By Heemer-Klein & Company, PLLC
At Heemer-Klein & Company, we understand that running a business involves wearing many hats. You are the CEO, the manager, and often the visionary for your company’s future. However, keeping track of changing tax laws should not be another burden you have to carry alone. Recently, the “One Big Beautiful Bill Act” (OBBBA) was introduced, bringing significant changes to the tax code.
While the bill includes many changes for individuals, it also contains critical updates for business owners. These provisions could alter how you plan for capital investments, how you report payments to contractors, and how you calculate your annual deductions. We have analyzed the legislation to highlight the specific areas that will impact your business operations.
Our goal is to break down these complex regulations into clear, actionable information. We want you to feel confident about your financial strategy for the upcoming tax year. Here are the key tax provisions for businesses within the OBBBA that you need to know.
Stability for the Qualified Business Income Deduction
One of the most significant changes concerns the Section 199A deduction, also known as the Qualified Business Income (QBI) deduction. Since its inception, this deduction has allowed many business owners to deduct up to 20% of their qualified business income from their taxes.
The OBBBA makes this 20% deduction permanent. This is excellent news for long-term planning, as you no longer need to worry about this substantial tax break expiring soon.
In addition to making the deduction permanent, the new law expands the phase-out limits. The “phase-out” is the income level at which the tax benefit starts to decrease for higher earners.
Finally, the Act introduces a new minimum deduction. A minimum deduction of $400 is now added for taxpayers who have at least $1,000 of Qualified Business Income. This ensures even smaller side businesses or startups get a guaranteed benefit.
A Major Shift in State & Local Tax (SALT) Deductions
The SALT deduction has been a hot topic for several years. The OBBBA addresses this with changes that specifically benefit pass-through entities, such as S-Corporations and Partnerships.
For individual filers, the bill raises the SALT cap to $40,000 for taxpayers with modified adjusted gross income of less than $500,000. This is a significant increase from the previous $10,000 limit, offering relief on personal returns.
The news is even better for businesses. Under the new legislation, there would be no SALT limitation for pass-through entities. This effectively uncaps the deduction for state taxes paid at the entity level.
This change simplifies the tax reporting process for business owners operating in states with higher tax rates and allows a full federal deduction for those taxes.
Simplified Paperwork for Contractor Payments
If your business hires freelancers or independent contractors, you are familiar with Form 1099-NEC. Currently, companies must file this form if they pay a contractor $600 or more in a year.
The OBBBA recognizes that this $600 threshold has not kept up with the economy. The Act significantly increases the information reporting threshold.
Under the new rules, you will only need to file an information return for payments of $2,000 or more in a calendar year. This applies to payments made to persons engaged in a trade or business and fees for services.
This change will drastically reduce the administrative burden on small businesses. You will have fewer forms to prepare, print, and mail at the end of the year.
Furthermore, this $2,000 threshold will not remain stagnant. The bill includes a provision to index this amount for inflation annually.
These inflation adjustments will begin in calendar years after 2026. This ensures the reporting requirement remains reasonable as the cost of services rises over time.
The Return of 100% Bonus Depreciation
Depreciation is the method businesses use to write off the cost of expensive assets, like machinery, vehicles, or computers. “Bonus depreciation” allows you to accelerate this process and take a 100% depreciation the first year equipment is placed in service.
The OBBBA permanently extends the 100% first-year depreciation deduction. This provides certainty for businesses looking to invest in new equipment.
This 100% rate applies to property acquired and placed in service on or after January 19, 2025. Timing is crucial here, so check the dates on any major purchases you made early in the year.
This provision is designed to encourage capital investment. It improves cash flow by significantly reducing your tax bill in the year you invest in business growth.
Expanding the Tip Credit
Businesses in the food and beverage industry have long utilized the FICA tip credit. This credit helps employers offset the payroll taxes they pay on employee tips.
The OBBBA expands this credit to a new sector of the economy. Starting in 2025, the tip credit will include the beauty and personal care service industry.
This means salons, spas, and barber shops, as well as other personal care services, can now claim a credit for the payroll taxes paid on tips their employees receive. This brings tax parity to the beauty and personal care services industries, which also rely heavily on tipped labor.
For salon owners, this can result in substantial tax savings. It effectively reduces the cost of staffing in a tip-reliant business model.
Summary
The One Big Beautiful Bill Act offers a variety of permanent benefits and administrative simplifications for business owners. From the permanent 20% QBI deduction to the restoration of 100% bonus depreciation, the legislation encourages growth and investment.
However, maximizing these benefits requires careful attention to the details. The specific dates, income thresholds, and phase-out ranges will determine precisely how much your business can save.
At Heemer-Klein & Company, PLLC, we are ready to help you implement these changes. We can review your current financial picture and adjust your tax strategy to align with the new laws.
