Cordasco & Company

Stack It Up: How to Turn One $10M Tax Break Into $40M+ (Because Math Is Beautiful)

Listen up, fellow tax geeks—because I’m about to introduce you to one of the most elegant wealth multiplication strategies in the entire Internal Revenue Code. We’re talking about Section 1202 stacking , and if you’re not already doing backflips over this planning opportunity, you haven’t been paying attention.

Here’s the deal: Section 1202 already gives you a mind-blowing capital gains exclusion of up to $10 million (or $15 million for stock issued after July 4, 2025) when you sell qualified small business stock (QSBS). But what if I told you that with proper planning, you could multiply that exclusion by 3x, 4x, or even 5x?

Welcome to the wonderful world of QSBS stacking—where we take the tax code’s per-taxpayer limitation and turn it into a family wealth preservation machine.

The Beautiful Problem: When Success Creates a Tax Headache

Picture this: You’re a founder who invested $500,000 in your startup back in 2018. Fast forward to today, and you’ve got an acquisition offer for $30 million. Congratulations—you’ve crushed it! But here comes Uncle Sam with his hand out.

Without any Section 1202 planning , you’re looking at a capital gains tax bill of approximately $7.14 million (that’s 20% long-term capital gains plus 3.8% Net Investment Income Tax) and that’s just the federal amount. Don’t forget the state. Ouch!

With basic Section 1202 planning (single taxpayer), you can exclude $10 million of that gain, bringing your tax bill down to $4.76 million . Better, but we’re not done yet.

With Section 1202 stacking (you plus three properly structured non-grantor trusts), you can exclude the entire $30 million gain and pay $0 in federal taxes .

BOOM. That’s $4.76 million staying in your family instead of heading to Washington. And friends, this is a completely legitimate tax planning .

How Stacking Works: The Tax Code’s Multiplier Effect

The secret sauce here is deceptively simple: Section 1202’s exclusion limit applies on a per-taxpayer basis .

A “taxpayer” for Section 1202 purposes can be:

• An individual
• A trust (specifically, a non-grantor trust)
• An estate
• A partnership
• An S corporation

So instead of having one taxpayer claim one $10 million exclusion, you strategically transfer portions of your QSBS to create multiple taxpayers—each with their own separate $10 million exclusion. Stack those exclusions together, and suddenly you’re shielding $30 million, $40 million, or $50 million+ in capital gains from federal taxation.

It’s like the tax code gave us a “buy one, get several more free” coupon, and most people are leaving it on the table.

The Stacking Blueprint: How to Actually Do This

Let me walk you through the mechanics, because the devil (and the tax savings) are in the details.

Step 1: Gift QSBS to Multiple Taxpayers (Early and Often)

The most common stacking strategy involves gifting QSBS shares to irrevocable non-grantor trusts —typically one trust for each child or family member.

Here’s the magic: When you gift QSBS, the recipient gets two critical benefits:

1. Tacking of the holding period – The recipient’s holding period includes YOUR holding period, so they don’t restart the five-year clock
2. Preservation of QSBS status – The stock remains qualified in the recipient’s hands

Each trust becomes a separate taxpayer eligible for its own $10 million (or $15 million) exclusion.

Pro tip : Gift the stock when valuations are LOW. If you gift shares worth $3 million today that later sell for $12 million, you’ve used only $3 million of your lifetime gift tax exemption ($13.61 million as of 2025) while creating $10 million of additional exclusion capacity. That’s efficient wealth transfer, baby. Even better, with proper planning we can use a Beneficiary Designated Inheritance Trust (BDIT) or similar intentionally defective grantor trust to minimize our eliminate the necessity of burning your estate exemption.

Step 2: Use Non-Grantor Trusts (Not Grantor Trusts)

This distinction is absolutely critical .

Grantor trusts (like revocable living trusts) don’t work for stacking because the IRS treats them as the same taxpayer as the grantor. No multiplication effect.

Non-grantor trusts are treated as separate taxpayers with their own tax identification numbers. Each non-grantor trust files its own tax return and gets its own Section 1202 exclusion.

To create a non-grantor trust, you must relinquish enough control that the trust income isn’t attributed back to you under the grantor trust rules. Work with experienced estate planning counsel here—this is not a DIY project.

Step 3: Structure Each Trust Differently

Here comes the fun part (and by “fun,” I mean “the part where we avoid IRS scrutiny”).

Enter Section 643(f) , the party crasher. This anti-abuse rule says that if you create multiple trusts with:

1. Substantially the same grantor and primary beneficiary, AND
2. A principal purpose of tax avoidance

…then the IRS will treat all those trusts as ONE trust for tax purposes. Suddenly your beautiful $40 million exclusion collapses back down to $10 million.

How to avoid this landmine :

• Create one trust per family member (not multiple trusts for the same kid)
• Use different trustees for each trust
• Give each trust different terms and provisions
• Have legitimate non-tax reasons for each trust’s existence

Think of it this way: Three trusts for your three children? Absolutely defensible. Ten identical trusts for your one child? That’s asking for an audit.

Show Me the Money: Real Tax Savings Examples

Let me get concrete here, because nothing motivates like actual dollar amounts.

Example 1: The $30 Million Exit

Scenario : Founder owns QSBS with $500,000 basis, sells for $30 million

Without Stacking (Single Taxpayer):

• Section 1202 Exclusion: $10 million
• Taxable Gain: $20 million
• Federal Tax (23.8%): $4,760,000
• Net Proceeds: $25,240,000

With Stacking (Owner + 3 Trusts = 4 Taxpayers):

• Total Section 1202 Exclusion: $40 million
• Taxable Gain: $0
• Federal Tax: $0
• Net Proceeds: $30,000,000

Tax Savings from Stacking: $4,760,000

That’s enough to buy a nice house, fund your kids’ college education, or finally afford that accountant’s dream vacation to the Cayman Islands (for legitimate business purposes, naturally).

