable value of an estate, especially for families with closely held business interests.

In 2025, individuals can gift up to $19,000 annually to any number of recipients without using their lifetime exemption or filing a gift tax return. Married couples can gift $38,000 per recipient.

For high-net-worth families, these amounts may not be significant enough to matter on a year-to-year basis. However, when multiplied over several recipients over a decade or more, the total can be substantial.

For example, if a couple gifted $76,000 annually to an adult child and their spouse, that’s $760,000 over a decade. That amount is removed from the estate and potentially sheltered from the 40% estate tax.

This strategy can also include gifting fractional shares of a closely-held business to heirs over time. Doing so gradually helps prepare the next generation for future ownership while reducing the size of the taxable estate.

Be sure to work with your advisors to properly execute and document these gifts to avoid triggering unwanted tax consequences or disrupting business control.

Prepare the Next Generation for What’s Coming

An estimated 15% of Americans will receive an inheritance in the next 10 years, yet most lack the financial knowledge to handle the responsibility. Often, beneficiaries are unaware of the size of the estate or the decedent’s intention — and the disconnect can create confusion, resentment, or financial missteps after a family member’s death. Most family members are under the misbelief that they will be taxed upon the receipt of an inheritance.

Open communication about inheritance plans, values, and responsibilities reduces these risks. Consider involving heirs in estate planning conversations, educating them about trusts and business succession plans, and giving them opportunities to participate (with guidance) in philanthropic or investment decisions.

Address Complex Assets Like Family Businesses

Families with significant business holdings should pay special attention to succession planning and ownership transfer structures. Options may include:

• Establishing a family limited partnership (FLP)

• Using grantor-retained annuity trusts (GRATs)

• Gifting non-voting or minority business interests gradually

• Consider having a formal buy-sell agreement

These strategies require coordination between estate planning attorneys and tax advisors to align the legal structure with business operations, tax liabilities, cash flow needs, and long-term ownership goals.

How MGO Can Help

Wealth transfer doesn’t happen automatically. Without planning, estates of any size can become a source of friction, tax exposure, or missed opportunity.

At MGO, we help individuals and families develop tailored estate strategies that reflect your values, protect your assets, and align with evolving tax laws.

If you’re ready to take the next step in preserving your legacy and preparing future generations, reach out to our team today to start the conversation.

The post Estate Planning Essentials for Seamless Wealth Transfer appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Form 706 requirements still apply even for portability-only filings, so executors must submit a “complete and properly prepared” return, including detailed valuations, when necessary, despite the availability of simplified reporting rules.  

• Simplified reporting is limited in scope — the special rule under Reg. §20.2010-2(a)(7)(ii) only applies when property values passing to a spouse or charity are not needed to determine amounts passing to other beneficiaries.  

• Incomplete or improper filings can forfeit portability, as highlighted in Estate of Rowland v. Comm., with failure to meet full reporting standards preventing the surviving spouse from using the deceased spouse’s unused exclusion (DSUE). 

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A decedent’s estate is not required to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, if the gross estate is below the filing threshold — $13.99 million for 2024 and $15 million for 2025. However, if the decedent is survived by a spouse, the decedent’s estate may want to file a Form 706 to port any remaining exemption the decedent may have had at death to the surviving spouse. There is a common misconception that if a Form 706 is being filed for portability purposes only, the Form 706 filing requirements can be ignored, modified, or not followed completely, particularly if the estate’s executor makes an election to use the special rule introduced in Reg. §20.2010-2(a)(7)(ii), which relaxes the reporting requirements governing valuation of property in an estate.  

Contrary to popular belief, estate tax filing requirements must still be observed: the IRS reminds tax practitioners of those requirements in Estate of Rowland v. Comm., T.C. Memo. 2025-76 (July 15, 2025).  

Case Facts 

Decedent Billy Rowland died on January 24, 2018, two years after his wife Fay, who had died on April 8, 2016. While the value of Fay’s estate was below the 2016 filing threshold ($5.45 million) for Form 706, the executor of Fay’s estate applied for and received an automatic extension to file Fay’s estate tax return; with the extension, the return would have been due on July 8, 2017. Fay’s executor ultimately filed Fay’s Form 706 on December 29, 2017, electing portability pursuant to Rev. Proc. 2017-34. Fay’s gross estate reflected an estimated value of $3 million and payments to 13 named beneficiaries totaling $1,401,000. The deceased spousal unused exclusion (DSUE) amount was calculated as $3,712,562. Billy’s estate, which was a taxable estate, sought to port Fay’s unused exclusion.  

Fay’s estate completed the Form 706 schedules by listing various assets in which Fay had an interest at the time of her death. The listed assets included real property, shares of Rowland Motors, Inc., shares of Rowland Marietta, Inc, a note receivable of Rowland Enterprises, and bank accounts. Using the special rule of Reg. §20.2010-2(a)(7(ii), the return estimated the gross value of the estate, rather than providing any information as to the fair market value of each asset.  

On April 22, 2019, Billy’s estate timely filed its Form 706, reporting a DSUE amount of $3,712,562 that resulted in a $22,445 refund for the estate. Billy’s return was selected for examination. The IRS issued a notice of deficiency that indicated Fay’s return was not timely filed, and therefore, no DSUE amount was available for Billy’s estate. The IRS concluded that Fay’s Form 706 was not eligible to use the simplified reporting structure under Reg. §20.2010-2(a)(7)(ii); hence, Fay’s estate failed to timely submit a “complete and properly prepared estate tax return,” as required by Rev. Proc. 2017-34.  

