Important Deadlines, Legislative Changes & Tax Planning Insights
Dear Valued Clients,
As we move through filing season, there is an extraordinary amount to cover. The tax landscape has shifted dramatically with the passage of the One Big Beautiful Bill Act (OBBBA), the IRS is facing serious legal challenges over taxpayer privacy, and rising costs of living are pushing more middle-income earners into tax provisions they never expected to encounter. Here is what we have on our radar.
SECTION 1: March 16, 2026 – Critical Filing Deadlines
Form 1065 – U.S. Return of Partnership Income
Partnerships, including most multi-member LLCs, must file Form 1065 on or before March 16, 2026 for the 2025 tax year (calendar-year filers) because the 15th is a Sunday. Schedule K-1s must be furnished to partners by the same date. If the partnership cannot file on time, Form 7004 must be filed to obtain an automatic six-month extension (extending the deadline to September 15, 2026). However, please note that an extension of time to file is not an extension of time to pay. Estimated tax payments and any amounts owed by individual partners remain subject to the April 15 deadline.
| ⚠ Key Reminders for Partnerships Late filing penalties are $255 per partner, per month (up to 12 months) for 2025 returns. For a 4-partner entity, that is $1,020 per month. Ensure all partner information (names, addresses, TINs) is current and accurate before filing. If your partnership has foreign partners or transactions, additional forms (e.g., Forms 8865, 8804) may apply. |
Form 1120-S – U.S. Income Tax Return for an S Corporation
S corporations must also file Form 1120-S by March 16, 2026 (moved from March 15 due to the Sunday). Like partnerships, Schedule K-1s must be issued to shareholders by the same date. The same extension mechanism applies (Form 7004 for a six-month extension to September 15, 2026), and the same principle holds: an extension to file is not an extension to pay.
| ⚠ Critical Reminder: S Corporation Election & Form 2553 If you are making a new S election, Form 2553 must be filed no later than two months and 15 days after the beginning of the tax year the election is to take effect. For calendar-year entities, that means March 15. We strongly recommend faxing Form 2553 to the IRS and retaining the fax transmission confirmation as proof of timely filing. The IRS sometimes loses or does not receive Form 2553 submissions. If the IRS has no record of the election, a paper-filed Form 1120-S for the election year can serve as evidence of the S election, particularly when paired with fax confirmation records. Do not assume the election was processed – follow up and keep your records. |
Bottom line: Take care of filings, extensions and S-elections by 3/15!
SECTION 2: The One Big Beautiful Bill Act (OBBBA) – What Changed
The One Big Beautiful Bill Act represents the most sweeping tax legislation since the Tax Cuts and Jobs Act of 2017. Below is a breakdown of the key provisions and what they mean for you.
Bonus Depreciation Restored
One hundred percent (100%) bonus depreciation has been restored and extended. After the phase-down that began in 2023 under the original TCJA provisions, the OBBBA reinstates full first-year expensing for qualified property. This is a significant benefit for businesses making capital investments in equipment, machinery, vehicles, and qualified improvement property.
Qualified Small Business Stock (QSBS) – Section 1202 Enhancements
The OBBBA expanded QSBS benefits under IRC §1202. The exclusion for gain on qualified small business stock has been enhanced, offering even greater incentive for investment in qualifying C corporations. If you hold or are considering investing in a startup or emerging growth company, the QSBS rules should be a central part of your tax planning. For QSBS issued after July 4, 2025, the OBBBA generally expanded Section 1202 by introducing partial exclusions for shorter holding periods, increasing the per-issuer exclusion cap, and increasing the gross-assets threshold for qualification. Yes, you two can enjoy a tax free gain of up to $15M (million with an M) or 10x the basis whichever is higher and these can be stacked across entities.
MAS LLC has launched a dedicated QSBS Eligibility Evaluation and Ongoing Compliance Consulting practice. Our team provides comprehensive Phase I eligibility evaluations – covering entity classification, original issuance tracing, gross assets calculations, and active business test analysis – as well as Phase II ongoing compliance monitoring with quarterly asset composition reviews, annual status letters, redemption tracking, and pre-exit documentation. QSBS qualification is not a one-time determination; a single misstep such as an inadvertent S election, a missed Section 83(b) filing, or a breach of the 80% active business test can permanently destroy eligibility. For a full overview of our QSBS advisory services, including the expanded post-OBBBA rules and illustrative tax savings, please read our detailed article at marschalltax.com/2026/02/22/qsbs-eligibility-evaluation-and-ongoing-compliance-consulting.
Opportunity Zones 2.0
The Opportunity Zone program, originally created by the TCJA, has been extended and expanded under the OBBBA. The OBBBA renewed and modified Opportunity Zone incentives, with particular enhancements for certain rural-area investments. If you have unrealized capital gains and are considering long-term investment, this program deserves a close look.
New Deduction for Older Taxpayers – With an Income Phase-Out
The OBBBA introduced a new additional standard deduction for older Americans, designed to provide tax relief to seniors on fixed incomes. However, this provision includes an income-based phase-out that has caused some confusion. The deduction begins phasing out above certain income thresholds, which means higher-income seniors may see a reduced or eliminated benefit. We recommend discussing your specific situation with our office to determine how this provision applies to you.
