Author: Jamie Hall

If you’re a business owner or high-income professional, you may have already maxed out the usual retirement savings tools – your 401(k), a SEP, or SIMPLE IRA. And if you’re in your peak earning years or playing catch-up on retirement, those limits can feel frustratingly low.

Cash balance retirement plans open an additional lane for large, tax-deferred contributions. But they also come with rules, responsibilities, and risks that need to be fully understood up front.

What is a cash balance plan?

A cash balance plan is a type of defined benefit plan, which means the employer promises a specific retirement benefit and is responsible for funding it, regardless of how investments perform. That’s different from a defined contribution plan like a 401(k), where the employee and employer both typically contribute a set amount each year. The final account value depends on how the investments perform, so the employee bears the investment risk. 

In a defined benefit plan, it’s the reverse. The plan promises a specific retirement benefit, and the employer is responsible for ensuring the plan is adequately funded to meet that obligation, regardless of how the investments perform.

With cash balance plans, the participant’s account is typically credited each year with:

• A pay credit (usually a percentage of salary or a flat dollar amount)
• An interest credit, which is either a fixed rate or tied to an external benchmark like the 30-year Treasury yield

The interest credit is essentially a guaranteed rate of growth applied annually to each participant’s account balance. It’s not an actual investment return, but a promised benefit, and the employer is responsible for making sure that benefit is funded. If investment returns fall short, the employer must make up the difference. If the investments do better than expected, the employer keeps the surplus in the plan. That surplus isn’t distributed to participants, but it can reduce the employer’s required contributions in future years or provide a cushion against future underperformance. It’s basically treated as a reserve that helps stabilize funding over time. 

For participants, this structure means the account balance grows steadily and predictably, even if market returns are volatile.

Distributions

Retirement age under most cash balance plans aligns with standard retirement benchmarks – typically age 62 to 65, though some plans may offer early retirement provisions. Early withdrawals are subject to the same rules as other qualified retirement plans, including potential penalties if funds are accessed before age 59½ without an applicable exception.

When you retire or leave the company, there are generally two options for accessing the benefit: a lump sum distribution or a lifetime annuity. 

When participants choose a lump sum distribution, they typically roll over the balance tax-free into a traditional IRA. This preserves tax deferral and gives full control over how and when withdrawals are taken. You’ll still be subject to required minimum distributions (RMDs) once you reach the applicable age (currently 73 for most retirees), but otherwise, the funds grow tax-deferred. Once the funds are rolled into a traditional IRA, they’re treated the same as other qualified funds. The IRS does not require a separate account or reporting beyond standard rollover procedures.

Some participants, especially those without other sources of predictable income, may choose to convert their cash balance into a guaranteed annuity. This can be paid out over a single lifetime or structured as a joint and survivor annuity to cover a spouse as well. If the annuity has no survivor benefit or refund provision, remaining funds do not go to heirs – they stay with the plan or insurance provider. However, some plans offer “period certain” annuities or installment refund options, which ensure that if the participant dies early, the designated beneficiaries receive the remaining value of the original account balance. The specific terms depend on the annuity contract and plan provisions.

So while cash balance plans operate differently than a 401(k) on the front end, when it comes time to retire or separate from the business, they behave a lot like other qualified plans – with similar rollover options, tax treatment, and distribution rules.

Limitations and adjustments

While 401(k) plans cap elective deferrals at $23,500 and total contributions at $70,000 for 2025 ($31,000 and $77,500, respectively, if eligible for catch-up contributions), cash balance plans can allow for much larger annual contributions. The exact amount is based primarily on the participant’s age and compensation. 

Generally, the older the participant, the higher the allowable contribution. But there are important limits and adjustments that determine how much can actually be contributed and deducted. 

Maximum annuity limit

The IRS places a cap on how much a defined benefit plan, like a cash balance plan, can promise as a retirement benefit. For 2025, that maximum is $280,000 per year, based on a single-life annuity beginning at age 62.

It’s important to understand that this figure doesn’t limit how much you can withdraw each year; it defines the maximum annual retirement income the plan can promise. Even if you ultimately choose a lump sum rather than an annuity, this limit sets the upper boundary for how much the plan can accumulate on your behalf.

Here’s how it typically works:

Participants will see a growing account balance each year that’s calculated based on plan formulas and guaranteed credits. 

When an actuary calculates contributions each year, they reverse-engineer the funding needed to support a future retirement benefit up to the maximum annuity limit. This doesn’t mean you’re locked into taking an annuity – it’s just the benchmark used by the IRS to ensure the plan isn’t overfunded. 

Suppose you’re 55 years old with a target retirement age of 62. To support the maximum IRS-allowed benefit of $280,000 annually at retirement, the plan would need to accumulate a certain amount by age 62 based on your current balance, the plan’s interest crediting rate, and IRS-mandated assumptions about life expectancy and investment returns. Because there’s not much time to fund that benefit, the allowable annual contribution at age 55 can be quite high.

Each year, the actuary recalculates the range of allowable contributions based on your age, income, and other defined factors. 

If this seems complex (and it often does), it’s a good idea to speak with a CPA or retirement plan specialist. That’s the best way to understand how the maximum benefit rules play out in your own plan because these calculations are based on factors unique to your circumstances. 

Compensation limit

There’s also a compensation limit. In 2025, only the first $350,000 of compensation can be used when calculating benefits and pay credits. 

Deductions

Contributions to a cash balance plan are deductible to the employer. For employees, these contributions do not appear as wages or self-employment income in the year of contribution.

