Michael Gray, CPA's Tax and Business Insight
July 3, 2024
© 2025 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Happy Independence Day!
- Family celebrations.
- Loads of tax and financial planning ideas and information are included in the 2025 Edition of How to Use Roth & IRA Accounts to Provide a Secure Retirement.
- "Big Beautiful Bill" passes in the U.S. Senate.
- Thinking about getting an electric vehicle?
- Thinking about making energy improvements for your home?
- California enacts tax changes.
- CalSavers reminder.
- Federal independent contractors might be California employees.
- Discharged debt isn't necessarily worthless.
- Limited partners were subject to self-employment tax.
- Conservation easement deduction limited to tax basis.
- Do you sell products, services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: POP!
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Koi pond at the Japanese Friendship Garden in Kelley Park, San Jose on June 28, 2025. Happy Independence Day!
"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America." (Preamble, U.S. Constitution.)
As we celebrate the birth of our nation, it seems our Constitution is under attack. Should we just disregard it? Without honoring our country's framework, will our tradition of liberty survive?
The institutions that were created for special purposes, including consumer protection, and oversight of accounting for public corporations, have been and are being dismantled. The reasoning: "excessive regulation" is hampering business. Those institutions were created in response to abuses in the past. Without them, are we creating an environment for more abuses?
This is a time when it's more important than ever to tell our representatives in Congress our opinions about the direction of our republic.
Family celebrations.
My daughter, Dawn and her husband, John Siemer, celebrate their wedding anniversary this month. Happy anniversary, Dawn and John! My son, James is celebrating his birthday this month. Happy birthday, James!
Loads of tax and financial planning ideas and information are included in the 2025 Edition of How to Use Roth & IRA Accounts to Provide a Secure Retirement.
For more information and a 25% discount go to www.rothirainvestingbook.com. Also available at www.amazon.com.
"Big Beautiful Bill" passes in the U.S. Senate.
Vice President Vance cast the tie-breaking vote to pass the "Big, Beautiful Bill" that would extend most of the tax cuts enacted in the Tax Cuts and Jobs Act of 2017 that are scheduled to expire at the end of 2025, among other provisions, on June 30, 2025 by a vote of 51 - 50.
The version passed by the Senate has some differences from the version passed by the House of Representatives, including doubling the cuts to Medicaid benefits. The House has now passed the Senate version 218 to 214. President Trump plans to sign the bill tomorrow, July 4, 2025.
According to the Congressional Budget Office, the bill will increase the national debt by more than $3 trillion during the next 10 years.
(One Big, Beautiful Bill Act, H.R. 1.)
Thinking about getting an electric vehicle?
A provision of the One Big Beautiful Bill would repeal the New Clean Vehicle Credit, the Previously-Owned Vehicle Credit and the Qualified Commercial Clean Vehicle Credit effective September 30, 2025.
To avoid the current limitations for the credit, most individuals should complete the acquisition by September 30, 2025 and structure their purchase as a lease, with the auto dealer applying the credit to the lease.
See your tax advisor for details.
(Spidell's Flash E-Mail, "Senate to vote on revised One Big, Beautiful Bill Act", June 30, 2025.)
Thinking about making energy improvements for your home?
Another provision of the One Big Beautiful Bill would repeal the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for property placed in service after 2025.
See your tax advisor for details.
(Spidell's Flash E-Mail, "Senate to vote on revised One Big, Beautiful Bill Act", June 30, 2025.)
California enacts tax changes.
Governor Newsom signed SB 132 on June 17, 2025, as part of a larger budget deal negotiated between California legislators and the Governor.
Tax provisions include:
- Extend the passthrough entity elective tax and passthrough entity elective tax credit for an additional five years if the federal limitation on tax deductions for state and local taxes is extended. During that period, entities that don't make the required June 15 prepayment could still make the election, but the credit claimed by the owners would be reduced by 12.5%
- Enact a new $20,000 military retirement pay exclusion for taxpayers with adjusted gross income of $125,000 or less, $250,000 for married couples filing a joint return and surviving spouses, for tax years 2025 through 2029.
