Planning Well in Advance of a Transaction

From a tax and estate planning perspective, the most valuable opportunities often arise well before a business is formally brought to market. Early planning allows business owners to take advantage of strategies that may no longer be available once a transaction becomes imminent.

One key consideration is ownership structuring. Reviewing how the business is held, whether individually, through entities, or in trust, can uncover opportunities to improve tax efficiency and facilitate wealth transfer. For example, transferring minority interests in a business to irrevocable trusts for family members, when valuations are lower and before a sale is anticipated, may reduce future estate tax exposure. These strategies, often referred to as “pre-sale gifting,” can allow appreciation to occur outside of the owner’s taxable estate.

Trust planning also plays an important role. Properly structured trusts can provide asset protection, centralized management, and multigenerational wealth planning benefits. However, timing is critical. Once a letter of intent is signed or a sale becomes highly probable, the IRS may scrutinize transfers more closely, potentially limiting the effectiveness of these strategies.

From the deal side, “early” really means early. By the time a letter of intent is signed, the framework of the transaction is often set, and leverage begins to shift. Preparing in advance—cleaning up corporate records, evaluating contracts, and aligning ownership—can prevent delays and preserve negotiating strength.

Just as importantly, early coordination with tax counsel ensures that the business is positioned in a way that supports both marketability and tax efficiency. Buyers will conduct extensive diligence, and a well-prepared seller is better equipped to maintain momentum, avoid surprises, and command stronger terms.

Planning During the Transaction

Once a transaction is underway, the process moves quickly and becomes highly structured. Negotiations typically focus on key terms such as purchase price, representations and warranties, indemnification, and, critically, deal structure.

One of the most significant structural decisions is whether the sale will be an asset purchase or a stock purchase. Buyers often prefer asset deals for liability protection and tax benefits, while sellers frequently favor stock deals for cleaner exits and capital gains treatment. Navigating this tension is a central part of the negotiation process.

In addition, deal mechanics such as earnouts, rollover equity, and escrow arrangements can materially impact both risk allocation and overall value. These terms should be evaluated not only from a legal perspective, but also in light of their tax consequences.

That’s where tax planning continues to play a critical role during the deal itself. The structure of the transaction directly affects how proceeds are taxed, and careful analysis can help align the interests of both buyer and seller.

For example, in an asset sale, buyers may receive a step-up in tax basis, which can be highly valuable. However, sellers (particularly C corporations) may face double taxation. In a stock sale, sellers often achieve more favorable capital gains treatment, though buyers may be wary of inheriting liabilities.

Tax elections can sometimes bridge this gap. Certain elections allow the parties to achieve a hybrid result; providing buyers with basis step-up benefits while preserving favorable tax treatment for sellers. These opportunities require proactive analysis and close coordination with deal counsel.

A Coordinated Approach Delivers Better Outcomes

A successful transaction is not just about getting to closing—it’s about getting there efficiently, with minimal disruption and maximum value; and making sure you actually keep that value when it’s all said and done.

Together, a coordinated team of advisors can align transaction execution with tax efficiency and long-term wealth planning. Business owners who engage counsel early (and maintain that collaboration throughout the process) are best positioned to achieve a successful and well-planned exit.

For those considering a future sale, the takeaway is clear: start planning early, stay engaged throughout the process, and ensure your advisors are working together every step of the way.

For more information or to seek counsel from our Business & Corporate or Taxation practice groups, please reach out to request a consultation or call us at 216-696-1422.

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The Growing IRS Focus on Digital Creators

For IRS purposes, an influencer is an individual monetizing digital following through (1) platform payouts and ad revenue; (2) brand sponsorships and partners; (3) affiliate marketing commissions; (4) merchandise and digital products; (5) subscriptions and memberships; and (6) speaking and appearance fees. In an IRS audit, there are three critical areas where the IRS or state agency will audit (1) whether the influencer is engaging in a trade or business or being an influencer as a hobby; (2) whether the influencer is an employee or independent contractor; and (3) whether the influencer is conducting a combined business or conducting separate ventures.

