Michael Gray, CPA's Blog

Tax and financial advice from the Silicon Valley expert.

Make your Section 83(b) election online

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  • mike   

Employees or service providers who receive restricted or unvested property, such as employer stock, as compensation should consider making a Section 83(b) election online. A Section 83(b) election is used to accelerate the taxation for unvested property received as compensation.

The most common situation where we see it in Silicon Valley is when a nonqualified stock option has an early exercise privilege (isn’t vested). For example, when an employee exercises a nonqualified stock option that has an early exercise privilege doesn’t work a certain number of years, the unvested stock is forfeited back to the employer.

When a vested nonqualified stock option is exercised, the excess of the fair market value of the stock over the option price is taxed as ordinary compensation income. When a nonvested nonqualified stock option is exercised, the ordinary income event is when the stock vests. When a Section 83(b) election is made, the exercise is treated “as if” the stock was vested. The option holder makes the election because he or she expects the price of the stock to grow in the future.

Similar rules apply for restricted/nonvested stock grants, but not for restricted stock units (RSUs).

In addition, the holding period for the stock for qualification for long-term capital gains is generally measured from the later of the exercise date or the vesting date. Since a Section 83(b) election results in vesting being disregarded, the holding period when the election is made starts on the exercise date.

For incentive stock options, a Section 83(b) election is only effective for the alternative minimum tax. Incentive stock option benefits from holding the stock more than two years after the grant date and more than one year after exercise only apply for regular tax reporting, and the incentive stock option rules superscede Section 83 when an incentive stock option is exercised.

During April, 2025, the IRS issued new Form 15620 for making a Section 83(b) election. The election can still be made with alternative written election language.

According to the instructions for the paper Form 15620, the employee or service provider should “Submit this completed and signed Form 15620 to the IRS via mail with the IRS office with which the person who performs the services files a federal income tax return.”

The IRS also (quietly) allows Form 15620 to be submitted online using its idME portal. According to the instructions on the idME site, Form 15620 may be submitted “either online (preferred), or by mail, but not both.” The Section 83(b) election may only be submitted using Form 15620 when it is submitted online using the idME portal.

To my knowledge, the IRS has made no public announcement of this alternative.

Here is a link for the IRS’s “mobile-friendly form”. https://sa.www4.irs.gov/sso/?resumePath=%2Fas%2FVrqrwfUL7l%2Fresume%2Fas%2Fauthorization.ping&allowInteraction=true&reauth=false&connectionId=SADIPACLIENT&REF=562D2FBD6DA9FB112C7A28DE5C5C5E649FEA871229B1C0A674080000006F&vnd_pi_requested_resource=https%3A%2F%2Fsa.www4.irs.gov%2Fola%2Fforms%2Fnew%2Ff15620&vnd_pi_application_name=OLA

You need an IRS idME online account to file the form online and you can do it using the above URL if you don’t already have one.

An advantage of filing online is you are assured the IRS has received it and shouldn’t misplace it.

The IRS prefers electronic filing because it’s far more efficient for the IRS to process electronic forms. They call paper forms “kryptonite”.

To be effective, a Section 83(b) election must be filed within 30 days after the option is exercised or restricted/unvested stock is granted.

A signed copy of the election must also be submitted to the transferee of the property and the person/company for whom services were performed.

A Section 83(b) election is generally irrevocable — you can’t change your mind later.

Employees or service providers who receive a nonqualified stock option with an early exercise privilege or a restricted stock grant should consult with a tax advisor who knows these rules.

Tax advisors should alert their clients who issue or receive stock-based compensation of this choice for making a Section 83(b) election.

Take mailed estimated tax payments to a USPS retail counter

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  • mike   

On November 24, 2025, the U.S. Postal Service published a notice in the Federal Register clarifying its postmark policies, effective December 24, 2025. https://www.federalregister.gov/documents/2025/11/24/2025-20740/postmarks-and-postal-possession

The new policy is also explained in this article from the USPS Newsroom. https://about.usps.com/newsroom/statements/010226-postmarking-myths-and-facts.htm

Instead of dating the postmark when an item of mail is accepted by the USPS, the postmark is generally dated when the item is processed at its automated processing facility, which might be several days after its accepted.

