Archives for February 2026

Deferring Advance Payment Income: How Businesses Can Manage Tax Timing Strategically

Ken Botwinick, CPA | 02/24/2026

Many businesses receive payments before delivering goods or performing services. These advance payments can create cash flow advantages, but they also raise important tax timing questions. For federal income tax purposes, advance payments are generally taxable in the year they are received. However, for certain businesses using the accrual method of accounting, there may be an opportunity to defer recognizing some of that income until the following year.

At Botwinick & Co., we help business owners evaluate whether deferring advance payment income aligns with their overall tax strategy and financial reporting approach.

What Are Advance Payments?

An advance payment is any amount received before the associated product or service has been fully delivered. Common examples include deposits, prepaid service contracts, subscriptions, and annual membership fees.

From a tax standpoint, the accounting method your business uses plays a major role in determining how these payments are treated.

Cash basis businesses: Advance payments are typically taxable when received.
Accrual basis businesses: Certain advance payments may qualify for deferral, allowing income recognition to better match when the service or product is delivered.

The Opportunity To Defer Income

Accrual-method businesses may elect to defer including some or all eligible advance payments in taxable income until the following tax year. This approach helps align tax reporting with financial statement revenue recognition and may provide short-term tax relief.

To qualify for deferral, several requirements must be met. Generally, the payment must:

Be recognized as revenue in a later period on your financial statements or treated as earned in a future year
Relate to goods, services, or other qualifying items outlined in IRS guidance

If your business received eligible advance payments in 2025, you may be able to defer part of that income to 2026.

Understanding Applicable Financial Statements (AFS)

An Applicable Financial Statement, commonly referred to as an AFS, plays a key role in determining how much income can be deferred. An AFS may include:

Audited financial statements prepared for lenders or investors
Financial reports submitted to government agencies
Public company filings such as annual reports

Businesses with an AFS can generally defer income based on how revenue is recognized within those statements.

If your business does not have an AFS, you may still use the deferral method. However, you must include in taxable income the portion of the payment treated as earned during the year received, with the remainder recognized the following year.

Types Of Payments That May Qualify

Many common business transactions involve advance payments that could be eligible for deferral. Examples include:

Service contracts
Sales of goods
Gift cards and prepaid balances
Software licenses
Subscription programs
Warranty agreements
Intellectual property usage fees

However, certain payments are generally excluded, such as most rental income, specific insurance premiums, financial instrument payments, and other categories outlined in federal guidance.

How Deferral Works In Practice

Consider a service-based business that receives payment for a one-year contract late in the calendar year. Only the portion of services delivered before year-end would be recognized as income in that year, while the remaining portion could be deferred to the next tax year.

Similarly, a technology company receiving payment for multi-year software protection services may recognize income gradually as services are provided, rather than all at once when payment is received.

This matching principle is one of the key benefits of the deferral election.

Strategic Benefits Of Income Deferral

Deferring advance payment income can offer meaningful advantages when implemented correctly. These may include:

Smoother income reporting between tax years
Reduced current-year tax liability
Improved cash flow planning
Alignment between financial reporting and tax reporting
Greater flexibility for businesses experiencing growth

For rapidly expanding companies, deferral can help prevent large one-time tax spikes.

When Deferral May Not Be Ideal

While deferral can be beneficial, it is not always the best choice. Businesses expecting higher tax rates in future years may prefer to recognize income sooner. Additionally, deferral may impact lending metrics, investor reporting, or other financial benchmarks.

Each situation requires careful modeling to understand the short- and long-term impact.

Coordinating Income Timing With Your Tax Strategy

Income recognition decisions should be evaluated alongside deductions, depreciation, entity structure, and projected revenue growth. The goal is not simply to defer taxes, but to optimize overall tax efficiency.

At Botwinick & Co., we assist businesses by:

Determining eligibility for advance payment deferral
Coordinating tax and financial statement reporting
Modeling multi-year tax scenarios
Ensuring proper documentation and elections
Integrating income timing into broader planning strategies

Plan Ahead Before Filing

Advance payment deferral elections must be handled correctly and supported by accurate revenue recognition policies. Reviewing your income streams before filing can uncover opportunities that reduce current taxes while maintaining compliance.

If your business received advance payments in 2025, a proactive review can help determine whether deferral is appropriate and how much tax savings may be available.

Contact Botwinick & Co. to evaluate your advance payment income strategy and ensure your tax reporting supports both your short-term cash flow and long-term growth goals.

Maximizing Depreciation In 2025: Should You Accelerate Deductions Or Take A Strategic Approach?

Ken Botwinick, CPA | 02/17/2026

As 2025 tax filing deadlines approach, many business owners are focused on compliance. However, filing season is also a strategic opportunity. While most tax planning must be completed by December 31, certain elections made at the time of filing can significantly impact your current and future tax liability. One of the most important decisions involves whether to maximize accelerated depreciation deductions or spread them out over time.

At Botwinick & Co., we work closely with business owners to evaluate depreciation strategies in the context of cash flow, tax brackets, and long-term planning goals.