Auto Loan Interest Deduction – A Provision Few Can Take
One of the most publicized provisions of the OBBBA is the new deduction for interest on automobile loans. In theory, this is an attractive benefit for car buyers. In practice, however, our experience has been that this provision is extremely difficult for most taxpayers to actually claim. We have had zero clients who qualify to-date.
There are two critical limitations. First, the deduction is only available for new, U.S.-manufactured vehicles. Used cars, foreign-manufactured vehicles, and leased vehicles do not qualify. Second, there is an income limitation that is set at a level low enough that many taxpayers who can afford a new car purchase are already above the threshold. In our practice, we have not yet had a single client who qualifies for this deduction. We bring this to your attention so you are not relying on a tax benefit that, for most of our clients, simply does not apply.
| Auto Loan Interest Deduction – At a Glance Vehicle must be: the vehicle must be one whose original use starts with the taxpayer and that underwent final assembly in the United States Income limit: Set low enough that most purchasers of new cars exceed it Our experience: Zero qualifying clients to date |
No Tax on Tips & Overtime – Temporary Provisions
| ⚠ Important Distinction: Temporary vs. Permanent The no-tax-on-tips and no-tax-on-overtime provisions of the OBBBA are temporary. They have defined sunset dates and will expire unless extended by future legislation. Many other provisions of the OBBBA – including bonus depreciation, QSBS changes, and Opportunity Zone extensions – are permanent changes to the Internal Revenue Code. If you are a tipped employee or earn significant overtime, please be aware that these benefits are time-limited. Do not make long-term financial plans based on the assumption that these provisions will continue indefinitely. |
The tip and overtime exclusions are welcome relief for workers in the service, hospitality, and hourly-wage industries. Tips and qualifying overtime pay are, in the exact words of the IRS, not described as “excluded” but rather are “deductions effective 2025 through 2028”, for the duration of the temporary provision. However, these amounts may still be subject to employment taxes (FICA), and state tax treatment varies. Consult with our office to understand the full impact on your specific situation.
And please remember that when gratuity is already included, those amounts are NOT excluded from income.
SECTION 3: IRS Found to Have Illegally Shared Taxpayer Information
In a development that has serious implications for taxpayer trust and privacy, a federal judge has ruled that the IRS broke the law by sharing confidential taxpayer information with Immigration and Customs Enforcement (ICE) and the Department of Homeland Security (DHS).
As reported by The Washington Post and ABC News in late February 2026, the court found that the IRS disclosed taxpayer data in a manner that violated the strict confidentiality protections of IRC §6103. Section 6103 is one of the most important provisions in the entire tax code – it establishes that tax return information is confidential and may only be disclosed under very limited, specifically enumerated exceptions.
The court’s finding that the IRS acted illegally is significant. Taxpayers have a right to expect that the information they provide on their tax returns – including income, addresses, employer information, and Social Security numbers – will not be shared with other government agencies outside the bounds of the law.
| What This Means for You Your tax return information remains legally protected under IRC §6103. The court ruling reinforces that the IRS does not have blanket authority to share your data with other agencies. We will continue to monitor this situation and any legislative or administrative responses that follow. If you have specific concerns about the privacy of your tax information, please contact our office. |
SECTION 4: The Stealth Taxes – Additional Medicare Tax & Net Investment Income Tax
Two provisions that continue to catch taxpayers off guard are the Additional Medicare Tax (Form 8959) and the Net Investment Income Tax, or NIIT (Form 8960). These are sometimes called “stealth taxes” because many taxpayers do not know they exist until they see the additional liability on their return.
Additional Medicare Tax – Form 8959
An additional 0.9% Medicare tax applies to wages, compensation, and self-employment income above certain thresholds: $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. This tax is in addition to the regular Medicare tax and is not matched by the employer.
Net Investment Income Tax (NIIT) – Form 8960
A 3.8% surtax applies to the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the same thresholds noted above. Net investment income includes interest, dividends, capital gains, rental income, royalties, and passive activity income.
Why More Taxpayers Are Being Affected
Here is the critical issue: the income thresholds for both the Additional Medicare Tax and the NIIT have never been adjusted for inflation. They were set in 2013 and remain at $200,000 / $250,000 today. With rising wages, home values, and investment returns driven by over a decade of inflation, many taxpayers who do not consider themselves “high earners” are now crossing these thresholds.
If you have seen Forms 8959 or 8960 appear on your return and were surprised by the additional tax, you are not alone. This is one of the most common sources of unexpected tax liability we see in our practice. Proactive planning – including estimated tax payment adjustments and withholding reviews – can help avoid surprises at filing time.
| Action Item If your household income is approaching or exceeds $200,000 (single) or $250,000 (MFJ), ready yourself to be exposed to the Additional Medicare Tax and NIIT. A mid-year withholding and estimated payment review can prevent a large balance due at filing. |
SECTION 5: General Economic & Tax Policy Update
The Economy in Early 2026
The U.S. economy entered 2026 in a period of gradual stabilization following several years of elevated inflation and aggressive monetary tightening. Inflation has declined significantly from its peak in 2022 and 2023. As of early 2026, consumer price growth is much closer to the Federal Reserve’s long term target, although several categories such as housing, insurance, and health care continue to place pressure on household budgets.