This might cause an issue for items mailed, but not postmarked, by a critical due date, such as a tax filing due date or voting day for a mail-in ballot.

Here are three ways to ensure a postmark showing the date of delivery:

  1. Request a Manual Postmark. Take the mailpiece to a USPS retail counter and request a “manual (local) postmark”. The postmark will be applied when the item is accepted. There is no additional charge for this service.
  2. Postage Validation Imprint (PVI). When postage is purchased at a retail counter and a PVI label is printed, the label will indicate the date of acceptance.
  3. Certificates of Mailing. A customer may purchase a Certificate of Mailing, or use Registered or Certified Mail, to get a receipt serving as evidence of the date the item was presented for mailing.

Note that the date on customer-applied pre-printed labels, such as from self-service kiosks, Click-N-Ship, or postage meters is not evidence of the mailing date or when the USPS accepted the item.

So, when you’re mailing a tax form, such as the next estimated tax payment due on January 15, 2026, or sending a mail-in ballot close to the deadline, take the item to a USPS retail counter and request a manual postmark, a Postage Validation Imprint, or a Certificate of Mailing.

Very high-income taxpayers should probably accelerate donations to 2025

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  • mike   

Not all of the tax law changes in the One Big Beautiful Bill Act (OBBBA) enacted July 4, 2025 favor high-income taxpayers.

For example, effective for tax years beginning after 2025, under Section 70425 of the Act, the charitable contributions tax deduction for individuals is reduced by 0.5% of the taxpayer’s contribution base for the taxable year.

The contribution base is the taxpayer’s adjusted gross income, computed without regard to any net operating loss carryback to the taxable year.

For most taxpayers, this reduction might not seem significant. For example, if John has adjusted gross income of $1,000,000, the reduction would be $5,000.

Taxpayers with much higher income are hit harder. For example, if Jane has adjusted gross income of $20 million, the reduction would be $100,000. Jane would be in the 37% marginal federal income tax bracket plus 3.8% for the net investment income tax, or 40.8%, so this tax law change could increase Jane’s federal income tax liability by $40,800 for 2026 compared to 2025. If Jane makes $100,000 of charitable contributions each year, she should consider accelerating the contributions she would normally make during 2026 to 2025.

Charitable contributions disallowed because of the 0.5% of contribution base reduction are added to the charitable contributions carryover amount that might be deductible during the 5 subsequent tax years. They are only added to the charitable contributions carryover if the deduction ceiling amount is exceeded, such as 60% of the contribution base for cash contributions to qualifying charities. Otherwise, the deduction for the disallowed charitable contributions are lost. In the example above, if Jane made $100,000 of charitable contributions for 2026, the 60% limitation would be $12 million, so the tax deduction for $100,000 would not be added to the charitable contributions carryover and would be lost.

Another OBBBA change effective after 2025 reduces the tax benefit of itemized deductions by 2/37 (about 5.4%) of the lesser of (1) itemized deductions before the “haircut”, or (2) the taxable income of the the taxpayer, before itemized deductions, that exceeds the threshold for the 37% tax bracket. Note this “haircut” applies to itemized deductions after the 0.5% reduction of charitable contributions.

For example, Jane has taxable income for 2026, before itemized deductions, of $20 million, and itemized deductions before the “haircut” of $1,000,000. The 2026 threshold for the 37% tax bracket for a single person is $640,600. The taxable income, before itemized deductions, exceeding the threshold is $20 million – $640,600 = $19,359,400. The “haircut” would be $1,000,000 X 2/37 = $54,054.

Note that taxpayers age 70 1/2 or older may make qualified charitable distributions (QCDs) from a traditional IRA of up to $108,000 for 2025 and $111,000 for 2026. QCDs aren’t taxable and aren’t subject to the contribution base limits that apply for other charitable contributions. QCDs also “count” for satisfying required minimum distribution (RMD) requirements for traditional IRAs that currently apply for taxpayers who reached age 73 during 2025 or the ages when RMDs applied for earlier years.

