Many provisions have already kicked in for the current tax year, so it’s essential to quickly understand how they may affect your business. We compiled a Bankler Report that outlines nearly a dozen areas that could change your tax strategy moving forward.
Here is some context to provide even more clarity on where things are changing:
Qualified Business Income (QBI) for Non-Corporate Taxpayers
For several years now, owners of sole proprietorships, partnerships, S corporations and some trusts and estates have been able to deduct up to 20% of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. It was uncertain whether this QBI opportunity would stick around after 2025, but the OBBB has, in fact, made it permanent.
The new law, which goes into effect in 2026, sets a minimum deduction, a minimum QBI (starting at $1,000, indexed for inflation) to claim it, and higher phase-in and upper income thresholds (meaning taxpayers at higher incomes will be able to opt in). For this reason, even if you haven’t qualified for a full or partial deduction in the past, it’s a good idea to re-evaluate.
Expensing and Bonus Depreciation
Many business owners are rejoicing the return of 100% bonus depreciation, which had been phasing out. For qualified new and used assets acquired and placed in service as of January 19, 2025, businesses may have the option of fully expensing and not spreading out their deductions over several years.
Section 179 expensing has also gotten a significant bump, with the statutory threshold more than doubling to $2.5 million, adjusted for inflation, and the phase-down threshold increasing to $4 million. These expensing provisions are already in place for 2025.
Changes for Manufacturers
New language introduces qualified production property (QPP) and qualified production activity (QPA) as opportunities for deductions. If your business produces anything and, also, if it builds nonresidential, non-administrative property to produce those things, there may be 100% depreciation bonuses for those expenses. There are plenty of constraints on these two areas, however, so investigate thoroughly.
Corporate Charitable Deductions
While the 10% cap on corporate charitable contribution deductions remains, there’s a new 1% floor worth understanding. Basically, in order to receive a deduction, the aggregate of qualified charitable contributions must exceed 1% of that taxpayer’s taxable income for the year. If it doesn’t, no deduction can be claimed. However, charitable contributions disallowed for either exceeding the 10% maximum or failing to reach the 1% floor may be carried forward for five years.
No Tax on Tips
The long-debated reform is here. Until the close of 2028, individuals who receive qualified cash tips in occupations where tipping is customary may now be eligible for a deduction up to $25,0000 per year (with that same amount being excluded from QBI to eliminate double tax benefits). This definition includes those in the beauty services (barbering, hair care, nail care, esthetics, spa treatments).
If you’re in an affected industry, find out now how it may affect your books and your own potential taxable income. There are specific rules on the type of tips that qualify, reporting requirements, phase-outs based on modified adjusted gross income (MAGI), and rules pertaining to business owners who may also receive tips.
Other Areas You May Need to Adjust or Rethink
- Business interest deductions with interest capitalization
- Qualified business stock gains
- Backup withholding and general reporting for certain payees
- Payments from partnerships to partners for property or services
Use this and the accompanying Bankler Report as a basic guide, but note that they do not cover everything in the OBBB. Seek one-on-one advice to determine how the provisions affect your business.
Feel free to contact us with questions.