Section 163(j) limits how much of your business interest expense you can deduct each year. The calculation that determines that limit changed in 2022 in a way that hurt capital-intensive businesses, and the One Big Beautiful Bill Act changed it back. The difference matters. From 2018 through 2021, the limit was based on EBITDA, meaning depreciation and amortization were added back to income before applying the 30% cap. Starting in 2022, those add-backs were removed and the calculation shifted to EBIT, which produced a smaller base and a tighter limit on deductible interest. The OBBBA permanently restores the EBITDA-based calculation for tax years beginning after December 31, 2024.

The practical difference is real money for any retail or CPG business carrying meaningful debt. A company with $500,000 in taxable income before interest and $250,000 in depreciation and amortization had an ATI of $500,000 under the old rules and has an ATI of $750,000 under the restored rules. At a 30% cap, that is the difference between $150,000 and $225,000 in deductible interest. On $300,000 in total interest expense, the EBITDA restoration turns $75,000 of previously disallowed interest into a current-year deduction. At a 25% tax rate, that is $18,750 in annual savings from a calculation method change.

EBIT versus EBITDA interest deduction comparison for a business with $300,000 in annual interest expense.

Here is the catch. The OBBBA also introduced a new rule starting January 1, 2026 that eliminates a planning strategy many businesses had been using. Previously, businesses could capitalize interest expense to inventory or assets under construction, which moved that interest outside the Section 163(j) limitation entirely. Starting in 2026, capitalized interest keeps its character as interest and stays subject to the limitation regardless of how it is booked. For businesses with significant construction or inventory financing, that change partially offsets the EBITDA restoration. Model both effects against your actual debt profile before concluding what the net result is for your business.

Bottom Line: The EBITDA restoration under Section 163(j) is a real benefit for leveraged retail and CPG businesses and worth quantifying now. Just do not forget the 2026 capitalization change. For some businesses the two effects run in opposite directions.

The One Big Beautiful Bill Act became law on July 4, 2025, and it changed the federal business tax landscape in ways that are real, immediate, and in most cases favorable for retail and CPG operators. The centerpiece for most businesses is the restoration of 100% bonus depreciation for qualifying assets acquired after January 19, 2025, extended through 2032. After years of watching the rate phase down to 80%, then 60%, then 40%, the full first-year deduction is back and it is permanent. If you are buying equipment, building out a store, investing in warehouse automation, or upgrading technology infrastructure, you can deduct the entire cost in the year you put it in service.

That is one piece of a larger package. The Section 179 expensing limit was raised to $2.5 million, which covers virtually any capital spending a mid-market retail or CPG business makes in a single year. R&D expensing was restored to full immediate deductibility, reversing the 2022 change that forced businesses to amortize domestic R&D costs over five years and created unexpected tax bills for product development-intensive companies. The 20% deduction for qualified business income was made permanent, which is significant for any pass-through owner who had been uncertain whether to build long-term plans around that benefit. And the 21% corporate tax rate was also made permanent, finally giving C-corporations the rate certainty they needed for meaningful planning.

Key OBBBA provisions, effective dates, and whether they are permanent.

None of these benefits are automatic. You have to claim them, structure for them, and in some cases file amended returns to recover what the old rules cost you. Businesses that have not modeled how bonus depreciation changes their capital spending strategy, or that have not evaluated whether to amend prior returns for R&D amortization recovery, are leaving real money on the table. Many of the opportunities have specific construction start dates, filing windows, or planning deadlines. The longer you wait, the more of them close.

Bottom Line: The OBBBA is not background information. It is an active set of tax benefits that are already in effect. If your advisor has not walked you through how each provision applies to your specific business, that conversation is overdue.

Calendar-year individuals on extension have until October 15, 2026 to file a 2025 return, while pass-through entities on extension face an earlier September 15, 2026 date, and extended trusts and estates on Form 1041 are due September 30, 2026.

For retail and CPG business owners who filed extensions in April, the September 15 deadline for S-corporations, partnerships, and multi-member LLCs is less than two weeks away. The October 15 deadline for individual returns, including Schedule C sole proprietors and the owner-level return for any pass-through, follows closely. An extension moved the return, not the payment. Any balance for 2025 was due at the original April deadline, and interest plus a late-payment penalty have been accruing since.

If your 2025 business return is on extension and not yet filed, this is the week to make it a priority.

For decades, goods valued under $800 could enter the United States without paying any import duties at all. That threshold built the economics of the direct-to-consumer import model and made it possible for brands to ship goods from overseas directly to customers without a formal customs entry. That is over. The suspension began for China and Hong Kong in May 2025, extended to all countries in August 2025, and was then made permanent law under the One Big Beautiful Bill Act. Every shipment now pays duties regardless of value. There is no floor anymore.

The financial impact hit immediately. Any brand that was routing imports through low-value individual shipments to avoid duties now faces the full applicable rate on every transaction. The landed cost math your business was built on has changed and needs to be rebuilt from scratch. This is not a future planning item. If you have not recalculated your product costs under the new rules, you are already losing margin on every order.

Additional duty cost per order at different average order values and duty rates.

Beyond the cost, there is a compliance structure that now applies to every shipment that did not apply before. Formal customs entry requires a 10-digit HTS classification, a licensed customs broker for shipments above $2,500, a customs bond, and proper documentation tying each shipment to the correct duty rate. Brands that have only ever shipped informally need to build this compliance infrastructure now, either in-house or through a licensed customs broker.

