Small Print Alert: Don’t Miss Out on New OBBB Accounts and Benefits

There’s a lot of excitement around the One Big Beautiful Bill (OBBB)—from Trump Accounts to expanded child care credits and enhanced Opportunity Zones. But here’s what isn’t making headlines: Many of these new perks aren’t automatic. You have to “opt in,” file paperwork, or meet special reporting rules—or you could leave thousands on the table.

Let’s walk through what that fine print really means for you and your business.

1. Trump Accounts for Kids: The Opt-In Trap

• Not automatic: Employers (including SMB owners who employ family) must establish and offer Trump Accounts as part of their benefit plan.

• You need a plan document: Just like a 401(k), you’ll need to create a formal plan, notify eligible employees, and file paperwork.

• Annual opt-in required: Employees/parents must affirmatively elect to contribute each year—miss the window, and you miss the benefit.

• Bonus for newborns: The $1,000 government seed match also requires timely application—don’t wait until tax time!

• Reporting: You’ll need to track and report contributions and matches on W-2s and plan filings.

2. Child Care Credits & Dependent Care Accounts: Paperwork Matters

• Dependent Care Assistance Plans (DCAPs) & IRC §45F credits need plan documents in place before benefits are provided.

• Employers must notify employees (including your spouse, if on payroll!) of their eligibility and terms.

• Reporting: DCAPs and child care credits require extra forms with your return.
  Miss the reporting, miss the credit—even if you paid for care!

3. Opportunity Zones: Certification and Elections

• Not a default: To claim Opportunity Zone (OZ) benefits, you must invest through a Qualified Opportunity Fund (QOF)—which requires IRS Form 8996 and annual reporting.

• Certification needed: Starting your own QOF? You must self-certify and file on time, or your investment may not qualify.

• 5-year, 10-year, and 30-year elections: Each OZ tax benefit (deferral, basis step-up, permanent exclusion) requires a specific election—often with strict windows and forms.

• State conformity: Some states may have extra requirements or not follow federal OZ rules—check before you invest.

What Happens If You Miss the Window?

• You lose the benefit. These are “use it or lose it” perks—there’s often no way to get them retroactively if you miss an election or deadline.

• Potential penalties. Improper or late filings can trigger penalties or audits, especially for employer plans and OZ funds.

Bottom Line

Big new accounts and credits = big new paperwork.
Don’t let fine print or missed deadlines steal your tax savings—if in doubt, reach out to your accountant or let Hedgi keep your compliance on track.

The OBBB Phaseout Cliff: Why Smart Timing Can Make or Break Your Biggest Tax Breaks

You’ve read the headlines—SALT cap raised! Tip income is tax-free! Trump Accounts for kids! But here’s what the headlines forget to mention: Most of the juiciest new tax breaks in the One Big Beautiful Bill (OBBB) phase out or disappear completely once your income passes a certain threshold. Sometimes it’s not a gentle slope—it’s a sudden drop-off.

Let’s talk about these “cliffs,” who needs to worry, and how you can plan to capture every dollar in savings.

The Biggest OBBB Tax Breaks With Income Phaseouts

Some of the most valuable new deductions and credits get smaller—or vanish—if your adjusted gross income (AGI) is too high:

• SALT Cap:
  Up to $40,000 deduction—but phases out after $500,000 AGI (married filing jointly).

• Tip Exclusion:
  Up to $25,000 in tax-free tips per worker—but phases out at $150,000 (single) or $300,000 (MFJ).

• Child Care Credits/Trump Accounts/EITC/Opportunity Zones:
  All have similar phaseouts or income “cliffs.”

• R&D Credits and Some Business Write-Offs:
  Certain phaseouts for larger or high-income businesses.

What’s a “Cliff” and Why Does It Matter?

A phaseout is when your deduction or credit gradually shrinks as your income goes up.
A cliff is when you lose the whole thing in one step—ouch.

That means a few thousand dollars of extra income could cost you tens of thousands in lost tax breaks.

Example:

• Make $495,000 MFJ? Get the full $40K SALT deduction.

• Make $501,000? Sorry, it’s gone.

• Tip exclusion? Hit $151K single? Poof.

How to Plan Around Phaseouts (and Keep More in Your Pocket)

1. “Bunch” Deductions and Expenses

• If you’re close to a phaseout threshold, try to accelerate deductible expenses into one year (or defer income to another) to keep your AGI low enough to qualify.

• Example: Prepay property taxes, stack business purchases, or defer a client payment into next year.

2. Spread Out Income Strategically

• Time bonuses, capital gains, or big sales over two years if you’re bumping up against a cliff.

• Example: Delay invoicing or postpone a property sale until January.

3. Watch Entity Choices and Payroll

• S-Corp owners: Review W-2 vs. K-1 distributions to control AGI.

• Partnerships: Consider how guaranteed payments, draws, or pass-through income show up on your return.

4. Use Retirement Plans to Lower AGI

• Max out 401(k) or SEP IRA contributions to reduce AGI and qualify for more credits.

Bottom Line: A Little Planning Goes a Long Way

The new law gives out huge tax breaks—but only if you stay under the line.
If you’re close to a phaseout, a few small moves can make a big difference in your after-tax cash.

Want help running phaseout scenarios, or not sure how to “bunch” expenses the right way? Drop a question below or DM Hedgi—let’s make sure you don’t slip off the cliff!

Home-Based Business Deductions: What’s New (and What’s Actually Deductible) Under OBBB

Working from home is here to stay—and the new One Big Beautiful Bill (OBBB) just made it even better for small business owners and side hustlers who want to claim more for their space, improvements, and even that “she-shed” in the backyard.

If you’ve ever wondered, “Can I deduct this?”—read on for the latest (plus a few funny scenarios you might not have considered).

What’s Actually Changed?

The OBBB clarifies and expands home office deductions for 2025 and beyond (see OBBB §70421 and related IRS guidance):

• Wider definition of “home office improvements”:
  You can now expense (under Section 179 or bonus depreciation) more improvements to your home workspace—including certain HVAC, security, lighting, and built-in tech upgrades.

• Detached structures count:
  Sheds, garages, studios—if used exclusively and regularly for your business, they qualify for the deduction.

• Utility deductions clarified:
  You can now claim a broader range of “business portion” utilities—including some smart home systems, internet upgrades, and even energy used for production or video shoots.

• Hybrid and multi-use rules are clearer:
  The IRS and Treasury will release guidance on how to allocate costs for spaces used partly for business and partly personal, but the rules remain strict about “exclusive and regular use.”

What’s Deductible Now? Funny (But Real) Scenarios

1. The Home Gym—Deductible?

Maybe! If you film fitness videos for your business, and the gym space is used exclusively for content creation (no personal sets or family treadmill runs), you can deduct a portion of improvements and utilities.
If it doubles as your actual gym: Sorry, still not deductible!

2. The She-Shed or Backyard Office

Yes, if used 100% for business!
Install a prefab office shed, run your consulting, art, or e-commerce biz from there? Deduct construction, improvements, utilities, and equipment (based on exclusive business use and proper allocation).
Just don’t store lawnmowers or host backyard BBQs in there—keep it all business.

