When it comes to business needs, securing financing is a top priority, particularly when starting out or for ongoing needs such as making payroll or paying for inventory. This financing could include a loan or securing an ongoing credit line, and businesses can do that through Off-Balance Sheet Financing (OBSF).
Defining OBSF
Off-Balance Sheet Financing is an accounting practice whereby businesses document liabilities or assets on their books but do not reflect them on their balance sheet. It’s important to note that while they’re not reflected on the business’ balance sheet, if their disclosure meets generally accepted accounting principles (GAAP), it’s legal. If select transactions aren’t on the company’s balance sheet, these transactions are generally found in a company’s financial statements via notes. If, however, company employees conceal material information from investors, then it becomes illegal. As the Federal Deposit Insurance Corporation (FDIC) and the U.S. Securities and Exchange Commission (SEC) lay out, financial statements also may contain references to lease expenses, rentals, or partnerships.
Why Companies Use OBSF
Businesses use this type of accounting to manage their debt usage. Along with reducing interest rates for commercial loans, businesses can lower their leverage and debt-to-equity ratios, reducing the chances of default and encouraging outside investment. This is even more advantageous to help companies obtain financing if they have debt covenants.
In reaction to the Financial Accounting Standards Board’s (FASB) discovery of operating leases regarding OBSF of more than $1.25 trillion for lease accounting, it changed the requirement for OBSF in February 2016 to mandate U.S. public companies to record “right-of-use assets and liabilities from leases on balance sheets” per 2016-02 ASC 842, coming into force in 2019. Based on the publication “Accounting Standards Update No 2016-02 Leases (Topic 842) p. 1,” footnotes were mandated for greater transparency.
How OBSF Works
OBSF moves select assets, liabilities, or transactions away from their balance sheets. It’s done to attract investors or when a company has a ton of debt yet needs to borrow additional capital to fund operations. This can provide companies with more favorable lending rates. Such transactions are either moved to subsidiaries or via special purpose vehicles. The questionable assets are still there but are simply listed on related monetary documentation.
Depending on how the company proceeds, it can include entities that the parent company has a minority ownership stake in. This may include special purpose vehicles (SPV) that take on assets and liabilities, along with other entities such as joint ventures and research and development (R&D) partnerships.
Conclusion
When it comes to R&D partnerships, since R&D is capital-intensive and requires a long time for completion, OBSF is financially advantageous. It permits a company to reduce its liability over the research time since there are no substantive assets to help even out the liability. Industries such as healthcare can see benefits.
Another advantage of OBSF is that when an operating lease is used, it can create liquidity since capital is not tied up in purchasing equipment, and rental expenses are the only financial outflows.
When done according to GAAP guidelines and state and federal laws, companies that use OBSF can maximize their financial landscape.
Financing Via Off-Balance Sheet Options
November 1, 2025 · Accounting News, Blog
⏱ 3 min read
When it comes to business needs, securing financing is a top priority, particularly when starting out or for ongoing needs such as making payroll or paying for inventory. This financing could include a loan or securing an ongoing credit line, and businesses can do that through Off-Balance Sheet Financing (OBSF).
Defining OBSF
Off-Balance Sheet Financing is an accounting practice whereby businesses document liabilities or assets on their books but do not reflect them on their balance sheet. It’s important to note that while they’re not reflected on the business’ balance sheet, if their disclosure meets generally accepted accounting principles (GAAP), it’s legal. If select transactions aren’t on the company’s balance sheet, these transactions are generally found in a company’s financial statements via notes. If, however, company employees conceal material information from investors, then it becomes illegal. As the Federal Deposit Insurance Corporation (FDIC) and the U.S. Securities and Exchange Commission (SEC) lay out, financial statements also may contain references to lease expenses, rentals, or partnerships.
Why Companies Use OBSF
Businesses use this type of accounting to manage their debt usage. Along with reducing interest rates for commercial loans, businesses can lower their leverage and debt-to-equity ratios, reducing the chances of default and encouraging outside investment. This is even more advantageous to help companies obtain financing if they have debt covenants.
In reaction to the Financial Accounting Standards Board’s (FASB) discovery of operating leases regarding OBSF of more than $1.25 trillion for lease accounting, it changed the requirement for OBSF in February 2016 to mandate U.S. public companies to record “right-of-use assets and liabilities from leases on balance sheets” per 2016-02 ASC 842, coming into force in 2019. Based on the publication “Accounting Standards Update No 2016-02 Leases (Topic 842) p. 1,” footnotes were mandated for greater transparency.