If you have enough volume, importing in bulk to a domestic fulfillment center and shipping domestically from there is often the better answer. It consolidates your duty payments onto larger entries, reduces the per-order administrative burden, and gives you more control over the compliance process. For smaller operators, the honest next step is sitting down with your CPA and rebuilding your landed cost model using the duty rate that actually applies to your product. What worked before does not work anymore.

Bottom Line: The de minimis exemption was a structural cost advantage that entire business models were built around. It is permanently gone. The businesses that come out ahead are the ones that do the math now and reprice or restructure before the margin erosion compounds.

On August 24, 2026, the IRS made the following announcement. The IRS is warning businesses, tax professionals, and other information-return filers that its long-running FIRE electronic filing system is approaching its final shutdown, with the last opportunity to submit information returns through the platform coming on November 19, 2026 at 3 p.m. ET.

This is the most operationally urgent announcement of the past two weeks for any retail or CPG business that files 1099s, 1042-S forms, or other information returns electronically. FIRE has been the backbone of IRS electronic information return filing since the 1980s. It is being permanently replaced by the Information Returns Intake System, known as IRIS.

After the November maintenance window, filers will no longer be able to submit information returns through FIRE. Current FIRE users must transition to IRIS to file tax year 2026 information returns during the 2027 filing season.

The key dates every retail employer and CPG company needs to know:

• November 1, 2026: Last day to file test information returns through the FIRE Trading Partner Test System

• November 9, 2026: Last day to make changes to your FIRE Transmitter Control Code application

• November 19, 2026 at 3 p.m. ET: Last day to file information returns through the FIRE system, including corrections and prior-year filings

• January 1, 2027: IRIS becomes the only IRS electronic filing system for all information returns, including corrections

The FIRE system uses ASCII format based on Publication 1220 specifications. IRIS uses XML format. Individual names must be submitted in separate first name and last name fields in IRIS, whereas FIRE accepted combined name fields.

What you need to do immediately: If your business or your payroll/accounting provider uses the FIRE system to file 1099-NEC, 1099-MISC, 1099-INT, or any other information returns electronically, you need to obtain a new IRIS Transmitter Control Code. Current FIRE users must complete an IRIS Application for TCC. That application can take up to 45 days to process. If you wait until October or November to start, you may not have your IRIS credentials ready before the FIRE shutdown. Contact your payroll provider, accounting software vendor, or CPA today to confirm whether your current filing workflow will be ready for IRIS.

Markdown management is one of the most consequential financial disciplines in retail and CPG, particularly for businesses with seasonal product lines, fashion-forward assortments, or perishable goods with defined shelf life. The decision of when to mark down, by how much, and how to sequence the reduction across channels and customers has a direct and measurable impact on both revenue realization and gross margin — yet many businesses approach it reactively rather than through a defined strategy designed before the season begins.

The central trade-off in markdown management is between time and margin. Taking deeper markdowns earlier in the clearance window typically generates faster sell-through and lower total inventory risk, but surrenders more margin per unit. Holding prices longer preserves margin on units that do sell, but increases the risk of residual inventory that requires even deeper discounting — or destruction — as the season closes. The optimal strategy depends on the product’s demand elasticity, the severity of the overstock position, the availability of alternative liquidation channels, and the cost of carrying inventory into the next season.

Chart: Markdown timing impact on total margin recovery — early vs. late markdown strategy on a $300K excess inventory position.

A structured markdown calendar — developed at the beginning of each season alongside the buy plan — establishes clear price reduction triggers and timing milestones before the season begins. Trigger conditions might include sell-through rates falling below a defined threshold by week eight of a twelve-week selling season, or inventory-to-cover metrics exceeding a specified number of weeks on hand. Pre-established triggers remove the temptation to wait and hope, which is the behavioral pattern that most often leads to catastrophic end-of-season clearance events.

Liquidation channel strategy is also part of effective markdown planning. Off-price retailers, outlet channels, and third-party liquidators can absorb excess inventory at better economics than deep in-line discounting — but they require advance planning and relationship management. Brands that only contact liquidators when the inventory problem has become severe are negotiating from a position of weakness. Building liquidation relationships before they are urgently needed is a best practice that the most financially disciplined operators consistently follow.

Bottom Line: Markdown strategy is not an end-of-season fire drill. It is a plan that is built at the beginning of the season, triggered by data, and executed before the window closes.

The One Big Beautiful Bill Act made two simultaneous and offsetting changes to charitable contribution deductions that affect retail and CPG business owners and their individual tax situations in ways that are not yet widely understood. The first change creates a new benefit: taxpayers who take the standard deduction rather than itemizing may now deduct up to $1,000 in charitable contributions for single filers or $2,000 for married couples filing jointly. This is a meaningful change because the combination of the higher standard deduction, the SALT cap, and the loss of personal exemptions under the TCJA had pushed the majority of American taxpayers out of itemizing and into the standard deduction, eliminating the tax benefit of charitable giving for the many millions who no longer had enough deductions to make itemizing worthwhile. The non-itemizer charitable deduction restores some tax benefit for charitable giving for this large population of taxpayers.

