There’s a lot of noise around AI right now. 

Some of it is about job loss. Some of it is about disruption. Most of it is not particularly helpful when you are trying to run a business day-to-day. 

The real question is more practical. 

Can this help you operate more efficiently, reduce operating costs, and grow without increasing overhead at the same pace? 

Because for most small business owners, that is the real constraint. 

The Real Metric That Matters: Revenue Per Employee 

Hiring has always been the default answer to growth. 

More work comes in. You add people to handle it. 

But hiring is not just about salary. It is payroll taxes, benefits, training time, management overhead, and the natural inefficiencies that come with scaling a team. 

One of the simplest ways to think about AI is this: 

Can it help increase your revenue per employee? 

If your current team can handle more output without a proportional increase in cost, your margins improve. Your business becomes more resilient. And your ability to scale changes. 

To put that into perspective, consider a simple example. 

If a $60,000 employee is spending 10 hours per week on administrative work, that is roughly $15,000 per year in time that is not directly generating revenue. If even part of that time can be reduced through better systems or AI-supported workflows, that creates a meaningful shift in your cost structure without adding headcount. 

That is where the real opportunity starts to show up. 

Scaling Without the Slog 

Most businesses do not struggle because of a lack of demand. 

They struggle because the owner becomes the bottleneck. 

Decisions flow through you. Processes live in your head. Follow-ups, approvals, and communication depend on your time. 

Growth starts to feel heavier instead of easier. 

This is where AI can play a meaningful role. 

When routine communication, follow-ups, documentation, and internal processes are supported by systems, you begin to “systemize the soul” of the business. What used to depend on you becomes repeatable and scalable. 

That shift allows you to spend more time on strategy, higher-value client work, and growth decisions. 

Where Businesses Are Seeing the First Gains 

The biggest gains are not coming from replacing entire roles. They are coming from improving how work gets done. 

In customer service, businesses are using AI-assisted responses and knowledge bases to handle common questions quickly and consistently, improving response times without increasing labor. 

In operations, summarizing documents, organizing information, and standardizing workflows are reducing administrative time and allowing teams to move faster. 

In marketing and sales, drafting content, qualifying leads, and maintaining consistent communication are helping businesses stay visible and generate more opportunities without adding staff. 

In finance, emerging tools are helping identify trends and improve forecasting, giving business owners better visibility into cash flow and planning. 

Individually, these may seem like small improvements. Together, they can significantly improve efficiency and reduce operating friction. 

The Cost of Inaction Is Real 

AI is not just a tool you may or may not adopt. It is something your competitors are already testing and implementing. 

Over time, businesses that adopt these tools tend to lower their cost per transaction and improve response times. Those advantages may seem small at first, but they compound, especially in competitive markets. 

They may be able to operate with lower overhead. 

They may respond faster to customers. 

They may maintain more consistent communication. 

This is not about reacting out of fear. 

It is about recognizing that efficiency is becoming a competitive advantage. 

Where AI Can Go Wrong 

At the same time, not every use of AI creates value. 

The most common issues include over-automation, lack of review, and using too many disconnected tools without a clear process. 

In those cases, businesses often spend more time fixing outputs than they save. 

The goal is not to automate everything. 

It is to apply automation where it supports the existing structure and improves how work flows. 

A Practical Way to Decide Where to Start 

Before investing in new tools, it helps to take a step back and evaluate how your business currently operates. 

Where is time being spent repeatedly? 

Where are delays happening? 

Where does work depend too heavily on one person? 

A simple place to start is to identify one recurring task that takes time every week, such as client follow-up, document organization, or internal reporting, and test whether it can be streamlined before expanding further. 

If improving that area allows your business to grow without adding headcount, it is likely the right place to focus. 

What This Means for Your Financials 

These improvements are not just operational. They show up directly in your numbers. 

Increased efficiency can improve gross margins, reduce operating expenses as a percentage of revenue, and increase overall profitability without requiring additional hiring. 

Over time, that creates a more scalable and more valuable business. 

This Is Not About Replacing People 

For most small businesses, AI is not a workforce reduction strategy. 

It is an efficiency strategy. 

The goal is to allow your existing team to operate at a higher level, focus on more valuable work, and support growth without constantly increasing costs. 

Before You Add Another Expense 

Before hiring or investing in multiple new tools, it can be helpful to step back and evaluate your current cost structure. 

Some problems are solved with people. Others are solved with better systems. 

The difference matters. 

If you are thinking about how to improve efficiency, reduce operating costs, or scale your business more effectively, it may be worth stepping back and evaluating where automation could have the greatest impact. 

Let’s look at your current overhead together and identify where the right systems can protect your margins and support growth.

For a period of time, IRS activity felt quieter. 

Response times were longer. Enforcement felt less visible. Fewer taxpayers were hearing from the IRS directly. 

Many people got used to that environment. 

Now things are shifting. 

Not all at once, but steadily. More notices are being issued. More requests for clarification are being sent. More follow-ups are happening on items that may not have been reviewed as closely in prior years. 

This is not a sudden change in direction. It is a return to a more active and better-equipped IRS. 

What’s Actually Changed 

Over the past several years, the IRS has been rebuilding its infrastructure. 

After a long period of limited staffing and outdated systems, the agency has been investing in technology, hiring, and enforcement capabilities as part of its long-term strategy. 

