June 2025

Auditor Confirmations: Why your auditors contact third parties

Posted on June 25, 2025June 25, 2025 by CJadmin25

If your company’s financial statements are audited, chances are your auditor will send out external confirmations. These information requests may be sent directly to your customers, vendors, banks, attorneys and benefit plan administrators.

For your internal finance and accounting team, the confirmation process may feel intrusive or confusing, especially when third parties don’t respond immediately. But confirmations are a critical source of audit evidence. Understanding how they work can help your team support a smoother, more efficient audit.

Purpose

External confirmations allow auditors to independently verify key balances and other information — such as cash, receivables, payables and legal contingencies — without relying solely on internal records. Under U.S. Generally Accepted Auditing Standards, an external confirmation is defined as a direct response from a third party, either by mail or electronically.

For example, a third party might confirm an account balance, the terms of a loan or the existence of pending litigation. The confirmation response helps validate what’s on your books and reduce the risk of material misstatements.

Three formats

The types of confirmations your auditor uses will vary depending on your situation and the nature of your organization’s operations. Confirmations may come in the following three general formats:

1. Positive. Third parties must respond whether they agree or disagree with the information provided. This type is commonly used for high-risk areas, including receivables and legal matters.

2. Negative. Third parties respond only if they disagree with the information on the confirmation. It’s less intrusive but also less persuasive as audit evidence.

3. Blank. The auditor requests the third party fill in specific details, such as the balance owed, rather than verifying a prefilled number. This method provides strong evidence but requires more effort from the third party.

Confirmed balances may need to be rolled forward (or backward) to reconcile with amounts reported on the balance sheet date.

From snail mail to secure portals

Traditionally, auditors mailed confirmations and waited for responses. Today, most confirmations are sent electronically, often through secure third-party platforms. This speeds up the process, reduces the risk of tampering and improves audit efficiency. In fact, many banks and financial institutions now require confirmations to be submitted electronically and won’t respond to paper forms.

The Public Company Accounting Oversight Board (PCAOB) approved updated guidance in 2023 that modernizes and strengthens the auditor’s confirmation process. The new standard — Auditing Standard (AS) No. 2310, The Auditor’s Use of Confirmation — is effective for public company audits for fiscal years ending on or after June 15, 2025. Specifically, the updated guidance:

Explicitly includes electronic confirmations and the use of third-party intermediaries,
Maintains the existing requirement for auditors to confirm accounts receivable,
Adds a new requirement for auditors to confirm cash and cash equivalents held by third parties (though most auditors already routinely do this),
Eliminates the negative confirmation format as appropriate audit evidence, and
Emphasizes the auditor’s control over selecting items to be confirmed, sending and receiving confirmations, and addressing incomplete responses and nonresponses.

When confirmation procedures aren’t feasible, the auditor must perform alternative procedures to obtain relevant and reliable evidence for the information in question. For instance, auditors can get direct, read-only access to transactions or balances.

Looking to the future

Technology has radically changed the confirmation process over the last 20 years. And more changes may be on the horizon. While PCAOB standards apply to public companies, the Auditing Standard Board (ASB) in February 2025 proposed changes to its confirmation standard based on the public company guidance, with potential adoption in 2027. Additionally, many auditors are exploring ways artificial intelligence (AI) might help them automate confirmation tracking and identify confirmation risk patterns.

External confirmations may seem like just an audit formality, but they’re evolving into faster, smarter and more secure tools for validating your financials. Contact us to learn how confirmations will be used in your next audit — and how updated auditing standards and AI could affect our procedures.

Businesses considering incorporation should beware of the reasonable compensation conundrum

Posted on June 25, 2025June 25, 2025 by CJadmin25

Small to midsize businesses have valid reasons for incorporating, not the least of which is putting that cool “Inc.” at the end of their names. Other reasons include separating owners’ personal assets from their business liabilities and offering stock options as an employee incentive.

If you’re considering incorporation for your company, however, it’s essential to be aware of the associated risks. One of them is the reasonable compensation conundrum.

How much is too much?

Let’s say you decide to convert your business to a C corporation. After completing the incorporation process, you can pay owners, executives and other highly compensated employees some combination of compensation and dividends.

More than likely, you’ll want to pay your highly compensated employees more in compensation and less in dividends because compensation is tax deductible and dividends aren’t. But be careful — the IRS may be watching. If it believes you’re excessively compensating a highly compensated employee for tax avoidance purposes, it may challenge your compensation approach.

