KDM Client Tax & Financial Update — July 2026

KDM's monthly roundup of tax and financial planning notes for South Florida business owners and families. This July 2026 edition covers SEP and SIMPLE retirement plans, the tax rules for renting a vacation home, revisiting your emergency fund, backup withholding, elder-care deductions, a partnership-reporting change from the IRS, and building a budget in QuickBooks Online — plus the upcoming filing deadlines.

Simple retirement solutions for small business owners

Offering employees retirement options can be an effective way for small business owners to attract and retain talent. If you're concerned about cost and administrative complexity, you're not alone. Several options are available, including a Simplified Employee Pension (SEP) plan.

Establishing a SEP plan

You can set up a SEP plan for a given year by the due date, including extensions, for your business's income tax return for that year. For eligible employers, this is done using IRS Form 5305-SEP, "Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement." The agreement is considered adopted when the form is completed, SEP IRAs are set up for all eligible employees, and those employees have been provided with certain required information, including copies of the form. Form 5305-SEP doesn't need to be filed with the IRS.

As the employer, you receive a current income tax deduction for contributions made on behalf of your employees. Employees generally aren't taxed on traditional SEP plan contributions when they're made, but distributions are taxed when they occur, typically at retirement.

Employers with SEP plans may allow employees to have contributions made to a Roth IRA (Roth SEP) on an after-tax basis. Contributions are taxed in the year made, but qualified Roth withdrawals may be tax-free. This is optional and relatively new, and not all plans offer it.

For 2026, the maximum deductible contribution to a SEP-IRA — the amount that can be excluded from employees' income — is the lesser of: 1) 25% of compensation, or 2) $72,000 per employee. If a business owner doesn't receive a W-2 from the business (for instance, an unincorporated sole proprietor), the calculation for the owner's own contribution varies slightly. Employees can't contribute, but they do control their individual SEP IRAs, including choosing investments from the available options.

Additional considerations

Essentially all regular employees who meet the eligibility requirements must be included in the plan, and contributions can't favor highly compensated employees. SEP plans generally don't require the detailed records that many other retirement plans, such as 401(k) plans, must maintain. There are also no annual reports to file with the IRS, and much of the required recordkeeping can be handled by the SEP-IRA trustee — such as a bank or brokerage firm.

Evaluate your options

For certain businesses with 100 or fewer employees, Savings Incentive Match Plans for Employees (SIMPLEs) may be an option:

• SIMPLE IRA: The employer establishes a SIMPLE IRA for each eligible employee and makes the required matching or 2% nonelective contribution. SIMPLEs are generally subject to fewer and simpler requirements than 401(k)s.
• SIMPLE 401(k): A SIMPLE structured as a 401(k). If certain rules are met, it isn't subject to the otherwise complex nondiscrimination rules that normally apply to 401(k)s.

How renting out your vacation home affects your taxes

When you're not using your vacation home, renting it out can generate extra income. But it can also affect your taxes, depending on how often you rent and personally use the property.

The 14-day rule

If a vacation home is rented for 14 or fewer days during the year, the rental income typically doesn't need to be reported on your tax return. Deductions are limited, though: you may generally deduct property taxes and qualified mortgage interest if you itemize, but you can't deduct operating expenses or depreciation. (The property tax deduction is subject to the state and local tax deduction cap. Mortgage interest is deductible on your principal residence and one other home, subject to certain limits.)

More than 14 days

If your vacation home is rented for more than 14 days, the rental income generally must be reported as taxable income, but you can deduct a portion of operating expenses and depreciation, subject to certain rules. Expenses must be allocated between personal and rental use. For example, if the home is rented for 90 days and used personally for 30 days, 75% of the total use is rental use (90 out of 120 total days). You can then allocate 75% of costs such as maintenance, utilities, and insurance — plus 75% of your depreciation allowance, interest, and property taxes — to the rental activity. The personal-use portion of taxes is separately deductible as an itemized deduction. The personal-use portion of interest on a second home may also be deductible, but only if personal use exceeds the greater of 14 days or 10% of the rental days and the home mortgage interest rules are met. Depreciation on the personal-use portion isn't allowed.

Can you claim a loss?

If deductible expenses exceed rental income, you may be able to claim a rental loss. The test: if personal use is more than the greater of 14 days or 10% of rental days, the property is generally treated as a personal residence, and deductions attributable to rental use generally can't create a loss — they're limited to rental income, with unused deductions carried forward. If the property isn't considered a personal residence based on your personal use, it will be treated as a rental property, and if rental deductions exceed rental income you can potentially claim the loss. (However, the loss is "passive" and may be limited under the passive loss rules.) Additional rules may apply if you qualify as a real estate professional or own multiple rental properties — contact the office with questions.

Revisit your emergency fund goals

An emergency fund is key to long-term financial security. Over time, changes in expenses, income, family needs, and financial priorities can affect how much you need, so it's worth reviewing your reserves regularly.

How much is enough?

