How the One Big Beautiful Bill Act Could Impact Your Business

The “One Big Beautiful Bill Act” (OBBBA, or more formally known as Public Law 119-21) implements some tax code changes that could have a significant impact on businesses and their owners. Signed into law on July 4, 2025, the OBBBA contains a combination of new tax deductions, changes to existing deductions and credits, and some modifications to reporting requirements. Naturally, business owners are wondering, “How will the OBBBA affect me, my company, and my employees?”

In this article, we’ll touch on some of the legislation’s most notable highlights, who they affect, and some must-know details to help you better understand how they might impact tax outcomes.

Deduction for Tip Income

Everyone is all abuzz about the bill’s “no tax on tips” provision. Technically, tips are still taxed, but employees and self-employed individuals that are in occupations listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, may deduct qualified tips from their federal taxable income on their returns.

• Eligibility:
  • Effective for the tax years 2025 through 2028 for itemizing and non-itemizing taxpayers that meet the eligibility requirements.
  • Eligible: Any employee or self-employed individual in any of the tip-earning occupations identified by the IRS (The agency is required to provide a list no later than October 2, 2025.)
  • Not eligible: Self-employed individuals and employees of an employer in a Specified Service Trade or Business (SSTB) — i.e., anyone who is self-employed in or works as an employee for a pass-through entity that’s eligible for the Qualified Business Income (QBI) deduction is not eligible for the tip income deduction.
  • Taxpayers must include their Social Security Number on their return.
  • Individuals must file jointly if married to claim the deduction.
• Qualified Tips Criteria (must meet both):
  • Tips reported on a Form W-2, Form 1099, or Form 4137
  • Voluntary cash or charged tips from customers or those received through tip-sharing
• Limits and Restrictions:
  • Maximum annual deduction = $25,000 (regardless of filing status)
  • Deduction phase-out for taxpayers with a modified adjusted gross income (AGI) of over $150,000 (single filers) or $300,000 (joint filers)
  • Self-employed individuals’ deductions may not be more than their net income (before factoring in this deduction) from the trade or business through which they earned the tips.
• Employer Reporting Requirements:
  • Must submit information returns to the IRS/Social Security Administration
  • Issue statements to each tip recipient to show the individual’s occupation and the cash tips they received
• Transition Relief: The IRS says it will grant taxpayers and employers some relief in 2025 as they transition to the new reporting requirements.
• Business Implications:
  • May motivate more potential candidates to apply for positions that receive tip income (e.g., bartenders, servers, hospitality workers, hair stylists, delivery drivers, etc.)
  • Requires employers’ compliance with new tip-income tracking and reporting requirements
  • Bookkeepers or accounting staff may need to update employees’ payroll withholding information
• Hypothetical Scenario: Mateo owns a small restaurant and has a team of servers and bartenders working for him. With the new tip deduction in place, his employees may deduct up to $25,000 in qualified tip income from their federal income taxes. This new deduction opportunity may attract more candidates, making it easier for Mateo to fill open positions. The tip income deduction also means new responsibilities for Mateo as he must update his payroll system and processes to accurately track and report his employees’ tip income to the IRS and issue the required statements to his staff.

Deduction for Overtime Pay

Tax on overtime pay will continue to be withheld from employees’ compensation, but workers can reduce their taxable income on their federal returns by deducting qualified overtime pay that exceeds their regular rate of pay. In other words, if paid time and a half, employees may deduct the “half” portion of their wages.

