Melvin, Bibb, Segars & Associates, P.C.

Melvin, Bibb, Segars & Associates, P.C. We are a public accounting firm dedicated to helping small businesses and individuals with their tax, planning and accounting needs. Call us today.

Melvin Bibb Pinson & Segars PC is a Huntsville, AL Accounting company with a clear focus on client service. Let us lay the track for your venture to success -- be it personal or business.

07/15/2026

HOW RENTING OUT YOUR VACATION HOME AFFECTS YOUR TAXES
When you’re not using your vacation home, renting it out can generate extra income. But it can also affect your taxes, depending on how often you rent and use the property personally.

THE 14-DAY RULE

In some situations, renting out a vacation home can generate tax-free rental income. If it’s rented for 14 or fewer days during the year, the rental income typically doesn’t need to be reported on your tax return.

However, deductions are limited. You may generally deduct property taxes and qualified mortgage interest if you itemize deductions, but you can’t deduct operating expenses or depreciation. (The property tax deduction is subject to the state and local tax deduction cap. Mortgage interest is deductible on your principal residence and one other home, subject to certain limits.)

MORE THAN 14 DAYS

If your vacation home is rented for more than 14 days during the year, the rental income generally must be reported as taxable income. But you can deduct a portion of operating expenses and depreciation, subject to certain rules.

Expenses must be allocated between personal and rental use. For example, if the home is rented for 90 days and used personally for 30 days, 75% of the total use is rental use (90 out of 120 total days).

In that case, you can allocate 75% of your costs, such as maintenance, utilities and insurance, plus 75% of your depreciation allowance, interest and property taxes to the rental activity. The personal use portion of taxes is separately deductible as an itemized deduction. The personal use portion of interest on a second home may also be deductible, but only if the personal use exceeds the greater of 14 days or 10% of the rental days and the home mortgage interest deduction rules are met. Depreciation on the personal use portion isn’t allowed.

CAN YOU CLAIM A LOSS?

If deductible expenses for your vacation home exceed rental income, you may be able to claim a rental loss. Here’s the test: If personal use is more than the greater of 14 days or 10% of rental days, the property is generally treated as a personal residence. In that case, deductions attributable to rental use generally can’t create a loss. Instead, they’re limited to rental income, and unused deductions may be carried forward to future years.

If the property isn’t considered a personal residence based on your personal use, you must still allocate expenses between personal and rental use. But the home will be considered a rental property and, if your rental deductions exceed rental income, you can potentially claim the loss. (However, the loss is “passive” and may be limited under passive loss rules.)

Reposted from our website newsletter.

07/10/2026

SIMPLE RETIREMENT SOLUTIONS FOR SMALL BUSINESS OWNERS
Offering employees retirement options can be an effective way for small business owners to attract and retain talent. If you’re concerned about cost and administrative complexity, you’re not alone. Fortunately, several options are available, including a Simplified Employee Pension (SEP) plan.

ESTABLISHING A SEP PLAN

You can set up a SEP plan for a given year by the due date, including extensions, for your business’s income tax return for that year. For eligible employers, this is done using IRS Form 5305-SEP, “Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement.” The agreement is considered adopted when the form is completed, SEP IRAs are set up for all eligible employees and these employees have been provided with certain required information, including copies of the form. Form 5305-SEP doesn’t need to be filed with the IRS.

As the employer, you receive a current income tax deduction for contributions made on behalf of your employees. Employees generally aren’t taxed on traditional SEP plan contributions when they’re made, but distributions are taxed when they occur, typically at retirement.

Employers with SEP plans may allow employees to have SEP plan contributions made to a Roth IRA (Roth SEP) on an after-tax basis. Contributions are taxed in the year made, but qualified Roth withdrawals may be tax‑free. This is optional and relatively new, and not all plans offer it.

For 2026, the maximum deductible contribution you can make to a SEP-IRA — and that can be excluded from employees’ income — is the lesser of: 1) 25% of compensation, or 2) $72,000 per employee. If a business owner doesn’t receive a W-2 from the business (for instance, an unincorporated sole proprietor), the calculation for the contribution to be made on the owner’s behalf varies slightly.