The second change imposes a new restriction: taxpayers who do itemize their deductions may only deduct charitable contributions to the extent that total contributions exceed 0.5% of adjusted gross income. This floor effectively creates a threshold below which charitable contributions generate no deduction at all, even for itemizers. At $500,000 of adjusted gross income, the floor is $2,500. At $1,000,000, the floor is $5,000. Any charitable giving below the floor produces no tax benefit, which changes the planning calculus for donors who give modest amounts relative to their income and who had previously assumed that every dollar given to charity generated a proportionate federal tax deduction.

Chart: Charitable deduction impact under the new OBBBA rules for retail and CPG business owners at various income and giving levels.

The non-itemizer deduction is partially refundable for lower-income taxpayers, which extends its reach to business owners and employees who have modest federal tax liability but still engage in charitable giving. For retail business owners who are transitioning to lower income years, winding down business activity, or in a year with large deductible expenses that reduce taxable income significantly, the partially refundable nature of the deduction means that some tax benefit may be available even in low-liability years. The specific refundability mechanics require computation against the individual’s tax situation and should not be assumed without calculation.

The planning implications run in several directions. For itemizers with giving levels near the 0.5% floor, bunching strategies, where two or more years of charitable giving are consolidated into a single tax year to push the total above both the floor and the standard deduction comparison point, become more mathematically valuable. Donor advised funds are the most common vehicle for implementing a bunching strategy, allowing the donor to take the full deduction in the year of the contribution to the fund while distributing grants to charities over multiple years at their discretion. For retail and CPG businesses with community giving programs and cause-related marketing arrangements, the new rules also affect the deductibility of certain contributions that are tied to business promotion, which should be reviewed separately under the ordinary and necessary business expense framework rather than the charitable contribution rules.

Bottom Line: The OBBBA changed charitable deduction rules in opposite directions for itemizers and non-itemizers simultaneously. Small business owners and employees who take the standard deduction now have a deduction they did not have before. High-income itemizers with modest giving may have lost a deduction they assumed was automatic. Both groups deserve an updated conversation with their tax advisor before the year ends.

On July 8, 2026, the IRS announced a significant procedural change that most retail and CPG operators have not heard about yet. The agency is replacing the long-standing First Time Abate program with a new approach called the Automatic Exemption from Penalty. The difference is not just in the name. Under the old system, a business that filed or paid late and wanted to have the penalty removed had to contact the IRS, know to ask for first-time abatement, and wait for approval. Under the new system, if you qualify, the IRS simply does not assess the penalty in the first place and sends you a notice confirming that your compliance history protected you. You do not have to do anything.

The Automatic Exemption from Penalty program began rolling out in the summer of 2026 and applies to eligible original returns starting with tax year 2025 and 2026 quarterly returns. It covers the failure to file penalty, the failure to pay penalty, and the failure to deposit penalty, which are the three most common penalties assessed against small and mid-size retail and CPG businesses. The qualification standard is the same as First Time Abate: a clean compliance history for the three prior tax years, or 12 consecutive quarters for quarterly filers. If your business has been filing and paying on time consistently, you qualify automatically. No request needed.

How the new Automatic Exemption from Penalty compares to the First Time Abate program it is replacing.

There is an important transition period to understand. The IRS is phasing out First Time Abate gradually through the summer and fall of 2026. During the transition, some businesses that qualify for the new automatic relief may still receive penalty notices if their returns were processed before the AEP system was fully active. If you receive a penalty notice and you believe you have a clean compliance history, call the IRS and ask whether AEP, First Time Abate, or reasonable cause relief applies to your situation. Do not simply pay the penalty without checking. For eligible returns with original due dates on or after January 1, 2027, AEP will fully replace First Time Abate.

Retail and CPG businesses that do not qualify for the automatic relief because of a prior compliance issue still have options. The reasonable cause relief standard remains available and the IRS will review those requests individually. Reasonable cause exists when a failure to file or pay arose from circumstances genuinely outside the taxpayer’s control, including serious illness, natural disaster, destruction of records, or incorrect advice from a tax professional. Those requests still require documentation and a formal request, but they are a real avenue for businesses that cannot meet the clean compliance history standard.

Bottom Line: If your retail or CPG business has a clean filing and payment history and receives a late penalty notice, do not pay it automatically. The IRS may be in the process of applying AEP relief. Call and ask about your eligibility before writing a check. And if you have never heard of First Time Abate, talk to your CPA about whether your business qualifies for the new automatic version.

Pricing decisions carry more financial leverage than almost anything else a retail or CPG business can do. A 1% increase in net price with no change in volume drops entirely to gross profit. That makes pricing more powerful than a cost reduction of equal size, which usually takes real operational effort to actually deliver. And yet price increases are among the most emotionally charged and analytically difficult calls a finance team faces, because the downside is real. If volume falls far enough, the increase hurts you more than it helps you. Getting it right requires more than picking a number. It requires understanding what your customers will actually do when they see it on the shelf.

The starting point for any serious pricing analysis is an honest look at price elasticity. That is the question of how much volume you expect to lose when prices go up. In categories with strong brand loyalty and few real alternatives, elasticity tends to be low. Customers might grumble, but they keep buying, and you can move prices meaningfully without losing much. In categories where store brands are strong, where there are plenty of competitive options, and where consumers are already making decisions based on value, elasticity is much higher. Even a modest price increase can push customers toward something cheaper. Knowing where your business actually sits on that spectrum is not optional. It is the foundation of every pricing call you make.

