Michael Gray, CPA's Blog

Tax and financial advice from the Silicon Valley expert.

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 The plan was for the amortization requirement to be repealed before it became effective.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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  • mike   

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.

Investors! – You might be losing vital protection

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  • mike   

Public Company Accounting Oversight Board Chair Erica Williams has resigned at the request of Securities and Exchange Commission Chair Paul Atkins. Atkins has said he wants to terminate the PCAOB as a separate body and incorporate it into the SEC.

This action reflects the big-business friendly orientation of the Trump administration and the abandonment of regulations created to protect American consumers and investors.

Of course big businesses would prefer to have the freedom of eliminating regulation. It would be great if business leaders behaved like the demigods in Atlas Shrugged but they don’t. They misbehave, resulting in the injury and death of consumers and financial losses to investors.

What was the scandal that inspired Congress to create the PCAOB?

Enron was the darling of Wall Street during the 1990s and early 2000s. It was the largest natural gas provider in North America in 1992. In 1999, the company’s stock increased 56%, and in 2000, it increased an additional 87%.

The CEO of Enron was Kenneth Lay, who was a charismatic leader and close friend of the (Presidents) George Bush family. The “whiz kid” brains of Enron was Jeffrey Skilling, who had previously worked at McKinsey & Company.

Skilling introduced a number of innovations at Enron.

One was adopting mark-to-market accounting. Revenue was recognized for contracts when they were accepted, based on the total management estimate of revenue for the contracts before the services were performed. Skilling was able to get SEC approval for this method, so the auditors accepted it.

Although the company reported substantial profits, it never had positive cash flow.

In order to avoid having debt disclosed on the corporate balance sheet, the debt was incurred by “special purpose vehicle” subsidiaries of Enron, secured by Enron stock and recorded as related party transactions.

The company got control of a trading market for energy. The traders were able to manipulate the energy market in California with the cooperation of the switching stations, dramatically increasing the price paid by California utilities for energy and resulting in brownouts or shortages of energy provided within the state.

In the early stages of the internet, Enron introduced a broadband service that generated significant losses and eventually was closed. The Broadband Services department reported a financial loss of $102 million for the second quarter, 2001.

Kenneth Lay and Jeffrey Skilling continously encouraged employees to invest in Enron stock in their 401(k) accounts, while Lay, Skilling, and other Enron executives were selling their shares.

Enron acquired Portland General Electric (PGE) in a stock-for-stock exchange. PGE stock held in the 401(k) accounts of PGE employees was replaced with Enron stock.

Sherron Watkins, a Vice President for Enron, expressed concerns about Enron’s accounting practices, and wrote an anonymous letter to Kenneth Lay explaining her concerns. She presented a six-page report of her concerns to Lay and to the company’s lawyers and accountants. They didn’t agree with her concerns.

By October, 2001, Enron reported a third quarter loss of $618 million and announced it would restate its financial statements from 1997 to 2000 to correct accounting violations.

On November 28, 2001, credit rating agencies reduced Enron’s credit rating to junk status, leading to its $63.4 billion bankruptcy, the biggest on record at the time.

Arthur Andersen, the company’s auditor, was fired. The auditors shredded evidence in their possession. The scandal led to Arthur Andersen losing its license to practice public accounting, destroying the fifth largest CPA firm in the United States. (In addition to its audit work, Arthur Andersen had several consulting assignments with Enron.) (The surviving piece of Arthur Andersen is Accenture, renamed from Andersen Consulting.)

Kenneth Lay was convicted of six counts of securities and wire fraud, subject to a maximum sentence of 45 years in prison. He died before being sentenced.

Jeff Skilling was convicted of 19 counts of securities fraud and additional charges of insider trading. He was sentenced to 24 years and four months in prison, later reduced by 10 years in a deal with Department of Justice.

You can watch a documentary of the Enron story, Enron: The Smartest Guys In The Room, for free on YouTube here. https://www.youtube.com/watch?v=7tx9B53s5XU

In Congressional hearings, it was revealed that the bankers, securities brokerages, utilities regulators, auditors, and the SEC were all complicit in the Enron scandal. Nobody wanted to question the honesty of the corporate officers.

As a result of the Enron scandal and other scandals, like Worldcom and Tyco, Congress passed the Sarbanes-Oxley Act of 2002, including the creation of the PCAOB for the oversight of the public accounting profession. The Financial Accounting Standards Board also adopted rules to curtail the use of questionable accounting practices.

The PCAOB had it most effective enforcement year to date in 2024. The agency made public 51 settled orders, compared to 40 settled orders each year for 2022 and 2023. KPMG Netherlands was fined $25 million, the highest civil money penalty in PCAOB history. Most of the PCAOB’s audit activity and penalties relate to international operations.

Without the continued oversight of the PCAOB, it seems likely that investor risk of fraud will increase and we will see more of the scandals experienced during the 1990s and 2000s.

Small business stock gain exclusion planning

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  • mike   

Entrepreneurs creating new businesses have had an important benefit enhanced by the One Big Beautiful Bill Act of 2025 (OBBBA, H.R. 1, P.L. 119-21) – the Section 1202 Small Business Stock capital gain exclusion.  There are many tax planning considerations, including the choice of form of entity for the business, and employee stock option considerations.

Qualified Small Business Stock gain exclusion. 

Before the adoption of OBBBA, noncorporate taxpayers could exclude from taxable income capital gains from the sale or exchange of qualified small business stock held for more than five years.

Before the change, the exclusion was (still applies for qualified stock acquired before July 5, 2025):

  • 100% of the gain for qualified stock acquired after September 27, 2010;
  • 75% of the gain for qualified stock acquired after February 17, 2009 and before September 28, 2010; and
  • 50% of the gain for qualified stock acquired before February 18, 2009 (increased to 60% of the gain attributable to periods before 2019 if the stock was issued by a corporation in an empowerment zone and acquired after December 21, 2000.)

For stock acquired before September 28, 2010, 7% of the excluded gain is a tax preference item for alternative minimum tax reporting.

Excludable gain on dispositions of qualified stock from any single issuer for a tax year is limited to the greater of (1) $10 million, reduced by the aggregate amount excluded for the issuer’s stock in prior years ($5 million for married, filing separately); or (2) 10 times the taxpayer’s adjusted basis in all of the issuer’s stock disposed of during the tax years.

Gains on dispositions of qualified stock held by a pass-through entity for more than five years is passed through to partners, shareholders and participants who held interests in the entity when it acquired the stock and at all times thereafter.  The exclusion can’t reflect any increase in the person’s share of the entity after the entity acquired the stock.

In addition to the exclusion, taxable gains from sales of qualified stock may be deferred under Internal Revenue Codes Section 1045 by reinvesting the sale proceeds in stock of another qualified small business within 60 days after the sale.

Qualified small business stock is stock issued after August 10, 1993, and acquired by the taxpayer at the original issue, directly or through an underwriter, in exchange for money or property, or as compensation for services provided to the corporation.  The issuing corporation must be a domestic C corporation other than a regulated investment company, cooperative, or other pass-through corporation.

Both before and immediately after the qualified stock is issued, the corporation’s aggregate gross assets must not exceed $50 million, with parent-subsidiary controlled groups treated as one corporation.  During substantially all of the taxpayer’s holding period, at least 80% of the value of the corporation’s assets must be used in the active conduct of qualified trades or businesses.

A qualified business does not include the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business if its principal asset is the reputation or skill of employees.  Hospitality, farming, insurance, finance and mineral extraction also are not qualified businesses.

Note that retail, manufacturing, and research to develop a product are qualifying businesses.

How OBBBA changes the thresholds.

OBBBA changes the gain exclusion by creating tiers, effective for stock issued or acquired and to tax years commencing after July 4, 2025.  The exclusion ratios are 50% after three years, 75% after four years, and 100% after five years.  The per-issue dollar cap for post-enactment shares is increased from $10 million to $15 million reduced by the aggregate amount excluded for the issuer’s stock in prior years ($7.5 million for married persons filing separately), indexed for inflation after 2026.  The post-enactment aggregate-asset ceiling is increased from $50 million to $75 million, indexed for inflation after 2026. 

There is no alternative minimum tax preference for the excluded gains for these shares. 

The higher asset ceiling means the stock of more corporations will qualify for the exclusion. 

Shareholders who have capital gains from sales of qualified small business stock will be eligible to exclude more of their gains from taxable income.

The holding period requirement to qualify for a partial exclusion has been relaxed, so more sales of qualified small business stock will qualify for some exclusion from taxable income.

In the past, the thresholds haven’t been indexed for inflation.  Under OBBA, the thresholds will be automatically increased for inflation after 2026.

Family tax planning tip.

Giving family members cash to purchase qualified small business stock can increase the exclusion threshold for the family.  (Up to $15 million per family member.)

Choice of entity considerations.

Making a decision about what form a business should be requires having a long-term horizon and a crystal ball.

According to a Bureau of Labor Statistics report in 2024, about 20% of startups that opened for business in 2013 failed during the first year.  About 39% of startups failed within the first three years.  About 50% of startups failed within the first five years.  About 65% failed within the first ten years.  It seems the odds are against realizing a gain from the sale of startup stock.  Only a handful of shareholders do.

To qualify for small business stock to qualify for the exclusion, it must be issued by a corporation that qualifies when the stock is issued.  The corporation that issues the stock must be a regular “C” corporation (including an LLC that elects to be taxed as a C corporation – most don’t.)  Stock issued by an “S” (passthrough entity) corporation doesn’t qualify, but stock issued by a former S corporation after terminating its S election and becoming a C corporation can qualify.

Why is this important?

Business startups typically generate losses during their first few years.  Losses of a C corporation are “locked” in the business and aren’t deductible for its owners.  Losses of passthrough entities are eligible to be deducted on the income tax returns of their owners, subject to limitations like basis limitations, passive activity loss limitations, and at risk limitations.

Owners of general partnerships and sole proprietorships include their shares of “at risk” debt in their investment for the limitation for deducting business losses.  (If the business fails, they are liable for the debt.)

Passthrough entities aren’t subject to double taxation, like C corporations.  The owners pay income taxes on the entity’s taxable income and add that income to their tax basis (cost for computing taxable gain) for the sale of their ownership interest.

Partnerships and sole proprietorships have an advantage of being able to possibly liquidate by distributing their assets tax-free.

