OBBB Strategy: Reclassify Meals from Earlier in 2025

If your books have already been categorizing all meals at 50% deductible, you need to go back and reclassify eligible restaurant meals from January 1, 2025 onward as 100% deductible.

• Applicable dates: Expenses paid or incurred between Jan 1, 2025 and Dec 31, 2026

• Action step for bookkeepers: Review all 2025 meals YTD

  • Look for vendors that are restaurants (including Uber Eats, DoorDash, etc.)

  • Confirm that meals meet standard business expense tests

  • Update chart of accounts/tags so restaurant meals hit a 100% deduction bucket

Tax Planning Opportunities

Frontload Meals in 2026

• Since the deduction expires Dec 31, 2026, consider scheduling client lunches, team dinners, or prospect meetings before year-end 2026.

• Buy gift cards to restaurants in 2026 if business purpose is clear and deductible that year.

Reevaluate In-House Meals vs. Restaurant Catering

• Food purchased from grocery stores or brought in-house is still only 50% deductible.

• But if you order meals from a qualifying restaurant (even for internal meetings), that’s now 100% deductible.

Example: Ordering Chipotle for a team training = 100% deductible. Buying sandwich trays from Costco = 50% deductible.

Use Hedgi AI to Automate Classification

• Accurate tagging matters. Hedgi can now flag meals from restaurants (e.g., Yelp-matched vendors, POS integrations) and apply the 100% logic automatically.

• Helpful for CPAs doing year-end reviews.

Reminders from the Law (Section 70421):

The bill amends IRC §274(n)(2)(D), stating:

“...for amounts paid or incurred after December 31, 2024, and before January 1, 2027, the full amount of the expense for food or beverages provided by a restaurant shall be deductible.”

OBBB Strategy: 100% Bonus Depreciation Is Back — Cost Segregation Just Got a Whole Lot More Valuable

With 100% bonus depreciation officially back under the new tax law, real estate investors have a powerful incentive to revisit cost segregation studies — especially for properties placed in service after January 19, 2025.

This change creates an opportunity to front-load depreciation deductions in a way that offsets passive income, or even ordinary income if you qualify as a real estate professional.

What’s Bonus Depreciation?

Bonus depreciation allows you to immediately deduct the cost of qualifying property — rather than spreading the deduction out over decades.

Under the new law:

• 60% bonus applies to assets placed in service January 1–19, 2025

• 100% bonus applies to assets placed in service after January 19, 2025

• Applies to components with a useful life of 20 years or less (think: flooring, cabinets, wiring, HVAC zones, appliances, etc.)

Why Cost Segregation Matters More Than Ever

Without a cost segregation study, most commercial and residential rental property is depreciated over:

• 27.5 years (residential rental)

• 39 years (commercial property)

But with a properly performed cost segregation analysis, you can break out components like:

• Carpets, flooring, wall coverings

• Landscaping, parking lots, fencing

• Electrical and plumbing systems tied to equipment

These shorter-lived assets (5, 7, or 15 years) can now be fully deducted in year one under bonus depreciation — as long as they were placed in service after Jan 19.

Strategy: Pair Bonus Depreciation with Passive Income or REP Status

Here’s where it gets powerful:

• If you’re a passive investor, bonus depreciation can offset other passive income — rental income, K-1s, etc.

• If you’re a real estate professional, it can offset any income — including wages or business income.

That makes a cost segregation study one of the most tax-efficient moves you can make in 2025–2026 if you’re acquiring, building, or renovating.

Real Example

You purchase a $1.2M residential rental in February 2025. With a cost segregation study, you identify:

• $150,000 in 5-year property (appliances, flooring)

• $50,000 in 15-year property (land improvements)

Under 100% bonus depreciation:

• You deduct $200,000 immediately in 2025

• That deduction offsets passive income — or all income if you’re a REP

Without cost segregation, that same $200K would be spread over decades.

Final Thoughts

The return of full bonus depreciation means it’s time to:

• Review acquisitions made after Jan 19

• Consider a cost seg study for any property over ~$500,000

• Maximize deductions while they're available (the provision is permanent — but tax rates and REP rules could change)

Want help modeling the benefit or reviewing your eligibility as a real estate professional? Let’s talk. This is one of the most powerful planning tools available right now.

OBBB Strategy: You Can Now Amend Past Returns to Fully Deduct U.S. R&D Expenses

One of the most impactful changes in the new tax reform bill is the permanent fix to the way businesses deduct their U.S.-based research and development (R&D) expenses.