In pass-through entities, these contributions are generally reflected as a reduction to ordinary business income. This lowers the taxable income flowing through to the partners or shareholders. So while it’s not a personal deduction per se, it still reduces their personal federal tax liability indirectly. 

Pairing with a 401(k) plan

One of the key advantages of cash balance plans is that they can be used in conjunction with a 401(k) plan.

This combination is frequently used in high-income environments. The 401(k) allows for deferrals and employer contributions up to the IRS limit, while the cash balance plan sits on top of that, creating a second tier of deductible contributions. For someone in their early 60s, the allowable contribution to hit a $280,000 annual benefit can be substantial, on top of the $70,000 that could already go into a 401(k). The ability to defer this level of income can translate into significant annual tax savings for both employee and employer. 

That’s likely why these plans are favored by partners in law or medical practices, and closely held companies where owners seek aggressive catch-up opportunities to build their savings while reducing current-year tax obligations.

What’s the catch?

Cash balance plans fall under a more demanding regulatory framework than plans like 401(k)s. For employers, that means additional administrative responsibility, compliance requirements, and long-term funding obligations.

They require actuarial oversight to calculate funding levels each year. If plan assets underperform the promised interest credit, the employer must contribute more to make up the difference. Plans must also comply with IRS nondiscrimination rules, ensuring that benefits don’t disproportionately favor owners over rank-and-file employees. If you have employees, that compliance can drive up costs. 

Additionally, many cash balance plans must be insured by the Pension Benefit Guaranty Corporation (PBGC), unless the plan is maintained by a professional-service firm with 25 or fewer participants. This adds another expense. Employers who terminate a plan prematurely may also face excise taxes on excess assets (reversions) or need to inject capital to meet IRS-mandated funding targets at wind-down.

The bottom line is that these plans necessitate careful review by tax and legal professionals to ensure compliance with all relevant regulations. 

Is a cash balance plan worth considering?

For high-income business owners who are already maximizing their 401(k) or SEP-IRA contributions, cash balance plans are well worth a closer look. While they require more structure than the more familiar retirement vehicles, the potential benefits can be substantial. 

Cash balance plans may be a good fit for: 

• Profitable businesses with steady cash flow sufficient to fund large retirement contributions for more than 5 years.
• Owners or partners over age 35 who want to supercharge their retirement savings.
• Those with several hundred thousand dollars in annual salary or pass-through income.
• Businesses with smaller headcounts, often 10 or fewer employees, where the costs to cover others can be managed.

It’s important to note that this is a general guide, not a hard rule. Simply meeting one or more characteristics doesn’t necessarily mean a cash balance plan is right for you, but it may be worth exploring. 

© 2025 KraftCPAs PLLC

In an uncertain economy, accurate and actionable job cost accounting is more important than ever. If you haven’t already, consider using activity-based costing (ABC) to obtain more precise and useful information.

Done right, ABC helps you use your resources more efficiently by allocating expenditures — especially overhead and indirect costs — more realistically than traditional job costing. As a result, you can better determine the actual cost of each project.

ABC 101

Traditional job costing typically allocates overhead and indirect costs based on labor hours or a similar volume-based measure. This can result in over- or under-costing.

In contrast, ABC generally allocates overhead costs based on the performance of specific activities that generate costs. Each activity is clearly defined to prevent overlap. Examples include:

• Sourcing and ordering materials and supplies
• Preparing equipment for use
• Doing cleanup

ABC allows you to capture all the costs associated with each activity in a project with overhead incorporated into each as appropriate. These include labor, equipment, materials, subcontractors, and depreciation. It eliminates overly broad cost classifications, such as overhead or operating expenses.

Essentially, you calculate the costs associated with each activity and assign them to jobs based on the extent to which each project uses the respective activities. The allocation is determined by applying so-called cost drivers — basically anything that incurs a variable indirect cost or uses a resource. Examples of cost drivers include equipment usage (for equipment maintenance costs) and the number of purchase orders (for procurement costs).

Overhead and indirect costs are assigned to specific activities and, in turn, allocated to jobs based on their utilization of the activities. So, a project that requires a high number of purchase orders, for example, will be assigned a larger portion of the procurement activity’s costs.

This type of cost accounting is an ongoing process. Activities and the supply of various resources are adjusted throughout each project phase based on variances between budgeted and actual costs. ABC doesn’t replace a traditional cost accounting system, but it provides valuable additional data for evaluating how efficiently your construction business is operating.

Pros and cons

Unlike businesses that manufacture or sell goods, construction companies can’t simply divide up their expenses equally among a set number of units. Because jobs consume different resources in varying amounts over various time periods, the traditional approach to allocating overhead and indirect costs can present a distorted financial picture of your individual projects.

With ABC, you can more easily identify why some jobs take more time or money than expected, as well as which activities consume the most resources. You can also uncover where waste might be occurring and pinpoint spending overruns.

On a more positive note, ABC also helps you determine the kinds of jobs and activities that are most profitable. It can lead to improved strategic planning, decision making, budgeting, and pricing. It enhances estimators’ accuracy and allows for simpler revisions if a project’s scope expands.

That said, establishing ABC can be challenging, partly because of the comprehensive employee training required. Project managers and others may need to provide more detailed, granular information than they have in the past. The greater the number of people adding data, the higher the likelihood of inaccurate inputs that skew the numbers and undermine their value.

Additionally, some employees may grumble about the hassle or take a lackadaisical approach to recording and reporting data. While it’s easy for them to understand how clocking in and out benefits them directly, the rewards of this additional layer of tracking may not be so apparent.