Example 2: The $50 Million Mega-Exit

Without Stacking (Single Taxpayer):

• Exclusion: $10 million
• Taxable Gain: $40 million
• Federal Tax: $9,520,000
• Net Proceeds: $40,480,000

With Stacking (Owner + 4 Trusts = 5 Taxpayers):

• Total Exclusion: $50 million
• Taxable Gain: $0
• Federal Tax: $0
• Net Proceeds: $50,000,000

Tax Savings from Stacking: $9,520,000

Each additional taxpayer essentially adds up to $2.38 million in potential tax savings (that’s the $10 million exclusion multiplied by the 23.8% federal rate).

And with the new $15 million cap for post-July 4, 2025 QSBS? We’re talking about potential tax savings of $3.57 million per taxpayer . Holy tax efficiency, Batman!

Advanced Stacking Strategies (For the Overachievers)

The Incomplete Non-Grantor Trust (ING Trust)

For those of you who want to get really fancy, there’s the ING trust.

An ING trust is structured so that:

1. The transfer to the trust is incomplete for gift tax purposes (doesn’t use your lifetime exemption)
2. The trust is still a non-grantor trust for income tax purposes (separate taxpayer, gets its own Section 1202 exclusion)

This magical unicorn trust must be established in states that allow self-settled asset protection trusts—Nevada, Wyoming, Alaska, or New Hampshire. And you need to retain just enough control (like consent rights over distributions) to make the gift incomplete while avoiding powers that would create grantor trust status.

It’s a tightrope walk that requires serious legal expertise, but for clients who’ve maxed out their lifetime gift exemption, ING trusts can provide additional stacking capacity.

Stacking with the New Tiered Exclusions

Thanks to the One Big Beautiful Bill Act, QSBS issued after July 4, 2025 gets tiered exclusions based on holding period:

• 50% exclusion at 3 years
• 75% exclusion at 4 years
• 100% exclusion at 5 years

This creates new stacking opportunities for earlier exits. Even if you haven’t hit the five-year mark, you can still multiply partial exclusions across multiple taxpayers.

Example: Four taxpayers each claiming 75% exclusions on $40 million of gain = $30 million of total excluded gain, even at year four. That’s still saving you over $4 million in federal taxes .

The Gotchas: Where Stacking Can Go Wrong

Because no tax strategy this good comes without some landmines to avoid.

Gotcha #1: Spousal Stacking Doesn’t Work (If You File Jointly)

Bad news for married couples filing jointly: Section 1202 has a special rule that treats you as a single taxpayer. So gifting QSBS between spouses who file jointly doesn’t multiply your exclusion.

The workaround? File separately, or focus your stacking strategy on trusts and children instead of inter-spousal gifts.

Gotcha #2: State Tax Conformity Issues

Here’s where things get annoying: Not all states conform to the federal Section 1202 exclusion .

The non-conforming states include:

• California (explicitly rejects Section 1202; full gain is taxable at up to 13.3%)
• Pennsylvania
• Mississippi
• Alabama
• New Jersey (will conform starting 2026, with limitations)

So if you’re a California resident with a $30 million QSBS gain, your stacking strategy saves you $4.76 million in federal taxes but you’ll still owe approximately $4 million to California .

Advanced move : Establish your non-grantor trusts in states with no income tax (Nevada, South Dakota, Wyoming) and potentially relocate your own residency to a tax-favorable state at least 1-2 years before the sale. This requires legitimate change of domicile—California’s Franchise Tax Board doesn’t mess around.

Gotcha #3: Documentation Is Everything

The IRS doesn’t just take your word that you qualify for Section 1202 benefits. You need comprehensive documentation:

At issuance :

• Articles of incorporation
• Stock purchase agreement
• Certificate that gross assets didn’t exceed $50 million (or $75 million post-OBBBA)
• Verification of qualified trade or business
• Opinion letter from tax counsel

During holding period :

• Annual corporate tax returns showing continued QSBS compliance
• Verification that 80% active business test is satisfied
• Documentation of no disqualifying redemptions

At sale :

• Form 8949 (Sales and Other Dispositions of Capital Assets)
• Schedule D (Capital Gains and Losses)
• Detailed calculation of excludable gain
• Supporting documentation for all trusts claiming exclusions

Seriously, treat QSBS documentation like it’s going to be audited—because it might be. Section 1202 claims, especially large ones, can trigger IRS scrutiny.

Gotcha #4: Partnerships Can Kill QSBS Status

One critical pitfall: Contributing QSBS to a partnership can disqualify the stock .

Partnerships create special challenges for preserving Section 1202 benefits. While partners can ultimately benefit if certain requirements are met, the structure is much more complicated than direct ownership or trust ownership.

Better strategy : Keep QSBS in individual or trust ownership structures.

Stacking + Packing + Tacking: The Triple Crown

While we’re here, let me introduce you to stacking’s cousins: packing and tacking .

Stacking = Multiplying taxpayers to multiply exclusions (what we’ve been discussing)

Packing = Maximizing the “10x basis” alternative limitation by contributing appreciated property to increase your basis before stock issuance. Higher basis = higher 10x calculation = larger potential exclusion. This is a critical strategy for our S Corp clients looking to convert to a C Corp to preserve the 1202 exclusion. 

Tacking = Adding together holding periods when QSBS is acquired through gifts, inheritance, or certain tax-free exchanges. This is what allows stacking to work—recipients “tack on” the donor’s holding period.

Used together, these three strategies create a wealth preservation trifecta.

Who Should Be Thinking About Stacking (Like, Right Now)

If you check any of these boxes, Section 1202 stacking should be on your radar:

Founders and early employees of C-corp startups who own QSBS worth significantly more than $10 million

Venture-backed companies approaching acquisition or IPO with shareholders holding substantial QSBS positions

S-corp owners who converted to C-corp status (or used an F-reorganization) or want to go down the 1202 path and now hold QSBS

Family businesses structured as C-corps where multiple generations could benefit from stacking

High-net-worth individuals who’ve maxed out their lifetime gift exemption but could use ING trusts

Anyone holding QSBS in states like California that don’t conform to federal treatment (you need trust structures in tax-favorable states)

The key insight? The earlier you start planning, the better . Gifting QSBS when valuations are low minimizes gift tax impact while maximizing future exclusion capacity.