For businesses whose business plans don’t include having a public offering of their shares or selling the business at a multiple asset value for the foreseeable future, these are good reasons to choose passthrough structures, not C corporations.

For businesses that are adequately capitalized and are developing significant intellectual property or significant net income for a high multiple valuation that is expected to be sold soon after five years, or that plan to make a public offering of their shares, C corporations look more attractive.

Employee Stock Options and the Qualified Small Business Stock Capital Gain Exclusion.

The Ninth Circuit Court of Appeals has confirmed the Tax Court in holding employee stock options don’t qualify as stock for the Small Business Stock Capital Gain Exclusion.  The court also ruled the holding period of employee stock options before exercising them isn’t included for the 5-year holding period requirement.  The shares must be owned to start the clock.[1]

Any ordinary income for stock acquired by exercising an employee stock option isn’t eligible for the Small Business Stock Capital Gain Exclusion.

As explained below, determining when the holding period begins becomes complicated when employee stock options have a vesting schedule and the employer or other option granter permits an early exercise of employee stock options.  For nonqualified stock options, the employee may elect under Section 83(b) to treat the early exercise as taxable for regular tax and alternative minimum tax reporting.  When that election is made, the holding period starts on the date of exercise.  When that election isn’t made, the holding period starts on the later of the vesting date or the date of exercise.

For incentive stock options, the regular tax holding period starts on the date of exercise, regardless of vesting.  The Section 83(b) election to treat the early exercise as taxable only applies for the alternative minimum tax and the option is treated as a nonqualified option for alternative minimum tax reporting.  (The holding period might start on different dates for regular tax and AMT reporting.  Note there is no AMT adjustment relating to most Small Business Stock Capital Gain Exclusions.  For stock acquired before September 28, 2010, 7% of the excluded gain is a tax preference item for alternative minimum tax reporting.)

[1]Natkunanathan v. Commissioner, 110 AFTR 2d 2012-5193, July 12, 2012.

One Big Beautiful Bill Tax Provisions Effective After 2025

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  • mike   

President Trump signed the One Big, Beautiful Bill Act of 2025 (OBBBA), H.R. 1, Public Law 119-21, on July 4, 2025.  Republicans in Congress responded to President Trump’s request for urgency, enacting it mid-year.  Usually, major tax laws are passed at the end of the year.  The Act was narrowly approved, 51-50 in the Senate and 218-214 in the House of Representatives.

The principal part of the Act was to extend most of the cuts in the Tax Cuts and Jobs Act of 2017.

The Act is huge – over 900 pages.  In order to make it more digestible, I previously sent a summary of provisions effective 2025. This article will mostly focus on the provisions taking effect after 2025.

Remember these are federal tax changes.  Check whether your state will conform to them.

You can access the complete law at https://www.congress.gov/bill/119th-congress/house-bill/1/text.

  1. Tax rates extended.  Permanently effective for tax years beginning after December 31, 2025, OBBBA extends the individual income tax rates adopted in the Tax Cuts and Jobs Act of 2017.  The maximum federal income tax rate for individuals, estates and trusts, scheduled to increase to 39.6%, is 37%.  The threshold for the 20% maximum long-term capital gains rate is also extended, indexed for inflation.

The Act adds an additional year inflation adjustment for the 22% tax bracket by adjusting the base year.  (Act § 70101.)

2. Increased standard deduction made permanent.  The standard deduction is slightly increased effective 2026 to $15,750 for singles, $23,625 for heads of households, and $31,500 for married, filing joint returns, indexed for inflation in future years.  (Act § 70102.)

3. Estate and gift tax lifetime exemption made permanent.  The estate and gift tax lifetime exemption is increased to $15 million effective 2026 and indexed for inflation for subsequent years.  (Act § 70106.)

4. Alternative minimum tax exemption and phaseout amounts modified and made permanent.  Effective for tax years beginning after December 31, 2025, the alternative minimum tax (AMT) exemptions adopted for individuals in the Tax Cuts and Jobs Act of 2017 are extended, with annual inflation adjustments slightly modified, using different base years.  (The Tax Cuts and Jobs Act of 2017 didn’t change the AMT exemptions and phaseouts for estates and trusts.)

The thresholds for phasing out the exemptions are reduced from $1,252,700 for married, filing joint and surviving spouses for 2025 to $1,000,000 for 2026, indexed for inflation, thereafter and from $626,350 for singles and heads of households for 2025 to $500,000 for 2026, indexed for inflation thereafter.

The exemption phaseout rate is increased from 25% to 50%, so the exemption is phased out twice as fast under the new law.  (Act § 70107.)

5. Section 529 (Qualified Tuition Programs) changes.  Effective for tax years beginning after December 31, 2025, the annual limit for distributions for a beneficiary from § 529 plans is increased from $10,000 to $20,000. (Act § 70413.)

See item 2 of the article about changes effective 2025 about additional expenses qualifying for the exclusion and postsecondary credentialing expenses.

6. Qualified residence interest.  Effective for tax years beginning after December 31, 2025, the limit for deducting qualified residence interest is permanently $750,000 of acquisition indebtedness.  Home equity indebtedness (other than acquisition indebtedness) doesn’t qualify as qualified residence interest.

Effective for tax years beginning after December 31, 2025, mortgage insurance premiums (previously deductible for 2018 through 2021) are treated as interest on acquisition indebtedness.  The deduction relating to mortgage insurance premiums is phased out for taxpayers with adjusted gross income above $100,000 ($50,000 for married, filing separate returns by $100 for each $1,000 ($500 for married, filing separate returns) in excess of the threshold amounts.  (Act § 70108.)

7. Miscellaneous itemized deductions repealed, except for educator expenses.  Effective for tax years beginning after December 31, 2025, the deduction for miscellaneous itemized deductions is permanently repealed, and unreimbursed employee expenses for eligible educators is removed from the list of miscellaneous itemized deductions.

Expenses of an eligible educator are tax deductible.  An eligible educator is an individual who is a kindergarten through grade 12 teacher, instructor, counselor, interscholastic sports administrator or coach, principal or aide in a school for at least 900 hours during a school year.

Unreimbursed employee expenses for eligible educators include expenses for books, supplies, computer equipment and supplementary materials used by eligible educators as part of instructional activity.  (Act § 70110.)

8. Overall limit on the benefit of itemized deductions.  The “Pease limitation” on itemized deductions that was scheduled to be restored after December 31, 2025 is permanently repealed and replaced with a new limitation, effective for tax years beginning after December 31, 2025.

Under the new limitation, itemized deductions, after applying other limitations, are reduced by 2/32 of the lesser of (1) the amount of itemized deductions; or (2) the amount of taxable income, before itemized deductions over the threshold for the 37% tax bracket.  (Act § 70111.)

9. Gambling loss limit.  Effective for tax years beginning after December 31, 2025, a temporary rule, expiring at the end of 2025, limiting wagering losses has been replaced with a stricter rule.  Under the temporary rule, “losses from wagering transactions” include any deduction otherwise allowable under the Internal Revenue Code in carrying on such transactions.  That rule prevented professional gamblers from using travel expenses, tournament fees and other expenses to generate losses from their gambling businesses.

OBBBA makes that rule permanent, and also adopts another permanent rule limiting “losses from wagering transactions” to the lesser of wagering gains or 90% of the amount of wagering losses.  (Act § 70114.)

10. Extension and modification of exclusion for discharges of student loans.  Effective for discharges after December 31, 2025, the Tax Cuts and Jobs Act allowing the exclusion of income of student loans discharged because of an individual’s death or permanent disability has been extended permanently.  The exclusion applies for a student loan or a private education loan.  In order to qualify for the exclusion, the taxpayer must provide a work-eligible Social Security number.

An American Rescue Plan Act provision extending the exclusion to all student loan discharges is allowed to expire as of December 31, 2025.  (Act § 70119.)

11. Trump savings account and contribution pilot program.  Effective January 1, 2026, parents of any child under age eight may open a Trump account for their child.  The first contribution can’t be made until six months after July 4, 2025.  The accounts may receive contributions from parents, relatives and other taxable entities and from other non-profit and government entities facilitated by the Treasury Department.  To be eligible for an account, the child must be a U.S. citizen and at least one parent must provide their work-eligible Social Security number.

Trump accounts are a kind of traditional IRA that must be invested in a diversified fund that tracks an established index of U.S. equities.  No margin is permitted for account investments.  Contributions to Trump accounts don’t count for the contribution limits for other retirement accounts and the account isn’t aggregated with other IRAs for the purpose of determining required minimum distributions or the taxability of distributions.

Taxable entities may make aggregate contributions up to $5,000 annually of after-tax dollars to a Trump account.  Contributions from tax-exempt entities aren’t subject to the $5,000 annual limit.  The limit will be indexed for inflation after 2027.  Contributions aren’t counted for determining the tax basis of the account.

Contributions from unrelated third parties must be provided to all children within a qualified group – for example, all children in a state, a specific school district or educational institution.

Employers may contribute up to $2,500 to an employee’s child’s Trump account and the contribution isn’t included in the employee’s taxable income.  The limit will be indexed for inflation after 2027.

No contributions can be made to a Trump account after the beneficiary reaches age 18.

The account may be transferred tax-free to a different custodian using a trustee-to-trustee transfer.

Trump account holders may not take distributions until they reach age 18.  From age 18 to 24, account holders may access up to 50% of funds for higher education, training programs, small business loans, or first-time home purchases.  At age 25, account holders may withdraw any amount, up to the full balance, for those limited purposes.  At age 30, account holders may withdraw up to the full balance of the account for any purpose.

Distributions taken for qualified purposes are taxed as long-term capital gains.  Distributions taken for any other purpose are taxed as ordinary income.

If the beneficiary of the account dies before the year that includes their 18th birthday, (1) if the successor to the account is not an estate, the successor will be taxed on the account balance for the year of death; (2) if the successor to the account is an estate, the account balance will be taxed on the final income tax return of the account beneficiary.

(Remember most distributions from Section 529 plans (Qualified Tuition Plans) used for qualified education expenses are tax-free, which might be a better alternative for family savings plans.)

As a pilot program, for U.S. citizens born from January 1, 2024 and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account.  Parents or guardians of newborn children may open an account and receive the $1,000 contribution.  To be eligible for the $1,000 contribution, the child must be a U.S. citizen at birth and both parents must provide work-eligible Social Security numbers.  If the Secretary of the Treasury (the IRS) determines that an eligible individual doesn’t have an account by the first tax return where the parents claim the child credit, the Secretary shall establish an account.  If possible, the account will be opened with the parents’ preferred custodian and investment fund.  Parents have the options to opt out of the account.  (Act § 70204.)