Starting in 2025, the new Section 174A allows qualifying R&D costs to be fully deducted in the year incurred — reversing the unpopular five-year amortization rule from the 2017 Tax Cuts and Jobs Act (TCJA).

But here’s the bigger opportunity: You may be able to go back to 2022 and retroactively claim missed R&D deductions — or catch up remaining amortized balances on your 2025 return.

What Changed in the Law?

Section 174A (as enacted in the 2025 reform bill):

• Allows full immediate expensing of domestic R&D and software development costs

• Applies to wages, supplies, and contract research

• Replaces the 5-year amortization rule (TCJA, effective 2022)

• Effective for tax years beginning after Dec 31, 2024

• Also allows catch-up for 2022–2024 R&D costs (see below)

Who Qualifies for Retroactive R&D Expensing?

To take advantage of this, your business must:

• Have conducted qualifying R&D in the U.S.

• Meet the gross receipts test under IRC §448 (generally <$29 million average over 3 years)

• Have capitalized and amortized R&D under the old TCJA rules in 2022, 2023, or 2024

You now have 3 strategic options:

1. Amend prior returns and deduct full R&D amounts retroactively

2. Elect to deduct remaining amortized balance all at once in 2025

3. Spread remaining amortization over 2025–2026 (a 2-year catch-up)

Partnerships & S-Corps:

Since the deduction flows through to partners/shareholders, consider individual tax brackets and refund potential when deciding whether to amend or deduct in 2025.

Example: $50,000 in 2022 R&D Expenses

A SaaS startup amortized $50,000 of qualified domestic R&D in 2022.

• $10,000 deducted in 2022

• $10,000 deducted in 2023

• $10,000 planned for 2024

• Remaining $20,000 (2025–2026) still on the books

Option 1: Amend 2022 and 2023 returns → claim $40,000 more immediately + interest refund
Option 2: Elect catch-up in 2025 → deduct $20,000 on this year’s return
Option 3: Spread $20,000 across 2025–2026 ($10K each year)

Action Step

If your business did any R&D, software dev, or product design in the U.S. from 2022 onward, now is the time to re-analyze:

• What did you capitalize under the old rules?

• Would a 2022 or 2023 amendment produce a refund?

• Would a 2025 catch-up help reduce this year’s tax burden?

We can help model the impact of each scenario and file the necessary elections or amended returns.

Need help running the numbers?
Let’s review your R&D tax strategy now — before 2025 ends.

OBBB Strategy: Fund a Trump Account for Your Child — Even Without Earned Income

Unlike Roth IRAs, Trump Accounts do not require earned income for eligibility. That means small business owners can take advantage of this new tax-free savings vehicle for their kids — even if they’re not old enough to work.

Key Strategy for SMBs:

Employer-funded Trump Accounts
As a business owner, you can contribute up to $2,500/year per child to a Trump Account for an employee’s (or your own) child.

• Contributions are not taxable to the employee (you or your spouse).

• There’s no age minimum — even infants qualify.

• These contributions don’t require the child to earn wages.

Pro Tip: This allows you to put away tax-free money for your kids outside of your own retirement plan, without triggering Kiddie Tax or income limits.

Bonus: $1,000 Government Match for Newborns (2025–2028)

• If your child is born in this window, you can opt in for a free $1,000 seed contribution from the federal government.

• No strings attached — and this is exempt from garnishment, tax offset, or clawback.

Optional Add-on: Payroll for Spouse or Teen Child?

• If your spouse or older child is legitimately working in your business (e.g., admin, social, delivery), putting them on payroll gives you even more strategic room:

  • Consider combining:
    → Wages paid to family
    → Trump Account contributions as a benefit
    → Potential solo 401(k) or Roth IRA contributions if they qualify

Caution: Avoid reclassifying adult-owner wages as a workaround — the IRS will crack down on this. But legit employees (including spouses in operational roles) may qualify for Trump Account employer contributions.

OBBB Strategy: New Car Loan Interest Deduction vs. Business Use Deductions — What’s Better for SMB Owners?

The new personal car loan interest deduction (up to $10,000/year) is changing the way small business owners should think about vehicle write-offs.

Before 2025, your choices were:

• Buy the vehicle personally → maybe get mileage reimbursement

• Buy through your business (LLC/S-Corp) → get depreciation, Section 179, and business interest

• Lease personally → limited deduction options

Now, the math has changed.

What’s New for 2025–2028

You can now deduct car loan interest on your personal tax return, even for personal-use vehicles, as long as:

• The vehicle is new

• Final assembled in the U.S.

