Archives for March 2026

Is a Fiscal Year End the Right Move for Your Business?

Ken Botwinick, CPA | 03/24/2026

Most businesses automatically follow a December 31 year end because it aligns with the calendar year. However, that approach isn’t always the most strategic choice. Depending on your operations, selecting a fiscal year end that better matches your revenue cycle can improve financial clarity, streamline reporting, and reduce administrative stress. At Botwinick & Co., we help business owners evaluate whether a fiscal year structure makes better sense for their long-term planning and tax strategy.

Understanding Fiscal Year Structures

A fiscal year is a 12-month accounting period that does not end on December 31. For example, a business may choose a year end of June 30, operating from July 1 through June 30 each year.

Some companies go a step further and adopt a 52- or 53-week fiscal year. Instead of closing on a fixed date, the year ends on the same day of the week each year, such as the last Saturday in March. This structure is especially useful in industries where weekly sales patterns and operational cycles are more relevant than traditional monthly reporting.

It’s important to note that adopting a fiscal year changes your tax filing deadlines. Pass-through entities, such as partnerships, LLCs, and S corporations, generally must file by the 15th day of the third month after their fiscal year ends. C corporations typically file by the 15th day of the fourth month following year end.

When a Fiscal Year Makes Strategic Sense

Not every business has the flexibility to choose its tax year. Sole proprietors, for example, are typically required to follow the calendar year because their business income is reported on their individual tax return.

However, many other businesses can adopt a fiscal year if they meet IRS requirements or demonstrate a valid business purpose. In most cases, the goal is to align the accounting year with the natural operating cycle of the business.

Industries that often benefit from a fiscal year include:

Seasonal businesses with fluctuating revenue patterns
Construction and contracting companies with long project timelines
Agricultural operations tied to harvest cycles
Retail businesses with peak holiday sales periods

For example, a business that generates most of its revenue during a specific season may find that a calendar year splits its busiest period across two reporting cycles. This can make financial analysis less accurate and more difficult to interpret. A fiscal year aligned with that peak season can provide a clearer, more consistent picture of performance.

Changing Your Tax Year

If your business decides to move away from a calendar year, the IRS generally requires formal approval. This is done by filing Form 1128, which allows you to adopt, change, or retain a tax year.

In most cases, transitioning to a new fiscal year will also require filing a short-period tax return to cover the gap created during the change. Proper planning is essential to avoid compliance issues and unexpected tax implications.

Operational Benefits Beyond Taxes

The advantages of a fiscal year extend beyond tax deadlines. Choosing the right year end can significantly improve how your business manages internal processes and reporting.

If your busiest months fall at the end of the calendar year, closing your books on December 31 can create unnecessary pressure on your accounting team. This often leads to rushed reporting, increased risk of errors, and operational inefficiencies.

By shifting your year end to a slower period, you can:

Conduct more accurate inventory counts
Review financials without time constraints
Improve job costing and project tracking
Produce cleaner, more reliable financial statements

This approach allows business owners to make more informed decisions based on accurate and timely data.

Partner With Botwinick & Co.

Choosing the right fiscal year end is not simply about convenience. It’s a strategic decision that can impact your tax position, reporting accuracy, and overall business efficiency.

At Botwinick & Co., we work closely with business owners to evaluate their operations, identify opportunities for optimization, and guide them through the process of selecting and implementing the right accounting structure.

If you’re considering a fiscal year change or want to better align your financial reporting with your business cycle, our team is here to help you make the right move with confidence.

Can Your Business Deduct Expenses for Working Animals?

Ken Botwinick, CPA | 03/17/2026

Many business owners are surprised to learn that certain animal-related expenses may qualify as legitimate tax deductions. While this concept is commonly associated with farms and agricultural businesses, it also applies to a wide range of industries where animals serve a clear business function. At Botwinick & Co., we help clients identify overlooked deductions, including those tied to working animals, while ensuring full IRS compliance.

