By Amanda M. Ziehm, Staff Accountant
The One Big Beautiful Bill (OBBB) brings sweeping tax changes to U.S. businesses. Below is a quick look at some of the key changes:
Qualified Business Income Deduction
Section 199A was set to expire after 2025, which is a 20 percent deduction for qualified business income. The QBID has now been made permanent and the phase-out thresholds for income limits have increased. A new minimum $400 deduction was added for taxpayers with at least $1,000 of qualified business income. The QBI deduction is available to specified non-corporate taxpayers from a partnership, S-corporation, or sole proprietorship.
Form 1099 Information Reporting
The OBBB addressed the controversial information return reporting requirements better known 1099 filings. Effective for payments made after 2025, the reporting threshold for Form 1099-NEC and Form 1099-MISC increased to $2,000 (from $600) with the threshold being indexed annually for inflation for years after 2026. The Form 1099-K requirements were also updated with reporting now required where total payments for the year exceed $20,000 and total transactions exceed 200.
Bonus Depreciation & Section 179 Expense
First-year bonus depreciation has been permanently extended and reinstated to 100 percent for qualifying property placed in service on or after January 19, 2025. The limits for Section 179 immediate expense for certain business property have also increased to a maximum amount of $2.5 million with the phase-out threshold amount increased to $4 million.
QPP Special Depreciation
The bill allows for an additional first-year bonus depreciation deduction equal to 100 percent of the adjusted basis of “qualified production property,” which is generally nonresidential real property used in manufacturing. The QPP construction must begin after January 19, 2025, and must be placed in service before January 1, 2031.
Research & Experimental Expenses
The bill allows taxpayers to immediately deduct domestic research and experimental (R&E) expenses, which were previously required to be capitalized and amortized over 15 years. For taxpayers that capitalized R&D expenses under the old Section 174 rules, the bill provides an opportunity to apply this change retroactively back to 2022 through amended returns. Research that is conducted outside of the United States must still be capitalized.
Qualified Small Business Stock Exclusion
Section 1202 provides for the partial exclusion of gain on the sale of qualified small business stock held for more than five years. This exclusion was enhanced for qualified small business stock acquired after the date of enactment of the bill and held for at least four years. It includes new tiered exclusion rates: 50 percent exclusion for stock held 3 years; 75 percent exclusion for stock held 4 years; and 100 percent for stock held more than 5 years. The eligibility limit has also been increased for gross assets at the time of issuance to $75 million.
Business Interest Limitation
Section 163(j) limits the amount of interest a business can deduct. The OBBB made permanent and reinstated the EBITDA limitation, which means for purposes of the interest limitation, adjusted taxable income would be computed without regard to the deduction for depreciation, amortization, or depletion.
Charitable Deduction for C-Corporations
Charitable contributions made by C-Corporations, while allowed, have been modified to include a new 1 percent floor. Only charitable contributions exceeding 1 percent of taxable income are deductible, up to the 10 percent limit. Contributions in excess of that limit in any year can be carried forward for up to five years.
Please contact your Tronconi Segarra & Associates tax advisor for more information about how these and other OBBB provisions may impact your specific business.