• You meet the income thresholds

• You report the VIN

That means you can potentially:

• Buy the car in your personal name

• Deduct interest up to $10,000/year under the new law

• Track business miles separately and still get the $0.67/mile deduction (2024 rate, updated yearly)

• Skip the added cost of commercial auto insurance, business financing, or asset titling

Strategy: Combine Personal Interest Deduction + Mileage Reimbursement

This might now be the most tax-efficient and administratively simple option for many S-Corp or LLC owners, uou’ll need to track business mileage and ensure personal interest meets IRS rules, but it’s entirely viable.

Watch for These Gotchas

• Only interest is deductible, not the principal

• Vehicle must be new and assembled in the U.S.

• Income phaseout starts at $100K (single) or $200K (MFJ)

• You must report VIN on your return

• You can’t double-dip: If the business claims full depreciation, you can’t also take the personal interest deduction

Final Thoughts

If you’re an S-Corp owner thinking about a new vehicle:

• Run the numbers — especially if your AGI is under the threshold

• Consider buying personally, deducting interest, and using accountable plan mileage reimbursements

• This may produce more tax savings than buying through the business

Want help modeling which path saves you more? We’ll walk you through both scenarios — and adjust your payroll/accountable plan if needed.

OBBB Strategy: Can S-Corp Owners or Officers Qualify for the New Overtime Deduction?

The short answer: Not usually — but possibly, for others.

Why S-Corp Owners Are Excluded

The new "No Tax on Overtime" deduction only applies to employees covered by the Fair Labor Standards Act (FLSA).

S-Corp shareholder-employees are typically excluded from FLSA protections — because they effectively control their compensation and schedule. So even if you pay yourself hourly and work 60 hours/week, that OT won’t qualify.

IRS and courts look at substance over form, and paying yourself “overtime” is viewed as a tax avoidance maneuver, not legitimate compensation structure.

What About a Spouse or Other Officer?

Here’s where things open up:

• If your spouse or another officer doesn’t control the company, and

• They’re actually performing work (e.g., operations, admin, customer support), and

• They’re classified as a non-exempt W-2 employee, and

• You track hours accurately and pay real 1.5× OT…

Then yes, they could be eligible for the deduction — even if they’re an officer on paper.

Key Factors That Help:

• They’re not a shareholder

• They don’t set their own schedule or compensation

• They don’t manage payroll or approve their own hours

• You use a third-party payroll system

• You document their role and duties in writing

Being an “officer” doesn't automatically disqualify someone. It’s about who controls the business and whether the OT is genuine.

If you're running an S-Corp and:

• You employ a spouse or adult child in a real role (e.g., front desk, billing, ops),

• You pay them hourly and let them work real overtime,

• You document everything carefully...

→ You could save $3,000–$6,000/year in federal tax (plus the payroll tax deduction).

But if they’re co-owners or signers on everything — it’s probably not worth the audit risk.

OBBB Strategy: Hire Your Spouse or Child into a Tipped Role — and Claim the New $25K Tip Deduction

With up to $25,000 in tax-free tips per employee, service businesses and savvy small business owners should take note:

Hire Your Spouse — Legitimately

If your spouse helps at your restaurant, salon, food truck, or mobile service business, this is the time to make it official:

• Put them on payroll.

• Have them perform actual customer-facing services (where tips are customary).

• Report the tips properly (W-2 or Form 4137).

• They can then claim the new tip deduction, up to $25,000 — completely tax-free at the federal level (subject to income thresholds).

Hire Your Teen (with real work)

Have a 16- or 17-year-old? Many states allow family employment for minors in family-owned businesses. Train them in client-facing roles where tips are normal:

• Front-of-house hosting or food runner in a family restaurant

• Shampooing or greeting in a salon

• Customer support for mobile service scheduling

They get paid. You get a deduction. And up to $25K of their tips? Not taxed.

For Self-Employed Professionals

If you’re a self-employed stylist, mobile esthetician, or service provider, structure your pricing to encourage and track tip income. Just make sure:

• Your business shows net income

• Tips are tracked separately

• You report tips correctly (yes, even for cash)

Don't Miss the Expanded Tip Credit (IRC §45B)

If you own a salon, barbershop, nail studio, or spa — you may now qualify for a federal tax credit on the employer share of Social Security and Medicare taxes paid on employee tips.

This was previously limited to food and beverage employers — now it includes beauty and spa services.

Timeline:

Effective for tips earned in 2025–2028, with a phaseout starting at $150K MAGI ($300K MFJ).

OBBB Strategy: Max Out SALT — Twice.

Now that the SALT deduction cap is increasing to $40,000, there’s a powerful two-part strategy for small business owners in high-tax states like California:

Strategy: Maximize the SALT deduction at both the entity and personal level.