How OBSF Works
OBSF moves select assets, liabilities, or transactions away from their balance sheets. It’s done to attract investors or when a company has a ton of debt yet needs to borrow additional capital to fund operations. This can provide companies with more favorable lending rates. Such transactions are either moved to subsidiaries or via special purpose vehicles. The questionable assets are still there but are simply listed on related monetary documentation.
Depending on how the company proceeds, it can include entities that the parent company has a minority ownership stake in. This may include special purpose vehicles (SPV) that take on assets and liabilities, along with other entities such as joint ventures and research and development (R&D) partnerships.
Conclusion
When it comes to R&D partnerships, since R&D is capital-intensive and requires a long time for completion, OBSF is financially advantageous. It permits a company to reduce its liability over the research time since there are no substantive assets to help even out the liability. Industries such as healthcare can see benefits.
Another advantage of OBSF is that when an operating lease is used, it can create liquidity since capital is not tied up in purchasing equipment, and rental expenses are the only financial outflows.
When done according to GAAP guidelines and state and federal laws, companies that use OBSF can maximize their financial landscape.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
When it comes to evaluating a business, there are many ways to perform a valuation. One way to do so is to use the Q Ratio. Known as Tobin’s Q Ratio or simply the Q Ratio, this method looks at the proportion between the values of a physical asset and its replacement cost. Developed by Nobel laureate economist James Tobin, this ratio presumes a single company; for public investors, if asset values can be estimated, the company’s market value of a publicly traded company may be approximately estimated.
The original formula is as follows:
Q Ratio = Market Value of Assets / Replacement Cost of Capital
While this formula is the original iteration, approximating an asset’s replacement value is complicated and oftentimes not 100 percent realistic to analyze. The more realistic way it’s calculated is by using book values in lieu of the asset’s replacement costs. The new way to calculate it is as follows:
Q Ratio = (Equity Market Value + Liabilities’ Market Value) / (Equity Book Value + Liabilities’ Market Value)
When it comes to calculating the overall market’s Q Ratio:
Q Ratio = Value of the Stock Market / Corporate Net Worth
Putting the Q Ratio in Practice
Essentially, it’s used to value a company. Once calculated, the Q Ratio provides internal stakeholders and outside investors with one way to evaluate a company.
Above 1
If the Q Ratio is more than 1, the business’ market value is higher than its booked assets. It means a company’s valuation is overestimated in the eyes of the market since there is some portion of the company’s assets that are either not documented or valued fully. When the Q Ratio is above 1, a business’ earnings are worth more than replacement costs for the assets. At this level, entrepreneurs are incentivized to develop a competitor business to gain market share and financial gain.
Equal to 1
When the Q Ratio equals 1, it implies the market sees the company’s assets as valued fairly.
Below 1
At this level, a business’ assets are worth more than fair market value, establishing the business as undervalued. Investors with enough assets can purchase the company in question, either via shares if publicly traded or outright if a private company, versus trying to create a competitor company to siphon value away from it.
Further Consideration
When it comes to the calculated Q Ratio, it’s important to keep it in context. While accountants can be precise with many things during preparation, when it comes to market forces and intangible assets, analysts need to use their judgment. Investors and market forces can create hyperbole for a business’ value that can’t be quantified and recorded by accountants. Stock analysts’ perspectives on a business’ prospects or rumors regarding future performance can modulate the present, dynamic valuation of the company.
Another consideration is how to document and gauge intangible assets like intellectual property and goodwill. While accountants can approximate IP or goodwill, it’s not an exact science.
Thus, when businesses use the Q Ratio to value their own company or one they consider purchasing, investors must take the Q Ratio as part of a holistic valuation approach.
Understanding The Q Ratio
November 1, 2025 · Blog, General Business News
⏱ 3 min read
When it comes to evaluating a business, there are many ways to perform a valuation. One way to do so is to use the Q Ratio. Known as Tobin’s Q Ratio or simply the Q Ratio, this method looks at the proportion between the values of a physical asset and its replacement cost. Developed by Nobel laureate economist James Tobin, this ratio presumes a single company; for public investors, if asset values can be estimated, the company’s market value of a publicly traded company may be approximately estimated.
