Ask an Advisor: What Does the One Big Beautiful Bill Act Mean for Business Owners? Top tax takeaways

Ask an Advisor: What Does the One Big Beautiful Bill Act Mean for Business Owners? Top tax takeaways

The One big, beautiful bill (OBBBA) has introduced a number of important changes to tax law that will impact entrepreneurs. Understanding these updates will help you plan proactively and take full advantage of the opportunities available to reduce taxable income, reinvest in your business and strengthen your long-term financial position.

Enhanced Deduction for Qualified Business Income (QBI) (Sec 199A)

The Tax Cuts and Jobs Act (TCJA) introduced a new tax deduction for business owners in 2018 with the Qualified Business Income (QBI) deduction under Section 199A, allowing eligible owners of pass-through businesses (i.e. sole proprietorships, partnerships, S Corp.) to deduct up to 20% of their QBI or their total taxable income (less capital gains), whichever is lower is. OBBBA has made this deduction permanent, with only minor adjustments. However, there are income reduction programs that reduce or eliminate the deduction for higher incomes.

• For specified service businesses or corporations (SSTBs) – such as consultants, accountants, doctors and lawyers – the deduction phases out as income increases and is completely eliminated above the phase-out range.
• Non-SSTB companies are also experiencing a phase-out, but not to zero. Instead, their deductions are limited by the Wage and Depreciable Property (WDP) test, which is equal to the greater of:
  • 50% of W-2 wages paid by the company, or
  • 25% of W-2 wages plus 2.5% of the company’s qualified depreciable property.

In simpler terms, service businesses lose the deduction completely once income exceeds the threshold, while other businesses retain a partial deduction based on their payroll and property.

Starting in 2026, a new rule will introduce a minimum $400 deduction for anyone with at least $1,000 in active QBI, provided they meet the material participation requirements (meaning they are actively involved in running the business). This change is intended to help smaller side businesses, rather than larger, more established companies. (Item 70105)

Increased phase-out ranges for higher-income business owners

Beginning in 2026, OBBBA has amended Section 199A to completely eliminate the deduction at slightly higher taxable income levels. Business owners with taxable income above the applicable threshold are subject to a phase-out range of $150,000 (joint filers), up from $100,000. The deduction phases out completely to $0 for SSTB owners or to the WDP limit for non-SSTB owners. (Article 70201)

100% bonus depreciation on company property

First-year depreciation (Sec. 168) has been phased out under TCJA, but OBBBA has permanently restored this “bonus” depreciation to 100% for business properties placed in service after January 19, 2025. Qualifying business property can therefore be fully expensed this year rather than depreciated over several years. (Item 70301)

Qualified Small Business Stocks

Prior to OBBBA, Sec. 1202 provided qualified small businesses with an exclusion from gains on stock issued before the company had more than $50 million in assets and held for five years. The new law increases profits from qualified small business stock (QSBS) acquired after July 4, 2025 to $75 million, allowing more companies to qualify. The maximum Sec. The 1202 capital gains exclusion increased from $10 million to $15 million. In addition, it provides for a partial profit exclusion of 50% if held between three and four years, 75% if held between four and five years, and 100% for five years or more.

An important distinction is that the law only applies to shares acquired after the entry into force of the OBBBA. Therefore, any previously acquired shares must be held for at least five years to qualify for the earnings exclusion. (Item 70431)

Sec. 179 Issues

Section 179 of the IRS tax code was created to encourage business owners to invest in themselves by allowing a full cost deduction of certain property as an expense when it is first put into service, rather than depreciating it over many years. The law increases the maximum amount a taxpayer may spend to $2.5 million (from $1 million), less the amount by which the cost of eligible property exceeds $4 million (from $2.5 million). (Item 70306)

Reducing excess business loss

OBBBA makes permanent the cap on excess business losses of non-business taxpayers, which would have expired in 2028. Beginning in 2026, it will reset the amount at $500,000 (joint filers), with inflation adjustments thereafter. (Item 70601)

Limitation of business interest

The law restored a previous rule that allowed companies to calculate their adjusted taxable income without deductions for depreciation and depletion, allowing for a greater deduction of business interest. (Item 70303)

Employer-provided credit for childcare

To encourage employers to offer on-site child care programs or subsidized child care to employees, the law will increase the amount of the employer-provided child care credit from 25% to 40% beginning in 2026. For eligible small businesses, the credit increases to 50% of eligible child care expenses. (Item 70401)

There are additional tax changes affecting wealthy taxpayers, which you can read about in my article: The tax code is changing from one big fancy bill that every wealthy taxpayer should know.

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John Foligno, CMC®

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