We’ve been waiting in anticipation for what the extension of the tax law would be in the 2nd Trump administration. Now it’s here – the One Big, Beautiful Bill Act.
Focusing just on the tax law provisions, we’re fairly happy with the bill. The OBBBA generally extended all the provisions of the Tax Cuts & Jobs Act permanently, plus gave us several extra changes.
We’re here to break it all down for you, focusing on the relevant tax law issues for our small business clients and how it affects you and your business tax planning. (See our article for individuals here.)
Qualified Business Income
The deduction for Qualified Business Income was made permanent and even enhanced. Essentially, the QBI deduction lets you pay tax on only 80% of your business profits.
Starting in 2026, some business owners face a phase-out of the QBI deduction if their income is too high. That phase-out happened over a $50,000-wide income range ($100,000 for married couples), presenting a major issue that required tax planning for taxpayers near that income range. Going forward, that phase-out range will be $75,000 wide ($150,000 for married couples).
Additionally, there’s a rule that increases the QBI deduction for taxpayers whose business income is between $1,000 and $2,000. That might save someone in exactly the right income range as much as $74, so it’s not going to put much of a dent in anyone’s taxes.
Employee Benefits
The ability for employers to make student loan payments as a tax-free education benefit is now permanent. It’s a great idea to start offering that as part of your overall compensation package.
There’s also a credit for employers that pay for Family & Medical Leave, which has been made permanent. Be sure to let us know if you’re paying for this kind of sick leave. We can’t tell from your payroll records unless you point it out. If you’re not sure, get with us.
There’s another enhancement to that Family & Medical Leave credit – if you’ve got insurance to cover that PTO, you can choose to use the insurance premiums as qualifying costs for that FML credit.
You may have heard about the new Trump accounts for children – employers can contribute up to $2,500 for their employees’ children as a tax-free benefit.
Depreciation
Bonus depreciation is now permanent at 100%. You can deduct the entire cost of an asset in the first year. There are still several exceptions for real estate though, so check with us there. Bonus depreciation is pretty powerful! The Sec. 179 deduction, that we had to use in the meantime, has some limitations that bonus depreciation doesn’t have, so we’ll be moving to bonus depreciation now in most cases.
There’s a new deduction similar to 100% bonus depreciation for new buildings used in manufacturing tangible products. This will be a big benefit for manufacturers building a building.
Overtime & Tips
Employees get a new deduction for tips and overtime. There will be new codes on the Forms W-2 telling the employee how much can be deducted for these. (Tips must still be reported; that hasn’t changed.) We’ll handle this for you if you’re in our payroll system.
Some small businesses aren’t actually required to pay overtime to some of their employees. This is a good time to review with us what your overtime requirements are. If you don’t pay overtime, you need to be aware of the rules. If you do, or will pay overtime, we should review whether your employees will qualify for the deduction.
Also, if your business is taxed as a sole proprietorship or partnership, and if you’re in the food & beverage industry or in hair care, nail care, esthetics, or spa business, your own tips qualify for this deduction. You may not have needed to separate out this data before, but you should start now. Discuss the best way to do this with your accountant.
Tips qualify for a tax credit for employers, to offset the employer’s FICA tax. This credit used to be only for the food & beverage industry, but has been expanded to cover hair care, nail care, esthetics, and spas. That’s awesome if you’re in one of those industries. Further, if you’re not taxed as an S corporation, you should definitely take a look at making an S-corp election. It may increase your tip credit. Ask us to run an analysis for you.
Research Expenses
Research expenses are a hot topic, especially for medium and large businesses. There’s a tax credit for that, which is tricky to calculate, and had to be spread out over 5 years. Now costs can start being deducted immediately. Small businesses can go ahead and deduct any 2022-2024 research expenses that they haven’t already deducted. You no longer have to worry that some of your expenses might get classified as research and delayed to a later year.
Form 1099
The threshold for having to file a Form 1099 for labor, rent, or other income increases from $600 to $2,000 for 2026. We’re pretty excited about this! For small business owners, it means that you’ll have less small independent contractors to get tax ID numbers for.
EV & Energy Credits
The Qualified Commercial Clean Vehicles Credit expires after 9/30/2025. If you were planning on buying an electric vehicle for your business and claiming a credit for it, you’ll have to act fast! Most other energy-related credits & deductions are also phasing out over the next several months.
Employee Meals
Since TCJA there have been limitations on deducting meals for the employer’s convenience. E.g. when an employer needs the employees to stay on the job site all day instead of leaving for lunch. These meals are going to become permanently nondeductible in 2026.
PTE Tax
Nothing has changed directly with the state Pass-Through Entity tax, which allows S corporations and partnerships to get a deduction for paying the owner’s state income tax.
However, there is a change on the individual side that affects whether it’s still a good idea to elect into PTE tax. Taxpayers that itemize had a $10,000 limit of deducting state and local taxes (SALT). Now the $10,000 limit has been increased to $40,000, which means a lot of those business owners aren’t going to bump up against that limit anymore. Due to the way QBI affects the tax calculation, it can be better to deduct state income tax as a personal expense for those who are itemizing anyway. All this just means that deciding whether to make the PTE is one step more complex, and it’s very important that we update your tax planning to reflect the new calculation. We’ll be running the analysis on PTE tax this fall for our bookkeeping clients and other business clients that have a tax projection included in their package with us.
What’s Your Next Move?
The One Big Beautiful Bill Act brings business owners both relief and new complexity. From permanent bonus depreciation to expanded employee benefit deductions, this legislation offers numerous opportunities to save, if you know where to look.
But it also raises important questions. Should you still elect into the state PTE tax? Are you maximizing your QBI deduction? Could your business qualify for tip or research credits? Are you preparing for the coming changes in energy credits and employee meal deductions?
That’s where we come in. These aren’t one-size-fits-all answers, and the right strategy can differ based on your business structure, income level, and goals. Now is the time to get ahead.
Let’s talk tax planning. Smart strategy now means fewer surprises and better results later.