Price elasticity model: how volume and gross profit respond to price increases under two different scenarios.

The tables tell a clear story. In a low elasticity environment, even a 10% price increase is net positive because volume holds reasonably well and the margin benefit outweighs the loss. In a high elasticity environment, an 8% increase already destroys gross profit. The math is not hard. The hard part is being honest about which situation your business is actually in, especially when there is pressure to improve margins quickly.

Beyond elasticity, a CFO thinking through a price increase is also looking at the competitive landscape, which channels are involved, and whether the timing makes sense. Price increases tied to real, publicly understood cost pressures are far easier to defend. When tariffs went up, when freight costs spiked, or when commodity prices moved significantly, retail partners and consumers understood why prices followed. Transparency helps. A specific, well-explained increase lands better than a vague ask for more margin. If you can tell a buyer that your costs went up by a measurable amount due to a specific cause and you are asking for a proportionate adjustment, that is a very different conversation.

Once you have decided to raise prices, execution is everything. Changing your list price is not the same as actually capturing more margin. Many businesses raise the list and then keep running the same promotions at the same depths, which means the net realized price barely moves at all. The increase has to flow all the way through to what the customer actually pays. That requires discipline in how promotions run going forward, how retailer allowances are negotiated, and how existing orders at the old price get managed through the transition. Finance teams should track net price realization versus list price change closely in the months after any increase. If the list went up 5% but net realized price only moved 1%, the increase did not work as planned, and you need to understand why before the next pricing cycle.

Bottom Line: A price increase only improves margins if two things happen: volume holds close enough to make the math work, and the increase actually flows through to the price customers pay. Both of those outcomes require active management. Changing the number on a price list is the easy part. Making sure it sticks is the job.

On August 6, 2026, the IRS announced new and expanded features for Business Tax Account, its online self-service platform for businesses and organizations. For retail and CPG operators who have grown accustomed to dealing with the IRS through the mail or over the phone, the expanded platform now handles several tasks online that previously required waiting on hold or sending paper correspondence. For controllers and CFOs managing multiple entities or multiple tax obligations, the improvements are practical and time-saving.

The most useful new capabilities fall into three categories. The first is digital notice access. The Business Tax Account now gives users access to an expanding library of IRS notices that can be viewed online rather than waiting for paper delivery. Recently added notices include CP081B, which notifies businesses that a refund may be available, CP211A, which confirms that an extension request has been approved, and CP134R, which flags a discrepancy in federal tax deposit amounts. For a controller who wants to know immediately whether a deposit issue has been identified by the IRS without waiting for a letter, this capability is genuinely useful.

New Business Tax Account features announced August 6, 2026, with practical applications for retail and CPG businesses.

The EIN verification download deserves special attention for any retail or CPG business that has recently opened a bank account, applied for financing, or onboarded with a new vendor that requires proof of the business’s EIN. In the past, obtaining an EIN verification letter from the IRS required calling the IRS Business and Specialty Tax Line, waiting on hold, and waiting for a paper letter to arrive by mail. The Notice CP575 can now be downloaded directly from the Business Tax Account by an authorized user. This alone is worth setting up the account if your business does not already have access.

Business Tax Account access is available to corporations, S-corporations, partnerships, and certain other business entity types. Not all entity types have full access to all features, and the IRS continues to expand which organizations can use the platform. To get started, an authorized individual such as a corporate officer, managing partner, or authorized representative needs to verify their identity through IRS.gov. Once access is established, additional users can be added with defined authorization levels. For CPAs or controllers who manage tax matters for multiple businesses, setting up Business Tax Account access for each entity is a one-time investment that pays off every time a notice needs to be checked or a payment needs to be made without a phone call.

Bottom Line: The IRS Business Tax Account is no longer a minimal portal. It now handles digital notices, EIN verifications, payment plan management, and installment payments online. If your business has not enrolled, the EIN verification download alone is worth the 15 minutes it takes to get access. If you are already enrolled, log in and check what new notices are available.

On August 5, 2026, the IRS issued Notice 2026-28, providing the operational guidance employers need to claim the employer credit for paid family and medical leave under the expanded rules enacted by the One Big Beautiful Bill Act. The credit under Section 45S of the Internal Revenue Code had been a temporary provision prone to expiring and being renewed, a cycle that made it difficult for employers to build benefits programs around it. The OBBBA made it permanent. And Notice 2026-28 introduces a genuinely new and simpler way to calculate it.

The biggest operational change in the guidance is the addition of a premium-based calculation method. Before 2026, employers could only claim the credit based on wages actually paid to employees who were on qualifying leave. That required tracking individual leave instances, calculating each employee’s regular rate of pay, confirming the leave qualified, and maintaining detailed records for every leave event during the year. Starting in 2026, employers who use a qualifying paid family and medical leave insurance policy can instead calculate the credit based on the premiums they pay for that policy, without needing to track individual leave events at all. For businesses that have avoided the credit because the wage method felt too burdensome to administer, the premium method changes the math.

Section 45S paid family and medical leave credit: key parameters, eligibility changes, and how the two calculation methods compare.