Financial professionals have long recommended maintaining three to six months of living expenses in an easily accessible account, but the right amount depends on your overall financial picture. Start by recalculating your baseline around essential expenses — housing, utilities, food, insurance, transportation, and health care — then compare that to your current savings. For households with stable employment, multiple income sources, or significant non-retirement investment assets, three months of reserves may be sufficient. Others may benefit from six months or more. Individuals with variable income, business owners, single-income households, and those approaching retirement often choose to maintain larger reserves.

Put cash to work

It's also worth reviewing where your emergency savings are held. Substantial balances sitting in traditional savings accounts earn minimal interest. Alternatives such as high-yield savings accounts, money market accounts, or short-term Treasury securities may offer better returns while maintaining a high degree of liquidity and safety. Keep tax efficiency in mind: interest income from savings and money market accounts is generally taxable, which can erode your net return over time. Depending on your situation, there may be opportunities to position reserves more tax-efficiently without sacrificing accessibility.

Backup withholding: what businesses should know

In most cases, you aren't required to withhold taxes from payments to independent contractors. However, the backup withholding rules can apply — most commonly when a contractor fails to provide a correct Social Security number or Employer Identification Number, or doesn't properly complete Form W-9, "Request for Taxpayer Identification Number and Certification."

When required, you must withhold 24% from payments to the contractor and remit those funds to the IRS using Form 945, "Annual Return of Withheld Federal Income Tax." The withheld amount must also be reported on the appropriate Form 1099. Contact the office if you're unsure whether backup withholding applies or need help with the requirements.

Can you deduct elder-care costs?

If a parent or another elderly family member is moving into a nursing home, there may be tax implications. Long-term care expenses may qualify as an itemized deduction if they, along with other medical expenses, exceed 7.5% of adjusted gross income — only the amount over 7.5% is deductible. As long as your relative is staying in the nursing home for medical (not just custodial) care, or is chronically ill, payments to the facility normally qualify. If you claim your relative as a dependent, you can usually include the medical expenses you incur for them along with your own when calculating your deductible amount. For details, limits, and related tax breaks, contact the office.

IRS eases partnership sale reporting rules

Final regulations released by the IRS provide that partnerships no longer need to give detailed gain and loss information to selling partners by January 31 — a deadline that had become a contentious issue. The tax code requires that any portion of a partnership's sale proceeds attributable to the partner's share of unrealized receivables and inventory items be reported as ordinary income, with other proceeds generally taxed as capital gains. Partnerships had complained that the reporting deadline was hard to meet. Now they can provide this information according to their natural end-of-year compliance cycle, on or with Schedule K-1.

Creating a more effective budget in QuickBooks Online

A well-prepared budget remains one of the most valuable tools for setting financial goals, allocating resources, and measuring progress throughout the year. QuickBooks Online offers built-in tools to create, manage, and update budgets as your business evolves, reducing the need for manual spreadsheets.

Using the budget framework

To reach the budgeting tools, hover over Reports in the left toolbar, then click Financial Planning | Budgets and choose Create budget. For Budget type, select Profit and loss — the simplest and most commonly used option. Pick your Period, and for Budget format select Consolidated to address income and expenses for the business as a whole. If you've used QuickBooks for a while, it already holds your actual data, and you can Pre-fill data from a past period as a model, or build a Custom budget from scratch.

Each row displays an account from your Chart of Accounts; columns contain time blocks (Monthly by default, changeable to Yearly or Quarterly). If a monthly figure stays the same all year, you can enter an annual total in the Budget totals column and let QuickBooks divide it evenly, or enter it in the first column and repeat it across the row. Turn on Autosave (gear icon, upper right), and still Save manually when you finish a session.

10 budget tips

• Take a conservative approach. Use reasonable, conservative income estimates and fund expected expenses adequately.
• Consider your sales cycle. For seasonal businesses, reflect the actual revenue and expense patterns rather than spreading amounts evenly.
• Don't overcomplicate it. Group related expenses into broader categories to simplify reporting and analysis.
• Plan for unexpected expenses. Build a cushion into an appropriate expense category.
• Prioritize essential expenses. Fund the costs required to operate first, then evaluate the rest.
• Work on debt with extra dollars. If projected income exceeds expenses, consider paying down debt — debt costs money.
• Get input from employees. Bring in staff who have more knowledge in specific areas.
• Learn from the budget reports. Review Budget Overview and Budget vs. Actuals at least monthly.
• Look for cost-efficiency opportunities. Evaluate alternative vendors where expenses run higher than expected.
• Measure your progress. Monitor and adjust to keep plans aligned with business goals.

Upcoming tax due dates

• July 15 — Employers: Deposit Social Security, Medicare, and withheld income taxes for June if the monthly deposit rule applies. Deposit nonpayroll withheld income tax for June if the monthly deposit rule applies.
• July 31 — Employers: File a 2025 calendar-year retirement plan report (Form 5500 or 5500-EZ) or request an extension. Report Social Security and Medicare taxes and income tax withholding for Q2 2026 (Form 941) and pay any tax due if the associated taxes weren't deposited on time and in full.
• August 10 — Individuals: Report July tip income of $20 or more to employers (Form 4070). Employers: File Form 941 for Q2 2026 if all associated taxes due were deposited on time and in full.