That investment is now beginning to show up in real ways. 

In its most recent reporting, the IRS noted that it collected over $98 billion in enforcement revenue in a single fiscal year, reflecting a renewed focus on compliance and collection efforts. 

At the same time, the agency is expanding its use of data analytics to identify discrepancies more efficiently. 

Rather than relying heavily on random audits, enforcement is becoming more targeted and systematic. 

A New Layer: How the IRS Is Using Data to Select Cases 

One of the biggest changes is not just increased activity. It is how cases are being selected. 

Recent reporting has highlighted that the IRS is testing more advanced data tools designed to identify what it calls “higher-value” audit and enforcement cases. These systems are built to connect information across multiple data sources and surface patterns that may not have been visible before. 

In practical terms, this means the process is becoming more precise. 

Instead of relying primarily on broad scoring systems or random selection, the IRS is increasingly able to analyze relationships between filings, supporting documents, and historical patterns to identify where discrepancies are more likely. 

This does not mean more people are being audited at random. 

It means the IRS is getting better at identifying which returns to look at more closely. 

Why This Matters for Business Owners 

This shift changes the nature of risk. 

In the past, many taxpayers thought in terms of probability. What are the chances of being audited? 

Now the question is different. 

Does your return stand out based on the data available? 

Areas that involve more complexity or interpretation, such as business deductions, credits, or multi-entity structures, are more likely to be evaluated through this lens. 

This is especially relevant for areas where the IRS has already indicated increased focus, including certain credits, business filings, and transactions that require detailed supporting documentation. 

Why More Taxpayers Are Receiving Notices 

Most taxpayers are not being audited. 

In fact, audit rates for the majority of individual taxpayers remain relatively low, generally below 1%. 

However, more taxpayers are receiving notices, and that is where this shift becomes visible. 

In many cases, these notices are triggered by specific, identifiable issues. 

One of the biggest drivers is improved data matching. The IRS now compares tax returns against a broader set of third-party information, including W-2s, 1099s, brokerage reporting, and payment platform data. 

When there is a mismatch, it is more likely to generate a notice. 

There is also a continued focus on areas where reporting errors are more common, including business income, deductions, pass-through entities, and digital transactions. 

In addition, modern systems allow the IRS to identify patterns that fall outside expected ranges. Returns that appear inconsistent based on income, deductions, or historical reporting are more likely to be reviewed. 

Collection activity is also becoming more active again, particularly for unresolved balances and prior-year issues. 

The Most Common Triggers Right Now 

Most IRS notices are not random. They are tied to specific issues that can usually be identified with a closer look. 

Some of the most common triggers include income that does not match reported forms, deductions that appear large relative to income, business losses that fluctuate significantly year to year, and misclassification of workers or expenses. 

Unreported side income and digital payments have also become more visible due to expanded reporting requirements. 

These are not new issues. What has changed is how quickly they are identified and acted on. 

The Shift: From Broad to Targeted Enforcement 

In the past, enforcement was often slower and more generalized. 

Today, it is more precise. 

The IRS is using data to focus on returns that are more likely to contain discrepancies, rather than applying a broad, random approach. This results in fewer random audits, but more targeted reviews. 

For taxpayers and business owners, this changes the dynamic. 

It is less about the overall likelihood of being selected and more about whether your return raises questions based on the data available. 

What This Means for You 

For most taxpayers, this is not a reason to be concerned. It is a reason to be prepared. 

Accurate reporting, consistent documentation, and well-supported deductions are more important than ever. Items that may have gone unnoticed in the past are more likely to be reviewed. 

That does not mean something is wrong. It simply means the margin for inconsistency is smaller. 

If You Receive a Notice 

The most important step is not to ignore it and not to respond too quickly without fully understanding what is being requested. 

Many IRS notices are routine, but responding incorrectly or without proper documentation can create unnecessary complications. 

Before taking any action, it is important to review the notice carefully and determine the best way to respond based on your specific situation. 

Before You Take the Next Step 

Receiving an IRS notice can feel urgent. It is easy to assume the worst or to react quickly just to resolve it. 

In many cases, the better approach is to step back, evaluate the situation, and respond with a clear plan. 

Whether the issue is a simple mismatch or something more complex, the way it is handled can affect the outcome. 

If you have received a notice or want to make sure your filings are accurate and well-documented moving forward, our team can help you understand what is happening and guide you through the next steps. 

If you pay substantial state and local taxes (SALT) and feel the pain of the federal cap on SALT deductions, you may find relief if you are eligible to use the pass-through entity elective tax (PTET), a planning tool to overcome the limit on deducting state and local taxes as an itemized deduction on your tax return. Several states let certain partnerships, S corporations, and similar pass-through entities elect to pay state tax at the entity level so owners can claim a federal business deduction for those state taxes and bypass the SALT limitation. 

This article explains how PTET works, using California as an example. Other states follow a similar concept, but tax rates, deadlines, and other issues may vary. Learn when this SALT workaround might help you, what to watch for, and practical steps to evaluate it for your situation. 

OBBBA’s Increased SALT Limits 

Even though the One Big Beautiful Bill Act temporarily increased the SALT limits, the PTET workaround still makes sense for many taxpayers. The 2025 OBBBA legislation raised the federal SALT deduction ceiling for years 2025 through 2029, and without any extending legislation, the cap reverts back to $10,000 in 2030. 