The original formula is as follows:
Q Ratio = Market Value of Assets / Replacement Cost of Capital
While this formula is the original iteration, approximating an asset’s replacement value is complicated and oftentimes not 100 percent realistic to analyze. The more realistic way it’s calculated is by using book values in lieu of the asset’s replacement costs. The new way to calculate it is as follows:
Q Ratio = (Equity Market Value + Liabilities’ Market Value) / (Equity Book Value + Liabilities’ Market Value)
When it comes to calculating the overall market’s Q Ratio:
Q Ratio = Value of the Stock Market / Corporate Net Worth
Putting the Q Ratio in Practice
Essentially, it’s used to value a company. Once calculated, the Q Ratio provides internal stakeholders and outside investors with one way to evaluate a company.
Above 1
If the Q Ratio is more than 1, the business’ market value is higher than its booked assets. It means a company’s valuation is overestimated in the eyes of the market since there is some portion of the company’s assets that are either not documented or valued fully. When the Q Ratio is above 1, a business’ earnings are worth more than replacement costs for the assets. At this level, entrepreneurs are incentivized to develop a competitor business to gain market share and financial gain.
Equal to 1
When the Q Ratio equals 1, it implies the market sees the company’s assets as valued fairly.
Below 1
At this level, a business’ assets are worth more than fair market value, establishing the business as undervalued. Investors with enough assets can purchase the company in question, either via shares if publicly traded or outright if a private company, versus trying to create a competitor company to siphon value away from it.
Further Consideration
When it comes to the calculated Q Ratio, it’s important to keep it in context. While accountants can be precise with many things during preparation, when it comes to market forces and intangible assets, analysts need to use their judgment. Investors and market forces can create hyperbole for a business’ value that can’t be quantified and recorded by accountants. Stock analysts’ perspectives on a business’ prospects or rumors regarding future performance can modulate the present, dynamic valuation of the company.
Another consideration is how to document and gauge intangible assets like intellectual property and goodwill. While accountants can approximate IP or goodwill, it’s not an exact science.
Thus, when businesses use the Q Ratio to value their own company or one they consider purchasing, investors must take the Q Ratio as part of a holistic valuation approach.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
Despite major investments in cybersecurity, organizations continue to face breaches. Most security mechanisms implemented guard against threats such as password theft. However, there is a growing concern with the unchecked expansion of user access, permissions, and tokens across apps, clouds, and systems.
This growing challenge is known as authorization sprawl, and it is becoming one of the most dangerous and least visible threats in modern enterprise security.
According to insights from the SANS keynote at the RSAC 2025 Conference, attackers are increasingly exploiting this sprawl to gain legitimate, persistent access that bypasses multifactor authentication (MFA), security information and event management (SIEM) alerts, and endpoint detection and response (EDR) visibility altogether.
What is Authorization Sprawl?
Authorization sprawl occurs when access permissions multiply uncontrollably across systems, users, and applications. Every time a team or department adds a new SaaS integration, service account, or API key, another layer of permission is introduced.
In an attempt to make access to multiple applications easy, users also have single sign-on (SSO), designed to help log in once and access multiple applications securely. Here, users are granted access to several connected systems through SSO, adding to the authorization sprawl problem.
Over time, all these factors create a complex ecosystem that even security teams have a hard time tracing who can access what.
Unlike authentication, which verifies who someone is, authorization determines what one can do. When permissions expand without review, attackers take advantage of forgotten tokens, dormant accounts, or outdated roles to move freely inside systems.
Why Traditional Defenses Miss It
Most defenses focus on identity verification, such as MFA, conditional access, and endpoint protection. But once a user is authenticated, there is no monitoring. This is the blind spot that attackers exploit. Instead of breaking in, they log in using legitimate session tokens, application programming interface (API) keys, or open authorization (OAuth) grants.
The misuse of valid credentials or access tokens enables cloud-related breaches. These attacks bypass traditional detection tools because they appear to be normal activity by authorized users.
A recent incident involving Salesloft’s Drift application highlights how damaging authorization sprawl can be. Drift, an AI chatbot often integrated with Salesforce, was exploited after attackers gained access to Salesloft’s GitHub account and later its AWS environment. From there, they stole OAuth tokens and authentication credentials, exposing Salesforce data from potentially hundreds of organizations. This incident is an example of how interconnected SaaS systems and unchecked authorization links can create a cascading breach effect, where one weak point leads to multiple breaches across services.