3. The Guest Room/Office Hybrid

Partial deduction.
You can only deduct the portion of the room used exclusively for business.
If you set up a desk in a guest room, you’ll need to measure square footage and allocate expenses (and, as always, keep records).

4. Smart Home Tech & Utilities

Deductible if used for business!
If you install a second Wi-Fi router or extra power for production lights, and it’s only for your home-based business, that’s a legitimate expense.

Hedgi’s Home Office Deduction Tips

• Document everything: Take photos of your space, keep invoices, and save energy bills.

• Use Hedgi to tag and track expenses: Assign categories for improvements, utilities, and supplies right from your transactions.

• Be honest: The IRS loves a good audit story, but hates creative fiction. “Exclusive and regular use” means just that.

• Consult a pro: Still not sure? Your CPA or Hedgi can help you get it right.

Bottom Line

With the OBBB, home-based business owners can write off more than ever—but only if you play by the rules. If you’re building your dream office, filming workouts, or running the next big Etsy shop from your she-shed, it pays to know what’s really deductible.

Questions about your unique space, or want a checklist of what to claim? Drop a comment or message Hedgi—no deduction left behind!

Basis Matters: New S Corporation & Partnership Rules Under OBBB (And Why SMB Owners Need to Pay Attention)

Let’s talk “basis”—not the kind in bananas, but the tax kind that determines whether you can deduct losses, take out cash, or make big tax moves in your business.
Thanks to the One Big Beautiful Bill (OBBB), the rules just changed for S Corporations and partnerships. Here’s what every SMB owner (and their accountant) needs to know.

What Is “Basis” and Why Does It Matter?

• Basis is your running investment in your business for tax purposes.

• It goes up when you put in cash or assets, and down when you take out money or deduct losses.

• Why it matters: If you don’t have enough basis, you can’t deduct losses—or take cash out tax-free.
  (Cue the sad trombone—and a possible surprise tax bill.)

What Did the OBBB Change? (With Citations)

OBBB Section 70451–70453 (amending IRC §§ 1366, 1367, 1368 for S Corps, and §§ 704, 705, 752 for partnerships)

Key changes effective for tax years after December 31, 2025:

1. Tighter Rules for Loans to S Corporations

• Old law: Shareholders could “increase basis” by lending money directly to their S-Corp—sometimes even with backdated or informal loans.

• New law ([OBBB §70451–70453, amending IRC §1366(d)]):

  • Only bona fide, properly documented loans increase basis.

  • “Back-to-back” or “arranged” loans (like borrowing money elsewhere and funneling it to the S-Corp for a basis bump) now require strict proof and timely paperwork.

  • Trap: No more boosting basis just before year-end to deduct losses—paperwork and timing matter!

2. Partnership Liabilities: Who’s Really “At Risk”?

• Old law: Partners could sometimes count partnership-level (or even related-party) loans toward their own basis.

• New law ([OBBB §70452, amending IRC §§704, 705, 752]):

  • Only debts for which you’re personally liable count toward basis, unless you can show true economic risk.

  • Related-party loans and guarantees: Must now meet stricter IRS standards—sham or circular loans don’t cut it.

3. Clearer At-Risk Rules for Losses and Distributions

• OBBB amends the “at-risk” provisions ([OBBB §70453, amending IRC §465]):

  • Losses and distributions must be traced to genuine investment and risk—no more creative accounting to squeeze out more deductions.

  • Distributions that exceed your basis? Now more likely to trigger taxable gain.

What Does This Mean for SMB Owners?

• Track your basis every year—no more “fudge it at tax time.”

• Formalize loans: If you lend money to your S-Corp or partnership, use real, signed promissory notes, with terms and proof of payments.

• Be honest about guarantees and at-risk: Only true, out-of-pocket risk boosts your basis.

• Don’t try “basis boosts” with last-minute or circular loans—the IRS is watching (and the penalties are real).

• If your basis is low, you may be limited on deductions and can owe tax on distributions—even if you’re just taking out your own money!

Common Pitfalls

• Taking a distribution that exceeds your basis (now more likely to trigger tax).

• Deducting more losses than you’re allowed (leading to IRS letters or denied refunds).

• Not tracking basis for each shareholder or partner—everyone’s number is different!

Bottom Line: Basis Isn’t Boring (It’s Your Ticket to Big Tax Savings)

The new OBBB basis rules are strict—but with clear records and a modern app like Hedgi, you’ll avoid trouble and keep more of what you earn.

Have a tricky basis situation, a loan to your business, or just want a “basis checkup”? Drop a question or DM us. Don’t get caught out in the cold when it’s time to take a distribution—let Hedgi keep you tax-savvy and audit-ready!

No Tax on Overtime: Why This Popular Tax Break Isn’t So Simple (Especially in California)

If you’re an employee or small business owner in California, you’ve seen the headlines:
“No Tax on Overtime!”
President Trump’s new overtime tax break is supposed to save workers up to $90 billion through 2028, and payroll companies are shouting it from the rooftops.

But here’s the catch:
The fine print is real—and if you’re in California, it’s even trickier than most headlines admit.

Let’s break it down so you actually know what qualifies (and what doesn’t).

How Does the Overtime Tax Break Work?

Here’s the big idea:

• For tax years 2025–2028, if you earn overtime covered by the federal Fair Labor Standards Act (FLSA), you don’t pay federal income tax on the extra “half” of your time-and-a-half pay.

• This is a big deal for millions of hourly employees putting in real overtime.

The Catch: Only Federal Overtime Qualifies

Here’s where it gets sticky for Californians:

• Only overtime required by the federal FLSA qualifies for the tax break.

• This does NOT include:

  • Airline, railroad, or some transportation jobs (they follow separate rules)

  • Overtime paid just because of state laws (like California’s rule where OT starts after 8 hours/day)

  • Exempt workers or those on special employment contracts

Translation:
If you earn overtime because California says so (e.g., after 8 hours in a day but not 40 in a week), that pay doesn’t qualify for the no-tax treatment.
Only the “federal” portion counts—not the California-mandated OT.

Why Is It So Complicated?

Lawmakers tied this deduction to FLSA overtime because:

• It’s a well-known, standardized definition.

• It limits the tax break to what Congress intended (and doesn’t bust the federal budget).

Result:
You—and your payroll provider—now have to track two types of overtime:

• What you pay overall (per California law)

• What actually counts for the federal tax break

For now, Form W-2 won’t break it out. You’ll need detailed payroll statements when you file your 2025 taxes.

California Employees: Double-Check Your Paystubs!

If you’re in California:

• You may get overtime for daily hours and weekly hours, but only the federal portion is tax-free.

• Employers will eventually need to break out which amounts qualify on your pay stub or payroll report.

Don’t assume all your OT is tax-exempt!
Keep your records, and check with your CPA if you’re not sure.