Employers must have a written paid family and medical leave policy that meets specific requirements under Section 45S to claim the credit. The policy must provide at least two weeks of paid leave annually for full-time employees and a pro-rated amount for part-time employees, must pay at least 50% of the employee’s normal wages during leave, and must comply with certain non-interference requirements. Many employers have a leave policy but have not confirmed whether it meets all of these requirements. The first full year that the expanded Section 45S rules are in effect is 2026, which means this is the year to make sure your policy qualifies.

The IRS is accepting public comments on Notice 2026-28 through October 16, 2026, and has indicated that proposed regulations are forthcoming. In the meantime, employers can rely on the guidance in Notice 2026-28 for tax years beginning after December 31, 2025. For retail and CPG businesses that have not yet evaluated whether the Section 45S credit applies to their workforce, this guidance is the right starting point. The credit is a real dollar-for-dollar reduction in your federal tax liability, and it now applies to a broader set of employers and a simpler calculation method than at any point in its history.

Illustrative credit calculation for a retail employer using the premium method with a qualifying PFML insurance policy.

Bottom Line: The paid family and medical leave credit is now permanent, broader, and easier to claim than at any point since it was created. If you have been providing paid leave without claiming the credit, you are leaving money on the table. If you have been avoiding the credit because the wage tracking felt too complex, the premium method may now make it accessible. Have your CPA evaluate whether your current leave policy qualifies and which calculation method produces the better result.

Retail and CPG businesses regularly accumulate inventory that becomes unsalable due to product expiration, damage in transit or storage, obsolescence from new product introductions, packaging defects, regulatory changes, or simply changing consumer preferences. The tax treatment of this unsalable inventory depends on the accounting method the business uses for inventory. Under the cost method, inventory is carried at cost until it is sold or its value is reduced below cost. Under the lower of cost or net realizable value method, permitted under both GAAP and IRS rules after the adoption of ASU 2015-11, a write-down to a value below cost is recognized when the net realizable value falls below the carrying cost, and the write-down creates a tax deduction.

The IRS requires that inventory write-downs be substantiated by evidence that the value has actually declined below cost in the tax year the deduction is claimed. For expiring food and beverage products, the expiration date itself is generally sufficient evidence. For fashion or seasonal retail inventory, a documented mark-down to a selling price below cost, supported by actual sales data at the reduced price, establishes the write-down. For inventory that is physically damaged or destroyed, photographs, insurance claims, and disposal records are the appropriate documentation. Blanket write-downs based on management estimates without specific supporting evidence are one of the most commonly challenged deductions in retail and CPG audits.

Chart: Inventory write-down documentation requirements by type of obsolescence for retail and CPG operators.

Physical destruction of inventory is the strongest form of documentation for a complete write-off to zero. When inventory is destroyed rather than donated or discounted, the IRS accepts the full original cost as a loss in the year of destruction, provided the destruction is documented with photographs, weight or count records, and a statement from the party performing the destruction. Retail operators who regularly destroy excess or expired inventory should maintain a destruction log that includes the date, product identification, quantity, original cost per unit, and the method and location of destruction. This documentation transforms what would otherwise be a questionable estimate into a fully defensible tax deduction.

Bottom Line: Unsalable inventory represents real economic loss that the tax code permits you to deduct. The key is documentation prepared at the time of the write-down or destruction, not assembled later when an auditor requests it. Build the documentation process into the operational workflow of your inventory management function, not into the annual tax preparation process.

On August 6, 2026, the IRS released Fact Sheet FS-2026-13, an updated and expanded set of FAQs on the qualified overtime compensation deduction created by the One Big Beautiful Bill Act. The update supersedes the January guidance and marks the end of the 2025 transition relief period. For retail and CPG employers with hourly workforces, warehouse and distribution employees, or any worker who regularly earns overtime, this guidance has immediate compliance consequences that cannot be deferred to year-end tax preparation.

The most operationally significant change in the updated guidance is a mandatory new W-2 reporting requirement. Beginning with tax year 2026, employers must separately report qualified overtime compensation on Form W-2, Box 12, using the new Code TT. The amount reported is the total qualified overtime compensation paid during the year, which is the FLSA-required premium above the employee’s regular rate of pay. Even if the employee cannot ultimately deduct the full amount because of the deduction caps or income-based phase-outs, the employer must report the entire amount. This is not optional and there is no longer any relief for missing or incorrect entries. If an employer reports the wrong amount in Box 12 Code TT, a corrected Form W-2c must be filed and furnished to the employee.

What qualifies as overtime compensation for the deduction, and the key reporting requirements employers must follow for tax year 2026.

The guidance also addresses some trickier situations that retail operators with complex workforce arrangements need to understand. Healthcare and public-safety workers under alternative FLSA computation methods have specific rules for how the qualifying premium is calculated. State and local government employees who receive compensatory time off instead of cash overtime only qualify for the deduction in the year the compensatory time is actually paid out, not the year it was earned. For retail employers with both tipped and overtime-eligible workers, the two provisions operate independently and are reported separately.

If you have not already updated your payroll system to track and report qualified overtime compensation separately, do it now. The 2025 filing season gave employers a grace period because the Code TT box did not exist yet and the IRS did not require separate reporting. That grace period is over. If your payroll provider has not automatically added this feature, contact them directly and ask when the Code TT reporting will be available. Do not assume it has been handled.