In addition, the limit is reduced, phased down to $10,000, for high income taxpayers by 30% of their modified adjusted gross income (MAGI) that exceeds the threshold for the specific year. The following table shows the maximum SALT deduction and high-income phasedown for each tax year. 

SALT DEDUCTION 

Year	SALT Deduction Cap	High Income Phasedown Threshold	MAGI Fully Phased Down to $10,000
2025	$40,000	$500,000	$600,000
2026	$40,400	$505,000	$606,333
2027	$40,804	$510,050	$612,730
2028	$41,212	$515,150	$619,190
2029	$41,624	$520,302	$625,719
2030 and Subsequent Years	$10,000	Not Applicable	Not Applicable

The increased deduction amounts do not eliminate the situations where PTET is beneficial: 

• Taxpayers with SALT above $40,000 may still prefer PTET because shifting state tax to the entity can convert individual, limited itemized deductions into an entity deduction that fully reduces federal taxable income.  

• Even taxpayers below the $40,000 ceiling can benefit from PTET if the entity deduction interacts favorably with other items (for example, reducing pass-through income that otherwise triggers higher federal marginal rates, phaseouts, or net investment income tax exposure).  

• PTET remains especially attractive where owners own multiple entities or where state tax credits and carryover rules make the economics favorable.  

How PTET Works (The Basic Concept) 

• The Election: Each year, the pass-through business (S-Corp, Partnership, or certain LLCs) decides if it wants to “opt-in” to this special tax. This must be done on a timely filed original tax return and is irrevocable for that year. Not all partners or shareholders of the business need to opt in for the other owners to participate.  

• The Tax Rate: The business pays a tax on its “qualified net income”—basically, the share of profit belonging to the owners who agree to participate. In CA that tax is a flat 9.3%.  

• The Federal Benefit: Because the business pays this tax, it counts as a business expense. This reduces the amount of profit reported on the participating owner’s federal K-1, effectively letting the participating partner or shareholder deduct the full state tax amount from their federal income.  

• The State Benefit: On the individual’s personal tax return, they get a nonrefundable credit equal to the tax the business already paid on their behalf. In California, if the credit is more than what the individual owes, the leftover amount can carry forward for up to 5 years.  

Eligible Pass-through Entities 

Eligible entities typically include S corporations, partnerships, and LLCs taxed as partnerships or S corps. Each state’s rules vary, but these entity types are the norm. 

Ineligible situations generally include sole proprietorships, publicly traded partnerships, and certain ownership structures (check your state’s rules if an owner is itself a partnership or similar complex owner). 

Not all pass-through entity owners have to opt in. An owner must consent to participate to receive the credit, but a subset of consenting owners can still allow the entity to make the election for those participants. 

How PTET Stacks Up Given Recent Federal SALT Law Changes 

• As mentioned previously the 2025 OBBBA legislation temporarily raises the federal SALT deduction cap for 2025–2029. Even with higher temporary caps, PTET can still be beneficial:  

• Taxpayers with SALT well above the temporary caps may still prefer PTET to convert the state tax burden into an entity deduction that fully reduces federal taxable income.  

• Even taxpayers below the temporary caps can benefit if the entity deduction interacts favorably with other tax items — for example, reducing pass-through income that would otherwise push the taxpayer into a higher tax bracket, cause phaseouts, or trigger net investment income tax or other surtaxes.  

• Owners of multiple entities, or those who benefit from state-specific credits and carryover rules, may find PTET especially attractive.  

Bottom line, model both scenarios — itemizing with the applicable SALT cap vs. PTET to determine the better result for your specific facts. 

Final Thoughts and Recommendations 

PTET is a powerful tool for many taxpayers facing SALT limits, but it’s not a one-size-fits-all solution. The temporary federal increases to the SALT cap through 2029 change the math for some taxpayers, so current-year modeling is essential. 

Contact our office if you want a basic model comparing PTET versus itemizing for your numbers. 

As you are no doubt aware, the IRS has made a significant shift in its approach to issuing tax refunds by discontinuing the practice of sending refunds via paper checks. This change is part of an ongoing effort to enhance efficiency and security in processing tax returns. By moving towards electronic transfers, the IRS aims to reduce the risk of lost or stolen checks, expedite the refund process, and minimize costs associated with printing and mailing. The IRS has implemented alternative methods to accommodate taxpayers who do not have a bank account such as prepaid debit cards. 

Regardless of the delivery method, if you have already filed your federal tax return and are due to receive a refund, you can check the status of your refund online.  

Where’s My Refund? is an interactive tool on the IRS website. Regardless of whether you have split your refund among several accounts or opted for a direct deposit into one account, Where’s My Refund? will give you online access to your refund information nearly 24 hours a day and 7 days a week.  

If you e-file, you can use this tool to get your refund information 24 hours after the IRS acknowledges receipt of your return. Nine out of 10 taxpayers typically receive refunds in fewer than 21 days when they use e-file with direct deposit. If you file a paper return, refund information will be available starting four weeks after mailing your return. When you go to check the status of your refund, have a copy of your federal tax return handy. To access your personalized refund information, you must enter: 

• Your Social Security Number (or Individual Taxpayer Identification Number), 

• The year tax year (options include 2025, 2024 and 2023), 

• Your filing status on that return (single, married filing jointly, married filing separately, head of household, or qualifying widow(er)/surviving spouse), and 

• The exact refund amount shown on your tax return.  