What Qualifies as a Working Animal?

To be considered deductible, an animal must serve a direct and necessary role in your business operations. The IRS requires that the animal’s function be clearly tied to business productivity, safety, or asset protection.

Examples of qualifying working animals include:

Guard dogs that protect warehouses, construction sites, or commercial properties from theft or trespassing
Cats used in commercial settings to control rodents that could damage inventory or equipment
Animals used in agricultural or production-related environments

In each of these cases, the animal is actively contributing to the business, making associated costs potentially deductible.

Personal Pets vs. Business Use

One of the most important distinctions is between a true working animal and a household pet. The IRS does not allow deductions for animals that primarily serve as companions or provide emotional support.

If an animal has both business and personal use, only the portion related to business activity is deductible. For example, if a dog spends 70% of its time guarding a commercial property and 30% as a family pet, only 70% of the qualifying expenses may be deducted.

Accurate allocation is critical. Improper classification or overstatement of business use can trigger IRS scrutiny and potential penalties.

What Expenses Can Be Deducted?

If an animal qualifies as part of your business operations, many associated expenses may be written off as ordinary and necessary business costs. These may include:

Food and nutritional care
Veterinary visits and medications
Training programs related to the animal’s job function
Grooming required for safety or operational purposes
Equipment and supplies such as leashes, collars, bedding, or shelter

It’s important that all expenses remain reasonable and directly connected to the animal’s role. Excessive or luxury spending that does not support the business function may be disallowed.

Special Considerations for Agricultural Businesses

Businesses involved in farming, ranching, or breeding operate under additional tax guidelines. In many cases, routine expenses such as feed and veterinary care can be deducted in the current tax year.

However, animals used for breeding, dairy production, or draft purposes are often treated as capital assets. These costs are typically depreciated over time rather than deducted immediately, unless they are included as part of inventory.

Documentation Is Essential

Maintaining detailed records is critical when claiming deductions for working animals. Business owners should be prepared to demonstrate:

The specific role the animal plays in the business
How the expenses are directly tied to business operations
A reasonable breakdown of business versus personal use, if applicable

Without proper documentation, even valid deductions can be denied during an audit.

Work With a Trusted Advisor

Tax rules surrounding business deductions can be nuanced, especially when it comes to less common write-offs like working animals. At Botwinick & Co., we provide strategic guidance to help you maximize deductions while staying fully compliant with IRS regulations.

If you believe your business may qualify for these or other specialized deductions, our team is here to help you evaluate your situation and build a tax strategy that works in your favor.

What Employers Should Know About Unused FSA Balances and the Use-It-Or-Lose-It Rule

Ken Botwinick, CPA | 03/11/2026

Flexible Spending Accounts (FSAs) remain one of the most popular employee benefit programs offered by businesses across the country. These plans allow employees to set aside pretax dollars for qualified health or dependent care expenses while also providing payroll tax savings for employers.

For companies that operate a calendar-year FSA plan with a 2½-month grace period, employees generally have until March 15 of the following year to incur eligible expenses using funds from the previous plan year. After that deadline passes, unused balances may be forfeited under the well-known “use-it-or-lose-it” rule.

Because these rules can impact both employer compliance and employee satisfaction, it is important for businesses to understand how FSAs function and what options exist for managing forfeited balances. The tax professionals at Botwinick & Company regularly advise businesses on employee benefit plan compliance, payroll tax strategies, and tax-efficient benefit structures.

Understanding Flexible Spending Accounts

FSAs are employer-sponsored benefit plans that allow employees to contribute a portion of their salary on a pretax basis to cover eligible expenses. Contributions are deducted from wages before federal income tax, Social Security tax, and Medicare tax are calculated. In many states, state income taxes are also reduced.

These tax advantages make FSAs an appealing option for both employers and employees. Employers benefit from lower payroll taxes, while employees gain the ability to pay for qualified expenses with tax-free funds.