Statutory Framework 

A DSUE amount is available to a surviving spouse for transfers made on or after the decedent’s date of death, but only if the executor of the decedent’s estate makes the election on a timely filed Form 706. Section 2010(c)(5)(A) provides that a portability election is timely if the Form 706 is filed nine months after the decedent’s date of death, but an executor may apply to request an additional six-month extension for filing.  

For estates that are not required to file a Form 706 because the gross estate value is below the filing threshold, Rev. Proc. 2017-34¹ extends the time to file an estate return to make a portability election, under certain circumstances. The revenue procedure provides that “a complete and properly prepared” Form 706 is considered timely if filed “on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death.” Form 706 is “complete and properly prepared” if it is prepared in compliance with the Form 706 instructions and in satisfaction of Reg. §§ 20.6018-2 through 20.6018-4.  

Form 706 requires the listing and fair market valuation of various property types. However, Reg. §20.2010-2(a)(7)(ii) allows an estate to report good faith estimates of the property’s fair market value, rather than report the fair market value as is traditionally required. The regulation generally applies to assets subject to bequests and transfers that receive the estate tax marital deduction or charitable deduction. The reporting requirements are simplified, but only if the value of that property does not relate to, affect, or is not needed to determine the value of property passing from the decedent to a noncharitable or nonmarital beneficiary. The election is available to estates that file Form 706 for portability purposes only. The regulations also require the reporting of “the description, ownership, and beneficiary of such property.” 

Court’s Analysis 

In Rowland, Fay’s trust agreement provided for specific bequests totaling $950,000 to children, grandchildren, and friends; distributions of certain percentages to the surviving spouse (Billy) and to a charitable family foundation; and the trust residue to fund trusts for grandchildren. Fay’s Form 706 reported an estimated value for the entire estate, grouping the marital and charitable deduction property rather than separately reporting those properties. However, even if Fay’s return had separately identified the marital and charitable deduction property, the court concluded that estimated reporting would not apply, because the value of property passing to the charitable family foundation and to the surviving spouse was needed to determine the value passing to the trusts for the grandchildren. The disposition of Fay’s estate precluded the estimated reporting approach allowed by Reg. §20.2010-2(a)(7)(ii).  

Detailed reporting, including fair market value, for all estate property on Fay’s Form 706 would have been required to represent a “complete and properly prepared” return, the court said. Consequently, Fay’s estate failed to make a timely portability election under Rev. Proc. 2017-34, because Form 706 was an incomplete and improperly prepared return – lacking detailed valuation information as of the date of death. Accordingly, Billy’s estate could not port the DSUE amount to reduce its taxable estate. 

Billy’s estate argued that Fay’s return substantially complied with the requirements to make a valid portability election by filing a Form 706 that reported the “information necessary to determine that no estate tax is due and estate tax exemption remains available.” The court did not opine on whether the doctrine of substantial compliance is ever available for making a valid portability election. However, the court stated that had the doctrine been available, Fay’s estate did not substantially comply by doing “all that was reasonably possible” to comply with Reg. §20.2010-(2)(a)(7)(ii). The court found that Fay’s return concealed, rather than clarified, the information needed to verify the DSUE amount. 

Billy’s estate also argued the doctrine of equitable estoppel; however, the court held that Billy’s estate did not meet the requirements for an equitable estoppel claim. 

Insight 

Generally, simplified reporting will not apply if a decedent’s entire estate is not left outright to the surviving spouse, or in a qualified terminable interest property (QTIP) trust, a charitable trust, or to a qualified charity. Caution is advised if an estate chooses to use the special rule under Reg. 20-2010-2(a)(7)(ii), because if the rule does not apply, the portability election may be lost. Additionally, detailed reporting provides an income tax basis and a presumption of value that simplified reporting does not. If the estate’s value hovers close to the threshold amount for required filing of Form 706, detailed reporting may be the more prudent choice.  

 
Written by Katherine A. Walter. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Help 

The Rowland case highlights a common but costly mistake: assuming simplified reporting makes Form 706 less critical. In reality, the IRS expects a complete and properly prepared return, even when the estate is under the filing threshold and portability is the only goal. Our Private Client Services team supports fiduciaries and tax leaders in assessing whether a portability election is appropriate, making sure returns meet IRS requirements, and identifying when simplified reporting may not apply. For estates close to the filing threshold (or more likely to face audit), we can help prepare detailed filings that preserve the DSUE and establish a clear income tax basis. And, as always, if questions arise, our team is prepared to respond. Contact us to learn how we can help you avoid common pitfalls and protect future tax planning opportunities. 

The post Portability and Simplified Reporting – A Warning from the Tax Court  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The generous lifetime gift and estate tax exemption makes now an opportune time to transfer wealth.

• Trusts can offer ways to retain control, provide for family members, and address tax exposure.

• Delaying creating or updating estate plans can lead to outcomes that don’t reflect your wishes or family circumstances.

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For individuals and families with substantial assets, estate and trust planning can help manage risk, maintain control and safeguard wealth across generations.

People often delay taking action until after a major life event. Delaying can mean missing out on valuable opportunities to structure your affairs efficiently.

Let’s look at five proactive estate and trust planning approaches that support long-term goals and address tax exposure, family dynamics, and philanthropic intent.

1. Transfer Wealth Thoughtfully with Lifetime Gifting Strategies

The current lifetime gift and estate tax exemption is historically high, set at $13.99 million per individual or $27.98 million for married couples in 2025.

There is talk in Washington about increasing the exemption or eliminating the estate tax entirely. However, while it remains, gifting allows you to transfer wealth out of your estate, potentially bringing the value of your estate below the lifetime exemption threshold.