Once you have entered your personal information, one of several personalized responses will come up: 

• Acknowledgement that your return has been received and is being processed, 

• Refund was approved and the IRS is preparing to issue it by the date shown. 

• Refund Sent – the IRS has sent the refund to your bank or to you in the mail. It may take 5 days for it to show in your bank account or several weeks for your check to arrive in the mail.    

Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues that are affecting your refund. For example, if you do not receive your refund within 28 days of the mailing date shown on Where’s My Refund?, you can start a refund trace online. 

Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader with a Braille display. Where’s My Refund? is compatible with various modes of this screen reader. 

IRS2Go is a free IRS smartphone app that lets taxpayers check on the status of their tax refunds. For download information, visit IRS2Go. It is available for both Apple and Android. 

Where’s My Refund? provides the most up-to-date information that the IRS has. There’s no need to call the IRS unless Where’s My Refund? tells you to do so. Where’s My Refund? is updated every 24 hours (usually overnight), so you only need to check it once a day. Please contact this office if you encounter any problems. 

When selling a principal residence, taxpayers turn to Section 121 of the Internal Revenue Code to mitigate potential capital gains taxes. Under this provision, homeowners can exclude up to $250,000 of gain ($500,000 for qualifying joint filers) from the sale. To fully qualify, individuals must have owned and lived in the home as their primary residence for at least two out of the five years preceding the sale date. However, life sometimes unfolds in ways that prevent individuals from satisfying the full requirements for this lucrative exclusion. Thankfully, the IRS provides relief through partial exclusions for those who need to sell their home due to a change in the place of employment, health issues, or unforeseen circumstances before meeting the two out of the five years standard requirement. This article delves into understanding how these exceptions operate, offering insights into when taxpayers can still benefit from a Section 121 gain exclusion despite not meeting the standard criteria. 

Change in Place of Employment

The most common reason for a partial exclusion is a job-related move that causes the taxpayer to sell their home before the 2-of-5 years tests were met. To meet the “safe harbor” for this category, your new place of work must be at least 50 miles farther from your home than your old workplace was. If you didn’t have a previous workplace, your new one must be at least 50 miles from the home you are selling. 

• Who does this apply to? Crucially, this condition does not just apply to the taxpayer. You may qualify for the partial exclusion if the change in employment affects:    

• The taxpayer. 

• The taxpayer’s spouse. 

• A co-owner of the home. 

• Anyone else for whom the home was their primary residence. 

Health-Related Moves

A move is considered health-related if the primary reason is to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of a disease, illness, or injury. It also covers moving to provide medical or personal care for a family member. Note that a move for “general health and well-being” (e.g., moving to a warmer climate just because you like it) does not qualify; a doctor must generally recommend the change in residence. 

• Who does this apply to? The health condition is broad. It applies if the health issue affects a “qualified individual,” which includes: 

• The taxpayer, spouse, or co-owner. 

• Family members, specifically parents, grandparents, stepparents, children (including adopted, foster, or stepchildren), grandchildren, siblings, in-laws, aunts, uncles, nephews, and nieces. 

• Any resident of the home. 

Unforeseen Circumstances

An “unforeseen circumstance” is an event you could not have reasonably anticipated before purchasing and occupying the home. If your situation does not fit a specific safe harbor, the IRS looks at factors like whether the event and sale were close in time, or if your financial ability to maintain the home was materially impaired. But merely deciding after you’ve lived in a home for a while that you don’t like the neighborhood won’t qualify as an unforeseen circumstance. 

• The Safe Harbor List – The IRS provides a specific list of events that automatically qualify as unforeseen circumstances: 

• Involuntary conversion (e.g., the home is destroyed or condemned). 

• Natural or man-made disasters or acts of terrorism resulting in a casualty loss. 

• Death of a qualified individual (taxpayer, spouse, co-owner, or resident). 

• Divorce or legal separation. 

• Eligibility for unemployment compensation. 

• Change in employment status that leaves the taxpayer unable to pay basic living expenses (food, housing, taxes, etc.). 

• Multiple births from the same pregnancy. 

How the Partial Exclusion is Calculated

 The partial exclusion is not a flat rate; it is a fraction of the maximum exclusion ($250,000 or $500,000). 

• The Formula – You take the shortest of the following periods (in days or months) and divide it by 730 days (or 24 months): 

1. The time you owned the home during the 5-year period before the sale. 

2. The time you used the home as your primary residence during that same period. 

3. The time since you last claimed the Section 121 exclusion for another home.    

Example: If you are a single filer who lived in your home for 12 months before moving for a new job 100 miles away, and had last claimed the exclusion 6 years ago, you have met 50% of the 24-month requirement. You can exclude $125,000 (50% of $250,000) of your gain from taxes. 

Navigating IRS Section 121 can be complex, especially when determining if your specific “facts and circumstances” meet the threshold for an unforeseen event. If you are planning a move or have recently sold a home before reaching the two-year mark, please contact this office for assistance in calculating your exclusion and ensuring your documentation meets IRS standards. 

