Clients have been asking how the One Big Beautiful Bill Act (OBBBA) benefits them. Mostly, it’s a return to normalcy in tax planning strategies.
It’s difficult to make decisions not knowing whether or not a tax provision will be in place in a year or two. Most of the changes in OBBBA were renewals of existing law that were made permanent.
Some of the Entrepreneurial wins include…
1 – The existing lower income tax rates were made permanent. Let’s not forget the ridiculous tax rates we were all paying before the Tax Cuts and Jobs Act of 2017. Who could possibly forget the 39.6% Federal Income Tax Rate at the personal level back in 2016?
2 – The Qualified Business Income Deduction on Pass-Through Entity Income which provides up to a 20% deduction on K-1 Income has been made permanent. This effectively changes the highest 37% Income Tax Bracket down to 29.6% in some instances.
3 – 100% Bonus Depreciation was made permanent. Can anyone remember the Bush years when no one knew what the new depreciation limits would be for the following year?
4 – The ability to expense Research & Development Expenses in the year incurred has returned and been made permanent. Last year we had to amortize these over a five year useful life depriving clients of 80% or more of the deduction in the first year.
5 – The $15M Estate Tax Credit has also been made permanent. Back in 2008, it was only $2M. How many businesses and family homes were sold just to pay the estate taxes in those days? I can name dozens.
The State and Local Tax Limitation increase to $40K will sunset in 2029, but this is a huge bonus for taxpayers living in or near areas like Chicago. I can’t tell you how many of my clients pay $20K to $30K annually on this alone who were limited to a $10K deduction.
And the ability to still utilize the Pass Through Entity Tax Credit if you’re over the income limits on State and Local Taxes, is also a huge plus.
Let me leave you with this…
The permanency of this tax bill is the big win for entrepreneurs. Not knowing what advice to give a client when they come with a question is a nightmare.
At least we’ll know what income tax rates we’re dealing with for next year and beyond.
Before any of my friends on the far right or left start writing me hate emails, please realize that this isn’t a political statement or manifesto. Where you land on this argument comes down to your individual political beliefs.
I’m not here to talk about people losing Medicare, Tariffs, or what any of this will do to retirees, immigrants, or the working poor. I write this column to and primarily for entrepreneurs, and its those wins to which I refer.
Knowing what our taxes will be in the future is a win for anyone who earns enough money to actually pay income taxes. In case you don’t know, that’s only 60% of all Americans in the first place.
This is the ninth column in my series about tax law changes in the OBBBA. If you have questions, you know my number.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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