12. Dependent Care Assistance program.  Effective for tax years beginning after December 31, 2025, the exclusion for employer-provided dependent care assistance is increased from up to $5,000 annually ($2,500 for married, filing a separate return) to $7,500 annually ($3,750 for married, filing a separate return.)  (Act § 70404.)

13. Child and Dependent Care Credit.  Effective for tax years beginning after December 31, 2025, the maximum child and dependent care credit rate is increased from 35% to 50%, reduced by 1% for each $2,000 or fraction thereof by which the taxpayer’s adjusted gross income exceeds $15,000.  For adjusted gross income between $43,001 and $75,000 ($86,001 and $150,000 for married filing joint,) the credit rate is 35%.  For adjusted gross income between $75,001 and $105,000 ($150,001 and $210,000 for married, filing joint,) the credit is phased down to 20% by 1% for each $2,000 ($4,000 for married, filing joint) in excess of $75,000 ($150,000 for married, filing joint.) (Act § 70405.)

14. Health Savings Account enhancements.  Effective for months beginning after December, 31, 2025, individuals with high-deductible health plans also will be able to enroll in direct primary care (DPC) arrangements and maintain their health savings account (HSA.)  Up to $150 per month for individuals and $300 per month, adjusted annually for inflation, of HSA funds may be used to pay for DPC services.  (Act §71308.)

Effective for months beginning after December 31, 2025, all bronze and catastrophic health plans on the Exchange are eligible plans for the purpose of making HSA contributions.  (Act § 71307.)

15. Charitable contributions for individuals.  Effective for tax years beginning after December 31, 2025, taxpayers who don’t itemize deductions may claim a permanent deduction of up to $1,000 for single filers, $2,000 for married, filing jointly.  The donations must be made in cash and the charity can’t be a donor advised fund.  (Act §70424.)

Also effective for tax years beginning after December 31, 2025, for taxpayers who itemize deductions, the charitable contributions deduction before other limits is reduced by 0.5% (1/2 %) of the taxpayer’s contribution base for the tax year (adjusted gross income (AGI) without regard to any net operating loss carryback.)  The disallowed deduction due to this limitation is added to the charitable contributions carryforward only when the remaining donations exceed the other AGI limits.  There is an ordering rule for which limitation group the 0.5% reduction relates to. 

The 60% of AGI limitation for cash contributions, scheduled to expire after 2025, is made permanent.  (Act §70425.)

16. Casualty loss changes for individuals.  Effective for tax years beginning after December 31, 2025, the limitation to deduct casualty losses to federally-declared disasters is permanently extended.  In addition, state-declared disasters (including U.S. Territories) and mayor-declared disasters for the District of Columbia are eligible for the deduction.  (Act § 70109.)

17. Other Individual Provisions.

  • Effective for tax years beginning after December 31, 2025, permanently extended the termination of personal exemptions (except the new $6,000 deduction for seniors.)  (Act § 70103.)
  • Effective for tax years beginning after December 31, 2025, permanently repealed the qualified bicycle commuting reimbursement and provides an additional year of inflation adjustment for other qualified transportation fringe benefits.  (Act § 70112.)
  • Effective for tax years beginning after December 31, 2025, permanently extends the provision including ABLE account contributions made by an account’s designated beneficiary as eligible contributions for the saver’s credit.  (Act § 70116.)
  • Effective for tax years beginning after December 31, 2025, permanently extends the increased limit on contributions to ABLE accounts and provides an additional year of inflation adjustment for the base amount of the contribution limit.  (Act § 70117.)
  • Effective January 1, 2026, permanently lists the Sinai Peninsula and other areas as qualified hazard duty areas.  (Act § 70117.)
  • Effective for tax years beginning after December 31, 2026, permanently extends the exclusion for employer payments of student loans and provides an inflation adjustment of the $5,250 maximum exclusion.  (Act § 70412.)

18. Qualified business income deduction extended.  Effective for tax years beginning after December 31, 2025, the 20% qualified business income (QBI) deduction under Section 199A is permanently extended.

The “phase in” threshold where limitations are applied to the deduction are increased from $50,000 to $75,000 for non-joint returns and $100,000 to $150,000 for joint returns.

A new minimum deduction is adopted of $400 for taxpayers with at least $1,000 of QBI from one or more active trades or businesses that the taxpayer materially participates in.  (Act § 70105.)

19. Enhancement of Employer-Provided Child Tax Credit. Effective for tax years beginning after December 31, 2025, the maximum employer-provided child care credit is increased from $150,000 to $500,000, and the percentage of child care expenses covered is increased from 25% to 40%.  (A business that spends at least $1.25 million could receive the full credit.)

Eligible small businesses may receive a $600,000 maximum credit, with 50% of child care expenses covered.  (A qualified small business that spends at least $1.2 million on child care expenses could receive the full credit.)  An eligible small business meets an average annual gross receipts test (it would be $31 million for 2025), based on the 5-year period (instead of the 3-year period) preceding the tax year.  The gross receipts threshold is adjusted annually for inflation.

The $500,000 and $600,000 thresholds are indexed for inflation after 2026. 

Small businesses may pool resources to provide childcare to their employees and businesses may use a third-party intermediary to facilitate childcare services.  (Act § 70401.)

20. Extension and enhancement of Paid Family Leave and Medical Leave Credit.  Effective for tax years beginning after December 31, 2025, the Paid Family and Medical Leave Credit for wages paid to qualifying employees for leave under the Family and Medical Leave Act is extended permanently with three changes.

  • It modifies the credit to allow it to be claimed for an applicable percentage of premiums paid or incurred by an eligible employer during a tax year for insurance policies that provide paid family and medical leave for qualified employees.
  • It makes the credit available in all states.
  • It reduces the minimum employee work requirement from one year to six months.

The applicable percentage starts at 12.5% wages and increases to 25% for each percentage point the payment rate for leave exceeds 50% of wages.  A maximum of 12 weeks of leave for each employee is eligible for the credit. No tax deduction is allowed for expenses for which the credit is claimed.  (Act §70304.)

21. Renewal and enhancement of Opportunity Zones.  A permanent Opportunity Zone (OZ) policy is established built on the original structure.  Rolling ten-year OZ designations are created beginning on January 1, 2027.  The existing designation process is modified to update the definition of a Low-Income Community (ILC) and eliminating the ability for contiguous tracts that are not LICs to be designated as OZs,

The definition of a “low-income community” is reduced to census tracts that have a poverty rate of at least 20% or a median family income that does not exceed 70% of the area median income.  A guardrail is also added to ensure the term “low-income community” does not include any census tract where the median family income is 125% or greater of the area median family income.

The taxpayer benefits are changed so that investors receive incremental reduction in gain starting on the first anniversary of the investment.  Investors will be required to realize their initial gains, reduced by any step-up in basis in the seventh year of the designation window.  For each year that an investor is invested in the fund, their basis will be increased (1) 1% for years 1-3; (2) 2% for years 4-5; and (3) 3% for year 6.

In addition, a new type of Qualified Opportunity Fund (QOF) is created that invests solely in rural areas.  Investments in these “qualified rural opportunity funds” will receive triple the step-up in basis.  A special rule is also created that lowers the “substantial improvement” threshold of existing structures from 100% to 50% in rural areas. 

Additional reporting requirements are adopted for the OZ program and the IRS is given funding to carry out the reporting requirements.  (Act § 70421.)

22. 1% floor for corporate Charitable Donations.  Effective for tax years beginning after December 31, 2025, C corporations may only deduct charitable contributions that exceed 1% of taxable income (1% floor) and don’t exceed 10% of taxable income.  Charitable contributions disallowed because of the 1% floor may be carried forward (up to 5 years) provided the 10% of taxable income threshold is exceeded.

Current year contributions are applied first for the 10% limit.

Charitable contributions carryforwards are reduced to the extent they would increase a net operating loss.  (Act § 70426.)

23. Increased thresholds for filing Forms 1099-MISC and 1099-NEC.  Effective for payments made after December 31, 2025, the threshold for payments for which Form 1099-MISC and Form 1099-NEC is required to be filed is increased from $600 to $2,000, indexed for inflation for tax years beginning after December 31, 2026.  (Act § 70433.)

24. Extension and modification of Limit on Excess Business Losses of Noncorporate Taxpayers.  Effective for tax years beginning after December 31, 2026, the limit for excess business losses of noncorporate taxpayers is made permanent.

Effective for tax years beginning after December 31, 2025, the inflation adjustment for the $250,000 ($500,000 for married, filing joint) threshold for excess business losses will apply to years beginning after December 31, 2025.  The base year for cost of living adjustments will be 2024.  (Act § 70601.)

25. Intangible Drilling and Development Costs for computing Adjusted Financial Statement Income.  Effective for tax years beginning after December 31, 2025, adjusted financial statement income (AFSI) for computing the corporate alternative minimum tax is (1) reduced by any expenses under Internal Revenue Code §263(c) for intangible drilling costs for oil and gas wells and geothermal wells for the amount deducted to compute taxable income for the year and (2) adjusted to disregard any amount of depletion expense reported on the taxpayer’s applicable financial statement for the intangible drilling and development costs of the property.  (Act § 70523.)

26. Income from Hydrogen Storage, Carbon Capture, Advanced Nuclear, Hydropower, and Geothermal Energy added to Qualifying Income of Certain Publicly Traded Partnerships.  Effective after December 31, 2025, activities categorized as qualifying income for publicly traded partnerships to be treated as partnerships for tax purposes is expanded to include the transportation or storage of liquified hydrogen or compressed hydrogen, production of electricity from hydropower, generation of electricity or capture of carbon dioxide at a direct air capture facility, generation of electricity from geothermal deposits or hydropower, and operation of property to produce, distribute or use energy from a geothermal deposit or property that uses the ground or ground water as a thermal energy source or thermal energy sink.  (Act § 70524.)