Unlike employees, who have income, Social Security, and Medicare taxes withheld from their wages, self-employed individuals must prepay their taxes by making periodic estimated tax payments. These are referred to as estimated tax payments because the self-employed individual must estimate his or her net earnings for the year and pay taxes per an IRS schedule according to that estimate. Failure to do so will result in interest penalties. 

The self-employed are not the only ones who are subject to estimated tax payment requirements; anyone who has income on which no income tax has been withheld, and even those whose taxes are not sufficiently withheld, should be making estimated tax payments. Thus, if you have income from stock sales, property sales, investments, taxable alimony, partnerships, S-corporations, inherited pension plans, or other sources that are not subject to withholding, you may also be required to pay either estimated taxes or an underpayment penalty. Others subject to making estimated payments are individuals who must pay special taxes such as the 3.8% tax on net investment income or the employment tax on household employees. 

Although these payments are often termed “quarterly” estimates, the periods they cover do not usually coincide with a calendar quarter. 

2026 ESTIMATED TAX INSTALLMENTS DUE DATES
Quarter	Period Covered	Months	Due Date
First	January through March	3	April 15, 2026
Second	April and May	2	June 15, 2026
Third	June through August	3	September 15, 2026
Fourth	September through December	4	January 15, 2027

An underestimate penalty does not apply if the tax due on a return (after withholding and refundable credits) is less than $1,000; this is the “de minimis amount due” exception. When the tax due is $1,000 or more, underpayment penalties are assessed. 

These underpayment penalties are determined per the periods as shown in the above table, so an underpayment in an earlier period cannot be made up for in a later period; however, an overpayment in an earlier period is applied to the following period. 

The amount of an estimated payment is determined by estimating one fourth of the taxpayer’s tax for the entire year; the projected tax is paid in four installments. When the income is seasonal, sporadic, or the result of a windfall, the IRS provides a special form, and the underpayment penalty is based on actual income for the period. 

For individuals who do not want to take the time to estimate their tax for the current year but who still want to avoid the underpayment penalty, Uncle Sam also provides safe-harbor estimates. However, even these can be tricky. 

Generally, a taxpayer can avoid an underpayment penalty if his or her withholding and estimated payments are equal to or greater than 

• 90% of the current year’s tax liability, or 

• 100% of the prior year’s tax liability

However, these safe harbors do not apply if the prior year’s adjusted gross income is over $150,000, in which case, the safe harbors are 

• 90% of the current year’s tax liability, or 

• 110% of the prior year’s tax liability

Sometimes, individuals who have withholding on some (but not all) of their sources of income will increase that withholding to compensate for the additional income sources that have no withholding. Although this may work, withholding adjustments are not as precise as the per-period payments and should be used with caution. 

This office can assist you in estimating payments, adjusting withholding, and setting up safe-harbor payments. Please call for assistance. 

Tax season is a busy time for taxpayers. It is also a busy time for criminals as they ramp up efforts to trick people into sharing sensitive personal information. Identity thieves use this information to try filing false tax returns and stealing refunds, plus scam you financially in other ways. 

You may think you are harp on a lot about protecting yourself against identity theft and tax scams. It because having your identity stolen becomes an absolute financial nightmare, sometimes taking years to straighten out. Identity thieves are clever, relentless, and always coming up with new schemes to trick you. And all you have to do is slip up just once to compromise your identity and your nightmare begins. 

Awareness

Identity thieves and scammers often imitate the IRS name, logo or web site to convince taxpayers that the scam is a genuine communication from the IRS. Scammers may use other federal agency names, such as the U.S. Department of the Treasury. 

In an identity theft scam, a fraudster, often posing as a trusted government, financial or business institution or official, tries to trick a victim into revealing personal and financial information, such as credit card numbers and passwords, bank account numbers and passwords, Social Security numbers and more. Generally, identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, or apply for new loans, credit cards, services, or benefits in the victim’s name and even file fraudulent tax returns. 

Scams come in many forms and are usually initiated by a letter, fax, email or with a phone call or text. When scam artists use email to lure its victims, it is referred to as “phishing” scams. 

Seniors Are Frequent Targets

Scammers frequently target people over age 65 or nearing retirement for personal or financial information or money. Often, once seniors give them money, they ask for more. When a person is scammed out of tax-deferred retirement funds, the lost funds may be considered a taxable distribution, subject to ordinary income tax and potential early withdrawal penalties if the account owner is under age 59½. While victims might claim a theft loss deduction if the scam was profit-motivated and recovery is unlikely, this process is complex. 

Encourage your elderly family members to discuss any suspicious messages or offers with you or another trusted individual before taking any action, as this can help them avoid falling victim to scams. Regular conversations about new scam tactics can empower them to make informed decisions and protect their financial well-being. 

How to Spot a Scam 

Phishing emails and smishing texts, often share common characteristics that can help in identifying them. Typically, they create a sense of urgency, pressuring potential victims to act swiftly without much deliberation—whether it’s claiming you’re in trouble, that you’ve won an unexpected prize, or that there’s a problem needing immediate attention. Be wary of unsolicited communications, especially those requesting personal information or payment over the phone or through unexpected emails and texts. Scammers may also pose as legitimate companies or government entities, using official-sounding language to gain trust. Additionally, if an offer seems too good to be true, it likely is. Verify suspicious communications by contacting the company or individual through official channels and consult with someone you trust before proceeding with unfamiliar requests. Here are some signs to watch for, such as an email that: 

• Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as your mother’s maiden name, either in the email itself or on another site to which a link in the email sends the recipient. 

