Politics aside, the One Big Beautiful Bill Act (H.R. 1) signed by President Trump on July 4th is one of the most significant pieces of tax legislation we’ve seen in years. It impacts individuals and businesses in ways that will change how we handle tax planning and wealth management over the next decade. This article covers the key points on business tax aspects in the Big Beautiful Bill. We also give you context.
First, we’ll cover the core benefits for small businesses.
- The Qualified Business Income Deduction (QBI) is now enshrined in the tax code.
- Research & Development (R&D) expenses are now deductible in the year of expense rather than over several years.
- Equipment and devices are eligible once again for 100% bonus depreciation.
Then, we’ll look at the bill from a broader perspective.
I’ll provide a brief overview of the estimated costs and tax implications for individuals, seniors, and workers. Business owners should be familiar with developments that affect the people we employ and aware of changes that could contribute to more tax-efficient retirement.
- 19% of the $5 trillion in tax cuts provided by the Big Beautiful Bill is expected to be covered by projected economic growth.
- The Congressional Budget Office (CBO) estimates this bill will increase the federal deficit by $3.8 trillion over the next decade.
- Social Security taxes for seniors have not been eliminated as hoped, although individuals over 65 receive a $6,000 deduction if their income falls below the income cap.
The bill presents both opportunities and potential pitfalls, so it’s essential to examine the facts rather than the fictions being offered by political pundits. As a CPA, I set aside partisan opinions and focus on helping my clients navigate the tax complexities of this new legislation, particularly the $5 trillion in tax cuts coming in the next ten years.
Small businesses have renewed access to a suite of powerful tax-reduction strategies.
Businesses may be the largest beneficiaries of the Big Beautiful Bill. I’ll restate and elaborate on the highlights I included above, as they are particularly significant in effective tax planning for small business owners.
- Immediate R&D expensing
- 100% bonus depreciation for equipment and short-term investments
- Temporary 100% expensing for qualifying structures with construction occurring between 2025 and 2029
Restoration of immediate R&D expensing for domestic expenses reverses the 2022 changes that stifled innovation, and that’s good news for any business. You don’t have to be building a fusion reactor to benefit from R&D expenses. Costs related to the development of new processes and workflows also qualify. For more information, see my article on R&D expenses.
The Qualified Business Income Deduction (QBI) is here to stay.
Small business owners will be happy to hear that the Big Beautiful Bill makes Section 199A from the Tax Cuts and Jobs Act (TCJA) permanent. For those unfamiliar with that, it’s the 20% deduction for pass-through business income as a sole proprietor, LLC, or partnership. For example, if you make $80,000 a year as a consultant, your taxable income is 20% less than that ($64,000).
Bonus depreciation and R&D expenses are the one-two punch we’ve been hoping for.
Business investment incentives are equally impressive. The bill makes 100% bonus depreciation for equipment purchases permanent and restores immediate expensing for domestic research and development (R&D) expenses. That means a small tech company buying $50,000 in equipment can deduct the full amount in year one instead of depreciating over several years.
Small businesses with gross receipts of under $31 million receive retroactive benefits.
Retroactive benefits will be a significant windfall for thousands of business owners in the coming year. But remember that with these changes, strategic timing on major purchases or investments remains critical. Lawmakers have extended avenues for tax relief to businesses across industries. Business owners and tax partners must do the necessary work to reap the benefits.
Corporate changes include the return of interest deduction limitations to EBITDA-based calculations. International tax changes affect GILTI, FDII, and BEAT rates. There’s also a 1% floor on corporate charitable deductions. These are alphabet soup to most taxpayers, but a professional in our office can explain them to you.
What hasn’t changed for small businesses is the quarterly estimated tax obligation and 15.3% self-employment tax rate.
Quarterly payments and the importance of maintaining separate business and personal finances are key components in the tax planning process, so get them on track if there are any areas where you’re falling short.
With proper financial records, your accountant can help you improve cash flow with accelerated deductions, leverage the extended SALT deduction if you’re in a high-tax state, and max out the $31 million threshold for R&D expenses. The planning implications of these are significant, but the process of filing for these benefits could be challenging.
Middle-income taxpayers will feel the most significant impact of this legislation.
The bill establishes a standard deduction of $31,500 for joint filers and $15,750 for single filers. Combining that with an enhanced child support credit could save you significant money if you’re filing as head of household with dependent children. My office can help you with that.
High-income earners will see increased SALT deductions and exemptions on wealth transfer.
Increased SALT deductions of up to $40,000 benefit high-income earners in states with high state tax rates, but there’s a catch. Itemized deductions for top-bracket taxpayers are limited to 35¢ on the dollar. To offset some of that, there’s a $15 million exemption on generational wealth transfers. Our estate planning partners have already adjusted to that.