27. Other provisions for businesses and nonprofits.

  • Effective for tax years beginning after December 31, 2025, the rate of investment tax credit for investments in qualified manufacturing facilities is increased from 25% to 35%.  (Act §70308.)
  • Effective for amounts paid or incurred after December 31, 2025, meals provided on fishing boats and certain U.S. fishing processing facilities aren’t subject to the limitation on tax deductions for business meals.  (Act § 70305.)
  • Effective for calendar years ending after December 31, 2025, the low-income housing credit state allocation ceiling is increased by 12% and, effective for buildings placed in service after December 31, 2025, the bond-financing threshold is reduced to 25%.  For any building for which expenditures are treated as a separate new building under Internal Revenue Code § 42(e), both the rehabilitation expenditures and the original building are treated as placed in service on the date the expenditures are treated as placed in service under § 42(e)(4).  (Act § 70422.)
  • The new markets credit is permanently extended for calendar years beginning after December 31, 2025.  (Act § 70423.)
  • Effective for tax years beginning after December 31, 2025, the charitable contributions deduction threshold for expenses of an individual recognized by the Alaska Eskimo Whaling Commission as a whaling captain carrying on sanctioned whaling activities in Alaska is increased from $10,000 to $50,000.  (Act § 70429.)
  • Effective for tax years beginning after December 31, 2025, the quarterly asset test as qualification as a REIT is changed from not more than 20% to not more than 25% of the assets of the REIT represented by securities of one or more taxable REIT subsidiaries.  (Act § 70439.)
  • Effective for tax years beginning after December 31, 2025, the executive compensation of an employee of a publicly traded member of a controlled group is an allocated portion of $1,000,000.  (An overall $1,000,000 deduction limit applies for the group.)  (Act § 70603.)
  • Effective for tax years beginning after December 31, 2025, the excise tax for investment income of certain private colleges and universities is modified.  The excise tax ranges from 1.5% to 8%.  The tax applies for colleges and university with at least 3,000 tuition-paying students for the previous year, at least 50% located in the United States, and an average endowment, other than assets used to carry out the institution’s exempt purpose, exceeding $500,000 per student. Student loan interest isn’t included in investment income. (Act §70415.)
  • Effective for taxable years beginning after December 31, 2025, the excise tax on excess compensation paid to highly-compensated employees by tax-exempt organizations is expanded to include any employee of an applicable tax-exempt organization (or predecessor) or any former employee employed by the organization during any year beginning after December 31, 2016.  (Act § 70416.)
  • Effective for distilled spirits imported to the United States after December 31, 2025, the cover over of tax on distilled spirits is permanently increased from $10.50 to $13.25.  (Act § 70427.)

28. Clean Energy Provisions repealed by accelerated sunsetting after 2025, accelerated sunsetting after 2025.

  • The § 30C alternative fuel vehicle refueling property credit is terminated for property placed in service after June 30, 2026.  (Act § 70504.)
  • The § 179D energy efficient commercial buildings deduction is terminated for property for which construction begins after June 30, 2026.  (Act § 70507.)
  • The § 45L energy efficient home credit is terminated for homes acquired after June 30, 2026.  (Act § 70508.)
  • The § 45V clean hydrogen production credit is terminated for facilities for which construction begins on or after January 1, 2028.  (Act § 70511.)

29. Termination and Restrictions on Clean Electricity Production Credit.  The §45Y clean electricity production credit is generally terminated for wind or solar facilities placed in service after December 31, 2027, except for wind and solar facilities that begin by July 4, 2026.

For other facilities, the existing phaseout timeline provided at § 45Y(d) (75% for 2034, 50% for 2035, and zero thereafter) applies.

Effective for tax years beginning after July 4, 2025, no credit is allowed for wind or solar property if the taxpayer rents or leases the property to a third party.

Effective for any facility for which construction is begun after December 31, 2025, the facility doesn’t qualify for the credit if a prohibited foreign entity provides material assistance with the construction of the facility.

The credit may not be transferred to a prohibited foreign entity.   (Act § 70512.)

The IRS has issued Notice 2025-42 with guidelines for determining the beginning of construction for Wind and Solar facilities for determining whether a facility qualifies for energy credits.  https://www.irs.gov/pub/irs-drop/n-25-42.pdf

30. Termination and Restrictions on Clean Electricity Investment Credit.  The §48E clean electricity investment credit is generally terminated for wind or solar facilities placed in service after December 31, 2027, except for wind and solar facilities that begin by July 4, 2026.  The credit for energy storage technology facilities is not terminated. 

For other facilities, the existing phaseout timeline provided at § 45Y(d) (75% for 2034, 50% for 2035, and zero thereafter) applies.

Effective for any facility for which construction is begun after December 31, 2025, the facility doesn’t qualify for the credit if a prohibited foreign entity provides material assistance with the construction of the facility.

A prohibited foreign entity or a foreign influenced entity doesn’t qualify for the credit.  (Act § 70513.)

31. Phaseout and Restrictions on Advanced Manufacturing Production Credit.  The §45X advanced manufacturing production credit for producing critical minerals is phased out to 75% of the credit allowed in 2031, 50% for 2032, 25% for 2033 and no credit beginning in 2034. 

The credit for wind components produced and sold after December 31, 2027 is also terminated.

Effective for components sold during tax years beginning after December 31, 2026, a person shall be treated as having sold an eligible component to an unrelated person if— (1) such component (referred to in this paragraph as the ‘primary component’) is integrated, incorporated, or assembled into another eligible component (referred to in this paragraph as the ‘secondary component’) produced within the same manufacturing facility as the primary component, and (2) the secondary component is sold to an unrelated person.

Effective for taxable years beginning after July 4, 2025, the term ‘eligible component’ shall not include any property which includes any material assistance from a prohibited foreign entity.

Specified foreign entities and foreign-influenced entities aren’t eligible for the credit.  (Act § 70514.)

32. Extension and Modification of Clean Fuel Production Credit.  The § 45Z Clean Fuel Production Credit is extended through December 31, 2029. 

Effective for transportation fuel produced after December 31, 2029, only fuel made from feedstocks produced in the United States, Mexico and Canada qualifies for the credit.  (Act § 70521.)

33. Foreign Tax Credit modification.  Effective for tax years beginning after December 31, 2025, the allocation and apportionment of deduction rules are modified for global intangible low-taxed income (GILTI) for determining the foreign tax credit (FTC.)  The rules are also modified about GILTI inclusion in gross income for domestic corporations, to increase the allowance from 80% to 90%.  (Act § 70311.)

Solely for the purposes of the FTC limitation, if a U.S. person maintains an office or other fixed place of business in a foreign country, the portion of taxable income from the sale of exchange outside the United States of inventory property produced in the United States and which is attributable to the foreign office or other fixed place of business is treated as foreign-source taxable income.  The amount treated as foreign-source income can’t exceed 50% of the total taxable income from the sale or exchange of the inventory property.  (Act §70313.)

34. Foreign-Derived Deduction Eligible Income and Net CFC Tested Income.  Effective for tax years beginning after December 31, 2025, the Internal Revenue Code § 250 deduction percentage for foreign-derived intangible income (FDII) and global intangible low-tax income (GILTI) is 33.34% for FDII and 40% for GILTI.  After these deductions, the effective tax rate will be 14% for both FDII and GILTI.

The definition of foreign-derived deduction eligible income is also modified and the deemed tangible income return currently used to determine a domestic corporation’s FDII and the net deemed tangible income return currently used in determining a U.S. shareholder’s GILTI inclusion are eliminated.  (Act § 70312.)

35. Base Erosion Minimum Tax.  Effective for tax years beginning after December 31, 2025, the base erosion minimum tax percentage for the Internal Revenue Code §59A base erosion minimum tax is increased from 10% to 10.5% of modified taxable income over adjusted regular tax liability.  (Act § 70331.)

36. Business Interest Limitation.  Effective for tax years beginning after December 31, 2025, Internal Revenue Code §163(j) is amended to provide that the business interest limitation is calculated before applying any interest capitalization provision, defined as any provision under which interest is (1) required to be charged to a capital account or (2) may be deducted or charged to a capital account.

Any interest which is capitalized under Internal Revenue Code §§263(g) or 263A(f) is not treated as business interest for Internal Revenue Code § 163(j).  The amount of business interest allowed after applying the limitation is applied first to amounts which would be capitalized and the remainder, if any, to amounts which would be deducted.

No portion of any business interest carried forward is treated as business interest to which interest capitalization applies.

Subpart F and GILTI inclusion and the associated §78 gross-up amounts, as well as amounts determined under Internal Revenue Code §956, for a taxpayer’s adjusted taxable income.  (Act § 70341.)

37. Other International Tax Reforms effective for tax years beginning after December 31, 2025.

  • Permanent extension of the Internal Revenue Code § 954(c)(6) look-through rule for related controlled corporations.  (Act § 70351.)
  • Restore Internal Revenue Code §958(b) limitation on downward attribution of stock ownership for applying constructive ownership rules.  (Act § 70353.)
  • Modify the pro-rata share rules in Internal Revenue Code § 951(a).  (Act § 70354.)

38. Remittance Transfer Tax.  Effective for transfers made after December 31, 2025, a 1% excise tax is imposed for transfers of funds outside the United States.

The tax applies to funds transferred using a service provider other than a bank, such as Western Union.  The tax applies for cash, money orders, cashier’s checks or any other similar physical instrument.  The service provider collects the tax and pays it to the federal government quarterly.

Remittance transfer tax doesn’t apply to transfers via banks, including payments using credit cards or debit cards.

U.S. citizens who provide proof of citizenship may claim a refund or credit for any remittance transfer tax that they pay.

Noncitizens aren’t entitled to a refund.

Effectively, immigrants and expatriates are penalized for using non-bank money services.  (Act § 70604.)

One Big, Beautiful Bill Act tax provisions effective 2025

  •    
  • mike   

President Trump signed the One Big, Beautiful Bill Act of 2025 (OBBBA), H.R. 1, on July 4, 2025.  Republicans in Congress responded to President Trump’s request for urgency, enacting it mid-year.  Usually, major tax laws are passed at the end of the year.  The Act was narrowly approved, by 51 – 50 in the Senate and 218-214 in the House of Representatives.

The principal part of the Act was to extend most of the cuts in the Tax Cuts and Jobs Act of 2017.

The Act is huge – over 900 pages.  In order to make it more digestible and so you will be aware of items requiring attention soon, this article will mostly focus on the provisions taking effect during 2025.

Remember these are federal tax changes.  Check whether your state will conform to them.