Bottom Line

The “no tax on overtime” provision is a huge win for many, but it’s not as simple as the headlines suggest—especially in California. Know what qualifies, keep solid records, and check your math before you celebrate that refund.

OBBB Strategy: Generational QSBS Gifting

With the 2025 tax reform officially supercharging Qualified Small Business Stock (QSBS), founders and investors now have a golden window to build generational wealth — tax-free.

If you’re holding early-stage stock in a C-Corp, especially if it qualifies as QSBS under the new law, now is the time to think long-term: Who else in your family should hold some of this tax-free rocket fuel?

The Play: Gift QSBS Early. Stack the Exclusions. Build a Dynasty.

The updated law (Section 1202, post-OBBB) lets each taxpayer exclude up to $15 million in QSBS gains per company, indexed for inflation. That means:

• You get $15M

• Your spouse gets $15M

• Your kids each get $15M

• Your irrevocable grantor trusts each get $15M

…all with the same stock.

Gifting QSBS Transfers the Holding Period, Not the Cap

Here's the kicker: when you gift QSBS, the holding period carries over to the recipient (e.g., your child, spouse, or trust)… but they get their own lifetime $15M gain exclusion.

So if you’ve held the stock for 2 years, and you gift it to your 18-year-old daughter today, she only has to wait another 3 years to unlock the 50% exclusion at 3 years, 75% at 4, or 100% at 5 — and she gets her own $15M exclusion on that same company.

Build the Stack: Family + Trusts = Mega Exclusions

Let’s say you’re the founder of a fast-growing tech startup and your QSBS is currently worth $1/share.

If you gift 2M shares now (FMV = $2M) to each of the following:

• Your spouse

• Two kids

• Two intentionally defective grantor trusts (IDGTs)

They each get their own $15M cap, plus your holding period. If the company exits at $10/share, the $20M gain in each account could be 100% tax-free.

That’s $120 million in tax-free gains, legally — just by planning ahead.

Add Valuation Discounts for Gifting Efficiency

When gifting to family or trusts:

• Use valuation discounts (e.g., lack of marketability or minority interest) to reduce gift tax exposure

• File a protective Form 709 gift tax return to lock in the valuation

This allows you to transfer more equity with less estate/gift tax impact, while preserving the QSBS status.

Sample Scenario

Emma, a startup founder, owns 5M QSBS shares currently worth $1M (pre-raise).

She gifts:

• 1M shares to her spouse

• 500k each to two kids

• 1M each to two IDGTs

Her holding period is 2 years.

Total tax-free gain: $45M+
(Far more if value grows and they hold longer)

Timing Matters

To qualify for the new $15M cap and accelerated timeline (3–5 years), you must acquire the stock after the law’s enactment (2025).

Already have older QSBS? You still get the original $10M exclusion — but that’s stackable too.

Bottom Line

This strategy is a powerful combo of:

• QSBS gain exclusion

• Gift and estate tax planning

• Family wealth transfer

• Startup equity optimization

It’s one of the most efficient, legal, and future-focused tax plays available right now.

Want to Run the Numbers?

We help founders:

• Audit their cap tables for QSBS eligibility

• Structure gifts to family and trusts

• Coordinate with legal and valuation teams

• File the right forms to preserve benefits

Let’s talk about how your equity today can unlock tax-free wealth for generations.

OBBB Strategy: Your Spare Room Might Be the Most Valuable Part of Your Business

How S-Corp Owners Can Turn a Home Office Into a Powerful Tax Strategy

Thanks to the One Big Beautiful Bill, real estate-heavy tax strategies are back in the spotlight — and that includes your home office. If you're an S-Corp owner who works from home and owns your residence, there's now a powerful way to structure things to your advantage.

The Strategy in a Nutshell

Instead of just taking the standard home office deduction, S-Corp owners can formalize a lease between themselves (personally) and their business, and then layer multiple deductions on top of that arrangement.

Here’s how it works:

Create a Written Lease Agreement

Your S-Corp rents a portion of your home — say, a dedicated office or workspace — under a legitimate lease.

• Must be reasonable market rent

• Documented in writing

• Must reflect exclusive and regular use for business

This converts a nondeductible personal expense into a legitimate business rent deduction for the S-Corp.

Improve the Space — Then Deduct It

With the lease in place, your S-Corp can make improvements to the rented portion of your home — and deduct them under the updated Section 179 rules or 100% bonus depreciation.

Eligible improvements include:

• HVAC upgrades

• Electrical rewiring

• Built-in furniture

• Lighting

• Security systems

• Fire alarms

• Data cabling

Under the new law:

• Section 179 now includes qualified real property (roofs, HVAC, etc.) and is indexed for inflation

• Bonus depreciation is back at 100% for 2025 — allowing full expensing of eligible improvements

Result: Your S-Corp gets a massive deduction today while you improve your home workspace.

Collect Rent on Your Personal Return

You report rental income personally — but here's the twist:

• The rent is not subject to self-employment tax

• You can offset that income with depreciation and expenses from the leased portion

• Improvements made by the S-Corp increase your home’s basis, potentially avoiding capital gains down the road

Use Cost Segregation to Accelerate Personal Deductions

If you're already doing improvements or have significant home equity:

• Do a cost segregation study on your residence

• Separate structural vs. personal property and improvements

• Depreciate certain components faster (e.g., 5- or 15-year property)

You may be able to use bonus depreciation on qualifying parts of your home — even if it’s partially personal-use — depending on how the lease and space allocation are structured.

Why It Works Now (Post-OBBB)

The 2025 tax law turbocharged this strategy by:

• Expanding Section 179 to more types of real property

• Making 100% bonus depreciation permanent

• Keeping S-Corp rents between related parties deductible (when documented correctly)

Important Caveats

• The leased space must be exclusive and regular use — no dual-use rooms

• The lease must be arms-length and fair market rent

• Improvements should be clearly for business use

• S-Corp should avoid triggering self-rental recharacterization if you’re a real estate pro

Example

Jacob owns his home and runs Schwartz & Schwartz from a dedicated 300 sq. ft. office.

• His S-Corp signs a lease for $1,000/month

• The S-Corp installs a $12,000 HVAC split system and $5,000 in built-ins

• It deducts $17,000 in Section 179 improvements and $12,000 in rental expense

• Jacob reports $12,000 in rental income — but takes $7,000 in depreciation and $3,000 in expense offsets

Net result: The S-Corp gets $29,000 in deductions. Jacob nets only $2,000 in personal income, taxed at favorable rates.

Bottom Line

If you’re a small business owner working from home, don’t just take the standard home office deduction. Under the new tax law, your spare room could become a tax-saving machine — when structured properly.

Want to explore how to set this up in your own business? We can help with:

• Lease templates

• Rent valuation

• Capital improvement planning

• Hedgi AI categorization + cost seg prep

OBBB Strategy: How to Deduct Foreign Development — Even If It Doesn’t Qualify for R&D Expensing

A smart workaround for tech founders with offshore teams

The Problem: Not All R&D Is Created Equal

Under the One Big Beautiful Bill, U.S. companies can now fully expense qualified domestic R&D under new IRC §174A — but there’s a catch: Only R&D performed inside the U.S. qualifies for this immediate deduction.