Bottom Line: Tax year 2026 W-2s must include qualified overtime compensation in Box 12 using Code TT. There is no transition relief this year. Update your payroll system, brief your payroll team, and confirm the reporting is in place before year-end becomes a scramble.

The decision between outsourcing fulfillment to a third-party logistics provider and building or leasing in-house fulfillment capability is one of the most consequential operational finance decisions for a growing e-commerce or omnichannel brand. Both models can be cost-effective at the right scale and the right operational profile. The error is in making the decision based on incomplete models that compare 3PL invoices to idealized in-house costs without accounting for the full burden of owned fulfillment.

Third-party fulfillment is characterized by high variable costs and low fixed cost commitment. Operators pay for storage, pick-and-pack labor, outbound shipping, and value-added services on a per-unit or per-activity basis. This structure provides cost flexibility — expenses scale with volume — and eliminates the capital commitment of facility investment. The disadvantage is that per-unit costs at scale are almost always higher than in-house fulfillment, and the operator has limited control over speed, quality, and the customer experience.

Chart: 3PL vs. in-house fulfillment cost model — total annual cost comparison across order volume levels.

The in-house model is characterized by high fixed costs and lower variable costs per unit at scale. A company that signs a three-year warehouse lease, hires a fulfillment team, and invests in a WMS and racking infrastructure is committing to a significant fixed cost base regardless of order volume. Below a certain volume threshold — typically 25,000 to 50,000 orders per year depending on geography, product profile, and facility size — this fixed cost burden makes in-house fulfillment more expensive than 3PL on a total cost basis.

Finance leaders building this model should include all relevant cost components on both sides: for 3PL, this means base fees plus all accessorial charges, peak season surcharges, and returns processing fees. For in-house, this means lease cost, utilities, insurance, WMS licensing, all fulfillment labor including benefits and management, equipment depreciation, and an estimate of the opportunity cost of management attention. The crossover point — the volume at which in-house becomes cheaper — is the key output that should drive the decision timeline.

Bottom Line: The 3PL vs. in-house decision is a financial model, not a preference. Build the model with all costs included before committing to either path.

The decision to open a proprietary warehouse is one of the most significant capital and operational commitments a retail or CPG business can make. Done at the right time and for the right reasons, it can dramatically improve service levels, reduce per-unit fulfillment costs, and provide the operational control that enables the next stage of growth. Done prematurely or for the wrong reasons, it introduces a fixed cost burden that constrains financial flexibility and absorbs management bandwidth that would have generated more value elsewhere.

The most common trigger for considering a proprietary warehouse is frustration with 3PL cost levels or service quality. Both are legitimate concerns — but frustration with the current provider is not by itself a sufficient justification for the capital commitment of owned warehousing. The correct question is not whether a warehouse would improve the situation today, but whether the business will generate the order volume required to make the economics work over the duration of the lease commitment. A three to five year lease signed based on current volume projections that do not materialize leaves the business trapped in a fixed cost obligation it cannot shed.

Chart: Warehouse financial readiness checklist — key metrics and thresholds before committing to a lease.

Geographic positioning is a financial decision as much as an operational one. The location of a warehouse relative to the company’s customer base has a direct impact on average outbound shipping cost and transit time. A company whose customers are concentrated in a specific region can often achieve meaningfully lower shipping costs by locating a warehouse centrally within that geography rather than defaulting to a location near the existing team or headquarters. A zone analysis — modeling average shipping zones and associated costs from alternative warehouse locations — should precede any site selection decision.

Before committing to a lease, finance leaders should also evaluate alternative paths to the same objective: negotiating a dedicated area within a 3PL facility, pursuing a shared warehouse arrangement with a complementary brand, or exploring short-term flexible warehouse options that provide operational control at lower commitment levels. These alternatives may not offer the same long-term economics as a proprietary lease, but they preserve optionality during a period when the business is still building toward the volume that justifies a full commitment.

Bottom Line: A warehouse is a bet on your future volume. Make sure your financial model for that bet is built on conservative assumptions, not optimistic ones.

The Employee Retention Credit was enacted under the CARES Act to provide refundable payroll tax credits to businesses that experienced a significant decline in gross receipts or were subject to a full or partial suspension of operations due to governmental orders during the COVID-19 pandemic. The program generated an unprecedented volume of claims, and the IRS has spent the past three years auditing, disallowing, and litigating a substantial portion of them. As of mid-2026, thousands of ERC claims remain unresolved, under audit, or actively contested in federal courts. For retail and CPG businesses that applied for and received credits, or that have claims still pending, the litigation landscape developing in 2026 is directly relevant to their financial exposure.

The legal standards being established in current cases address two critical questions. The first is what constitutes a full or partial suspension of business operations due to an appropriate governmental authority order. The IRS has consistently taken a narrow view, arguing that orders must have directly limited the business’s specific operations in a meaningful way, and that general COVID-related economic disruption or supply chain disruption does not qualify. Courts have varied in their application of this standard. The U.S. Court of Federal Claims case Sundancer Pools, Inc. v. United States, decided in June 2026, addressed pleading standards and causation requirements that practitioners need to understand when advising clients whose claims are based on governmental suspension orders.

Chart: ERC claim status categories and corresponding risk levels and recommended actions for retail and CPG business owners as of mid-2026.