• Eligibility:
  • Effective for the tax years 2025 through 2028 for itemizing and non-itemizing taxpayers that meet the eligibility requirements
  • Taxpayers must include their Social Security Number on their return.
  • Individuals must file jointly if married to claim the deduction.
  • Overtime pay that is classified as a “qualified tip” is not eligible for this deduction.
• Qualified Overtime Compensation Criteria (must meet both):
  • Portion of pay that is in excess of the employee’s regular rate of pay
  • Relevant to overtime income reported on Form W-2, Form 1099 or reported directly by the individual.
• Limits and Restrictions:
  • Maximum annual deduction = $12,500 ($25,000 for joint filers)
  • Deduction phases out for taxpayers with a modified adjusted gross income (AGI) over $150,000 (single filers) or $300,000 ( joint filers).
• Employer Reporting Requirements – Applicable to all employers, regardless of business entity type or industry, who pay qualified overtime compensation to any employees:
  • Must submit information returns to the IRS/Social Security Administration.
  • Issue statements to each employee paid overtime, showing the total amount of qualified overtime compensation the employee received during the year.
• Transition Relief: The IRS says it will grant relief to individuals and businesses as they transition to the new reporting requirements.
• Business Implications:
  • Potentially more employees willing to work overtime hours because of the tax incentive.
  • More detailed overtime pay reporting requirements.
  • Bookkeepers or accounting staff may need to update employees’ payroll withholding information.
• Hypothetical Scenario: Genessa’s small manufacturing company has been extremely busy these past several months due to a few large orders. Her employee, Jonathan, who earns $20 per hour, has been working a good bit of overtime. Before the One Big Beautiful Bill Act, when Jonathan worked 50 hours in a week, he earned $800 in regular pay (for 40 hours of work @ $20 per hour) plus $300 in overtime pay (for 10 hours of work at the time-and-a-half of $30 per hour). His total weekly compensation of $1,100 was fully taxable. However, starting in 2025, the new law allows Jonathan to deduct the amount of compensation received as an overtime “premium” (the extra $10 per hour above his regular rate) from his federal income taxes up to an annual deduction limit of $12,500. From a business standpoint, Genessa’s company must accurately track and report the qualified overtime wages paid to employees separately on tax documents so that workers can claim the correct deduction on their tax returns. This could be well worth the effort as the tax deduction motivates employees to work overtime shifts during busy periods, potentially eliminating the need to hire additional employees.

100% Bonus Depreciation

Previously set to drop to 40% in 2025, the OBBBA permanently reinstates full bonus depreciation for qualified assets (new or used) acquired and placed into service after January 19, 2025. Also, it temporarily applies to 39-year nonresidential real property used in manufacturing.

• Eligibility:
  • Available to any business entity that purchases and puts into use qualifying tangible property with a recovery period of 20 years or less in an active business within the United States
  • Manufacturing businesses that purchase new real property integral for qualified production activity (for which construction began after January 19, 2025, and before January 1, 2029) and place it into service after July 4, 2025, and before January 1, 2031
  • Applies to tangible assets placed in service after January 19, 2025, and has no end date because the full bonus depreciation is permanent.
• Limits and Restrictions: See Small Business Expensing Cap information below.
• Business Implications:
  • Allows companies to expense the entire amount of tangible property costs (such as for furniture equipment, machinery, computer hardware, land improvements, etc.) the year they are put into service vs. split into smaller deductions over multiple tax years.
  • May be especially beneficial for manufacturing companies because they may fully deduct the costs of qualifying production equipment and real estate.
  • The ability to deduct more expenses up front can help lower the tax burden in the current year, freeing up more money for other business needs (e.g., hiring, expansion, or other initiatives).
  • Combined with the OBBBA’s expensing cap increase, this change can provide some significant short-term tax benefits to companies that purchased tangible property.
• Hypothetical Scenario: Gillian had been thinking about upgrading her custom furniture business in Ohio with new woodworking machinery but hesitated over the past few years because of the initial financial impact to her company. Fortunately, the reinstated 100% bonus depreciation will now allow her to deduct the full cost of her equipment purchases in the year she puts them into use, instead of spreading it out the cost over several years. That upfront tax break will free up her cash flow—giving her more money to address other needs that will help her business grow, such as hiring another employee or launching a new marketing campaign.

Small Business Tangible Property Expense Cap

The OBBBA increases the expensing cap described in Section 179 of the IRS code for business’s tangible property deductions from $1.25 million to $2.5 million.

• Eligibility:
  • Available to any business entity that purchases and puts into use qualifying tangible property in an active business within the United States.
  • Applies to property placed in service after December 31, 2024.
• Limits and Restrictions:
  • Phases out when a business places more than $4 million of qualifying property in service for the tax year (before the OBBBA, the threshold was $3.13 million.)
  • Deduction allowance and phase out threshold will be indexed annually for inflation and adjusted accordingly.
• Business Implications:
  • Allows for larger deductions in the year tangible property (such as furniture equipment, machinery, computer hardware, etc.) is put into service vs. split into smaller deductions over multiple tax years.
  • More businesses will qualify for the full deduction because of the higher phase out threshold.
  • The ability to deduct more tangible property expenses up front can help lower the tax burden in the current year, freeing up more money for other business needs (e.g., hiring, expansion, or other initiatives).
  • Combined with the OBBBA’s reinstatement of 100% bonus depreciation, the expensing cap increase can provide some significant short-term tax benefits.
• Hypothetical Scenario: Darrin’s mid-sized managed IT solutions company needs new servers, laptops, and other office equipment to support his growing team and expanding customer base this year. With the increased expensing cap, he will be able to deduct up to $2.5 million of those tangible property expenses immediately. With a deduction that’s double the previous limit, Darrin’s income tax obligations will be significantly lower than if he would have made those purchases last year, leaving more of his profits to reinvest in employee training, marketing, and other needs to grow his company.

