Business Tax Changes Under the One Big Beautiful Bill Act (OBBBA) -

The One Big Beautiful Bill Act (OBBBA) introduces sweeping and permanent changes to the federal tax landscape for businesses, investors, and self-employed individuals. Below is an overview of the most significant provisions that may affect your business planning and tax strategy.

Permanent Qualified Business Income (QBI) Deduction

Prior Law
The 20% Qualified Business Income (QBI) deduction for pass-through entities—including sole proprietorships, partnerships, S corporations, and certain trusts and estates—was scheduled to expire after 2025.

New Law
The 20% QBI deduction is now permanent. Beginning in 2026, the law also introduces a minimum QBI deduction of $400 for taxpayers with at least $1,000 of active qualified business income.

In addition, the phase-in thresholds for the wage and qualified property limitations increase to:

$75,000 for single filers
$150,000 for joint filers

These thresholds are indexed for inflation.

Example
Sam operates a small workshop and earns $2,000 in QBI. Under the new law, she automatically qualifies for a $400 QBI deduction, even though her profits are modest.

What This Means
Business owners now have long-term certainty that the QBI deduction will remain available beyond 2025. The minimum deduction ensures that even smaller businesses receive a tangible tax benefit.

Permanent 100% Bonus Depreciation

(Including Qualified Production Property)

Prior Law
100% bonus depreciation for qualified property was scheduled to phase out and fully expire after 2026.

New Law
The OBBBA permanently restores 100% bonus depreciation for qualified business property acquired and placed in service after January 19, 2025.

The law also introduces 100% expensing for certain nonresidential real property used in qualified production activities, such as manufacturing and refining, subject to special recapture rules.

Example
Cooper Company purchases and places in service a $500,000 manufacturing machine (five-year MACRS property) on February 1, 2025. Because the asset qualifies and was placed in service after January 19, 2025, the company may deduct the entire $500,000 in 2025, rather than depreciating it over five years.

What This Means
Businesses can fully expense large capital investments immediately, improving cash flow and simplifying depreciation planning—particularly for manufacturers and production-focused businesses.

Increased Section 179 Expensing Limits

Prior Law

Maximum §179 deduction: $1 million
Phase-out threshold: $2.5 million

New Law

Maximum §179 deduction increases to $2.5 million
Phase-out threshold increases to $4 million

Both amounts are indexed for inflation.

Examples

Example 1
Chase Corp. purchases and places in service $2 million of qualifying equipment in 2025. Because this is below the $4 million threshold, Chase Corp. may elect to expense the full $2 million under §179 (subject to the business income limitation).

Example 2
Chase Corp. places $4.5 million of qualifying equipment in service in 2025. The excess over the $4 million threshold is $500,000, which reduces the maximum §179 deduction dollar-for-dollar:

$2.5 million maximum deduction
Minus $500,000 phase-out
Allowed §179 deduction: $2 million

What This Means
Small and mid-sized businesses can write off larger equipment purchases more quickly, reducing taxable income in the year of acquisition.

Expanded Rules for Qualified Small Business Stock (QSBS)

Prior Law
Taxpayers could exclude up to 100% of gain on QSBS held for more than five years, subject to:

$10 million per-issuer limit
$50 million gross asset test

New Law
For newly issued QSBS:

50% gain exclusion after three years
75% gain exclusion after four years
100% gain exclusion after five years

The per-issuer exclusion limit increases to $15 million, and the gross asset test increases to $75 million, both indexed for inflation.

Example
Ethan acquires QSBS from a domestic C corporation on August 1, 2025, at original issuance, investing $1 million. The corporation qualifies under the expanded $75 million asset test and remains a qualified business.

Ethan sells the stock on August 2, 2030, for $20 million.

Total gain: $19 million
Maximum exclusion: greater of
- $15 million (per-issuer limit), or
- 10× basis ($10 million)

Ethan may exclude $15 million of gain from federal income tax. The remaining $4 million is subject to capital gains tax.

What This Means
The enhanced QSBS rules provide greater flexibility and tax savings for founders, startups, and investors—especially those who may exit before the five-year mark.

Changes to Forms 1099-K, 1099-NEC, and 1099-MISC

Prior Law

$600 reporting threshold for Forms 1099-K, 1099-NEC, and 1099-MISC

New Law

Form 1099-K threshold reverts to $20,000 and 200 transactions, retroactive for 2025
Forms 1099-NEC and 1099-MISC:
- Remain at $600 for 2025
- Increase to $2,000 starting January 1, 2026

Example
Ed, a self-employed artist, earns:

$1,500 via PayPal/Venmo (50 transactions)
$2,500 from a business client (check)
$1,800 from another business (direct deposit)

Under the new rules:

No Form 1099-K is issued (threshold not met)
Two Forms 1099-NEC are issued in 2025
In 2026, only one Form 1099-NEC would be required due to the higher threshold

What This Means
Many businesses will issue fewer information returns for smaller or casual transactions, reducing administrative burden.

Termination of Energy and Clean Vehicle Credits

Several energy-related credits are being phased out earlier than originally scheduled:

Clean vehicle credits (new, used, and commercial):
Vehicles acquired after September 30, 2025
Alternative fuel refueling property credit:
Property placed in service after June 30, 2026
Energy-efficient home improvement credit:
Property placed in service after December 31, 2025
Residential clean energy credit:
Expenditures after December 31, 2025
New energy-efficient home credit:
Homes acquired after June 30, 2026

Conclusion

The OBBBA permanently extends several key business tax benefits, expands expensing and depreciation opportunities, and simplifies reporting requirements for many small businesses. However, it also eliminates or shortens the availability of certain energy-related incentives.

We recommend reviewing your current operations, planned investments, and compensation structures to identify planning opportunities under the new law.