Trial project

Implementing ABC can be a daunting process. However, bear in mind that you don’t have to do it all at once. Consider using it on a trial project and assessing the results. If satisfied, you can expand ABC to more jobs from there.

© 2025 KraftCPAs PLLC

The U.S. House of Representatives approved legislation nicknamed The One, Big, Beautiful Bill in late May, introducing possible significant changes to individual tax provisions. While the bill is now being considered by the Senate, it’s important to understand how the proposals could alter key tax breaks.

Here are seven current tax provisions in the House-approved version of the bill, which still could undergo considerable changes in the Senate.

1. Standard deduction

The Tax Cuts and Jobs Act nearly doubled the standard deduction. For the 2025 tax year, the standard deduction has been adjusted for inflation to:

• $15,000 for single filers
• $30,000 for married couples filing jointly
• $22,500 for heads of household

Under current law, the increased standard deduction is set to expire after 2025. The One, Big, Beautiful Bill would make it permanent. Additionally, for tax years 2025 through 2028, it proposes an increase of $1,000 for single filers, $2,000 for married couples filing jointly, and $1,500 for heads of households.

2. Child Tax Credit (CTC)

Currently, the CTC stands at $2,000 per qualifying child but it’s scheduled to drop to $1,000 after 2025. The bill increases the CTC to $2,500 for 2025 through 2028, after which it would revert to $2,000. In addition, the bill indexes the credit amount for inflation beginning in 2027 and requires the child and the taxpayer claiming the child to have Social Security numbers.

3. State and local tax (SALT) deduction cap

Under current law, the SALT deduction cap is set at $10,000, but the cap is scheduled to expire after 2025. The bill would raise this cap to $40,000 for taxpayers earning less than $500,000, starting in 2025. This change would be particularly beneficial for taxpayers in high-tax states, allowing them to deduct a larger portion of their state and local taxes.

4. Tax treatment of tips and overtime pay

Currently, tips and overtime pay are considered taxable income. The proposed legislation seeks to exempt all tip income from federal income tax through 2029, provided the income is from occupations that traditionally receive tips. Additionally, it proposes to exempt overtime pay from federal income tax, which could increase take-home pay for hourly workers.

These were both campaign promises made by President Trump. He also made a pledge during the campaign to exempt Social Security benefits from taxes. However, that isn’t in the bill. Instead, the bill contains a $4,000 deduction for eligible seniors (age 65 or older) for 2025 through 2028. To qualify, a single taxpayer would have to have modified adjusted gross income (MAGI) under $75,000 ($150,000 for married couples filing jointly).

5. Estate and gift tax exemption

As of 2025, the federal estate and gift tax exemption is $13.99 million per individual. The bill proposes to increase this exemption to $15 million per individual ($30 million per married couple) starting in 2026, with adjustments for inflation thereafter.

This change would allow individuals to transfer more wealth without incurring federal estate or gift taxes.

6. Auto loan interest

Currently, there’s no deduction for auto loan interest. Under the bill, an above-the-line deduction would be created for up to $10,000 of eligible vehicle loan interest paid during the taxable year. The deduction begins to phase out when a single taxpayer’s MAGI exceeds $100,000 ($200,000 for married couples filing jointly).

There are several rules to meet eligibility, including that the final assembly of the vehicle must occur in the United States. If enacted, the deduction is allowed for tax years 2025 through 2028.

7. Electric vehicles

Currently, eligible taxpayers can claim a tax credit of up to $7,500 for a new “clean vehicle.” There’s a separate credit of up to $4,000 for a used clean vehicle. Income and price limits apply as well as requirements for the battery. These credits were scheduled to expire in 2032. The bill would generally end the credits for purchases made after December 31, 2025.

Next steps

These are only some of the proposals being considered. While The One, Big, Beautiful Bill narrowly passed the House, it faces scrutiny in the Senate. Congress has indicated that it wants the bill to pass both chambers before July 4.

© 2025 KraftCPAs PLLC

A bill being negotiated in Congress — dubbed the One, Big, Beautiful Bill — could significantly reshape several federal business tax breaks. While the proposed legislation is still under debate, it’s worth watching for business owners.

Here’s a look at the current rules and proposed changes for five key tax provisions and what they could mean for your business.

1. Bonus depreciation

Current rules: Businesses can deduct 40% of the cost of eligible new and used equipment in the year it’s placed in service. In 2026, this will drop to 20%, eventually phasing out entirely by 2027.

Proposed change: The bill would restore 100% bonus depreciation retroactively for property acquired after January 19, 2025, and extend it through 2029. This would be a major win for businesses looking to invest in equipment, machinery, and certain software.

Why it matters: A full deduction in the year of purchase would allow for faster depreciation, freeing up cash flow. This could be especially beneficial for capital-intensive industries.

2. Section 179 expensing

Current rules: Businesses can “expense” up to $1.25 million of qualified asset purchases in 2025, with a phaseout beginning at $3.13 million. Under Section 179, businesses can deduct the cost of qualifying equipment or software in the year it’s placed in service, rather than depreciating it over several years.

Proposed change: The bill would increase the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would be adjusted annually for inflation.

Why it matters: This provision could help smaller businesses deduct more of the cost (or the entire cost) of qualifying purchases without dealing with depreciation schedules. Larger thresholds would mean more flexibility for expanding operations.

3. Qualified business income (QBI) deduction

Current rules: Created by the Tax Cuts and Jobs Act (TCJA), the QBI deduction is currently available through 2025 to owners of pass-through entities. These include S corporations, partnerships, limited liability companies, sole proprietors, and most self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction, and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income minus net capital gain. But it’s subject to additional limits that can reduce or eliminate the tax benefit.

