The One Big Beautiful Bill Act (OBBB) introduces significant tax and business changes, especially for professional service organizations. It extends and updates several provisions from the 2017 Tax Cuts and Jobs Act (TCJA). Below is a summary of the key updates and planning tips to help your organization navigate these changes effectively:

Section 179 & Bonus Depreciation: 100% Bonus Depreciation is now permanent, allowing you to fully deduct qualified property placed in service after January 19, 2025.

Additionally, the Section 179 Expensing Limit has increased from $1 million to $2.5 million and the phase-out threshold rises from $2.5 million to $4 million. These thresholds will be adjusted annually for inflation starting in 2026.

Both provisions help businesses take larger up-front tax deductions for new equipment or property.  With careful planning, this can help reduce business owners’ overall tax burden.

Qualified Business Income (QBI) Deduction: The 20% Qualified Business Income (QBI) deduction for pass-through entities (such as partnerships and S corporations) is now permanent. The income thresholds for certain service-based business owners of Specified Service Trades or Businesses (SSTBs), like law firms and medical practices, have been relaxed, making it easier for them to qualify before being phased out.

Pass-Through Entity (PTET) Tax Deduction: The federal deduction for Pass-Through Entity Taxes (PTET) remains fully preserved. At the same time, the individual State and Local Tax (SALT) deduction increases to $40,000 for 2025 and will gradually rise through 2029.

However, the higher SALT deduction brought by OBBB begins to phase out for joint filers with income over $500,000. Because PTET remains fully deductible at the entity level, high-income business owners should continue paying these taxes through their entity to maximize their federal deductions.

C-Corporations: The OBBB introduces a new rule limiting charitable deductions for C-corporations. Now, only the portion of charitable contributions that exceeds 1% of taxable income is deductible, up to the existing 10% cap. This change reduces the tax benefit of making donations through a C-corporation. To maximize deductions, consider making charitable contributions through pass-through entities or on individual tax returns instead.

Additionally, the C-corporation tax rate is now permanently set at 21%, providing greater stability for long-term business planning and structuring.

Reporting Requirements (Forms 1099-NEC and 1099-K): Starting in 2026, the threshold for reporting payments on these forms increases from $600 to $2,000 per year. In 2027, this threshold will adjust with inflation. Businesses should start updating vendor payment systems now to stay compliant.

The One Big Beautiful Bill Act introduces a variety of complex tax law changes that are expected to have a significant impact on businesses, particularly professional service organizations. Many of the OBBB provisions affect business owners directly as well, with additional details covered in a separate article focused on High-net-worth individuals, estates, and trusts.

To fully understand how these changes might affect your unique situation, we recommend consulting with a qualified tax professional. Snyder Cohn is available to answer any questions and assist with strategic planning as you prepare for the changes in 2025 and beyond.

 

By: Melinda Kloster, Elizabeth Dentan and Desi Diaz