Domestic Research and Experimentation Expenses

Starting with tax year 2025, research and experimentation (R&E) costs incurred in the U.S., which previously had to be amortized over five years, may be deducted in the year those expenses are incurred.

• Eligibility:
  • Companies that incur R&E expenses in the U.S.
  • Businesses with average annual gross receipts of $31 million or less may claim the deduction retroactively to 2022.
• Limits and Restrictions: R&E costs incurred in a foreign country are not eligible and must be amortized over 15 years.
• Business Implications: Simplifies compliance and improves cash flow for companies with significant research and development activities.
• Hypothetical Scenario: Lorraine’s small biotech startup specializes in developing sustainable packaging solutions. Her company spends heavily on R&E, such laboratory testing to evaluate new materials, prototype design, and improving formulations. In past years, she had to spread those deductions over five years, limiting her cash flow. But starting in 2025, she can deduct the full amount of her U.S.-based R&E costs in the tax year they occur. She can even claim the deduction on the returns she filed for years 2022, 2023, and 2024 because her company makes under $31 million in revenue annually. With the tax break for this year combined with the retroactive savings back to 2022, Lorraine’s company will heighten its profitability and have more money to reinvest into its operations.

Advanced Manufacturing Production Credit

Businesses that produce and sell eligible solar energy components, wind energy components, battery components, critical minerals, inverters, or electrode active materials in the United States may qualify for a tax credit. Credits are calculated on a per unit basis and vary by type.

• Eligibility:
  • S.-based manufacturing companies that produce and sell certain components—such as wind, solar, battery parts, or critical minerals. A new “metallurgical coal” category (primarily related to steel production) is eligible for a lesser credit.
  • Businesses must use Form 7207 to calculate and report the credit for qualified eligible components.
• Limitations and Restrictions:
  • Wind components tax credit expires after December 31, 2027.
  • Metallurgical coal tax credit expires after December 31, 2029.
  • All other eligible components tax credits begin to phase out after December 31, 2029, and expire after December 31, 2032.
  • Primary components incorporated into a secondary component are only eligible for the credit if 65% of the costs to manufacture the secondary component are directly related to the primary component and the secondary component is sold to an unrelated party.
  • Not available to components produced in foreign countries.
• Business Implications: Provides an incentive to manufacture components in the United States, potentially leading to job growth and reducing U.S. reliance on foreign producers.
• Hypothetical Scenario: Gabrielle owns a U.S.-based manufacturing plant that produces battery cells for electric vehicles. Under the Advanced Manufacturing Production Credit, he can now receive a per-unit tax credit for each eligible battery component he manufactures and sells. This tax savings will help offset production costs and boost profitability. That financial advantage will help Gabrielle’s company reinvest in expanding its operations while keeping prices to customers down, enabling him to successfully compete with foreign manufacturers. In addition, his purchasing the majority of materials from U.S. suppliers helps other American companies thrive and grow.

20% QBI Deduction

Business owners of pass-through entities, including Real Estate Investment Trusts (REITs), may continue to deduct their Qualified Business Income (QBI) from their taxable income. Initially slated to expire in tax year 2025, the 20% deduction on QBI from a domestic trade or business has been made permanent. The new law also establishes a $400 minimum deduction.

• Eligibility:
  • Available to owners of Sole Proprietorships, Partnerships, S Corporations, and some trusts and estates.
  • Must be in a qualified trade or business— a Specified Service Trade or Business (SSTB) can limit or eliminate the QBI deduction if the income is too high.
• Limits and Restrictions:
  • Compensation paid to owners for services performed as a company employee may not be factored into the deduction or treated as QBI.
  • Deduction amount will be reduced (or eliminated) when a business owner’s taxable income exceeds the taxable income threshold of $197,300 (single filer) or $394,600 (joint filer). The OBBBA expands the thresholds for when an individual whose taxable income exceeds their taxable income threshold is ineligible for the deduction from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers. So, if a single filer’s taxable income exceeds $272,300 or a joint filer’s taxable income exceeds $544,600, they do not qualify for the deduction. When taxable income falls between the income threshold and the phase-out threshold, the taxpayer may take a QBI deduction that’s reduced by the percentage that their taxable income exceeds their income threshold.
  • Deduction may be reduced or eliminated if the business pays insufficient W-2 wages, doesn’t have sufficient qualified property (for the REIT portion), or is classified as an SSTB.
• Business Implications:
  • The deduction’s extension and higher phase-in and elimination thresholds will potentially result in lower than anticipated income tax liability for pass-through entities over the next several years.
  • Business owners who were previously near the top end of the limitation phase-in threshold may now be eligible for a portion of the deduction.
  • The $400 minimum deduction amount guarantees that a qualifying pass-through entity’s QBI deduction does not drop below a specific level.
• Hypothetical Scenario: Nina’s profitable S Corporation that operates a chain of yoga studios was bracing for the end of the 20% QBI deduction in 2025 and the higher tax bill it would mean for her company. But with the deduction extended by the provisions of the OBBBA—and the income phase-out thresholds increased—she can continue to deduct a significant portion of her qualified business income. With more of her earnings staying with her rather than going to Uncle Sam, she can plan for the future with greater financial certainty and confidence.