If you employ low-income workers, be aware that some may see reduced tax savings.
The bill introduces tighter rules for premium tax credits and the earned income credit, which may put the squeeze on hard-working employees you depend on. Keep that in mind when distributing bonuses.
On the plus side, the tip and overtime deductions should provide some relief for service workers, but there are some strings attached. The exemption doesn’t apply to the federal payroll tax that funds Social Security and Medicare.
Social security taxes remain in place, but with deductions for middle-income earners.
Again, the bill doesn’t eliminate Social Security taxes for seniors and retirees, but individuals over 65 receive a $6,000 deduction if their income falls below the $75,000 income cap. That number doubles for couples filing jointly ($150,000). Unfortunately, Medicaid cuts in the BBB could consume some of the savings from these provisions.
What’s the big picture for growth and spending?
Proponents of the new bill claim that 19% of the $5 trillion in tax cuts provided by the Big Beautiful Bill will be covered by projected economic growth. That’s the same line of reasoning used with the 2017 TCJA, which is the core of this legislation. Many of the provisions of that bill have been made permanent by the BBB, including:
- Individual tax rates and brackets made permanent
- Standard deduction increases locked in
- Personal exemption elimination continues
- Child tax credit increased to $2,200 and made permanent
Another impactful change is the increase in the State and Local Tax (SALT) deduction cap. It increases from $10,000 to $40,000 through 2029, at which point it will revert to $10,000 again. This is a game-changer for taxpayers in high-tax states like New York and California, but not in Texas, where there’s no state income tax. Other provisions target specific groups:
- $6,000 senior deduction for individuals 65 and older
- Tax deductions for tips
- Overtime pay deductions
- Auto loan interest deductions
- Estate tax exemption raised to $15 million per individual
These changes are beneficial to taxpayers, but come with a $3.8 trillion increase in the federal budget deficit. On the other hand, letting the TCJA expire would have resulted in tax increases for 62% of U.S. taxpayers. Keep that in mind when you’re wondering why your tax liability doesn’t change next year.
Here’s what business owners need to know about tips, overtime, and auto loans.
The tip deduction was the subject of much debate before the bill was passed. Service industry workers ended up with a cap of $25,000 for deductible tips, with income phase-outs starting at $150,000 adjusted gross income ($300,000 for joint filers). This new rule does not eliminate the FICA tip credit, so seek professional accounting advice before filing your taxes.
Another component of this is the $12,500 deduction for “qualified overtime compensation.” It increases to $25,000 for joint filers and has the same income phase-out thresholds as the tip deduction. This particularly affects hourly workers and those in demanding industries where overtime is common. The deduction could change their tax bracket and lower tax liability.
Auto loan interest is also covered in the Big Beautiful Bill. There’s a $10,000 allowed deduction for auto loan interest, with income limits of $100,000 for single filers and $200,000 for joint filers. That could translate into a modest savings of around $500 in the first year for an average car loan. That won’t move the needle much, but it’s something.
Let’s break down what this bill means for tax planning and compliance.
Long-term planning considerations include estate planning opportunities, evaluating business structures based on the pass-through deduction, and enhancing retirement planning with new tax savings opportunities. Professional guidance is highly recommended.
If you know our firm and our approach to tax planning, you’re aware that we’re about as forward-thinking as possible. However, there are short-term adjustments we need to examine now that have the potential to deliver significant tax savings.
Now that the answers are clear regarding business tax and the Big Beautiful Bill, here are the first steps I’ll be taking with my clients:
- Review quarterly estimated tax calculations and adjust for any new deductions that may have been missed.
- Weigh the new standard deduction against itemized deductions.
- Reexamine the timing of major equipment purchases to take advantage of the new expensing policies.
Some of the more challenging aspects of this bill are the phase-outs of former policies and the interactions between provisions. The tips deduction and the FICA tips credit are examples of this. There are new documentation requirements for both. You’ll also need that for the auto loan interest deduction and other business and personal expenses.
Expanded opportunities come with complexity that requires professional guidance.
The trade-off between immediate tax relief and long-term fiscal implications is a genuine concern. The debt-to-GDP ratio is projected to rise by 9.6 percentage points by 2034, but substantial and immediate opportunities are available for individual taxpayers and businesses. The sooner you develop strategies that take advantage of these new provisions, the more you’ll benefit.
Don’t wait to understand how these changes affect you. We’ve been preparing for the last year to adjust to these changes, know the details, and understand how to take advantage of new provisions within a broader tax plan.
Schedule a discovery call today to learn how we can help you optimize your tax planning in this new environment.
Talk soon,
Jeremy A. Johnson, CPA