The IRS Voluntary Disclosure Program for ERC, which closed its initial window in March 2024, remains a reference point for businesses that claimed ERC on questionable grounds and wish to resolve their exposure before the IRS initiates an audit. Businesses that received ERC credits they now believe were improperly claimed should consult with qualified tax counsel about the current options for remediation, which may include filing amended returns to return the credit with reduced penalties or working through the standard audit process if the IRS initiates contact. The statute of limitations for ERC-related matters has been extended in many cases, meaning that the normal three-year window for audit does not apply with the same force to ERC claims.

The broader financial reporting implication for businesses that carry uncertain ERC claims on their balance sheet is that the ASC 450 contingency framework requires ongoing assessment of the probability of loss and disclosure of the range of possible outcomes. Businesses that recognized ERC income in prior years and are now facing audit risk should evaluate whether a contingent liability needs to be established or disclosed in current financial statements. This is particularly relevant for businesses that received significant ERC amounts and are now seeing the legal standards shift in ways that create more uncertainty about the defensibility of their original qualifying basis.

Bottom Line: The ERC is not behind you if you still have unresolved claims, ongoing audits, or documentation gaps. The court decisions being issued in 2026 are setting the legal standards that will determine outcomes for thousands of businesses. If you have not reviewed your ERC documentation against current court standards, the time to do so is now, not when the audit notice arrives.

On August 4, 2026, the IRS and its Security Summit partners issued a formal warning to tax professionals and business owners about an active wave of phishing emails and related schemes designed to steal sensitive taxpayer data. The warning is not theoretical. These attacks are occurring right now, and retail and CPG businesses are among the targets. The schemes exploit two things that make businesses vulnerable: the volume of financial communications that controllers and business owners process daily, and the urgency that the word IRS tends to create when it appears in a subject line.

Phishing schemes targeting business tax data typically take one of several forms. The most common is an email that appears to come from the IRS, a tax software company, or a payroll provider, informing the recipient of a problem with their account, a pending audit, an overdue balance, or a tax refund that requires immediate action. The email includes a link or an attachment. Clicking the link takes the recipient to a convincing-looking fake website designed to capture login credentials, EIN numbers, banking information, or Social Security numbers. Opening the attachment installs malware that can capture keystrokes or gain access to stored financial files.

How to identify a phishing attempt targeting business tax information, and what to do if you receive one.

Retail and CPG businesses are particularly attractive targets for tax-related phishing because they process high volumes of financial transactions, employ large numbers of people whose payroll data is valuable, and often have multiple people with access to accounting systems and tax filing credentials. Controllers and accounts payable staff, who are accustomed to receiving and acting on financial communications quickly, are high-value targets precisely because of their training to be responsive. Brief your team on what legitimate IRS communication looks like and establish a clear protocol for what to do when something feels suspicious.

The practical rule is simple. The IRS will never initiate contact with your business by email, text message, or social media. Every legitimate IRS communication begins with a letter delivered by postal mail with a notice number, a phone number to call, and a deadline to respond. If you receive anything that claims to be from the IRS through any other channel, treat it as suspicious and verify it through IRS.gov before taking any action.

Bottom Line: If you receive an unexpected email, text, or call claiming to be from the IRS, do not engage with it. The IRS contacts businesses by mail. Forward suspicious emails to phishing@irs.gov, hang up on suspicious calls, and brief your finance and payroll teams on what a real IRS communication looks like. One click on a phishing link can compromise your entire tax filing and payroll infrastructure.

The One Big Beautiful Bill Act introduced a new temporary deduction of $6,000 for taxpayers who are 65 years of age or older for tax years 2025 through 2028. The deduction is available whether the taxpayer itemizes or takes the standard deduction, making it universally accessible to qualifying individuals regardless of their deduction strategy. The phase-out begins at modified adjusted gross income of $75,000 for single filers and $150,000 for married filing jointly, and the deduction is partially refundable, meaning that certain taxpayers below the income threshold may receive a benefit even if they have little or no income tax liability. This deduction is separate from and in addition to the existing extra standard deduction already available to taxpayers age 65 or older, which for 2025 is an additional $2,000 for single filers and $1,600 per qualifying spouse for married filing jointly returns.

For retail and CPG business owners who are 65 or older, the senior deduction intersects with their business income in several important ways. Many operators in this age group are winding down active roles while continuing to receive substantial pass-through income from businesses they own, S-corporation distributions, partnership income from arrangements entered into years ago, or rental income from commercial property they lease to their own businesses. These income streams continue to generate tax obligations well into retirement and often well above the phase-out threshold, which means that careful income timing strategies can determine whether a particular year falls within the full-benefit range, partial-benefit range, or above the phase-out entirely.

The practical opportunity for tax advisors serving retail and CPG clients is significant and time-sensitive. The deduction is available for tax year 2025, which means it applies to returns filed in 2026 and, for clients who received extensions, returns still being prepared now. Any client who is 65 or older and falls within the income range where the deduction generates benefit should have it identified and claimed on their return. For clients who are near the phase-out threshold, income timing strategies implemented before December 31, 2026, can determine whether the full or partial deduction is available on the 2026 return.