That means if you're using offshore developers — say in Ukraine, India, or Latin America — those wages don’t qualify for §174 expensing, even if the work is mission-critical.

The Strategy: License Back the IP, Deduct the Fees

Here’s how smart founders are getting around it:

Step 1: Set up an offshore subsidiary

• The entity employs your foreign dev team

• It owns the code or IP initially created abroad

• It charges your U.S. company a licensing fee or cost-plus development fee

Step 2: Your U.S. C-Corp licenses the software

• The U.S. entity uses or resells the foreign-developed product

• License payments or royalties are deductible business expenses

• Even though you can’t expense the offshore dev wages under §174, you still get a write-off

Step 3: Optimize the structure

• Use arm’s-length transfer pricing

• Ensure proper IP assignment and use agreements

• Consider leveraging a cost-sharing agreement if future IP will be co-developed

💡 Example

Let’s say your startup:

• Has a Delaware C-Corp as the main company

• Employs 5 developers in Romania through a wholly owned subsidiary

• Generates revenue in the U.S. from a SaaS platform built by that team

Under the OBBB:

• You can’t expense Romanian dev wages under §174A

• But if the Romanian entity licenses the software back to the U.S. C-Corp…

• The U.S. company can deduct $300,000+ per year in license or royalty fees

You’ve effectively turned a non-deductible R&D cost into a deductible operating expense.

Key Legal + Tax Considerations

• You must document your intercompany pricing and IP rights clearly

• Be ready to produce transfer pricing documentation if audited

• Local tax compliance (e.g. Romania, India) is still required

• Consider treaty implications and potential withholding taxes on cross-border payments

If structured correctly, this setup is fully legal, tax-efficient, and increasingly common in global software development.

Who Should Consider This?

This strategy is ideal if you’re:

• A startup or SaaS company with overseas dev teams

• A U.S. C-Corp planning to license or commercialize products built abroad

• Already using Upwork, Toptal, or offshore contractors and want to move to a structured entity

• Working with VCs who expect clean IP rights and compliant tax positioning

Combine With Domestic R&D Expensing

Your U.S.-based engineers still qualify for §174 expensing — and may trigger R&D credits under §41.

The goal: Fully expense U.S. R&D, deduct foreign dev through royalties or licensing — and document everything to stay compliant.

Want Help Structuring It?

We help founders:

• Build compliant offshore subs

• Draft intercompany license agreements

• Layer this with §174 expensing and QSBS eligibility

• Optimize global tax positioning

This isn’t just a tax loophole — it’s a global growth strategy under the new tax law.

OBBB Strategy: How to Pay Your Spouse and Get a Tax Credit for Your Own Child Care

A smart new way to cycle family dollars through your business — legally and lucratively.

What Changed:

The Employer-Provided Child Care Credit under IRC §45F just got supercharged by the One Big Beautiful Bill (OBBB):

• Credit increased to 40% of qualified child care expenses

• Even better: Small businesses with <$25M in gross receipts get a 50% credit

• Annual credit limit increased to $600,000 (indexed starting 2027)

• You can now qualify even if you contract with a third-party child care provider

Also enhanced:
The Dependent Care Assistance Program (DCAP) limit under IRC §129 rises from $5,000 → $7,500 per employee (starting in 2026) — tax-free to the employee and deductible to the business.

The Strategy: Turn Your Family Into a Tax-Advantaged Payroll Loop

If you're an S-Corp owner and your spouse legitimately works in the business (admin, payroll, ops, etc.), here’s a powerful new stack:

Step 1: Put your spouse on payroll — legally and reasonably

• W-2 income for real services

• Eligible for benefits like DCAP

• Business deducts wages + benefits

Step 2: Set up a Section 129 Dependent Care Assistance Plan

• Offer a $7,500 tax-free benefit for dependent care

• Funds must go to qualified child care expenses

• Your spouse receives the benefit tax-free

• Your business deducts it fully

Step 3: Capture the IRC §45F employer child care credit

• Get 40–50% of your DCAP costs back as a tax credit

• Yes — even if the benefit goes to your employee-spouse

• Stack this with the deduction for maximum advantage

What Makes This Legal?

The OBBB made two critical updates:

• Third-party contract eligibility: You no longer need to own the child care center — you can use outside providers.

• Employee family members are allowed: There's no rule disqualifying benefits for spouses who are real employees.

Just be sure the role, wages, and benefits are substantive and documented.

Compliance Checklist:

• Is your spouse doing real work?

• Is compensation “reasonable” under IRS standards?

• Are Section 129 plan docs in place?

• Is the child care provider licensed and on record?

• Are you filing Form 5500 if required for your plan?

• Are you reporting the §45F credit on your return?

Why It Matters for SMBs

This isn’t just tax gymnastics — it’s a cash flow boost for working families, and a way for small businesses to keep more dollars in-house.

Pair this with other family payroll plays (like employing a child under §3121(b)(3)(A)), and the savings multiply.

Want Help Setting This Up?

We help small business owners structure payroll, benefit plans, and credit capture strategies that are fully IRS-compliant and optimized for the new law.

This is one of the best hidden wins of the OBBB — don’t miss it.

OBBB Strategy: How to Instantly Deduct More Office Purchases Under the New De Minimis Safe Harbor Rule

The One Big Beautiful Bill didn’t just overhaul big-ticket items like bonus depreciation and QSBS — it also quietly upgraded one of the most powerful small-business deduction tools: the de minimis safe harbor under Reg. §1.263(a)-1(f).

What Changed?

The de minimis safe harbor threshold — the rule that lets you expense small purchases upfront instead of capitalizing them — is now indexed for inflation starting in 2025.

• Old Rule (unchanged):

  • $2,500 per item (if you don’t have audited financials)

  • $5,000 per item (if you do)

• New Enhancement:

  • Starting in 2025, these thresholds will automatically adjust upward each year for inflation (starting with 2026 returns).

Why It Matters

Under the old rule, a $3,000 office printer would have to be capitalized and depreciated over 5 years (unless you met the $5,000 audit threshold).

Now? You’ll be able to expense more purchases instantly — without the paperwork or depreciation schedules.

That means:

• Laptops

• Monitors & tablets

• Office furniture

• Specialized equipment for trades, clinics, salons, etc.

• Internal-use software under $X threshold (pending guidance)

…can all qualify as immediate deductions.

Who Should Use This?

• Startups buying lots of tech gear

• Service businesses upgrading tools or software

• Real estate professionals buying staging, signage, or equipment

• Retailers & salons doing frequent small improvements

• Construction contractors purchasing tools or admin tech

Strategic Angle: “Don’t Miss the Easy Deductions”

Most small businesses already spend thousands on qualified items — but many either:

• Miss the safe harbor election

• Or don’t have a clear accounting policy in place

To use the safe harbor, you must:

1. Have a consistent written accounting policy in place at the beginning of the year

2. Elect the safe harbor annually on your tax return (no formal IRS approval required)

Example: How It Works

Let’s say your business buys:

• $2,700 laptop

• $2,200 client seating setup

• $1,850 camera for marketing videos

In total: $6,750

With the indexed de minimis threshold, you deduct the full $6,750 immediately — no depreciation, no Form 4562 hassle. Just clean, easy deductions that reduce your taxable income right now.