The Business Impact of Authorization Sprawl
Aside from increasing technical risk, authorization sprawl erodes compliance, governance, and trust.
Regulatory Exposure – Frameworks like GDPR, SOC 2, and HIPAA require strict access control and auditability. Untracked permissions make demonstrating compliance nearly impossible.
Operational Risk – An overprivileged account can unintentionally leak data, delete configurations, or expose APIs.
False Sense of Security – Zero Trust frameworks often stop at identity verification. Failing to continuously validate authorization is equivalent to protecting the front door while leaving internal doors wide open.
How to Fix Authorization Sprawl
Luckily, solving this problem does not require removing existing security controls but rather extending visibility and discipline into authorization.
Conduct Regular Access Audits – Map users, roles, and permissions across your environment. Be sure to look for redundant privileges, dormant accounts, and orphaned API keys. Use tools that help visualize hidden paths and privilege escalation routes.
Implement Structured Access Control – Use frameworks like role-based access control (RBAC) or attribute-based access control (ABAC). Standardizing roles ensures fewer exceptions and easier auditing.
Automate Reviews and Revocations – Integrate identity and access management (IAM) with HR systems so access automatically changes when employees leave or change roles. This helps eliminate the temporary access that never gets removed.
Shorten Token Lifetimes and Rotate Credentials – Session tokens and personal access tokens (PATs) should have an expiration period, such as 30 to 90 days. Using automated key rotation policies will help prevent long-lived access tokens from becoming backdoors.
Enforce the Principle of Least Privilege – Grant users and systems only the minimum access needed.
Extend Zero Trust to Authorization – Verification shouldn’t end with login. Apply continuous authorization checks.
Conclusion
As cloud ecosystems, APIs, and integrations continue to multiply, authorization complexity will grow exponentially. Businesses that invest in mapping and controlling authorization sprawl will stay ahead of both attackers and regulators. In cybersecurity, visibility equals control, and this begins with knowing exactly who can do what.
Why Authorization Sprawl Is the Next Big Security Blind Spot and How to Fix It
November 1, 2025 · Blog, What's New in Technology
⏱ 4 min read
Despite major investments in cybersecurity, organizations continue to face breaches. Most security mechanisms implemented guard against threats such as password theft. However, there is a growing concern with the unchecked expansion of user access, permissions, and tokens across apps, clouds, and systems.
This growing challenge is known as authorization sprawl, and it is becoming one of the most dangerous and least visible threats in modern enterprise security.
According to insights from the SANS keynote at the RSAC 2025 Conference, attackers are increasingly exploiting this sprawl to gain legitimate, persistent access that bypasses multifactor authentication (MFA), security information and event management (SIEM) alerts, and endpoint detection and response (EDR) visibility altogether.
What is Authorization Sprawl?
Authorization sprawl occurs when access permissions multiply uncontrollably across systems, users, and applications. Every time a team or department adds a new SaaS integration, service account, or API key, another layer of permission is introduced.
In an attempt to make access to multiple applications easy, users also have single sign-on (SSO), designed to help log in once and access multiple applications securely. Here, users are granted access to several connected systems through SSO, adding to the authorization sprawl problem.
Over time, all these factors create a complex ecosystem that even security teams have a hard time tracing who can access what.
Unlike authentication, which verifies who someone is, authorization determines what one can do. When permissions expand without review, attackers take advantage of forgotten tokens, dormant accounts, or outdated roles to move freely inside systems.
Why Traditional Defenses Miss It
Most defenses focus on identity verification, such as MFA, conditional access, and endpoint protection. But once a user is authenticated, there is no monitoring. This is the blind spot that attackers exploit. Instead of breaking in, they log in using legitimate session tokens, application programming interface (API) keys, or open authorization (OAuth) grants.
The misuse of valid credentials or access tokens enables cloud-related breaches. These attacks bypass traditional detection tools because they appear to be normal activity by authorized users.
A recent incident involving Salesloft’s Drift application highlights how damaging authorization sprawl can be. Drift, an AI chatbot often integrated with Salesforce, was exploited after attackers gained access to Salesloft’s GitHub account and later its AWS environment. From there, they stole OAuth tokens and authentication credentials, exposing Salesforce data from potentially hundreds of organizations. This incident is an example of how interconnected SaaS systems and unchecked authorization links can create a cascading breach effect, where one weak point leads to multiple breaches across services.
The Business Impact of Authorization Sprawl
Aside from increasing technical risk, authorization sprawl erodes compliance, governance, and trust.
