by Stephen Reed | Accounting News, News, Newsletter, Retirement Savings
More Americans are turning to a 401(k) hardship withdrawal to cover urgent and unexpected expenses. By the end of 2024, about 5% of employees had taken a hardship withdrawal from their 401(k) accounts. That’s more than double the 2% who did so in 2018. With inflation, housing, and healthcare costs rising, Americans are having difficulty saving for emergencies, so they’re finding alternative ways to afford unexpected expenses, including hardship withdrawals from retirement funds. Is this a smart move? Here’s when a hardship withdrawal does and doesn’t make sense.
What Is a 401(k) Hardship Withdrawal?
A hardship withdrawal is money taken out of a 401(k) or traditional IRA for what the IRS deems an “immediate and heavy financial need.” You can pull funds early without incurring the usual 10% early withdrawal penalty as long as the withdrawal meets certain criteria. However, these withdrawals are still subject to standard income taxes. And unlike a 401(k) loan, it can’t be paid back.
Common hardship reasons include:
- Medical expenses
- Funeral costs
- Preventing foreclosure or eviction
- Tuition and educational fees
- Repairing damage to your home from a natural disaster
When a Hardship Withdrawal Might Be the Right Move
A hardship withdrawal can make sense if:
- You’ve exhausted all other options, such as tapping emergency savings or inquiring about payment plans for your hardship
- The expense is time-sensitive and unavoidable
- You’re facing a medical emergency, a foreclosure, or an eviction
- You won’t need to withdraw from your 401(k) again in the foreseeable future
Just be aware that a hardship withdrawal means you’re shrinking your future nest egg, possibly by tens of thousands, depending on the amount you withdraw, your age, and market returns.
When a 401(k) Hardship Withdrawal Is Probably Not Worth It
It’s best to avoid taking a hardship withdrawal for credit card debt, vacations, monthly expense catch-ups, and home upgrades (unless for disaster repairs).
Retirement savings should not be used as a financial band-aid. If you find yourself in the position of contemplating a hardship withdrawal to cover routine expenses and self-incurred debt, it’s time for a budget overhaul.
Also consider that you’re still taxed on the withdrawal, so taking out $10,000 would only mean $7,000 or $8,000 after taxes.
Alternatives to Consider
Before tapping your 401(k), here are some other options to explore:
- A personal loan or home equity loan (as long as the interest rate is reasonable)
- A 401(k) loan. This is not the same as a withdrawal. You repay the loan over time with interest.
- Contact your creditors to set up a payment plan
- Seek help from nonprofit financial counseling services
These options may provide short-term relief without resorting to something as drastic as a 401(k) hardship withdrawal.
by Stephen Reed | Accounting News, Healthcare, Industry - Healthcare, News, Newsletter
A recent deal between the Trump administration and Pfizer is signaling hope to the pharmaceutical industry. Under Trump’s Pfizer deal, Pfizer gets an exemption from pharmaceutical-specific tariffs if the company invests in domestic manufacturing. This key deal is expected to pave the way for other drug companies to negotiate similar agreements. Here’s what this deal means for the healthcare industry and American drug consumers.
A Deal to Dodge Tariffs
The Trump administration has been threatening tariffs under Section 232, a trade law that allows the president to add import taxes if a product is deemed important to national security. Historically, tariffs have been imposed on materials such as steel, aluminum, lumber, and certain copper products.
Trump’s agreement with Pfizer gives the company a three-year grace period without new import taxes, provided it follows through on its commitment to invest more money in U.S. manufacturing.
Key Terms
Here are the main points that drugmakers should keep in mind:
- Domestic manufacturing requirement: During the three-year grace period, Pfizer will invest $70 billion in research and development and domestic manufacturing.
- Most-Favored Nation (MFN) Pricing: Pfizer will offer prescription medication at MFN pricing: the lowest price offered to any comparably developed foreign country that pays for the same drugs.
- Direct-to-Consumer website: Slated to begin next year, the government-run website TrumpRx will allow patients to purchase Pfizer drugs at a discount (50% on average) by eliminating insurance middlemen.
- Industry-wide deals: The Trump administration is open to negotiating similar agreements with other drugmakers before imposing tariffs.
What This Means for Healthcare Businesses
The Pfizer agreement signals a shift in how government policy might affect drug pricing and supply chains in the years ahead. If other drug makers negotiate similar deals, the U.S. could see more stability in drug pricing, which would help private practices and pharmacies better manage inventory costs and insurance reimbursements.