The Importance of Recordkeeping

The bottom line is that the IRS and state tax agencies are generally skeptical about influencers’ deductions because there is a concern that influencers may be disguising personal vacation expenses as tax-deductible business expenses, or improperly deducting wardrobe costs, or deducting home office expenses that were personal in nature and turning personal meals into deductible business expenses. The IRS and state tax agencies alike will be successful in challenging these deductions unless the influencer maintains appropriate documentation and records establishing that all their deductions are business expenses and therefore deductible.

Social Media as an Audit Tool

Make no mistake that the IRS will also be scrutinizing the income reported by influencers. The IRS will be looking at the influencer’s social media profile to determine whether the lifestyle that is portrayed in the profile is properly reflected on the influencer’s tax return. Just as with the student athletes discussed in our first installment, cash is not the only thing that results in income. The influencer must report the FMV of all goods and services received in connection with its influencer business. Many influencers run into problems because they receive free products from companies or all expenses paid trips to hotels in exchange for a few posts about the product or hotel. These items are taxable and if the FMV of these items are not properly reported, the influencer may create significant tax issues for themselves.

When to Seek Professional Guidance

In conclusion, it is imperative that digital content creators consider the financial and tax implications of running their respective businesses and select the appropriate business structure to suit their needs. Mistake of law is never a defense in the course of a civil tax audit and if the IRS feels that a taxpayer has willfully failed to report income to the IRS or inflated its tax deductions, these taxpayers could find themselves facing criminal charges for tax fraud in addition to being slapped with civil liabilities.

For more information, or to seek counsel from our Taxation practice group, please reach out to request a consultation or call us at 216-696-1422.

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Why It’s Important

Although the releases do not change the tax law, they are important because they dictate how and when taxpayers can receive written guidance, including letter rulings, determination letters, and technical advice.

Revenue Procedure 2026-1: Letter Rulings and Determination Letters

Rev. Proc. 2026-1 explains the revised procedures for requesting letter rulings, determination letters, and information letters on federal tax issues issued by the Large Business and International Division, Small Business/Self-Employed Division, Wage and Investment Division, and the Tax Exempt and Government Entities Division. This procedure also outlines which IRS offices handle specific requests, the information required for submission, user fee information, and circumstances under which the IRS may decline to issue guidance.

Revenue Procedure 2026-2: Technical Advice

Rev. Proc. 2026-2 discusses Technical Advice Memoranda (TAMs), which can arise during IRS audits or examinations where IRS personnel request guidance from the National Office on how the law applies to a specific set of facts. The updated procedure explains when advice can be requested by the taxpayer, how to participate in the process, how the results are issued, and the rights a taxpayer has when a field office requests a TAM.

Revenue Procedure 2026-3: Domestic “No-Rule” Areas

Rev. Proc. 2026-3 addresses areas of domestic tax law in which the IRS does not issue letter rulings. These areas generally involve issues that are otherwise unsuitable for guidance. If a topic appears on a “no-rule” list, the IRS will typically decline to rule, though in some cases they may choose to provide information letters on the subject.

Revenue Procedure 2026-4: Tax-Exempt, Government Entities, and Employee Plans

Rev. Proc. 2026-4 addresses procedures for government entities, tax-exempt organizations, and employee benefit plans. This procedure supports Rev. Proc. 2026-1 by addressing the considerations that apply to these entities.

Revenue Procedure 2026-5: Exempt Organizations

Rev. Proc. 2026-5 focuses on determination letters for exempt organizations specifically. This includes applications for tax-exempt status and other exempt organization issues. It also addresses remedies available under Internal Revenue Code Section 7428, which grants specific organizations the right to seek a declaratory judgment from certain U.S courts regarding their tax-exempt status. It provides a procedure to resolve disputes over qualifications and aims to protect from litigation.

Revenue Procedure 2026-7: International “No-Rule” Areas

Rev. Proc. 2026-7 mirrors the domestic “no-rule” list from Rev. Proc. 2026-3, however this applies to international and cross-border matters.