Proposed change: Under the bill, the QBI tax break would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Why it matters: The increased deduction rate and permanent extension would lead to substantial tax savings for eligible pass-through entities. If the deduction is made permanent and adjusted for inflation, businesses could engage in more effective long-term tax planning.

4. Research and experimental (R&E) expensing

Current rules: Under the TCJA, businesses must capitalize and amortize domestic R&E costs over five years (or 15 years for foreign research).

Proposed change: The bill would reinstate a deduction available to businesses that conduct R&E. Specifically, the deduction would apply to R&E costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. The requirement under current law to amortize such expenses would be suspended while the deduction is available.

Why it matters: Many businesses — especially startups and tech firms — depend heavily on research investments. Restoring current expensing could ease tax burdens and encourage innovation.

5. Increase in information reporting amounts

Current rules: The annual reporting threshold for payments made by a business for services performed by an independent contractor is generally $600. That means businesses must send a Form 1099-NEC to contractors they pay more than $600 by January 31 of the following year.

Proposed change: The bill would generally increase the threshold to $2,000 in payments during the year and adjust it for inflation. This provision would apply to payments made after December 31, 2024. The bill would also make changes to the rules for Form 1099-K issued by third-party settlement organizations.

Why it matters: This proposal would reduce the administrative burdens on businesses. Fewer 1099-NECs would need to be prepared and filed, especially for small engagements. If the provision is enacted, contractors would receive fewer 1099-NECs. Income below $2,000 annually would still have to be reported to the IRS, so contractors may have to be more diligent in tracking income.

More to consider

These are just five of the significant changes being proposed. The bill also proposes changes to the business interest expense deduction and some employee benefits. It would eliminate federal income tax on eligible tips and overtime — and make many more changes.

If enacted, the bill could deliver immediate and long-term tax relief to certain business owners. It narrowly passed in the U.S. House of Representatives and is currently being considered in the Senate. Changes are likely to be made there, at which point the new version would have to be passed again by the House before being sent to President Trump to be signed into law. The current uncertainty means business owners shouldn’t act prematurely.

© 2025 KraftCPAs PLLC

Even with the federal estate tax exemption at a generous $13.99 million per individual ($27.98 million for married couples), don’t overlook key pieces of the estate planning puzzle that could pay off in the long run.

In particular, creating a living trust can provide significant benefits, especially if your goal is to avoid probate and maintain privacy.

Here are a few points to consider about this estate planning tool.

What’s a living trust?

A living trust — also known as a revocable trust, grantor trust, or family trust — is a legal entity that holds ownership of your assets during your lifetime and distributes them according to your instructions after your death. Unlike a will, a living trust allows your estate to bypass probate, which is the often lengthy and public court process of settling an estate.

How does a living trust work?

You begin by creating a trust document and transferring ownership of specific assets to the trust. These may include:

• Your primary residence
• Vacation properties
• Valuable personal items like antiques

You’ll name a trustee to manage and distribute the assets after your death. You can serve as the trustee while you’re alive and legally competent. After that, you may appoint a successor trustee — such as a trusted family member, friend, attorney, CPA, or financial institution.

Because a living trust is revocable, you can amend or cancel it at any time during your lifetime.

What are the tax implications?

For federal income tax purposes, the IRS doesn’t treat the living trust as separate from you while you’re alive. You’ll continue to report all income and deductions from the trust’s assets on your personal tax return.

However, under state law, the trust is recognized as a separate entity. When structured properly, this allows your estate to bypass probate, helping to ensure a more private and efficient distribution of your assets.

Upon your death, assets in the trust are generally included in your estate for federal estate tax purposes. However, any assets passed to a surviving spouse who’s a U.S. citizen qualify for the unlimited marital deduction, which exempts them from estate tax.

It’s also important to note that the current high federal estate tax exemption is set to expire at the end of 2025, unless Congress extends it. Under legislation nicknamed the One, Big, Beautiful Bill, which recently passed the U.S. House of Representatives, the federal gift and estate tax exemption would be increased to $15 million per individual in 2026. This amount would be permanent but annually adjusted for inflation.

The bill is now being negotiated in the Senate, where it could change significantly.

Are there any pitfalls to avoid?

While a living trust is a powerful tool, it’s only effective when properly executed. Here are common mistakes to avoid:

• Outdated beneficiary designations. The beneficiaries named on retirement accounts, life insurance policies and brokerage accounts override your trust. Make sure your designations align with your overall estate plan.
• Jointly owned property. Real estate held as “joint tenants with right of survivorship” automatically passes to the surviving co-owner, regardless of what your trust says.
• Failing to transfer assets. Simply creating a trust isn’t enough. You must formally transfer ownership of assets to the trust. Failing to do so means those assets may still be subject to probate.

When is more planning needed?

Although a living trust helps avoid probate, it doesn’t reduce estate or inheritance taxes. If your assets exceed the current exemption or if state estate taxes apply, additional strategies such as irrevocable trusts, charitable giving, or gifting may be necessary.

© 2025 KraftCPAs PLLC

The U.S. House of Representatives recently passed its sweeping tax and spending bill — dubbed The One, Big, Beautiful Bill Act (OBBBA) — by a vote of 215-214. The bill includes extensions of many provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire on December 31. It also includes some new and enhanced tax breaks. For example, it contains President Trump’s pledge to exempt tips and overtime from income tax.

The bill has now moved to the U.S. Senate, where several Republican senators say they won’t support the bill as written, citing its projection to increase the federal deficit by trillions of dollars over the next decade. That could mean multiple rounds of delays and significant revisions before passage.