Domestic manufacturing, which is stipulated in the agreement, could reduce supply-chain delays and shortages that often hit hospitals, clinics, and local pharmacies first. More U.S. production means less dependence on foreign suppliers.
On the other hand, if drug manufacturers raise their prices to cover the cost of meeting government requirements, such as new factory investments, pharmacies and smaller suppliers like independent wholesalers could see tighter profit margins.
Pfizer’s deal with the Trump administration points to a changing environment for the healthcare industry, where domestic production, pricing transparency, and a proactive approach to negotiating with lawmakers can shape costs and competitiveness.
by Stephen Reed | Accounting News, News, Newsletter, Tax, Tax Planning, Tax Planning - Individual
The One Big Beautiful Bill (OBBB) signed by President Trump includes a federal cap on the state and local tax (SALT). Until 2024, SALT was capped at $10,000 under the 2017 Tax Cuts and Jobs Act (TCJA), but the OBBB increased it to $40,000. The cap will rise by 1% each year through 2029, and barring any moves by Congress, it will revert to $10,000 in 2030. That means high-earning taxpayers and taxpayers in high-tax states have a short window to make the most of the extra $30,000 deduction.
What Is the SALT Deduction?
SALT stands for state and local taxes. The SALT deduction allows taxpayers who itemize their taxes to claim a deduction for some state and local taxes from their federal taxable income, including:
- State and local income taxes
- Property taxes
For many households, just property taxes alone can exceed $10,000, so the old cap blocked them from deducting the full amount. The new $40,000 cap opens the door for a much larger write-off.
MAGI Matters
Whether or not you can claim the SALT deduction depends on your modified adjusted gross income (MAGI). If your income is on the higher side, you might not qualify for the full SALT deduction. Once your MAGI exceeds certain limits, the deduction starts to reduce. So, if you’re in a higher tax bracket, it makes sense to do the math ahead of time.
How This Affects Estimated Taxes
If you typically owe quarterly estimated taxes, you might want to adjust the timing. Making your fourth-quarter state income tax payment before December 31 ensures those amounts are included in your 2025 SALT deduction. For some people, that could mean paying more of their state taxes before the end of the year or increasing withholding at work. The $40,000 cap makes these strategies more worthwhile than they’ve been since 2018.
Ways to Capitalize on the $40,000 SALT Deduction
Here are a few smart ways to make the most of the new deduction:
- Prepay property taxes: If your local government allows it, think about paying part of your 2026 property tax bill before the end of 2025. Doing so lets you take the deduction right away instead of waiting. Just be sure to check that your county allows prepayments.
- Review State Tax Withholding: If you usually owe a hefty state tax bill when you file, you could increase your withholding at work or send in extra estimated payments during the year. With the new SALT cap, these payments are now more likely to make a difference on your return.
- To Itemize or Not to Itemize: The SALT deduction only helps if you itemize instead of taking the standard deduction, so do the math to see if itemizing is the right move for you. Add up your SALT, mortgage interest, charitable giving, and medical expenses. If the total beats the standard deduction, itemizing will save you more.
- Time Other Deductions: Some deductions, like medical costs, are unpredictable. But others, such as charitable donations, can be timed. If you’re on the border where itemizing makes sense, shifting more of those expenses into 2025 can push your total high enough to take full advantage of the new SALT cap.
If you’re unsure about whether or not you should itemize your taxes, or if you could benefit from the new SALT cap, consult a tax professional who can help you make sense of it all.
by Stephen Reed | Accounting News, Industry - Retail & Distribution, News, Newsletter, Retail & Distribution, Small Business
Small retailers have a rough go competing against big chains and e-commerce giants, but there’s one thing these smaller stores have that Amazon doesn’t: community. Local stores have the opportunity to build connections with their customers. Building partnerships within the community is a tried-and-true way to boost visibility, drive foot traffic, and increase sales, all while fostering relationships with customers that go beyond transactions.
Why Community is Key to Small Business Success
If a sense of community isn’t at the core of your retail shop, it should be. When local shoppers feel invested in your store, they’re more likely to stop in consistently and spread the word to friends, online, and within the community.
We live in a digital world, where customers are bombarded with ads and influencers. What can cut through this noise? Authenticity. Customers notice when businesses collaborate to uplift each other and the local economy. That positive perception creates trust, drives more people to your store, and converts occasional buyers into loyal customers.