- Exclude wildfire settlements received from a class action settlement administrator from California taxable income for tax years 2025 through 2030.
- More than double the allocation available for the Motion Picture and Television Credits.
(Spidell's California Taxletter®, July, 2025, p. 1, "Budget deal contains significant tax changes.")
CalSavers reminder.
By the end of 2025, all businesses that do not offer a qualified retirement program to their employees are required to register with CalSavers if the business has at least one California employee who is age 18 or older.
CalSavers is a state-mandated and facilitated retirement program for employees to made automatic contributions to either a Roth IRA account, by default, or to a traditional IRA account.
The mandate for businesses with one to four employees doesn't apply if the only employees are the business owner and the business owner's spouse. Employers with more that four employees should already be registered with CalSavers.
Employers who register with the program also have to provide CalSavers with a roster of their employees, keep the employee roster current, and facilitate payroll contributions to the CalSavers program for employees who don't opt out of the program.
Employers who are subject to participation requirements and fail to do so are subject to initial penalties of $250 per employee and an additional $500 per employee for continued noncompliance after 90 days. Employers can avoid the penalties by contacting CalSavers and getting in compliance before the penalty is received.
(Spidell's California Taxletter Podcast, June 29, 2025, "CalSavers reminder for businesses with at least one California employee.")
Federal independent contractors might be California employees.
California AB 2257, enacted in 2020, changed California tax law so that certain individuals who are independent contractors for federal income tax reporting are employees for California reporting. That means the amounts received as income are taxed as wages and expenses are unreimbursed employee expenses. Those expenses are itemized deductions on the California income tax return and not business expenses reported on Schedule C.
California voters approved Proposition 22, so drivers worker for companies like Uber, Lyft and DoorDash are independent contractors for both federal and California purposes.
See your tax advisor for details.
(Spidell's California Taxletter Podcast, June 22, 2025, "Workers classified as California employees and federal independent contractors.")
Discharged debt isn't necessarily worthless.
The Ninth Circuit Court of Appeals affirmed the Tax Court in finding a taxpayer who cancelled millions of dollars of purported loans between business entities he owned and reported cancellation of debt income for the debtor entities wasn't presumptively entitled to claim a worthless debt deduction for the creditor entities.
The requirements for cancellation of debt income and a worthless debt deduction aren't the same.
The lender was a single-member LLC (loss reported on the taxpayer's income tax return as a disregarded entity) and the debtor was a corporation.
The cancellation of debt income of the debtor was excluded from taxable income, because the debtor was insolvent.
In order to qualify for a nonbusiness bad debt deduction, the loan would have to be "wholly worthless."
The Tax Court and the Ninth Circuit Court of Appeals weren't persuaded the debts were "wholly worthless."
(Kelly v. Commissioner, Ninth Circuit Court of Appeals No. 23-70040, June 5, 2025.)
Limited partners were subject to self-employment tax.
The Tax Court upheld the IRS in recharacterizing ordinary income allocated to limited partners of an investment firm as income subject to self-employment tax.
The court found the partners were subject to self-employment tax because, functionally, the partners weren't acting as limited partners, so the limited partner exclusion didn't apply.
(Soroban Capital Partners LP v. Commissioner, T.C. Memorandum Decision 2025-52, May 28, 2025.)
Conservation easement deduction limited to tax basis.
The Eleventh Circuit Court of Appeals upheld the Tax Court in limiting the tax deduction for a conservation easement by a partnership was limited to its tax basis in the easement. The easement was an inventory property for the partner who contributed the property to the partnership.
(Glade Creek Partners, LLC v. Commisioner, Eleventh Circuit Court of Appeals No. 23-14039, June 6, 2025.)
Do you sell products, services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@taxtrimmers.com.
Attention Accountants! Speed up processing your 2019 business closings!
Do you still have 2019 business income tax returns on extension that need to be done? Check out this trial balance software, EZ Trial Balance, that's super-easy to set up and use. There is a desktop version and an online version. The online version includes consolidations and ratio analysis for analytical review. http://www.eztrialbalance.com
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Financial Insider Weekly past episodes
After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.
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