Overall, the updates presented by the IRS in its Annual Revenue Procedure for 2026 don’t represent a substantive shift in law or policy, rather just an annual update. As with previous years and anything presented by the IRS, it’s important for taxpayers to understand these changes and when, how, and under what circumstances a taxpayer may seek guidance from the IRS. It’s important to consult your tax professional for guidance on how these updates can impact you.

For more information or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

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[1] https://www.irs.gov/irb/2026-01_IRB

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New Limitations and Rules

The OBBB changed the rules for charitable deductions for both itemizing and non-itemizing taxpayers. Beginning January 1, 2026, itemizing taxpayers are now subject to a charitable deduction floor of 0.5% of their adjusted gross income and will continue to be subject to a 60% cap on cash contributions made to public charities. Additionally, the new rules cap the tax benefit of itemized charitable deductions at 35% for those in the 37% marginal tax bracket.  These rules will also impact charitable deduction carryovers for such taxpayers. For taxpayers that do not elect to itemize, taxpayers filing individually are now eligible to deduct charitable contributions up to $1,000 and taxpayers filing jointly are now eligible for a maximum $2,000 charitable deduction. Previously, charitable deductions were only available to itemizing taxpayers.

Similar to itemizers, a new floor applies to C-Corporations, which means donations are only deductible in excess of 1% of the company’s taxable income. The existing 10% taxable income ceiling for C-Corporations is unchanged.

Impact on Charitable Foundations

While these legislative changes are driven by a number of factors, the real-world impact on those affected is often overlooked. According to a new research report by Indiana University Lilly Family School of Philanthropy, the OBBB is projected to reduce charitable giving by roughly $5.69 billion annually (roughly 1%). That total is estimated based on the following:

• An increase of $4.39B of gifting by those non-itemizing taxpayers now motivated to give because of the new above-the-line deduction available to them.
• A decrease of $2.43B of gifting due to the 0.5% floor for itemizing taxpayers.
• A decrease of $6.1B of gifting due to the 35% cap on value of the deductions for those in the highest tax bracket.
• A decrease of $1.55B by C-Corporation gifting due to the 1% floor on corporate charitable gifting.

These effects may not be fully seen until one full year after the law is in effect.

Increase in Donor-Advised Funds

Based off the projected impacts of the OBBB, there has been a rise in the use of a Donor Advised Fund (DAF). DAFs are charitable giving accounts that allow donors to make a large deductible contribution in one year and then give to their chosen charities over a span of time as they choose.

Ultimately, the OBBB signals a notable shift in how taxpayers approach charitable giving. As these changes take effect, taxpayers and charitable organizations should reevaluate their strategies. While new thresholds and reduced incentives may limit immediate tax advantages, there are tools that exist that can play an important role in maximizing tax efficiency and charitable giving impact.

For more information, or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

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What Are Common Income Streams for Performers?

Artists, entertainers, musicians, and “road crews” may receive both W-2 wages as employees for stage work and Forms 1099 for their services such as coaching and teaching. The IRS has had much success in challenging these taxpayers in the following three areas: (1) deductibility of expenses; (2) worker classification; and (3) income sourcing.

As previously discussed in our first installment, expenses are only deductible if they are ordinary and necessary expenses paid or incurred during the taxable year in the carrying on of a trade or business. Expenses that will be denied include wardrobe, general makeup, hair styles for auditions, or to maintain an image for these taxpayers. Additionally, these taxpayers often find themselves violating rules related to deducting expenses that have a dual purpose (i.e., both business and personal). There is a general presumption that meals, entertainment, gifts, all expenses paid trips, boats, and non-deductible personal expenses are not deductible, unless the taxpayer proves otherwise. This presumption is not easily overcome and requires significant documentation to be provided by the taxpayer to show that these expenses were ordinary and necessary business expenses.

Deductibility of Business Expenses

Employees are not permitted to deduct business expenses. As such, artists, entertainers, and musicians who are employed by a company cannot deduct any of their expenses spent from their own personal funds. However, there is an exception for a qualified performing artist when the artist (1) performs services for at least 2 employers; (2) has allowance expenses that exceed 10% of the artist’s gross income from performing arts; and (3) has an adjusted gross income (“AGI”) not exceeding $16,000. This exception is not that helpful, because the $16,000 AGI limit is not adjusted for inflation, and most artists have an AGI higher than $16,000 per year. As such, if the IRS is successful in arguing that an artist, entertainer, or musician is not an independent contractor but rather than employee, the IRS and state agencies will be able to deny virtually all deductions that were taken by the artist, entertainer, or musician.