• Dangles bait to entice the recipient to respond to the email, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey. 

• Threatens a consequence for not responding to the email, such as additional taxes or blocking access to the recipient’s funds. 

• Gets the Internal Revenue Service or other federal agency names wrong. 

• Uses incorrect grammar or odd phrasing (many of the email scams originate overseas and are written by non-native English speakers). 

• Uses a long address in any link contained in the email message or one that does not start with the actual IRS web site address (www.irs.gov). To see the actual link address or URL, move the mouse over the link included in the text of the email. 

• When trying to spot a potential scam, taking a closer look at the sender’s email address can provide valuable clues. Scammers often use email addresses that slightly deviate from real company domains, perhaps with misspellings or extra characters. Additionally, if the domain or extension appears unusual or originates outside the U.S., it should immediately raise red flags. 

Common Phishing Emails

Scammers use emails to install malware or direct victims to fake websites that mimic official sites to steal credentials.  

• Phony Tax Refunds - Emails stating you qualify for a large refund and must click a link to access it. 

• False Legal/Criminal Charges – Messages threatening immediate legal action or arrest for alleged tax fraud, pressuring you to act without thinking. 

• Underreported Income Notices – Emails claiming to be a notice of underreported income and containing an attachment or link to a bogus “tax statement”. Opening the attachment or clicking the link can download malware to your computer. 

• “Update Your Account” Requests - Emails with suspicious links, such as “IRSgov” (missing the dot), instructing you to update your IRS online account or IP PIN immediately. 

• Offers of Third-Party Help - Scammers posing as a “helpful” third party offering to create your IRS Online Account to steal your personal information.  

Common Smishing Texts

These text messages often use alarming language or promise financial assistance to trick you into clicking malicious links.  

• Account on Hold/Unusual Activity – Texts claiming, “Your account has now been put on hold,” or “Unusual Activity Report,” with a link to “restore” your account. 

• Unexpected Refunds/Payments - Messages mentioning an unexpected tax refund or economic impact payment and providing a suspicious link. 

• Urgent Action Demands - Texts with an urgent tone, pressuring you to open a link or attachment to avoid penalties or take advantage of a credit. 

• Callback Numbers – Messages that include a phone number to call back, which connects you directly to a scammer.  

How to Protect Yourself

• Do not click links or open attachments in unsolicited emails or texts claiming to be from the IRS or other tax-related entities. 

• The IRS will never demand immediate payment, demand a specific payment method (like gift cards or wire transfers), or threaten arrest or deportation. 

• Verify contact directly with the agency using official contact numbers listed on the IRS website or by logging into your secure IRS Online Account if you have previously established one. 

• Report suspicious messages by forwarding the email to phishing@irs.gov and the text message details (sender number, content, date/time) to the same email address with “Text” in the subject line. 

• Obtain an identity protection PIN (IP PIN), which is a unique six-digit number assigned by the IRS to prevent identity thieves from filing fraudulent federal income tax returns using your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).  

It acts as an authentication tool. If a return is filed without the correct IP PIN, the IRS will reject it, preventing someone else from claiming a refund in your name. An IP PIN is valid for one calendar year. A new PIN is generated every year for security. It is used only for federal tax forms in the 1040 series. 

Those who have been victims of tax-related identity theft and have had their issues resolved are automatically enrolled and receive a new IP PIN by mail annually. Any taxpayer with an SSN or ITIN who can verify their identity can voluntarily join the program to add a layer of security at the IRS Get an IP PIN tool. 

Social media

Misinformation about taxes is rampant on social media, and misleading advice can have serious repercussions for taxpayers, particularly surrounding credit or refund eligibility. Influencers, who often lack formal tax training, might encourage individuals to falsify information on their tax forms, claiming it will maximize their refunds or credits. Worse, they may propagate unfounded claims that the IRS is concealing certain tax credits from the public. Such misinformation not only jeopardizes tax compliance but can also invite audits and penalties. Additionally, these misleading social media posts often serve as gateways for scammers, who exploit the guise of tax advice to gain trust and ultimately steal sensitive personal information. It’s crucial for taxpayers to seek professional guidance for accurate tax information. 

Conclusion

Be aware the IRS will never contact you via email, text messages, or social media to request personal or financial information; instead, they typically reach out by sending official notices through the U.S. Postal Service. 

If you have questions or need assistance with any of the issues discussed in this article, please contact our office. 

After revenue, and even after gross margin, there’s one phrase business owners say more than almost any other: 

“We’re profitable… so why does cash still feel tight?” 

It’s a fair question. And an incredibly common one. 

Because profit and cash flow are related — but they are not the same thing. And confusing the two is one of the fastest ways a healthy business ends up feeling constantly under pressure. 

Profit Looks Back. Cash Flow Lives in Real Time. 

Profit is a historical number. 
It tells you what already happened. 

Cash flow tells you what’s happening now — and whether your business can keep operating comfortably. 

