Post-OBBBA planning opportunities

Nerre: Welcome back to Building More Than Business. I'm Nerre Shuriah, Senior Director of Wealth Planning and Knowledge here at First Citizens Wealth, and I'm a certified business exit consultant. I lead our Wealth and Business Planning capabilities. Today, we're looking at the exciting world of taxes. I'm really happy to be joined by my guest, Ben Bowers, who's a CPA from Bennett Thrasher.

Ben, welcome.

Ben: Thanks for having me on the podcast today, Nerre. Looking forward to it. As you mentioned, I'm with Bennett Thrasher. We're here in Atlanta, although we serve clients nationwide. I'm on the personal financial services team, so we focus on providing tax planning and compliance services to high-net-worth individuals and closely held businesses.

Nerre: That's great, Ben. As you know, tax returns for businesses are typically due March 15, but most file extensions and the completed final return isn't really submitted until June or October.

Ben: Yeah, we've seen this trend recently with a lot of our clients as there has gotten to be more complexity with tax filings. Most of our clients do extend now. They use that 6-month extension and file more in the August, September, October timeframe.

This filing season in particular is shaping up to be a pretty eventful one, mainly because of all of the changes in the One Big Beautiful Bill, or OB3, as a lot of people are calling it. So we have known about these changes for a few months now, but now that the filing season is actually underway, this is the first time we've actually seen them play out on tax returns.

One thing people should be aware of with the OB3 is that not all of the provisions are going to kick in at the same time. Some changes were made retroactive to the start of 2025, so they apply to 2025 tax returns that people are filing right now. And then others don't take effect until January 1st, 2026. So it's important to keep track of the effective dates and make sure that, you know, which provisions apply to which tax years.

Nerre: One of the benefits that OB3 provides actually is just certainty. There were a lot of provisions that were being phased out or sunset from the 2017 Tax Cuts and Jobs Act. So this new bill or tax law makes a lot of those permanent. And with that certainty, businesses can make better long-term decisions, decisions such as with purchasing or staffing or investment. And so when they're making those decisions, we typically work with those business owners. They can be doing things like implementing a retirement plan or recruiting new employees, but all of it has to be done with an eye to tax efficiency.

Ben: Yeah, and really, it goes both ways. I think as CPAs we definitely can serve our clients best when we're collaborating with their team of professionals, and that definitely includes the financial advisors. You all are involved with all the investment decisions, which ultimately impact the tax returns and the tax liability. So we really need to be working in lockstep to do our best work together.

Nerre: So now that we've set the stage, let's get into a little bit of what's new this year, and I want to highlight about three impactful changes for business owners. And the first is OB3 introduced Section 174A, and that allows companies to fully expense domestic R&D expenses. Previously, this had to be amortized over 5 years. And not only is this now in place, it's actually retroactive to 2022, so a lot of business owners can go back and file amended returns to reap that benefit from prior years.

A second provision that was one that everyone thought was going away is the 100% bonus depreciation. That's been permanently restored. It's retroactive to January 20th, 2025. That allows a business to deduct the full cost of qualifying property in the year that it's placed in service. And that full deduction really can help improve cash flow.

The last one I want to mention is ATI, or adjustable taxable income, and that's used to determine the limitation on business interest expense deductions. Through Section 163J, OB3 restored the ability to add back depreciation, amortization and depletion to taxable income when calculating ATI, and that really increases the limit compared to the old EBIT-based calculation. Ben, can you talk about some tax changes that impact owners on the personal side?

Ben: Yeah, so as you mentioned, a big part of the OB3 was just extending a lot of the prior law from the Tax Cuts and Jobs Act. One of those provisions was the individual tax rate structure, so taxpayers now know what the maximum rate will be, at least for the next few years.

But there are some changes that were not just extensions of prior law. So an example of that is the new tip and overtime deduction. This was a brand-new provision introduced by the OB3. It's actually available to individuals starting in 2025. For businesses, they just need to be aware that this will affect their employees, most likely, and starting in 2026 there's also going to need to be a separate accounting of the tips and overtime pay that their workers receive. Businesses need to go ahead and be preparing their payroll or HR systems or however they're going to report that to be able to capture that information.

Nerre: That's great information, Ben. I know people like working on returns right before they're due. Can you talk to us about why it's important not to wait until the last minute?

Ben: Yeah, for one thing, your tax accountants probably are not getting a lot of sleep right around the deadline. So you don't want to be sending them information right before the deadline—that you might get some more planning ideas if you get them your information well ahead of time. But this just goes more generally to all of our tax planning conversations with clients. We always want to be looped in to those conversations early on in the process.

Now that we are in 2026, there is a little bit more certainty that we know all of the OB3 provisions are in effect now, and we're probably going to be in this environment for at least the next 4 or 5 years. We do advise clients to go ahead and take advantage of those provisions like the 100% bonus depreciation that you talked about or the R&D expense deduction.

Nerre: And so while we are planning for 2026 and some tax-saving strategies, let me mention a couple that should be on your radar if you're a business owner. The first is QBI, or qualified business income deduction. Sometimes people know it as the Section 199 pass-through deduction, and that's a 20% deduction for pass-through entities, such as a partnership, S corporation, sole proprietorship. And that's actually been made permanent.

