The One Big Beautiful Bill Act (OB3), signed into law on July 4, 2025, is creating a lot of buzz. While this bill is very long and has many components, we are going to focus on the tax changes that will likely have the most impact on business owners and real estate investors.
What Is the One Big Beautiful Bill?
The One Big Beautiful Bill (OB3) is a comprehensive federal tax and economic reform bill introduced and passed in early 2025. It is designed to extend, enhance, or make permanent key provisions of the 2017 Tax Cuts and Jobs Act (TCJA), while introducing new business-friendly and family-focused tax relief measures.
What Are Some Key Tax Changes of the Bill?
Key changes of the One Big Beautiful Bill include:
- QBI Deduction (20%) made permanent for sole proprietors and pass-through entities (like LLCs and S corps).
- 100% Bonus Depreciation was made permanent.
- Expanded Section 179 limits: Up to $2.5M in qualifying business equipment.
- 1099-NEC threshold raised from $600 → $2,000.
- SALT itemized deduction cap raised to $40K (temporary through 2029).
- FICA employer tip credit expanded to beauty service industry.
- No tax on tips and overtime; increase reporting requirements for businesses.
A Deep Dive into the Big Beautiful Bill’s Tax Changes for Small Businesses
Permanent Qualified Business Income (QBI) Deduction
Since 2017, small business owners, real estate investors and members of pass-through entities like partnerships or S-Corporations have been able to take a Qualified Business Income Deduction, also known as QBI. QBI allows you to claim a tax deduction of approximately 20% of your net taxable income from your business or passthrough entity, provided you meet specific income criteria.
The QBI has resulted in some significant tax savings for many business owners. But this provision was set to sunset at the end of 2025. However, under the Big Beautiful Bill, it has been made permanent and raised some of the income phase-outs.
In short, this is a win for business owners and real estate investors.
Bonus Depreciation and Section 179 Deductions
Permanent Bonus Depreciation
The 100% bonus depreciation is now permanent. This bonus depreciation allows business owners to expense 100% of capital investments in the year they purchase the property.
Bonus depreciation has fluctuated over the years from as low as 30% of the purchase price to as high as 100%. Under the Big Beautiful Bill, this tax change was made permanent for purchases made on or after January 19, 2025.
Pros & Cons
- Pro: There is no cap on bonus depreciation. Although the cap for using Section 179 is fairly high for most small businesses at $2,500,000 it is still a positive to have no cap on bonus depreciation at all.
- Pro: There is no income limitation for bonus depreciation. To take Section 179 deductions, your company generally must show a profit. But if you elect to take bonus depreciation, you can create a loss for your business. While they may not work well for every business and should be discussed fully with your tax advisor, they can be a key tax planning tool if used wisely.
- Pro: Bonus depreciation is allowed on qualified farm buildings and certain land improvements.
- Con: Bonus depreciation can only be used on capital assets that have a life of 20 years or less, which means it generally cannot be used on real estate buildings and improvements.
- Con: If you elect into bonus depreciation, then all assets in that class must use bonus depreciation. For example, if you bought five computers, then all of them must use bonus depreciation.
- Con: Many U.S. states do not recognize bonus depreciation for state income tax purposes. So, it is important to check with your tax preparer when choosing which deduction to take in any given year.
Section 179 Expansion
Current Section 179 rules allow businesses to expense up to $1,160,000 of qualifying property, with a phaseout threshold beginning at $2,890,000. The One Big Beautiful Bill increases the maximum amount a taxpayer may expense under Section 179 to $2,500,000 with a $4,000,000 phaseout threshold.
This tax change is important because it gives business owners and real estate investors options.
Pros & Cons
- Pro: You can pick and choose which assets to apply the Section 179 deduction to in any given year, which provides quite a bit of flexibility when tax planning.
- Pro: Section 179 deduction is available for a wider range of assets. Not only does it cover assets such as equipment, furniture and some vehicles, it also covers some improvements to commercial real estate such as roofs, HVAC systems and fire protection systems. Please refer to IRS publication 946 for a more extensive list of eligible assets.
- Con: While the cap for Section 179 deduction is now $2.5 million under the Big Beautiful Bill, it is still important to note that there is an annual cap.
- Con: In order to take a deduction under Section 179 your business must have net income. If your deduction exceeds your income, there is a carryover to future years. You should discuss this thoroughly with your tax advisor before making a decision on which deduction is better to take.