For example, you can make direct gifts to family members up to the annual exclusion amount ($19,000 per recipient in 2025) without using any of your lifetime exemption. To be even more generous, consider paying medical expenses or tuition on behalf of the recipient. Payments made directly to the institution don’t count toward your annual gift limit or your lifetime exemption.

2. Use Trusts to Balance Control and Flexibility

Trusts are valuable tools for high-net-worth families seeking to preserve control and protect their assets. When carefully designed and managed, they can even help address complex family dynamics and future risks — such as loss of wealth due to divorce, creditor claims, or poor financial decisions by heirs.

Intentionally Defective Grantor Trust (IDGT)

One strategy to consider is transferring assets to an IDGT. This type of trust is disregarded for income tax purposes. You pay tax on any income generated by the assets in the IDGT, thereby allowing the trust to grow without the burden of paying income taxes (since it is paid by the donor and not subject to gift taxes). 

Transferring minority interests in real property or businesses allows you to reduce the reportable gift by a minority discount. However, it’s crucial to discuss this strategy with a tax advisor to ensure the tax law has not been modified to restrict the benefits of this type of entity.

You retain certain powers, such as the ability to swap assets in and out of the trust in exchange for other assets of equal value.

For estate and gift tax purposes, the assets transferred to the IDGT are removed from your estate. However, the ability to substitute assets from the IDGT provides flexibility if you’re unsure of which assets to gift initially or if your estate plans change in the future.

Charitable Remainder Trusts (CRTs)

Another trust strategy is CRTs. By establishing a CRT before a major sale, the trust provides an income stream to you as the donor and a future benefit to your kids or a charitable organization, while potentially generating current tax deductions.

3. Tax Planning for Investments

The structure of your investments has estate planning implications.

If you have concentrated stock positions, exchange funds allow you to substitute or replace your shares in exchange for a pooled investment vehicle structured as a partnership. Since you don’t sell the securities, you don’t trigger capital gains at the time of exchange. When structured correctly, you can convert a single security into a diversified portfolio that mimics the risk profile of a broad-based stock index.

Municipal bonds and U.S. Treasury bonds are other options for tax-efficient investing. The interest earned on municipal bonds is generally excluded from gross income for federal income tax purposes. Additionally, the income may be exempt from state and local taxes if you’re a resident of the state where the bond was issued.

The income earned on Treasury bonds is subject to federal taxes but is exempt from state and local taxes.

4. Tax Strategies for Philanthropic Giving

Philanthropy plays a central role in many estate plans. Some strategies to discuss with your tax and financial advisors include:

Donor-Advised Funds (DAFs)

A DAF is an investment account set up for the sole purpose of supporting charitable organizations. It provides an immediate charitable deduction, but you have the flexibility to distribute funds to charities over time. While you decide which charities to support, your donation can potentially grow.

Ideally, you would contribute long-term appreciated assets (not cash) to the DAF so the unrealized gain on the asset avoids taxation, and you receive an income tax deduction equal to the fair market value of the donated securities.

You can establish a DAF at most brokerage firms.

Charitable Gifting Before a Liquidity Event

Donating appreciated assets to a qualifying charity may allow you to avoid capital gains tax on the sale of a privately held business.

For example, say you’re preparing to sell your interest in a business, which will result in a capital gain. Before the sale, you might consider making a donation to your own private foundation or a public charity, charitable remainder trust, or a DAF to lower your taxable income below the threshold required to qualify for a 0% or 15% capital gains tax rate. This strategy potentially avoids capital gains on the appreciated assets donated, reduces the tax impact of selling the business, and yields a charitable deduction.

Again, these are complex transactions. It’s crucial to work with a tax advisor who specializes in guiding you through these tax-saving opportunities.

5. Avoid Common Pitfalls in Estate Planning

Despite the importance of estate planning and the potential advantages, it’s easy to procrastinate when it comes to actually getting your affairs in order. But delaying or ignoring these decisions can lead to costly consequences.

Here are some of the issues we see arise frequently:

• Outdated documents: If you created your estate plan when your children were minors, it may no longer reflect the appropriate structures once they reach adulthood. Life changes like marriage, divorce, or disability can dramatically affect your intended outcomes.

• “DIY” or online estate plans: It’s tempting to try to avoid attorney fees by drafting a will and other estate planning documents on your own or with the help of online tools. However, incomplete or inaccurate estate planning documents can cause complications after death. Instead, work with an attorney who is familiar with the laws in your state. Many offer free initial consultations and charge a flat fee for drafting basic estate planning documents.

• Lack of prenuptial agreements: According to a Harris Poll survey conducted by Axios, only about one in five married couples have a prenuptial agreement. While not as common in first marriages, a prenuptial agreement is an essential estate planning tool for second (and subsequent) marriages. Without one, wealth may be unintentionally diverted away from children in blended family situations.

How MGO Can Help

Thoughtful estate and trust planning is an act of good stewardship. However, timing matters.

Whether you’re anticipating a liquidity event, entering a second marriage, or updating your existing plan, reach out to MGO’s Private Client Services team. We can help you develop and manage trusts and estate plans to shape your legacy, care for future generations, and support the causes you believe in.

The post 5 Estate and Trust Planning Strategies for Your High-Net-Worth Family appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• OBBBA tax changes signed July 2025 affect Q2 ASC 740 tax provision and valuation allowance disclosures for calendar-year companies. 

• GILTI and FDII rule changes may increase tax rates and impact deferred tax assets and international tax strategies in 2025. 

• New bonus depreciation rules and state nonconformity create challenges in 2025 tax modeling and ASC 740 reporting. 