Your Action Plan: The Next 30 Days

Don’t let this planning opportunity gather dust. Here’s your roadmap:

Week 1: Assessment

• Inventory any QSBS holdings (or potential QSBS)
• Confirm QSBS qualification status with tax advisors
• Project potential exit values and holding period timelines
• Calculate potential tax exposure with and without stacking

Week 2: Strategy Design

• Determine optimal number of trusts based on family structure
• Select trust situs state for maximum state tax efficiency
• Design trust provisions to avoid Section 643(f) aggregation
• Model gift tax impact and lifetime exemption usage

Week 3: Implementation

• Draft and execute non-grantor trust or BDIT/IDGT documents
• Obtain tax identification numbers for each trust
• Complete QSBS transfers with proper documentation
• File gift tax returns if required

Week 4: Documentation & Monitoring

• Compile comprehensive QSBS compliance documentation
• Establish systems for ongoing QSBS monitoring
• Create tax projection models for various exit scenarios
• Brief all trustees and beneficiaries on structure and requirements

The Bottom Line: This Is Generational Wealth Planning

Look, I’ve been doing this for over four decades, and Section 1202 stacking remains one of the most powerful wealth preservation tools I’ve ever encountered.

We’re talking about strategies that can save families $5 million, $10 million, or even $20 million+ in federal taxes. That’s money that can fund multiple generations’ education, launch new businesses, support charitable causes you care about, or simply provide financial security that most families only dream about.

But here’s the thing: this doesn’t happen by accident . Stacking requires intentional planning, proper legal structure, comprehensive documentation, and careful compliance with both the letter and spirit of the tax code.

The families who execute this strategy well are the ones who start early, work with experienced advisors, document everything meticulously, and treat Section 1202 compliance as the seven-figure (or eight-figure) opportunity that it truly is.

And with the recent OBBBA changes—the $15 million exclusion cap, the tiered holding periods, the increased $75 million asset threshold—we’ve got more planning opportunities than ever before.

Let’s Make This Happen

Here’s my challenge to you: If you own QSBS (or might in the future), don’t leave this tax break on the table. The difference between basic Section 1202 planning and sophisticated stacking strategies can literally be millions of dollars .

Schedule time with your tax advisor and estate planning attorney. Run the numbers. Design the structure. Execute the plan. Document everything.

Because tax planning this good doesn’t come around often. And when the tax code hands you a gift this valuable, the only appropriate response is to say “thank you” and use it to its fullest potential.

Now go forth and stack those exclusions like the sophisticated tax nerd you are. Your future self (and your heirs) will thank you.

Ready to explore Section 1202 stacking for your specific situation? This is advanced planning that requires coordination between your tax advisor, estate planning attorneys, and financial advisors. But when you get it right, the wealth preservation impact is absolutely spectacular. Let’s talk about how to turn your single $10 or $15 million exclusion into a family fortune protected from capital gains tax. Because math is beautiful—especially when it saves you millions.

     

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The Quiet Revolution in Tax Strategy: What Forward-Thinking Advisors Are Building

Friends, there’s a shift happening in tax advisory that nobody’s really talking about yet. It’s not as sexy as the latest tax law changes—no bombastic headlines, no congressional drama. But if you’re thinking about the future of your business, it matters more than you’d think.

For 40 years, I’ve watched how tax strategy evolves alongside technology. Spreadsheets replaced calculators. Tax software replaced filing cabinets. Each cycle, the tools got better. But something fundamental has been missing: the ability to move tax strategy from reactive to truly proactive .

That’s changing. And it’s worth understanding why.

The Macro Shift: From Compliance to Foresight

The tax profession is at an inflection point. For decades—really, since 1986—tax advisors have been fundamentally compliance-focused. File accurately. Find deductions. Minimize audit risk. Important work, absolutely. But also reactive. You gather last year’s data and solve last year’s problems.

The data backs this up: shows that 84% of firms now offer advisory services beyond compliance, but this is deceptive with most of this advice being based on fixing last years problem not avoiding or controlling tomorrows. Most of the profession is still built for compliance-first thinking.

Here’s what’s shifted: The business environment—especially for entrepreneurs and high-net-worth individuals—has become too complex for reactive planning to be sufficient.

Consider the current landscape. You’ve got the OBBB extensions creating new permanent provisions that’ll shape planning for the next decade. You’ve got multiple legislative levers now available simultaneously—depreciation strategies, SALT deductions, entity optimization, succession planning—that all interact with each other. You’ve got AI and automation forcing the profession to reconsider what value actually looks like.

The firms that are winning this moment aren’t the ones optimizing for compliance speed. They’re the ones building frameworks that let them think forward —scenario-modeling your business across three-to-five-year windows, layering strategies, identifying unintended consequences before they happen.

Why This Matters to Your Wallet (Without Being Obvious About It)

Let me be honest: most tax professionals can find your deductions. Software can find deductions. That’s table stakes now.

What separates truly valuable tax strategy from the routine work is the thinking about what comes next.

Real strategy requires connecting the dots between today’s business structure and tomorrow’s business reality. It’s asking: “If we build this exit over the next three years, how do we structure compensation, and entity moves now to minimize the total tax burden then?” It’s not a single decision. It’s a sequence of decisions, each chosen for how it sets up the next one.

That kind of thinking is rare. And it’s getting rarer, because most tax professionals are under pressure to productize their services—to move toward standardized, scalable delivery models rather than deep, ongoing strategic engagement. There is no move to Transformative Services that will shape the future outcomes.

Which is ironic, because that’s exactly when clients need it most.