Most FSA programs fall into two primary categories.

Health Care Flexible Spending Accounts

A health care FSA allows employees to pay for qualifying out-of-pocket medical expenses that may not be fully covered by insurance. These typically include medical, dental, and vision expenses for the employee, their spouse, and eligible dependents.

For the 2026 tax year, the maximum employee contribution limit for a health care FSA increases to $3,400, up from $3,300 in 2025. The IRS adjusts this contribution limit annually to account for inflation.

Common eligible expenses may include:

Medical copayments and deductibles
Prescription medications
Dental treatments such as fillings or orthodontics
Vision care including eye exams, glasses, and contact lenses
Certain approved over-the-counter health products

Dependent Care Flexible Spending Accounts

A dependent care FSA helps employees pay for care services needed while they work or actively seek employment. This typically includes child care or adult dependent care services for qualifying family members.

Recent tax legislation increased the annual dependent care FSA contribution limit to $7,500 per household beginning in 2026. For married taxpayers filing separately, the limit is $3,750. Previously, the contribution cap was $5,000 per household ($2,500 for separate filers) in 2025.

Unlike health care FSAs, the dependent care FSA contribution limit is not indexed for inflation. This means it will remain unchanged unless Congress passes new legislation increasing the allowable amount.

Eligible dependent care expenses may include:

Daycare or preschool services
Before- and after-school programs
Summer day camps
In-home caregiving for qualifying dependents
Adult day care services

The “Use-It-Or-Lose-It” Requirement

FSAs operate under a long-standing IRS rule commonly referred to as the “use-it-or-lose-it” provision. This rule states that funds remaining in an employee’s account at the end of the plan year are typically forfeited if they are not used for eligible expenses.

The purpose of this rule is to ensure that FSAs function as reimbursement plans rather than long-term savings vehicles. However, IRS regulations allow employers to adopt certain plan features that provide employees additional time or flexibility when using their funds.

Grace Period Option

Many employers include a grace period provision in their FSA plan design. A grace period allows employees additional time after the end of the plan year to incur eligible expenses using the remaining balance from the previous year.

The maximum grace period permitted by the IRS is 2½ months. For plans operating on a calendar year basis, this means employees typically have until March 15 of the following year to use any remaining funds.

Both health care and dependent care FSAs may offer this grace period option.

Health Care FSA Carryover Option

As an alternative to a grace period, employers may allow employees to carry over a limited amount of unused funds from a health care FSA into the next plan year.

For the transition from 2026 to 2027, employees may carry over up to $680 of unused health care FSA funds. This amount increased from the $660 carryover allowed between 2025 and 2026.

It is important to note that employers must choose between the carryover option and the grace period. A health care FSA plan cannot offer both provisions at the same time.

Dependent care FSAs are not eligible for carryover provisions and may only offer the grace period extension.

What Happens to Forfeited FSA Funds?

After the grace period ends or after applying any allowed carryover amount, remaining unused funds may become forfeited. Under IRS cafeteria plan regulations, these forfeited balances revert to the employer.

However, businesses must handle these forfeitures carefully and follow specific compliance rules when deciding how the funds are used.

Many employers apply forfeited balances toward plan administration costs. These may include third-party administrator fees, compliance expenses, or other costs associated with maintaining the FSA program.

IRS regulations also allow businesses to apply forfeited balances in other ways, provided they follow reasonable and nondiscriminatory allocation rules.

Permitted uses may include:

Reducing future employee contributions required to reach a designated FSA balance
Enhancing employee FSA balances in the following plan year
Returning funds to participants as taxable wages subject to payroll taxes

For example, an employer might structure the plan so employees contribute $950 to obtain a $1,000 FSA balance, with the additional $50 funded by forfeited amounts from the prior year.

However, forfeited funds cannot be distributed based on individual claims experience or used to disproportionately benefit certain employees. Any allocation must follow the nondiscrimination rules outlined in IRS cafeteria plan regulations.