State and Local Tax Obligations

The third issue is a state issue that involves sourcing income to the applicable state or states. An artist, entertainer, or musician may create nexus with multiple states by performing in a variety of states during each year. Many states have non-resident return filing requirements and use duty days formulas to allocate income across the state jurisdictions. Many cities, like Cleveland, also have an income tax on performers doing a show within city limits. Many artists, entertainers, and musicians fall into the trap of only filing state income tax returns in the state where they are domiciled (i.e., reside, have a permanent home, etc.). Many states allow taxpayers to take credits for taxes paid in other states to avoid double taxation, but these artists, entertainers, and musicians may find themselves paying significant penalties for non-compliance and interest (to the extent tax was owed to the jurisdiction).

Planning Ahead to Avoid Costly Tax Issues

In conclusion, it is imperative that artists, entertainers, and musicians consider the financial and tax implications of running their respective businesses and select the appropriate business structure to suit their needs. Mistake of law is never a defense in the course of a civil tax audit and if the IRS feels that a taxpayer has willfully failed to report income to the IRS or inflated its tax deductions, these taxpayers could find themselves facing criminal charges for tax fraud in addition to being slapped with civil liabilities.

For more information, or to seek counsel from our Taxation or Business & Corporate practice groups, please reach out to request a consultation or call us at 216-696-1422.

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The NIL Rule Change & Its Tax Impact

In July 2021, the NCAA changed its rules and began allowing student athletes to profit from their NIL. These student athletes are now permitted to enter endorsement deals, appear in advertisements, sell merchandise, and receive compensation for social media content. Student athletes are generally young adults between the ages of 18 and 22 who may not have any experience with filing their own taxes, as they are often claimed on their parents’ tax returns as dependents while they are in college. However, this change in their ability to profit from their NIL deals will have significant financial and tax implications that neither they nor their parents may fully understand or are prepared to handle.

What Counts as NIL Income?

For example, a student athlete does not always realize that NIL income is more than just cash. It includes non-cash compensation like merchandise, gift cards, cars, and other benefits, such as expense paid trips. The fair market value (“FMV”) of goods and services is considered taxable income. Student athletes must track all income, whether it comes in cash, goods, or services, and every dollar must be accounted for on their tax filings. When the IRS or state tax agency audits them, the IRS often finds out during their audit that the student athlete or the family have not reported the FMV of all of the goods and services the student athlete and/or their family received in connection with the student athlete’s business.

Common Deduction Mistakes & Risks

Additionally, a student athlete and their families may not fully understand what a student athlete may deduct on their returns. Some student athletes and their families have gotten themselves into predicaments with the IRS and state tax agencies because they have deducted exorbitant amounts in expenses without the required documentation to support the expenses. As a general rule, expenses must be ordinary and necessary expenses paid or incurred in the carrying on of a trade or business. Ordinary expenses are those that are common and accepted in your type of business, and necessary expenses are those that are helpful and appropriate for your business. However, reimbursable expenses for which the taxpayer has the ability to be reimbursed by a third party for those expenses are never deductible by the taxpayer.

Planning Ahead to Avoid Consequences

In conclusion, it is imperative that student athletes and their families, if applicable, consider the financial and tax implications of running their respective businesses and select the appropriate business structure to suit their needs. Mistake of law is never a defense in the course of a civil tax audit and if the IRS feels that a taxpayer has willfully failed to report income to the IRS or inflated its tax deductions, these taxpayers could find themselves facing criminal charges for tax fraud in addition to being slapped with civil liabilities.

For more information on this topic or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

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Initial Meeting: “What Are The Basics?”

My initial client meetings typically involve those who are considering an attorney for estate planning, business planning, and/or tax planning. In this meeting, my job is to ask the right questions.

