OBBBA and Businesses

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduces significant tax and financial changes that reshape the landscape for small business owners. This legislation offers opportunities for growth but also presents challenges, requiring strategic planning to maximize benefits.

Qualified Business Income (QBI)

A cornerstone of the OBBBA is the permanent extension of the 20% Qualified Business Income (QBI) deduction for pass-through entities like sole proprietorships, partnerships, and LLCs. With increased income phase-out thresholds ($75,000 for single filers, $150,000 for joint) and a $400 minimum deduction for businesses earning at least $1,000 in QBI, this provision enhances tax savings, provided 75% of gross receipts come from qualifying activities.

Expensing

The act also boosts investment through enhanced Section 179 expensing, raising the deduction limit to $2.5 million with a $4 million phase-out, and reinstating 100% bonus depreciation for assets acquired after January 19, 2025. These measures enable small businesses to deduct equipment and property costs upfront, improving cash flow for expansion.

Research-focused businesses benefit from immediate expensing of domestic Research & Experimental costs starting in 2025, with retroactive relief for 2022–2024 for firms with under $31 million in receipts. The state and local tax (SALT) deduction cap increases to $40,000 through 2029, aiding owners in hightax states, while pass-through entities can leverage Pass-Through Entity Taxes to bypass individual caps.

Compliance

Compliance burdens ease with simplified reporting. The 1099-MISC and 1099-NEC threshold rises to $2,000 starting in 2026, and third-party payment reporting reverts to a $20,000/200-transaction threshold, reducing administrative tasks for small businesses and gig workers.

Qualified Small Business Stock

The OBBBA enhances Qualified Small Business Stock (QSBS) exclusions (50% at three years, 100% at five) and offers credits for employerprovided childcare (up to $600,000 for small businesses) and paid family leave, benefiting service industries. However, challenges include stricter 1099 compliance, the rollback of clean energy credits, and potential cost increases from tariffs, which could strain supply chains. Social program cuts may also raise healthcare costs.

Small business owners should consult tax professionals to navigate the OBBBA's complexities, optimize tax benefits, and prepare for economic shifts.