One Big Beautiful Bill
8 Tax Planning Opportunities for Small Business Owners Under the “One Big Beautiful Bill”
The recently enacted One Big Beautiful Bill Act introduces several tax provisions that create planning opportunities for small business owners and entrepreneurs.
1. Permanent 20% Qualified Business Income Deduction (Section 199A)
One of the most impactful provisions is the permanent extension of the 20% Qualified Business Income (QBI) deduction originally created under the Tax Cuts and Jobs Act. Many pass-through businesses (S-corps, partnerships, and sole proprietorships) can deduct up to 20% of qualified business income, significantly lowering their effective tax rate. By having the ability to structure your income and expneses this change can greatly help you limit your tax liability with the right planning.
2. 100% Bonus Depreciation Returns
The bill restores full bonus depreciation, allowing businesses to deduct 100% of qualifying equipment and property in the year it is placed in service. This openes the door for tax planning oppertunities for your business and personal return. By timing the purchase of needed equipment, we now have oppertunities to drastically reduce tax liability for business owners.
3. "No tax on Social Security"
As with all promises on tax changes, this one comes with a caveat. While President Trump promised that those collecting social security would not pay tax on their social security income, the reality is that tax payers who are now over 65 now get an additional $6,000 deduction. For Married couples who are both over 65, this means that if structured correctly and planned with care, that couple can take the standard deduction of $31,500 plus an addtional $3,200 for being over 65 plus $12,000 for the enhanced senior deduction. For a total deduction of $46,700. This can greatly reduce your taxable income and even reduce your IRMMA rates.
4. Tax-Free Tips and Overtime Income
The bill introduces provisions allowing certain tip income and overtime pay to be excluded from federal taxes, and with every new tax law, exceptions apply. For example the limitation is subject to income limits on the earners. It also only applies to industries that were previously considered tipping/ overtime industries. Meaning your IT firm can not charge a client $10 for services and then accept $9,990 as a tip. This does however mean that if you are in an effected industry, keeping proper documentation is very important. It also means that making the appropriate payroll adjsutments and even compensation strategies now need to be considered.
This provision primarily affects industries such as:
Restaurants
Hospitality
Personal services
5. Expanded Estate and Gift Tax Exemptions
The bill increases the estate tax exemption to roughly $15 million per individual and $30 million per married couple. Those of you that have significant assets now have additional flexibility to plan for succession. Now is an great time to start estate planning, and setting up your business to be passed on. Talking about death is hard. Not talking about it and leaving your loved ones to pick up the peices is even harder. Take advantage of the oppertunities now while they are availbe and begin to structure your assets in a way that keeps them where they belong. In the hands of your family.
6. Auto Loan Interest Deduction for U.S.-Manufactured Vehicles
The bill introduces a deduction for interest paid on auto loans for certain American-made vehicles. A quick search of your vehicles VIN number can verify if it qualifies for this deduction. Again income limations do apply. So if you are in the market for a new car, this may be a good way to get a few bucks back.
7. Expanded 529 Education Planning
The bill expands eligible uses of 529 education plans, allowing funds to be used for additional education pathways such as trade programs. This expands on the appeal for 529 plans and helps families plan for the future of the next generation. While there is no "deduction' that you get for contributing to an account, the tax free growth for 20 plus years can become life changing money for someone who is just starting out.
8. New “Trump Accounts” for Children
The legislation creates government-funded investment accounts for newborn children, often referred to as “Trump Accounts,” with an initial federal contribution of $1,000. While these accounts are available to all children under the age of 18,the $1,000 is only available to children born between January 1, 2025 and December 31, 2028. There are also wealthy benefactors who have contributed significant funds so that more than just $1,000 will be contributed to each new account. There is also the ability for employers to contribute to these accounts as well. The tax free growth opens the door for significant gains and tax planning, as well as the ability to start off adult hood ahead of the game.
For more information, or to discuss how these changes as well as more can benefit your tax situation, reach out to our office and set up a meeting today!