Regulatory Exposure – Frameworks like GDPR, SOC 2, and HIPAA require strict access control and auditability. Untracked permissions make demonstrating compliance nearly impossible.
Operational Risk – An overprivileged account can unintentionally leak data, delete configurations, or expose APIs.
False Sense of Security – Zero Trust frameworks often stop at identity verification. Failing to continuously validate authorization is equivalent to protecting the front door while leaving internal doors wide open.
How to Fix Authorization Sprawl
Luckily, solving this problem does not require removing existing security controls but rather extending visibility and discipline into authorization.
Conduct Regular Access Audits – Map users, roles, and permissions across your environment. Be sure to look for redundant privileges, dormant accounts, and orphaned API keys. Use tools that help visualize hidden paths and privilege escalation routes.
Implement Structured Access Control – Use frameworks like role-based access control (RBAC) or attribute-based access control (ABAC). Standardizing roles ensures fewer exceptions and easier auditing.
Automate Reviews and Revocations – Integrate identity and access management (IAM) with HR systems so access automatically changes when employees leave or change roles. This helps eliminate the temporary access that never gets removed.
Shorten Token Lifetimes and Rotate Credentials – Session tokens and personal access tokens (PATs) should have an expiration period, such as 30 to 90 days. Using automated key rotation policies will help prevent long-lived access tokens from becoming backdoors.
Enforce the Principle of Least Privilege – Grant users and systems only the minimum access needed.
Extend Zero Trust to Authorization – Verification shouldn’t end with login. Apply continuous authorization checks.
Conclusion
As cloud ecosystems, APIs, and integrations continue to multiply, authorization complexity will grow exponentially. Businesses that invest in mapping and controlling authorization sprawl will stay ahead of both attackers and regulators. In cybersecurity, visibility equals control, and this begins with knowing exactly who can do what.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
What if you could lower your grocery bill without giving up the things you love, fight inflation, and have some money left at the end of the month? Sounds too good to be true? It’s not. It’s the Half Rule. This means cutting the amount of product you use in half and seeing what happens.
Truth is, most of us probably use too much of the things we love. Here are several reasons why:
Manufacturers often ask you to use more of the product than you need.
You’ve probably gotten used to using a certain amount of a product;
And finally, product inflation. Specifically, you might think that if you get pleasure out of something, you might need to use more of it. For instance, why get a tall vanilla latte when you can get a grande, right? But ask yourself: Is it really that much better?
To this end, here are some things you can easily use half of and never miss the other half:
Shampoo. Try using half the amount and adding more water, especially if it’s concentrated.
Laundry detergent. Try a half cup. A little goes a long way, especially if it’s a small load.
Dryer sheets. These are so easy to tear in half.
Cooking oil. Use an oil mister instead of pouring it into your pan or skillet.
Restaurant meals. Eat half or a third and save the rest for another meal. Or better yet, split a meal with your partner, friend or work colleague. Bonus: you’ll also save calories.
Bagels. Just eat half! Save the other half for your next snack or breakfast.
Starbucks order. Try a tall. Or if you get a vente, try a grande. Give it a whirl. See what happens.
Glass stovetop cleaner. If you use less, you might have fewer streaks.
Tape. When you’re wrapping gifts, give string a try.
When you change a few things here and there, over time, you’ll really see the difference in your bank account. Also, imagine how nice it’ll feel not to have to buy these items so often. That’s a big change in spending.
The Half Rule is not for everything. While it works on so many things, there are some things you cannot to apply it to – like filling up your gas tank or cutting a prescription in half. Never do that.
Overall, it’s a good rule. And when you’re persistent over time, you’ll start to develop a habit – one that will help you see a difference quickly and save you money in the long run. It’s a ripple effect that might expand into other areas of your life. In sum, the Half Rule is so effective, you just might go all in – and stay there.
Sources
“The Half Rule” – A Frugal Hack I Live By
What is How to Save Money with the Half Rule?
What if you could lower your grocery bill without giving up the things you love, fight inflation, and have some money left at the end of the month? Sounds too good to be true? It’s not. It’s the Half Rule. This means cutting the amount of product you use in half and seeing what happens.Truth is, most of us probably use too much of the things we love. Here are several reasons why:Manufacturers often ask you to use more of the product than you need.You’ve probably gotten used to using a certain amount of a product;And finally, product inflation.
