Author: Jamie Hall

Less than 48 hours after narrow approval in the U.S. Senate, legislation nicknamed the “One Big Beautiful Bill” cleared the House of Representatives and is expected to be signed into law within days.

The bill overcame staunch opposition from Democrats and many Republicans to pass in both chambers, and the final version of the bill features a variety of late concessions added to win votes among skeptical legislators. The bill passed 51-50 in the Senate after Vice President J.D. Vance supplied the tie-breaking vote; it passed in the House 218-214.

President Donald Trump said that he will sign the legislation into law immediately.

The bill prominently includes new and enhanced tax breaks that opponents say will add trillions of dollars to the federal deficit. Included in the bill is a temporary reprieve ending taxes on tips through 2030, as well as a $6,000 Social Security tax deduction for those age 65 and older through 2028 for those with modified adjusted gross income of under $75,000 ($150,000 for married joint filers).

In addition, the bill introduces other significant changes, including in the state and local tax (SALT) deduction cap and the Child Tax Credit (CTC). It also features defense spending increases and enhanced immigration enforcement measures. To offset a portion of the bill’s cost of $4 trillion, it added cuts to safety-net programs such as Medicaid and rollbacks of solar energy tax credits.

SALT deduction cap

A major sticking point in both branches of Congress was the SALT deduction cap. It’s currently set at $10,000 by the Tax Cuts and Jobs Act.

The new bill will increase the cap to $40,000 in 2025 for those making less than $500,000, with an annual 1% increase through 2029. In 2030, the cap will revert to $10,000. It also calls for phasing out the deduction for individuals who earn more than $500,000 in 2025 and then annually increasing the income amount by 1% through 2029.

Child Tax Credit (CTC)

Under current law, the $2,000 per child CTC was set to drop to $1,000 after 2025. The new legislation will make the CTC permanent and increase it to $2,200, subject to annual inflation increases. It will require Social Security numbers for both the parent claiming the credit and the child.

© 2025 KraftCPAs PLLC

If you’re age 65 or older and enrolled in basic Medicare insurance, you might have to pay additional premiums to receive more comprehensive coverage. These extra premiums can be expensive, particularly for married couples, since both spouses incur the costs. However, there may be a silver lining: You could be eligible for a tax deduction for the premiums you pay.

Deducting medical expenses: What counts?

For purposes of claiming an itemized deduction for medical expenses on your tax return, you can combine premiums for Medicare health insurance with other eligible medical expenses. These include amounts for Medigap insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, coinsurance, deductibles, and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

Is itemizing required?

Qualifying for a medical expense deduction can be difficult for many people for several reasons. For 2025, you can deduct medical expenses only if you itemize deductions on Schedule A of Form 1040 and only to the extent that total qualifying expenses exceed 7.5% of adjusted gross income.

In recent years, many people haven’t been itemizing because their itemized deductions are less than their standard deductions. For 2025, the standard deduction amounts are $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of household. Under The One, Big, Beautiful Bill being considered by Congress, these amounts would increase. If that bill is enacted, the standard deduction will increase for 2025 through 2028 by an additional $1,000 for singles, $2,000 for married joint filers, and $1,500 for heads of households.

It’s important to note that self-employed people and shareholder-employees of S corporations don’t need to itemize to get tax savings. They can generally claim an above-the-line deduction for their health insurance premiums, including Medicare premiums.

What other expenses qualify?

In addition to Medicare premiums, you can deduct certain medical expenses, including those for dental treatments, doctor visits, ambulance services, dentures, eye exams, eyeglasses and contacts, hearing aids, hospital visits, lab tests, qualified long-term care services, prescription medicines, and others.

There are also many other items that Medicare doesn’t cover that can be deducted for tax purposes if you qualify. And itemizers can deduct transportation expenses to get to and from medical appointments. If you go by car, you can deduct a flat 21 cents-per-mile rate in 2025, or you can keep track of your actual out-of-pocket expenses for gas, oil, maintenance, and repairs.

