The One Big Beautiful Bill Act: Important Changes for Businesses
The U.S. House passed the One Big Beautiful Bill Act (the “OBBBA”) in May. While the OBBBA still has to go through Senate, and will likely be changed there, it’s still a sign of where U.S. tax policy is headed. Last week’s article covered the OBBBA’s effect on tax rates and credits for individuals. Now let’s look at some important tax provisions for businesses and business owners.
The Qualified Business Interest ("QBI") Deduction a/k/a Section 199A
The Tax Cuts & Jobs Act introduced a deduction for self-employed individuals and owners of pass-through entities like an S-Corp. It allows up to 20% of Qualified Business Income to be deducted from the individual’s income tax liability. Qualified Business Income is the net of certain items of income, gain, deductions, and losses (i.e. a profit) from certain trades or businesses and typically does not include capital gains or losses, dividends, wages, or reasonable compensation.
Bonus Depreciation a/k/a Section 179
The Tax Cuts & Jobs Act introduced bonus depreciation for certain business investments. Bonus depreciation allowed for an additional percentage of the business investment’s cost to be written off on the year of purchase instead of having to amortize it over a term of years. The Tax Cuts & Jobs Act started off with 100% depreciation from 2018 to 2022 and has lowered in percentage by twenty percent every year since then.
Expensing of Domestic Research & Development
Prior to 2022, businesses we able to fully expense the cost of research and development investment. In 2022, provisions in the Tax Cuts & Jobs Act took effect, which required these investments to be amortized over five years. The OBBBA restores full expensing for domestic research and development costs from 2025 to 2029.
Qualified Opportunity Zones
A Qualified Opportunity Zone is an economically distressed community where investors can receive tax benefits from the federal government in exchange for their investments in the community. This program came into being as part of the Tax Cuts & Jobs Act.
The OBBBA renews and expands the Qualified Opportunity Zone program and introduces new Qualified Opportunity Zone designations from 2027 to 2033, with a larger emphasis on rural areas.
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The OBBA is far from finished, with huge changes more than likely to come. Don't worry! They will be covered in later articles. To make sure you don't miss stay in contact.
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