Advisors should also evaluate the interaction between the senior deduction and other provisions. For clients who are receiving Social Security benefits, the deduction may reduce the proportion of Social Security income that becomes taxable by reducing overall modified adjusted gross income in ways that interact with the provisional income thresholds governing Social Security taxability. For clients who are also taking required minimum distributions from retirement accounts, the combined effect of RMDs, pass-through income, and the senior deduction on both federal and state tax liability requires a full income modeling exercise rather than a line-item review of the deduction in isolation.

Bottom Line: The $6,000 senior deduction is a direct benefit for retail and CPG business owners who are 65 or older and within the income phase-out range. It applies regardless of whether the client itemizes, it is available for 2025 returns being filed now, and it stacks on top of the existing senior standard deduction increase. If you have clients in this demographic and this deduction has not been discussed, the conversation should happen before the filing deadline passes.

The state and local tax deduction, commonly referred to as SALT, has been one of the most politically contested provisions of the Tax Cuts and Jobs Act since its enactment in 2017. The TCJA imposed a $10,000 cap on the combined deduction for state and local income taxes, property taxes, and sales taxes, which was particularly punishing for high-income residents of states with high income tax rates and high property values. The One Big Beautiful Bill Act increased the SALT deduction cap to $40,000 for tax year 2025 and $40,400 for tax year 2026. The cap increases by 1% each year through 2029, at which point the law currently reverts the cap to $10,000 unless further legislation acts to extend it. For high-income taxpayers in high-tax states, the increase from $10,000 to $40,000 is the largest single expansion of itemized deduction capacity they have received in nearly a decade.

The financial impact of the increased SALT cap is most meaningful for retail and CPG business owners, executives, and finance professionals who have significant state income tax liability and property tax obligations in states with high marginal rates. California imposes a top state income tax rate of 13.3%, New York’s top rate is 10.9%, New Jersey’s is 10.75%, and Illinois imposes a flat 4.95% rate on all income. For an executive in California earning $800,000 in combined W-2 and pass-through income, the state income tax liability alone may approach or exceed $100,000, all of which was previously capped at $10,000 for federal deduction purposes. Under the OBBBA, $40,000 of that liability is now deductible, reducing federal taxable income by $30,000 more than was allowed under prior law.

There is an important income-based limitation that CPAs must model for high-income clients. The OBBBA phases out the increased SALT cap for taxpayers with modified adjusted gross income above $500,000. Above that threshold, the available SALT deduction is reduced on a sliding scale. Taxpayers well above the $500,000 threshold may find that the increased cap generates less benefit than the headline numbers suggest, and the exact amount requires computation against the specific MAGI level. For married filing jointly taxpayers at $600,000 of MAGI, the phase-out reduces the available deduction meaningfully. For taxpayers at $1 million or above, the benefit may be substantially reduced or eliminated entirely depending on the specific phase-out mechanics as implemented.

The practical planning implications include a revisit of the standard deduction versus itemized deduction analysis for any client whose SALT obligation now clears the higher cap. Many high-income taxpayers in high-tax states switched to the standard deduction after the $10,000 cap rendered itemizing economically inferior. With the cap at $40,000, the combination of SALT, mortgage interest, and charitable contributions may now make itemizing the better option for clients who have not been itemizing for the past eight years. Advisors should run the comparison for any client in a high-tax state with meaningful mortgage debt and charitable giving before assuming the standard deduction remains the right choice.

Bottom Line: The SALT cap increase from $10,000 to $40,000 is the most significant change to itemized deduction planning for high-income retail and CPG executives in nearly a decade. If you have high-income clients in California, New York, New Jersey, or similar states who have been taking the standard deduction by default, it is time to run the itemized deduction analysis again.

Trade spend — the category of costs that includes promotional allowances, slotting fees, co-op advertising, scan-down promotions, volume rebates, and display incentives — is one of the largest and least transparent cost categories in the retail and CPG business. For brands with meaningful wholesale distribution, trade spend commonly represents 15% to 25% of gross wholesale revenue. Yet despite its scale, trade spend is among the least rigorously measured investments in most businesses, making it an area where significant financial value is regularly lost without detection.

The challenge is structural. Trade spend is typically managed by sales and brand teams who are rewarded for securing retail placements and promotional events, not for the financial returns those events generate. Finance teams are often involved only in approving budgets and reconciling deductions — not in designing programs or measuring their incremental contribution. The result is a cycle in which promotional budgets renew annually based on prior-year spend levels rather than demonstrated ROI, and underperforming programs persist because no one has formally evaluated them.

A well-structured trade spend ROI analysis evaluates whether incremental volume generated by a promotion exceeds the combined cost of the price reduction and trade allowance — measured against the baseline volume that would have occurred without the promotion. This requires a clear baseline, an accurate read of promotional lift, and an honest accounting of all costs including slippage (the volume sold at the promotional price that would have sold anyway at full price). Many promotional events that appear successful on a gross basis generate little or negative incremental profit when analyzed correctly.

Finance and commercial teams should establish a minimum ROI threshold for all trade spend commitments — commonly 1.5x to 2.0x return on spend — and require post-event analysis for all programs above a materiality threshold. Programs that consistently fail to meet the threshold should be restructured or eliminated. The disciplined reallocation of underperforming trade spend toward higher-return activities — whether in the same channel or different ones — is one of the highest-leverage margin improvement opportunities available to established wholesale brands.

Bottom Line: Trade spend that isn’t measured is trade spend that isn’t managed. The ROI analysis is not complex — it is simply not being done consistently enough.