Such challenges typically begin with an audit and may result in the IRS being allowed to reclassify compensation as dividends — with penalties and interest potentially tacked on. What’s worse, if the tax agency succeeds with its challenge, the difference between what you paid a highly compensated employee and what the tax agency considers a reasonable amount for the services rendered usually isn’t deductible.

Of course, you can contest an IRS challenge. However, doing so usually involves considerable legal expenses and time — and a positive outcome is far from guaranteed.

Note: S corporations are a different story. Under this entity type, income and losses usually “pass through” to business owners at the individual level and aren’t subject to payroll tax. Thus, S corporation owners usually prefer to receive distributions. As a result, the IRS may raise a reasonable compensation challenge when it believes a company’s owners receive too little salary.

What are the factors?

There’s no definitive bright-line test for determining reasonable compensation. However, over the years, courts have considered various factors, including:

The nature, extent and scope of an employee’s work,
The employee’s qualifications and experience,
The size and complexity of the business,
A comparison of salaries paid to the sales, gross income and net worth of the business,
General economic conditions,
The company’s financial status,
The business’s salary policy for all employees,
Salaries of similar positions at comparable companies, and
Historical compensation of the position.

It’s also important to assess whether the business and employee are dealing at an “arm’s length,” and whether the employee has guaranteed the company’s debts.

Can you give me an example?

Just a few years ago, a case played out in the U.S. Tax Court illustrating the risks of an IRS challenge regarding reasonable compensation.

The owner of a construction business structured as a C corporation led his company through tough times and turned it into a profitable enterprise. When the business recorded large profits in 2015 and 2016, primarily because of the owner’s personal efforts and contacts, it paid him a bonus of $5 million each year in addition to his six-figure salary. The IRS claimed this was excessive.

The Tax Court relied heavily on expert witnesses to make its determination. Ultimately, it decided against the business, finding that reasonable amounts for the bonuses were $1.36 million in 2015 and $3.68 million in 2016, respectively. (TC Memo 2022-15)

Who can help?

As your business grows, incorporation may help your company guard against certain risks and achieve a greater sense of stature. However, there are tax complexities to consider. If you’re thinking about it, contact The CJ Group’s Advisory Team for help identifying the advantages and risks from both tax and strategic perspectives.

Closing time: Mastering your monthly close with QuickBooks

Posted on June 24, 2025June 25, 2025 by CJadmin25

The month-end close is a pain point for many small to midsize businesses. While internal accounting teams often aim to wrap up the close within three days, a recent survey found that half the respondents actually take six days or longer to close the books. What can your organization do to help streamline this process? Leveraging cloud-based technology tools like QuickBooks® can be a game changer.

Why closing the books matters

Closing the books — the process of finalizing all accounting records for a specific period — is more than a compliance chore. It provides insight into a company’s financial health by ensuring assets and liabilities are accurately posted, revenue and expenses are matched in the right periods, and any errors are quickly caught and corrected. A consistent, timely closing process can provide reliable data for:

Tracking profitability by product or department,
Maintaining cash flow visibility,
Budgeting and strategic planning,
Preparing tax returns and financial statements, and
Strengthening internal controls and preventing fraud.

Conversely, delays in closing the books can result in operational inefficiencies, misinformed business decisions and overlooked growth opportunities.

Best practices for QuickBooks users

Using QuickBooks’ features, you can speed up the closing process without compromising financial reporting quality. Establishing a structured, repeatable workflow is key. Rather than improvising each month, create a standardized closing checklist that includes these nine steps:

1. Reconcile bank and credit card accounts. Every reliable close begins with accurate account reconciliations to help prevent duplicate, missing and fraudulent transactions. However, this step can be time consuming and frustrating, especially for businesses with significant transaction volume. QuickBooks can streamline reconciliation by importing and categorizing transactions automatically through its bank feed feature. Configuring bank rules further reduces manual coding and improves consistency.

2. Review open receivables and payables. Unpaid invoices and overdue bills distort cash flows, profitability and amounts reported on your balance sheet. QuickBooks can generate aging summaries for accounts receivable and accounts payable. Review the receivables summary for overdue invoices, then follow up with customers and determine whether any accounts are uncollectible. Similarly, scrutinize the payables summary to verify all bills have been received and posted and check for duplicate entries. Understanding what you owe and when helps maintain strong supplier relationships and avoids surprises in future periods.