If you keep reading, and you find yourself thinking any of the following:

1. “I should probably know the answer to that.”
2. “We’ve been meaning to deal with this.”
3. “That sounds uncomfortably relevant.” 

Then, now is a good time for us to chat; a thoughtful and honest conversation about where you are and where you want to go.

Big-Picture & Goals: “Why Are We Here?”

When meeting with a new client, I like to get a handle on the big picture. The following questions are things to consider:

1. What prompted you to come in or reach out now? (A perfect answer would be, “I read an interesting blog that helped explain what I need and how to prepare in a comfortable way.”)
2. What are your top concerns when you think about your finances, family, or business?
   • Minimizing taxes
   • Protecting assets
   • Taking care of family
   • Maintaining control
   • Avoiding future disputes
   • All of the Above
3. What is it that you really want to fix?

The preliminary overview is often targeted at what you are specifically worried might go wrong if you don’t get a plan in place.

A whole host of reasons can be the initial trigger, be it a new child, the sale or impending sale of a business, realizing your “plan” is partly in a drawer at the office and partly in a three-ring binder from 1998, or you had a recent combative probate experience with a family member. 

Whatever the reason, we can first zero in on whether we’re solving an urgent problem, doing preventative planning, or cleaning up something that no longer fits.

Estate Planning: “Who Gets What, When, and How Much Drama Is Allowed?”

When it comes to estate planning, it’s really about people, hence the complications. Estate planning is very personal, and while I try to reassure clients that “I’ve seen it all,” it can be intimidating to share such intimate details.

When setting the stage for estate planning, I typically ask about:

1. Your spouse (current, former, or blended-family situations)
2. Your kids (ages matter, so do personalities)
3. Anyone you consider “family,” even if the law disagrees

Understanding the players involved helps create an overarching structure for effective planning.

When it comes to beneficiaries, the following are some examples of “special circumstances”:

1. Minor children
2. Special needs
3. Addiction issues
4. Spendthrifts
5. Someone who really shouldn’t receive a large lump sum at 25

Analyzing these aspects is important because equal is not always fair, and fair is not always tax efficient. Planning lets you protect people not only from themselves, but also from creditors, bad influences, or bad decisions.

Then we get to some of the harder choices – deciding who you trust to handle money and make decisions.  Even the best structured plans in the world can fail if the wrong person is in charge. Proper estate planning translates real life into a plan that works even when emotions run high, and you’re not around to explain yourself. Remember, estate planning isn’t just about assets; it’s about people with assets, and people can be…unpredictable.

Business Planning: “How’s the Money Made and Who Could Mess It Up?”

When it comes to business, I go right to structure. I want to know:

1. Entity type (LLC, S Corp, C Corp, Partnership, Sole Proprietorship)
2. Ownership (Individual, Trust, Multiple Parties)
3. Documented governance (Who’s in charge)
4. Undocumented governance (Who thinks they’re in charge)

These preliminary questions are important because entity structure affects taxes, liability, estate planning, and succession planning. The wrong structure can quietly cost you tens of thousands of dollars a year.

I then ask about current business succession planning; the proverbial, “What happens if something happens?” This something includes (among others) disability, incapacity, retirement, and (unfortunately) death.  If the business depends solely on one person and there’s no plan, the family may inherit a mess instead of an asset.

My personal advice is that a business can be a powerful wealth-building tool or a planning disaster if it’s ignored. In analyzing the business, I try to focus on the following:

1. Where taxes might show up
2. Where risk lives
3. Where planning opportunities are hidden

More often than not, this is the point in a meeting where a client says, “I didn’t realize that mattered.”

Tax Planning: “What Are You Paying & Why?”

Once I get to the tax planning piece, people often say, “I have a CPA, and they handle that.”  And that’s a great start. I like CPAs, and I work with them often. Having a team of good advisors is key because tax planning is proactive and comprehensive, not simply compliance-driven.

I’ll ask questions about how you make your income:

1. W-2?
2. Business Income?
3. Investments?
4. Real Estate?
5. A mix?

This is important because income is taxed differently.  Efficient tax planning involves legally shifting, timing, or characterizing income to reduce annual tax exposure; not just reporting income accurately on a return.