Taxpayers who haven’t decided where to donate their charitable contributions yet can “park” the funds in a donor advised fund, community foundation or a private foundation. Lower maximum deduction thresholds might apply.

The 0.5% reduction of the charitable contributions deduction and the 2/37 “haircut” of itemized deductions are only two of the significant changes in OBBBA that are making tax planning more complicated, with many different effective dates and thresholds. Taxpayers should consult with tax advisors who work with tax planning software that incorporates these changes and understand the rules for charitable planning.

When Iceland’s Women Took the Day Off

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  • mike   

The United Nations declared 1975 “The International Women’s Year”, leading to a Women’s Congress in Iceland during June, 1975.

Icelandic women gained the right to vote in 1915 and elected the first woman to parliament in 1922. In 1975, only 5% of the representatives in parliament were women.

Women were fed up with earning much less than men, having a “glass ceiling” at work, and performing most of the housework, with little or no appreciation for the importance of their contribution to Iceland’s economy. 60% of Icelandic women worked outside the home.

Led by the feminist group called the Red Stockings, the women at the Women’s Congress decided to do something about it. They proposed having a strike, but strikes were illegal in Iceland, except for labor unions and employer’s associations. So, they decided to “take a day off” on October 24, 1975.

Bear in mind that the population of Iceland in 1975 was 219,262 and there was only one national television station and one national radio station. Such an effort would be much more difficult in the United States.

There was a massive effort, supported by publicity in the media, to get participation. Women mailed postcards and letters, handed out brochures and flyers, went door to door, and made phone calls.

The morning of the “Day Off”, the front page of every newspaper in Iceland featured the Women’s Day Off. The morning newspaper, Morgunblaðið, promised to put the story on the front page provided typesetters who were taking the day off came in early to get the newspapers out, so they came in at midnight to get the job done.

90% of the women in Iceland participated in the Day Off. About 25,000 Icelandic women flooded the streets of Reyjkjavic to participate in protests.

Housewives told their husbands to prepare their own meals, care for the children and do the chores. Many husbands took their children to work. Grocery stores ran out of easy-to-cook sausages. Men called the day “The Long Friday.”

Banks and most other businesses closed for the day. Schools closed. Telephone service was shut down.

In response, Iceland adopted several women’s rights-related policies, including universal childcare and a law making paternity leave more accessible for fathers. In 1976, Iceland passed an equal rights law. In 2018, Iceland became the first country in the world to enforce equal pay for women and men for companies or organizations with 25 or more employees.

The percentage of women in parliament increased from 5% in 1983 to 46%.

In 1980, Vigdís Finnbogadóttir became the fourth president of Iceland, serving 16 years to 1996, and was the first woman in the world elected president of a country. The current president of Iceland is Halla Tómasdóttir, elected in 2024. The current prime minister of Iceland is Kristrún Frostadóttir.

Women still face challenges in Iceland. Although Iceland has more wage parity than any other nation, there is still a wage gap. Gender-based violence is widespread and women still perform the lion’s share of housework.

During 2024, director Pamela Hogan and producer Hrafnhildur Gunnadsdóttir released their documentary movie of the Day Off, The Day Iceland Stood Still. The movie has been shown on a very limited basis in the United States. It is currently available on Iceland Air international flights.

The World Economic Forum has named Iceland as the world’s most equitable society for women for 16 years. In 2025, nearly all of Iceland’s top positions, including the prime minister, president, chief of police and heads of all public and private universities, are held by women.

Project 2025 and Women’s Rights

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  • mike   

2025: Mandate for Leadership provides the agenda for President Trump’s presidency and the Republican leadership in Congress. Although the agenda claims to support equal rights for women, it actually appears to be an attempt to return women’s status to the 1950s.

The status of women during the 1950s and before was documented in The Feminine Mystique by Betty Friedan.

During the 1950s, the role of American women was to be mothers and housewives. Women went to college to find a husband and often dropped out before graduation. The proportion of American women attending college dropped from 47% in 1920 to 35% in 1958. By the mid-1950s, 60% of women dropped out of college to marry, or because they were afraid too much education would be a marriage bar.