A Good Time for Employers to Review Their FSA Plan

The period leading up to the March grace-period deadline provides a natural opportunity for businesses to review how their FSA program handles unused funds. Employers should evaluate whether their current plan structure supports both compliance requirements and employee benefit goals.

Key considerations may include:

Whether the plan should offer a grace period or a carryover provision
How forfeited funds are currently allocated
Administrative costs associated with the program
Employee participation rates and benefit usage

Making adjustments to an FSA plan may help improve employee satisfaction while ensuring the plan remains compliant with IRS regulations.

Professional Guidance for Benefit Plan Compliance

Flexible Spending Accounts provide valuable tax advantages, but they also involve technical compliance rules that employers must carefully follow. From plan design decisions to managing forfeitures and payroll tax implications, businesses often benefit from professional guidance.

Botwinick & Company works closely with businesses to evaluate employee benefit strategies, manage payroll tax considerations, and ensure compliance with evolving tax regulations. Our team can help review your FSA plan provisions, advise on forfeiture handling, and prepare your organization for the next enrollment cycle.

If your business would like assistance reviewing its employee benefit programs or tax planning strategies, contact Botwinick & Company today to learn how our experienced accounting and advisory team can help.

Understanding Business Vehicle Tax Deductions for 2025

Ken Botwinick, CPA | 03/04/2026

If you use a vehicle for business purposes, you may be able to claim valuable tax deductions that reduce your overall tax liability. Many business owners rely on their vehicles for client meetings, job site visits, deliveries, and day to day operations. Because of this, the IRS allows businesses to deduct certain costs associated with business vehicle use.

However, the rules surrounding vehicle deductions can be complex. Factors such as the vehicle’s weight, how often it is used for business versus personal driving, and which deduction method you choose can significantly affect your final deduction. At Botwinick & Company, our experienced tax professionals help businesses evaluate these factors to determine the most advantageous approach.

Two Primary Methods for Deducting Vehicle Expenses

When claiming business vehicle deductions, the IRS generally allows two different methods. Businesses may deduct the actual expenses associated with operating the vehicle, or they may use the standard mileage rate. Each method has its own advantages depending on the vehicle type, usage, and record keeping practices.

Actual Expense Method

Under the actual expense method, businesses track and deduct the true costs associated with operating a vehicle for business purposes. These expenses can include fuel, oil, maintenance, tires, insurance, registration fees, licensing costs, and repairs. The business portion of these expenses can then be deducted on the company’s tax return.

In addition to operating costs, businesses that use the actual expense method may also claim depreciation on the vehicle. Depreciation allows the cost of the vehicle to be written off over several years rather than deducted all at once.

Vehicle Depreciation Schedule

When using the standard depreciation system for a vehicle placed into service for business use, depreciation is typically calculated over a six year period. The allowable depreciation percentages generally follow this pattern:

Year 1 – 20 percent
Year 2 – 32 percent
Year 3 – 19.2 percent
Year 4 – 11.52 percent
Year 5 – 11.52 percent
Year 6 – 5.76 percent

If the vehicle is used for business purposes 50 percent of the time or less, the IRS requires the straight line depreciation method instead. Under that approach, the depreciation is spread evenly, generally allowing 10 percent in the first and sixth years and 20 percent during years two through five.

Luxury Vehicle Depreciation Limits

Passenger vehicles are subject to annual depreciation caps that limit how much can be deducted each year. These limits are adjusted periodically for inflation. For vehicles placed in service in 2025, the maximum deductions are generally as follows:

Year 1 – $20,200 when bonus depreciation is claimed or $12,200 without bonus depreciation
Year 2 – $19,600
Year 3 – $11,800
Each additional year until fully depreciated – $7,060

If the vehicle is used partially for personal purposes, these limits must be reduced to reflect the percentage of business use.