You can be profitable and still struggle with cash if: 

• Customers pay slowly 

• Expenses hit before revenue arrives 

• Growth requires upfront investment 

• Payroll, taxes, or inventory timing is off 

On paper, things look fine. In real life, decisions feel stressful. 

That gap is where most cash flow problems live. 

Cash Flow Isn’t a Math Problem. It’s a Timing Problem. 

At a high level, cash flow reflects how money moves in and out of your business over time — not whether you’re making money overall. 

This is why growing businesses often feel more strained than struggling ones. 

More sales mean: 

• More payroll before collections 

• More vendors to pay upfront 

• More operational complexity 

Growth amplifies timing issues. And without visibility, it creates pressure that feels confusing and constant. 

This is usually the moment owners say, “We’re doing better than ever… so why does it feel harder?” 

The Cash Flow Traps No One Warns You About 

Cash flow issues rarely come from one big mistake. They usually come from a few small ones, stacking quietly. 

Things like: 

• Invoicing promptly, but not collecting consistently 

• Offering payment terms without tracking their impact 

• Hiring ahead of cash, not profit 

• Forgetting how taxes affect real cash availability 

Individually, none of these seems dangerous. Together, they can drain liquidity without showing up clearly on a profit and loss statement. 

Why Cash Flow Gets More Fragile as You Scale 

The bigger your business gets, the more sensitive cash flow becomes. 

A delay that didn’t matter at $500K in revenue can become painful at $2M. A single slow-paying client can disrupt an entire month. One unexpected expense can force short-term decisions you didn’t plan for. 

This is why many businesses hit a ceiling, not because they lack demand, but because cash flow can’t support the next step comfortably. 

And this is exactly where CFO-level thinking changes the outcome.  

This Is a CFO Advisory Conversation — Not a DIY Fix 

Managing cash flow isn’t about checking a bank balance more often. 

It’s about understanding: 

• How long cash is tied up before it’s usable 

• Where timing gaps consistently occur 

• Which activities consume cash without creating leverage 

• How growth decisions impact liquidity months in advance 

CFOs don’t just ask, “Are we profitable?” 
They ask, “How long does our cash last, and what pressures it?” 

Those answers shape smarter decisions around hiring, pricing, expansion, and risk. 

The Goal Isn’t More Cash. It’s Predictable Cash. 

Healthy cash flow doesn’t mean stockpiling money. 

It means knowing: 

• When cash will arrive 

• When it will leave 

• And how much flexibility you actually have 

When cash becomes predictable, stress drops. Decisions slow down in a good way. Growth becomes intentional instead of reactive. 

And suddenly, profit starts to feel real. 

A Final Thought 

Profit keeps score. 
Cash flow keeps the business alive. 

If your numbers look good but your business still feels tight, this isn’t a failure. It’s a signal. 

And it’s a signal worth paying attention to. 

If you want help understanding what’s really happening with your cash — and how timing, growth, and decisions are shaping it — don’t go it alone. 

This is where CFO advisory guidance turns confusion into clarity, and clarity into confidence. 

Because the goal isn’t just making money. 
It’s being able to use it. 

Ask a business owner how things are going, and you’ll usually hear the same answer first: 

“Revenue’s up.” 

That sounds like good news. And sometimes it is. 

But there’s a number hiding underneath revenue that tells a very different story. One that quietly determines whether a business is actually healthy or just busy. 

That number is gross margin. 

And for many small and mid-sized businesses, it’s the most misunderstood — and most dangerous — number on the financials. 

Why Revenue Gets All the Attention 

Revenue is loud. 
It’s easy to track. 
It feels like progress. 

More clients. Bigger contracts. Higher top-line numbers. 

But revenue doesn’t tell you what it costs to generate that income. And it doesn’t tell you whether the work you’re doing is actually worth it. 

That’s where gross margin comes in. 

At a high level, gross margin is the percentage of revenue left after accounting for the direct costs required to deliver your product or service. It’s what remains before overhead, taxes, and everything else come into play. 

And it tells the truth in a way revenue never can. 

Gross Margin: The Number That Tells the Truth About Your Business 

Here’s the problem: most business owners only look at gross margin in the aggregate — if they look at it at all. 

And overall gross margin can lie. 

When margins are blended across the entire business, profitable work often masks unprofitable work. 

You might have: 

• One service that performs exceptionally well 

• Another that barely breaks even 

• A client that consumes far more time and resources than they pay for 

Blended together, everything looks fine. 

Until it doesn’t. 

Until cash feels tight. 
Until growth feels heavier instead of easier. 
Until you’re working harder without seeing the payoff you expected. 

That’s usually when business owners say, “We’re making more money, but it doesn’t feel like it.” 

That’s not a revenue problem. 
That’s a margin problem. 

Why Margin Mistakes Get More Dangerous as You Grow 

Low-margin work doesn’t just reduce profit. As your business grows, it creates pressure in places you don’t expect. 

It absorbs your best people. 
It limits your ability to invest. 
It makes hiring riskier. 
It increases burnout at the exact moment you should be building momentum. 

What makes this especially dangerous is that growth can hide the issue for a while. More revenue covers more inefficiency. Until one day it doesn’t. 

This is why businesses that look successful on paper sometimes struggle to scale, hit cash flow walls, or feel stuck despite “doing everything right.” 