I’ll also be interested in what you own, be it real estate, investment accounts, retirement plans, life insurance, business interests, you name it.  These all become relevant for tax planning because taxes aren’t just important when you earn money, it’s also important when you sell, gift, inherit, or (again, unfortunately) die.

Good tax planning also gets at what’s keeping you up at night. It could be paying too much tax, leaving a mess for heirs, losing control, the IRS, or a business partner. An appropriate tax plan isn’t always the most technically efficient; it’s also whatever helps you sleep at night. Remember, for tax planning, we focus on what’s next, not what’s already happened. The earlier the conversation, the more options you usually have.

The Final Question: “What Does Success Look Like For You, and How Do We Get There With Minimal Tax, Risk, and Regret?”

This answer really requires honesty, context, and sometimes confronting what you’ve been avoiding.  That’s where I come in to guide you, by turning big questions into clear answers with a plan that works. If you’re thinking about answers and want guidance, let’s talk.

For more information or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

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As is typical when Congress changes the tax law, the new rules are complicated in practice, and each taxpayer should consult their personal tax advisor as to the optimal way to file their income tax returns. But note that while the filing date for personal tax returns is not until April 15^th of next year, the decisions you make in November and December of this year will establish the “facts” of your possible allowable 2025 tax deductions. This is because individual taxpayers are on the cash method of accounting. This means that to claim a tax deduction for 2025, you must make a payment by December 31, 2025. In the case of a gift of appreciated stock to a charity, the gift must be completed by December 31, 2025.

How the New Tax Rules Change Tax Planning for Itemized Deductions

Beginning for tax year 2025, for taxpayers with an adjusted gross income of less than $500,000 (but subject to phaseout for adjusted gross incomes above $500,000), the cap on state and local itemized deductions has increased to $40,000 from the prior limit of $10,000. As an example, consider a taxpayer with $15,000 of real estate taxes plus $25,000 of state and local income taxes paid ($40,000 total tax bill). Under the prior law, the taxpayer who itemized their deductions was limited to deducting only $10,000 of those taxes that they paid. But under the 2025 rules, the taxpayer would be eligible to claim itemized deductions for $40,000 of state and local taxes. Since that amount is greater than the 2025 standard deduction amounts, the taxpayer should choose to itemize deductions. In these facts, if the taxpayer also makes charitable contributions in 2025, all the charitable contributions made in 2025 will reduce taxable income and save the taxpayer federal tax dollars.

This means that taxpayers who pay state and local income and property taxes plus mortgage interest at or near the amount of the standard deduction may want to consider itemizing in 2025 and make charitable contributions in 2025 to maximize their 2025 federal tax deductions.

Note that for tax years after 2025, the charitable contribution rules change and establish a “floor” before taxpayers may itemize charitable contributions. This means that itemizing taxpayers cannot deduct charitable contributions until their charitable contributions exceed 0.5% of their adjusted gross income. In 2025, taxpayers are not yet subject to the “floor” for charitable contributions, and charitable donations are subject to the existing rules. Because the “floor” has not yet taken effect, taxpayers may consider making larger charitable contributions in 2025. To the extent these charitable deductions go unused in 2025, the deductions can be carried forward. This strategy is called “bunching.” To the extent “bunching” makes sense for you, please consult with your tax advisor. 

Also note that the prior tax law about contributions of appreciated stock to a charity remains unchanged. So, if a taxpayer has low basis stock with a significantly higher market value, the taxpayer can contribute that stock “in-kind” (i.e., without selling it) to the charity. In such a case, the taxpayer can claim a charitable deduction equal to the market value of the stock on the date of contribution without having to pay any income tax on the built-in tax gain. As an example, if the taxpayer held public stock that they had purchased for $100 per share with a market price of $250 on the date of contribution, the taxpayer could contribute, say, 100 shares to the charity. The charity would sell the stock for $25,000, and the taxpayer would get a tax deduction of $25,000. The difference between the market price and the cost basis of $100 per share would not be taxed. 