Your employees can’t contribute, but they do control their individual SEP IRAs, including choosing investments (from available options).

ADDITIONAL CONSIDERATIONS

There are other factors to consider when establishing a SEP plan. Essentially, all regular employees who meet eligibility requirements must be included in the plan, and contributions can’t favor highly compensated employees.

Additionally, SEP plans generally don’t require the detailed records that many other retirement plans, such as 401(k) plans, must maintain. There are also no annual reports to file with the IRS, and much of the required recordkeeping can be handled by the SEP-IRA trustee — such as a bank or brokerage firm.

EVALUATE YOUR OPTIONS

For certain businesses with 100 or fewer employees, Savings Incentive Match Plans for Employees (SIMPLEs) may be an option:

SIMPLE IRA. The employer establishes a SIMPLE IRA for each eligible employee and makes the required matching or 2% nonelective contribution. SIMPLEs are generally subject to fewer and simpler requirements than 401(k)s.

SIMPLE 401(k). This is a SIMPLE structured as a 401(k). If certain rules are met, it isn’t subject to the otherwise complex nondiscrimination rules that normally apply to 401(k)s.

For 2026, employee elective deferrals to SIMPLE IRAs or SIMPLE 401(k)s are generally limited to $17,000. Employees age 50 and older may also make additional catch-up contributions.

SEEKING GUIDANCE

Choosing the right retirement plan depends on your business size, cash flow and long-term goals. Contact the office to discuss your options and determine which best supports your needs

(reposted from our website newsletter)

06/18/2026

EMPLOYERS FACE NEW LIMITS ON MEAL EXPENSE DEDUCTIONS

Does your business provide complimentary on-site food and beverages for employees? The rules for deducting certain business meals have changed.

Beginning in 2026, employers generally can’t deduct 1) meals treated as de minimis fringe benefits, or 2) employer-provided meals that are excludable from an employee’s income and provided for the employer’s convenience on business premises.

For the 2025 tax year, generally, the former were 100% deductible, and the latter were 50% deductible.

06/14/2026

HOW AN EDUCATIONAL ASSISTANCE PROGRAM CAN STRENGTHEN YOUR COMPANY'S BENEFITS PACKAGE
If your business is like many today, you’re seeking more ways to attract and retain talent. One option is to offer tax-advantaged educational assistance under Internal Revenue Code Section 127. Recent legislative changes have expanded the value of this benefit.

HOW THE PLANS WORK

Employer-sponsored Sec. 127 educational assistance programs allow employees to receive tax-free educational benefits up to an annual limit ($5,250 for 2026). The benefits are excluded from the employee’s gross income for federal tax purposes. For employers, the amounts paid are deductible as business expenses.

But the plan doesn’t have to be prefunded. You can pay or reimburse expenses as they’re incurred.

Eligible expenses include tuition, books, fees, supplies and equipment for coursework. However, certain expenses, such as meals, lodging or transportation — as well as tools or supplies that employees retain after completing a course — don’t qualify. Also ineligible are expenses for courses involving sports, games or hobbies unless they’re required as part of a degree program.

To qualify as a Sec. 127 program, the plan must be established in writing and meet specific requirements. The plan can benefit only employees — not their spouses or dependents.

RECENT ENHANCEMENTS

Tax legislation signed into law in 2025, commonly known as the One Big Beautiful Bill Act (OBBBA), made two important changes to Sec. 127 plans. First, it introduced an inflation adjustment to the annual cap. For tax years beginning after 2026, the $5,250 limit will be indexed for inflation (rounded down to the nearest $50), helping maintain the benefit’s value over time.

Second, the OBBBA made permanent the eligibility of employer payments for qualified student loans as a Sec. 127 expense. This means you can pay up to the annual cap toward an employee’s qualified student loan, and those payments will be excluded from the employee’s income.

COMPLIANCE CONSIDERATIONS

Sec. 127 plans must follow additional rules. For example, you can’t offer educational assistance as a choice between this tax-free benefit and taxable compensation, such as wages. And you must provide employees reasonable notice of the plan’s availability and terms.