3. Conduct physical inventory counts. For businesses with inventory, errors in stock levels can lead to misstatements in the cost of goods sold and gross profits. Performing a physical inventory count at month end — and reconciling it to QuickBooks data — is a best practice that ensures inventory valuation remains accurate. QuickBooks’ built-in inventory tools or integrations with third-party platforms can provide real-time visibility into stock levels and streamline this process.

4. Record fixed assets and depreciation. Any major purchases made during the month that qualify as fixed assets — such as equipment, furniture, vehicles and leasehold improvements — must be capitalized on the balance sheet, not immediately expensed on the income statement. Set up depreciation schedules based on the acquired assets’ useful lives. Also, remove any sold or retired assets from the books. While QuickBooks doesn’t automate depreciation, you can track depreciation schedules in spreadsheets or integrate third-party tools.

5. Post prepaid expenses and accruals. Accrual accounting requires that revenue and expenses be recorded when earned or incurred, not when cash changes hands. This requires journal entries for prepaid assets and accrued expenses. QuickBooks allows you to create custom journal entries and automate recurring items to reduce manual effort. Recording these entries monthly helps produce a more accurate, complete picture of the business’s interim financial performance.

6. Verify payroll and benefits. Even when using a third-party payroll provider, it’s essential to reconcile payroll-related entries each month. This includes verifying gross wages, employer-paid taxes and benefit contributions. QuickBooks Payroll can automate much of this process, but comparing payroll reports to general ledger entries is prudent to confirm accuracy and catch any inconsistencies early.

7. Analyze preliminary financial reports. With QuickBooks, you can quickly run a preliminary profit and loss statement, balance sheet, and statement of cash flows. Compare these reports to prior periods, internal budgets or forecasts, and/or industry benchmarks to identify anomalies. Investigate unusual fluctuations for coding errors, missing transactions or unexpected balances, then make any necessary corrections. Keeping up with adjusting entries every month facilitates year-end financial reporting and tax preparation.

8. Lock the books. Once you’ve made all necessary adjustments and entries, QuickBooks allows you to “close the books” with a password to prevent changes after the period ends. This functionality, accessed through the settings menu, prevents backdating or editing past transactions, thereby maintaining the integrity of finalized records.

9. Document the closing process. The final element of a well-run close is documentation. Save the month-end checklist, supporting reconciliations, journal entries and exception notes in a shared folder or attach them directly to QuickBooks transactions. This adds transparency and ensures continuity if there’s turnover in your accounting department.

Crossing the finish line with confidence

The month-end close doesn’t have to be a source of stress. By leveraging QuickBooks’ functionality and implementing a structured closing process, your business can significantly reduce the time and effort required to close the books while improving accuracy and insight. Contact The CJ Group to help set up efficient, reliable closing procedures for your business.

QuickBooks users: It’s time for a mid-year review

Posted on June 24, 2025June 25, 2025 by CJadmin25

Performing a mid-year QuickBooks® cleanup is a smart habit that small business owners and bookkeepers can adopt to stay ahead of their financial responsibilities. Waiting until year end to review your accounting records can lead to unnecessary stress, missed deductions and preventable errors.

When you need to update your QuickBooks lists — such as the chart of accounts, customers and vendors — the software provides methods for inactivating, deleting and merging list entries. Here’s how to freshen things up.

Inactivating: Hidden but still accessible

If your records have become cluttered with unused accounts, consider inactivating some list entries. QuickBooks will keep the information associated with an inactive entry. So you can still access the information if you decide to view or reactivate the item later. But the record is hidden in the list and won’t appear on any related drop-down lists. For example, if a job has been completed, making it inactive will shorten the customer list and prevent accidental use on an invoice or payment window.

However, there are some precautions for inactivating list entries that still have open balances. For instance, if you’d like to inactivate an inventory item, be sure to adjust the quantity on hand to zero. If a customer or vendor has an outstanding balance, resolve it and adjust the balance to zero before inactivating the name. Additionally, inactivating a list entry doesn’t prevent it from being included in a memorized transaction that was previously created. Be sure to update those recurring entries as well.

Deleting: A clean slate

If you’re sure you won’t need to access an unused item again, QuickBooks allows you to delete a list entry permanently. However, if you attempt to delete an item that’s used elsewhere in the company file, QuickBooks won’t allow you to delete it. Instead, a warning message will be displayed.