Business Interest Deduction

The new law permanently increases the deduction allowed for interest expenses on debt incurred in a trade or business. Under the OBBBA, the cap on the deduction is now 30% of EBITDA, rather than 30% of EBIT.

• Eligibility: Businesses that have deductible business interest expenses.
• Limits and Restrictions:
  • Taxpayers may not deduct an amount that’s more than 30% of their EBITDA.
  • With the law’s new coordination rule, all interest, including capitalized amounts, must be factored into determining the interest limit.
  • Certain types of businesses (e.g., farming, regulated utilities, real estate) may elect exemption from the interest deduction limit.
• Business Implications: By removing depreciation, amortization, and depletion from taxable income calculations, this change makes higher interest expense deductions possible.
• Hypothetical Scenario: Rakesh’s growing construction company recently took out a large loan to purchase new heavy equipment. Under the previous tax code his loan interest deduction was limited to 30% of EBIT (which meant depreciation was included in calculating his taxable income—no small amount in his line of work). Under the new law, Rakesh may take a deduction that’s up to 30% of EBITDA. With depreciation now excluded from—and reducing—his taxable income, he can write off a larger portion of his interest expense. That means more capital in the bank to hire more crew members and take on more projects.

1099 Reporting

For tax year 2025, the compensation threshold remains at $600 for when a business must issue a 1099-NEC to a contractor. Effective on January 1, 2026, the OBBBA increases that threshold to $2,000 (with adjustments for inflation annually starting in 2027).

1099-K Reporting

The OBBBA makes significant adjustments to the reporting rules for Form 1099-K, which covers payments received via third-party networks and payment apps (e.g., PayPal, Venmo, online marketplaces). This reverses the $600 threshold (with no minimum transaction count) set by the American Rescue Plan Act of 2021. The changes are in effect for tax year 2025 and beyond, applying to payments received starting January 1, 2025.

Under the new law, third-party settlement organizations are only obligated to issue Form 1099-K if:

• Payments to an individual total over $20,000 in a calendar year, and
• More than 200 transactions are processed for that individual on a single platform, in that year.

Clean Energy Tax Incentives

The new law eliminates or reduces many of business clean energy incentives established under the Inflation Reduction Act (IRA) of 2022. For example:

• Expiration of the qualified commercial clean vehicle credit has been hastened. Vehicles acquired after September 30, 2025, are not eligible for the credit. (The cut-off for eligibility was previously set for Dec. 31, 2032.)
• The Alternative Fuel Vehicle Refueling Property Credit is only available for the installation of EV chargers or other alternative fuel vehicle refueling property if that property is put into service no later than June 30, 2026. (The cut-off for eligibility was formerly December 31, 2032.)
• The Clean Electricity Production Credit and Clean Electricity Investment Credit will be eliminated for wind and solar projects placed into service after December 31, 2027.
• Hypothetical Scenario: Bernice wants to upgrade her small logistics company’s delivery vehicle fleet with electric-powered vans over the next few years. Under the tax code’s old rules, she would have had until 2032 to claim a clean commercial vehicle credit on those purchases. With the new law, however, she must buy the electric vehicles by September 30, 2025, to get the credit. Bernice must purchase the delivery vans sooner than planned so she doesn’t miss out on thousands of dollars in potential tax credits.

There are also stricter requirements for most of the remaining credits, including making them exclusive to U.S. owned businesses.

Individual Taxes

The OBBBA’s provisions related to individual tax rates and deductions on personal tax returns affect every working American, including business owners. Below are some highlights.

