The One Big Beautiful Bill Act of 2025 (OBBBA)…all 887 pages…was passed by Congress on July 3, 2025, and signed by the President on July 4th. While not officially titled as OBBBA—technically it’s “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” and it is the text of H.R. 1—the name doesn’t really tell the story. You’ve heard the hype—it’s the best thing since sliced bread or the worst thing since New Coke. Whatever the opinion, the fact remains that small businesses need to know what’s in the new law and take action to optimize its impact on them. This blog is a checklist of key provisions in the Act, referred here for convenience as OBBBA. Upcoming blogs will delve into details and provide strategies you can use to optimize your tax bill for 2025 and the years ahead. As you read this information, be sure to note what actions you may want to take this year—for 2025 tax purposes—and what can be deferred until 2026 or later.
Your tax rate
The tax rates on small business owners are basically unchanged. If OBBBA had not been enacted, tax rate would have increased dramatically after 2025.
- Basic tax rates. They remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- Qualified business income (QBI) deduction. It has been made permanent. The deduction remains at 20%, but the phase-out has been liberalized, so more small business owners may qualify for this personal deduction based on business profits. Starting next year, there’s a minimum deduction of $400 for “qualified active business income.”
- Exclusion for qualified small business stock (QSBS). The exclusion for gain on the sale of QSBS changes for stock acquired on or after July 4, 2025. There’s a 50% exclusion gain on the sale of stock held at least 3 years (but not more), 75% for stock at least 4 years (but not more), and 100% for stock 5 years or more. The exclusion limit, which has been $10 million, increases to $15 million for stock issued on or after July 4, 2025, and limit will be adjusted for inflation after 2026.
Your capital investments in equipment and R&D
Putting money into capital equipment can pay for big time for 2025 and beyond:
- Bonus depreciation. This deduction had been scheduled to be 40% for 2025, but is now permanent at 100% for eligible property bought and placed in service on or after January 19, 2025.
- First-year expensing. This deduction had been scheduled to be $1.25 million for 2025, but is now $2.5 million for qualifying assets bought and placed in service after 2024 (i.e., starting in 2025). The deduction phases out once qualified purchases for the year exceed $4 million. These dollar limits will be indexed for inflation after 2025.
- R&D expensing. Instead of amortizing the cost of eligible domestic research and experimentation expenses over 60 months, the cost can be immediately deducted. This is effective for tax years beginning after December 31, 2024.
- Expensing of qualified production property. The cost of constructing a manufacturing, production, or refining facility can be immediately deducted. This applies to construction begun after January 19, 2024, and before January 1, 2029.
Your staffing
OBBBA makes changes in certain employee benefits, as well as adding “no tax on overtime pay” and “no tax on tips,” which imposes new reporting requirements for employers.
- No tax on overtime pay. While this is a deduction claimed by employees on their personal returns for 2025, employers should note that it does not change payroll taxes. It does impose a reporting requirement: telling employees how much they earned in overtime pay. Supposedly, it will be done via a new Box 12 code or Box 14 reporting on employees’ W-2s.
- No tax on tips. As in the case of no tax on overtime pay, while this is a deduction claimed by employees on their personal returns for 2025, employers should note that it does not change payroll taxes. Employees’ tips must also be reported separately on their W-2s, but it’s too early to know just how to do it.
- Family and medical leave credit. This credit, which was set to expire at the end of 2025, is made permanent.
- Credit for employer FICA on tips. This credit, which had been limited to employers in the food and restaurant industry, now applies to those in the beauty services industry.
- Credit for employer-provided child care. Starting in 2026, the credit rate increases to 40% (50% for small businesses) (up from 25% in 2025), and the cap on the credit goes to $500,000 ($600,000 for small businesses (up from $125,000 in 2025).
- Employee retention credit (ERC). No refunds for COVID-related ERCs are allowed unless the claim for a credit or refund was filed on or before January 1, 2024.
- Educational assistance plans. Coverage for student loan repayments is now permanent (instead of expiring at the end of 2025), and the dollar limit of $5,250 is adjusted for inflation after 2025.
- Dependent care assistance plans. The dollar limit increases in 2026 to $7,500 (up from $5,000 in 2025) (one half the dollar limit for married persons filing separately).
Other matters
The massive Act makes numerous other changes. Here are just some of them:
- SALT cap. The dollar limit on itemizing state and local taxes has been increased to from $10,000 to $40,000 beginning in 2025. The deduction phases out for high-income taxpayers. The final version of the bill did not alter the ability of owners of pass-through entities to use a pass-through entity tax (PTET) if one is available in their locality.
- Loss limit for owners of pass-through entities. The limit is now permanent. Excess losses now carry over to be used in the following after they are retested (i.e., subject to the applicable limit in that year); they do not become net operating losses as they had in the past.
- Green energy tax credits. A number of the tax credits created or enhanced by the Inflation Reduction Act of 2022 will vanish. These include credits for buying electric vehicles—new, used, or commercial vehicles (after September 30, 2025), the alternative fuel refueling property credit (for installing charging stations) (after June 30, 2026), and the credit for constructing energy-efficient homes (after June 30, 2026). Other green energy credits also end, with varying expiration dates. The clean vehicles credit ends.
- Deduction for business meals for clients and prospects. The cost, which is 50% deductible in 2025, is not deductible at all starting in 2026.
- Form 1099-K. OBBBA restores the old thresholds for reporting for 2025 and future transactions: having $20,000 and 200 transactions.
- Form 1099-NEC. OBBBA raises the threshold for reporting non-employee compensation to independent contractors from the current $600 to $2,000. The change applies to payments made after 2025. The $2,000 will be indexed for inflation after 2026.
Final thought
It’s going to take a little while for tax professionals to fully digest the new law. But be sure to reach out to your CPA or other tax pro soon, so you can obtain personalized advice on the actions to take now. And check future blogs here…as more details and IRS guidance emerges, there will be lot to talk about.
