OBBBA

"One Big Beautiful Bill Act" (OBBBA), otherwise known as the 2025 Trump tax plan.

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Key provisions for LLC owners and businesses

Permanent Qualified Business Income (QBI) Deduction (Section 199A): The 20% QBI deduction for pass-through businesses (like LLCs, S-corporations, and sole proprietorships), which was set to expire at the end of 2025, is now made permanent by the OBBBA.

Example: Permanent Qualified Business Income (QBI) Deduction

Okay, imagine your family's lemonade stand. If you sell a lot of lemonade, you make money. That's like a business making money,!
Now, the government wants to help small businesses like your lemonade stand, so they created a special tax rule called the QBI Deduction,. Think of it like this: If your lemonade stand makes a profit, you have to pay a little bit of that profit as taxes. But with the QBI Deduction, you get to keep a small part of your profit before you even calculate your taxes. This means you owe less in taxes,.
The "permanent" part just means this helpful tax rule isn't going away anytime soon. It's a special way for small business owners, like you running your lemonade stand, to pay less taxes on the money they earn from their business.

This effectively lowers the tax rate on qualified business income from 37% to 29.6% for eligible business owners, according to www.lplegal.com.

The phase-in thresholds for the QBI deduction are now higher, increasing to $75,000 for single filers (up from $50,000) and $150,000 for joint filers (up from $100,000).

Example: Thresholds and phase-in for the QBI deduction

Imagine you're trying to reach a goal, like getting to a certain level in a video game. To get to the highest level (the full QBI deduction), you need to pass certain "checkpoints" or "thresholds," according to brainly.com. The government sets these checkpoints based on how much money your business makes,
Before the changes: The checkpoints were at a lower amount. If your business made more money than that lower checkpoint, you might not get the full deduction,
After the changes: The checkpoints are now at a higher amount. This means more businesses can make more money and still get the full deduction or at least a bigger part of it,

Why is it called "phase-in"?

Imagine climbing a ladder. You don't just jump to the top, you go rung by rung,
"Phase-in" means that as your business makes more money and crosses those checkpoints, the deduction doesn't just disappear all at once,
Instead, it's reduced bit by bit, or "phased in," over a range of income. This way, you don't suddenly lose all of the tax benefits if your business has a good year and earns a little more,
In simple terms
The higher checkpoints and the "phase-in" mean that more businesses will be able to save money on their taxes through the QBI deduction, even if they make a bit more money,

Give me an example of how the phase-in works

Here's an example to illustrate how the QBI deduction phase-in works, using the higher thresholds under the 2025 Trump tax plan for married filing jointly:
Scenario: Let's say a married couple, Sarah and David, own a small business (not a specified service trade or business, or SSTB) and are filing their taxes jointly for 2026.
QBI (Qualified Business Income): $200,000
W-2 Wages paid by their business: $100,000
Taxable Income (before the QBI Deduction): $450,000

How the deduction works (with the phase-in)
Calculate the basic QBI Deduction: This is normally 20% of the QBI.
$200,000 (QBI) * 20% = $40,000.

Determine if the "Wage and Property" Limits Apply:
Because their taxable income ($450,000) is above the threshold ($394,600) but within the phase-in range (which goes up to $544,600 for joint filers under the new bill), they need to consider the wage and property limits, according to Bipartisan Policy Center.

The deduction is limited to the lesser of the calculated amount (Step 1) or the greater of these two options:

Option 1: 50% of the W-2 wages paid by the business.
$100,000 (W-2 Wages) * 50% = $50,000

Option 2: 25% of W-2 wages + 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property used in the business.

Assuming they have no qualified property for this example, this would be $100,000 * 25% = $25,000.

Find the Greater of the Wage and Property Limits:
In this case, Option 1 ($50,000) is greater than Option 2 ($25,000).

Compare to the Basic Deduction:
The lesser of the basic deduction ($40,000) and the greater of the limits ($50,000) is $40,000.