OBBB Strategy: LLC, S-Corp, or C-Corp? How the 2025 Tax Law Changes the Entity Game for Small Businesses

C-Corp Comeback (Yes, Really)

• With new QSBS enhancements (§1202), a C-Corp structure may now offer massive tax-free exit potential — up to $15M per founder.

• Add in R&D expensing (§174A) and refundable credits, and tech-forward SMBs can burn cash strategically without giving up equity.

• Add Opportunity Zones, and you’ve got another layer of long-term gain exclusion.

S-Corps: Still Strong for Active Income + Payroll Strategy

• Use S-Corp structure to avoid SE tax on distributions while still capturing §179 and bonus depreciation from capital investments.

• Leverage new §274(n)(2)(D) 100% meals deduction and Section 129 childcare credits via payroll.

• Still optimal for solo operators, professional services firms, or high-margin domestic SMBs.

LLCs: The Flexible Middle Ground

• Combine with real estate strategies: cost seg + bonus depreciation, passive income grouping.

• LLCs still work well for family-owned real estate, but may miss out on QSBS or certain credits.

Hybrid Plays

• Start as an LLC taxed as an S-Corp, convert to C-Corp later to take advantage of QSBS or equity fundraising.

• “LLC Wrap” for IP licensing structures: Hold IP in LLC, license to operating C-Corp.

Conclusion:
The best entity structure is no longer a set-it-and-forget-it decision. With major updates to interest deductibility (§163(j)), depreciation (§168(k)), R&D expensing (§174A), QSBS (§1202), and more — it’s time to model out your 2025–2030 tax strategy and pivot accordingly.

OBBB Strategy: ou Can’t Rely on Real Estate Losses Anymore — But Here’s How to Beat the New Passive Loss Rules

Congress just locked in one of the more frustrating limitations in the tax code — and if you’re a real estate investor, it’s time to revise your playbook.

The Excess Business Loss (EBL) limitation under IRC §461(l) was originally set to expire in 2028. The One Big Beautiful Bill makes it permanent.

If you’re counting on real estate losses (like from cost segregation or depreciation) to wipe out your taxes, this rule might block you — unless you plan ahead.

What is IRC §461(l), Again?

This rule limits how much business loss from pass-throughs (like rentals, S Corps, and partnerships) you can deduct against non-business income like:

• W-2 wages

• Interest and dividends

• Portfolio income

• Capital gains not from business activity

For 2025, the cap is $305,000 for married filers ($152,500 single) — indexed for inflation.

Any “excess” loss becomes a Net Operating Loss (NOL) that rolls forward, but you can’t use it this year.

Why It Hits Real Estate the Hardest

Real estate investors often rely on depreciation and cost segregation studies to create paper losses — even when the property is cash flow positive. Under §461(l), those losses can be trapped unless:

They offset other passive income, or
You qualify as a Real Estate Professional (REP) under IRC §469(c)(7)

Planning Strategies to Beat the Rule

Here’s how to fight back — legally and strategically:

Become a Real Estate Professional

If you or your spouse qualify as an REP, your rental losses can be treated as non-passive, allowing you to use them against W-2 or portfolio income.

Basic REP test:

• 750 hours materially participating in real estate activities

• More than half your total working hours in real estate

• Must own ≥5% of the business or rental entity

Pro tip: You only need one spouse to qualify. Consider shifting roles.

Shift Toward Income-Generating Rentals

Use the passive income rules to your advantage:

• Airbnb or mid-term rentals can generate substantial passive income

• Offset it with cost seg or depreciation from other properties

• Group rentals together in a common passive activity grouping to stack the losses and income

Use Bonus Depreciation and Cost Seg Wisely

Now that 100% bonus depreciation is back (starting in 2025), a well-timed cost segregation study can front-load deductions — but they’re only useful if they reduce taxable passive income or you’re a REP.

Strategy:

• Run a timing model to match passive income years with depreciation years

• Use Hedgi to track asset placement dates and ensure clean deduction eligibility

Structure Passive-Active Splits Smartly

You may want to segregate passive entities from active businesses to control where losses go. For example:

• Keep rentals in passive LLCs

• Use a separate S corp for active real estate development, management, or commissions

This can create natural offsets between activities — or keep losses "active" if you materially participate.

Code Reference

• IRC §461(l) – Excess business loss limitation

• OBBB §70511 – Makes the limitation permanent

• IRC §469(c)(7) – Real estate professional exception to passive loss rules

The Bottom Line

You can’t rely on real estate losses to wipe out your taxes anymore — unless you earn passive income or qualify as a real estate pro.

But with smart structuring, cost seg timing, and portfolio-level planning, you can still use real estate to drive down your tax bill.

Let’s build a personalized passive loss strategy.
Whether you’re maximizing 2025 bonus depreciation, switching to mid-term rentals, or reworking your real estate hours — we’ll help you hit the tax code from the right angle.

OBBB Strategy: Section 179 Is No Longer Just for Equipment — Now You Can Write Off That New Roof

Small business owners have a powerful new tool to write off the full cost of improvements to their commercial properties — and it's hiding in plain sight in the updated Section 179 rules under the One Big Beautiful Bill.

What Changed?

Section 70412 of the OBBB (2025) makes two key updates to IRC §179:

1. Permanent Inflation Indexing: The expensing limit (previously capped at $1.16 million in 2023) is now indexed for inflation permanently, starting in 2026.

2. Expanded Definition of Qualifying Property: Section 179 expensing continues to apply to nonresidential real property improvements — including:

   • Roofs

   • HVAC systems

   • Fire protection and alarm systems

   • Security systems

   • Other leasehold improvements

This expanded treatment was originally introduced under the PATH Act and made more accessible in the TCJA. The OBBB cements these enhancements as permanent fixtures in the code.

Why It Matters for Real Estate-Heavy Businesses

If your business owns or leases commercial property, you can now:

• Deduct the full cost of eligible improvements in the year they're placed in service

• Avoid depreciation schedules stretching 15–39 years

• Potentially eliminate taxable income with the right timing and planning

And unlike bonus depreciation, Section 179 lets you choose which assets to expense — giving you surgical control over your deduction strategy.

Planning Strategies You Should Consider

Layer with Bonus Depreciation:
Use Section 179 first to target specific assets, then apply 100% bonus depreciation (under IRC §168(k)) to anything that remains. This lets you front-load your write-offs efficiently.

Tenants Can Benefit Too:
Tenants who pay for qualified leasehold improvements can claim Section 179 deductions, even if they don’t own the building. This is especially useful for salons, restaurants, and gyms doing buildouts.

Timing Is Everything:
Section 179 is subject to annual limits. Place qualifying property in service before year-end to accelerate deductions while your business is still profitable.