During the 1950s, the average marriage age of women in America dropped to 20. Fourteen million girls were engaged by age 17. American families had an average of 3.7 children.

Almost all articles in women’s media related to marriage, relationships and the family.

Many women sought psychological therapy because they found they were losing their individual identity and weren’t achieving self-actualization goals. Psychologists suggested they work on their marriages and not on themselves. Alcoholism was rampant among American housewives.

Women who achieved professional success were social outcasts. They didn’t fit the social norms of the time.

The 1960s and 1970s were a sea change for women in the U.S. Women joined together to fight for women’s rights. Contraceptives, especially the contraceptive Pill became widely available. The Supreme Court ruled in Roe v. Wade that women had the right to safe abortions. Women gaining control over their own bodies gave them the freedom to pursue professional and self-actualization goals.

With high inflation and slow wage growth, American families found both spouses had to work to keep up with the cost of living.

The age for a first marriage for a woman in 2024 was 28.6. The average number of children for American families was 1.9.

Women comprised 58% of all college students in 2020. In 1979, about 200,000 more women were enrolled in college than men. By 2021, the difference had grown to about 3.1 million more women than men in college. For 2022, the graduation rate was 67.9% for women and 61.3% for men for first-time, full-time degree-seeking students who entered a degree-granting four-year institution in the fall of 2016.

52% of J.D. recipients today are women, v. 30% in 1980. 51% of Doctor of Dental Surgery or Doctor of Dental Medicine recipients are women, v. 13% in 1980. 50% of MD recipients are women, v. 23% in 1980.

In 2024, women made up about 47.2% of all employed workers in the U.S. The labor force percentage rate for women was about 57.6%.

The strategy of Project 2025 was to identify initiatives in advance and identify people loyal to Donald Trump to replace those who were not loyal to him to adopt changes quickly. You’ll notice the early months of Trump’s second term felt like a blitzkrieg of change. This was largely accomplished with a rash of executive orders, bypassing Congress. The Republicans wanted to accomplish as many initiatives as possible before the mid-term elections, in case the Democrats got control of either the House of Representatives, the Senate, or both, possibly blocking further initiatives.

One of the purposes of 2025: Mandate for Leadership and Project 2025 is an attempt to impose Christian Fundamentalist religious values on Americans, returning women to a subservient role.

Contraception, such as the contraceptive pill would no longer be widely available. Safe abortions would be outlawed.

“Pro-Life” initiatives would be adopted. Health and Human Services would be renamed “Department of Life.”

Employer-provided health insurance would be prohibited from providing “anti-pro life” (contraception and abortion) benefits.

Marriage is promoted and alternative sexual lifestyles are condemned. “Men and women are biological realities that are crucial to the advancement of life sciences and medical care and that married men and women are the ideal, natural family structure because all children have a right to be raised by the man and woman who conceived them.” (Even if they are abusive parents.)

The Trump Administration has attacked Diversity, Equity and Inclusion initiatives in the Federal government, in states and communities receiving federal funding, universities, and corporations.

The DOGE initiative has resulted in massive layoffs in the Federal workforce, disproportionately eliminating jobs for women and people of color.

Corporations that are requiring employees to return to the office after remote work during the COVID pandemic are disproportionately laying off women who can’t get child care and people of color.

A Baylor study found that 46% of women employees ordered to spend more time in the office negotiated taking on lower-level positions that allowed them to maintain their flexible working arrangements. Those moves involved women employees taking paycuts.

Since January 2025, more than 450,000 women have left the U.S. labor force. There was a net increase of men joining it.

In government agencies with a predominantly female workforce, such as the Social Security Administration (66% women), layoffs and cuts were widespread.

Even the right for married women to vote is under threat. The House of Representatives has passed the Safeguard American Voter Eligibility (SAVE) Act. Under the SAVE Act, anyone registering to vote or changing their registration would have to appear in person at an election office with original or certified documents proving identity and citizen status, usually with a passport or a birth certificate. A state-issued drivers license wouldn’t be adequate on its own. The passport or record of naturalization and the birth certificate would have to have a matching name. Since most married women change their last name to their husband’s at marriage, processing their voter registration would be complicated. Only half of U.S. citizens currently have a passport.