The Technology Angle (It’s Not What You Think)

Here’s where it gets interesting. AI is transforming tax work, but not in the way most people think.

The real opportunity isn’t AI replacing strategy—it’s AI enabling strategists to scale their thinking .

AI excels at recognizing patterns, surfacing relevant information, and modeling scenarios across variables that would take a human weeks to calculate. It compresses time. It frees strategic thinkers from the grunt work that’s been eating 60-70% of their time. It means your advisors can actually think about you and your situation instead of clicking through software.

But here’s the critical part: AI is only as good as what you’re feeding it and who is driving it.

A generic AI tool with generic tax knowledge will give you generic results. Predictable efficiency gains, sure. Some deductions you missed, probably. But not strategic advantage.

What actually changes the game is when firms marry AI capabilities with institutional strategy frameworks —decades of tested approaches, refined against real-world outcomes, curated specifically for the scenarios that matter to your business.

That’s a different beast entirely.

What We’re Building (And Why It Matters)

For the past several years, we’ve been developing an internal strategy application that houses our institutional playbook. Decades of experience across legislative cycles. Proven frameworks for entity optimization, M&A strategy, exit planning, wealth succession—all documented, organized, refined.

By itself, that’s valuable. It keeps us consistent. It ensures we’re not reinventing the wheel for each client.

But integrating AI into that framework? That’s where something new emerges that doesn’t exist anywhere else in the commercial marketplace.

Suddenly, you can leverage your business financials, tax environment and structure. The system can develop suggestions instantly surfacing the most relevant strategic approaches—ranked by applicability to your situation , prioritized by impact. The AI has done the legwork. Now the strategist can focus on what actually matters: judgment about sequencing, personal goals, long term impact, risk assessment, and narrative defensibility.

It’s not a tool replacing advisors. It’s a tool that lets advisors move up the value chain. It creates scale and speed to help our clients obtain value while standardizing and controlling the value chain to eliminate omissions or unproven strategies.

The Quiet Advantage

Here’s what we’re noticing: The firms building competitive advantage right now aren’t the biggest—it’s the ones being intentional about strategy infrastructure.

Most advisory firms operate on what you might call “expert memory.” Everything lives in a partner’s brain. It’s powerful, sure, but it doesn’t scale. And it creates a bottleneck: one person can only serve so many clients deeply.

Forward-thinking firms like ours are different. They’re documenting their frameworks. They’re systematizing their thinking. They’re building technology that lets them scale what worked yesterday without losing the customization that makes it work for tomorrow.

That shift—from expertise as individual talent to expertise as organizational infrastructure—is the one that matters long-term.

And it’s barely visible from the outside.

What This Means For You

If you’re a business owner with serious complexity—M&A on the horizon, entity structure questions, wealth succession planning, exit strategy—the quality of your tax advisor matters way more than it did five years ago.

Not because taxes got more complicated (though they did). But because the decisions you make now about structuring your business and wealth has exponentially larger impact on what happens in the future for your business and your family.

You need advisors who are thinking forward. Who understand your business lifecycle. Who see tax strategy as a sequence rather than an annual event. Who can model trade-offs and identify the second and third-order consequences of decisions.

Those advisors are uncommon. And they’re getting more uncommon as the profession consolidates around compliance-first models and commoditized software platforms and service offerings.

The advisor who’s actually thinking about your business and wealth strategically, who’s equipped with institutional frameworks and forward-thinking tools will add value well beyond any fees paid.

Bottom line: The speed of strategy development needs to keep pace with the speed of business today.

     

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The Super-Sized Catch-Up: SECURE 2.0’s Gift to the 60-Something Crowd (And Why 2025 is Your Golden Window)

Listen up, friends, because if you’re staring down the barrel of 60 or already there, SECURE 2.0 just threw you a retirement planning lifeline that’s actually substantial . I’m talking about the new “super catch-up” contribution rules that went live January 1, 2025. And if you’re one of those high-earning creatures (which, let’s be honest, if you’re reading tax blogs for fun, you probably are), you’ve got exactly one more year to do this the old-fashioned, pre-tax way before Uncle Sam changes the rules again.

This is tax planning gold, people. Let me break it down.

The Good, The Better, and The “Holy Tax Efficiency, Batman!”

The Good: Regular Catch-Up Contributions (Still Alive and Kicking)

Since 2001, we’ve had catch-up contributions for folks age 50 and up. Nothing groundbreaking here—it’s the retirement plan equivalent of letting you order extra fries. For 2025, if you’re 50 or older, you can throw an extra $7,500 into your 401(k), 403(b), or governmental 457(b) plan on top of the standard $23,500 limit. That’s $31,000 total if you’re counting (and you should be).

SIMPLE IRA participants get the smaller-but-still-meaningful $3,500 catch-up. And our IRA friends? A modest $1,000 catch-up that hasn’t budged in years.

The Better: Super Catch-Up Contributions for Ages 60-63 (New for 2025!)

Here’s where it gets interesting. Starting in 2025, if you’re age 60, 61, 62, or 63 at any point during the calendar year, you qualify for what the industry is adorably calling “super catch-up” contributions. That’s why accountants are not allowed to come up with marketing campaigns. 

The formula: You can contribute the greater of $10,000 or 150% of the regular catch-up limit .

For 2025, that 150% calculation wins: $11,250 instead of the standard $7,500. Add that to the base $23,500 limit, and you’re looking at $34,750 total for the year.

That’s an extra $3,750 compared to your 50-something peers. Over four years (ages 60-63), that’s an additional $15,000 of tax-advantaged space you wouldn’t otherwise have. Not exactly chump change.

The “Holy Tax Efficiency, Batman!”: This Works for SIMPLE IRAs Too

SIMPLE IRA participants ages 60-63 aren’t left out of the party. Their super catch-up is $5,250 (compared to the regular $3,500). Total contribution potential: $21,750 .