Here’s an overview of the major tax proposals included in the OBBBA as it stands now.

Business tax provisions

Bonus depreciation. Under the TCJA, first-year bonus depreciation has been phasing down 20 percentage points annually since 2023 and is set to drop to 0% in 2027. It’s 40% for 2025. Under the OBBBA, the depreciation deduction would reset to 100% for eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030.

Section 199A qualified business income (QBI) deduction. Created by the TCJA, the QBI deduction is currently available through 2025 to owners of pass-through entities — such as S corporations, partnerships, and limited liability companies (LLCs) — as well as to sole proprietors and self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income. But it’s subject to additional rules and limits that can reduce or eliminate the tax benefit. Under the OBBBA, the deduction would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Domestic research and experimental expenditures. The OBBBA would reinstate a deduction available to businesses that conduct research and experimentation. Specifically, the deduction would apply to research and development costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. The requirement under current law to amortize such expenses would be suspended while the deduction is available.

Section 179 expensing election. This tax break allows businesses to currently deduct (rather than depreciate over several years) the cost of purchasing eligible new or used assets, such as equipment, furniture, off-the-shelf computer software, and qualified improvement property. An annual expensing limit applies, which begins to phase out dollar-for-dollar when asset acquisitions for the year exceed the Sec. 179 phaseout threshold. Both amounts are adjusted annually for inflation. The OBBBA would increase the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would continue to be adjusted annually for inflation. Under current law, for 2025, the expensing limit is $1.25 million and the phaseout threshold is $3.13 million.

Pass-through entity “excess” business losses. The Inflation Reduction Act, through 2028, limits deductions for current-year business losses incurred by noncorporate taxpayers. Such losses generally can offset a taxpayer’s income from other sources, such as salary, interest, dividends and capital gains, only up to an annual limit. “Excess” losses are carried forward to later tax years and can then be deducted under net operating loss rules. The OBBBA would make the excess business loss limitation permanent.

Individual tax provisions

The OBBBA would extend or make permanent many individual tax provisions of the TCJA. Among other things, the new bill would affect:

Individual income tax rates. The OBBBA would make permanent the TCJA income tax rates, including the 37% top individual income tax rate. If a new law isn’t enacted, the top rate would return to 39.6%.

Itemized deduction limitation. The bill would make permanent the repeal of the Pease limitation on itemized deductions. But it would impose a new limitation on itemized deductions for taxpayers in the 37% income tax bracket that would go into effect after 2025.

Standard deduction. The new bill would temporarily boost standard deduction amounts. For tax years 2025 through 2028, the amounts would increase $2,000 for married couples filing jointly, $1,500 for heads of households and $1,000 for single filers. For seniors 65 or older who meet certain income limits, an additional standard deduction of $4,000 would be available for those years. Currently, the inflation-adjusted standard deduction amounts for 2025 are $30,000 for joint filers, $22,500 for heads of households and $15,000 for singles.

Child Tax Credit (CTC). Under current law, the $2,000 per child CTC is set to drop to $1,000 after 2025. The income phaseout thresholds will also be significantly lower. And the requirement to provide the child’s Social Security number (SSN) will be eliminated. The OBBBA would make the CTC permanent, raise it to $2,500 per child for tax years 2025 through 2028 and retain the higher income phaseout thresholds. It would also preserve the requirement to provide a child’s SSN and expand it to require an SSN for the taxpayer (generally the parent) claiming the credit. After 2028, the CTC would return to $2,000 and be adjusted annually for inflation.

State and local tax (SALT) deduction. The OBBBA would increase the TCJA’s SALT deduction cap (currently set to expire after 2025) from $10,000 to $40,000 for 2025. The limitation would phase out for taxpayers with incomes over $500,000. After 2025, the cap would increase by 1% annually through 2033.

Miscellaneous itemized deductions. Through 2025, the TCJA suspended deductions subject to the 2% of adjusted gross income (AGI) floor, such as certain professional fees and unreimbursed employee business expenses. This means, for example, that employees can’t deduct their home office expenses. The OBBBA would make the suspension permanent.

Federal gift and estate tax exemption. Beginning in 2026, the bill would increase the federal gift and estate tax exemption to $15 million. This amount would be permanent but annually adjusted for inflation. For 2025, the exemption amount is $13.99 million.

New tax provisions

On the campaign trail, Trump proposed several tax-related ideas. The OBBBA would introduce a few of them into the U.S. tax code:

No tax on tips. The OBBBA would offer a deduction from income for amounts a taxpayer receives from tips. Tipped workers wouldn’t be required to itemize deductions to claim the deduction. However, they’d need a valid SSN to claim it. The deduction would expire after 2028. Coincidentally, the Senate recently passed a separate no-income-tax-on-tips bill that has different rules. To be enacted, that bill would still have to pass the House and be signed by Trump.

No tax on overtime. The OBBBA would allow workers to claim a deduction for overtime pay they receive. Like the deduction for tip income, taxpayers wouldn’t have to itemize deductions to claim the write-off but would be required to provide an SSN. Also, the deduction would expire after 2028.

Car loan interest deduction. The bill would allow taxpayers to deduct interest payments up to $10,000 on car loans for 2025 through 2028. Final assembly of the vehicles must take place in the United States, and there would be income limits to claim the deduction. Both itemizers and nonitemizers would be able to benefit.

Charitable deduction for nonitemizers. Currently, taxpayers can claim a deduction for charitable contributions only if they itemize on their tax returns. The bill would create a charitable deduction of $150 for single filers and $300 for joint filers for nonitemizers.

What’s next?