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President Donald Trump signed the reconciliation tax bill, commonly known as the “One Big Beautiful Bill Act” (OBBBA) into law July 4, 2025, which is considered the enactment date under U.S. Generally Accepted Accounting Principles (GAAP). The legislative changes will affect income tax accounting in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. Notable corporate provisions include the restoration of 100% bonus depreciation; the creation of Section 174A, which reinstates expensing for domestic research and experimental (R&E) expenditures; modifications to Section 163(j) interest limitations; updates to the rules for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII); amendments to the rules for energy credits; and the expansion of Section 162(m) aggregation requirements. Refer to BDO’s tax legislative alert for additional analysis. 

Those provisions could have important implications for the calculation of current and deferred taxes, including the assessment of valuation allowances. However, because the bill was signed after the June 30 period-end and its provisions have varying effective dates, only some changes – such as those affecting valuation allowance assessments – might affect the current year’s financial statements. For calendar-year filers, there are specific disclosure considerations for their Q2 10-Q filings, as discussed below. 

Changes in Tax Laws 

Under ASC 740, the impact of tax law changes on taxes payable or receivable for the current year is reflected in the estimated annual effective tax rate (AETR) in the period that includes the enactment date. Adjustments to prior years’ income taxes resulting from new legislation are recognized as discrete items in income tax expense from continuing operations in the period of enactment. 

For deferred taxes, the effects of tax law changes on temporary differences and related deferred taxes existing as of the enactment date are recognized as discrete items in the period of enactment as a component of income tax expense from continuing operations. Companies must make a reasonable effort to estimate temporary differences and related deferred tax amounts, including related valuation allowances, as of the enactment date. For temporary differences arising after the enactment date within the current year, the impact of the tax law change is incorporated into the AETR beginning in the first period that includes the enactment date.  

Insights: Accounting for Tax Law Changes in an Interim Period 

We are aware of an alternative policy that allows companies to use beginning-of-year temporary differences and related deferred tax balances when evaluating the impact of tax law changes during an interim period. Companies should discuss the approach with their auditors and tax advisors. 

For companies that have elected to recognize deferred taxes on GILTI, any changes in the tax law that affect GILTI deferred tax accounting must be reflected in the interim period that includes the enactment date, as discussed below. Also, companies may need to assess the impact of the expanded Section 162(m) aggregation rules on the recognition of deferred tax assets (DTAs) related to share-based compensation for covered employees. 

Insights: Accounting for Retroactive Changes in Tax Laws 

If a tax law change is retroactive, the accounting treatment depends on whether the impact relates to prior periods or the current year. For prior-period deferred taxes and taxes payable or receivable, the effect is recognized discretely in the period of enactment. However, if the retroactive change affects current-year taxes payable or receivable – when the effective date is before the enactment date but still within the current year – the impact is recognized through an adjustment to the AETR. The updated AETR is then applied to year-to-date ordinary income, resulting in a catch-up adjustment for taxes payable or receivable in earlier interim periods.  

Companies should consider that rule when assessing the financial reporting implications of some provisions enacted in July 2025 that are retroactive to the beginning of 2025. That includes provisions such as R&E expensing, Section 163(j) limitation on interest deductions, and 100% bonus depreciation (for property acquired and placed in service after January 19, 2025). 

Valuation Allowance Considerations 

Adjustments to valuation allowances for DTAs existing as of the enactment date are recorded as discrete items and allocated to income tax expense from continuing operations. Conversely, the expected adjustment to the valuation allowance at year-end for deductible temporary differences originating after the enactment date and related to current-year ordinary income must be incorporated into the estimated AETR.  

The corporate provisions – such as the permanent restoration of 100% bonus depreciation, R&E expensing, changes to the GILTI and FDII rules, and the more favorable calculation of the interest limit under Section 163(j) – could have important effects on the determination of valuation allowances for many companies. Specifically, the updates could affect projections of future taxable income, including adjusted taxable income under Section 163(j), potentially triggering a change in judgment about the realizability of DTAs. 

If tax law changes are enacted after the period ends but before financial statements are issued, changes to the valuation allowance are not recognized until the period that includes the enactment date. However, disclosure may be required, as discussed below. 

Insights: Reassess the Realizability of Deferred Tax Assets 

Before, companies might have recorded a full valuation allowance on their Section 163(j) DTA as a result of the interest deduction limitation being based on 30% of adjusted taxable income, which included amortization, depreciation, and depletion (that is, the earnings before income and taxes limitation). The reinstatement of the earnings before income, taxes, depreciation, and amortization limitation under Section 163(j) for tax years beginning after December 31, 2024, might require a reassessment of the realizability of the current-year disallowed interest deduction and Section 163(j) carryforward DTAs from prior years that were previously subject to a full valuation allowance. 

International Provisions 

The OBBBA includes several major changes to international tax provisions. Further, it renames the FDII and GILTI provisions to “foreign-derived deduction-eligible income” (FDDEI) and net controlled foreign corporation tested income (NCTI), respectively. In this Alert, we use the terms “FDII” and “GILTI.”  

The OBBBA introduces major changes to the FDII regime by increasing the effective tax rate from 13.125% to 14% through a permanent reduction of the Section 250 deduction from 37.5% to 33.34% – a rate still higher than what would have applied without the legislation. It also makes the FDII calculation more favorable by eliminating the reduction for qualified business asset investment (QBAI) and specifying that interest and R&E costs are not allocated to eligible income. Most FDII changes in the OBBBA are effective for tax years beginning after 2025. 

The act raises the effective tax rate on GILTI by reducing the Section 250 deduction from 50% to 40%, resulting in a pre-foreign tax credit (FTC) effective rate increase from 10.5% to 12.6%. That is still lower than the rate that would apply without the act. The FTC haircut under GILTI is reduced from 20% to 10%. The OBBBA also repeals the QBAI deemed return, increasing the amount of income subject to GILTI, and narrows expense allocations for FTC purposes. Those changes are effective for tax years beginning after 2025. 

