On September 16, 2025, I presented a webinar for SCORE entitled “Year-End Tax Preparation – Opportunities to Reduce Your Overall Tax Burden.” It covered the tax changes in the One Big Beautiful Bill Act (OBBBA) that are effective in 2025 and impact 2026 tax planning. At the end of the webinar, there was a Q&A session, but there wasn’t time to cover all of the questions. The following are some of the additional questions…and answers that may be helpful to you.
Answers to your small business tax questions
Q: I started my LLC this year. Is there a benefit to deduct any business charitable donations on my individual tax return? Or should I keep them separate?
A: When an LLC makes a charitable contribution, it is the owner who claims the deduction on his/her personal tax return. If the LLC is a disregarded entity (a Schedule C filer), the business does not report the deduction at all; it belongs solely to the owner. If the LLC files a partnership return, the owner’s share of the charitable contribution deduction is reported on Schedule K-1; it passes through to the owner as a separately stated item. For 2025, an owner must itemize deductions to write off charitable contributions.
Q: How do we write off donations from our clothing brand?
A: If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your charitable contribution deduction from your opening inventory. It isn’t part of the cost of goods sold.
Q: I conduct my business from home. The home office deduction requires “exclusive use.” Can I use the space to pay personal business, read my favorite book, or watch YouTube videos in this space?
A: The law says exclusive use means using the space regularly and continuously for business. Either it is or isn’t used for business. Cases have disqualified the space when used for an occasional guest or for dual purposes (office and family rule).
Q: Can I use a high-deductible health plan (HDHP) and health savings account (HSA) if I’m the only employee in my business?
A: An HSA can be used if you are covered by an HDHP. Who pays for what and how the deduction for the insurance and savings amounts are claimed depends on the type of entity. For example, an S corporation that obtains the coverage includes it on an employee’s Form W-2 as compensation and the owner then claims a personal deduction on his/her return. If the deduction for the HSA is claimed by the party who makes it.
Q: What qualifies as R&D expenses?
A: For purposes of deducting R&D expenses, many types of costs can be taken into account, including wages and salaries for employees performing research and experimentation activities, costs for materials and supplies used in these activities, certain indirect costs (an allocable amount of overhead), software development costs, and contract research expenses (amounts paid to outside consultants). The range of costs for purposes of the research credit are slightly narrower.
Q: Is the qualified business income (QBI) deduction applicable to a medical practice?
A: Yes, but there’s a special limitation that comes into play. Because a medical practice is a specified service trade or business (SSTB), if taxable income exceeds a set amount, the QBI deduction is phased out and may be barred entirely if taxable income is too high. These rules are explained in the instructions to Form 8995-A (these instructions have the 2024 limits; the 2025 limits are slightly higher).
Q: Are there any changes in OBBBA for 1099 contractors?
A: The threshold for reporting payments on Form 1099-NEC to independent contractors changes after 2025. Payments in 2025 continue to be reported if they are $600 or more for a single party for whom services were performed. In 2026, the reporting threshold increases to $2,000.
Q: Should I keep gas receipts for using my car to see clients?
A: It’s always a good idea to keep all business receipts. However, if a person uses the IRS standard mileage rate to figure the deduction for business driving, then receipts for gas and other vehicle-related costs aren’t necessary. Keeping receipts may help to decide at the end of the year which deduction method—actual costs or the IRS standard mileage allowance—is the better option (assuming eligibility to make the choice).
Final thought
I was so glad to receive the many questions related to taxes and small business. Things are complicated and getting answers can help to clarify things.
As mathematician Charles Proteus Steinmetz said: “There are no foolish questions and no man becomes a fool until he has stopped asking questions.”
For additional information concerning small business tax legislation, check out this list of blogs here.