How to Save Money with the Half Rule
October 1, 2025 · Blog, Tip of the Month
⏱ 4 min read
What if you could lower your grocery bill without giving up the things you love, fight inflation, and have some money left at the end of the month? Sounds too good to be true? It’s not. It’s the Half Rule. This means cutting the amount of product you use in half and seeing what happens.
Truth is, most of us probably use too much of the things we love. Here are several reasons why:
Manufacturers often ask you to use more of the product than you need.
You’ve probably gotten used to using a certain amount of a product;
And finally, product inflation. Specifically, you might think that if you get pleasure out of something, you might need to use more of it. For instance, why get a tall vanilla latte when you can get a grande, right? But ask yourself: Is it really that much better?
To this end, here are some things you can easily use half of and never miss the other half:
Shampoo. Try using half the amount and adding more water, especially if it’s concentrated.
Laundry detergent. Try a half cup. A little goes a long way, especially if it’s a small load.
Dryer sheets. These are so easy to tear in half.
Cooking oil. Use an oil mister instead of pouring it into your pan or skillet.
Restaurant meals. Eat half or a third and save the rest for another meal. Or better yet, split a meal with your partner, friend or work colleague. Bonus: you’ll also save calories.
Bagels. Just eat half! Save the other half for your next snack or breakfast.
Starbucks order. Try a tall. Or if you get a vente, try a grande. Give it a whirl. See what happens.
Glass stovetop cleaner. If you use less, you might have fewer streaks.
Tape. When you’re wrapping gifts, give string a try.
When you change a few things here and there, over time, you’ll really see the difference in your bank account. Also, imagine how nice it’ll feel not to have to buy these items so often. That’s a big change in spending.
The Half Rule is not for everything. While it works on so many things, there are some things you cannot to apply it to – like filling up your gas tank or cutting a prescription in half. Never do that.
Overall, it’s a good rule. And when you’re persistent over time, you’ll start to develop a habit – one that will help you see a difference quickly and save you money in the long run. It’s a ripple effect that might expand into other areas of your life. In sum, the Half Rule is so effective, you just might go all in – and stay there.
Sources
“The Half Rule” – A Frugal Hack I Live By
What is How to Save Money with the Half Rule?
What if you could lower your grocery bill without giving up the things you love, fight inflation, and have some money left at the end of the month? Sounds too good to be true? It’s not. It’s the Half Rule. This means cutting the amount of product you use in half and seeing what happens.Truth is, most of us probably use too much of the things we love. Here are several reasons why:Manufacturers often ask you to use more of the product than you need.You’ve probably gotten used to using a certain amount of a product;And finally, product inflation.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
The IRS has released draft Schedule 1-A, introducing four new temporary deductions within the One Big Beautiful Bill Act. If you are wondering what the new form looks like and how the calculations work, read on as we explore each below.
Modified Adjusted Gross Income (MAGI)
It is important to note that all four deductions require calculating your MAGI first, which determines eligibility and phaseout amounts for each deduction.
The Four New Deductions and How the Calculations Work
These deductions are all referred to on the schedule by their colloquial names, for example: “No Tax on Tips,” “No Tax on Overtime” and “No Tax on Car Loan Interest.” The sole exception, however, is popularly referred to as the “No Tax on Social Security” provision, which is called the “Enhanced Deduction for Seniors” on the form.
1. Tips Deduction
Maximum: $25,000 annually
Eligibility: Must receive qualified tips in customarily tipped occupations
Phaseout: Begins at $150,000 MAGI ($300,000 joint filers)
Rate: $100 reduction per $1,000 over threshold
Requirements: Valid Social Security number; married couples must file jointly
2. Overtime Deduction
Maximum: $12,500 single ($25,000 joint filers)
Eligibility: Only the premium portion of overtime pay (the “half” of time-and-a-half)
Phaseout: Same as tips deduction – begins at $150,000 MAGI
Rate: $100 reduction per $1,000 over threshold
3. Car Interest Deduction
Maximum: $10,000 annually
Eligibility: Interest on loans for new vehicles under 14,000 pounds and assembled in the United States
Phaseout: Begins at $100,000 MAGI ($200,000 joint filers)
Rate: $200 reduction per $1,000 over threshold
Requirements: Must provide VIN; loan must originate after Dec. 31, 2024
4. Enhanced Deduction for Seniors
Amount: $6,000 fixed deduction
Eligibility: All taxpayers (replaces “No Tax on Social Security” promise)
Phaseout: Begins at $75,000 MAGI ($150,000 joint filers)
Rate: 6 percent reduction of excess income over threshold
Key Points to Remember
All deductions are available whether you itemize or take the standard deduction
All require valid Social Security numbers
Married couples must file jointly to claim these benefits
Income limits mean higher earners receive reduced or no benefits
These are deductions, not exclusions – income is still reportable for state/local taxes
Final Steps
After you have calculated everything applicable for the four possible deductions, you will enter the total on the new line 13b on Form 1040. The total amount of the deductions entered here is removed from your income prior to calculating your tax. Remember, these are deductions and not credits, so they only reduce your taxable income and are not a direct reduction in your tax due.