© 2025 KraftCPAs PLLC

Alternative data sources present businesses with powerful new opportunities. They also introduce risks.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) addressed this challenge in its 2024 report, Alternative Data: The COSO Perspective. This report offers valuable guidance on how businesses can leverage nontraditional data sources into their enterprise risk management (ERM) frameworks.

The value of an ERM

Implementing an enterprise risk management (ERM) framework helps managers anticipate risks and recognize that change creates opportunities, not simply the potential for crises. Internal control is just one small part of ERM. It may also encompass strategy setting, governance, stakeholder communications, and performance measurement. These principles apply at all business levels, across all functions and to organizations of any size. 

Today, COSO’s Enterprise Risk Management — Integrated Framework is the cornerstone of modern risk management practices. COSO continuously updates its guidance to address emerging risks.

What’s alternative data?

Companies increasingly rely on social media analytics, satellite imagery, web scraping, transactional data, smart sensor feeds, and environmental, social, and governance (ESG) indicators to drive strategic decision-making. Such alternative data sources may provide fresh insights into market trends and consumer behavior.

These unconventional sources can enhance forecasting and risk assessment. But they also introduce challenges, such as data integrity, privacy concerns, and regulatory compliance. Without a structured approach to managing these risks, alternative data can create more uncertainty than clarity. To fully capitalize on alternative data, companies must embed it within their risk management practices.

COSO emphasizes that businesses must ensure alternative data aligns with their strategic objectives, such as improving customer engagement, optimizing supply chains, and strengthening investment strategies. If alternative data doesn’t contribute to well-defined business outcomes, the risk may not be worth it.

How to put the guidance into action

COSO recommends the following five steps to successfully integrate alternative data into your organization’s ERM framework:

1. Perform a data audit. Begin by identifying all sources of alternative data currently used or under consideration. To get a complete picture of your organization’s data landscape, evaluate these questions:

• How is alternative data collected, and who provides it?
• Does the data introduce potential privacy or security risks?
• Is the data relevant to the company’s strategic objectives?

Not all alternative data is created equal. Three key areas where quality issues commonly arise are source reliability, accuracy and bias, and timeliness. Vet third-party data providers carefully to ensure they’re credible, transparent, and compliant with industry standards.

2. Strengthen governance practices. Assigning oversight responsibility to a chief data officer or a data governance committee helps ensure accountability. Businesses without proper governance practices risk drawing inaccurate conclusions, facing regulatory penalties, or damaging their reputations.

Also stay informed about rapidly evolving data privacy laws and document data collection and usage practices thoroughly. This includes creating internal codes of ethics for responsible data use, especially when using AI-driven analytics.

3. Invest in technology and security. Protect alternative data and reduce risk exposure with technology and security measures, including:

• Transparent, explainable, and unbiased AI-driven analytics and machine learning algorithms
• Data encryption
• Role-based access control that allows only authorized personnel to handle sensitive data

Cybersecurity infrastructure — such as robust firewalls, intrusion detection systems, and endpoint security solutions — is also essential to protect sensitive data. Partner with reputable data providers to maintain compliance with industry standards and conduct due diligence before engaging with new vendors to ensure compliance with security best practices and regulatory standards.

4. Train employees on best practices. Even with advanced security measures, data risks often arise due to human error, lack of awareness, or poor decision-making. Conduct regular data literacy training sessions to prevent misuse of alternative data and maximize its strategic value.

Education programs foster a data-driven culture where employees recognize the importance of risk assessment and informed decision-making. Consider such topics as interpreting AI-generated insights responsibly, preventing data bias, understanding regulatory implications, and implementing cybersecurity best practices. Interactive workshops that simulate real-world data scenarios can engage participants and promote cross-departmental collaboration.

5. Monitor and adapt. As technology advances, alternative data opportunities and risks will evolve, requiring businesses to update their ERM practices continuously. By regularly assessing the impact of alternative data on business decisions, staying updated on regulatory changes and refining risk management strategies, businesses can properly balance innovation and compliance.

Think of alternative data as an asset

A structured risk management approach helps ensure your organization uses alternative data ethically, responsibly, and strategically. As the technology and regulatory landscapes evolve, agile leaders can stay ahead of compliance requirements and governance best practices.

© 2025 KraftCPAs PLLC

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