It also raises the phase-out threshold starting in 2026 and introduces a new minimum deduction of $400 for individuals with at least $1,000 of QBI. So the thresholds and minimum deduction will also adjust annually for inflation starting this year.

And just to give you an example, we have a client that we worked with, and their CPA gave them a tax calculation for how much they're likely to owe, and that's helpful for filing estimated returns and such. But after the QBI was made permanent last July, the CPA gave a new calculation showing a significant decrease in tax liabilities. So now we're working to decide what to do with that extra cash, and that's a good place to be in.

Another is the Section 179 limit increase. Section 179 deduction is for equipment purchases, and the limit has been increased to $2.5 million. That's up from $1 million—with phase-outs beginning around $4 million of total purchases. And this really creates some flexibility for business owners when they're considering bigger-scale investments. Things like equipment, software, machinery or specialized work vehicles, and also real property improvements, like HVAC or security, really gives them some more leeway to make those purchases and be able to take the full deduction. Ben, can you talk about some changes to personal deductions?

Ben: Yeah, so a few more changes that the OB3 also provided for a few opportunities for individuals to save money on the personal side. The highlight here—one of those is the change to state and local taxes, or the SALT deduction.

So this is a provision that has gotten a lot of media headlines in recent years. It affects people who are in high-tax states disproportionately, as opposed to lower-tax states like, say, Florida or Texas. But the main two expenses that would fall into this category would be the state and local income taxes and then also your state and local real estate taxes.

So under the prior law—the Tax Cuts and Jobs Act law that has been in effect for the past 8 years or so—there was a $10,000 maximum on the state and local taxes that you could deduct as an itemized deduction that applies to individuals.

So that maximum has actually been increased to $40,000 for 2025, but this is another temporary provision, so it's only going to last through the end of 2029. There's also a slight caveat in that there's an income-based phase-out. So for a lot of high-net-worth individuals, they're actually not going to benefit from this deduction or this change to the deduction at all because it phases out over the range of around $500,000 to $600,000 of income.

So your very-high-income taxpayers, they're just going to be limited to that $10,000 deduction going forward. So you can still pay taxes on business income using these workarounds and get the deduction at the entity level that will then not be subject to that $10,000—or now $40,000—SALT limitation.

And then another personal item I wanted to touch on was the lifetime estate and gift tax exemption. This is the amount of wealth that you can pass on to your heirs without being subject to the federal estate or gift taxes. It was scheduled to be cut in half at the end of the year, so it would've gone down to roughly $7 million at the end of 2025 without any legislative changes.

But then the OB3 came in and did make that permanent. So at that higher level it's actually been bumped up now to $15 million per person starting January 1st of 2026. So that was made permanent. So people now have a bit more certainty as far as their estate planning.

I do think it's still worthwhile, especially for business owners, to think about ways to use that exemption, whether that be through gifts, maybe leveraging valuation discounts, to transfer their business assets on to the next generation in the most tax-efficient way possible. This is especially important, maybe you have a business that's difficult to value and you don't want to have 40% estate tax due on a business that you may not have the liquidity to actually fund that estate tax liability. So just keep that in mind if you're a business owner. It'd be good to take advantage of these increased exemption amounts while they're still available.

Nerre: That's a great overview. We talked a little bit about why timing is important, and you also mentioned that corporate tax rates have stayed at 21%. And I want to point out how that really impacts some other provisions, namely the QSBS, or qualified small business stock exemption.

OB3 expanded the exemption to $15 million for stock issued after July 5th, 2025. And for many business owners, it's really important for them to consider entity choice, both with the lower corporate tax rate and the fact that you have to be a C corp to benefit from QSBS. But you really need to plan ahead because the opportunity closes if the business's gross asset value exceeds $75 million.

So there's a lot of issues to consider, and to work all that through and determine if this is a good entity choice for you requires planning ahead. Ben, can you talk about some charitable giving considerations that also make timing really important?

Ben: Yeah, so this is another provision in the OB3, a change to the charitable contribution deduction for both individuals and corporations. On the individual side, there's a new 0.5% floor of adjusted gross income. This actually reduces a charitable contribution deduction for an individual if they itemize their deductions. So just as a high-level example, if as an individual you earn, say, $1 million in a year, your charitable contribution deduction would be reduced by $5,000—assuming that you itemize.

There's also a new floor on the charitable contribution deduction for C corporations. So that is based on 1% of the corporation's taxable income. Both of these provisions did not take effect until 2026. But getting back to your timing point, because of these income-based floors, there could be a situation where you're better off actually bunching contributions into one specific tax year rather than maybe just giving the same flat amount every year.

Say if an individual taxpayer bunches 3 years' worth of their charitable contributions into just 1 year, they would only get hit with that 0.5% floor in the 1 year where they're actually making the contributions. They wouldn't be affected by that 0.5% in the other years where they're not making charitable contributions, whereas if you just do the same amount every year, every year that 0.5% floor is going to kick in. And that same strategy can also be beneficial for C corporations as well.