Calculate the Phase-in Reduction:
Since their taxable income is within the phase-in range, a portion of the deduction is "phased out" or reduced.
TaxSlayer Pro explains that the reduction is phased in and that the full reduction applies if the taxable income is above the phase-in range.
The phase-in calculation is complex, but in simpler terms, as their income goes higher within the range, the deduction gets smaller, according to Stinson LLP.

The formula would involve calculating the reduction based on the difference between their taxable income and the lower threshold ($394,600) as a percentage of the entire phase-in range ($150,000).
This reduction amount would then be subtracted from the maximum potential deduction (which was $40,000 in this case).

Result: Sarah and David's QBI deduction will be a portion of the $40,000, reduced by the phase-in amount.
They won't lose the entire deduction, but it will be smaller than if their income were below the threshold, according to Remote.
The exact amount depends on the specifics of the phase-in formula, but it demonstrates how the deduction is not fully eliminated immediately upon exceeding the threshold.

There's also a new $400 minimum deduction for active businesses with at least $1,000 in qualified business income, even if the standard 20% calculation yields less.

100% Bonus Depreciation: The OBBBA restores 100% bonus depreciation for qualified assets, meaning you can fully deduct the cost of eligible capital investments in the year they are placed in service, according to www.lplegal.com.
This is particularly beneficial for businesses making significant equipment purchases or infrastructure investments.

Bonus Depreciation Explained:

You know how when your family buys a new car, you don't just pay for it and then it's all done? You have to pay for it over many months or years, right? That's kind of like how businesses normally deduct the cost of things they buy, like new machines or computers. They spread out the deduction over several years.
But bonus depreciation is like a special shortcut! It's a tax rule that lets businesses deduct a big part of the cost of certain things they buy all at once in the first year.
100% bonus depreciation: The One Big Beautiful Bill Act (OBBBA) made it so businesses can deduct 100% of the cost of those things in the first year.
R&E Expensing: You can again fully deduct research and experimentation (R&E) expenditures in the year they are incurred, reversing the previous requirement to amortize these costs over five years.

Explained: These are called Research and Experimental (R&E) expenses.

Before the new law (the OBBBA) was passed, the government said you couldn't deduct all these costs in the year you spent them. You had to spread out the deduction over 5 years. This was like taking tiny sips of your deduction instead of a big gulp.
But the OBBBA changes that! According to Rödl Langford de Kock, the OBBBA now lets businesses, especially small businesses like your lemonade stand, deduct all those costs in the very same year you spend them for research done in the United States!

Small businesses may be eligible for retroactive R&E deductions for expenditures from 2022-2024, creating an opportunity for amended returns and potential refunds.

**

Section 179 Expensing: The OBBBA doubles the ceiling on the Section 179 expensing deduction** for small businesses' qualifying investments in equipment.

Explained 179 Expensing:

Normally, when a business buys something expensive, like a new machine or computer, it can't deduct the whole cost all at once. It has to deduct a little bit each year over several years. This is called depreciation, according to U.S. Bank.
2. Immediate deduction
Section 179 is like a shortcut! It lets businesses deduct the full purchase price of certain qualifying equipment, software, or even some building improvements in the very same year they buy them and start using them. This is called "expensing" or "first-year expensing," meaning you treat it as an expense instead of a long-term asset.
There's a limit to how much a business can deduct each year under Section 179. For example, in 2025, that limit is $2.5 million.
There's also a spending cap. If a business spends more than a certain amount on equipment in a year (for instance, $4 million in 2025), the amount they can deduct under Section 179 starts to get smaller. This is called a phase-out.

SALT Deduction Cap Increase: The cap on the State and Local Tax (SALT) deduction is raised to $40,000 for joint filers starting in 2025, increasing incrementally each year through 2029 and then reverting to $10,000 in 2030 and beyond.
There is a phase-down of the deduction for higher earners, starting at a modified adjusted gross income (MAGI) over $500,000 ($250,000 for married filing separately).