Additionally, nondiscrimination requirements and ownership‑concentration limitations apply. For example, no more than 5% of total plan benefits for the year may be provided, in the aggregate, to employees who are more‑than‑5% owners of the business or to their spouses or dependents.

RULES FOR FAMILY EMPLOYEES

Sec. 127 plan benefits can extend to employees who are related to business owners, including children, as long as they’re bona fide employees and the plan satisfies applicable nondiscrimination requirements and ownership‑concentration limitations.

Ownership attribution rules may affect whether an individual is treated as a more‑than‑5% owner for these purposes, particularly in closely held businesses.

(Reposted from our website newsletter)

06/13/2026

REDUCING IRS AUDIT RISK FOR SMALL BUSINESSES
When business owners think about risk, they often focus on market pressures or operational challenges. An IRS audit usually isn’t top of mind — but it can be costly, disruptive and time-consuming. Although some taxpayers are randomly selected for an audit, many audits occur because the IRS has identified certain patterns or inconsistencies. Understanding where these risks typically arise can help you limit your business’s exposure.

5 KEY AUDIT RISK AREAS

The following risk areas can result in additional IRS scrutiny:

1. Inconsistent or unreported income. Drastic shifts in revenue from one year to the next can prompt IRS attention, especially when they conflict with industry trends or economic conditions. Income mismatches identified through third‑party reporting — including 1099 forms and payment‑platform data — may lead to follow‑up inquiries. Accurate records are critical when income fluctuates significantly.

2. Excessive or unusual deductions. Deductions that appear disproportionate to income or far outside industry norms may raise IRS concerns. Only expenses that are “ordinary and necessary” for business operations are deductible. Personal expenses — including personal vehicle use, clothing and nonbusiness travel — are common audit issues. Careful records are especially important for meal, travel and vehicle-related deductions.

3. Repeated business losses. Consistently reporting losses may signal that a business isn’t operated for profit. While legitimate losses occur — particularly during startup phases or economic downturns — ongoing losses should be supported by strong documentation, financial planning and a clear profit motive.

4. Weak recordkeeping practices. Incomplete or disorganized records increase both audit risk and audit difficulty. Missing receipts, inconsistent financial statements or unclear bookkeeping practices can jeopardize deductions. Digital accounting tools make it easier and more defensible than ever to maintain accurate, well-organized records.

5. Worker misclassification. Misclassifying employees as contractors can result in back payroll taxes, penalties and interest. The key factor is the degree of control the business exercises over how the work is performed, not how the worker is paid or labeled.

STAYING AHEAD OF AUDIT RISK

No business is immune to audit risk, but consistent reporting, accurate records and informed guidance can significantly reduce exposure — and put your business in a better position if you are audited.

(Reposted from our website’s newsletter)

06/11/2026

TAKE ADVANTAGE OF EXPANDED QSB STOCK TAX BENEFITS
Investors often look to small, emerging companies for portfolio diversification and growth potential, but these investments can offer more. Certain shares may also provide valuable tax advantages under the qualified small business (QSB) stock rules. Tax legislation signed into law in 2025, commonly known as the One Big Beautiful Bill Act (OBBBA), enhanced those benefits.

THE BASICS OF QSB STOCK

A QSB is a domestic C corporation that meets specific requirements. First, the company must be engaged in an active trade or business. Many professional service businesses are excluded, though certain health‑ and engineering‑related companies may qualify, depending on the nature of their activities.

There’s also a gross-asset limit. Before the OBBBA, a company’s aggregate gross assets generally couldn’t exceed $50 million. The OBBBA increases the asset ceiling to $75 million (adjusted for inflation after 2026) for stock issued after July 4, 2025.

SHORTER HOLDING PERIODS

The major tax benefit of investing in QSB stock is the potential exclusion of capital gains when the stock is sold. Before the OBBBA changes went into effect, you generally needed to hold QSB stock for at least five years to qualify for a capital gains exclusion, with the exclusion percentage ranging from 50% to 100%, depending on when the stock was acquired.

Under the OBBBA, a new tiered system with smaller exclusions applies to QSB stock acquired after July 4, 2025. It provides a 50% exclusion for stock held for at least three years and a 75% exclusion for stock held for at least four years. Any gain not excluded under these partial exclusions is generally taxed at a special 28% federal rate, plus the 3.8% net investment income tax, if applicable.

