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Just when you thought you had a handle on your business taxes, along comes the One Big Beautiful Bill Act (OBBBA) with some significant changes. While we do love a good acronym in the tax world (this one pronounced like a bloated Star Wars bad guy), OBBBA definitely lives up to the Big part of the name. Let's dive into what small businesses need to know.
The Good News
The QBI Deduction Gets a Permanent Home 🏠
Remember that 20% Qualified Business Income deduction that was set to expire after 2025? The OBBBA makes it permanent, which is great news for planning purposes. For eligible business owners, this means you can continue to deduct up to 20% of your qualified business income. There was one change that expands the phase-out of the deduction for "Specified Service and Trades" (performers, accountants, doctors, lawyers) that may help a few higher earners save a few extra dollars too.
100% Bonus Depreciation Returns 📈
The OBBBA brings back 100% bonus depreciation for qualifying property placed in service from 2025 through 2030. This means if you buy new equipment, machinery, or other qualifying assets, you can write off the entire cost in year one instead of spreading it out over several years.
This is particularly good news for businesses in real estate, manufacturing, and other capital-intensive businesses:
- If you're buying new investment/business real estate, you may want to consider a "Cost Segregation Study" to maximize the first year bonus depreciation.
- This also increases the potential first year depreciation on vehicles weighing 6,000 lbs or more (GVWR), so let us know if you’re considering a new business vehicle.
Important note: This only applies to assets placed in service starting in 2025 and forward, so timing matters for any major purchases you're considering. Speak with your tax preparer on how any major purchase will affect your tax liability.
Research & Development Gets Immediate Relief 🔬
One of the most welcome changes in the OBBBA is the restoration of immediate expensing for domestic research and experimental expenditures. Starting in 2025, businesses can once again deduct R&D expenses in the year they're incurred, rather than being forced to amortize them over five years. This change is retroactive back to 2022 as well, so it may be worth looking at amending the last 3 years if applicable to your business. If your business has ongoing expenditures to develop new processes or products in your industry, it may be worth looking into claiming this tax credit.
Pass-Through Entity Tax (PTET) Elections Survive🔥
Good news for pass-through entities: the OBBBA doesn't restrict the popular state-level Pass-Through Entity Tax elections that many businesses have been using to work around the SALT deduction cap. These elections remain available and effective for reducing overall tax burden. However, they did also raise the SALT cap to $40,000 personally, so there could be an opportunity for some tax planning to maximize one or both of these state tax related federal deductions.
Additional Updates
Expanded Qualified Small Business Stock Exclusion
If you're considering selling your business in the 3 to 7 year future, there could be some tax planning opportunities to be had regarding a capital gain exemption for Qualified Small Business Stock of up to $15 million. This only applies to C Corporations, so planning ahead is crucial if you think you may be headed for a lucrative business sale.
1099-NEC Threshold Changes for 2026 and Beyond
For 2026, businesses won't need to issue 1099s until earnings exceed $2000, but for 2025, we're still stuck at the $600 or more level. Remember to have subcontractors fill out W9 forms BEFORE you pay them. That gives you the info you need to make 1099s in January.
No Tax on Tips/Overtime
If you have employees, you'll need to work with your payroll provider to report tips and overtime correctly on W2s at year end. We're still not sure how that will be done, but we assume the IRS will have new boxes on the W2 this year (which may or may not delay form processing/tax filing). We'll send more details near year end as we receive guidance from the IRS!
Note for Tipped Self-Employed Individuals: If you are self-employed but regularly receive tips (hair stylists, tattoo artists, estheticians, etc..), you are eligible for the exemption on tips; however, there is a clause that says tips need to be reported on a tax form. Our suggestion: if you accept credit cards, make sure to have your POS system clearly identify tips as tips when processing the payment for a customer. Credit card processors send 1099-K forms at year end and hopefully they'll have a new "tips" box this year.
What This Means for Your Business
- Equipment/Real Estate Purchases: If you've been considering new real estate, machinery or larger SUV/truck purchases, 2025-2030 could be an excellent time to move forward. The 100% bonus depreciation provides significant tax benefits upfront.
- R&D Activities: If your business conducts research and development, you can now deduct these expenses immediately rather than spreading them over multiple years. Small businesses may even be able to amend prior returns for additional refunds.
- Long-term Planning: The permanent QBI deduction and Pass-thru Entity Tax Deduction means we can plan your business structure and income strategies with greater certainty.
The Bottom Line
As with all tax legislation, there are detailed regulations, exceptions, and specific requirements that need to be carefully considered for your particular situation. That's where we come in – to help you understand how these changes apply to your business and maximize the benefits available to you.
Let us know if you'd like to discuss your specific situation and/or do some tax planning using these updated rules.
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