Watch the Phase-Out:
The deduction begins to phase out dollar-for-dollar after total equipment purchases exceed ~$2.8M (indexed). For larger businesses, consider spreading purchases across years or shifting strategy to bonus depreciation.

Real-World Example

A San Diego gym installs a $70,000 HVAC system and a $45,000 roof upgrade in 2026.

• Under old rules: 39-year depreciation = ~$2,900/year deduction

• Under new rules: Entire $115,000 deducted in Year 1 using Section 179

This reduces taxable income immediately — freeing up cash to reinvest in equipment, marketing, or staff.

Code Reference

• IRC §179(d)(1)(B) – Expanded to include improvements to nonresidential real property

• OBBB §70412 – Makes inflation indexing and prior expansions permanent

Bottom Line

You no longer have to slowly depreciate that new roof or HVAC system over decades. Section 179 lets you deduct it all at once — if you plan ahead.

If you're a landlord, tenant, or real estate-heavy business, the new rules are your green light to reinvest — and deduct every penny.

Need help modeling a major property improvement project or building out a tax-efficient renovation strategy? Let’s talk. We’ll make sure you optimize the deduction mix — and keep every receipt Hedgi AI needs to get it right at tax time.

OBBB Strategy: How to Turn $15M Into $30M (or More) in Tax-Free Gains with the New QSBS Rules

Section 1202 just got a huge upgrade — and with it comes one of the most powerful (and underutilized) tax planning strategies for founders and investors: QSBS stacking.

Thanks to the new $15 million per-person QSBS cap, high-growth company owners can now multiply their tax-free exit potential across trusts and family members — legally, cleanly, and with the IRS’s own code to back it up.

Here’s how it works.

Quick Recap: What’s New in QSBS

Under the 2025 tax reform, Qualified Small Business Stock (QSBS) now includes:

• $15 million lifetime gain exclusion per taxpayer, up from $10M

• Still only applies to new stock acquired after the law’s enactment

• Indexed for inflation starting in 2027

• 100% tax-free if held 5+ years, or 75% after 4 years, 50% after 3

That’s $15M in capital gains you’ll never pay tax on — per shareholder, per company.

Enter: Trust Stacking (a.k.a. QSBS “Packing the Cap”)

QSBS gain exclusion is per taxpayer — and that includes non-grantor trusts. That means if you set up irrevocable trusts for your spouse, kids, or heirs, each one gets its own $15M QSBS exclusion.

You can stack the caps across trusts
The clock starts ticking when the trust acquires the stock
Distributions to beneficiaries after a 5-year hold can still be tax-free

Key Legal Considerations

• Use intentionally defective grantor trusts (IDGTs) for maximum control

• Trust must purchase or receive original-issue QSBS

• Avoid “step transaction” risk — time the transfers and observe formalities

• Monitor aggregation rules to avoid IRS blowback (IRC §267 & §318)

• Coordinate with estate and gift planning (this often overlaps)

Bonus Strategy: Multi-Corp QSBS “Packing”

QSBS caps apply per taxpayer, per issuing corporation. That means if you're a serial founder or hold multiple C-corps:

Each entity = new $15M (or $10M pre-2025) exclusion
Combine with trust stacking for max leverage
Use corporate spinouts where appropriate, but beware IRS anti-abuse rules

Watch Out For:

• QSBS only applies to original-issue stock in a U.S. C-corp

• Company must have < $75M in assets at time of stock issuance (new rule)

• Passive income limits, 80% active business requirement still apply

• S-corps, LLCs, and partnerships don’t qualify — only C-corps

Bottom Line:

Section 1202 isn’t just for Silicon Valley unicorns. With smart planning:

• You can lock in $30M–$60M+ of tax-free upside

• You can shift wealth across generations without triggering gift tax

• You can combine this with R&D expensing, 83(b) elections, and deferral strategies for a truly optimized cap table

Need Help Structuring QSBS Stacking?

We help founders, investors, and family offices:

• Design and fund QSBS-qualified trusts

• Navigate gifting and tax compliance

• Stack exclusions without tripping IRS aggregation rules

• Coordinate with exit strategy and estate planning

Let’s map your path to a tax-free exit — and keep more of your upside where it belongs.

OBBB Strategy: How AI Startups Can Stack R&D Expensing, QSBS, and IRC §174 for a Tax-Smart Exit

If you're building an AI, fintech, or SaaS startup right now — or backing one — the new tax law just handed you a once-in-a-decade opportunity to align your product roadmap with an insanely efficient equity and tax strategy.

Let’s break it down. With R&D expensing, an upgraded QSBS exclusion, and permanent changes to IRC §174, you now have the tools to:

• Offset burn with immediate tax savings

• Lock in tax-free equity upside for founders and early employees

• Attract capital with investor-grade incentives

• Lower your federal tax bill and get refundable R&D credits

Here’s how the pieces work together:

Deduct 100% of Domestic R&D Costs Immediately

The new Section 174A rules allow you to fully deduct U.S.-based research and software development costs — wages, contractors, cloud infra, prototypes — as you incur them. That’s a sharp reversal from the 5-year amortization under the 2017 TCJA.

That means you can offset early revenue or gains with burn
Retroactive catch-up: Amend your 2022–2024 returns to claim missed deductions
Easier coordination with the R&D credit (Section 41) — fewer surprises on audit

Cashflow win: You get deductions and refundable credits right now, not spread out over years.

Issue QSBS-Qualified Shares While FMV Is Low

Section 1202 (QSBS) just got a massive upgrade. For new QSBS issued after July 2025:

• You now qualify for 50% tax-free gains after 3 years

• 75% after 4 years

• 100% after 5 years (still avoiding AMT and NIIT)

• And the lifetime exclusion cap jumps to $15M, up from $10M — indexed for inflation

Pro tip:
If you issue stock now while company FMV is low, you lock in low basis and high upside — all potentially tax-free. That’s a playbook for tech founders, early employees, and even angels.

83(b) Elections: Lock in Low Tax Basis Now

If you're granting restricted stock or founder shares, pair the QSBS strategy with 83(b) elections filed within 30 days. This lets you:

• Report the equity at current low value (often pennies per share)

• Avoid future tax on vesting

• Start the QSBS holding period immediately

⚠️ Miss the 30-day deadline and you're stuck with ordinary income treatment on vesting.

Pitch to Investors: A Capital-Efficient, Tax-Smart Exit

VCs are already waking up to this playbook. When your startup offers:

• Tax-free equity upside via QSBS

• R&D expensing that boosts margins and shortens payback periods

• Refundable credits from Section 41

• A compliance-ready strategy from Day 1…

…it’s not just good tax planning — it’s a sharper pitch deck.

Whether you’re a solo founder writing code in San Diego, or a venture-backed team scaling your AI SaaS product, these tax upgrades can be your capital strategy moat.