Heavier Vehicle Advantages

Vehicles with higher weight ratings often qualify for more favorable tax treatment. SUVs, vans, and pickup trucks with a gross vehicle weight rating exceeding 14,000 pounds may be eligible for full bonus depreciation or Section 179 expensing, allowing a large portion of the purchase price to be deducted in the first year.

Vehicles weighing more than 6,000 pounds but less than 14,000 pounds may qualify for a reduced Section 179 deduction limit. For 2025, that limit is generally $31,300. As with all business vehicle deductions, the vehicle must be used more than 50 percent for business activities to qualify for these benefits.

Standard Mileage Rate Method

The alternative to tracking actual expenses is the standard mileage rate method. Instead of recording every individual cost related to the vehicle, you simply multiply your business miles driven by the IRS approved mileage rate for that year.

For 2025, the IRS standard mileage rate for business driving is 70 cents per mile. The rate is scheduled to increase to 72.5 cents per mile for 2026. The mileage rate applies to gas powered, diesel powered, hybrid, and electric vehicles.

The standard mileage rate already includes an allowance for depreciation, so businesses cannot claim additional depreciation deductions for the same vehicle if this method is used.

Why the Mileage Rate Changes Each Year

The IRS reviews vehicle operating costs each year when setting the mileage rate. These calculations are based on nationwide data that measures expenses such as fuel prices, insurance, maintenance, and depreciation. If there is a significant increase in fuel prices or operating costs, the IRS may adjust the rate accordingly.

In some situations, the IRS has even modified the mileage rate in the middle of the year when fuel prices increased significantly.

Record Keeping Requirements

Even when using the standard mileage method, proper documentation is still required. Businesses should maintain records showing:

Date of each business trip
Purpose of the trip
Destination
Total miles driven for business

Keeping a detailed mileage log is one of the most important steps for ensuring that vehicle deductions are properly supported if questioned by the IRS.

Choosing the Best Deduction Method

Selecting the right deduction method requires careful analysis. The actual expense method may provide a larger deduction when a vehicle has high operating costs or when bonus depreciation is available. On the other hand, the mileage method may be simpler and beneficial for vehicles with lower costs or when business mileage is significant.

It is important to understand that the method chosen during the first year the vehicle is placed into service can affect future tax options. If a taxpayer begins using the actual expense method, they generally cannot switch to the mileage method for that vehicle in later years. However, if the mileage method is used initially, a taxpayer may later switch to the actual expense method with certain depreciation limitations.

Special Considerations for Leased Vehicles

Businesses that lease vehicles rather than purchasing them can still claim deductions related to business use. Lease payments may be deductible based on the percentage of business use, although additional IRS rules apply. Depending on the vehicle’s value, an inclusion amount may reduce the deduction slightly.

Because the rules differ from those that apply to purchased vehicles, it is important to review the details carefully when deciding whether leasing or purchasing is the better tax strategy.

How Botwinick & Company Helps Businesses Maximize Deductions

Tax planning for business vehicles should never be approached with a one size fits all strategy. At Botwinick & Company, we work closely with business owners to evaluate vehicle purchases, depreciation opportunities, and record keeping systems that support IRS compliance.

Our experienced accounting and tax professionals help businesses determine the most beneficial deduction strategy while ensuring that all documentation requirements are met. Proper planning can significantly reduce tax liability while avoiding costly mistakes.

Speak With a Tax Professional

If your business uses vehicles for daily operations, it is important to understand how the tax rules apply to your specific situation. Whether you are purchasing a new vehicle, leasing a company car, or reviewing your mileage tracking system, professional guidance can make a significant difference.

Botwinick & Company works with businesses across multiple industries to develop effective tax strategies and ensure accurate reporting. If you have questions about business vehicle deductions for 2025 or would like help planning for future tax years, our team is ready to assist.

Contact Botwinick & Company today to discuss your business tax planning needs.