Let’s Get Down, Let’s Get Down to Tax Business
The OBBBA introduced many new tax provisions that could significantly influence your business going forward. Most of the changes in the OBBBA take effect on January 1, 2026, but some are retroactive and could impact your 2025 tax returns that you file in 2026. While many of the individual provisions under OBBBA are relatively minor changes from existing law, together they represent a substantial shift in tax policy – one that adds a significant amount of complexity to tax planning with the number of new deductions, phaseout rules, and effective dates. As always, we are here to answer any questions that you may have and discuss how any of the above provisions may impact your business!
Form 1099 Reporting Requirements (Effective January 1, 2026)
Perhaps our favorite provision in the entire OBBBA, the new law increases the filing threshold for Forms 1099-NEC and 1099-MISC from $600 to $2,000. This amount will be indexed annually for inflation for calendar years after 2026!
Deductibility of Business Meals (Effective January 1, 2026)
As discussed, the signing into law of the OBBBA made many of the once-temporary tax changes of the TCJA permanent. This might be the one exception – the OBBBA stayed silent on the sunsetting of various provisions relating to the deductibility of meals. What does this mean? Beginning in 2026, businesses can no longer deduct the cost of meals provided to employees on company property for the employer’s convenience. Additionally, the deduction for small-value items like office coffee, doughnuts, and snacks will also be eliminated. The 50% deduction for the cost of meals with clients or business associates will remain, assuming the meals is clearly for a business purpose and not extravagant. Further, meal costs associated with company-wide parties and team-building activities remain fully deductible.
Qualified Business Income Deduction (Effective January 1, 2026)
The new law permanently allows pass-through business owners to deduct up to 20% of their qualified business income. While versions of the OBBBA included significant changes to this deduction, the law ultimately passed is primarily a continuation of the deduction that has existed since its implementation under the TCJA in 2018. The new law does amend the deduction’s phaseout rules so that the deduction will phase out at slightly higher income levels. In addition, the new law creates a new minimum deduction of $400 for taxpayers with at least $1,000 of “active qualified business income” starting in 2026. Both the $400 minimum deduction and the $1,000 active QBI requirement will be indexed to inflation, beginning in 2027.
Research & Development Expensing (Effective January 1, 2025)
The new law permanently allows taxpayers to immediately deduct domestic research and development expenditures paid or incurred in tax years beginning after December 31, 2024. Foreign research and development will continue to be capitalized and amortized over a 15-year period. In addition, the new law provides small businesses with the option to elect this change retroactively back to 2022 through amended returns. It would also allow taxpayers to accelerate any remaining capitalized expenses in 2025.
Bonus Depreciation (Effective January 19, 2025)
The new law Permanently restores 100% bonus depreciation for business property placed in service after January 19, 2025. Further, the new law temporarily enacts new bonus depreciation on qualified production “manufacturing property” whereby 100% bonus depreciation is allowed on manufacturing property where construction begins after January 19, 2025, and before January 1, 2031.
Section 179 Expensing (Effective January 1, 2025)
The new law increases the maximum amount a taxpayer may expense under Section 179 to $2,500,000 and increases the phaseout threshold amount to $4,000,000. These thresholds will be indexed for inflation for tax years beginning after December 31, 2025.
Corporate Charitable Donation Floor (Effective January 1, 2025)
The new law sets a floor on the deductibility of charitable donations made by Corporations. Beginning in 2026, only contributions above 1% of taxable income are deductible, up to the 10% limit.
Pass-Through Entity Tax (PTET)
While various versions of the OBBBA made changes to the deductibility of state taxes paid by a pass-through entity, the new law ultimately did not incorporate any of these changes and PTET taxes remain deductible at the entity level.
Third-Party Network Transactions (Effective January 1, 2025)
The American Rescue Plan Act (ARPA) of 2021 lowered the threshold for filing of Form 1099-K by third party settlement organizations to over $600 of payments received for the sale of goods and services. Prior to this change, the threshold was over $20,000 of payments and over 200 transactions. The new law reinstates the pre-ARPA thresholds as if the lower ones were never enacted.