Nerre: So let's say our listeners do take those points. They implement all the deductions and credits that are beneficial to them, and they now have some extra cash. What do you do with that extra cash? And we've already talked about some things that you can do like reinvesting in the business and maybe buying more equipment.

But one thing I would like to point out is considering buying the building your company operates in. I've seen where business owners own not just the operating company but the real estate or building that the company is housed in—gives them some flexibility when negotiating the sale. They can either decide to just sell the operating company and the operating company or buyer can now lease the building, or they can sell them both.

And having that flexibility really can give you some control and satisfaction, especially if maybe the value of the business isn't where it should be or you're concerned that the buyer won't be able to make the business a success or maintain cash flow. You still have that real estate that you can consider selling at a later date and continuing to receive a stream of income from.

Another thing to consider is investing in your employees. It's been a very up-and-down labor market. At times, it seems somewhat stagnant. At other times it seems like it might be recovering. So thinking about your employees—especially the key ones and how to retain them—is one way to utilize that extra cash.

If you're trying to grow the business, then it really helps to reward staff with compensation like variable comp that's tied to the business's growth. You can give them equity in the business, but just giving them a pathway to benefit when the company benefits in increased profit is really one way to shore up a growth trajectory.

Some other new ideas are not just salary increases but the ways that you match 401(k). Your ability as an employer to make tax-free payments of up to $5,250 per year towards employee student loans—that's a benefit that's been made permanent under OB3.

Ben, do you have some suggestions on what an owner can do with extra cash in the business?

Ben: It's a good problem to have, having maybe more cash than you need. You had brought up the retirement plan point earlier. I think that's always a great place to put excess business funds if you have them, whether that's for your employees, or if you're self-employed you can do retirement contributions for yourself.

So obviously most retirement plans do have some tax advantages associated with them. You have your standard 401(k) that most people are familiar with. Small business owners, they have a somewhat expanded menu of options that are available to them as far as funding their retirements. That includes a SEP IRA, or a simplified employee pension, also what's referred to as a solo 401(k), designed for self-employed individuals who don't have any other employees. What makes these accounts more attractive is that they actually have higher contribution limits than your standard 401(k). This is a great opportunity to really supercharge your retirement savings if you do own a small business.

I thought it would also be worth mentioning, while we're talking about the retirement accounts, are the new Section 530A, or Trump, accounts that have just been introduced. This was another OB3 provision that's taking effect this year. The accounts actually cannot be funded until July of 2026, so these are very new. We're still waiting to see how widely adopted they will become.

Employers, though, they can actually use this as a benefit for their employees by contributing up to $2,500 per year for the accounts of their employees' children. So these accounts are designed to be set up for individuals who are under age 18, and they can then grow. And then once the child reaches age 18, they take control of the account, but at that point it essentially turns into a traditional IRA.

So it is intended to benefit that child in retirement. It's an opportunity to offer a unique benefit that, again, is new and we haven't seen this before. But they also still have to weigh that against other potential benefits they could provide their employees, whether that's just increasing the 401(k) match or maybe offering dependent-care assistance.

Nerre: Thanks for alerting us to those accounts. It'll be interesting to see how they'll be used going forward. So we've talked a lot about taxes, and I mentioned that we do like to partner with our clients' outside advisors. When you include your wealth advisor in your plans—especially when taxes are concerned—they can help business owners align tax strategies with their long-term financial goals.

I see a lot of people using digital tools, and they're great. They can help track numbers, but they can't replace guidance that directly connects your personal goals and risks to what you're trying to do. And that's where an experienced wealth advisor or banker can add some value. They can help you prioritize, plan and just adjust as your life changes and you experience some challenges.

And lastly, they may connect you with solutions that you don't know about. Being aware of these new opportunities can really open up options for protection strategies and other ways to invest, so that communication is really important. Ben, can you share how it's helpful for CPAs when parties communicate more frequently?

Ben: Yeah, it's always helpful to us when there are very open lines of communication between all of the advisors. This helps us to give the best tax planning advice and also to make sure that there aren't any kind of surprises in terms of what a client's tax liability is. I think in particular it's crucial that we are connected with the wealth managers just because the tax preparation and investment decisions really go hand in hand. And a lot of what goes on to the tax return actually comes from those investments.

Clients can actually authorize their wealth managers to just share tax documents directly with us or provide us with year-to-date income summaries, and that just removes a lot of friction from the whole tax preparation process, which that then frees up our conversations with the client to really focus on higher-value topics around strategy and planning rather than just trying to chase down information to get a return filed.

Nerre: Thanks for tuning in to this episode of Building More Than Business. I do want to thank my guest, Ben Bowers. It's been wonderful having you here. You have shared a lot of great advice with us.

Ben: Well, yeah, it's been great to be here, Nerre. Thanks for having me on. I would just encourage business owners to really take a close look at their tax returns this filing season. Don't hesitate to ask for a meeting with your CPA to talk through things and just get a deeper understanding of what's actually driving your tax liability.

Nerre: We want to turn that idea of tax season as a chore on its head and think of it as an opportunity. This is an opportunity to plan effectively, save and grow your business.

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