The Critical Technical Details (AKA: The Fine Print That Actually Matters)

Age Eligibility: It’s All About December 31

You qualify if you’re age 60, 61, 62, or 63 by December 31 of the contribution year. This means if you turn 60 on December 31, 2025, you’re eligible for the entire year—even though you were technically 59 for 364 days.

The year you turn 64? Back to the regular catch-up limit. The super window closes. This isn’t a lifetime benefit—it’s a four-year opportunity.

This is OPTIONAL for Employers (But Watch Out for Controlled Group Rules)

Here’s where it gets gloriously complicated. Plan sponsors are not required to offer super catch-ups. Your employer can stick with the regular $7,500 catch-up for everyone, and that’s perfectly legal.

But—and this is a beautiful but—if any plan within a controlled group offers super catch-ups, then all plans in that controlled group must offer them. This is the “universal availability requirement” in action.

So if Company A and Company B are under common control, and Company A decides to implement super catch-ups, Company B has to fall in line. The IRS finalized this in regulations issued in September 2025.

Plan Amendment Deadlines: You’ve Got Time (But Not Forever)

Most qualified plans have until December 31, 2026 to adopt formal plan amendments reflecting these changes. Collectively bargained plans get until December 31, 2028, and governmental plans have until December 31, 2029.

But here’s the critical part: even though you have until 2026 to amend the plan, you need to operate in compliance starting January 1, 2025. You can’t wait to update your plan document and just hope everything works out. Your payroll systems, recordkeeping, and administrative procedures need to be tracking these different age cohorts right now .

403(b) Plans Get an Extra Twist

If you’re in a 403(b) plan and have at least 15 years of service, you might already be eligible for a special catch-up contribution of up to $3,000 per year (with a $15,000 lifetime cap). The good news? The final regulations confirm you can stack this with the super catch-up contributions during your ages 60-63 window.

That means a 62-year-old with 15+ years of service at a 403(b) sponsor could potentially layer three catch-up provisions. Tax geek paradise.

Governmental 457(b) Plans: Super Catch-Up AND Pre-Retirement Catch-Up

Governmental 457(b) plans are special snowflakes with their own “pre-retirement catch-up” provision that lets you contribute up to double the annual limit in the three years before your normal retirement age.

The super catch-up is in addition to this. And crucially, the pre-retirement catch-up is not subject to the mandatory Roth rules that are coming in 2026. If you’re in a governmental 457(b) and can coordinate these provisions? Chef’s kiss.

2026: The Year Everything Changes for High Earners

Here’s where this gets really interesting. Starting January 1, 2026, catch-up contributions get a mandatory Roth twist for high earners.

The Rule: $145,000 FICA Wage Threshold

If your FICA wages (that’s Box 3 on your W-2, not your total comp) from your employer exceeded $145,000 in 2025, then ALL of your catch-up contributions in 2026 must be designated as Roth (after-tax) contributions.

This threshold is indexed for inflation and projected to be around $150,000 for 2026.

What This Means in Plain English

• Pre-tax catch-up contributions? Gone for high earners starting in 2026.
• You can still make regular deferrals on a pre-tax basis up to the $23,500 limit.
• But that extra $7,500 (or $11,250 if you’re 60-63)? All Roth, all the time.

No Roth Feature = No Catch-Up at All

This is the kicker. If your plan doesn’t have a Roth contribution option, and you’re over the wage threshold, you cannot make catch-up contributions at all . Zero. Nada. Zilch. Niente for my Italian friends.

Plans have until 2026 to add a Roth feature, but not all will. This is creating some urgency in the plan sponsor community, let me tell you.

2025 is Your Last Year for Pre-Tax Catch-Ups (If You’re a High Earner)

The IRS originally tried to implement this mandatory Roth rule in 2024, but pushed it back twice. The administrative transition period ends December 31, 2025.

So if you’re a high earner and you want to make catch-up contributions on a pre-tax basis, 2025 is your last chance . After that, it’s Roth or nothing.

This actually creates an interesting planning opportunity: max out your pre-tax catch-ups in 2025, then reassess your Roth strategy for 2026 and beyond.

What About 2026 Limits? (Spoiler: They’re Going Up)

Based on inflation adjustments, here’s what we’re expecting for 2026:

• Base 401(k)/403(b) limit : $24,500 (up from $23,500)
• Regular catch-up (ages 50-59 and 64+) : $8,000 (up from $7,500)
• Super catch-up (ages 60-63) : Projected at $11,250 to $12,000

The IRS typically announces these in late October or early November, so we should have official numbers soon.

Total potential employee contribution for someone age 60-63 in 2026? Somewhere between $35,750 and $36,500 .

Action Items: What You Need to Do (Like, Actually Today)

If You’re Age 60-63 Right Now:

1. Check if your plan offers super catch-ups. Ask your HR department or plan administrator. Not all plans adopted this optional provision.
2. Update your deferral elections ASAP. If your plan does offer super catch-ups, you need to affirmatively elect to contribute more than the standard catch-up.
3. Maximize 2025 if you’re a high earner. This is your last year for pre-tax catch-ups before the mandatory Roth rule kicks in.
4. Model the tax impact. An extra $3,750 of deductions in 2025 versus Roth contributions in 2026+ is a real tax planning decision.

If You’re a Plan Sponsor:

1. Decide whether to adopt super catch-ups. This is optional, but once adopted, you’re locked in.
2. Check your controlled group status. If any related entity offers super catch-ups, you may be required to as well.
3. Update your payroll systems. You need to track ages 60-63 separately from ages 50-59 for 2025.
4. Add a Roth feature if you don’t have one. The mandatory Roth catch-up rule takes effect January 1, 2026.
5. Prepare plan amendments. Due December 31, 2026 for most plans.
6. Implement correction procedures. The final regulations provide specific correction methods for Roth catch-up failures.

If You’re Ages 50-59 or 64+:

1. Keep doing what you’re doing with regular catch-ups.
2. Watch your FICA wages. If you’ll exceed $145,000 in 2025, your 2026 catch-ups must be Roth.
3. Consider maxing out in 2025. Last chance for pre-tax treatment if you’re a high earner.