Real-World Example:

Hedgi AI, a private LLM-based bookkeeping engine, using labeled IRS and financial transaction data. Here's how the stack works in practice:

• R&D wages and infra: expensed under §174A

• LLM dev team: captured in the R&D credit

• Founder stock: QSBS-qualified with 83(b) elections filed in 2025

• Cap table planning: $15M per-founder tax-free potential, up from $10M

Ready to Run This Playbook?

Let’s talk. Whether you need to:

• Amend 2022–2024 returns for R&D refunds

• Issue QSBS stock before your next valuation bump

• Navigate 83(b) elections or cap table hygiene

• Model your 3-, 4-, and 5-year tax-exempt exit paths

We’ll help you align your code with credits and equity with tax strategy.

Bottom line:
This is more than tax law. This is a startup advantage.

OBBB Strategy: Deduct More Interest with Smarter Financing in 2026

If you own rental property and use loans to fund improvements, there’s a quiet but powerful change coming in 2026 that could unlock new financing strategies — and bigger deductions.

Thanks to Section 70501 of the One Big Beautiful Bill, you’ll soon be able to deduct interest even when the loan is secured by a different rental property. This means smarter equity use, better cash flow, and more flexible financing for landlords.

What’s the Big Change?

Old Rule (2025 and earlier):
Interest on a rental-related loan is only deductible if the loan is secured by the same property being improved or acquired.

New Rule (2026 and beyond):
Interest is deductible based on how the funds are used, not which property secures the loan — as long as the use is for rental purposes.

In other words: “traced debt” rules apply to rentals, not just primary residences or businesses.

Real-World Example

Let’s say:

• Rental A needs a $100,000 ADU

• Rental C has $200,000 in tappable equity

Before 2026:
If you took out a HELOC on Rental C to fund improvements on Rental A, the interest might not be deductible.

Starting in 2026:
The interest is deductible — as long as the loan proceeds can be traced to qualified rental improvements on Rental A.

Strategy for Property Owners

This creates new ways for landlords to unlock and deploy capital tax-efficiently:

Tap the most favorable equity
Refinance or pull equity from the rental with the best loan terms — not just the one you’re improving.

Consolidate debt wisely
Bundle multiple project loans under one low-rate HELOC or refinance — as long as the use of funds is rental-related, the deduction will still qualify.

Prep your books now
The deduction follows the use of funds. You’ll need clear tracing documentation. Hedgi AI can automatically tag these transactions and create audit-ready records.

Time major projects for 2026
If you're planning ADUs, energy upgrades, or renovations, consider waiting until 2026 to take full advantage of the expanded interest deduction rules.

What Counts as Deductible Use?

• Acquisition of new rental property

• Improvements, renovations, repairs

• Maintenance costs

• Refinance of prior rental-use debt

Personal use, primary residences, or commingled funds may disqualify interest deductions — trace carefully.

Looking Ahead

This change brings real flexibility to real estate tax planning — especially for landlords with multiple properties or complex portfolios.

Want help modeling the best financing structure for your rentals? Or need your 2025 books ready to trace debt clearly when this kicks in?

OBBB Strategy: How Startup Founders and Investors Can Now Go Tax-Free in Just 3 Years

What’s New for QSBS?

Faster Timeline to Tax-Free Gains

Historically, taxpayers needed to hold QSBS for at least 5 years to qualify for any tax exclusion — a timeline that often mismatched the lifecycle of modern startups.

Now, for QSBS acquired after the law’s enactment:

• 3 Years = 50% Exclusion

• 4 Years = 75% Exclusion

• 5+ Years = 100% Exclusion

This accelerates the tax benefit timeline and provides founders more optionality in structuring 3–5 year exits.

Bigger Lifetime Cap on Tax-Free Gains

Previously, the QSBS lifetime gain exclusion was capped at $10 million per taxpayer, per issuer.

Now, for new stock:

• $15 million lifetime cap (indexed for inflation beginning in 2027)

• $10 million still applies to older QSBS shares

• Anti-double-dipping rules apply for taxpayers holding both old and new stock

This is a game changer for founders holding larger stakes or participating in multiple rounds of investment in the same company.

More Startups Qualify

The gross assets test — which determines whether a business qualifies as a “small business” — has increased:

• Old rule: $50 million

• New rule: $75 million, also indexed for inflation

This expands eligibility to more late-stage or VC-backed startups, especially those on the verge of Series B/C raises.

Strategic Planning Opportunities

Track Acquisition Dates Carefully

The new holding period and higher cap only apply to QSBS acquired after the law was enacted (July 2025). You’ll need to track pre- and post-enactment stock separately, especially if you participated in multiple rounds.

Stack the Exclusion Across Shareholders

QSBS is a per-person, per-issuer exclusion. With proper planning, families can multiply the benefit:

• Allocate equity to a spouse

• Gift shares to non-grantor trusts

• Fund Trump Accounts for children (post-strategy)

• Structure employee incentives for long-term holding

Plan Your Exit Around Milestones

You now have multiple QSBS breakpoints:

• Plan for a 3-year exit to capture partial exclusion

• Defer liquidity to hit 5-year 100% exclusion if tax savings are substantial

• Coordinate with other deductions (like NOLs or bonus depreciation) to minimize additional tax impact

Combine With Opportunity Zones or R&D Credits

QSBS gains remain one of the few ways to permanently exclude federal tax on millions of dollars of appreciation. When combined with:

• Opportunity Zone deferral and step-up strategies

• R&D credit planning

• Stock option or 83(b) election modeling

…you can build a customized tax blueprint that maximizes both short-term liquidity and long-term wealth transfer.

Key Reminders

• QSBS still requires a domestic C corporation — S corps, LLCs, and partnerships don’t qualify

• Stock must be original issue (no secondary shares)

• Company must be an active business, not a holding company or passive investment vehicle

Final Thoughts

If you’re a startup founder, early-stage investor, or small business owner with big exit plans — the enhanced QSBS rules could mean the difference between a 6-figure and a 7-figure tax bill.

Want to model how QSBS fits into your equity and exit strategy? Let’s talk — we can review your cap table, holding period, and timing options to maximize the tax-free upside.

OBBB Strategy: How Small Business Owners Can Use the New Opportunity Zone Rules to Defer Capital Gains

Opportunity Zones (OZs) aren’t just for big developers anymore — the 2025 reboot makes them far more usable for small business owners and investors with capital gains. With the 5-year deferral, 10–30 year tax-free appreciation, and new rural zone incentives, this is one of the best tools for long-term tax planning.

Key Strategy Talking Points:

Defer Capital Gains with a 5-Year OZ Investment

If you have capital gains — from selling a business, crypto, stocks, or real estate — you can now defer the tax for 5 years by reinvesting into a Qualified Opportunity Fund (QOF). That gives you breathing room and preserves more capital upfront.

• Bonus: After 5 years, you get a 10% basis step-up (30% for rural zones).

• After 10 years, no tax on the appreciation.

Example: Sell a rental for $500K gain → reinvest in OZ Fund → pay $0 tax now → reduce taxable gain later → exclude future growth altogether.

Use OZs to Fund or Expand Your Own Business

You don’t need to be a passive investor — you can start or grow your own business in an Opportunity Zone and qualify for these tax benefits.