These are only some of the provisions in the massive House bill. The proposed legislation is likely to change — perhaps significantly — as it moves through the Senate and possibly back to the House. Congressional leaders have targeted July 4 to have the bill passed in both chambers.

© 2025 KraftCPAs PLLC

Among the three primary financial statements, the statement of cash flows is the most overlooked and misunderstood. While the income statement shows a company’s profitability and the balance sheet captures its financial position, the statement of cash flows answers a more immediate question: Is the business generating enough cash to sustain operations and support growth?

Even profitable businesses can struggle in today’s volatile markets if their cash flow is erratic or poorly managed. Understanding the cash flow statement is essential for effective financial planning, budgeting, and operational efficiency. Here are answers to frequently asked questions about this powerful financial tool.

What is a cash flow statement?

The statement of cash flows outlines how a company’s cash and cash equivalents change over the reporting period. It reveals the actual movement of cash in and out of the business. Under U.S. Generally Accepted Accounting Principles (GAAP), cash inflows (sources) and cash outflows (uses) are organized into three categories: operating, investing, and financing activities.

This distinction is critical. A profitable company may still face cash shortages if revenue is tied up in receivables or capital investments outpace available resources. In short, profit doesn’t always translate to liquidity, and this report fills that gap in understanding.

Proactive business owners and managers use this statement to drive decisions. Reviewing it monthly allows management to spot trends, anticipate shortfalls, and align operations with financial realities. Using it alongside budgeting and forecasting helps ensure the business isn’t caught off guard and can adapt quickly when circumstances change.

What’s classified as cash flows from operating activities?

Operating cash flow is the heartbeat of the business. It reflects whether the company’s core operations are generating usable cash. The statement typically begins with net income and adjusts for noncash items, like depreciation and amortization expense, and changes in working capital accounts, such as receivables, payables, and inventory.

Business owners should pay close attention to trends in this section. Negative operating cash flow may indicate that customers are slow to pay, inventory is overstocked, expenses are rising too quickly, or other operational issues are brewing beneath the surface that aren’t obvious from traditional profit metrics.

What should I look for in cash flows from investing activities?

The investing cash flows section includes cash spent on or received from long-term investments, such as equipment purchases, property, acquisitions, and marketable securities. This section often raises questions because it’s not always intuitive. For instance, business owners who notice significant cash outflows when purchasing new equipment or property might worry about the negative number. But such investments can be necessary and strategic. The key is to assess whether the investments support revenue growth, improve efficiency, or prepare the business for future demand.

When negative investing cash flow is paired with negative operating cash flow, the business may be overextending itself. That combination should trigger a closer look at whether planned capital investments are sustainable, given the company’s operational issues.

How do financing activities affect business cash flow?

This section shows how your business is funded. It includes loan proceeds and repayments, capital contributions or withdrawals by owners, and dividends paid to shareholders. These activities help explain fluctuations in the cash balance that aren’t related to profits or investments.

Financing cash flows provide insight into a business’s capital structure and how it balances internal cash with outside funding sources. For example, a heavy reliance on debt financing, without strong operational cash flow to support repayment, can indicate liquidity risk. On the other hand, using financing wisely can fuel growth and provide flexibility. Business owners and managers should evaluate their financing strategies regularly to ensure they align with both short- and long-term cash needs.

What are common mistakes when preparing this statement?

The statement of cash flows can be difficult to prepare accurately under GAAP. Classifying certain transactions often requires professional judgment. For example, dividends received from investments can fall into either operating or investing activities depending on the nature of the business and the classification of those investments. Similarly, taxes paid on gains from asset sales might straddle categories. Equipment purchased with financing doesn’t fall into any of the three categories of cash flows — despite its financial significance — because it’s considered a noncash activity.

These gray areas underscore the importance of working with a CPA, particularly when preparing statements for lenders or investors. Although GAAP provides some flexibility, the keys are consistency and transparency in classification and disclosure.

Cash is king

The statement of cash flows helps management understand the financial engine that keeps the business running. Cash is what pays the bills, fuels expansion and provides stability during lean periods.

By reviewing this statement regularly — and interpreting it in the context of operations, investments, and financing decisions — management can take proactive steps to improve efficiency, reduce risk, and make better use of their resources.

© 2025 KraftCPAs PLLC

The U.S. House of Representatives has narrowly passed its budget reconciliation bill dubbed The One, Big, Beautiful Bill. Among other things, the sweeping bill would eliminate clean vehicle credits by the end of 2025 in most cases.

The legislation still must pass through the Senate, where it’s expected to undergo changes.

But just in case if you’ve considered the purchase of a new or used electric vehicle (EV), you might choose to buy sooner rather than later to take advantage of available tax credits.

The current credit

The Inflation Reduction Act (IRA) significantly expanded the Section 30D credit for qualifying clean vehicles placed in service after April 17, 2023. For eligible taxpayers, it extended the credit to any “clean vehicle,” including EVs, hydrogen fuel cell cars and plug-in hybrids, through 2032. It also created a new credit, Sec. 25E, for eligible taxpayers who buy used clean vehicles from dealers. That credit equals the lesser of $4,000 or 30% of the sale price.

The maximum credit for new vehicles is $7,500, based on meeting certain sourcing requirements for critical minerals and battery components. Clean vehicles that satisfy only one of the two requirements qualify for a $3,750 credit.

The Sec. 30D and Sec. 25E credits aren’t refundable, meaning you can’t receive a refund if you don’t have any tax liability. In addition, any excess credit can’t be carried forward if it’s claimed as an individual credit. A credit can be carried forward only if it’s claimed as a general business credit.