If You’re Under 50:

1. File this away for later. The super catch-up window opens when you turn 60, not a moment before.
2. But note: The mandatory Roth rule applies to all catch-up eligible participants who exceed the wage threshold, regardless of age.

The Bottom Line: Why This Actually Matters

Friends, here’s the deal. SECURE 2.0 created a rare gift: a legitimate, substantial increase in tax-advantaged retirement savings space for people in their early 60s—precisely when they need it most.

An extra $3,750 per year for four years is $15,000 of additional contributions you wouldn’t otherwise get. At a 35% marginal tax rate, that’s over $5,000 in tax savings if you’re making pre-tax contributions in 2025.

But the window is weird and specific. Ages 60-63 only. Four years. Then it’s gone.

And for high earners, 2025 represents the last opportunity for pre-tax catch-up contributions before the mandatory Roth rules kick in. That’s a planning opportunity that won’t come around again.

This is one of those rare instances where Congress actually gave us something useful in retirement planning legislation. The execution is predictably complicated (because tax planning, that’s why), but the opportunity is real.

So if you’re in that 60-63 sweet spot, or approaching it? Time to catch up on your catch-ups. The math works. The tax benefits are legitimate. And unlike most things in life, this one has an expiration date.

Now go maximize those contributions.

Have questions about implementing super catch-ups in your plan or modeling the tax impact of mandatory Roth catch-ups? That’s what we tax geeks live for. This stuff is complicated, but that’s what makes it fun. Contact us at info@cordasco.cpa if you want information or advise about your specific situation.

     

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Holy Cannoli: Why 2026 Will Be the Most Chaotic Filing Season (And What It Means for You)

Friends, grab your espresso—because we need to have a serious conversation about what’s actually happening with the IRS right now. And I’m going to be straight with you: the system that processes your taxes is literally falling apart.

I’ve been doing this a long time and, I have never seen the IRS this unprepared to actually function. Not during the pandemic. Not during the 2008 financial crisis. Not ever.

This matters to you because when the IRS breaks, your taxes become complicated. Understanding what’s happening and why will help you navigate it.

Let me explain what’s actually going on and why it’s not just “delays.”

The Perfect Storm: Why the IRS Is Crumbling Right Now

The Long Decay: 40 Years of Underfunding and Neglect

Before we talk about the current crisis, understand this: the IRS has been systematically starved of resources for four decades. While every other federal agency modernized their technology, the IRS is still running computers from the 1980s and 1990s. Their systems literally cannot talk to each other. They process tax returns with software that’s older than the internet as we know it.

In 2010, Congress started cutting IRS funding. Then 2013. Then 2015. Then 2019. By 2022, the IRS had 28% fewer employees than they did in 2010 —despite a significantly larger taxpayer base and a massively more complex tax code.

The IRS was already drowning. Then everything got worse at once.

1. Congress Just Rewrote the Entire Tax Code (And the IRS Has No Infrastructure to Handle It)

On July 4, 2025, Congress signed the One Big Beautiful Bill Act (OBBA) into law. This wasn’t a minor tweak. This was a fundamental rewrite of major parts of the tax code. We’re talking about:

• Estate tax exemptions jumping to $15 million per person
• New deductions for tip income, permanent senior deductions
• Modifications to charitable giving, Child Tax Credit, Opportunity Zones
• Changes to business deductions and standard deductions

Now here’s the problem: the IRS has to reprogram ancient computer systems to handle all of this. These aren’t systems from 2015. These are systems from the 1980s that have been patched and modified a thousand times. They’re fragile. They’re not designed for massive changes.

The IRS has to:

1. Update their core processing systems to handle new tax computations
2. Create new guidance for taxpayers and professionals
3. Train staff on rules that literally didn’t exist three months ago
4. Reprogram their matching systems (the computers that verify your income matches what your employer reported)
5. Update their refund systems to handle new credit calculations

All of this with systems that are fundamentally broken and a workforce that’s about to shrink by 25%.

The IRS’s own projections show they won’t implement these changes smoothly. What that means: expect incorrect notices, processing errors, misclassified returns, and delays on anything outside the most basic filing.

1. They Lost a QUARTER of Their Workforce—and All the Right People Left First

Here’s the real kicker: the IRS didn’t just lose employees randomly. Starting in late 2024, when layoffs looked likely, the best and brightest started jumping ship immediately. These are people with 20, 30 years of experience. These are the auditors, the technicians, the supervisors who actually know how things work.

By mid-2025, they were gone.

The numbers are staggering:

• 26,000+ employees eliminated (25% of their entire workforce)
• 21% of frontline tax processing staff gone
• 59% of their IT personnel eliminated (the people who maintain those ancient computer systems)
• Experienced auditors, managers, and subject matter experts walked out the door

When you lose the experienced people, the system doesn’t just slow down. It breaks differently. New hires make mistakes experienced people would catch. Systems aren’t maintained properly. Knowledge gets lost.

Think about what it means operationally: if 21% of the people processing returns are gone, and they’re replaced by brand-new hires who don’t know the job, processing time doesn’t just increase 21%. It multiplies.

1. A 43-Day Government Shutdown Killed Preparation (Right Before Filing Season)

And then, October 1 – November 12, 2025: a 43-day government shutdown. During that time:

• 35,000 IRS employees were sent home (most without pay)
• All taxpayer assistance centers closed completely
• Zero mail processing happened
• Zero training of new staff occurred
• Zero preparation for filing season happened

Think about the timing. Filing season ramps up in January and goes full-throttle from February through April. October and November are supposed to be when the IRS trains new employees, tests systems, and prepares infrastructure.

Instead, they were closed.

The shutdown ended November 12. Filing season starts January 24. That’s 10 weeks to:

1. Bring 35,000 people back to work
2. Get systems running again
3. Train new hires on OBBA changes they just learned
4. Catch up on the massive pile of 2025 mail that sat unopened for 43 days
5. Process the returns that came in during the shutdown
6. Get infrastructure ready for 2026 returns

With 25% fewer experienced people than they had last year.

