The One, Big, Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced several significant federal tax changes that can affect small businesses, self-employed individuals, pass-through entities, and their employees.
Some provisions make existing tax benefits permanent, while others create new deductions, change depreciation rules, or modify information-reporting thresholds.
Whether you operate as a sole proprietor, LLC, partnership, S corporation, or C corporation, understanding these changes can help you make better tax and financial decisions.
Key Small Business Tax Changes Under the OBBBA
The Qualified Business Income Deduction Is Now Permanent
One of the most important changes for many small business owners is the extension and permanent status of the Qualified Business Income (QBI) deduction.
The QBI deduction generally allows eligible individuals to deduct up to 20% of qualified business income from certain pass-through businesses. This can apply to businesses operated as sole proprietorships, partnerships, and S corporations, although eligibility and limitations depend on the taxpayer's circumstances.
The OBBBA also introduced a minimum $400 QBI deduction for taxpayers with at least $1,000 of qualified business income from qualifying active businesses, subject to the applicable rules. These amounts are subject to inflation adjustments beginning after 2026.
The deduction is not automatically available to every business owner. Income levels, the type of business, W-2 wages, qualified property, taxable income, and other limitations can affect the calculation.
100% Bonus Depreciation Is Back Permanently
The OBBBA significantly changed the rules for bonus depreciation.
Under the new rules, eligible property acquired after January 19, 2025, may qualify for a permanent 100% additional first-year depreciation deduction, subject to the applicable requirements.
This can be particularly relevant to businesses investing in qualifying equipment, machinery, technology, and other depreciable business property.
For example, instead of recovering the cost of qualifying property over several years, a business may potentially deduct the entire eligible cost through first-year depreciation.
However, businesses should not assume that every purchase qualifies. The type of property, acquisition date, placed-in-service date, business use, and other requirements matter.
The choice between bonus depreciation, regular depreciation, and Section 179 can also have different tax and cash-flow consequences.
Higher 1099 Reporting Thresholds
The OBBBA increased the federal information-reporting threshold for certain business payments.
For payments made after December 31, 2025, the general threshold under the applicable rules increased from $600 to $2,000. Beginning after 2026, that threshold is subject to inflation adjustments.
For example, businesses generally will use the new $2,000 threshold when determining whether certain payments to independent contractors require information reporting for 2026.
The change can reduce the number of information returns some businesses have to prepare, but it does not mean that payments below $2,000 are automatically tax-free or that businesses can ignore their records.
Changes to Form 1099-K Reporting
The OBBBA also changed the federal reporting threshold for certain third-party settlement organizations, such as payment platforms and online marketplaces.
The threshold was restored to the pre-2021 level: generally, a third-party settlement organization must report when payments to a payee exceed $20,000 and exceed 200 transactions during the calendar year.
Importantly, this is an information-reporting threshold, not a taxability threshold.
Business owners must still report taxable income even if they do not receive a Form 1099-K. The IRS specifically states that changing the reporting threshold does not change whether income is taxable.
Businesses should therefore continue maintaining complete records of payments received through PayPal, Venmo, online marketplaces, credit cards, and other payment systems.
New Deductions for Qualified Tips and Overtime
The OBBBA also created new federal deductions for certain individuals who receive qualified tips or overtime compensation.
For tax years 2025 through 2028, eligible workers may be able to deduct qualified tips, subject to specific requirements and income limitations.
The maximum tip deduction is generally $25,000 per year, with a phaseout beginning when modified adjusted gross income exceeds $150,000, or $300,000 for married taxpayers filing jointly.
There is also a deduction for qualified overtime compensation. The maximum is generally $12,500, or $25,000 for married couples filing jointly, with the same $150,000/$300,000 MAGI phaseout thresholds.
The overtime deduction does not mean that all overtime wages are tax-free. It generally applies to the qualified overtime premium—the portion above the employee's regular rate that qualifies under the applicable rules.