Elect PTE (Pass-Through Entity) Tax
If you’re an S-Corp or partnership in California, opt into the PTE tax — it allows your business to deduct state income taxes at the entity level (above the cap). This reduces federal taxable income without impacting your $40K SALT cap.

Stack Personal Property Taxes on Schedule A
With the higher SALT cap, you can now also deduct up to $40,000 (subject to phaseout) of personal state income and property taxes on your Schedule A. That’s on top of your PTE deduction.

Example:

• Your CA S-Corp elects into the PTE and pays $30,000 in California tax — fully deductible by the S-Corp.

• Separately, you pay $20,000 in property tax personally.

• Under the new rules, you could deduct the full $20K on your Schedule A (if income is under the phaseout threshold), giving you $50K+ of SALT deductions across both buckets.

Planning Insight:

PTE is a must-do for high earners. But you’ll also want to time state estimated tax payments and property tax bills to hit the deduction in the right year, especially as the cap phases out for incomes over $500K.

IRS Clarifies How It Will Treat Payments From Partnerships to Partners

Section: 70602 | Code Affected: IRC §707(a)(2)

Summary:

A subtle but important change has been made to how payments from partnerships to partners will be treated under the tax code. While this update doesn’t change existing tax liability in most cases, it signals the IRS is preparing to finalize more formal guidance on what counts as a guaranteed payment versus a true distributive share or outside transaction.

What Changed:

Section 70602 of the bill revises the language in IRC §707(a)(2) by replacing:

“Under regulations prescribed by the Secretary…”

with:

“Except as provided…”

This wording change removes the IRS’s exclusive reliance on future regulations and opens the door for direct statutory interpretation, potentially leading to more case-by-case IRS scrutiny without waiting for formal regulations to be finalized.

Why It Matters:

• More scrutiny on partner compensation: If you’re paying a partner for services or property contributed to the partnership, the IRS may now apply existing law more aggressively to determine whether that’s a guaranteed payment (deductible) or a disguised sale (capital treatment).

• Implications for tax planning: Some partnerships that have been taking flexible approaches to compensating partners may now want to revisit their agreements and clarify intent, timing, and treatment of those payments.

• Bookkeeping implications: Any payments to partners not tied to ownership percentages should be documented clearly, including service descriptions and payment dates.

Who Should Pay Attention:

• Partnerships where partners are contributing significant services or property

• Firms using "preferred payments" or special allocations to compensate partners

• Professional service firms with hybrid comp structures (law, architecture, etc.)

Effective Date:

Applies to services performed and property transferred after the date of enactment of the bill (2025 enactment date).

Why S-Corp and Rental Losses May No Longer Save Your Taxes Like They Used To

Section 70601 – Permanent Extension of IRC §461(l)

For years, savvy business owners and real estate investors have used passthrough losses — from S corporations, partnerships, and rental properties — to reduce their overall taxable income. But starting in 2026, a temporary limit on those deductions will become permanent.

What’s Changing?

The Tax Cuts and Jobs Act (TCJA) introduced a rule called the “Excess Business Loss Limitation” under IRC §461(l). This rule was originally set to expire in 2028. But under the One Big Beautiful Bill, it’s now made permanent — meaning it’s here to stay.

New Law: Section 70601 strikes the expiration date from IRC §461(l), locking in the limitation for all future years.

How the Rule Works

Under §461(l), non-corporate taxpayers (like individuals with S-Corps or rentals) can only deduct business losses up to a certain threshold each year. Any excess loss is carried forward as a net operating loss (NOL) — it doesn’t offset other types of income in the current year.

For 2025 (inflation-adjusted):

• $289,000 for single filers

• $578,000 for joint filers

Note: These limits adjust annually for inflation.

Example:

Suppose you’re an S-Corp owner with:

• A $600,000 business loss from your company

• $300,000 in W-2 wages and $200,000 in stock gains

Even though your overall losses exceed your income, you can’t deduct the full $600,000. Only $578,000 (if married filing jointly) counts in 2025. The extra $22,000 must be carried forward.

Who This Affects

• S-Corp and partnership owners expecting big losses

• Real estate investors with passive or paper losses (e.g. depreciation)

• High-income earners using passthrough losses to offset salary or gains

What To Do Now

• Don’t assume you’ll get a full deduction for rental or business losses

• Revisit projections if your tax plan relies on large passthrough losses

• Look into grouping elections or reclassifying income to avoid passive loss treatment

• Consider how these rules interact with bonus depreciation, especially on amended returns

Need help calculating your excess business loss or figuring out if your strategy still works? We do this every day for S-Corp owners, landlords, and high-income clients.