You can access the complete law at https://www.congress.gov/bill/119th-congress/house-bill/1/text

1. SALT cap.   The itemized deduction ceiling for state and local taxes (SALT cap) has been increased from $10,000 ($5,000 for married, filing separately) to $40,000 ($20,000 for married, filing separately), effective for 2025, and $40,400 ($20,200 for married, filing separately) for 2026.  The ceiling will be increased by 101% of the amount for the previous year from 2027 through 2029.  After 2029, the ceiling will revert to $10,000 ($5,000 for married, filing separately.)

The SALT cap is reduced to no less than $10,000 ($5,000 for married, filing separately) by 30% of the excess of the taxpayer’s modified gross income over $500,000 ($250,000 for married, filing separately) for 2025, and $505,000 ($252,500 for married, filing separately) for 2026.  The SALT cap phaseout threshold will be increased by 101% of the dollar amount in effect for the previous year from 2027 through 2029.  (Act § 70120.)

2. Section 529 changes. Effective for distributions after July 4, 2025, additional items qualify for tax-free distributions from §529 plans to educational expenses at an elementary or secondary public, private, or religious school, including:

  • curriculum and curricular materials;
  • books or other instructional materials;
  • online educational materials;
  • tutoring or educational classes outside the home;
  • certain testing fees;
  • fees for dual enrollment in an institution of higher education; and
  • certain educational therapies for students with disabilities.  (Act § 70413.)

3. Section 529 plan distributions.  Effective for distributions after July 4, 2025, post-secondary credentialing expenses qualify for tax-free distributions from Section 529 plans (qualified tuition programs.)  Post-secondary credentialing expenses include books, tuition, equipment, and testing fees for a course of study to obtain and continuing education to maintain an industry credential.  (Act § 70414.)

4. Senior deduction.  To satisfy President Trump’s promise to make Social Security income tax-exempt, Congress enacted an enhanced deduction for seniors of $6,000 for taxpayers who have attained age 65 by the year-end.  For joint returns, each spouse may claim $6,000 provided both spouses have attained age 65 by the year-end.  The individuals filing the income tax return must have and report Social Security numbers.  Married persons must file a joint return to claim the deduction.  No Social Security income is required to claim the deduction.

The deduction is treated as a personal exemption (not an itemized deduction), although personal exemptions have been repealed.

The senior deduction is phased out by 6% of modified adjusted gross income over $75,000 ($150,000 for a joint return.)

The deduction applies for tax years 2025 through 2028.  (Act § 70103.)

5. Tip income deduction and employer credit.  A deduction is available for up to $25,000 of qualifying tips received by an individual.  The deduction is not an itemized deduction.  The deduction applies for both employees receiving Form W-2 and independent contractors receiving Forms 1099-K, 1099-NEC, or reported by the employer on Form 4317, Social Security and Medicare Tax on Unreported Tip Income.  The deduction is not an itemized deduction.

Qualified tips are cash tips received by an individual who customarily and regularly received tips on or before December 31, 2024.  A list of those occupations is to be published by the Secretary of the Treasury (IRS) within 90 days after July 4, 2025.  Qualified tips are paid voluntarily, are not subject to negotiation and are determined by the payor.  Qualified tips do not include any amount received in the course of a specified trade or business (professionals).  The individuals filing the income tax return must have and report Social Security numbers.  Married persons must file a joint return to claim the deduction.

For self-employed persons, the deduction is limited to the net business income.

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

Tips that are excluded from income of a self-employed person aren’t eligible for the qualified business income deduction.

The IRS has published a list of occupations that qualify for the deduction.  https://home.treasury.gov/system/files/136/Tipped-Occupations-Detailed-8-27-2025.pdf

The deduction applies for 2025 through 2028. 

Effective for tax years beginning after December 31, 2024, the tax credit for employer social security taxes paid on tips for restaurant and food delivery workers has been extended to the following services: (1) barbering and hair care; (2) nail care; (3) esthetics; and (4) body and spa treatments.  Only employer social security for tips exceeding any amount to reach the federal minimum wage qualify for the credit.  (Act 70201.)

6. Overtime deduction.  A deduction of up to $12,500 ($25,000 for a joint return) may be claimed for qualified overtime compensation received by an individual during a tax year.  The deduction is not an itemized deduction.

Qualified overtime compensation is compensation paid in excess of the regular rate where the individual is employed.  Tips are excluded from compensation when computing this deduction.  The amount of overtime compensation must be reported on the employee’s Form W-2. 

The deduction is phased out by $100 for each $1,000 that modified adjusted gross income exceeds $150,000 ($300,000 for a joint return.) 

The individuals filing the income tax return must have and report Social Security numbers.  Married persons must file a joint return to claim the deduction.

The overtime deduction applies for 2025 through 2028 (Act § 70202.)

7. Car loan interest deduction.  A deduction may be claimed for up to $10,000 paid for qualifying car loan interest.  The deduction is not an itemized deduction.

Qualified passenger vehicle loan interest is interest paid or accrued during the tax year on indebtedness incurred by the taxpayer after December 31, 2024 for the purchase of, and secured by a first lien on, an applicable passenger vehicle for personal use.  Interest paid on loans from related parties don’t qualify for the deduction.

An applicable passenger vehicle is any vehicle  (1) the original use of which commences with the taxpayer; (2) which is manufactured primarily for use on public streets; (3) which has at least two wheels; (4) which is a car, minivan, van, sport utility vehicle, pickup truck or motorcycle; (5) which is treated as a motor vehicle for title II of the Clean Air Act; (6) the final assembly of which occurs in the United States; and (7) which has a gross vehicle weight of less than 14,000 pounds.

The IRS has updated its FAQ at FS-2025-03 to explain how to find out if a vehicle qualifies for the new vehicle interest deduction for personal use vehicles purchased after December 31, 2024 and before January 1, 2029.

In order to qualify, the vehicle must be new and assembled in the United States.

Taxpayers may rely on either:

(1) The window sticker of a new vehicle, which should identify where it was assembled. (Keep it as documentation.)

(2) Confirmation of the point of assembly using the vehicle identification number (VIN) for the vehicle. You can do this at the U.S. Department of Transportation’s website:  https://vpic.nhtsa.dot.gov/decoder.

https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors

(There may be a question whether a vehicle that is initially leased and later purchased from a lessor qualifies as “original use” by the taxpayer.)

Lenders are required to issue information returns for the amount of interest exceeding $600 paid for vehicle loans that could qualify for a deduction.

The deduction is phased out by $200 for each $1,000 modified adjusted gross income exceeds $100,000 ($200,000 for a joint return.)

The vehicle identification number of the financed vehicle must be reported on the income tax return to claim the deduction.

The deduction is effective for tax years 2025 through 2028.  (Act § 70203.)

8. Child Tax Credit.  The Child Tax Credit is permanently increased to $2,200 per child, effective for 2025 and indexed for inflation after 2025.

The refundable $1,400 child tax credit, indexed for inflation at $1,700 for 2025, is made permanent, with the income threshold amounts of $200,000 ($400,000 for a joint return.)  The $500 nonrefundable credit for a dependent other than a qualifying child is also made permanent.

The requirement that the child’s Social Security number must be provided to claim the credit is made permanent.  The work-eligible Social Security number of a single taxpayer or at least one spouse on a joint return must also be reported on the income tax return to claim the credit.  (Act § 70104.)

9. Adoption Tax Credit.  Effective for tax years beginning after December 31, 2024, up to $5,000, indexed for inflation, of the Adoption Tax Credit is refundable.  The refundable amount may not be carried forward.  (Act § 70402.)

10. Safe Harbor as a High-Deductible Health Plan.  Effective for plan years beginning after December 31, 2024, the safe harbor providing a health plan won’t fail to be treated as a high-deductible health plan because it doesn’t have a deductible for telehealth and other remote-care services.  (Act § 71306.)

11. Casualty Loss Addition to Standard Deduction Extended.  The option to claim casualty losses attributable to a Presidentially-declared federal disaster as an addition to the standard deduction has been extended from disasters occurring after December 27, 2019 and declared before February 11, 2025 to disasters declared before July 5, 2025.  (Parker’s Federal Tax Bulletin, Issue 362, July 8, 2025, “Casualty Loss Deduction”.  (Act § 70109.)

12. IRS Direct File replacement.  The IRS Direct File program has been discontinued.  A task force has been established to deliver a report to Congress within 90 days after July 4, 2025 about replacing the Direct File program with a public-private partnership between the IRS and private sector tax preparation services.  (Act § 70607.)

13. Bonus depreciation.  Bonus depreciation is available in the year of acquisition for MACRS property with a recovery period of 20 years or less, provided the property isn’t required to be depreciated using the alternative depreciation system.  Bonus depreciation is also available for specified plants when they are planted or grafted.  Qualified real property and off-the-shelf computer software that is otherwise depreciable over 3 years also qualifies for bonus depreciation.  The first-year depreciation cap for luxury vehicles is increased by $8,000.  Before OBBBA was enacted, bonus depreciation was 40% of the basis of property for 2025 and 20% for 2026, and would expire after 2026.

OBBBA extends bonus depreciation permanently and increases the rate to 100% for property acquired and placed in service on or after January 19, 2025 and for specified plants planted or grafted on or after January 19, 2025.  (Act § 70301.

14. Section 179 expensing.  Tangible new or used section 1245 property that is depreciable under the Modified Accelerated Cost Recovery System (MACRS) that is acquired by purchase for use in the active conduct of a trade or business and used predominantly in the United States and predominantly (more than 50%) for business purposes), is eligible for Section 179 expensing in the year acquired.  The maximum amount eligible for section 179 expensing for an SUV with a gross vehicle unloaded weight of 6,000 pound and exempt trucks with an interior cargo bed length of less than six feet and exempt passenger vans that seat fewer than ten persons behind the driver’s seat is $31,300 for 2025.  Qualified real property and off-the-shelf computer software that is otherwise depreciable over 3 years also qualifies for Section 179 expensing.  When an election is made to claim section 179 expensing for qualified real property, all qualified real property acquired that year is treated as section 179 property. The deduction is limited to taxable income before the deduction.

Before OBBBA was enacted, the maximum basis eligible for section 179 expensing was $1,250,000 for 2025, with a phase out for the basis of qualifying property exceeding $3,130,000.

Effective for property placed in service placed in service in tax years beginning after December 31, 2024, OBBBA increases the maximum Section 179 deduction to $2,5 million, with a phase out when the basis of property acquired exceeds $4 million.  The thresholds are adjusted for inflation for tax years beginning after 2025.  (Act §70306.)