If you’re eligible for either credit, you have two options for applying it. First, you can transfer the credit to the dealer to reduce the amount you pay for the vehicle (assuming you’re purchasing the vehicle for personal use). You’re limited to making two transfer elections in a tax year. Alternatively, you can claim the credit when you file your tax return for the year you take possession of the vehicle.

Buyer requirements

To qualify for the Sec. 30D credit, you must purchase the vehicle for your own use (not resale) and use it primarily in the United States. The credit is also subject to an income limitation. Your modified adjusted gross income (MAGI) can’t exceed:

• $300,000 for married couples filing jointly or a surviving spouse
• $225,000 for heads of household, or
• $150,000 for all other filers

If your MAGI was less in the preceding tax year than in the year you take delivery of the vehicle, you can apply that amount for purposes of the income limit.

As initially drafted, the GOP proposal would retain the Sec. 30D credit through 2026 for vehicles from manufacturers that have sold fewer than 200,000 clean vehicles.

For used vehicles, you similarly must buy the vehicle for your own use, primarily in the United States. You also must not:

• Be the vehicle’s original owner
• Be claimed as a dependent on another person’s tax return, and
• Have claimed another used clean vehicle credit in the preceding three years

A MAGI limit applies for the Sec. 25E credit, but with different amounts than those for the Sec. 30D credit:

• $150,000 for married couples filing jointly or a surviving spouse
• $112,500 for heads of household, or
• $75,000 for all other filers

You can choose to apply your MAGI from the previous tax year if it’s lower.

Vehicle requirements

You can take advantage of the Sec. 30D credit only if the vehicle you purchase:

• Has a battery capacity of at least seven kilowatt hours
• Has a gross vehicle weight rating of less than 14,000 pounds
• Was made by a qualified manufacturer
• Underwent final assembly in North America, and
• Meets critical mineral and battery component requirements

In addition, the manufacturer suggested retail price (MSRP) can’t exceed $80,000 for vans, sport utility vehicles, and pickup trucks, or $55,000 for other vehicles. The MSRP for this purpose isn’t necessarily the price you paid. It includes manufacturer-installed options, accessories, and trim but excludes destination fees.

To qualify for the used car credit, the vehicle must:

• Have a sale price of $25,000 or less, including all dealer-imposed costs or fees not required by law (legally required costs and fees, such as taxes, title, or registration fees, don’t count toward the sale price)
• Be a model year at least two years before the year of purchase
• Not have already been transferred after August 16, 2022, to a qualified buyer
• Have a gross vehicle weight rating of less than 14,000 pounds, and
• Have a battery capacity of at least seven kilowatt hours

The sale price for a used vehicle is determined after the application of any incentives — but before the application of any trade-in value.

Don’t forget the paperwork

Form 8936, “Clean Vehicle Credits,” must be filed with your tax return for the year you take delivery. The form is required regardless of whether you transferred the credit or chose to claim it on your tax return. Contact us if you have questions regarding the clean vehicle tax credits and their availability.

© 2025 KraftCPAs PLLC

Of all the tasks you must complete to keep your company’s finances going, trying to collect on unpaid invoices is probably one of the most unpleasant. No one likes contacting a customer and asking for their money. But you know that if you don’t do this when it’s needed, your own cash flow will suffer. 

So, you may put it off as long as possible, which leads to an uneven collections schedule for your business. Your customers never know when they might hear from you about a debt.

Setting up automated email reminders in QuickBooks Online solves that problem. It can also ease at least some of your anxiety about overdue payments. And it saves time – the time you spend dreading your impending collections efforts and the time you spend following through. Here’s how you can get started with them.

A simple process

The mechanics of setting up automated email reminders aren’t complicated. The hardest parts are settling on the timing of reminders and setting the right tone in your emails. 

Start by clicking the gear icon in the upper right. Click Account and settings under Your Company. Scroll down to the Sales tab and click it, then scroll down to the Reminders section. If Automate invoice reminders is set to Off, click it, then click the toggle bottom to turn it to On. QuickBooks Online allows you to set up three different reminders for different time periods. Click the down arrow on the Reminder 1 line. 

Three different reminders

Each reminder is labeled with QuickBooks Online’s suggested timing (before due date, on due date, and after due date). You do not have to follow this approach. You can specify the number of days you want the email reminder to go out before, on, or after the due date for the first and third reminders. Reminder 2 only allows you to have the email sent on or after the due date. So if you want, you can have all of the reminders arrive after the due date, which is more typical.

You can select an email greeting (Dear, etc.) and specify whether the recipient should be addressed by Full Name, First, Company Name, etc. You can also modify the Subject line to say whatever you’d like it to.

Below this heading information is the Email message that will go out to the customer. QuickBooks Online supplies a boilerplate message, but you can rewrite this completely if you’d like or just edit the existing one. 

Preparing your email messages

You’ll notice that the Invoice No. and Company Name appear in brackets ([]). If you’ve ever done a mail merge, you’ll understand this concept. If not, you should know that data in brackets gets replaced by real data from your QuickBooks Online file. So if one of the companies you’re writing to is Copy City, that name will replace the boilerplate text in brackets. And that customer’s real invoice number will appear in that field.

You’ll of course want to write separate messages for each reminder depending on when it will be going out. For example, your language will be a little stronger if the payment is 30 or more days late rather than seven days late. Give your customers the benefit of the doubt – at least on your first reminder. They may have just missed the invoice or didn’t notice the invoice date.