The OBBBA raises the base erosion and anti-abuse tax (BEAT) rate from 10% to 10.5% for tax years beginning after 2025, which is lower than the 12.5% rate that would have applied absent the legislation. It also repeals a scheduled 2026 change that would have increased BEAT liability by the sum of all income tax credits. 

For tax accounting purposes, FDII and BEAT are treated as period costs, and most companies also account for GILTI as a period cost. Because most of the OBBBA international provisions do not take effect until tax years beginning after December 31, 2025, companies will likely see an immediate accounting impact at enactment only if the law change affects their valuation allowance assessments – for example, if the changes affect future income projections used in the valuation allowance analysis.  

However, companies that recognize deferred taxes for GILTI-related basis differences must remeasure those deferred tax balances at enactment if they are expected to reverse after the new law becomes effective. Further, if a company factors BEAT into its assessment of deferred tax asset realizability, it must evaluate how changes to the BEAT calculation affect its valuation allowance and recognize any impacts in the period of enactment. 

Energy Credit Provisions 

The OBBBA significantly curtails and modifies a broad range of Inflation Reduction Act (IRA) energy tax incentives, imposes new domestic content and foreign entity restrictions, and phases out or repeals many credits in the coming years. The changes effective in 2025 could affect financial statements if companies had anticipated the impact of IRA credits in their 2025 AETR calculations for interim periods.  

Accounting Considerations for Uncertainty in Income Taxes 

Companies must assess the act’s impact, particularly in areas where the interpretation of new rules is uncertain. If a tax position expected to be taken on a tax return is not more likely than not to be sustained upon examination based on its technical merits, it must be evaluated under the recognition and measurement requirements of ASC 740 to determine the appropriate amount of tax benefit to recognize. 

State Income Tax Considerations 

Companies must assess the state and local tax effects of the OBBBA; the impact will depend on whether and how states conform to the federal tax code. State tax implications may be significant for bonus depreciation, R&E expensing, FDII, GILTI, and interest deductibility. Companies must review state conformity rules to determine the appropriate state tax effect and related tax accounting and may need to adjust state current and deferred tax balances in addition to federal balances. 

Financial Statement Disclosures 

Companies need to consider disclosing the expected effects of new tax laws in the notes to the financial statements, management’s discussion and analysis, and risk factors. 

If a law is enacted after the interim balance sheet date but before financial statements are issued, the tax law change would be considered a Type II nonrecognized subsequent event under ASC 855, Subsequent Events. In that case, companies must disclose the nature of the event and either estimate its effect (if material) or state that an estimate cannot be made. If a law is enacted during an interim period, major variations in the relationship between income tax expense and pretax income must be explained.  

For annual financial statement reporting, ASC 740-10-50-9(g) requires companies to disclose the tax effects of adjustments to deferred tax liabilities or assets resulting from enacted changes in tax laws or rates in their annual financial statements. Public business entities in the U.S. need to separately disclose the effect of tax law changes in the annual effective tax rate reconciliation.  

Next Steps 

Companies must assess the impact of the tax legislation on their income tax provision calculations, including current and deferred tax balances, the AETR, valuation allowances, and related financial statement disclosures. The analysis will likely require extensive modeling and planning because the provisions are highly interconnected. While this Alert highlights selected areas of income tax accounting that might be affected by the OBBBA, it is important to consider how the changes apply to specific facts and circumstances.  

Written by Daniel Newton and Bella Verdiyan. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Helps You Navigate the New Tax Landscape 

The OBBBA brings a wave of corporate tax changes that present both risk and opportunity, especially around deferred tax assets, valuation allowances, and interim reporting under ASC 740. MGO’s Tax team works with tax and finance leaders to adapt provision models to reflect the latest federal and international updates. We support companies in life sciences, manufacturing, and technology by turning legislative changes into practical, forward-looking strategies. From addressing Q2 financial statement impacts to modeling future effects of GILTI, interest limits, and bonus depreciation, we serve as a resource for navigating complex tax reporting with accuracy and speed. Contact us to learn more.  

The post One Big Beautiful Bill Act: Implications for Accounting for Income Taxes  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Tax cuts for individuals and businesses would become permanent under the bill if it’s approved by the Senate, including individual rate cuts and the qualified business income deduction.  

• 100% first-year bonus depreciation is reinstated for property placed in service after January 19, 2025 — reversing the phasedown that was set to end by 2027. 

• The cap for Section 179 expensing of depreciable business property doubled from $1.25 million to $2.5 million, with a phase-out beginning at $4 million. 

• Full expensing of R&D costs returns through 2029 (domestic expenses only); clean energy incentives repealed. 

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The U.S. House of Representatives passed the One Big Beautiful Bill Act on May 22 with a vote of 215 to 214. Now the bill will be sent to the Senate for approval. 

As the legislative process unfolds, tax leaders should closely check how the bill proceeds through the Senate — particularly those related to research and development (R&D) expensing, bonus depreciation, and qualified business income (QBI) 199A, which could materially affect business capital allocations, hiring, and M&A decisions. 

Companies in capital-intensive sectors like manufacturing, biotech, and technology should model both short-term and long-term implications — including how the permanence of Tax Cuts and Jobs Act (TCJA) provisions might influence entity structure and tax planning strategies. 

Individual Income Tax Proposals 

• Extension of TCJA provisions: Makes the individual income tax rate cuts, standard deduction increases, and Child Tax Credit expansion from the TCJA permanent. 