Schedule a call, or check out our AI app [Hedgi] — it flags these issues automatically and updates your projections in real-time.

New 1% Tax on Cash Transfers Abroad: What It Means for Individuals and Small Businesses

Starting in 2026, a new 1% excise tax will apply to certain types of money transfers sent outside the U.S. This new rule, tucked into Section 70604 of the One Big Beautiful Bill, targets cash-based remittance transfers—but it doesn’t apply to everyone.

Here’s what you need to know:

What Is a Remittance Transfer?

The IRS is borrowing definitions from the Electronic Fund Transfer Act (15 U.S.C. §1693o-1(g)), which defines a remittance transfer as a money transfer sent by a consumer in the U.S. to someone outside the U.S. using a remittance transfer provider.

These are commonly used by:

• Individuals supporting family members abroad

• Small business owners paying overseas vendors or contractors

• Immigrants sending money home via services like Western Union or MoneyGram

Who Pays the Tax?

The sender pays the 1% tax at the time of the transfer, but the remittance provider (like a check-cashing store or money transmitter) is required to collect and remit the tax to the IRS.

What Transfers Are Taxed?

This new excise tax applies only if the transfer is funded with:

• Cash

• Money orders

• Cashier’s checks

• Or any similar physical instrument

These “off-the-grid” payments are often difficult for the IRS to trace, which is why they are being singled out.

What Transfers Are Exempt?

There is no 1% tax if the remittance is:

• Funded from a U.S. bank account

• Paid with a U.S.-issued debit or credit card

• Sent via digital apps like Zelle, PayPal, or Venmo, provided the source of funds is linked to a qualifying account

So if you use a regulated U.S. financial institution or app connected to your bank, you’re in the clear.

When Does It Start?

• The tax applies to transfers made after December 31, 2025

• The remittance provider must remit the collected tax quarterly

• If they don’t collect it, they are secondarily liable for payment

Legal Reference: 26 U.S. Code § 4475 (as enacted by §70604 of the One Big Beautiful Bill)

Takeaways for Your Business or Household

• If you send money abroad with cash, you’ll pay more starting in 2026

• Using your bank account or debit card will help avoid the tax

• Small businesses with international suppliers should reassess payment methods

Need help updating your payment workflows? Hedgi AI can track these transactions automatically and keep your books compliant with the new law — no manual tagging needed.

Big Change for Rental Property Owners: You Can Deduct More Interest Starting in 2026

Buried in the fine print of the One Big Beautiful Bill is a valuable change for real estate investors: starting in 2026, you’ll be able to deduct interest on rental-related loans even if the property used as collateral isn’t the one being improved.

Why This Matters

Under current law, if you take out a HELOC or mortgage to fund improvements on a rental property, the interest is only deductible if the loan is secured by the same property the funds are used on. That means you couldn’t tap equity from Rental Property C to build an ADU on Property A — at least not without losing the deduction.

Starting in 2026, that restriction is lifted.

What’s Changing?

Section 70501 of the One Big Beautiful Bill (2025) makes a key update to IRC §163(h), which governs the deductibility of interest. The law modifies the rules for “traced debt” on rental real estate, so the deduction now follows use of funds rather than collateral.

New Rule (2026 and beyond): If you use loan proceeds to improve, maintain, or acquire rental property, the interest is deductible regardless of which property secures the loan.

Example

Let’s say you have:

• Rental A: Needs a new ADU

• Rental C: Has lots of equity, no debt

Today, if you tap Rental C’s equity to build the ADU on Rental A, the interest may not be deductible. But in 2026, it will be — as long as the loan proceeds are clearly traceable to a rental-use improvement.

What Should Landlords Do?

• Plan strategically: This opens the door to smarter use of equity across your rental portfolio

• Keep documentation: You'll still need clean records showing that the borrowed funds were used for deductible purposes

• Talk to your CPA: Especially if you're considering refinances, HELOCs, or cross-property improvements heading into 2026

Want to make sure your books are ready to track interest properly? Hedgi AI can label and trace these transactions automatically — even when QuickBooks gets confused.

Stay tuned for more practical tax tips as this historic tax law rolls out.

Big 1099 Change: IRS Raises the Reporting Threshold to $2,000

One of the quiet but impactful updates in the One Big Beautiful Bill is a long-overdue adjustment to the Form 1099-NEC and 1099-MISC reporting rules.

Starting in 2026, businesses won’t need to issue a 1099 unless they pay $2,000 or more to a vendor or contractor — a dramatic increase from the current $600 threshold.

