ONE BIG BEAUTIFUL BILL PROVISIONS IMPACTING EMPLOYERS & BUSINESSES

The One Big Beautiful Bill Act (OBBBA) makes permanent several of the expiring tax cuts for businesses contained in Trump’s signature 2017 tax legislation—the Tax Cuts and Jobs Act (TCJA). It also has plenty of new tax incentives for businesses and business owners to like, which also present some planning opportunities to save!

The IRS has not issued any guidance— except for a draft version of the 2026 Form W-2, Wage and Tax Statement, with new fields added to prepare the way for the tax exemptions on tips and overtime income. Expect more news in the coming weeks and months in the run-up to next tax season.

PROVISIONS IMPACTING EMPLOYERS & BUSINESSES

1. Pass-Through Entities. Businesses use structures like limited liability companies (LLCs) or S corporations to pass income through to the owners without paying tax at the company level. Instead, income is taxed at individual rates. Currently, owners of pass-through companies and sole proprietors are taxed at their individual tax rates, less a 20% deduction (to lower the rate) for business-related income, subject to certain wage limits and exceptions. This provision is referred to as the pass-through entity deduction or the Section 199A deduction and was set to expire at the end of 2025, thanks to the TCJA. Under OBBBA, the section 1999A deduction is permanent. The larger deduction, as proposed by the House (23%), did not make the cut, so the deduction remains 20%, still the Section 199A deduction brings what would otherwise be the top rate of 37% down to 29.6 % on qualified business income (QBI).
2. Pass-Through Entity Tax (PTET) Deduction. Since the TCJA capped SALT deductions for individuals at $10,000, many states adopted PTET workarounds, which allowed pass-through entities (like partnerships and S-corporations) to pay state income taxes at the entity level, rather than individual owners paying at the personal level, effectively reducing the pass-through entity’s income. Under OBBBA, the PTET deduction remains largely the same as before.
3. Section 1202 Small Business Stock. Section 1202 provides an exclusion from gain upon the sale of “qualified small business stock” (QSBS). Basically, the amount of gain you can exclude from federal income tax when selling QSBS depends on the date you purchased it. OBBBA continues the tiered system for section 1202 stock: 50% for stock held for at least three years, 75% for stock held for at least four years, and 100% for stock held for at least five years. Additionally, the exclusion limitation increases from $10 million to $15 million, adjusted for inflation. The gross asset threshold is now increased, which enables more businesses to fall under the potential gain exclusion, so this heavily favors technology startups.
4. 1099-K reporting threshold restoration: Reverts the threshold for online sales reporting back to $20,000 or 200 transactions per year, as it was before 2021. The provision is applied retroactively to 2022
5. Expensing (Bonus Depreciation and Section 179): Businesses must generally write off the costs of assets over their “useful life”—a number of years based on the kind of asset. With bonus depreciation, businesses can immediately deduct those costs, subject to certain limits. Under the TCJA, 100% bonus depreciation was only allowed through 2022, subject to a phaseout that would allow a deduction for 80% of costs in 2023 and 60% in 2024. Under OBBBA, the 100% bonus depreciation provision is made permanent. The section 179 expensing provision limit is boosted to a $2.5 million limit, indexed for inflation, with a phase-out beginning at $4 million, which makes it more beneficial for small businesses vs large corporations.
6. Research and Development. Under current law, the R&D credit allows businesses to write off qualifying R&D expenditures, but they must amortize those costs over five years. The credit had expired. Under OBBBA, full expensing for domestic R&D expenses would be made permanent. Small businesses (gross receipts under $31M for 2025) filing timely returns on or before November 15, 2025, will be deemed to have elected OBBBA treatment if they deduct R&D expenses on the return. Small businesses may apply OBBBA provisions retroactively to tax years beginning after December 31, 2021, you may amend a prior tax return to do so. Retroactive elections must be made by July 6, 2026. Foreign R&D remains amortized.
7. Opportunity Zone Enhancements: Extended through 2033. Basis increases: 10% after five years, 30% for rural projects; up to $10,000 of ordinary income can be deferred. However, tighter compliance and reporting rules introduced.
8. GILTI and Other Foreign Income Provisions: FDII and GILTI deduction phasedowns repealed! Generally, our global tax system imposes tax on all income earned by U.S. taxpayers, regardless of where it is earned. However, in some circumstances, companies could avoid U.S. tax by holding foreign profits overseas indefinitely. TCJA encouraged companies to repatriate earnings. To ensure that foreign profits that had not yet been taxed didn’t completely escape taxation, a tax on existing foreign profits that had not yet been repatriated was imposed. Under OBBBA, a tax break for offshore profits (the wonderfully-named global intangible low-taxed income, or GILTI deduction, which happily was not changed) would be made permanent—the section 250 deduction for GILTI will be 40%, while the foreign tax credit reduction is 10%. OBBBA also reduces the foreign-derived Intangible Income (FDII, pronounced “Fih-dee”) deduction to 33.34%, bringing the effective tax rate after adjustments to about the same as the GILTI rate. Qualified Business Asset Investment (QBAI) is eliminated for purposes of determining the GILTI or FDII deduction. The Base Erosion and Anti-Abuse Tax (BEAT) was also permanently increased from 10% to 10.5%.

PROVISIONS IMPACTING EMPLOYEES & EMPLOYERS

1. No Tax On Tips. Tip income would be temporarily deductible—only for tax years 2025 through 2028—for individuals in traditionally and customarily tipped industries who do not itemize. The deduction is limited to $25,000 of reported tips. It’s important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. It also means that tips would remain subject to payroll taxes, including Social Security and Medicare, for employees. And don’t let those social media threads on “cash only tips” throw you—the deduction applies to cash or cash-equivalent tips (including credit cards). Highly compensated employees (those who make more than $160,000 in 2025) would be excluded.
2. No Tax On Overtime. Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers who do not itemize and would also be temporary—only for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break. It phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)—that means the maximum deduction would disappear at $275,000 for single filers.

Contact us: In some respects, it’s business as usual—provisions that were simply extended won’t require a lot of heavy lifting. Other changes will be significant and warrant a redesign of Form W-2, since the current form doesn’t have an overtime line, and will require additional responses from the Treasury. We are here to help clients develop advance tax strategies or a sustainable and advantageous tax position on a multiyear long-term basis. With fewer workers at the Internal Revenue Service, the question arises as to whether the new regulations will result in fewer exams or an increase in erroneous notices.

We welcome the opportunity to find solutions to meet our clients’ needs. 100% bonus depreciation, the Section 174 research and experimental costs treatment, and Section 163(j) limitation on business interest expense, and then the Section 199A deduction for pass-through businesses — those are the movers and shakers that we would immediately focus on, and discuss the interaction of these on our client’s situation in reducing their tax bills. Contact us at CPA@fuoco.com.