• Increase to Child Tax Credit: Temporarily increases the credit from $2,000 to $2,500 per child through 2028; reverts to $2,000 afterward. 

• Elimination of personal exemptions: Permanently eliminates personal exemption deductions. 

• Enhanced standard deductions: Adds a $4,000 standard deduction for individuals aged 65+, phasing out at higher income levels (through 2028). Adds $1,000 to individuals and $2,000 to joint filers. 

• Deductions for tips and overtime pay: Allows deductions for cash tips and overtime pay, excludes high-income workers with income over $160,000. This deduction is capped at $25,000 per year and only applies to federal income taxes. Social Security and Medicare taxes still apply. Expires after 2028. 

• Car loan interest deduction: Allows a deduction of up to $10,000 for interest on car loans, with income limits and a requirement that vehicles be assembled in the U.S. 

• Estate and gift tax exemption: Permanently increases the exemption to $15 million per individual ($30 million per couple), indexed annually for inflation. This will take away the urgency for lifetime gifting as more wealth can be passed on to the next generation tax-free.

Business Tax Provisions 

• Permanent extension of TCJA business incentives: Includes 100% bonus depreciation and an increase in the qualified business income (QBI) deduction from 20% to 23%. 

• R&D expensing: Restores immediate expensing of R&D costs instead of requiring capitalization and amortization over 5 years — extended through 2029. 

• Expansion of Section 179 expensing: Raises the expensing cap to $2.5 million for qualifying property purchases. 

• Modification of energy credits: Repeals several clean energy tax credits introduced by the Inflation Reduction Act. 

• BEAT rate repeal: Cuts the scheduled increase to the Base Erosion and Anti-Abuse Tax (BEAT), helping multinational businesses.

 Other Key Provisions 

• SALT deduction cap increase: Raises the state and local tax (SALT) deduction cap to $40,000, with income-based phase-outs starting at adjusted gross income of $500,000. 

• Tax on university endowments: Imposes a tiered excise tax on large private university endowments. 

• Higher tax on private foundation investments: Increases the excise tax rate on net investment income for private foundations.

Legislative Considerations and Outlook 

• Reconciliation process: The bill is advancing via the reconciliation process, enabling passage in the Senate with a simple majority vote. The Senate is currently made up of 53 Republicans, 45 Democrats, and 2 Independent. There most likely will be some changes to the bill to reduce the overall deficit. 

• Byrd Rule implications: Non-budgetary items may be stripped under the Byrd Rule during Senate consideration. 

• Ongoing negotiations: The Senate is expected to develop its own tax legislation, which may differ significantly, potentially requiring a conference to align both versions.

How MGO Can Help 

As tax policy continues to evolve, proactive planning is essential. MGO’s multidisciplinary Tax team helps organizations evaluate the impact of proposed legislation on operations, transactions, and long-term strategy. From modeling TCJA permanence scenarios to improving R&D credits, navigating SALT implications, and reviewing estate planning, we deliver tailored solutions for companies and their owners.  

Whether you’re preparing for a sale or just pursuing tax-efficient growth, MGO is here to guide your next move with clarity and confidence. Reach out to our team today to see how we can support you. 

The post Tax Reform Watch: Key Provisions From the ‘Big Beautiful Bill’ 2025 Tax Proposal appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Pro athletes can minimize tax stress by approaching tax planning like off-season conditioning — preparing year-round to streamline filing.

• Navigating the “jock tax” requires filing income taxes in multiple states where games are played, adding complexity to tax obligations.

• Contributing to a retirement account can help reduce taxable income during peak earning years while building long-term financial security.

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Just like every professional sport has a season and an off-season, so do taxes. Tax season is the period between January and April each year when you file your income taxes. Now that tax season is over, how can you get in better shape through planning and preparation for next year?

Unfortunately, too many professional athletes make the mistake of only thinking about taxes when the deadline looms. That’s like showing up to the first game of the season without putting in the conditioning work beforehand — you’re not setting yourself up to play your best.

Whether you’re just starting your career or you’re already a veteran, taking a strategic approach to tax planning will save you stress and money when it’s time to file. Let’s break down some key strategies to make tax season a win.

Take Advantage of Tax Planning

Think of tax planning and tax filing like training versus competing. Filing your taxes is game day — it’s about reporting what happened during the past year and making sure everything is accurate and compliant. Tax planning, on the other hand, is the off-season work — it’s about making strategic moves to minimize your tax burden before it’s time to file.

Tax filing is straightforward but time sensitive. You’re preparing and submitting your tax return to the IRS and any state(s) where you have a tax obligation — reporting your income, deductions, and credits from the previous year. You calculate the amount you owe or your refund and make sure you hit deadlines. It’s a backward-looking process, reviewing what happened last year and getting everything in order to stay compliant.

Tax planning is where you take control. It’s all about strategizing throughout the year to reduce your overall tax bill. You’re making choices about timing income and expenses, leveraging retirement accounts, and even factoring in the different states where you play. It’s a forward-looking process, keeping your financial future in mind.

Pro Tip: Treat tax planning like off-season conditioning — put in the work year-round to make filing faster and more efficient.

Understand Your State and Local Tax Obligations

One of the most challenging parts of filing your taxes as a pro athlete is navigating the “jock tax.” This tax requires you to pay income taxes not only in your home state but also in each state and city where you play games. It’s calculated based on “duty days” — any day you spend working (including practices, games, and team meetings) in each locality. 

The concept of the jock tax took off in 1991 when California targeted Michael Jordan and the Chicago Bulls after they defeated the Los Angeles Lakers in the NBA Finals. Illinois then retaliated with its own tax on visiting athletes and the practice quickly spread nationwide. Today, almost every state imposes some form of jock tax.