15. Research and experimentation expenses expensing.  Effective for tax years beginning after December 31, 2024, domestic research and experimentation expenses that were required to be amortized over 15 years may be expensed.

Research and experimental expenses for work done outside the United States must still be amortized over 15 years.

Under a transitional rule, small business taxpayers with average gross receipts of $31 million or less may apply this change retroactively to tax years beginning after December 31, 2021. 

Under another transitional rule, all taxpayers that made domestic research or experimental expenses after December 31, 2021 and before January 1, 2025 may elect to either amend tax returns to change the deductions from amortization to expensing or accelerate the remaining deduction for those expenses over one-year or two-year periods.

On August 28, 2025, the IRS issued Revenue Procedure 2025-28, providing guidance about the procedures for making the change.  The Revenue Procedure indicates at Section 3.03 that a small business taxpayer may make the election to currently deduct domestic research expenses on an originally-filed 2024 income tax return.  Taxpayers who already filed income tax returns and didn’t apply for an extension of time to file are automatically granted a six-month extension of time to file a superceding income tax return and issue corrected Schedule K-1s.  (Section 2.08(8).) https://www.irs.gov/pub/irs-drop/rp-25-28.pdf

Rules are provided to coordinate the immediate deductibility of domestic research and experimental expenditures with the research credit.  (Act § 70302.)

16. Cap on deducting business interest.  A taxpayer’s deduction of business interest expense paid or incurred for the tax year is generally limited to the sum of:

  • the taxpayer’s business interest income for the tax year (excluding investment income);
  • 30% of the taxpayer’s adjusted taxable income, but not less than 0; and
  • the taxpayer’s floor plan interest.

The limit doesn’t apply for businesses that meet a small business test if its average annual gross receipts for the three prior years doesn’t exceed a threshold amount, $31 million for 2025.

The limit also doesn’t apply for certain specified businesses.

Effective for tax years beginning after December 31, 2025, under OBBBA, the limit is increased by adding back deductions for depreciation, amortization and depletion to compute adjusted taxable income.  (Act §70342.)

Effective for tax years beginning after December 31, 2024, the definition of “motor vehicle” is changed to include trailers and campers designed to be towed or affixed to a motor vehicle, allowing the interest paid for flooring these items to the taxpayer’s floor plan interest.  (Act §70303.)

17. First-year depreciation for Qualified Production Property.  Effective for qualified production property placed in service after July 4, 2025, a first-year depreciation allowance is allowed of 100% of the adjusted basis of “qualified production property.”

Qualified production property is nonresidential real property (1) which is used by the taxpayer as an integral part of a qualified production activity, (2) which is placed in service in the United States or a possession of the United States, (3) the original use of which begins with the taxpayer, (4) of which the construction, reconstruction or erection by the taxpayer begins after January 19, 2025 and before January 1, 2029 and (5) is placed in service after July 4, 2025 and before January 1, 2031, except in cases of Acts of God, in which case the Secretary of the Treasury can extend the date up to two years.

Qualified production property does not include the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales activities, software development or engineering activities, or other functions unrelated to manufacturing, production or refining of tangible property.  Qualified production activity also does not include any property to which the alternative depreciation system applies, or any food or beverage prepared in the same building as a retail establishment in which the property is sold.

A ”qualified production activity” is the manufacturing, production or refining of a qualified product.  The activities of the taxpayer must result in a substantial transformation of the property comprising the product.

Under a special acquisition rule, a taxpayer may claim the qualified production property deduction for nonresidential real property (1) which is acquired by the taxpayer after January 19, 2025 and before January 1, 2019, (2) which was not used in a qualified production activity at any time during the period beginning January 1, 2021 and ending on May 12, 2025, (3) which was not used by the taxpayer or a related party at any time prior to such acquisition, (4) which is used by the taxpayer as an integral part of a qualified production activity, (5) which is placed in service in the United States or a possession of the United States, and (6) is placed in service after July 4, 2025 and before January 1, 2031, except in cases of Acts of God in which case the Secretary of the Treasury can extend the date by up to two years.

Recapture rules apply when the use of the property changes during the 10-year period after the qualified production property is placed in service.  (Act § 70307.)

18. Employer-provided Child Tax Credit.  Effective for tax years beginning after December 31, 2024, the percentage of employer-provided child care expenses allowed as a tax credit is increased from 25% to 40%, and the maximum credit is increased from $150,000 to $500,000, to be adjusted for inflation after 2026.  For 2025, a business must spend at least $1.25 million on child care related expenses to receive the full credit.

For small businesses, the percentage of employer-provided child care expenses allowed as a tax credit is increased to 50% and the maximum credit is increased to $600,000, to be adjusted for inflation after 2026.  To receive the maximum credit for 2025, a small business must spend at least $1.2 million on child care related expenses.  An eligible small business must meet a gross receipts test, $31 million for 2025, based on the 5-year period (increased from a 3-year period) preceding the tax year.

Small businesses are allowed to pool their resources to provide childcare to their employees and may use a third-party intermediary to facilitate child care services on their behalf.  (Act § 70401.)

19. Qualified Small Business Stock gain exclusion.  Before the adoption of OBBBA, noncorporate taxpayers could exclude from gains gross income for the sale or exchange of qualified small business stock held for more than five years.

The exclusion is

  • 100% of the gain for qualified stock acquired after September 27, 2010;
  • 75% of the gain for qualified stock acquired after February 17, 2009 and before September 28, 2010; and
  • 50% of the gain for qualified stock acquired before February 18, 2009 (increased to 60% of the gain attributable to periods before 2019 if the stock was issued by a corporation in an empowerment zone and acquired after December 21, 2000.)

For stock acquired before September 28, 2010, 7% of the excluded gain is a tax preference item for alternative minimum tax reporting.

Excludable gain on dispositions of qualified stock from any single issuer for a tax year is limited to the greater of (1) $10 million, reduced by the aggregate amount excluded for the issuer’s stock in prior years ($5 million for married, filing separately); or (2) 10 times the taxpayer’s adjusted basis in all of the issuer’s stock disposed of during the tax years.

Gains on dispositions of qualified stock held by a pass-through entity for more than five years is passed through to partners, shareholders and participants who held interests in the entity when it acquired the stock and at all times thereafter.  The exclusion can’t reflect any increase in the person’s share of the entity after the entity acquired the stock.

Qualified small business stock is stock issued after August 10, 1993, and acquired by the taxpayer at the original issue, directly or through an underwriter, in exchange for money or property, or as compensation for services provided to the corporation.  The issuing corporation must be a domestic C corporation other than a regulated investment company, cooperative, or other pass-through corporation.

Both before and immediately after the qualified stock is issued, the corporation’s aggregate gross assets must not exceed $50 million, with parent-subsidiary controlled groups treated as one corporation.  During substantially all of the taxpayer’s holding period, at least 80% of the value of the corporation’s assets must be used in the active conduct of qualified trades or businesses.

A qualified business does not include the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business if its principal asset is the reputation or skill of employees.  Hospitality, farming, insurance, finance and mineral extraction also are not qualified businesses.

OBBA changes the gain exclusion by creating tiers, effective for stock issued or acquired and to tax years commencing after July 4, 2025.  The exclusion ratios are 50% after three years, 75% after four years, and 100% after five years.  The per-issue dollar cap for post-enactment shares is increased from $10 million to $15 million, indexed for inflation after 2026.  The post-enactment aggregate-asset ceiling is increased from $50 million to $75 million, indexed for inflation after 2026. 

There is no alternative minimum tax preference for the excluded gains for these shares.  (Act § 70431.)

20. Third party network information reporting.  Effective as if included in §9674 of American Rescue Plan Act, information reporting (Form 1099-K) for transactions of participating payees isn’t required for third-party network businesses (like PayPal or Venmo) unless they have earned more than $20,000 on more than 200 separate transactions in an applicable tax period, reversing a $600 with no minimum on the number of transactions reporting threshold that was enacted in 2021 and delayed by the IRS.  (Act § 70432.)

21. Qualified Sound Recording Production expensing.  Effective for sound productions commencing in tax years ending after July 4, 2025, qualified sound production costs are added to the list of qualified film, television and live theatrical productions eligible for current expensing.

Aggregate qualified sound recording production costs of up to $150,000 may be elected to be currently deducted.  The deduction only applies to qualified sound recordings that commence before January 1, 2026.

Qualified sound recording production is a sound recording produced and recorded in the United States.

The definition of qualified property eligible for bonus depreciation is also expanded to include qualified sound recording productions.  (Act § 70434.)

22. Exclusion of interest for loans secured by rural or agricultural real property.  Effective for original debt incurred in tax years ending after July 4, 2025, banks and insurance companies may permanently exclude 25% of interest income from qualified real estate loans.

Qualified real estate loans are the following types of loans made after July 4, 2025 to a person other than a specified foreign entity: (1) loans secured by domestic real property that is substantially used to produce agricultural products or a leasehold mortgage on such property; (2) loans secured by domestic real property that is substantially used in the trade or business of fishing or seafood processing or a leasehold mortgage on such property; and (3) loans secured by any domestic aquaculture facility or a leasehold mortgage on such property.

Qualified leasehold loans are treated as tax-exempt obligations for the purpose of disallowing interest expense deductions for indebtedness incurred by qualified lenders to purchase or carry those loans.  (Act § 70435.)

23. Installment payment of income taxes for sale of farmland property.  Effective for sales or exchanges in tax years beginning after July 4, 2025, capital gains taxes from the sale or exchange of qualified farmland property to a qualified farmer may be paid in four equal annual installments, starting on the unextended due date of the tax return for the tax year in which the sale or exchange occurred.

Qualified farmland property generally means real property located in the United States which has been used by the taxpayer as a farm for farming purposes during substantially all of the 10-year period ending on the date of the sale or exchange. 

A qualified farmer means any individual who is actively engaged in farming.  (Act §70437.)

24. Payments by partnerships to partners for property or services.  Effective for services performed and property transferred after July 4, 2025, with no inference for the treatment of prior transactions, IRC §707(a)(2) is changed from “under regulations prescribed” to “except as provided.”  Under §707(a), transactions between a partner and a partnership for property and services are generally treated the same as between a partnership and a person who isn’t a partner.  (Act § 70602.)

25. Employee Retention Credit.  OBBBA imposes a penalty of $1,000 per failure on any COVID-ERTC promoter which provides aid, assistance or advice for any COVID-ERTC document which fails to comply with the IRS’s due diligence requirements.