- Con: Section 179 deductions are generally NOT allowed on land improvements or most farm buildings.
- Con: While all states in the US allow Section 179 deductions, not all states allow for the limit to be as high as the federal limit. It is important to check with your tax consultant when choosing which deduction to take.
Whether you are considering bonus depreciation or the Section 179 deduction, talk with your tax consultant to make an informed decision as to the best course of action.
1099 Reporting Thresholds Raised
Business owners paying subcontractors are required to issue Form 1099-NEC each year to each subcontractor. The threshold for these forms has historically been $600. But the One Big Beautiful Bill finally raises that threshold to $2,000. This rule does not go into effect until 2026.
What does this tax change mean for you? Hopefully, it means less paperwork! But, it is still advisable that before you pay any subcontractor, you obtain a signed Form W-9. This will prevent you from needing to collect information after the fact.
SALT Deduction Cap
The SALT (state and local tax) deduction allows taxpayers who itemize their deductions to deduct certain state and local taxes, including property, income, and sales taxes, from their federal taxable income. Current law allows a maximum $10,000 deduction. Starting in 2025, the One Big Beautiful Bill temporarily increases the maximum SALT deduction to $40,000.
For business owners living in high-tax states (most states in the Northeast qualify), you may have more deductions than you have had over the past few years. This will effectively decrease your federal tax liability.
FICA Tip Credit Expansion
The current law allows only employers in the food & beverage industry to take the FICA tip credit. It allows businesses to reduce their taxable income by the amount they pay for the employer share of the Social Security and Medicare taxes (FICA tax) on certain employee tips. Under the One Big Beautiful Bill, starting in 2025, the FICA Tip Credit is now expanded to include the beauty service industry.
If you are in the beauty service industry, you should contact your tax advisor to review whether you are eligible for this credit.
No Tax on Tips
Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are:
- Listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024,
- Reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.
“Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing.
The maximum annual deduction is $25,000; for self-employed individuals, the deduction may not exceed an individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.
The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Employer Reporting Requirements for Cash Tips
Employers and other payors must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient. For self-employed individuals, tips will need to be tracked and recorded separately from business income.
Per the One Big Beautiful Bill, the IRS must publish a list of occupations that meet this criterion by October 2, 2025. Check back for more guidance on this topic as more information becomes available.
If you are self-employed and receive tips, you should separate your tips from your “regular” income. As we are more than halfway through the year, you should consider going back and trying to estimate how much was tip income vs. “regular” income for 2025.
No Tax on Overtime
Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay that is required by the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual. For example, if overtime is paid at time-and-a-half, half of that rate can now be deducted.
The maximum annual deduction is $12,500 ($25,000 for joint filers). The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Employer Reporting Requirements for Overtime Changes
Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year. We believe that payroll companies should be able to help with this, but at this time, we are awaiting guidance from the IRS.
Why does the One Big Beautiful Bill Matter for Small Businesses?
There are several reasons why the tax changes in the One Big Beautiful Bill matter for small businesses. For starters, it can boost your cash flow and reinvestment. The ability to immediately expense assets frees up capital for growth.
Another reason is predictability. The law makes the QBI permanent, and this, combined with loss limits, allows for longer-term tax planning. Finally, the streamlined compliance requirements that come from a higher reporting threshold reduce year-end paperwork.
Tax Planning Strategies for You
In light of the tax changes in the One Big Beautiful Bill, there are several tax planning strategies that you should consider, such as frontloading capital purchases before the depreciation timelines shift.
Another strategy is to review your entity structure (for example, S Corp or partnership) to optimize your QBI. Additionally, you should prep for the SALT cap phase-out post 2029 by budgeting for increased state and local tax exposure.
Final Take on the Big Beautiful Bill’s Tax Changes
For small businesses, the tax changes in the One Big Beautiful Bill Act can bring significant benefits — it locks in key deductions, expands R&D and investment incentives, and supports workforce benefits. But there’s complexity and timing involved, and some provisions come with built-in expiration dates.
If you have additional questions or would like to set up a meeting to discuss how this will impact your business, please reach out.
At OnPoint Tax & Consulting, we specialize in helping business owners navigate the ever-changing IRS tax code. Learn more about our business tax services at https://onpointnh.com/business-tax-services/.
Not yet a client of OnPoint? We’d love to meet you! Follow this link to schedule a consultation today: https://onpointnh.com/contact/