Personal Income Tax Brackets

The individual income tax rates introduced in 2017 with the TCJA are staying in place for 2025. The seven tax brackets remain at the percentages below, with the first two brackets subject to standard inflation adjustments and the remaining brackets are only subject to inflation on amounts at which the higher brackets begin and end:

• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%

Standard Deduction

The standard deduction has increased from $15,000 to $15,750 (single filers), from $22,500 to $23,625 (head of household), and from $30,000 to $31,500 (joint filers). Amounts will be adjusted for inflation going forward.

The suspension of personal exemptions is made permanent.

The new law also includes a temporary additional deduction for individuals age 65 or older from tax year 2025 through 2028. The deduction is $6,000 for each taxpayer aged 65+, with the deduction reduced by 6% for those with a MAGI of over $75,000 (single filers) or $150,000 (joint filers).

State and Local Tax (SALT) Deduction

The SALT deduction gives taxpayers who itemize on their federal returns the option to deduct local and state taxes or state and local sales taxes.

• In 2025, the cap on the deduction is increased to $40,000 for single filers and $20,000 for those married filing separately. The cap will increase by 1% annually through 2029.
• The SALT cap will revert back to $10,000 for single filers and $5,000 for married filing separately for tax years beginning after 2029.
• The deduction begins to phase-out for taxpayers with a modified adjusted gross income of $500,000 (individual) or $250,000 (married filing separately). The deduction amount will be reduced by 30% of the amount their MAGI exceeds the threshold, with the deduction limit dropping to $10,000 for high-income earners after their MAGI reaches $600,000 (single filers) or $300,000 (married filing separately).

Auto Loan Interest Deduction

Effective for tax years 2025 through 2028, individuals may deduct interest paid on loans used to purchase a new vehicle for personal use. Qualified vehicles are cars, minivans, vans, SUVs, pickup trucks, and motorcycles with gross vehicle weight of less than 14,000 pounds that have undergone final assembly in the United States.

• Eligibility: Individuals who finance the purchase of a qualified new vehicle via a loan originated after December 31, 2024.
• Limits and Restrictions:
  • Exclusions include: Used vehicles, vehicles for business or commercial use, vehicles secured via a lien (other than a first lien on the vehicle being purchased), lease purchases, and vehicles that undergo final assembly in a foreign country do not qualify
  • The maximum deduction available is $10,000 per year for interest paid on qualifying loans.
  • Deduction is reduced for taxpayers with MAGI over $100,000 (single filers) or $200,000 (joint filers).
• Hypothetical Scenario: As a self-employed home inspector, Louisa drives to multiple job sites each week. While she typically writes off her business mileage, she’s been thinking about using her current car for business exclusively and buying a second vehicle for personal use. With the new auto loan interest deduction starting in 2025, if Louisa gets a loan to buy a new U.S.-assembled SUV for personal use, she can deduct the interest she pays on that loan. That helps make the cost of ownership more manageable while giving her family more flexibility because they don’t have to share just one vehicle for business and personal use.

Considerations for Business Owners

Many entrepreneurs are wondering how the new law and its changes to the tax code will affect their bottom line in the short term and long term. It can be helpful to talk with an accountant to discuss the implications for your business.

Another thing that might be on your mind is whether any of the new law’s provisions justify re-evaluating your choice of business entity. While most of the changes are not directly related to a company’s business structure, there are some correlations to consider.

• QBI Deduction for Pass-Through Entities: With the 20% deduction of qualified business income now permanent, entrepreneurs who might have before found the corporate-level tax of a C Corporation more beneficial (e.g., if the corporate tax rate is less than the owner’s personal income tax rates) may discover operating as a pass-through entity (LLC or S Corporation, for example) is equally or more advantageous.
• 100% Bonus Depreciation + Increased Expensing Cap + 21% Corporate Tax Rate: This combination may make C Corporation status attractive to companies that want to keep profits in their business and reinvest them to grow or expand domestically. The bonus depreciation provision’s all-up-front deduction along with increased tangible property expensing limits stand to especially benefit capital-intensive companies that plan to grow. Therefore, businesses currently formed as a Partnership, LLC, or S Corporation may want to explore if converting to a C Corporation will be advantageous.
• Immediate R&E Expensing: This may make the C Corporation structure more appealing to business owners—particularly those with growth-focused startups—who want to retain more profits and reinvest them in their companies.

Realize that every business is different and many factors and variables come into play regarding how much the OBBBA will affect a company’s (and its owners’) tax outcomes. Before making an entity change, carefully assess the pros and cons relative to not only the tax implications but also legal considerations.

For more information about the One Big Beautiful Bill Act’s additions and changes, you can find the Public Law 199-21 in its entirety on the congress.gov website. Also, regularly check the irs.gov website’s news, announcements, and guidance section for up-to-date details.