A COVID-ERTC promoter is any person which provides aid, assistance or advice relating to a COVID-ERTC document based on the amount of refund or credit when the aggregate gross receipts of the promoter relating to aid, assistance and advice with respect to all COVID-ERTC documents exceeds 20% of the gross receipts of the promoter for the taxable year or the preceding taxable year; the aggregate gross receipts for aid, assistance and advice with respect to all COVID-ERTC documents exceeds 50% of the promoter for the taxable year; or both (1) the such aggregate gross receipts exceed 20% of the gross receipts of the promoter for the taxable year and (2) such aggregate gross receipts exceed $500,000.

Certified professional employer organizations are not COVID-ERTC promoters subject to the penalty.

A COVID-ERTC document means any return, affidavit, claim or other document to recover a credit or advance payment of an employee retention credit.

No refund or credit will be allowed after July 4, 2025 for wages paid after June 30, 2021 unless a claim for the refund or credit was filed on or before January 31, 2024.

The statute of limitations for IRS adjustments relating to an ERTC is 6 years after the latest of (1) the date on which the original return which includes the calendar quarter with respect to which the credit is determined is filed; (2) the date on which the return is treated as filed under Internal Revenue Code §6501(b)(2), or (3) the date on which the claim for credit or refund for the credit is made.

The same statute of limitations applies to the income tax deduction for wages taken into account to determine an improperly claimed credit.  (Act § 70605.)

26. Exempt facility bonds for spaceports.  Effective for obligations issued after July 4, 2025, Spaceports are treated like airports under the exempt facility bond rules.  (Act § 70309.)

27. Residential housing exception to percentage of completion accounting.  Effective for contracts entered into in taxable years beginning after July 4, 2025, an exception from the requirement to use percentage of completion accounting is changed from “home construction” to “residential housing construction.”  The maximum estimated time when the contract is entered into is increased from 2 years to 3 years.  (Act § 70430.)

28. Firearms transfer tax.  Effective for calendar quarters beginning more than 90 days after July 4, 2025, the federal transfer tax rate for most firearms is reduced from $5 to zero, except the rate for machine guns and “destructive devices” is $200.  (Act § 70436.)

29. Payments to persons who dye fuel.  Effective for indelibly dyed kerosene or diesel fuel removed on the date 180 days after July 4, 2025 for which a fuel tax was previously paid, the IRS will refund the tax paid.  (Act § 70525.)

30. Accelerated sunset for clean energy provisions.  Most of the clean energy provisions enacted by the Inflation Reduction Act of 2022 have been repealed by moving up their expiration dates.  Most of them were scheduled to expire at the end of 2032 or 2034.

  • The previously-owned clean vehicle credit is terminated for vehicles acquired after September 30, 2025.  (Act § 70501.)
  • The clean vehicle credit is terminated for vehicles acquired after September 30, 2025.  (Act § 70502.)
  • The qualified commercial clean vehicle credit is terminated for vehicles acquired after September 30, 2025.  (Act § 70503.)
  • The alternative fuel vehicle efueling property credit is terminated for property placed in service after June 30, 2026.  (Act § 70504.)
  • The energy efficient home improvement credit is repealed for any expenditures made after December 31, 2025.  (Act § 70505.)
  • The residential clean energy credit is terminated for any expenditures made after December 31, 2025.  (Act § 70506.)
  • The energy efficient commercial buildings deduction is terminated for property the construction of which begins after June 30, 2026.  (Act § 70507.)
  • The new energy efficient home credit is terminated for homes acquired after June 30, 2026. (Act § 70508.)
  • Special five-year cost recovery for certain energy property is terminated for property the construction of which begins after December 31, 2024.  (Act § 70509.)
  • The clean hydrogen production credit is terminated for facilities the construction of which begins on or after January 1, 2028.  (Act § 70511.)

31. Carbon sequestration credit.  Effective for taxable years beginning after July 4, 2025, the carbon sequestration credit isn’t allowed for certain foreign entities.

Effective for facilities and equipment placed in service after July 4, 2025, parity rules are adopted for different uses and utilizations of qualified carbon oxide.

The “applicable dollar amount” of the credit for any taxable year beginning in a calendar year after 2024 and before 2027 is $17 and for any taxable year beginning in a calendar year after 2026, the $17 credit is indexed for inflation.

The “applicable dollar amount” for direct air capture facilities is $36 for taxable years beginning in a calendar year after 2024 and before 2027, indexed for inflation after 2026. (Act § 70522.)

32. Zero-emission nuclear power production credit.  Effective for tax years beginning after July 4, 2025, the zero-emission nuclear power production credit will be disallowed for taxpayers that are specified foreign entities.

Effective for any tax year beginning after July 4, 2027, the credit will be disallowed for taxpayers that are foreign-influenced entities.  (Act § 70510.)

33. Repeal one-month deferral.  Generally, a foreign corporation that has a majority U.S. shareholder must adopt the tax year of its U.S. shareholder.  An election was available for specified foreign corporations to adopt a tax year ending one month earlier than its U.S. shareholder.  Effective for taxable years beginning after November 30, 2025, the one-month deferral election is repealed.  (Act § 70352.)

34. Nonprofit Alaskan remote native village community development.  Effective July 4, 2025, provisions are enacted for qualification of fishing activities in the Bering Sea and Aleutian Islands as nonprofit.  (Act § 70428.)

35. Restriction on the Extension of the Advanced Energy Project Credit Program.  Effective July 4, 2025, any funds that were allocated to a § 48C certified advanced energy project and returned to the Secretary of the Treasury after a project’s certification is revoked may not be reissued to another project.  (Act § 70515.)

Heard of the Kent State Massacre on May 4, 1970?

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  • mike   

The Kent State Massacre on May 4, 1970 is an example of how a protest can escalate with unintended results when a National Guard is deployed in response.

Students at Kent State University in Kent State, Ohio, staged a protest, along with many other U.S. universities, during May, 1970. President Nixon expanded the Vietnam war to Cambodia and announced college students would no longer qualify for draft deferment. Students could be called for military service after completing the current semester of studies at their college or university. Students felt President Nixon broke a promise made July 25, 1969 to withdraw troops from Vietnam.

The Kent State University protests started with about 500 students on May 1, 1970.

About midnight, people left a bar and began throwing beer bottles at police cars, injuring five police officers, and broke windows at business storefronts. They broke a bank window, activating the alarm.

The entire Kent police force was called to duty. Kent Mayor LeRoy Satrom declared a state of emergency and asked Ohio Governor Jim Rhodes for assistance.

On May 2, Mayor Satrom asked Governor Rhodes to deploy the National Guard to Kent. His request was granted immediately.

That night, there was a large demonstration on the Kent State University campus, and the ROTC building was burned down. Kent firemen and police officers were struck by rocks and other objects while attempting to put out the fire. The fire engine hose was slashed by protestors.

On May 3, some students came to downtown Kent to help with clean-up efforts. They weren’t all welcomed by local business people

At about 8 p.m., there was another rally held on the campus Commons. At 8:45 p.m., the National Guard used tear gas to disperse the crowd. At 11:00 p.m., the National Guard announced that a curfew had gone into effect. A few students were bayoneted by Guardsmen.

On May 4, a protest was scheduled to be held at noon. University officials tried to ban the gathering, and about 2,000 people gathered on the university’s Commons. The National Guard attempted to disperse the students. They used a bullhorn to ask the students to disperse, and were ignored. The crowd threw some rocks at the Guardsmen. Tear gas grenades were fired by the Guardsmen, which fell short of the crowd.

Students retreated over Blanket Hill and cleared the Commons area. The protesters threw rocks and other objects at the Guardsmen. More tear gas was fired.

After reaching the crest of Blanket Hill, the Guardsmen fired at the protesters. They gave no verbal warning.

At 12:24 p.m., Sergeant Myron Pryor turned and began firing at the crowd of students with his .45 pistol. Several other Guardsmen also turned and fired their rifles at the students. At least 29 of the 77 Guardsmen fired their weapons, using about 67 rounds of ammunition.

The protesters were shocked because they didn’t believe the Guardsmen would fire live ammunition at them. The students were unarmed, except for the rocks they threw.

Some of the students were shot while running away from the Guardsmen. Of those shot, none was closer than 71 feet from the Guardsmen. Of those killed, the nearest was 265 feet away. The furthest victim was 750 feet away.

Although the Guardsmen claimed they thought a sniper was shooting at them, it appears they were triggered by their own people shooting.

If you’ve ever played laser tag or a paintball battle, you know a “battle” can induce panic and friendly fire injuries.

Only one Guardsman was injured enough to require medical attention, 10 to 15 minutes before the shootings.

Four protesters were killed and nine were injured, all students in good standing at the university.

A subsequent investigation of the shootings by the President’s Commission on Campus Unrest found the Ohio National Guard shootings on May 4, 1970 were unjustified. There were no criminal convictions relating to the incident.

As a result, some new crowd control measures, such a rubber bullets, have since been adopted.

A photo of a 14-year old runaway, Mary Ann Vecchio, screaming over the dead body of Jeffrey Miller, who was shot in the mouth, won a Pulitzer Prize and became one of the enduring images of the ant-Vietnam War Movement.

The shootings lead to protests on college campuses throughout the United States and a student strike, causing more than 450 campuses across the country to close with both violent and nonviolent demonstrations. Over 4 million students protested.

Five days after the shootings, 100,000 people demonstrated against the war and the killing of unarmed student protestors in Washington, D.C.

In 1973, U.S. government and the North Vietnamese signed a peace treaty ending the Vietnam War.

Japan: Beauty, Safety, Productivity at a Price

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  • mike   

Imagine a country where the streets are so clean, you won’t even find a gum wrapper or cigarette butt on them; where gun violence is unheard of; where the people are friendly and obsessed with quality work; where there are no homeless encampments; with an extremely low crime rate; and with some of the most exquisite gardens in the world.

No, I’m not talking about Walt Disney World or the Emerald City. That country is Japan.

My wife, Janet, and I enjoyed a Road Scholar tour, “The Cultural Highlights of Japan”, from May 19 to June 3, 2025. (Highly recommended.)

Here are some of my, admittedly superficial, observations.

Japan has quite a different culture from the United States. It’s a relatively small island country , with a population of 126.5 million, and has the fifth largest economy in the world. 14.6 million of those people live in Tokyo, the world’s largest city. 70% of the country is undeveloped forest and mountains.