Important: To delete a customer, you must first delete or inactivate all associated jobs. However, if any job has linked transactions — such as invoices, time entries or payments — it’s generally advisable to inactivate the job instead of deleting it. Once all jobs are inactive or deleted, and the customer has no remaining linked transactions, the customer may be deleted.

Before an item is deleted, QuickBooks will ask you to confirm the deletion. And, if you delete a list entry in error, you can undo it — but this only works in the desktop version and immediately following the accidental deletion, before saving.

Merging: When less is more

Duplicate entries happen for many reasons. For instance, different users may inadvertently enter the same account into the software multiple times, or your supply chain partners might combine into one company. The merge feature in QuickBooks allows duplicate entries within the same list to be combined.

While this is a useful function, merging two list entries is an irreversible operation. To safeguard against any mistakes made during merging, consider backing up the file first in case you might need to restore it to its original state.

We’re here to help

Working with cluttered accounting records can be cumbersome and frustrating. A mid-year review can give you a fresh start and minimize headaches when it’s time to prepare your financial statements and tax returns. Contact the QuickBooks experts at The CJ Group for help updating your QuickBooks lists. Our team can guide you through the steps to delete, inactivate and merge list items.

Risky business: How auditors help combat corporate fraud

Posted on June 24, 2025June 25, 2025 by CJadmin25

In today’s volatile economic climate, organizations face mounting pressures that can increase the risk of fraudulent activities. Auditors play a pivotal role in identifying and mitigating these risks through comprehensive fraud risk assessments and tailored audit procedures.

Fraud triangle

Three elements are generally required for fraud to happen. First, perpetrators must experience some type of pressure that motivates fraud. Motives may be personal or come from within the organization. Second, perpetrators must mentally justify (or rationalize) fraudulent conduct. Third, perpetrators must perceive and exploit opportunities that they believe will allow them to go undetected.

The presence of these three elements doesn’t prove that fraud has been committed — or that an individual will commit fraud. Rather, the so-called “fraud triangle” is designed to help organizations identify risks and understand the importance of eliminating the perceived opportunity to commit fraud.

Economic uncertainty can alter workers’ motivations, opportunities and abilities to rationalize fraudulent behavior. For example, an unethical manager might conceal a company’s deteriorating performance with creative journal entries to avoid loan defaults, maximize a year-end bonus or stay employed.

Fraud vs. errors

Auditing standards require auditors to plan and conduct audits that provide reasonable assurance that the financial statements are free from material misstatement. There are two reasons an organization misstates financial results:

Fraud, and
Error.

The difference between the two is a matter of intent. The Association of Certified Fraud Examiners (ACFE) defines financial statement fraud as “a scheme in which an employee intentionally causes a misstatement or omission of material information in the organization’s financial reports.” By contrast, human errors are unintentional.

External audits: An effective antifraud control

While auditing standards require auditors to provide reasonable assurance against material misstatement, they don’t act as fraud investigators. An audit’s scope is limited due to sampling techniques, reliance on management-provided information and documentation, and concealed frauds, especially those involving collusion. However, auditors are still responsible for responding appropriately to fraud suspicions and designing audit procedures for fraud risks.

Professional skepticism is applied by auditors who serve as independent watchdogs, assessing whether financial reporting is transparent and compliant with accounting standards. Their oversight may deter management from engaging in fraudulent behavior and help promote a culture of accountability and transparency.

Auditors also perform a fraud risk assessment, which includes management interviews, analytical procedures and brainstorming sessions to identify fraud scenarios. Then, they tailor audit procedures to focus on high-risk areas, such as revenue recognition and accounting estimates, to help uncover inconsistencies and anomalies. Fraud risk assessments can affect the nature, timing and scope of audit procedures during fieldwork. Auditors must communicate identified fraud risks and any instances of fraud to those charged with governance, such as management and the audit committee.

Additionally, auditors examine and test internal controls over financial reporting. Weak controls are documented and reported, enabling management to strengthen defenses against fraud.

To catch a thief

External auditors serve as a critical line of defense against corporate fraud. If you suspect employee theft or financial misstatement, contact us to assess your company’s risk profile and determine whether fraud losses have been incurred. The CJ Group’s expert audit team can also help you implement strong controls to prevent fraud from happening in the future and minimize potential fraud losses.

Tax provisions in the proposed One, Big, Beautiful Bill Act that manufacturers need to know about.