QSB stock acquired on or before July 4, 2025, generally remains subject to the prior rules, including eligibility for a 100% exclusion after five years for stock acquired on or after September 28, 2010.

EXPANDED GAIN EXCLUSION LIMITS

The OBBBA also increased the limit on the amount of gain you can exclude. For QSB stock acquired after July 4, 2025, the per-issuer exclusion limit is the greater of $15 million (adjusted for inflation after 2026) or 10 times the aggregate adjusted basis of stock sold during the tax year. Before the OBBBA change went into effect, the dollar limit was $10 million. (Both amounts are halved for married taxpayers filing separately.)

To qualify for the exclusion, you generally must acquire the stock at original issuance — directly from the corporation or through an underwriter — in exchange for cash, property (other than stock) or services. Limited exceptions apply, including certain transfers by gift or inheritance.

If you reinvest proceeds from a QSB stock sale into other QSB stock within 60 days, you may be able to defer the gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

MOVING FORWARD

QSB stock can offer valuable tax benefits. But the rules are complex and require careful planning. Additionally, some states don’t conform to federal treatment, so state income taxes may still apply, depending on the state.

(Reposted from our website newsletter)

03/11/2026

WHAT'S NEW FOR RETIREMENT CATCH-UP CONTRIBUTIONS IN 2026
Beginning in 2026, a significant change to retirement plan catch-up contributions takes effect. Part of the 2022 Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, the change affects higher-income taxpayers age 50 and older who contribute to certain types of employer-sponsored retirement plans.

CATCH-UP CONTRIBUTION BASICS

For years, taxpayers age 50 or older have been able to make catch-up contributions to certain employer-sponsored retirement plans, up to annual inflation-adjusted limits. For 2026, eligible individuals can contribute an additional $8,000 above the $24,500 regular 401(k), 403(b) or 457(b) plan limit, for a total of $32,500.

Under SECURE 2.0, beginning in 2025, participants age 60 to 63 can make up to $11,250 in catch-up contributions to these plans, bringing the maximum to $35,750 for 2026.

Before 2026, employees could make catch-up contributions pretax to traditional plans or, if their employer offered the option, after-tax to Roth plans. Pretax contributions reduce taxable income for the year contributed, but distributions are generally taxable. Roth contributions don’t reduce current-year taxable income, but distributions are generally tax-free.

MANDATORY ROTH TREATMENT FOR HIGH EARNERS

SECURE 2.0 requires that, beginning in 2026, any catch-up contributions made by higher-income participants to 401(k), 403(b) or 457(b) plans be designated as Roth contributions.

The Roth requirement was originally scheduled to take effect for 2024. In 2023, the IRS extended the effective date to January 1, 2026.

For 2026, the Roth requirement applies to participants whose 2025 Social Security wages from the employer exceeded $150,000 as reflected in Box 3 of Form W-2, “Wage and Tax Statement.” The $150,000 threshold will be adjusted annually for inflation.

ARE YOU AFFECTED?

Plans that didn’t offer a Roth option in 2025 had to either add one for 2026 or eliminate higher-income participants’ ability to make catch-up contributions. So if the Roth requirement applies to you and your retirement plan doesn’t offer a Roth option, you won’t be able to make catch-up contributions in 2026.

Check with your employer about your options. It may have implemented a “deemed election” approach for employees subject to the new rules. This automatically treats catch-up contributions as Roth unless the employee opts out of catch-up contributions.

Also, keep in mind that making Roth catch-up contributions instead of traditional ones (or not making catch-up contributions) will increase your taxable income for 2026. This may reduce or eliminate the tax benefits of breaks that are subject to phaseouts, floors or other income-based limits and even push you into a higher tax bracket.

(Reposted from our website newsletter)

02/15/2026

THE REAL ESTATE PROFESSIONAL ADVANTAGE

For federal tax purposes, rental real estate losses are usually treated as passive, meaning they can be deducted only against passive income, such as profits from other rental properties. If you don’t have enough passive income, your unused losses are suspended and carried forward. Those suspended losses can be deducted later, once you have sufficient passive income or when you sell the property that generated them.