Here’s what you need to know:

What’s Changing?

Under current rules, if you pay a contractor, vendor, or service provider $600 or more in a calendar year, you must issue a Form 1099-NEC (or 1099-MISC for rent and other payments).

Starting January 1, 2026, the threshold will be:

• $2,000, adjusted for inflation annually beginning in 2027

• Applies to Form 1099-NEC, 1099-MISC, and any payments subject to backup withholding

• The reporting threshold is now tied to calendar year, not taxable year

Annual Inflation Adjustment

The $2,000 threshold will rise automatically each year to keep pace with inflation, using the same cost-of-living adjustment method the IRS uses for tax brackets.

For example:

• In 2027, if inflation is 3%, the threshold would increase to approximately $2,060, and so on.

Each year, the IRS will round to the nearest $100.

Who Benefits?

This change significantly reduces reporting burdens for small businesses, landlords, and gig platforms by:

• Eliminating 1099s for small, one-off jobs under $2,000

• Simplifying vendor tracking for year-end reporting

• Reducing exposure to penalties for unfiled or incorrect 1099s

For example, if you pay a handyman $1,500 in 2026, no 1099 is required — even though it would be under current law.

Important Caveats

• Payments still need to be tracked. Even if a 1099 isn’t required, the expense must be properly recorded for tax and audit purposes.

• Backup withholding rules also adjust to this threshold — which means the $2,000 figure now governs when withholding may apply.

• W-9 forms are still essential when onboarding vendors, even if you don’t end up issuing a 1099.

👋 Need help adjusting your 1099 process?

We help small businesses automate and stay compliant with IRS reporting, even as the rules evolve. Whether you issue a handful or hundreds of 1099s, we can ensure you’re filing the right forms at the right time — no stress, no penalties.

Reach out before year-end to review your current vendor payments and prepare for the $2,000 threshold transition in 2026.

Major Upgrade to the QSBS Exclusion: More Gain, Faster Holding Periods, Bigger Limits

The One Big Beautiful Bill brings a long-awaited overhaul to Section 1202, which governs the Qualified Small Business Stock (QSBS) gain exclusion. If you’re a startup founder, early investor, or small business owner thinking about equity-based exits — this change could be a game-changer.

Here’s a breakdown of what’s new, who benefits, and how to plan ahead.

Faster Timeline to Tax-Free Gains

Previously, you had to hold QSBS for 5 years to be eligible for 50%, 75%, or 100% gain exclusion, depending on when the stock was acquired.

Starting now, for QSBS acquired after the new law’s enactment, there’s a phased-in schedule for the exclusion:

3 Years 50%

4 Years 75%

5+ Years 100%

This means you can qualify for meaningful tax relief in just three years — a huge win for founders planning medium-term exits.

Larger Lifetime Cap on QSBS Gains

Another big change: the per-issuer lifetime cap has increased.

• Old Rule: $10 million lifetime exclusion per taxpayer, per corporation.

• New Rule (for post-enactment stock):
  ✅ $15 million lifetime exclusion (indexed for inflation starting 2027)
  ✅ Still $10 million for older QSBS
  ✅ Special phase-out rules to avoid "double dipping" between old and new stock

Also:

• For married filing separately: the cap is halved

• Once you hit the cap, you’re done — no additional inflation bumps in future years

Higher Gross Assets Limit = More Eligible Startups

To qualify for QSBS, a company must have less than $50M in assets at the time of stock issuance.

The new law raises that cap to $75M, indexed for inflation — opening the door for more late-stage startups and larger seed rounds to qualify.

This change applies to stock issued after enactment — a big win for high-growth companies scaling with venture funding.

What Stays the Same

• You still need to buy original-issue C corporation stock (not from another shareholder).

• The company must still meet the active business and domestic C-corp requirements.

• The 100% exclusion still avoids federal income tax AND AMT if you meet the 5-year holding requirement.

Why This Matters Now

If you're:

• Raising funds through equity,

• Planning to sell a startup in the next 3–5 years, or

• Allocating capital gains into early-stage companies…

These new rules sharpen the edge of QSBS as one of the most powerful tax tools in the code.

Planning Tip

Carefully track acquisition dates. The new holding periods and $15M cap only apply to stock acquired after enactment of the bill. Your existing QSBS keeps its prior treatment — but you’ll need to track both tiers if you hold old and new stock in the same company.