While everyone’s individual tax situation is different, itemizing may make sense for you. As such, please consult with your tax advisor before taking any tax positions.

For more information or to seek counsel from our Taxation practice group, please reach out to request a consultation or call us at 216-696-1422.

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What are Dividends vs. Capital Gains?

Dividend income is generally generated when a corporation distributes a portion or all of its profits to its shareholders during the year on a pro rata basis according to each shareholder’s ownership percentage in the Company, whether shares are owned directly or through a fund. Dividends are typically treated as ordinary income and are subject to the tax rate applicable to the shareholder who receives the dividend income.

Certain dividends, called “qualified dividends,” are subject to the preferential long-term capital gains rates. For the dividend to be a “qualified dividend,” the taxpayer, whether directly or indirectly through the fund, must hold the shares for more than 60 days during the 121-day period that begins before the ex-dividend date (which is the date after the dividend has been paid and processed).

Capital gain is generally generated when a taxpayer sells (directly or through a fund) a capital asset, such as stocks, bonds, real estate, or other investment property. Certain capital gains are typically taxed at a rate of 20% if the assets in question have been held by the taxpayer for more than 12 months. If the investment has been held for less than 12 months, the capital gains are classified as short-term and are subject to the higher ordinary individual income tax rates.

This is best illustrated with an example. Let’s say you received the following Informational Tax Reporting Statement from your fund.

The amount reported as “Qualifying Dividends” is also included in the “Total Ordinary Dividends.” However, the amount included in “Qualifying Dividends” is subject to the lower preferential long-term capital gains rates as opposed to ordinary income, subject to the higher individual tax rates. As such, you would report $80,000 in ordinary income and $20,000 in capital gain.

Understanding Dividends

It’s important to understand which types of dividends are subject to the higher individual tax rates versus those eligible for the lower long-term capital gains rates to properly determine your tax liability for the year in question.

Additionally, if you sell a capital asset, such as real property or other assets held for investment purposes, it’s vital to understand the holding period tax implications related to the sale. If the investor holds the asset for 12 months or less, any resulting capital gain will be considered a short-term capital gain subject to the ordinary individual income tax rates.

Finally, if you are serving as a trustee of a trust, the same rules apply regarding dividends and capital gains. However, trusts are subject to additional regulations governing the distribution of dividends and interest, which must be carefully considered when managing the trust’s tax obligations.

In summary, the above example highlights the importance of consulting with a qualified tax advisor to assist you with reviewing and interpreting the tax forms related to your investments. Doing so ensures accurate reporting and helps prevent overpayment of taxes.

For more information or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422. 

*Please note that Christine Townsend is licensed only in Massachusetts.

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To the extent you are shopping at businesses with point-of-sale software, the businesses will automatically refrain from collecting sales tax during the appropriate period, both on in-person and online purchases. However, it is important to always check your receipts during this time to confirm!

What is the purpose of a sales tax holiday?

Many states that impose sales taxes offer sales tax holidays to stimulate consumer spending and provide financial relief to taxpayers from paying sales taxes on eligible purchases. Some states, such as Ohio, like to hold their sales tax holidays in August when consumers are doing their back-to-school shopping.

What types of purchases are tax-exempt during a sales tax holiday?

It is important to note that not all purchases are tax-exempt during Ohio’s sales tax holiday. Eligible purchases include purchases of almost all tangible personal property priced at $500 or less. Some examples of tax-exempt products under Ohio law include: (1) electronics; (2) clothing; (3) books; (4) home goods; (5) plants; (6) sporting goods; and (7) food and beverages. However, please note that this is not an exclusive list, and many other products may qualify as eligible products unless they are included in the list of excluded products below.

What types of purchases are NOT tax-exempt during a sales tax holiday?

Purchases of the following are not tax-exempt during the annual Ohio sales tax holiday: (1) watercraft or outboard motors; (2) motor vehicles; (3) alcoholic beverages; (4) tobacco products; (5) vapor products (i.e., vapes); and (6) products containing marijuana.

For more information or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422. 

*Please note that Christine Townsend is licensed only in Massachusetts.

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