The Trust The Tax Process Edition

This week, Mom and I tackled some paperwork—she needs her own library card and transit card—to pretty much make it official that she’s going to stay with me in Pennsylvania. It’s a big change for her, since she’s lived in North Carolina for her entire life.

That places me solidly in the “sandwich generation” since I also have two kids still at home. My husband is in a similar position, having recently moved his mom into an assisted living facility a few minutes away. The reality is that our phones never stop ringing and we are almost always driving someone somewhere or picking something up.

We’re not complaining. I consider myself incredibly lucky to have the privilege of having my mom and my mother-in-law nearby. But that doesn’t mean that it’s easy. And I also realize that we’re not special. Millions of Americans are facing the demands of supporting both children and aging parents, often at the expense of savings, careers, and long-term plans.

It’s not just anecdotal. A new Care.com report found that most sandwich generation caregivers feel financially strained, and many have passed up promotions or considered leaving the workforce. That shouldn’t come as a surprise since caregivers spend nearly 24 hours each week coordinating or providing care.

Fortunately, tax relief may be available when an aging parent qualifies as a dependent, including the Credit for Other Dependents (COD). The maximum COD credit is only $500 which hardly makes a dent when compared to the real cost of care. The survey also found that 84% of sandwich caregivers believed understanding more about the costs would have helped them when they first took on their responsibilities. One obvious lesson is that planning matters. So, my advice is to start now.

Sorting out saving for children at the same time can be tricky—even more so for those who live abroad. I reported earlier that the IRS had issued guidance that many individual donors will not have to file gift tax returns merely because they contribute to section 530A accounts (commonly referred to as Trump accounts). But it turns out that for Americans living abroad, the biggest obstacle may be access rather than tax treatment. Those accounts must be opened with approved U.S. custodians, and many U.S. financial institutions will not open accounts for customers without a U.S. residential address, potentially leaving some expatriate families unable to participate even when the child is otherwise eligible or a foreign employer wants to contribute. Again, the theme is to start planning now—that includes having conversations with your tax and financial advisors.

Of course, as new tax provisions pop up, it creates new work for the IRS. Andrew Leahy writes that the debate over IRS funding is often framed as a debate over government spending, but it’s really about whether Congress intends the tax laws it writes to be enforced. Cutting IRS funding doesn’t repeal tax provisions or reduce what taxpayers legally owe, it simply makes those rules harder to administer and enforce, particularly for the most complex returns. The result is one tax system for taxpayers whose income is easily verified through reporting and withholding, and another for those whose sophisticated financial arrangements require the expertise and resources that only a properly funded IRS can provide.

States are also wrestling with tax policy. One state that’s considering a new tax law is California. Golden State voters will decide in November whether to approve Proposition 40, which would impose a one-time 5% tax on the net wealth of California residents worth more than $1 billion. Unlike an income tax, the proposal would tax the value of assets, which would make it the first voter-approved wealth tax in the United States—and setting up what is sure to be a closely watched legal battle.

One Californian who may have already sidestepped that question? LeBron James, who just announced that he’s coming to Philadelphia (insert all of the squeals here). James is the first active NBA player to become a billionaire—he came in at #4 on our Forbes World’s Highest-Paid Athletes last year, which didn’t hurt. But he’s raked in more than $1 billion (pretax) off the court, according to Forbes estimates, from his business ventures and endorsement deals with brands including Nike. He’s also taken equity in brands he works with, including Beats by Dre.

I’m not gonna lie—it’s all we’ve been talking about in my house (yes, that includes Mom since she’s gotta learn about Philly sports if she stays up here). And it explains why this week’s tax trivia question has an NBA twist in the off-season (keep reading).

With that, I’m off to enjoy the weekend—and welcome LeBron to Philly from a respectful distance. Until next time, may your dependents qualify, your paperwork be in order, your state tax bill be lower than expected, and may we all have good reason to trust the process.

Enjoy your weekend,

Kelly Phillips Erb (Senior Writer, Tax)

This is a published version of the Tax Breaks newsletter, you can sign up to get Tax Breaks in your inbox here.

Questions

This week, a taxpayer asked:

I’m still confused about a question you answered before. You suggested that someone could file as Head of Household if they were caring for an aging parent. But I thought you had to be divorced and have children to claim HOH. Can you explain?

You’re referring to this answer, involving claiming an adult parent as a dependent.

I get why you may still be unclear. Head of household (HOH) filing status can be confusing. It’s one of five federal filing statuses for individuals—the others are single, married filing jointly, married filing separately, and qualifying surviving spouse.

HOH is generally available to taxpayers who are unmarried—or treated as unmarried—on the last day of the tax year and who paid more than half the cost of maintaining a home for a qualifying person. For some folks, that means divorced, but that doesn’t have to be the case. The IRS typically treats a legally married taxpayer as “considered unmarried” if the taxpayer’s spouse did not live in the home during the final six months of the year.

(There’s also a quirky exception for a U.S. citizen or resident who is married to a nonresident alien.)

You do not necessarily need to have children to qualify. A qualifying person is often a child, but other dependents may qualify, including a parent—that was the focus of the question you referenced. A parent does not have to live with you, provided you can claim the parent as a dependent and you paid more than half the cost of maintaining the parent’s principal home. Other qualifying relatives will generally need to live with you for more than half the year. So, the key is not simply whether you have children—it is whether you maintain a household for someone who meets the specific qualifying-person rules.

(Have a question to submit? Or a follow-up question? Email me.)