Let’s Talk Strategy

QSBS planning involves more than just the tax code — it’s about exit timing, equity structure, and your broader financial goals. We help founders and investors:

• Review eligibility and documentation

• Strategize around timing and stacking exclusions

• Coordinate with estate or trust planning

Want to review your current stock or get set up for QSBS success going forward? Reach out — we’ll help you make the most of this powerful update.

Major Wins for Housing, Community Investment, and Charitable Giving Under the New Tax Law

The One Big Beautiful Bill delivers several long-sought-after changes to the tax code, particularly for those involved in affordable housing development, community revitalization, and philanthropic planning.

Here’s a summary of the key enhancements — now permanent — and what they mean for taxpayers, nonprofits, developers, and corporate donors starting in 2026.

Permanent Expansion of the Low-Income Housing Tax Credit (LIHTC)

The bill permanently increases the state-level housing credit ceiling, restoring the 12.5% boost that had previously expired in 2021. This means:

• More credits available to states to allocate toward LIHTC projects.

• Greater funding opportunities for developers of affordable housing.

Additionally, the bill modifies the "50% test" for projects financed by tax-exempt bonds:

• A project can now qualify for LIHTC if only 25% of its basis is financed with tax-exempt bonds — provided those bonds fund at least 5% of total project basis and are issued after 2025.

• This adjustment will make many more projects eligible and unlock new financing structures.

Effective Date: Buildings placed in service after December 31, 2025.

Permanent Extension of the New Markets Tax Credit (NMTC)

The popular NMTC program — which incentivizes investment in economically distressed communities — is now permanent.

Key provisions:

• $5 billion annual allocation will continue indefinitely beyond 2025.

• Unused credits can be carried forward for up to 5 years (with pre-2026 amounts treated as occurring in 2025).

This is a significant win for community development financial institutions (CDFIs), investors, and project sponsors relying on NMTC financing to fund community facilities, job creation, and commercial revitalization.

Expanded Charitable Deduction for Non-Itemizers

The temporary “above-the-line” charitable deduction is now permanently restored and expanded:

• $1,000 for single filers

• $2,000 for married couples filing jointly

This deduction is available even if you take the standard deduction — a significant incentive for everyday donors to continue giving.

New 0.5% Floor for Individual Charitable Deductions

For all individual taxpayers (whether itemizing or not), charitable contributions must now exceed 0.5% of AGI to be deductible.

• This floor applies to all donations, including cash, property, and appreciated assets.

• Contributions below the 0.5% threshold are not deductible but can be carried forward if the 10/20/30/60% ceilings were otherwise exceeded.

This provision is designed to weed out minimal deductions and ensure the deduction primarily benefits significant charitable giving.

New 1% Floor for Corporate Charitable Deductions

Corporate donors also face a new rule:

• Contributions must exceed 1% of taxable income to qualify for a deduction.

• The overall cap remains at 10% of taxable income.

• Unused contributions can be carried forward for 5 years (on a FIFO basis), but only if the 10% cap was exceeded.

This may slightly discourage small-dollar charitable giving by C-corps, but encourages more structured and sizable giving programs.

Permanent Increase in Cover-Over for Distilled Spirits

The excise tax “cover-over” (rebate to Puerto Rico and the U.S. Virgin Islands for rum production) is locked in at $13.25 per proof gallon, removing uncertainty caused by past temporary extensions.

These permanent extensions and modifications deliver long-term clarity for key sectors:

• Housing developers gain access to more stable credit allocations.

• Community investors have assurance the NMTC is here to stay.

• Nonprofits and donors benefit from simplified charitable deduction rules — with clear floors and expanded limits.

• Corporations will need to be more strategic in their giving to maximize tax efficiency.

If you're a developer, investor, nonprofit, or major donor, now is the time to revisit your tax strategy for 2026 and beyond.

New Reporting Requirements for Opportunity Zone Funds and Businesses

The newly passed One Big Beautiful Bill didn’t just expand the Opportunity Zone program — it completely overhauled the reporting requirements for funds and businesses that participate.

Whether you're an investor, fund manager, or business owner in an Opportunity Zone (OZ) or Rural Opportunity Zone (ROZ), this post breaks down the new rules so you can stay compliant — and avoid steep penalties.

The IRS Is Watching: Why These Changes Matter

The original Opportunity Zone program launched in 2017 with generous tax benefits — but was criticized for lacking oversight. This new law flips the script by requiring detailed, consistent reporting from:

• Qualified Opportunity Funds (QOFs)

• Qualified Opportunity Zone businesses

• Rural Opportunity Funds and businesses

The IRS will now publish annual public reports on how funds are used, what communities are benefiting, and whether investments are actually creating jobs and housing.