Explained

When it is time to pay your federal tax bill, you used to be able to tell the government, "Hey, I already paid some taxes to my state and local governments for those chores and allowance. Can I deduct (subtract) some of those payments from my federal tax bill?"
Since 2017, the government said, "Sure, you can still deduct some of those, but only up to $10,000,". This was the SALT Deduction. Cap. It was like only being able to deduct up to $10,000 from your piggy bank, no matter how much was paid in state and local taxes.
The increase: With the new tax bill, the OBBBA, that cap is now higher. Starting in 2025, you can deduct up to $40,000 of your state and local taxes. Pass-through entity owners can deduct the greater of $40,000 or 50% of their share of Pass-Through Entity Taxes (PTET) paid, after other SALT payments are subtracted.

Steps to take now and when filing your taxes

Now

Review Your Eligibility for the QBI Deduction: Understand the updated phase-in thresholds and consider strategies to maximize this benefit, such as evaluating your business structure or making capital investments.

Assess Capital Investments and R&E Spending: Plan any purchases of equipment, machinery, or R&E activities to take advantage of the 100% bonus depreciation and immediate R&E expensing.

Consider Amending Past Returns for Retroactive R&E Deductions: If your small business had domestic R&E expenses in 2022-2024, consult with a tax professional to determine eligibility and navigate the process of amending returns to claim potential refunds.

Evaluate Pass-Through Entity Taxes (PTETs): If your state allows PTETs as a way to circumvent the individual SALT cap, analyze how this interacts with the new deduction structure.

Consult with a Tax Professional: Given the complexity of the new tax code, including the tiered QSBS exclusion and potential changes to the SALT deduction, it's crucial to seek guidance from a qualified tax advisor to develop a personalized strategy for your LLC and maximize tax savings.

When filing your taxes

Claim the QBI Deduction: Ensure you correctly calculate and claim the QBI deduction based on your qualified business income and the new phase-in thresholds.

Utilize 100% Bonus Depreciation: Ensure your records accurately reflect the acquisition and placement in service dates for eligible assets to take advantage of the full deduction.

Expensed R&E Costs: Deduct your qualified R&E expenses in the year they were incurred.
Apply the Increased Section 179 Expensing Limit: Deduct the cost of eligible equipment and property up to the higher limits.

Navigate the SALT Deduction Cap: Accurately claim the SALT deduction, taking into account the increased cap and phase-down for higher earners.

Consider QSBS Exclusion: If you acquired Qualified Small Business Stock (QSBS) after July 4, 2025, and meet the holding period requirements, you may be eligible for a partial or full exclusion of capital gains upon sale.

Important Note: Tax laws can be complex and are subject to interpretation and change. The information provided here is for general knowledge and should not be considered professional tax advice. Always consult with a qualified tax professional to discuss your specific situation and develop a tax strategy that aligns with your individual circumstances and business needs.

Sources:

Official and governmental sources

Public Law No. 119-21:

This is the legal citation for the One Big Beautiful Bill Act.

Congress.gov:

Provides information on the bill and its text, H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act, available at the Library of Congress website. You can also find the full text of the bill here.

The White House:

Offers information about the signing of the bill into law by President Trump and highlights of its provisions, according to The White House website.

IRS:

The Internal Revenue Service has published guidance and news releases related to the OBBBA, particularly regarding its tax provisions, according to the IRS website.

News and analysis

Advisory Board:

Provides analysis on the healthcare impacts of the OBBBA, according to an article on their website.

American Hospital Association (AHA):

Offers resources and information on the OBBBA's impact on hospitals and health systems, according to their website.

Weatherly Asset Management:

Discusses the impact of the OBBBA, particularly on individual tax changes, according to their article.

The Work Times:

Offers an analysis of the bill's impact on human adaptability, according to their article.

JD Supra:

Contains legal analysis of specific provisions, such as those related to healthcare and employer responsibilities.

Tax Foundation:

Provides analysis on the economic and distributional effects of the OBBBA, according to their article.

Grant Thornton:

Discusses the state tax implications and changes related to depreciation and other business tax provisions, according to their article.

Other organizations and resources

National Health Law Program:

Provides a quick reference guide on the impact of the OBBBA on Medicaid expansion states versus non-expansion states, available on their website.

Bradford Tax Institute:

Offers a grid summarizing individual tax changes, available on their website.

MRA:

Provides key takeaways for employers regarding the OBBBA, according to their article.

The End

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