It’s not possible. The math doesn’t work.

Here’s What This Actually Means for Your 2026 Tax Filing

Processing Will Be Significantly Slower—And Errors Will Be More Common

When you file your 2025 tax return in 2026, understand what’s happening on the other end:

The IRS will scan it, enter data into systems that can’t properly handle the new OBBA rules, and process it through an organization that’s understaffed, undertrained, and using outdated technology.

Expect:

• Longer processing times (we’re not talking about weeks—think months for anything that doesn’t fit a standard pattern)
• More incorrect notices (the IRS will send you letters saying you owe money, or asking for clarification, on things that are technically correct on your return)
• More mismatches (your W-2 didn’t match their records, your 1099 data got entered wrong, your business income didn’t reconcile)
• Slower resolution times (fixing a mistake that used to take 90 days could take 6 months or more)

You Can’t Rely on Customer Service

The Treasury Inspector General warned Congress that IRS customer service could drop from 85% (already bad) to just 16%. That means if you call with a question, there’s an 84% chance you won’t reach anyone.

Here’s what that means practically:

• If you filed something unusual and they send you a notice, you might not be able to call and clarify
• If there’s an error on your return, reaching the IRS to fix it becomes extremely difficult
• If you’re trying to qualify for a new credit or deduction under OBBA and need guidance, you’re on your own

“Compliance Risk” Gets Real in a Different Way

With fewer auditors and more processing errors, here’s what happens:

The IRS makes mistakes. They send incorrect notices. They disallow deductions they should allow. They over compute your taxes.

Normally, you’d get a notice, call them, explain the situation, and they’d fix it. Not anymore. You’re stuck either accepting an incorrect determination or fighting through their broken system to prove you’re right.

And here’s the thing: if you don’t respond correctly to an IRS notice, or you miss a deadline, or you don’t have perfect documentation, the IRS will assume they’re right.

Your documentation has to be airtight. Your return has to be defensible. You can’t assume “we’ll clear this up later.”

The New Tax Code Creates Processing Complexity (Beyond Just “It’s New”)

The OBBA rules interact with existing tax law in ways that are genuinely complicated. Here’s an example: the new $15 million estate tax exemption interacts with prior year carryovers in specific ways. The new charitable deduction rules interact with the Alternative Minimum Tax. The new Opportunity Zone rules interact with real estate tax treatment.

These interactions have to be programmed into the IRS’s systems correctly. And these systems are fragile.

When the IRS’s computers misapply these rules, you get an incorrect refund calculation, an incorrect notice, or a notice asking for clarification on something you filed correctly.

The IRS’s staff also has to apply these rules correctly. But they’re new employees, trained in a rush, using systems they don’t fully understand, applying rules they just learned.

Errors become more likely. Processing becomes slower.

What This Means for Your Filing in 2026

File Electronically—No Exceptions

Paper returns go into a physical mail processing system that’s already backed up and now even more understaffed. Electronic returns get processed by computers, which is faster and more reliable (relatively speaking, given the circumstances).

If you file paper, expect your return to sit in a pile for months before anyone even opens it.

If You’re Expecting a Refund, Adjust Your Timeline

Normally, you might get a refund within a few weeks of filing. Add several months to that timeline. August or September for refunds is becoming realistic. Don’t make financial decisions assuming you’ll get your refund in April.

If You Paid Quarterly Estimated Taxes, Make Sure They’re Documented Correctly

With the new rules, quarterly estimated tax calculations got more complicated for some people. Make sure your estimated tax payments are properly credited. If they’re not applied correctly, you’ll get an incorrect notice. Fixing it will take forever. Always make payments electronically.

If Anything on Your Return is Non-Standard, Expect Questions

New business structure? Different deduction than last year? First time using a new credit? You’re more likely to get an IRS notice.

Have documentation. Don’t assume you can explain it later. Assume you’ll need to respond in writing.

Amended Returns Are Going to Take a Really Long Time

If you filed your 2024 return and discover you need to amend it, understand that amended returns go to the back of the line. Processing times that used to be 6-8 months are now 12-18 months, maybe longer. This will be a problem for the new R&D rules that require an amendment.

Don’t file something incorrect hoping you’ll just amend it later. Get it right the first time.

The Bigger Picture: This Affects Your Entire Tax Situation

The filing challenges aren’t just about delays. They’re about a system that’s less reliable. When a system is less reliable, you have to be more careful, more thorough, and more strategic about how you file and what you claim.

Years like this are when tax planning matters most—not because of aggressive strategy, but because you need to be crystal clear about what’s defensible and what’s not. You need to anticipate how the IRS might interpret your return. You need documentation that speaks for itself.

These are the years when having professionals who understand both the law and the IRS’s practical limitations makes a real difference.

The Bottom Line

The 2026 filing season will be the most chaotic in decades. The IRS is unprepared. Their systems can’t handle the new law. Their staff is inexperienced. Their customer service will be nearly nonexistent.

Your filing won’t just take longer. It will be more complex to get right, riskier to get wrong, and harder to fix if something goes sideways.

Understanding what’s happening—why it’s happening—and what that means for how you file, what you claim, and how you document everything is essential.

This is the year to take filing seriously. Really seriously and bring extra patience.

Reach out to us at info@cordasco.cpa if you want to talk through your specific situation and what you need to do to prepare. Ciao!  

     

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The One Big Beautiful Bill Act (OBBBA) shifts the landscape for year-end tax planning. The law has significant implications for some of the most tried-and-true tax-reduction measures. It also creates new opportunities for businesses to reduce their 2025 tax liability before December 31. Here are potentially some of the most beneficial ones.

Investments in capital assets

Thanks to bonus depreciation, businesses have commonly turned to year-end capital asset purchases to cut their taxes. The OBBBA helps make this strategy even more powerful for 2025.