The bill includes a provision ordering states to allow registrants to provide “additional documentation” to prove their citizenship when discrepancies arise, but it does not specify what types of documents states could accept.

Making this change could prevent millions of women from voting until they can document their identities. It could also result in changing the custom of adopting a partner’s name at marriage to avoid the hassle of documenting your identity to vote.

Adopting the SAVE Act also would create an inconvenience for all voters whenever they change their address. They would have to visit a voter registration office to make the change.

The SAVE Act hasn’t been passed in the Senate. Maybe some “bugs” can be worked out when and if it is adopted.

Most of the initiatives in Project 2025 have not become laws yet, and lawsuits are in process for some, like defending diversity, equity and inclusion. The Supreme Court has been inclined to disregard precedent rulings and support President Trump and Project 2025, even when their initiatives appear on their face to be unconstitutional.

What can women do to defend their rights?

  1. Vote in the upcoming 2026 midterm election for candidates (preferably women) who support women’s rights, and do not support President Trump and Project 2025. (President Trump won the last election because fewer Democrats voted in 2016, probably because they were unhappy with how President Biden handled Israel’s war on Gaza.) (If you are in a relationship where your partner is dictating how you vote, consider asserting yourself or getting out of it. Look for local support resources online.)
  2. Join protests against the Trump Administration. www.nokings.org
  3. Call or write representatives in Congress to express your opposition to Project 2025 initiatives and the SAVE Act. https://www.congress.gov/members/find-your-member
  4. Attend local Town Hall meetings of representatives in Congress to express your opposition to Project 2025 and the SAVE Act.
  5. Donate to the American Civil Liberties Union to support litigation defending women’s rights. https://www.aclu.org/
  6. Join with other women in the National Organization for Women to fight for women’s rights. https://now.org/
  7. Start your own business or seek employment of women-led businesses or organizations. More women are educated than men, and they have the skills or can get the skills they need to run successful businesses. Women-led business often do better than business led by men. https://www.stash.com/learn/why-companies-led-by-women-may-do-better/
  8. Re-examine the tradition of paternalism and consider adopting the philosophy of partnership of the sexes. https://breakingdownpatriarchy.com/

Do you have more ideas? Please send me your suggestions.

Should a parent or the student claim the American Opportunity Tax Credit?

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  • mike   

Did you know the American Opportunity Tax Credit (AOTC) can be claimed either on the income tax return of a parent or the student who is their dependent?

The AOTC is an important tax benefit to help defray education expenses of full-time college students.

The IRS has provided an explanation of Tax Benefits for Education in Publication 970, available at the IRS web site, www.irs.gov.

The credit is for the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of expenses, or a maximum of $2,500 per year for the first four years of qualified post-secondary education. (The credit can’t be claimed for more than four tax years.)

The student must be enrolled at least half-time for at least one academic period that begins during the tax year, or the first three months of the next tax year when qualified expenses were paid during the previous tax year. The student must also be enrolled in a program that leads to a degree, certificate, or other recognized academic credential.

Only tuition and certain related expenses, including books, supplies and equipment needed for a course of study, are included in qualified education expenses for the credit. Room and board don’t qualify for the credit.

When a parent claims the AOTC, amounts paid by the student can be included to compute the credit on the parent’s income tax return. When a dependent child claims the AOTC, amounts paid by parent(s) can be included to compute the credit on the child’s income tax return.

Amounts reimbursed using tax-free funds, such as employer-paid expenses, tax-free scholarships, or tax-free distributions from Section 529 plans (qualified tuition arrangements), don’t qualify for the credit.

The AOTC is phased out when the taxpayer’s modified adjusted gross income (MAGI) is between $80,000 and $90,000 for single persons, or $160,000 and $180,000 for married taxpayers filing a joint return. Married persons who file a separate return and individuals claimed as a dependent by another taxpayer aren’t eligible for the credit.