You can see an example of the new draft Form 1040 illustrating this below.
Screenshot of new Form 1040
Conclusion and Draft from Status – and IRS Warning
The above provides guidance to taxpayers and professionals on how both the deductions calculations work and flow through Form 1040. The IRS warns, however, that the forms and instructions currently released are in draft form at this point. Before any forms or instructions can be released in their final state, they need to be approved by the OMB. It is not unusual for draft releases of instructions and publications to have some changes before their final release, even if only minor.
Initial Look at the New Tax Form Schedule 1-A: Four Key Deductions for 2025
October 1, 2025 · Blog, Tax and Financial News
⏱ 3 min read
The IRS has released draft Schedule 1-A, introducing four new temporary deductions within the One Big Beautiful Bill Act. If you are wondering what the new form looks like and how the calculations work, read on as we explore each below.
Modified Adjusted Gross Income (MAGI)
It is important to note that all four deductions require calculating your MAGI first, which determines eligibility and phaseout amounts for each deduction.
The Four New Deductions and How the Calculations Work
These deductions are all referred to on the schedule by their colloquial names, for example: “No Tax on Tips,” “No Tax on Overtime” and “No Tax on Car Loan Interest.” The sole exception, however, is popularly referred to as the “No Tax on Social Security” provision, which is called the “Enhanced Deduction for Seniors” on the form.
1. Tips Deduction
Maximum: $25,000 annually
Eligibility: Must receive qualified tips in customarily tipped occupations
Phaseout: Begins at $150,000 MAGI ($300,000 joint filers)
Rate: $100 reduction per $1,000 over threshold
Requirements: Valid Social Security number; married couples must file jointly
2. Overtime Deduction
Maximum: $12,500 single ($25,000 joint filers)
Eligibility: Only the premium portion of overtime pay (the “half” of time-and-a-half)
Phaseout: Same as tips deduction – begins at $150,000 MAGI
Rate: $100 reduction per $1,000 over threshold
3. Car Interest Deduction
Maximum: $10,000 annually
Eligibility: Interest on loans for new vehicles under 14,000 pounds and assembled in the United States
Phaseout: Begins at $100,000 MAGI ($200,000 joint filers)
Rate: $200 reduction per $1,000 over threshold
Requirements: Must provide VIN; loan must originate after Dec. 31, 2024
4. Enhanced Deduction for Seniors
Amount: $6,000 fixed deduction
Eligibility: All taxpayers (replaces “No Tax on Social Security” promise)
Phaseout: Begins at $75,000 MAGI ($150,000 joint filers)
Rate: 6 percent reduction of excess income over threshold
Key Points to Remember
All deductions are available whether you itemize or take the standard deduction
All require valid Social Security numbers
Married couples must file jointly to claim these benefits
Income limits mean higher earners receive reduced or no benefits
These are deductions, not exclusions – income is still reportable for state/local taxes
Final Steps
After you have calculated everything applicable for the four possible deductions, you will enter the total on the new line 13b on Form 1040. The total amount of the deductions entered here is removed from your income prior to calculating your tax. Remember, these are deductions and not credits, so they only reduce your taxable income and are not a direct reduction in your tax due.
You can see an example of the new draft Form 1040 illustrating this below.
Screenshot of new Form 1040
Conclusion and Draft from Status – and IRS Warning
The above provides guidance to taxpayers and professionals on how both the deductions calculations work and flow through Form 1040. The IRS warns, however, that the forms and instructions currently released are in draft form at this point. Before any forms or instructions can be released in their final state, they need to be approved by the OMB. It is not unusual for draft releases of instructions and publications to have some changes before their final release, even if only minor.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
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