How does the jock tax affect you? Let’s say you’re based in Florida (a state with no income tax), but you play games in New York, California, and Texas. You’ll be filing state tax returns for each of those states, and the tax you owe will be calculated based on how many duty days you spent in each place. The administrative burden of filing in multiple states can be overwhelming — not to mention the risk of double taxation if you’re not careful about claiming credits in your home state for taxes paid elsewhere.

Where you choose to live can significantly impact your overall tax liability. States like Florida, Nevada, Tennessee, and Texas don’t have a state income tax, making them attractive for athletes looking to minimize their tax bills. But it’s essential to be strategic, as moving your primary residence is a major decision with plenty of financial implications.

Pro Tip: Work with a tax professional who understands multi-state filings and can help you navigate the jock tax maze. The last thing you want is to overlook a state return and face hefty penalties down the road. 

Make Retirement Contributions Part of Your Tax Strategy 

One of the smartest tax planning moves you can make as a pro athlete is contributing to a retirement account. Your contributions can lower your taxable income while helping secure your financial future. 

Depending on your situation, there are several tax-advantaged options to explore. If you’re self-employed or have endorsement income, an individual 401(k) or a SEP IRA could allow you to contribute large amounts and defer taxes until retirement. If you’re part of a league with a pension plan, those contributions may be made on your behalf — but supplementing them with your own traditional or Roth IRA can give you more flexibility and control. 

For athletes, whose peak earning years are often short, retirement accounts are invaluable tools. The tax savings can be substantial, especially in high-earning years. Plus, having a well-funded retirement plan gives you peace of mind for life after your career winds down. 

Pro Tip: Maximize your contributions in years when your earnings are highest. This can help offset the impact of the jock tax by reducing the income subject to taxation. 

Ready to Get in Tax Season Shape?  

Taking a proactive approach to your taxes means less stress, fewer surprises, and more savings when it’s time to file. Just like conditioning in the off-season sets you up for success on game day, putting in the effort now will help prepare you when the whistle blows on the next tax season. 

How MGO Can Help 

At MGO, we understand the unique tax challenges you face as a professional athlete. Our Entertainment, Sports, and Media team has decades of experience helping pro athletes minimize tax burdens. Let us help you with tax planning, federal, state and local tax, and putting together a winning strategy so you can focus on dominating your sport. Connect with us today to get your taxes in shape for the upcoming season.

The post Off-Season Tax Tips for Pro Athletes  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Know the real value of your contract by focusing on the net amount after taxes, fees, and deductions — not just the headline number. 

• Explore negotiation options beyond salary, including bonus structure and tax-friendly terms, to maximize your take-home pay. 

• Plan for hefty taxes on signing bonuses, and consider strategies like residency choices, deferral options, and smart investments to protect your earnings. 

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Making the leap from amateur to professional athlete is an exciting milestone, but signing your first contract comes with financial complexities you may not have faced before. Whether you’ve been preparing for this moment for years or it’s arrived sooner than expected, understanding how your contract, salary, and signing bonus will impact your finances is essential.  

Let’s break down what you need to know before you put pen to paper.  

How Much Are You Willing to Sign For — and What Will You Take Home? 

Your first pro contract might be worth more money than you’ve ever seen before, but don’t let the big numbers fool you. Taxes, fees, and other deductions will greatly impact what you take home. 

Before agreeing to a deal, it’s important to consider the “net” amount — the money you will have after taxes and deductions. A contract worth $1 million does not mean you’ll see $1 million in your bank account. Federal and state taxes, agent fees, and other obligations can take a major cut. The key is to focus on what you will actually keep, not just the headline number. 

Do You Have Room to Negotiate? 

In most major pro sports leagues, draft position determines much of a contract’s structure — including how much room you have to negotiate. First-round picks typically receive more leverage when negotiating signing bonuses and guaranteed money, while later-round picks often have fewer options. 

That said, negotiating terms beyond just salary — such as how bonuses are structured, incentives, and tax-friendly options — can make a dramatic difference in what you take home. Having a knowledgeable advisor by your side is critical to making sure you don’t leave money on the table. 

How Are Signing Bonuses Taxed? 

Signing bonuses are one of the biggest financial perks of going pro. Unlike salaries that are paid throughout the year, signing bonuses are often paid upfront or in structured installments. But before you start making big purchases, you need to understand how they are taxed. 

Are Bonuses Taxed at a Higher Rate?  

Yes. The IRS treats signing bonuses as supplemental income, which means they can be subject to a higher withholding rate. The standard federal withholding rate for bonuses is typically 22% up to $1 million and 37% for amounts over $1 million.  

What About State Taxes?  

State taxes also play a major role. If your team is based in a high-tax state (like California or New York), you could owe state income tax on your signing bonus. The California bonus rate is 10.23% and New York is 11.7%.  However, in some cases, teams can structure contracts in ways that minimize state tax burdens — so it’s worth reviewing all options. The key is residency of the athlete at the time of signing the contract unless the language indicates that the bonus is earned based upon duty days or games played. This is addressed in more detail below.

Understanding the “Net Signing Bonus” 

What does “net signing bonus” mean? Simply put, this is the amount you’ll actually receive after taxes and deductions. A $2 million signing bonus may only leave you with around $1.0–$1.3 million after federal tax (income and employment), state tax, and agent fees are deducted. 

Because bonuses are taxed immediately upon payment, many athletes are surprised at how much is taken out before they even see the money. That’s why it’s critical to plan ahead and look at strategies to manage your tax burden. 