However, there’s a big exception for real estate professionals. If you qualify, a rental real estate loss potentially can be classified as a nonpassive loss.

To be eligible for the real estate professional exception:

You must spend more than 750 hours during the year delivering personal services in real estate activities in which you materially participate, and
Those hours must be more than half the time you spend delivering personal services (in other words, working) during the year.
The next step to being able to claim a nonpassive loss is determining if you have one or more rental properties in which you materially participate. Generally, you need to pass one of the following to meet the material participation test for a rental real estate activity:

Spend more than 500 hours on the activity during the year.
Spend more than 100 hours on the activity during the year and make sure no other individual spends more time than you.
Make sure the time you spend on the activity during the year constitutes substantially all the time spent by all individuals.
There are other ways to meet the material participation test, but these three are typically the easiest. Note, also, that participation by your spouse is included for material participation purposes, although it’s not included for the real estate professional test.

If you qualify as a real estate professional and meet the material participation test for a property, losses from the property are treated as nonpassive losses that you can generally deduct in the current year.

DON’T MEET THE REQUIREMENTS?

If you don’t meet the real estate professional rules, you may still deduct certain rental losses currently through limited exceptions:

Small landlord exception. If you own at least 10% of the property and actively participate, you may be able to treat up to $25,000 of losses as nonpassive. (Properties owned via limited partnerships don’t qualify.) This exception begins to phase out when adjusted gross income (AGI) exceeds $100,000. It’s eliminated when AGI reaches $150,000.

Seven-day rental rule. If the average rental period is seven days or less, the activity is treated as a business, not real estate. Passing a material participation test makes losses nonpassive.

30-day rental with services. If the average rental period is 30 days or less and significant personal services are provided, the activity is also considered to be a business. Losses may be treated as nonpassive if a material participation test is met.

MAKE THE MOST OF YOUR TAX BENEFITS

With proper documentation and knowledge of available exceptions, you can better position yourself to reduce your tax liability.

(Reposted from our website newsletter)

01/12/2026

HEAVY TAX BREAKS FOR HEAVY BUSINESS VEHICLES
Did you buy a “heavy” business vehicle in 2025? An SUV, pickup or van with a manufacturer’s gross vehicle weight rating (GVWR) over 6,000 pounds that’s used over 50% in your business is treated as transportation equipment for tax purposes. That means the business percentage of its cost can qualify for 100% first-year bonus depreciation.

Heavy vehicles used over 50% for business may also be eligible for Sec. 179 expensing. But the maximum Sec. 179 deduction for 2025 is generally only $31,300 for vehicles with GVWRs between 6,001 and 14,000 pounds.

To claim one of these breaks for 2025, you must have placed the heavy business vehicle in service by Dec. 31, 2025.

(reposted from our website newsletter)

01/11/2026

2026 TAX LAW CHANGES FOR INDIVIDUALS
Here’s a sampling of some significant tax law changes going into effect this year:

New charitable contribution deduction for nonitemizers for cash contributions up to $1,000 ($2,000 for married couples filing jointly)

New 0.5% of adjusted gross income floor on charitable deduction for itemizers

New 35% benefit limit on itemized deductions for taxpayers in the 37% tax bracket

Reduced income thresholds at which the alternative minimum tax exemption begins to phase out (and a phaseout rate that’s twice as fast as 2025’s)

New tax-advantaged Trump accounts to benefit children under age 18

Increase in tax-free 529 plan withdrawal limit for qualified elementary and secondary school expenses to $20,000 (from $10,000 for 2025)

New requirement that higher-income taxpayers’ catch-up contributions to employer-sponsored retirement plans must be treated as post-tax Roth contributions

Elimination of certain energy-efficiency credits for homeowners

Wider income ranges over which the Section 199A qualified business income (QBI) deduction limitations phase in, potentially allowing larger deductions for some pass-through entity owners.

New minimum QBI deduction of $400 for taxpayers who materially participate in an active trade or business if they have at least $1,000 of QBI from it

(Reposted from out newsletter)

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35801

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