President Trump's One Big Beautiful Bill Act has plenty for businesses and business owners to like, according to experts from Top 100 Firm Bennett Thrasher.
"First, we can all take a deep breath on what was otherwise looming as a huge overall tax increase," said Tim Watt, a partner in the tax department. "Then you look at the law itself, and it largely adds more permanency and predictability to the pre-existing law, with some enhancements. So it's a little bit of a 'back to normal,' if that term exists in federal tax practice. But, taking that a step further, it does reinforce the concept of really 'knowing your client,' and tailoring our advice, whether that be an advance tax strategy or some sustainable advantageous tax position on a multiyear long-term basis, or coming black to the tried-and-true fundamentals — the basic blocking and tackling."
For starters, there are the "big four," according to Watt: "100% bonus depreciation, the Section 174 research and experimental costs treatment, and Section 163(j) limitation on business interest expense, and then the Section 199A deduction for pass-through businesses — those are the movers that we would immediately focus on, and the interaction on these with our client's situation on reducing their tax bills."
Nina Desai, a partner in the credits & incentives practice at BT, observed that many of her clients are in technology and are actively developing new products, so they have been waiting for the Section 174 fix. "They're excited that they are finally able to fully deduct their domestic R&D expenses, beginning in 2025," she said. "A lot of taxpayers are appreciative that they can go back to having that immediate deduction — it's a big win."
"And now we have relief on the Section 163(j) business interest expense deduction limitation," she added. "For heavily leveraged and capital intensive businesses that are not in real estate, farming or car dealer businesses, they now have a better income tax posture with respect to their debt service obligations. So this may also alleviate access to debt capital markets that were maybe undoable prior to this. Some businesses have gone through extensive planning in trying to mitigate this. Now some of that pressure is off."
"We now see the Section 199A deduction every day, which is not here to stay and acts as an effective rate reduction for pass-through taxation business owners," according to Watt. "This brings what would otherwise be their top rate of 37% down to 29.6 % on qualified business income."
"In the original versions of the bill, it was kicking the can down the road for a few years," observed Desai. "But at least there is permanency here, so clients can start planning for this and modeling out some of the provisions."
"Some of the other provisions that stand out, at least to us and our client base, is the 122 stock gain exclusion, which is now enhanced and expanded," said Watt. "The gain exclusion limit is now increased to $15 million as opposed to the $10 million that it was. And they also introduced a new kind of tiered exclusion structure based on shorter stock holding periods, instead of just the prior kind of hard-and-fast five-year holding period. At the same time, kind of a key to the qualified small business qualification is they increased the gross asset threshold, which enables more businesses to fall under the potential gain exclusion, so this heavily favors U.S. technology startups. It's another big win for that industry, and our clients are looking to invest in that space."
Another issue that is overlooked quite a bit is the excess business loss limitation, according to Watt.
"It was temporary, but now it's permanent," he noted. "It's one of the loss limitation provisions that apply to pass-through taxation that is imposed on non-corporate taxpayers. So it's a little bit of a 'gotcha' with respect to trying to implement a large tax loss strategy. Anyone on social media as much as my family is knows that every Joe in the United States has some sort of a tax strategy to peddle. This is one we often have to tell our clients that this is not going to work because of the excess business loss limitation, or some other provisions. It gets overlooked quite a bit, and so we continue to amplify that there is a limitation when you look at a strategy, but at the same time there are ways to plan around it. "
Watt also noted that the preservation of the partnership carried interest treatment that protects the key structure advantage and enables the continued use of long-term capital gains for private company owners and private equity profits interests is important to Bennett Thrasher's customer base.
Although the discussion has been focused on the business impacts, to the extent that individuals own businesses or have interests in pass-through entities or C corporations, the permanent increase in the estate tax exemption is relevant, according to Ben Bowers, senior manager in Bennett Thrasher's tax practice.
"If their business holdings put them close to the $15 million exemption amount, it's important that you know the amount is permanent, not just having a temporary increase that is set to sunset in five or 10 years," he said. "This is permanent, at least until it's changed by a future Congress. That helps with succession planning, if they want to hand the business off to their kids or put it into a trust. Also, the increase from $10,000 to $40,000 of deductible state and local taxes is relevant for a lot of pass-through entity owners. They can potentially deduct a greater share of their state income taxes if they're below the income threshold of $600,000. An earlier version of the bill had discussed removing or limiting the use of the pass-through entity tax regimes, but the final version of the bill did not include that. The fact that this is still available is also a benefit for a lot of flow-through business owners."
With the depleted levels of workers at the Internal Revenue Service, the question arises as to whether this will result in a lesser volume of exams or an increased volume of erroneous notices, observed Watt: "There [are people] out there that will use this as an opportunity to be more aggressive," he said. "We have to be vigilant in protecting our clients and in trying to fight off the new TikTok tax strategies. To a certain degree, it makes us look good because we get an opportunity to say, 'That won't work, and here's why.' We always welcome these opportunities to find solutions and meet our clients' needs."