Types of Local Partnerships that Cultivate Growth
Here’s the good news: You don’t need a big marketing budget to create effective partnerships. A little creativity and collaboration can go a long way. Here are a few proven strategies:
- Cross-Promotions: Partner with another local business to share discounts. For example, a local coffee shop might offer customers 15% off at a nearby bookstore when they show a receipt, and the bookstore can offer the same discount to the coffee shop. This sweetens the customer experience while benefiting both the coffee shop and the bookstore.
- Joint Events: Host pop-ups, workshops, or seasonal events with another local business or multiple businesses. This will bring in new customers while building a sense of community.
- Support Charities, Nonprofits, and Schools: Partner with a nonprofit for a food drive or fundraiser. Donate a percentage of sales to a local school club or book fair. Offer free classes or workshops to an underserved group in your community. Customers want to support businesses that give back, and initiatives like these will solidify loyalty among current customers and pique the interest of new visitors.
- Consider Shared Spaces: If you have extra room, consider renting a shelf or small space to another local business. This offsets your costs but also introduces your store to a new audience. For instance, a salon could feature products from a local candle company.
How to Start Local Partnerships
Start small. Reach out to one or two local businesses whose customers you feel would find value in your products or services, then suggest a simple idea like exchanging flyers or sharing each other’s posts on social media. With any arrangement you set up, make sure both sides benefit, and don’t overcomplicate the logistics. You might start with a test run, then expand if it works.
Once a plan is in motion, track how many customers redeem a partnered discount or attend an event. The data will help determine what’s worth repeating. After a few wins, scale up. Initiate a small-business coalition, host a seasonal marketplace, or create a local loyalty program that includes multiple stores. The stronger the network, the bigger the impact.
by Stephen Reed | Accounting News, Business Growth, News, Newsletter, Small Business
As small business owners face continued inflation and rising tariffs, the One Big Beautiful Bill Act (OBBB) could provide critical financial relief for Main Street businesses. By extending key provisions from the Tax Cuts and Jobs Act of 2017 (TCJA), the legislation aims to stabilize jobs, simplify taxes, and encourage long-term investment in growth. Read on as we discuss how the OBBB could affect small businesses.
How the 2017 TCJA Has Helped Small Businesses
The Tax Cuts and Jobs Act, passed in 2017, introduced a number of changes that gave small businesses some breathing room. It expanded deductions for everyday business expenses, simplified some accounting rules, and offered new incentives for research and development. With those savings, many small business owners were able to put more money back into their operations—hiring staff, upgrading equipment, or simply staying competitive in a tough market.
One of the most important parts of the TCJA was the tax break it gave to pass-through businesses and sole proprietors, which make up a big chunk of the small business world. For many owners, those savings meant they could afford to hire more people, raise wages, or offer better benefits. In tough economic times, it often meant the difference between staying open or shutting the doors for good.
Why Extending TCJA Provisions Matters Now
Good news for small business owners: the OBBB Act brings back several tax breaks from the TCJA that are set to expire. With inflation driving up the cost of everything from supplies to labor, and tariffs squeezing profits, these extended tax benefits could help ease the financial strain and make it easier for businesses to keep their employees on payroll.
According to the House Ways and Means Committee, keeping the 2017 tax cuts in place could help protect around 6 to 7 million full-time jobs, most of which fall within the small business sector. On the other hand, letting these provisions expire could lead to a net loss of 6 million full-time positions. That would be a blow to the small businesses that drive innovation and employment.
Protecting Jobs and Supporting Growth
Tax policy is a budgeting tool for business owners who are trying to plan for the future. Without continued relief, small businesses might have to scale back operations, delay any expansion plans, or cut jobs. This could weaken the role of small businesses as a major source of job creation in the U.S., especially at a time when inflation is already making it harder for both households and businesses to manage their budgets.
Keeping the most effective elements of the TCJA under the OBBB Act would give small business owners the confidence and financial stability to maintain their workforce and pursue long-term investment strategies. These elements include maintaining deductions for new equipment, continuing R&D tax credits, and keeping simplified tax filing thresholds in place—all of which help to reduce administrative burdens and free up capital for growth.
A Lifeline for American Small Businesses
Whether it’s retaining employees, investing in new equipment, or expanding into new markets, the tax breaks carried over from the TCJA through the OBBB Act could give small businesses the stability they need to navigate current challenges and plan for long-term growth.
