President Trump’s tax and budget bill, the One Big Beautiful Bill Act (OBBBA) has been signed into law making permanent many of the tax cuts that he enacted in his first administration. This gives certainty when it comes to tax planning although the new tax law has further complicated the tax code. Due to significant changes, companies will need to start their preparation process earlier this year.
There are both good and bad aspects of the bill when it comes to small businesses and the overall business environment. The OBBBA will significantly raise the federal debt, which could cause some long-term economic issues for the dollar. But without the bill, Americans would have faced a major tax hike at the end of the year. Also, the legislation cuts some government benefits and enacts new qualification requirements.
The new tax laws are designed to encourage business investment and domestic spending. Business accounting and tax law firm, KLR, pointed out, “Before OBBBA, bonus depreciation was phasing out and was set to drop to 40% in 2025. With the new law, 100% bonus depreciation is now permanently reinstated for qualified property acquired and placed in service after January 19, 2025. This includes most tangible personal property with a recovery period of 20 years or less, such as land improvements, machinery, computers, and furniture and equipment. Businesses can now fully expense new and used assets in the year they are placed in service, rather than spreading deductions over several years.”
KLR further noted, “OBBBA also raises the Section 179 deduction limit to $2.5 million, with a new phaseout threshold of $4 million. This allows businesses, particularly small and midsize companies, to immediately expense qualifying property without relying solely on bonus depreciation. The benefit or advantage of Section 179 is that certain states do not allow bonus depreciation but generally states allow the expensing under Section 179.”
These new tax provisions take effect this year giving companies the opportunity to rethink their capital investment strategy this year as well as into the future.
Navigating various provisions in estate taxes have been a challenge for family businesses for decades. And the OBBBA has instituted a permanent exemption level of $15 million beginning in 2026 for singles or $30 million for couples filing jointly. This rate will be indexed to inflation. Any company considering long-term tax strategies should takes these new provisions into consideration.
Law firm, Husch Blackwell, recently encouraged its clients, “Now is the time to take advantage of the increased gift tax exemption by making strategic gifts to loved ones, utilizing advanced planning strategies including irrevocable trusts. These techniques will allow individuals to leverage higher exemption limits while reducing their taxable estate. Furthermore, by gifting assets now, especially assets that are expected to increase in value over time, you can effectively remove both the current value and any future appreciation from the taxable estate.
Also, when it comes to estate taxes be aware that some states charge estate taxes and have different rules than the federal government. That’s why it is always wise to talk with tax experts who are familiar with your unique local regulations.
A very big win for entrepreneurs and business owners, the OBBBA makes Sec 199A qualified business income (QBI) deduction permanent, keeping the rate at 20%. This provision was set to expire at the end of 2025. Also known as the pass-through deduction, it allows eligible business owners to deduct up to 20% of their QBI on their tax returns. This deduction is available for certain business structures, including sole proprietorships, partnerships, and S corporations.
Under the previous rules, domestic research and development (R&D) expenditures had to be capitalized and amortized over five years. The OBBB makes major changes giving more options to companies. For domestic R&D expenses incurred in after December 31, 2024, taxpayers may now elect to (1) immediately deduct R&D costs in the year incurred, or (2) capitalize and amortize costs over the useful life of the research (not less than 60 months). However, current law treatment of foreign R&D costs (capitalization and amortization over 15 years) is not changed. What constitutes as R&D activities has also been broadened to give more options to businesses. The OBBB also allows small businesses and startups to receive refundable credits, meaning companies can receive cash returns even if they have not yet generated taxable income.
The Trump tax reforms could spark business investment this year. At least it gives a blueprint for taxes into the future providing certainty where many tax breaks were likely to go away at the end of the year.