Statistics, Charts, and Graphs

Where you retire has always been a balancing act. Taxes, housing costs, weather, proximity to family, and access to healthcare all matter. But as Americans live longer—and scammers become more sophisticated—personal safety has taken on a broader meaning. Today, retirement security isn’t just about avoiding crime or finding good hospitals. It also includes protecting yourself from financial exploitation.

The map above is based on a new CareScout analysis that ranks states using measures tied to the well-being of older adults, including elder fraud, violent and property crime, police staffing, hospital capacity, traffic fatalities involving older drivers, and fatal falls. While no ranking can capture every factor that goes into choosing where to retire, the results offer an interesting look at how states compare—and underscore that financial crime has become an increasingly important part of the retirement conversation.

(If you’re wondering how it compares to the Forbes’ Best Places To Retire In 2026 list, you can find that link here.)

Taxes From A To Z: B Is For Buy-Sell Agreement

A buy-sell agreement is one of the most important documents for a business owner. It sets out what happens if an owner dies, becomes disabled, retires, divorces, or simply wants to leave the business. The agreement typically identifies who can buy the departing owner’s interest, how the business will be valued, and how the purchase will be funded.

Since having a big chunk of cash on hand isn’t always realistic, many buy-sell agreements are funded by life insurance. When an owner dies, the insurance proceeds provide the cash to purchase the deceased owner’s interest without forcing the business—or the surviving owners—to borrow money or sell assets.

The tax consequences depend on how the agreement is structured. In Connelly v. United States, the Supreme Court underscored the importance of careful planning, holding that life insurance proceeds a corporation receives to fund a stock redemption increase the corporation’s value for estate tax purposes. The decision serves as a reminder that buy-sell agreements aren’t “set it and forget it” documents—they should be reviewed periodically with your attorney and tax adviser to ensure they still accomplish what you intended. (You can read more about Connelly here.)

Tax Trivia

You knew I was going to ask a LeBron question. His deal reportedly pays him $4 million per season (down from the $52.6 million he earned with the Lakers last year). Less money for sure, but also a lower tax rate. Assuming a top marginal rate, what’s the approximate difference in state tax bills on the $4 million as a result of moving from CA to PA?

(A) $100,000

(B) $200,000

(C) $400,000

(D) $800,000

Find the answer at the bottom of this newsletter.

Positions And Guidance

The IRS has released Rev. Proc. 2026-26, which notes the 2027 income-based percentages used to calculate premium tax credits for health insurance purchased through the marketplace. Depending on household income, taxpayers will generally be expected to contribute between 2.15% and 10.22% of household income toward benchmark coverage. The IRS also set the 2027 affordability threshold for employer-sponsored health coverage at 10.22% of household income. If an employee’s required contribution exceeds that percentage, the coverage may be considered unaffordable for purposes of determining eligibility for the premium tax credit.

The IRS issued Rev. Proc. 2026-28, which excuses certain foreign soccer associations competing in the 2026 FIFA World Cup from filing Form 990—or the Form 990-N e-Postcard—for qualifying years. The relief applies when their only U.S.-source or effectively connected income is tied to World Cup participation, such as prize money or related promotional income.

Noteworthy

The IRS hasn’t issued any press releases since July 8, 2026.

Key Figures

That’s the section of the tax code that makes it a crime for certain executive branch officials to ask the IRS to begin or end an audit or investigation involving a specific taxpayer. Enacted after Watergate, the provision was designed to prevent presidents, Cabinet officials, and other political appointees from using the IRS against their enemies or protecting their friends. It also requires IRS employees who receive such a request to report it to the Treasury Inspector General for Tax Administration (TIGTA).

This week, Republicans on the House Ways and Means Committee rejected a proposal that would increase the maximum penalty for violating section 7217 from five to ten years in prison and raise the maximum fine from $5,000 to $250,000. The amendment’s supporters argued that political interference in tax enforcement should carry penalties comparable to those proposed for unlawfully disclosing confidential taxpayer information. The vote leaves existing penalties unchanged.

Trivia Answer

The answer is (C).

Assuming every dollar is taxed at each state’s top marginal rate (not considering the graduated California tax), the difference is $409,200. Pennsylvania has a flat rate of 3.07%, bringing the tax bill to approximately $122,800, while California’s top marginal rate is 13.3% (the 12.3% bracket kicks in at approximately $1.53 million for married filers, while the 1% Mental Health Services Tax applies to taxable income over $1 million, making it a safe bet that it applies here), bringing the tax bill to $532,000.

Of course, there’s a caveat: professional athletes don’t simply pay tax based on where they live. Because of the “jock tax,” NBA players owe state income tax where they earn game-day income, allocated based on duty days. So LeBron’s salary would realistically be apportioned to other states. That means his actual state tax savings from relocating may be a bit different.

Worth A Second Look

The links, clips, and tax takes readers loved (and a few you may have missed):

You can find last week’s newsletter here.

Tax Filing Deadlines

📅 September 15, 2026. Due date for your 2026 Q3 estimated tax payment.

📅 October 15, 2026. Due date for individual taxpayers filing on extension (payment was still due April 15).

Tax Conferences And Events

📅 July 27–29. National Association of Enrolled Agents (NAEA) Tax Summit. New Orleans, Louisiana.

📅 August 4-6. IRS Nationwide Tax Forum. New Orleans, Louisiana.

📅 August 25-27. International Association of Financial Crimes Investigators (IAFCI) International Training Conference. Nashville, Tennessee.

Feedback

We’d love your thoughts. What’s helpful? What’s confusing? What tax topics do you want more of? Email me directly—I read every message.

If you have a tax question, conference or tip for me, check out our guidelines and submit it here.