The income of the parents might exceed the phaseout limitation, or a parent might file a separate return, so the parents might get no tax benefit from the credit. In that case, the student can claim the credit. (IRC Section 25A(f)(1)(A)(iii), Pub. 970, page 20.) The parent(s) may not claim the student as a dependent on their income tax return when the student claims the credit.

Since dependent exemptions have been repealed by the One, Big, Beautiful Bill Act (OBBBA), the main impact on the parents’ income tax return may be whether they can claim the child credit or the credit for other dependents. Since a child must be under age 17 to qualify for the child credit, it won’t apply for most college students. The credit for other dependents is $500 and phases out for married taxpayers who file a joint return with adjusted gross income exceeding $400,000 and other taxpayers with adjusted gross income exceeding $200,000.

40% of the AOTC is a refundable credit. Taxpayers who are subject to the “kiddie tax” aren’t eligible for the refundable credit, so most students who claim the credit on their income tax returns won’t get the refundable credit. (Mostly this applies when the student doesn’t provide more than half of his or her support. See the Instructions for Form 8615.)

Here are some additional rules to be aware of.

A person who qualifies as a dependent of someone else can’t claim himself or herself as a dependent. (A dependent student can’t claim himself or herself as a dependent, even when a parent doesn’t claim them as a dependent.) (IRC Section 152(b)(1).)

Accident and Health plans and HSAs are allowed for medical expenses of individuals qualifying as dependents, not based on whether the dependent exemption was claimed. (IRC Sections 105(b) and 223(d)(2)(A).)

The Kiddie Tax on unearned income of dependents still applies, because a parent is living. (Section 1(g).)

The standard deduction for 2025 is limited for a single person eligible to be claimed as a dependent to the greater of $500 or the sum of $250 plus the individual’s earned income, limited to $15,750. (IRC Section 63(c)(2) and (5).)

There might be state income tax considerations not discussed here for deciding whether to claim the AOTC on the federal income tax return of the parent or the student.

Families should determine whether claiming the AOTC on the federal income tax return of the parent(s) or the student provides the maximum tax benefit. Tax planning computations have become much more complicated under OBBBA. Consider using tax projection software that has been updated for the new tax law.

IRS issues rules for Roth 401(k) catch-up requirement

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  • mike   

On September 16, 2025, the IRS published final regulations relating to catch-up contributions to 401(k) and other elective contribution employer accounts. IR-2025-91. https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-on-new-roth-catch-up-rule-other-secure-2point0-act-provisions

The SECURE 2.0 Act of 2022 included some important changes for catch-up contributions to 401(k) accounts and other elective contribution employer accounts.

Effective for taxable years beginning after December 31, 2023, catch-up contributions by individuals who have $145,000 (subject to cost of living adjustments) or more of wages for the prior year could only be made to a Roth account, disallowing the exclusion from federal income taxes for that contribution.

In August, 2023, the IRS issued Notice 2023-62, which postponed the effective date for two years, until taxable years beginning after December 31, 2025.

The final regulations include the requirement that catch-up contributions for 401(k) plans must be designated as Roth contributions. Although the final regulations aren’t effective until taxable years beginning after December 31, 2026, the requirement in the tax law hasn’t been further postponed, so the requirement also applies for 2026.

Also note Roth contributions can’t be made unless the plan provides for them, so employees of companies whose plans don’t provide for Roth contributions can’t make catch-up contributions.

The catch-up contribution for employees who reach age 50 by the end of the tax year is generally limited to $7,500 for 2025, to be adjusted for inflation for future years. For taxable years beginning after 2024, plan participants who attain ages 60 through 63 have a higher catch-up contribution limit of 150% of the limit for other employees, or $11,250 for 2025, to be adjusted for inflation in future years.

The final regulations also include rules for other retirement plans, such as SIMPLE plans.

Employers and their plan administrators should meet with their tax advisors and legal counsel about updating their retirement plans for the new final regulations.

Do you qualify for the new federal tips deduction?