When you’re done setting up your reminders, be sure to click Save. Automatic email reminders only apply to new invoices. You can modify or turn off your reminders anytime. And if you want to send an individual reminder to a customer about an invoice, hover your mouse over Sales in the toolbar and click Invoices. Click the down arrow in the Action column on the appropriate line and select Send reminder.

Do you need your own reminders?

QuickBooks Online displays a list of Tasks that need to be done on its opening (Home) page. It would be nice if you could add your own reminders to this list, like invoices that need to go out and bills that need to be paid. But the site provides other ways for you to get information like this quickly. For example, you can scroll down on the Home page to the Income box to learn about open and overdue invoices. 

You can also hover your mouse over Sales in the toolbar and click All sales. You can see how much revenue is tied up in Estimates and Unbilled Income. Click the colored bars to see a list of transactions of each type. You can also see a list of Overdue Invoices. Look in the Action column to see what your options are. And there are always reports like Accounts receivable aging detail, Open Invoices, Unbilled charges, and Unbilled time.

© 2025 KraftCPAs PLLC

“Best practices” are grounded in results, and they have a place in any line of work, including — and maybe especially — accounting. Adhering to them will result in your business becoming healthier and more competitive. Your recordkeeping will improve. You’ll be able to analyze your company’s progress more effectively by running reports that provide focused views of your revenue and expenses. Your data will be safer.

Here are seven best practices that could prove most valuable to keeping your business running smoothly.

Reconcile your accounts regularly

Yes, it can be time-consuming and frustrating. But it’s the only way you can be sure that what you’re seeing in QuickBooks Online matches the records of your financial institutions. If you don’t reconcile your accounts monthly, you will hit a point down the road where your financial books are no longer accurate. You’ll have to reach back and try to determine where you went wrong. Untangling an unbalanced accounting system is not something you want to attempt. Hover your mouse over Transactions in the toolbar and click Reconcile.

Categorize transactions every day

Unless you have a very small business with few transactions, you should categorize transactions every day. Accurate, thorough categorization is required so your reports and taxes are correct. Be sure to check the Billable box when it’s warranted.

Run reports every week

Two reports that you should be running in QuickBooks Online once a week are A/R Aging Summary Report and A/P Aging Summary Report. You need to keep a close eye on who is behind on paying you and which bills you may have missed.

There are two other pages that provide this information quickly. Hover your mouse over Sales and click Customers to see the status of your invoices and estimates. To see an accounting of your own bills and other expenses, hover your mouse over Expenses and click Vendors.

Another report that shouldn’t be overlooked: A weekly profit and loss report, for obvious reasons. It’s the easiest way to keep a close watch on your company’s overall performance.

Assign user permissions

If you have multiple employees working in QuickBooks Online, don’t give them all full access. This is for both your protection and theirs. Set up limited user permissions for them so they can only go into certain areas and perform specific tasks. Click the gear icon in the upper right and click Your Company | Manage users. Click Add user and proceed through the wizard to assign individuals to roles like Track time only, Accounts payable manager, and Standard limited customers and vendors.

Set reorder points on inventory items

If your business stocks inventory, you know what a balancing act it is. Too few items and you risk running out. Too many, and you have an unnecessary amount of money tie up in inventory. You certainly don’t want to run out. You’ll lose sales and maybe even customers. So be sure you’re entering a Reorder point for inventory items. Just open a product record and click Edit in the Action column to add these.

Keep your PC updated and secure

This should be your number one priority.  Windows should always be updated. Windows Defender does a good job of protecting you, but you may have your own favorite antivirus and anti-malware applications. If you get hacked and your QuickBooks Online data gets compromised or deleted, the future of your business will be in danger. If other people in your office are on a network with you, stress the importance of good PC safety protocols, like not clicking on attachments in emails.

Use your ask my accountant expense account

What do you usually do when you can’t complete an expense transaction because you’re unsure of how to categorize it, for example?  If there isn’t an account in your Chart of Accounts titled “Ask My Accountant,” you can create one. Click the gear icon in the upper right and then Your Company | Chart of Accounts.

Click New in the upper right and enter the title, then select Expense as the Account type and Other Business Expenses as the Detail type. This will put your transaction into a kind of holding tank to deal with later. When you meet with us, we can create a Profit and Loss report to find those transactions and deal with them.

© 2025 KraftCPAs PLLC

Business owners often consider financial commitment and administrative burden as obstacles to setting up a retirement plan for themselves and their employees. But there are options that come with less hassle: Simplified Employee Pensions (SEP) and Savings Incentive Match Plans for Employees (SIMPLE).

SEPs offer easy implementation

SEPs are intended to be an attractive alternative to “qualified” retirement plans, particularly for small businesses. The appealing features include the relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether to make annual contributions.

If you don’t already have a qualified retirement plan, you can set up a SEP just by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on your employees’ behalf. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are received, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS approved. The maximum amount of deductible contributions you can make to an employee’s SEP-IRA in 2025, and that he or she can exclude from income, is the lesser of 25% of compensation or $70,000. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s contributions to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

You’ll have to meet other requirements to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens associated with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination rules aren’t required for SEPs. And employers aren’t required to file annual reports with the IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund.

SIMPLE plans meet IRS requirements

Another option for a business with 100 or fewer employees is a Savings Incentive Match Plan for Employees (SIMPLE). Under these plans, a SIMPLE IRA is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a SIMPLE 401(k) plan, with similar features to a SIMPLE IRA plan, and avoid the otherwise complex nondiscrimination test for traditional 401(k) plans.

For 2025, SIMPLE deferrals are allowed for up to $16,500 plus an additional $3,500 catch-up contribution for employees aged 50 or older.

© 2025 KraftCPAs PLLC