This Is a CFO Advisory Conversation — Not a DIY Exercise 

Understanding gross margin in a meaningful way isn’t about pulling a report or running a formula. 

It’s about asking better questions. 

Questions like: 

• Which services actually drive profit? 

• Which clients quietly erode margins? 

• What work looks good on the surface but costs more than it returns? 

• What would change if certain work stopped entirely? 

These aren’t spreadsheet questions. They’re strategic ones. 

And they’re exactly the kind of conversations CFOs have regularly, because margin clarity drives smarter decisions around pricing, staffing, capacity, and growth. 

The Goal Isn’t Perfection. It’s Visibility. 

This isn’t about squeezing every dollar or cutting corners. 

It’s about knowing: 

• What work is worth doing 

• What work needs to change 

• What work might need to go 

When you understand your gross margins clearly — by service, by client, or by growth stage — decisions get easier. Pricing becomes more confident. Growth feels intentional instead of reactive. 

And suddenly, revenue starts behaving the way you expected it to all along. 

A Final Thought 

Revenue may be the headline number. 

But gross margin is the number that determines whether your business actually works. 

If you’ve ever wondered why growth feels harder than it should, or why cash flow doesn’t match your effort, this is a conversation worth having. 

If you want help understanding what your margins are really telling you — and how they impact pricing, capacity, and long-term stability — don’t go it alone. 

This is where CFO-level advisory guidance turns numbers into clarity, and clarity into better decisions. 

Because the most dangerous number in your financials isn’t the one you’re watching. 
It’s the one you’re not. 

Most small business owners don’t wake up to a cash flow crisis. 

It creeps in quietly. 

Margins shrink. Cash feels tighter. Decisions that used to feel easy suddenly don’t. And while revenue might still look “fine” on paper, the bank account tells a different story. 

This isn’t poor management. It’s the result of several slow-moving financial pressures hitting at once, many of which accelerated over the last two years. 

Let’s break down the biggest silent cash flow killers small and medium-sized businesses are dealing with right now—and what owners can do before they turn into real problems. 

1. The Inflation Hangover Is Still Here 

Even as headline inflation cools, the aftereffects remain. 

Many businesses locked in higher costs during peak inflation years: 

• Supplies 

• Rent 

• Vendor contracts 

• Insurance premiums 

Those costs rarely come back down quickly. 

At the same time, customers have become more price-sensitive, making it harder to simply pass increases along. The result is a squeeze that doesn’t always show up as a single red flag—but steadily erodes profitability. 

2. Payroll Creep Is Eating Margins 

Payroll is now one of the fastest-growing expenses for SMBs. 

Between: 

• Competitive wage pressure 

• Higher benefits costs 

• Payroll taxes 

• Overtime becoming the norm instead of the exception 

Many owners are paying significantly more for the same output they had a few years ago. 

The challenge is that payroll creep often feels justified in isolation. One raise here. One new hire there. Over time, it quietly becomes the largest drag on cash flow. 

3. Tariffs and Supply Chain Costs Are Still Passing Through 

Even businesses that don’t import directly are feeling the effects of tariffs and global supply chain disruptions. 

Higher costs get passed down: 

• From manufacturers 

• To distributors 

• To vendors 

• To you 

The problem is timing. Those increases often hit months after pricing decisions were made, leaving businesses absorbing the difference instead of planning for it. 

4. Subscription Sprawl Is Death by a Thousand Charges 

Subscriptions rarely feel dangerous because each one is “only” $30, $50, or $100 a month. 

But add them up: 

• Software tools 

• Apps 

• Platforms 

• Services that were never fully adopted 

What started as productivity upgrades can quietly turn into thousands per month in fixed overhead. 

Because subscriptions auto-renew, they often go unchecked for years, draining cash without delivering meaningful ROI. 

5. Tax Surprises Are Catching Owners Off Guard 

This is one of the most painful—and preventable—cash flow shocks. 

Common issues include: 

• Underestimated quarterly payments 

• Changes in deductions or credits 

• Entity structure no longer matching how the business operates 

• One-time income events creating unexpected tax exposure 

Many owners assume taxes will “sort themselves out” at filing time. When they don’t, the result is a surprise bill that hits cash flow hard and fast. 

Why These Issues Are So Dangerous Together 

Any one of these pressures is manageable. 

The real risk is when they stack. 

Higher payroll plus sticky inflation. 
Subscriptions layered on top of supply chain increases. 
All capped off with an unexpected tax bill. 

That’s how otherwise healthy businesses suddenly feel strained. 

What Smart Owners Are Doing Differently 

The most resilient small business owners aren’t reacting to problems. They’re reviewing them before they escalate. 

They’re asking: 

• Where is cash leaking quietly? 

• Which costs grew without scrutiny? 

• Are we paying taxes efficiently—or just paying them? 

This isn’t about cutting for the sake of cutting. It’s about alignment. 

The Bottom Line 

Cash flow problems don’t usually announce themselves. 

They show up slowly, disguised as “normal” increases, small decisions, and delayed consequences. 

A proactive review can uncover inefficiencies, missed planning opportunities, and tax strategies that help stabilize cash before it becomes a fire drill. 

A proactive tax check-in can uncover savings most owners miss. 
 
If these pressures sound familiar, contact our office to take a closer look before small issues turn into big ones.