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  • mike   

The IRS has issued proposed regulations for what tips qualify for the new federal tips deduction. (IR-2025-92, Prop. Reg. 110032-25, published September 22, 2025. https://www.federalregister.gov/documents/2025/09/22/2025-18278/occupations-that-customarily-and-regularly-received-tips-definition-of-qualified-tips

The deduction is up to $25,000 of qualifying tips received by an individual or a married couple. It’s not an itemized deduction. The social security number of the individual or individuals claiming the deduction must be reported on the income tax return. Married persons must file a joint return to claim the deduction.

The deduction for qualified tips phases out by $100 for each $1,000 over $150,000 of modified adjusted gross income ($300,000 for joint returns.)

The deduction applies for 2025 through 2028.

The deduction applies for employees who receive Form W-2, independent contractors receiving Forms 1099-K or 1099-NEC, and certain business owners.

Qualifying tips must be voluntary and determined by the payor. For example, an automatic tip specified by a restaurant without expressly providing an option to disregard or modify the amount doesn’t qualify for the deduction. Any tip paid in excess of the automatic amount qualifies for the deduction. (Some restaurants might have to segregate accounting for tips that qualify and those that don’t.) When a customer must choose from a list of tip percentages that doesn’t include “no tip”, that tip doesn’t qualify for the deduction.

The proposed regulations include a list of occupations that might qualify for the deduction.

One of the listed occupations is “digital content creator”, so a person who produces a video podcast might qualify to claim the tips deduction.

The services may not be performed in a “specified service trade or business”, as defined for the Qualified Business Income Deduction at Internal Revenue Code Section 199A(d)(2). For a self-employed person, the “specified service trade or business test” is determined based on that person’s occupation. For an employee, the “specified service trade or business test” is determined based on the business of the employer.

For example, a self-employed comedian who receives tips for performing doesn’t qualify for the tips deduction, despite being on the list of qualifying occupations, because “performing arts” is a specified service trade or business.

A pianist who receives tips as an employee of a hotel when playing in the hotel lobby does qualify for the tips deduction, because a hotel isn’t a specified service trade or business.

The IRS has issued a draft Form 1-A for claiming the tips deduction. https://www.irs.gov/pub/irs-dft/f1040s1a–dft.pdf

Remember, the income tax laws of many states, such as California’s, haven’t conformed to this new tax law.

There are many deductions with different phaseouts under the One Big Beautiful Bill Act as well as other limitations under the Internal Revenue Code. I suggest that tax planning computations be made by a tax consultant who is familiar with the new rules using tax planning software that has been updated for recent tax law changes.

Research expensing and 2024 income tax returns

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  • mike   

Technology companies have finally achieved tax relief for domestic research and experimentation (R & E) expenses. Certain “small businesses” can elect to currently deduct them on their extended or superseding 2024 income tax returns and amending or filing an administrative adjustment request for their 2022 – 2023 return.

In order to achieve budget goals, the Tax Cuts and Jobs Act of 2017 included a provision requiring that research and experimental expenses incurred after December 31, 2021 be capitalized and amortized over a 60-month period. The plan was for the amortization requirement to be repealed before it became effective. From that time, technology companies have been lobbying Congress to restore the election to currently expense R & E expenses.

Finally, the expense election was restored for domestic R & E expenses by Section 70302 of the One Big, Beautiful Bill Act of 2025 (OBBBA), effective for tax years beginning after December 31, 2024. https://www.congress.gov/bill/119th-congress/house-bill/1

Most corporations may elect to deduct the unamortized balance of domestic R & E expenses that were previously capitalized for 2022 through 2024 over a one- or two-year period, starting for 2025. (OBBBA Section 70302(f)(2).)

Alternatively, certain small businesses that have average gross receipts of $31,000,000 or less for a taxable year beginning in 2025 may elect to amend their tax returns for 2022 – 2024 and currently deduct amounts that were previously capitalized and amortized. The election must be made by Monday, July 6, 2026. (Note the due date for filing an amended return supersedes that date. For example, a corporation that timely filed its 2022 income tax return, with no extension filed, on April 15, 2023 may not file an amended income tax return after April 15, 2026.) (OBBBA Section 70302(f)(1), Revenue Procedure 2025-28, Sections 3.02(1) and 3.03(3).) (Instead of filing amended income tax returns, partnerships file administrative adjustment requests (AARs).)