• Real estate businesses, restaurants, wellness studios, retail — all qualify if located in an OZ and meeting the active trade/business rules.

• Bonus: You can raise capital through a QOF from friends/family with gains.

Tip: SMB owners can self-certify a QOF (via IRS Form 8996) and inject their own gains into their own OZ business.

Rural OZs = Bigger Breaks

The rural incentive adds new energy to this strategy:

• 30% basis step-up after 5 years (vs. 10%)

• Easier “substantial improvement” rules for real estate

• Opens up areas outside major cities to meaningful tax-advantaged investment

Good for: Boutique hotels, redevelopment, agribusiness, remote wellness/tech hubs.

Perfect Exit Strategy for Recent Business Sales

If you sold a business recently and are sitting on a gain — but don’t love your tax outlook — this could be your tax-friendly bridge to your next project.

• Instead of paying 23.8% capital gains now, park the money in a QOF, reinvest in your next move, and reduce your long-term tax burden.

SMB Action Steps:

• Check your 2023–2026 gains — anything recent or coming up? Don’t pay tax now if you can reinvest.

• Look up eligible zones near you — many urban and rural areas will be recertified in 2026.

• Explore setting up your own QOF — especially if you're building a business or buying real estate in an OZ.

• Align your exit strategy — cost seg + OZ deferral can be a powerful combo (e.g., sell an asset, use depreciation to offset dividend income, then reinvest gains in an OZ).

Final Takeaway:

With the enhanced OZ incentives, reporting transparency, and longer holding periods, this isn’t just a real estate developer tool anymore — it’s a smart play for SMB owners, family offices, and active investors.

Capital gains deferral + future tax-free growth + community impact = a win across the board.

OBBB Strategy: Child Care Tax Perks — Hidden Wins for Family-Run Small Businesses

The new tax law quietly supercharged child care benefits for employers — and there’s real strategy here if you run a small business or family-owned company.

Two key provisions now offer serious tax savings for supporting working parents (including yourself, if structured correctly):

Enhanced Employer-Provided Child Care Credit

• Now worth 40% of qualified child care expenses
  (up from 25%)

• 50% credit for small businesses
  if your average gross receipts are under $25 million

• Up to $600,000/year in eligible expenses can qualify
  (for small businesses — $500K cap for larger ones)

• Applies even if you partner with a third-party child care provider
  (e.g., via a shared care facility or voucher system)

Strategic Use Case:
You may be able to structure payments to cover child care for employees — or even yourself or your spouse — and recoup 50% of those costs via a tax credit.

Caution: The IRS still requires that the benefit be broadly available and not just for owner-employees. But a properly designed dependent care assistance program (DCAP) + written child care policy could pass muster.

Dependent Care Accounts (DCAPs) – Bigger Tax-Free Limits

• Old limit: $5,000 per year

• New limit (starting in 2026): $7,500 per year

• Tax-free to employees, deductible for the business

Strategy Tip:
If you employ your spouse, or even yourself in a C-Corp structure, you can run the increased DCAP through payroll and reduce both income tax and payroll tax liability.

So… Can You Pay Your Spouse (or Yourself) for This?

Technically yes — but structure matters:

• In an S-Corp, you'll need to treat your spouse as a bona fide employee, with actual work duties and compensation — then offer DCAP or reimbursements as part of a broad-based benefit plan.

• In a C-Corp, it’s more flexible: even owner-employees can receive these benefits, including employer-paid child care and dependent care assistance.

Bonus Tip: If your spouse already helps with the business (e.g., admin, marketing, bookkeeping), now is the time to formalize that role. Paying them through payroll opens the door to dependent care benefits and other tax-favored fringe perks.

You pay your wife $40,000 in W-2 wages as a legitimate employee. She has $7,500 in eligible child care costs in 2026. You:

• Reimburse her $7,500 through DCAP (runs through payroll, Box 10 of W-2)

• That $7,500 is deductible to the S corp

• She pays no federal income tax or payroll tax on it

• You do not pay employer payroll taxes on that amount either

If you also pay $5,000 to a third-party center directly, and don’t reimburse her through DCAP for that, you could potentially claim a 50% tax credit on the $5,000 — saving $2,500 in federal tax.

Final Thought

Child care is expensive. The new law gives you a way to turn those costs into credits and deductions — and with smart planning, you can stack the employer credit + DCAP exclusion + fringe benefit structuring for maximum savings.

If you're a family-run business or a small shop with working parents, this could be one of the most overlooked wins in the new bill.

Want help designing a compliant plan that works for your business and family? Let’s talk.

OBBB Strategy: What SMBs Should Know About the New Foreign Income Rules

The latest tax reform bill ("One Big Beautiful Bill") makes big changes to how U.S. businesses are taxed on foreign income. While many provisions are complex, there are real strategic implications — especially for SMBs that sell abroad, outsource services, or operate through foreign subsidiaries.

Here’s what’s changed and how smart business owners can use these updates to their advantage.

Say Goodbye to GILTI, Hello to Net CFC Tested Income

Old Rule:

• The Global Intangible Low-Taxed Income (GILTI) regime let U.S. shareholders exclude a portion of foreign income based on a “deemed return” on tangible assets held abroad (called the QBAI exclusion).

New Rule:

• The GILTI term is gone. It's now called Net CFC Tested Income.

• More importantly, the tax-free return is repealed — meaning more foreign earnings will now be taxed by the U.S.

Strategy Angle:

• If your business has foreign operations or plans to expand internationally, consider whether IP, software development, or high-margin activity should remain in the U.S. rather than offshore.

• U.S.-based profits may now be more tax-efficient — especially with new domestic R&D and full expensing provisions.

FDII Is Rebranded: Export Incentive Still Exists

Old Rule:

• Foreign-Derived Intangible Income (FDII) created a deduction for U.S. businesses earning profit from exporting goods/services tied to IP.

New Rule:

• Now called Foreign-Derived Deduction Eligible Income (FDDEI).

• Still a deduction for export-related income, but without the IP framing.

Strategy Angle:

• If your SMB sells to foreign clients — SaaS, consulting, DTC e-commerce, etc. — you may qualify for a valuable deduction.

• This works best when you’re exporting from a U.S. entity. Evaluate your pricing structure and IP ownership to see if you can optimize for FDDEI.

Permanent Look-Through Rule

The look-through rule (IRC §954(c)(6)) is now permanent, helping avoid double taxation on foreign-to-foreign dividends.

Strategy Angle:

• This gives more certainty to holding companies or businesses that own foreign subsidiaries — allowing better tax planning around dividends and Subpart F income.

Bottom Line:

If your business earns, spends, or holds assets abroad, this bill should trigger a fresh look at your entity structure, sourcing strategies, and tax planning. For many SMBs, the best move may be bringing IP and high-value functions back to the U.S. where new deductions (like R&D, full expensing, and FDDEI) are now more valuable.

Want to model your international structure under the new rules? Let’s talk strategy — we’re helping clients realign now before 2026 kicks in.