Understanding Depreciation Fundamentals

When a business acquires an asset with a useful life exceeding one year, the cost is generally deducted over time rather than all at once. The applicable recovery period depends on the type of asset. For example:

Three years: Certain software and small tools
Five to seven years: Equipment and machinery
Fifteen years: Qualified improvement property
Thirty-nine years: Commercial real estate

The Modified Accelerated Cost Recovery System (MACRS) typically allows larger deductions in the earlier years of an asset’s life compared to straight-line depreciation. In addition, special provisions may allow even faster cost recovery.

First-Year Bonus Depreciation Under Current Law

Recent tax legislation expanded first-year bonus depreciation opportunities. For qualified assets acquired after January 19, 2025, and placed in service during 2025, businesses may claim 100% first-year bonus depreciation.

Eligible assets include:

Depreciable personal property such as equipment and computer hardware
Certain transportation equipment, including qualifying passenger vehicles
Commercially available software
Qualified improvement property (QIP)

QIP generally refers to improvements made to the interior of nonresidential buildings after the building was placed in service. However, enlargements, elevators, escalators, and structural framework modifications do not qualify and must generally be depreciated over 39 years.

For qualified assets acquired on or before January 19, 2025, and placed in service during 2025, the bonus depreciation rate is 40%.

Bonus depreciation applies automatically unless you elect out. Importantly, elections out of bonus depreciation must be made by asset class, not individual asset.

Section 179 Expensing For 2025

Section 179 expensing provides another powerful acceleration tool for small businesses. For tax years beginning in 2025, the maximum Section 179 deduction increases to $2.5 million.

Qualifying property includes:

Equipment and tangible personal property
Computer hardware and software
Transportation equipment
Qualified improvement property

Additionally, certain improvements to nonresidential real estate may qualify, including:

Roofs
HVAC systems
Fire protection and alarm systems
Security systems

Section 179 also covers depreciable personal property used predominantly to furnish lodging, such as furniture and appliances in short-term rental properties.

However, Section 179 comes with limitations. The deduction phases out dollar-for-dollar when more than $4 million of qualifying property is placed in service. In addition, it cannot create or increase a business loss. These rules can become particularly complex for pass-through entity owners.

When Maximizing Depreciation Makes Sense

In many cases, accelerating depreciation provides immediate tax savings, improves cash flow, and allows businesses to reinvest in operations or expansion. For companies experiencing strong taxable income in 2025, maximizing bonus depreciation or Section 179 may deliver substantial benefits.

When A Strategic Approach May Be Better

There are situations where claiming maximum first-year deductions may not be optimal.

For example, owners of pass-through businesses may qualify for the Section 199A Qualified Business Income deduction, which can equal up to 20% of QBI. Large depreciation deductions may reduce QBI and potentially limit or eliminate this valuable deduction.

Additionally, if you anticipate being in a higher tax bracket in future years or expect tax rates to increase, deferring deductions may provide greater long-term value. Once you claim 100% bonus depreciation or Section 179, you eliminate depreciation deductions for those assets in future years.

Coordinating Depreciation With Your Overall Tax Strategy

Depreciation planning should never be done in isolation. It must be evaluated alongside projected income, entity structure, capital investment plans, and anticipated tax rate changes.

At Botwinick & Co., we help business owners:

Evaluate eligibility for bonus depreciation and Section 179
Model current versus future tax savings scenarios
Assess interaction with the QBI deduction
Strategically plan 2026 capital expenditures
Optimize long-term cash flow and tax efficiency

Make An Informed Decision Before Filing

The decision to maximize or moderate depreciation deductions can materially affect both your 2025 tax bill and your future tax position. A proactive review before filing ensures you are not leaving money on the table or sacrificing future benefits unnecessarily.

Contact Botwinick & Co. to review your depreciation options and build a comprehensive tax strategy tailored to your business.

Small Business Health Insurance Tax Credit: What Employers Need To Know In 2025

Ken Botwinick, CPA | 02/12/2026

When it comes to reducing your company’s tax liability, few tools are as powerful as a tax credit. Unlike deductions, which reduce taxable income, tax credits lower your tax bill dollar for dollar. One credit that often goes overlooked by small business owners is the Small Business Health Care Tax Credit for providing employee health insurance coverage.

At Botwinick & Co., we regularly help business owners determine whether they qualify for this valuable credit and how to maximize its benefits while remaining compliant with current IRS guidelines.

Understanding The Small Business Health Care Tax Credit

Created under the Affordable Care Act (ACA), the Small Business Health Care Tax Credit was designed to encourage smaller employers to offer health insurance to their employees. While the credit has been available for more than a decade, many eligible businesses still fail to claim it, particularly newer companies or those that have only recently begun offering coverage.

If your business recently started providing health insurance, you may still qualify.

Who Qualifies For The Credit?

Eligibility depends on several factors, including the number of full-time equivalent employees (FTEs), average employee wages, and the amount your business contributes toward premiums.

For the 2025 tax year:

The maximum credit is up to 50% of employer-paid health insurance premiums.
You must contribute at least 50% of the total premium cost (or a benchmark premium).
The full credit is available to employers with 10 or fewer FTEs.
Average annual wages must be $33,300 or less per employee for the full credit.
A partial credit is available for businesses with fewer than 25 FTEs and average annual wages under $66,600.

