The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and includes several provisions that take effect in 2025 and in future years. To assist you in determining what may work best for you and your business, we have compiled a list of tax strategies based on new and existing tax rules that may help you save tax dollars if action is taken before year-end.
Your team at Sciarabba Walker is continuously evaluating tax policy and will inform our clients of any changes. Please stay tuned to our website and follow us on social media for the most up-to-date tips and guidance as they become available.
We would be happy to assist you with your year-end tax planning or answer any questions. Please reach out to your personal Sciarabba Walker contact or email us at info@swcllp.com at your earliest convenience.
Review Entity Structure
OBBBA introduced changes that may influence entity selection, including a permanent extension of the 20% pass-through income deduction and expanded qualified small business stock rules that allow certain C-corporation shareholders to exclude up to $15 million (or, if greater, ten times stock basis) in gains from stock sales. Consider whether these changes may affect your business’s optimal tax structure.
Qualified Business Income (QBI) Deduction
The QBI deduction was made permanent by OBBBA and remains an effective tax benefit. Taxpayers other than corporations may be entitled to deduct up to 20% of qualified business income.
For 2025, if taxable income exceeds $394,600 for married filing jointly or $197,300 for all other filers, the deduction may be limited based on:
- Whether the business is a specified service trade or business (e.g., law, accounting, health, consulting),
- The amount of W-2 wages paid by the business, and/or
- The unadjusted basis of qualified property.
The limitations phase-in for joint filers is between $394,600 and $494,600, and for all other filing statuses, it is between $197,300 and $247,300.
Taxpayers may achieve significant savings by deferring income or accelerating deductions to fall under these thresholds. Depending on their business model, taxpayers may also increase the deduction by increasing W-2 wages before year-end.
Explore Timing of Fixed Asset Purchases
For 2025, OBBBA increased the Section 179 expensing limit from $1,220,000 to $2,500,000, with a phase-out beginning at $4,000,000 in purchases. Eligible property includes most depreciable property other than buildings and off-the-shelf software, as well as qualified improvement property (QIP), roofs, HVAC systems, fire protection systems, alarm systems, and security systems. These thresholds will be indexed for inflation beginning in 2026.
OBBBA also permanently extended and modified bonus depreciation to 100% of the adjusted basis of qualifying property placed in service after January 19, 2025. Bonus depreciation is not subject to a business-income limitation and applies to both new and used property.
Pass-Through Entity Tax (PTET) Survives OBBBA
The new law did not eliminate PTET elections. Pass-through entities (S corporations and partnerships) may continue electing to pay state income taxes at the entity level. These taxes remain deductible at the entity level for federal purposes, reducing the owner’s taxable income and effectively bypassing the federal SALT cap (which OBBBA increased). This may provide significant federal tax savings.
No Tax on Tips
OBBBA created a deduction for cash tips earned in 2025—up to $25,000—for occupations that customarily and regularly receive tips. This applies to tax years 2025–2028.
Employer requirements:
- Additional reporting rules require separately reporting cash tips and designating the occupations for which tips were received.
- For 2025, a transition rule allows employers to approximate cash-tip amounts using any reasonable method specified by the IRS.
- Beginning in 2026, the IRS will issue a revised Form W-2 with expanded tip-reporting fields, including occupation-specific codes.
No Tax on Overtime
OBBBA also established a deduction for certain overtime earned in 2025, up to $12,500 ($25,000 for joint filers). This applies to tax years 2025–2028.
- Overtime compensation is defined as pay for hours worked beyond 40 hours in a workweek.
- A 2025 transition rule allows employers to approximate overtime amounts using any reasonable method specified by the IRS.
- The IRS will revise Form W-2 beginning in 2026 to include expanded overtime-reporting requirements.
Net Operating Losses (NOL)
For 2025, NOLs remain limited to offsetting 80% of taxable income and may be carried forward indefinitely.
Taxpayers who may not fully use a NOL in 2025 should consider shifting income into 2025 or deferring expenses to avoid future limitations.
A corporation (other than a large corporation) expecting a small 2025 NOL but significant 2026 income may benefit from accelerating some income into 2025 (or deferring expenses) to create small taxable income in 2025. This allows the 2026 estimated taxes to be based on the lower 2025 income figure.
Charitable Contributions Limited, Beginning in 2026
Beginning in 2026, corporate charitable contributions will be limited to 1% less than the current percentage-of-income limit. Excess contributions may be carried forward for five years.
Full Expensing of Domestic Research and Experimental Expenditures
OBBBA restored full expensing of domestic research and experimentation (R&E) expenses for 2025.
Options for deducting previously unamortized research costs include:
- Amending prior returns,
- Deducting the costs in 2025,
- Splitting the deduction between 2025 and 2026, or
- Continuing amortization.
Changes to Form 1099 Threshold Amounts
The Form 1099 reporting threshold remains $600 for 2025. Beginning in tax year 2026, the threshold increases to $2,000, indexed annually for inflation.
Deduction of Accrued Bonuses
To deduct bonuses in the service year (rather than the payment year), taxpayers should:
- Review bonus plans before year-end and remove contingencies that prevent meeting the Section 461 “all-events test.”
- Consider strategies such as:
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- A bonus pool with reallocations of forfeited bonuses, or
- A minimum bonus structure allowing employers to retain a portion of forfeitures.
The bonus pool must be fixed via a binding corporate action (e.g., board resolution) before year-end. This type of change qualifies as a change in facts, permitting the adoption of a new method of accounting without filing Form 3115.
Bonus payments must be made within 2.5 months after year-end to meet Section 404 requirements for deductibility in the service year.
Harvest Tax Losses
Businesses using the accrual method may deduct bad debts for uncollectible receivables written off during the year. This reduces taxable income for the current year.
If the customer later pays, the write-off must be reversed. Because this area can be complex, we recommend coordinating with us to ensure proper handling and optimal tax planning.