By John P. Kandler, Staff Accountant
In the 2025 Reconciliation Bill otherwise known as the “One Big Beautiful Bill” or OBBB, there are an abundance of tax provision updates for tax years starting after December 31, 2025. There are, however, several pre-existing provisions for businesses that were not impacted and remain unchanged by the final bill.
Corporate and Pass-Through Entity Taxation
No changes were made to the corporate income tax rate or how pass-through entity business income is captured. C-Corporations will continue to be treated as separate legal entities from their owners, taxed at the federal flat income tax rate of 21 percent. This flat income tax rate applies to all C-Corporations, regardless of size or industry. Pass-through entities including S-Corporations, Partnerships and LLCs with income, loss, deductions, and credits will continue to flow directly to the owner’s individual tax return and are taxed at the owner’s personal income tax rate.
Excess Business Losses
Section 461(l) which limits pass-through business losses was scheduled to expire after 2025 and has now been made permanent. Disallowed losses become net operating losses and can be used in subsequent years, subject to NOL rules.
Small Business Accounting Methods
The OBBB sought expansion of the 2017 Tax Cuts and Jobs Act provision, which allows small businesses with average annual gross receipts for the three prior years below $31 million to use the “cash method” of accounting, as opposed to the “accrual method.” The bill proposed increasing the average annual gross receipt threshold to $80 million for manufacturing businesses. This increased threshold was not included in the final bill; average annual gross receipts threshold remains $31 million for 2025 for all industries.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses for wages paid to an employee hired from a targeted group. The maximum credit is $2,400 per employee hired but is set to expire after December 31, 2025.
Carried Interest
Carried interest is a form of performance-based compensation commonly used in private equity and other investment-managing partnerships. The general partner or fund manager will typically receive a portion of the profits earned from the investments managed (the “carry”). Carried interest compensation has historically been controversial due to its long-term capital gains tax treatment and is often the subject of proposed tax reforms. The controversy is two-fold: long-term capital gains are taxed at substantially lower rates (up to 20 percent) than the ordinary income rates (up to 37 percent), and capital gains are the result of selling an asset. The OBBB provided no additional provisions surrounding the treatment of carried interest.
Credit Union Tax-Exempt Status
Another controversial subject is credit unions, which have historically been exempt from federal income tax due to their not-for-profit structure, unlike traditional banks that operate for profit. Since 1934 with the passing of the Federal Credit Union Act, credit unions have continued to expand their membership base and service offerings. Banks argue that credit unions have begun acting more like traditional banks with their wide array of offerings, while also avoiding any tax implications, thus creating unfair competition. Again, the OBBB did not seek additional provisions or regulations on credit unions.