Under the Tax Cuts and Jobs Act (TCJA), 100% first-year bonus depreciation declined by 20 percentage points each year beginning in 2023, falling to 40% in 2025. The OBBBA restores and makes permanent 100% bonus depreciation for qualified new and used assets acquired and placed in service after January 19, 2025. (Qualified purchases made in 2025 on or before January 19 remain subject to the 40% limit.)

The law also boosts the Section 179 expensing election limit for small and midsize businesses to $2.5 million, with the phaseout threshold lifted to $4 million. (Both amounts will be adjusted annually for inflation.)

Most assets eligible for bonus depreciation also qualify for Sec. 179 expensing. But Sec. 179 expensing is allowed for certain expenses not eligible for bonus depreciation — specifically, roofs, HVAC equipment, fire protection and alarm systems, and security systems for nonresidential real property, as well as depreciable personal property used predominantly in connection with furnishing lodging.

Sec. 179 expensing is subject to several limitations that don’t apply to first-year bonus depreciation, especially for S corporations, partnerships and limited liability companies treated as partnerships for tax purposes. So, when assets are eligible for either break, claiming allowable 100% first-year bonus depreciation may be beneficial.

However, Sec. 179 expensing is more flexible — you can take it on an asset-by-asset basis. With bonus depreciation, you have to take it for an entire class of assets (for example, all MACRS 7-year property). Business vehicles are popular year-end purchases to boost depreciation-related tax breaks. They’re generally eligible for bonus depreciation and Sec. 179 expensing, but keep in mind that they’re subject to additional rules and limits. Also, if a vehicle is used for both business and personal use, the associated expenses, including depreciation, must be allocated between deductible business use and nondeductible personal use.

As an added perk, the OBBBA changes the business interest deduction — specifically, the calculation of adjusted taxable income — which could allow you to deduct more interest on capital purchases beginning in 2025.

Pass-through entity tax deduction

Dozens of states enacted pass-through entity tax (PTET) deduction laws in response to the TCJA’s $10,000 limit on the federal deduction for state and local taxes (SALT), also referred to as the SALT cap. The mechanics vary, but the deductions generally let pass-through entities (partnerships, limited liability companies and S corporations) pay an elective entity-level state tax on business income with an offsetting tax benefit for the owners. The organization deducts the full payment as a business expense.

Before year end, it’s important to review whether a PTET deduction is available to you and, if so, whether it’ll make sense to claim it. This can impact other year-end tax planning strategies.

The PTET deduction may be less relevant for 2025 because the OBBBA temporarily boosts the SALT cap to $40,000 (with 1% increases each year through 2029). The higher cap is subject to phaseouts based on modified adjusted gross income (MAGI); when MAGI reaches $600,000, the $10,000 cap applies.

But the PTET deduction may still be worthwhile in some circumstances. It could pay off, for example, if an owner’s MAGI excludes the owner from benefiting from the higher cap or if an owner’s standard deduction would exceed his or her itemized deductions so the owner wouldn’t benefit from the SALT deduction.

By reducing the income passed through from the business, a PTET deduction election could also help an owner reduce his or her liability for self-employment taxes and avoid the 3.8% net investment income tax. Moreover, lower income could unlock eligibility for other tax breaks, such as deductions for rental losses and the Child Tax Credit. Bear in mind, though, that while a PTET deduction could help you qualify for the Section 199A qualified business income (QBI) deduction despite the income limit (see below), it also might reduce the size of the deduction.

QBI deduction

Eligible pass-through entity owners can deduct up to 20% of their QBI, whether they itemize deductions or take the standard deduction. QBI refers to the net amount of income, gains, deductions and losses, excluding reasonable compensation, certain investments and payments to partners for services rendered.

The deduction is subject to limitations based on taxable income and, in some cases, on W-2 wages paid and the unadjusted basis of qualified property (generally, the purchase price of tangible depreciable property held at the end of the tax year). The OBBBA expands the phase-in ranges for those limits so that more taxpayers will qualify for larger QBI deductions beginning in 2026.

In the meantime, you can still take steps to increase your QBI deduction for 2025. For example, if your income might be high enough that you’ll be subject to the W-2 wage or qualified property limit, you could increase your W-2 wages or purchase qualified property. Timing tactics — generally, accelerating expenses into this year and deferring income into 2026 — might also help you avoid income limits on the deduction.

Research and experimental deduction

The OBBBA makes welcome changes to the research and experimental (R&E) deduction. It allows businesses to capitalize domestic Section 174 costs and amortize them over five years beginning in 2025.

It also permits “small businesses” (those with average annual gross receipts of $31 million or less for the previous three tax years) to claim the R&E deduction retroactive to 2022. And businesses of any size that incurred domestic R&E expenses in 2022 through 2024 can elect to accelerate the remaining deductions over either a one- or two-year period.

You don’t necessarily need to take steps before year end to benefit from these changes. But it’s important to consider how claiming larger R&E deductions on your 2025 return could impact your overall year-end planning strategies.

It’s also a good idea to start thinking about how you’ll approach the R&E expense deduction on your 2025 tax return. For example, it might make more sense to continue to amortize your qualified R&E expenses. You also should determine if it would be beneficial to recover remaining unamortized R&E expenses in 2025 or prorate the expenses across 2025 and 2026. And if you’re eligible to claim retroactive deductions, review your R&E expenses for 2022 through 2024 to decide whether it would be beneficial to do so.

Don’t delay

We’ve focused on year-end strategies affected by the OBBBA, but there are also strategies not significantly impacted by it that are still valuable. One example is accelerating deductible expenses into 2025 and deferring income to 2026 (or doing the opposite if you expect to be in a higher tax bracket next year). Another is increasing retirement plan contributions (or setting up a retirement plan if you don’t have one).

Now is the time to execute the last-minute strategies that will trim your business’s 2025 taxes. We can help you identify the ones that fit your situation.

© 2025

     

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