Posted on June 17, 2025June 25, 2025 by CJadmin25

Manufacturers should keep a close eye on Washington, D.C., this year. Indeed, many of the federal government’s proposed tax and spending policies will have a direct impact on the U.S. manufacturing industry. Two top examples include the uncertainty surrounding tariffs and the proposed One, Big, Beautiful Bill Act (OBBBA).

The U.S. House of Representatives passed the OBBBA in May. The bill includes extensions of many provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire, as well as some enhancements and new provisions.

Here’s an overview of the major business tax proposals included in the House-passed bill that manufacturers need to know about:

Bonus depreciation. This additional first-year depreciation is available for qualified assets, which include tangible property with a recovery period of 20 years or less, such as manufacturing equipment. Under the TCJA, first-year bonus depreciation has been phasing down 20 percentage points annually since 2023 and is set to drop to 0% in 2027. It’s 40% for 2025.

Under the OBBBA, bonus depreciation would reset to 100% for eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030.

Section 179 expensing election. This tax break allows businesses to currently deduct (rather than depreciate over a number of years) the cost of purchasing eligible assets, such as equipment, furniture, off-the-shelf computer software and qualified improvement property. An annual expensing limit applies, which begins to phase out dollar-for-dollar when asset acquisitions for the year exceed the Sec. 179 phaseout threshold. For 2025, the expensing limit is $1.25 million, and the phaseout threshold is $3.13 million. Both amounts are adjusted annually for inflation.

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

Section 199A qualified business income (QBI) deduction. Created by the TCJA, the QBI deduction is currently available through 2025 to owners of pass-through entities, such as S corporations, partnerships, and limited liability companies. QBI is defined as the net amount of qualified items of income, gain, deduction, and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income. But it’s subject to additional rules and limits that can reduce or eliminate the tax benefit.

Under the OBBBA, the deduction would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Domestic research and experimental expenditures. The TCJA generally requires these expenses to be amortized over a five-year period. The OBBBA would temporarily reinstate a deduction for such expenses. Specifically, the deduction would apply to eligible research and development costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. (The requirement to amortize such expenses would be suspended while the deduction is available.)

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

Be aware that these are only some of the business-focused tax provisions in the OBBBA. For example, it would also reduce or rescind many tax breaks related to green energy.

The proposed legislation is likely to change (perhaps significantly) as it moves through the Senate and possibly back to the House. In addition to disagreements about the tax provisions, some Senators don’t agree with some of the spending cuts. Regardless, manufacturers should expect tax law changes this year. Turn to The CJ Group for the latest developments.

One Big Beautiful Bill Act Passed the House- Here’s an overview

Posted on June 2, 2025 by Debra Barcuch

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

The bill has now moved to the U.S. Senate for debate, revisions and a vote. Several senators say they can’t support the bill as written and vow to make changes.

Here’s an overview of the major tax proposals included in the House OBBBA.

Business tax provisions

The bill includes several changes that could affect businesses’ tax bills. Among the most notable:

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

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

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

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

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

Individual tax provisions

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

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

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

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

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

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

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

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

New tax provisions

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

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

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

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

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

What’s next?

These are only some of the provisions in the massive House bill. The proposed legislation is likely to change (perhaps significantly) as it moves through the Senate and possibly back to the House. In addition to disagreements about the tax provisions, there are Senators who don’t agree with some of the spending cuts. Regardless, tax changes are expected this year. Need help understanding how this bill will impact your tax strategy? Give the CJ Tax Experts a call anytime.

Clean vehicle tax credits are going away after 2025, ended by House GOP budget bill

Posted on June 2, 2025 by Debra Barcuch

And the drama on ‘The One, Big, Beautiful Bill’ continues. With the passing of the U.S. House of Representatives budget reconciliation bill, the clean vehicle credits are set to end after 2025 in most cases.

If you’ve been pondering the purchase of a new or used electric vehicle (EV), you’ll want to buy sooner rather than later to take advantage of available tax credits.

Here’s what you need to know.

The current credit

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

The maximum credit for new vehicles is $7,500, provided the vehicle meets certain sourcing requirements for both 1) critical minerals and 2) battery components. Clean vehicles that satisfy only one of the two requirements qualify for a $3,750 credit.

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

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

Buyer requirements

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

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

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

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

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

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

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

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

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

Vehicle requirements

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

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

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

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

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

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

Don’t forget the paperwork

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

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