Interest rates remain higher than the unusually low levels that prevailed from 2009 through 2021. The Federal Reserve has begun easing from the most restrictive policy stance reached during the inflation cycle, but borrowing costs for mortgages, commercial loans, and business credit facilities remain meaningful. As a result, sectors that rely heavily on financing, including real estate development, construction, and leveraged acquisitions, continue to adjust to a higher cost of capital environment.
The labor market remains relatively strong by historical standards. Unemployment levels are still low, although hiring growth has moderated compared with the rapid expansion that followed the pandemic recovery. Wage growth has slowed but remains positive in many sectors. Skilled trades, health care, and certain service industries continue to experience labor shortages, while portions of the technology and finance sectors have seen targeted layoffs as companies restructure and prioritize efficiency.
For small business owners, the economic environment in 2026 requires careful planning. Input costs for materials, insurance, and labor remain elevated compared with pre-pandemic levels. Financing is also more sensitive to credit quality and cash flow performance than in prior years. Businesses with strong balance sheets, conservative leverage, and proactive tax planning strategies are generally better positioned to navigate this phase of the economic cycle.
Tax Policy Landscape
From a tax policy perspective, the most significant development affecting the 2025 and 2026 tax years is the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025. The legislation restored and expanded several investment oriented tax incentives, including full first year bonus depreciation and expanded provisions related to Qualified Small Business Stock under Section 1202. The law also renewed and modified Opportunity Zone incentives and introduced several temporary deductions targeted at workers and retirees.
At the same time, several existing provisions of the Internal Revenue Code continue to affect middle and upper income taxpayers in ways that were not widely anticipated when they were enacted. The income thresholds for the Additional Medicare Tax and the Net Investment Income Tax (NIIT) remain fixed at levels established in 2013 and have not been indexed for inflation. As wages, investment income, and property values rise over time, more households are crossing these thresholds and encountering these taxes for the first time.
Federal tax administration is also evolving. The IRS continues implementing funding increases authorized in recent legislation while responding to ongoing court rulings, congressional oversight, and heightened scrutiny regarding taxpayer privacy and data security. These developments may influence enforcement priorities, audit activity, and regulatory guidance in the coming years.
What to Watch
- State conformity to OBBBA: State conformity to federal tax law remains an ongoing issue for taxpayers and advisors. Not all states automatically adopt federal changes to the Internal Revenue Code. Several states, including Virginia, periodically decouple from specific federal provisions. This can create differences between federal and state taxable income calculations and complicate planning.
- Additional Medicare Tax and NIIT thresholds: Keep your eye on whether Congress addresses the lack of inflation indexing. Until they do, more taxpayers will be affected each year.
- IRS enforcement and privacy: The fallout from the illegal data-sharing ruling will continue to develop. Legislative proposals to strengthen §6103 protections may follow.
- Interest rates and real estate: Interest rates and the cost of capital will remain an important variable for taxpayers considering real estate transactions, refinancing decisions, or business expansion projects. Federal tax incentives such as bonus depreciation, Qualified Small Business Stock planning, and Opportunity Zone investments may become increasingly relevant as taxpayers evaluate long term investment strategies.
- Expiration of temporary provisions: Finally, several provisions enacted in the OBBBA, including deductions related to tips, overtime compensation, automobile loan interest, and additional relief for certain older taxpayers, are temporary and subject to sunset dates. Whether these provisions are extended or allowed to expire will depend on future congressional action.
We Are Here to Help
Tax law is more complex than ever, and the pace of legislative change shows no signs of slowing. Whether you have questions about the OBBBA, need to review your exposure to the Additional Medicare Tax or NIIT, want to ensure your S election was properly filed, or simply want to discuss your overall tax strategy, our team is here for you.
Please do not hesitate to contact our office at your earliest convenience. We would rather answer your questions now than address surprises later.
Warm regards,
Jessica I. Marschall, CPA, ISA AM
President & CEO, MAS LLC
Tax Advisory & Valuation Services
Tax Policy Landscape
U.S. Bureau of Labor Statistics. Consumer Price Index Summary, January 2026.
Federal Reserve Board. Federal Open Market Committee Statement, January 28, 2026.
Internal Revenue Service. One Big Beautiful Bill Act Provisions and Guidance.
Internal Revenue Service. Additional First Year Depreciation Deduction Guidance under the OBBBA.
Internal Revenue Service. Net Investment Income Tax FAQs.
Internal Revenue Service. Additional Medicare Tax Questions and Answers.
Congressional Budget Office. Economic Outlook and Fiscal Outlook Updates 2025–2026.
Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis.
This communication is intended for general informational purposes and does not constitute tax, legal, or financial advice specific to your situation. Please consult with our office for guidance tailored to your individual circumstances.