In some ways, Japan surpasses the United States.

Japan started building its bullet train transportation system in 1972. There are no bullet trains in the United States. California has tried to build one without much progress.

The restrooms in Japan are plentiful, free (no tip required), and fastidiously clean. You might have to take off your shoes and wear provided slippers when you enter. Most of the toilets feature a bidet to (optionally) wash and dry your bottom when you’re finished. Most of the restrooms provide toilet paper and don’t provide paper towels. Many do have air dryers for your hands.

Japanese products enjoy a reputation for unmatched quality. Japanese cars dominate the lists of the best-selling and longest-lasting cars in the U.S., while American cars are virtually unseen in Japan. This quality is an expression of the Japanese obsession with attention to detail, which you can also see in their exquisite gardens and artistic expressions. This obsession might relate to the Zen tradition of meditation, mindfulness and focus, tempered by yin-yang “perfection with imperfection”, so everything created must have a minor flaw.

Most children wear uniforms to public schools in Japan. They take off their shoes when they arrive at school. Children are taught their role is to contribute to society, or collectivism. “There is one heart that won’t beat properly if one part of the heart doesn’t participate.” (Compare to the U.S. “rugged individualist” culture.) The children take turns serving lunch to their classmates. There are no custodians for Japanese schools. The children clean the classrooms at the end of the day. Conformity is the order of the day. A student who “sticks out” looks like a “nail to be hammered down”. The schools have a problem with bullying of students who don’t “fit in.”

The Japanese are immensely proud of their history and preserve the castles and estates of the Shogun, daimyo (feudal lords), and samurai, who were local administrators in addition to being warriors.

The government of Japan is a constitutional monarchy, with a figurehead Emperor.

The businesses we visited were family businesses that were proud of their tradition of quality and had been passed down from father to son for generations.

The actors in the Kabouki theater were only men portraying both men and women, and sons succeeded their fathers as actors.

Japan practices rigid gun control. Applying for a license for a gun for target practice or hunting is a rigorous process, with annual follow-up inspections. Hence, no gun violence. (In the U.S. the NRA and other gun enthusiasts adamantly resist gun control as a violation of their Second Amendment rights, leading to high rates of gun violence in the U.S.)

Being homeless is considered to be extremely embarrassing and dishonorable. Japan has built sufficient housing for its population. One way Japan has kept poor people off the street is providing inexpensive places to sleep overnight in internet cafes. Public parks are locked at night and sleeping on street benches isn’t permitted. Japan has mental institutions to care for the insane. (Most government-subsidized mental institutions have been closed in the U.S.)

A dark spot for Japan is its high suicide rate — three times higher than in the U.S. There are about 30,000 suicides annually. Suicide is not considered sinful or shameful, like in the U.S. Christianity is a minority religion. (A blend of the native Shinto (nature) religion and Buddhism is practiced by most Japanese.) Japan has a long tradition of ritual suicide, called seppuku or harakiri. Bullying at school and on social media have contributed to suicides. Instead of being a burden on society, an honorable escape from poverty is suicide. A member of our tour group experienced a delay when a commuter train hit a person on the railroad track. Evidently, that is common. The Japanese government has done little to provide suicide prevention counseling.

Public protests against government policies are considered to be extremely rude and are not accepted in Japan. (In contrast, the American Revolution started with public protests. They are a proud American tradition.)

Japan has been suffering from a declining population. Young people aren’t getting married and having children. A reason might be Japan’s patriarchal culture. Wives are supposed to be subservient to their husbands and take care of the home and children. Many women work and earn enough that they don’t need to be dependent on a husband. The traditional role isn’t acceptable for modern women, and women are struggling to penetrate the “glass ceiling.” Men mostly socialize with other men, and don’t appear to know how to or want to have an equal relationship with women. In the past, marriages were arranged. It appears that practice has been abandoned.

(I recently read an article that suggested the cause for declining marriages in Japan as children not learning romantic skills. Japanese parents discourage their children from dating. That may be a contributing factor. I suspect children don’t have role models for romantic relationships at home, since their parents probably had their marriages arranged. The abandonment of matchmaking is a big cultural shift.)

In the past, the Japanese didn’t welcome immigrants. With the declining population, the government is encouraging more immigration to Japan and the people seem to becoming more accepting of them.

Japan has an excellent and affordable health care system.

We found most of the people didn’t speak very good English (like we don’t speak the languages well that we studied in school.) Some restaurants provided menus with pictures and descriptions in English that you can point to for ordering.

When we were confused navigating the subway system, people helped us buy our tickets and get on the right train. Stops were announced in Japanese and English.

Some Americans have emigrated to Japan and found the cost of living affordable, including great health care and finding housing and employment, and they enjoy the security of a safe, clean environment. They can send their children to school knowing their children are safe from gun violence.

The trade-off is adopting a conformist, collectivist lifestyle. Japan doesn’t seem to be the place for those with non-conformist, individualistic, creative, entrepreneurial personalities.

We had a wonderful experience and invite your to visit Japan to see it for yourself.

“Big, Beautiful Bill” isn’t a slam-dunk

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  • mike   

The House Ways and Means Committee has released “The One Big Beautiful Bill” that includes a “wish list” of President Trump’s tax legislation proposals. On Friday, May 16, conservative Republicans joined Democrats on the House Budget Committee to block the legislation, 16 voting in favor and 21 against, from reaching the House floor for a general vote.

The bill would extend most the tax cuts enacted in the Tax Cuts and Jobs Act of 2017 that would otherwise expire after 2025. In addition, the bill includes tax breaks for some tips, overtime and Social Security for four years. The Social Security break would be a $4,000 tax deduction for seniors making less than $75,000 per year.

The bill would also restore 100% bonus depreciation and the expense election for research and experimentation expenses.

In order to partially compensate for the tax cuts, the bill includes about $715 billion in cuts to Medicaid and the Affordable Care Act. States would implement work requirements in 2029 for childless adults on Medicaid who don’t have a disability, requiring them to work for 80 hours per month. Beneficiaries who earn above the federal poverty limit would make co-payments of up to $35 for doctor visits.

The Congressional Budget Office estimates about 8.6 million people could lose their insurance coverage.

Other compensating items include repealing Biden’s student loan forgiveness plans, so more student loan borrowers would be required to repay their loans, and repealing energy incentives (including the $7,500 credit for certain new electric vehicles), enacted under the Biden Administration.

Ironically, conservative Republicans on the House Budget Committee voted against the proposal because they wanted bigger cuts for Medicaid, joining Democrats, who oppose the Medicaid cuts.

Representatives from states that impose income taxes and those from states that don’t impose income taxes are also arguing about how much the ceiling for the itemized deduction for state taxes should be. The limit would be increased from $10,000 to $30,000 under the Ways and Means Committee proposal.

Remember tax legislation is a negotiation with some constraints. House representatives will continue to negotiate the details of the “One Big Beautiful Bill”. None of the Republicans want the 2017 tax cuts to expire, so it’s likely tax legislation will be enacted this year.

Write your representatives in Congress to let them know your concerns for the tax and budget process. https://www.congress.gov/members/find-your-member

Greatest scientist of her time slain by a “Christian” mob

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  • mike   

The city of Alexandria in Egypt was one of greatest centers of learning in the ancient western world.

The city was founded by Alexander the Great, and the family of his named successor, Ptolemy, became the rulers of Egypt until the death of Cleopatra VII, so the culture of the city was a mixture of Greek, Egyptian and Roman.

The Library of Alexandria contained all of the known “books” of that time. Scholars came from all over the world to study there. The Library was accidentally burned by Julius Caesar during his conquest of Egypt and most of the books were moved to the Seraphium. The Alexandran Museum, a type of university, was housed in the Library and, later, the Seraphium.

The Seraphium was destroyed in 391 AD by Theophilus, the archbishop of Alexandria, under orders from the Roman emperor to destroy all pagan temples. (The Emperor Constantine adopted Christianity as the religion of the Roman Empire.) The Seraphium was destroyed because it included a temple of Serapis. Theophilus later built a church on the site.

Hypatia was the daughter of Theon of Alexandria, an eminent mathematician and astronomer, and author of a student edition of Euclid’s Elements. Theon was the last known member of the Alexandran Museum. Hypatia succeeded her father as the leading teacher of science, mathematics and philosophy of her time, and one of the first women to teach those subjects. Her lessons included how to design an astolabe, a portable astronomical calculator, that would be used until the 19th century.

Hypatia was a philosopher in the Neoplatonic school, a belief system in which everything emanates from the One.

Her lectures became immensely popular, including attracting Christian students. Some of those students became leaders in the early Christian church and incorporated her ideas into their Christian faith. Her student, Synesius, became a bishop in the Christian church and incorporated Neoplatonic principles into the doctrine of the Trinity.

Hypatia became very influential in Alexandria’s politics, and was often consulted by the city’s leaders. She was a close friend of Orestes, the governor of Alexandria. Although Orestes was a Christian, he didn’t want to cede power to the church.

Theopolis was succeeded as archbishop in 412 AD by his nephew, Cyril. Cyril continued his uncle’s attacks on other faiths. Cyril competed with Orestes for control of Alexandria. The struggle for power came to a peak following a massacre of Christians by Jewish extremists. Cyril led a crowd that expelled all Jews from Alexandria and looted their homes and temples.

Orestes refused Cyril’s attempts at reconciliation and Cyril’s monks were unsuccessful in an attempt to assassinate Orestes.

Hypatia was an easier target. She didn’t have guards protecting her. She was a pagan who publicly spoke about a non-Christian philosophy. A rumor spread that she was preventing Orestes and Cyril from settling their differences.

In March, 415 AD, Peter the Lecter and his mob captured Hypatia, dragged her into a church, stripped her naked, and hacked her to pieces. To avoid having her venerated as a martyr, they cremated her remains.

Despite those efforts, Hypatia was remembered and revered as a martyr by the Christians of Byzantium, and today she is a symbol of Enlightenment values.

The story of Hypatia is still important today. Some fundamentalist Christians and other groups reject science. The Trump administration is withdrawing funding from scientific research at the National Science Foundation and the National Institutes of Health, and attacking academic freedom. We are also seeing a resurgence in censorship and book banning.

The abandonment of freedom of thought and expression could lead to a new dark age for the United States.

Michael Gray, CPA's Blog

Tax and financial advice from the Silicon Valley expert.