These wage thresholds are adjusted annually for inflation. For 2026, they increase to $34,100 and $68,200, respectively.

The Two-Year Limitation Rule

One critical detail many business owners miss is that this credit can generally be claimed for only two consecutive tax years. However, credits claimed before 2014 do not count toward this limit.

For example:

If you began offering health coverage in 2025, you may claim the credit on your 2025 and 2026 tax returns.
If coverage begins in 2026, you may claim the credit for 2026 and 2027.

Proper timing and planning are essential to ensure you do not lose out on one of the two eligible years.

Additional Rules And Considerations

While the credit can significantly reduce your tax bill, it comes with additional compliance requirements. For example, coverage generally must be purchased through the Small Business Health Options Program (SHOP) Marketplace to qualify.

Even if your premiums do not qualify for the credit, they may still be deductible as ordinary and necessary business expenses, subject to standard deduction rules. This means you may still benefit from tax savings even if you do not meet every credit requirement.

Why Proper Planning Matters

Because eligibility is based on employee count, wage levels, and employer contribution percentages, small changes in payroll or staffing can impact the amount of credit you receive. Strategic planning before year-end can make a measurable difference in your tax outcome.

At Botwinick & Co., we help small businesses:

Calculate full-time equivalent employees accurately
Analyze average wage thresholds
Determine optimal premium contribution strategies
Coordinate health insurance credits with other available tax credits
Plan for future tax years to maximize overall savings

Could Your Business Benefit?

If you are unsure whether your business qualifies for the Small Business Health Care Tax Credit, a proactive review can prevent missed opportunities. Many employers assume they are ineligible without fully analyzing the numbers.

Botwinick & Co. works closely with business owners to assess eligibility, structure compensation strategically, and identify additional credits that may apply to your 2025 return. We can also help you plan ahead for 2026 to ensure you take advantage of every available tax-saving opportunity.

Contact Botwinick & Co. today to review your eligibility and develop a strategic tax plan tailored to your business.

Maximizing Business Write-Offs with Tangible Property Safe Harbor Rules

Ken Botwinick, CPA | 02/03/2026

If your business paid for repairs or maintenance on tangible property in 2025—such as buildings, machinery, or vehicles—you may be able to deduct those costs in full on your 2025 tax return. The key is determining whether the expense qualifies as a repair or must be treated as an improvement and depreciated over time.

The IRS provides several tangible property safe harbor rules that can help business owners claim deductions more confidently and avoid unnecessary capitalization. Understanding how these rules apply can lead to meaningful tax savings.

Repairs vs. Improvements: Why the Distinction Matters

Generally, expenses that improve tangible property must be capitalized and recovered through depreciation. An expense is considered an improvement if it results in a betterment, restoration, or adaptation of the property.

Betterment

An expense is treated as a betterment if it materially increases the productivity, efficiency, strength, quality, or output of the property, or if it represents a significant addition. These costs usually must be capitalized.

Restoration

Costs that replace a major component or a substantial structural part of a building or other asset are considered restorations. These expenses are generally not immediately deductible and must be depreciated.

Adaptation

If a property is modified for a new or different use that is not consistent with its original purpose when placed in service, the related costs are typically capitalized.

Safe Harbors That Allow Immediate Deductions

Because the line between repairs and improvements is not always clear, the IRS offers safe harbor provisions that allow certain costs to be deducted immediately.

Routine Maintenance Safe Harbor

Recurring maintenance activities that keep property in efficient operating condition may be expensed. These are tasks your business reasonably expects to perform more than once during the asset’s class life, such as inspections, cleaning, and routine part replacements.

De Minimis Safe Harbor

Small-dollar purchases of tangible property may be deducted in the year incurred if they are also expensed in your books and records. The allowable threshold depends on your financial statements:

$5,000 per item if your business has an applicable financial statement, such as a CPA-audited statement
$2,500 per item if no applicable financial statement exists

Additional requirements apply, and certain expenses may still be limited or excluded.

Small Business Safe Harbor for Buildings

Qualified small businesses may elect to deduct annual repair, maintenance, and improvement costs for eligible buildings. This applies to buildings with an original cost of $1 million or less.

The annual deduction is limited to the lesser of $10,000 or 2 percent of the building’s unadjusted basis. To qualify, average annual gross receipts must generally be $10 million or less over the prior three tax years.

Planning Opportunities Beyond Safe Harbors

Even when costs must be capitalized, there may still be opportunities for immediate deductions. Certain improvements can qualify for accelerated write-offs through bonus depreciation or Section 179 expensing, depending on the type of property and timing.

Careful planning and proper classification of expenses can make a significant difference in your current tax liability while keeping you compliant with IRS rules.

The tax professionals at Botwinick & Co. can help you evaluate your 2025 repair and maintenance expenses and plan ahead for tax-efficient improvements in 2026. If you want to be sure you’re taking full advantage of tangible property safe harbor rules while staying compliant, contact Botwinick & Co. today to learn more or get started with proactive tax planning.