The IRS created Schedule 1-A for taxpayers claiming these new deductions on 2025 individual returns.
What Does This Mean for Employers?
Although these deductions are claimed by eligible individuals, they can also affect businesses that employ tipped workers or workers who receive overtime.
Employers should pay close attention to payroll records, employee compensation, and the IRS's reporting requirements.
For 2025, the IRS provided transition rules because employers were implementing the new requirements during the year. The IRS also issued penalty relief for certain information-reporting requirements related to qualified tips and overtime for tax year 2025.
How Could the OBBBA Affect Your Business Tax Liability?
The impact of the OBBBA will depend heavily on the business structure, income level, expenses, investments, payroll, and other circumstances.
For example:
A pass-through business may benefit from the permanent QBI deduction.
A business purchasing qualifying equipment may benefit from 100% bonus depreciation.
A company paying independent contractors may have different information-reporting obligations beginning in 2026.
A business receiving payments through third-party platforms may see fewer Forms 1099-K issued under the restored federal threshold.
Employers with tipped or overtime employees may need to review payroll and recordkeeping procedures.
Because these provisions interact with other parts of the tax code, the largest tax deduction is not necessarily the best choice for every business.
What Should Small Business Owners Do Now?
Small businesses can take several practical steps to prepare for the OBBBA changes:
1. Keep Accurate Books
Up-to-date bookkeeping makes it easier to identify income, deductible expenses, equipment purchases, contractor payments, and other items affected by the new rules.
2. Review Major Business Purchases
If you purchased or are planning to purchase equipment, machinery, computers, or other business property, review whether bonus depreciation or Section 179 may apply.
3. Review Contractor Payments
Businesses should update their information-reporting procedures for payments made in 2026 and maintain accurate vendor records and taxpayer identification information.
4. Reconcile Payment Platforms
Even when a payment platform does not issue a Form 1099-K, the underlying business income may still need to be reported.
5. Review Estimated Tax Payments
Tax law changes can affect the amount a business owner ultimately owes. Reviewing estimated tax payments can help reduce the risk of a large unexpected balance when the return is filed.
6. Work With a Tax Professional
The OBBBA contains numerous provisions that interact with existing federal tax rules. A tax professional can help determine which provisions may apply to your specific situation.
Frequently Asked Questions About the OBBBA
Does the OBBBA replace the Tax Cuts and Jobs Act?
No. The OBBBA modifies and extends numerous provisions of the tax code, including making the QBI deduction permanent and changing several other business and individual tax provisions.
Does the OBBBA apply only to corporations?
No. Many provisions can affect individuals, sole proprietors, partnerships, S corporations, C corporations, and other taxpayers depending on the specific provision.
When did the OBBBA take effect?
Different provisions have different effective dates. Some apply to tax years beginning after 2024, while others apply to payments or property acquired after specific dates in 2025 or later.
For example, the permanent 100% additional first-year depreciation generally applies to qualifying property acquired after January 19, 2025.
Does the higher 1099-K threshold mean business income under $20,000 is not taxable?
No.
The $20,000 and 200-transaction thresholds concern federal information reporting by certain third-party settlement organizations. They do not determine whether income is taxable. Business owners must continue reporting taxable income regardless of whether they receive a Form 1099-K.
Get Help Understanding the OBBBA
The One, Big, Beautiful Bill Act introduced important changes that can affect how small businesses approach tax planning, depreciation, information reporting, and business recordkeeping.
The best strategy depends on your business structure, income, expenses, investments, and overall tax situation.
ContNow Tax Preparation LLC can help small business owners organize their financial information, review applicable tax provisions, and prepare for federal tax filing and planning decisions.
Tax laws continue to evolve, so keeping accurate books and reviewing your tax strategy regularly can help your business take advantage of available provisions while staying compliant.
Do you have any other questions? Send us an email at 📧 info@contnowtax.com and we’ll get back to you as soon as possible.
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