According to OBBBA Section 70302(f)(1)(A), the small business expense election should be made on an amended income tax return or an AAR. Many corporations still haven’t filed their 2024 income tax returns, with an extended due date of October 15, 2025. The American Institute of Certified Public Accountants and technology companies asked the IRS to allow them to make the election for 2024 on an originally-filed income tax return.

On August 28, 2025, the IRS issued Revenue Procedure 2025-28. https://www.irs.gov/pub/irs-drop/rp-25-28.pdf According to the Revenue Procedure, certain small business taxpayers may make the election to currently deduct R & E expenses on an originally-filed income tax return. (Rev. Proc. 2025-28, Section 3.03.) In addition, the IRS said that a six-month automatic extension of time to file is granted to any business that didn’t previously request one, and a business that previously filed a 2024 income tax return without electing to currently deduct R & E expenses may make the election by timely filing a superseding income tax return that includes the election. (Rev. Proc. 2025-28, Section 8.)

A business that deducts domestic R & E expenses on an original federal income tax return and complies with the requirements of Rev. Proc. 2025-28, Section 3.03 for all other applicable tax years will be deemed to have made a current-expense election. (Rev. Proc. 2025-28, Section 3.03(4).)

Instead of filing a change of accounting Form 3115, the taxpayer should attach a statement to the income tax return with similar information specified in the Revenue Procedure. (Rev. Proc. 2025-28, Sections 3.03(2) and 3.04.)

Taxpayers should consider the cost of preparing amended income tax returns and AARs, and that the IRS takes about a year to process them, when making the decision whether take to amended return/AAR route, including deducting the expenses currently on the 2024 income tax return, or simply deducting unamortized domestic R & E expenses on their 2025, or 2025 and 2026, income tax returns.

I highly recommend consulting with a qualified tax return preparer when implementing this change.

Who was the main author of the New Deal?

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Frances Perkins became the first woman to serve in a U.S. Presidential cabinet (in 1933) and the fourth longest-serving cabinet secretary. She is also recognized as the principal author of Franklin Roosevelt’s New Deal.

She was highly educated for that time, with a bachelor’s degree in chemistry and physics earned at Mount Holyoke College in 1902 and a master’s degree in social economics received in 1910 after studies at the Wharton School of Finance and Commerce of the University of Pennsylvania, and Columbia University.

She became concerned about women’s safety in the workplace when she witnessed the Triangle Shirtwaist Factory fire in 1911. The factory employed hundreds of workers, mostly women, and lacked fire escapes. The owner kept the doors and stairwells locked to keep employees from taking breaks. When the building caught fire, many workers couldn’t use the doors and tried to escape through the windows. 146 workers died.

After Perkins worked as a New York state commissioner overseeing New York’s industrial code and as the inaugural New York state industrial commissioner under then-governor Franklin Roosevelt, Roosevelt asked her to join his presidential cabinet and serve as the Secretary of Labor in 1933.

Perkins agreed to serve, provided Roosevelt would accept her policy priorities: a 40-hour work week; a minimum wage; unemployment compensation; worker’s compensation; abolition of child labor; direct federal aid to the states for unemployment relief; Social Security; a revitalized federal employment service; and universal health insurance.

She was successful in implementing all of those goals, except universal health insurance.

Perkins was also an advocate for massive public works programs, including implementing the Civilian Conservation Corps., to bring the nation’s unemployed back to work during the Great Depression.

Perkins also created the Immigration and Naturalization Service. Her goal was to humanize the treatment of immigrants in the U.S. She opposed restrictive immigration practices, abolishing the Bureau of Immigrations “Section 24” squad, known for illegal apprehension tactics which violated due process. (Sounds like ICE?)

Ironically, President Trump has been “undoing” these reforms and dismantling the Department of Labor.

American workers and retirees should honor Frances Perkins for the workplace protections and retirement security that she was instrumental in creating and that we benefit from, today.

Michael Gray, CPA's Blog

Tax and financial advice from the Silicon Valley expert.