Ways to Manage Taxes on Your Signing Bonus 

There are several strategies to reduce or manage the taxes on your signing bonus. Depending on your situation, these may include: 

• Establish residency in a tax-friendly state: If possible, signing with a team in a state with no income tax (like Florida, Texas, or Tennessee) can help you keep more of your earnings. 

• Defer income when possible: Some contracts allow you to defer portions of your bonus to future years, spreading out your tax liability over time. 

• Invest wisely: Using tax-efficient investment strategies can help grow your wealth while minimizing tax burdens. 

• Work with a financial professional: An experienced CPA or financial advisor who works with pro athletes can help navigate tax strategies tailored to your situation. 

Planning for the Long Term 

Your first contract is the beginning of your financial journey as a professional athlete. Many athletes earn most of their lifetime income in a short playing window, so planning wisely from day one is essential. 

If you’re preparing to sign your first pro contract, don’t go through it alone. With the right guidance, you can make smart financial decisions that set you up for success — both on and off the field. 

How MGO Can Help 

Our Entertainment, Sports, and Media team has worked with professional athletes for over three decades, helping them navigate contracts, taxes, and long-term financial planning. Whether it’s structuring your signing bonus efficiently, managing multi-state tax obligations, or setting up investments for long-term security, we can help you make the most of your earnings. Contact us today.

The post Navigating Your First Pro Contract Signing Bonus: What You Need to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• House Republicans passed a budget plan with $4.5 trillion in tax cuts and $2 trillion in spending reductions.

• The plan looks to extend key Tax Cuts and Jobs Act tax breaks before they expire at the end of 2025.

• Senate Republicans favor a different approach, setting up a major fiscal battle.

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House Republicans narrowly passed a multi-trillion-dollar budget framework on Tuesday, marking a major victory for President Donald Trump and Speaker Mike Johnson. The 217-215 vote advances Trump’s economic agenda — including $4.5 trillion in tax cuts, increased border security funding, and military spending.

A key driver of this budget debate is the upcoming end of the Tax Cuts and Jobs Act (TCJA) provisions at the end of 2025. While Republicans aim to extend or expand many of these tax cuts, the challenge will be finding ways to offset lost revenue while navigating opposition in the Senate.

Key Details of the Budget Plan

The budget proposal seeks $2 trillion in spending cuts over the next decade to help fund tax reductions. It also includes over $100 billion in new spending for immigration enforcement and national defense.

One of the most significant components of the budget is its proposal to extend key TCJA provisions, including:

• Lower individual tax rates, which are set to rise at the end of 2025

• 20% pass-through deduction (Section 199A) for businesses, helping small and mid-sized companies

• Expanded child tax credit, which would otherwise shrink from $2,000 per child to $1,000 in 2026 

• $10,000 cap on state and local tax (SALT) deductions, a hot-button issue for high-tax states like California and New York 

Trump has also floated lowering the corporate tax rate from 21 percent to 15 percent for companies that manufacture in the U.S., though this is not yet included in the House plan. 

While Trump has insisted that Medicaid, Medicare, and Social Security will remain untouched, critics argue that such deep cuts will be difficult to achieve without affecting major social programs. 

GOP Divisions and Trump’s Influence 

Winning support for the resolution was difficult. Some House Republicans opposed the budget, arguing that it does not go far enough in cutting federal spending. The first vote was delayed when it became clear the measure lacked sufficient backing.  

Speaker Johnson and House Majority Leader Steve Scalise worked behind the scenes to secure votes from key Republican holdouts, with Trump personally calling lawmakers to push the measure forward. In the end, only one Republican — Rep. Thomas Massie of Kentucky — voted against the bill, while all Democrats opposed it. 

Democratic Opposition and Future Challenges 

Democrats argue the proposed budget overwhelmingly benefits corporations and wealthy individuals while cutting funding for social programs. House Minority Leader Hakeem Jeffries warned the plan could lead to the largest Medicaid reduction in U.S. history, though Trump insists that entitlement programs will remain untouched. 

The budget also faces an uphill battle in the Senate, where Republicans favor splitting tax reform into two bills: one focused on tax cuts and the other addressing border security and defense spending. Trump, however, has pushed for a single, sweeping bill — setting up a potential conflict between House and Senate Republicans. 

What’s Next? 

The TCJA provisions end in December 2025, adding urgency to the budget debate. If Congress does not act, individual tax rates will rise, the standard deduction will shrink, and business tax benefits will phase out — impacting millions of individual taxpayers and companies. 

The Senate will now review and negotiate the House’s budget proposal, with significant revisions expected. Lawmakers must also decide how to fund the tax extensions, as Republicans may need to accept some spending adjustments or revenue increases to secure passage. 

For now, the House budget plan reinforces Trump’s influence over tax policy and positions the GOP for a high-stakes fiscal showdown in the months ahead. 

How MGO Can Help Your Business Adapt to Tax Policy Changes 

With key provisions of the TCJA set to expire at the end of 2025, businesses must prepare for potential tax increases and regulatory changes. The expiration could mean higher individual tax rates, reduced deductions for pass-through businesses, and a lower standard deduction — impacting tax planning for companies and executives alike.  

As lawmakers debate extending or modifying these provisions, proactive tax strategies are essential. MGO’s comprehensive tax services help businesses and high-net-worth individuals navigate evolving tax laws, optimize deductions, and maintain compliance at the federal, state, and international levels. From pass-through entity planning and R&D tax credits to SALT strategies and corporate tax structuring, we provide tailored guidance to help you manage liabilities and opportunities in an uncertain legislative environment. 

The post House Passes Budget Plan with Trump’s Support Amid GOP Divisions appeared first on MGO CPA | Tax, Audit, and Consulting Services.