Key Takeaways for 2025 and Beyond

Opportunity Zone Businesses Must Report to Their Funds

Any business that receives OZ or ROZ investments must provide detailed annual statements to their fund. This includes businesses that are:

• Directly operated by the fund

• Invested in via OZ stock

• Held through OZ partnership interests

The statements must include all the data required for the fund to file with the IRS — from business type and asset values to location, employee count, and NAICS codes.

Funds Must Electronically File Comprehensive IRS Reports

Qualified Opportunity Funds and Qualified Rural Funds must now file detailed electronic returns annually (via magnetic media or machine-readable format). These returns include:

• Fund structure and total assets

• Names and tax IDs of portfolio companies

• Property values (owned and leased)

• Locations and residential unit counts

• Full-time equivalent employee data

• Investment amounts by business and census tract

• NAICS codes for every trade or business

This data will also be shared with investors, who will receive a statement with details on their investments, including acquisition/disposition dates and amounts.

IRS Will Release Public Reports on OZ/ROZ Impact

The IRS must now publish annual summaries of the Opportunity Zone program's impact, including:

• Total number of funds and assets held

• Where investments are going (by census tract)

• Breakdown of real estate vs. business investments

• Job creation metrics and employment levels

• Residential unit development

• Affordable housing and poverty indicators

Starting in the 6th and 11th year after the law’s passage, the IRS will also publish semi-decennial economic impact reports, comparing changes in OZ tracts to similar non-OZ tracts. Metrics include:

• Job growth

• Poverty reduction

• Housing affordability

• Median income

• Business formation

This adds real transparency to an area previously lacking hard data.

Separate Tracking for Rural Opportunity Zones

Qualified Rural Opportunity Funds will be subject to the same rules and penalties — but with separate IRS reporting and analysis focused on the unique characteristics of rural investments.

What This Means for You

If you’re involved in any Opportunity Zone investment, you must:

✅ Keep detailed records of assets, employees, and locations
✅ Ensure your QOF is collecting statements from all portfolio businesses
✅ File complete, accurate returns with the IRS on time
✅ Notify your investors with required statements
✅ Stay ready for new public scrutiny of fund performance

Need Help Navigating the New OZ Reporting Rules?

Our firm can help you:

• Set up compliance systems for your fund or business

• Prepare the new annual IRS forms and investor disclosures

• Avoid costly penalties

• Evaluate whether OZ or ROZ investments make sense for your tax strategy

Let’s talk before your next filing deadline.

Opportunity Zones 2.0: What the New Tax Law Means for Investors and Communities

If you've heard the term Opportunity Zone before but weren’t quite sure how it worked — or assumed the program was sunsetting — it’s time to take another look.

The One Big Beautiful Bill just gave Opportunity Zones a permanent reboot — with major enhancements for investors, communities, and rural America. Here's what you need to know.

What Are Opportunity Zones?

Opportunity Zones (OZs) are specially designated areas where investors can receive capital gains tax breaks for putting money into long-term community development projects — like real estate, small business growth, or infrastructure.

Originally created under the 2017 Tax Cuts and Jobs Act, OZs were set to phase out. But the new bill:

✅ Makes the program permanent
✅ Improves the incentives
✅ Adds new reporting requirements
✅ Expands the benefit for rural areas

What’s New Under the 2025 Tax Law

Recertification Every 10 Years

• Opportunity Zones will now be re-evaluated every decade

• The first recertification: July 1, 2026

• Zones that no longer meet income or poverty criteria may be replaced with newly qualified areas

Stricter Criteria for Designation

The new law tightens the definition of what qualifies as a low-income community:

• Income must be <70% of the statewide or metro median, OR

• Poverty rate ≥20% and income <125% of the benchmark

Also, the rule that allowed adjacent (contiguous) tracts to be designated even if they weren’t low-income? That’s gone.

10-Year Limit on Zone Duration

• Any new designation will only last for 10 years

• Example: A zone designated in 2026 will remain in effect through the end of 2035

What About the Tax Benefits?

The biggest draw of Opportunity Zones has always been the tax breaks on capital gains. The new law enhances those benefits:

Shorter Deferral Period

• Previously: Tax was deferred until 2026

• Now: Capital gains invested in OZs are deferred for up to 5 years

New Basis Step-Up for 5-Year Hold

• After holding an OZ investment for 5 years, you can exclude:

  • 10% of your original gain, or

  • 30% if it's a rural zone investment

The 10-Year “Forever Tax-Free” Rule Remains

• After 10 years, no tax is owed on any appreciation in the OZ investment

• You can now hold the investment for up to 30 years total

Special Boost for Rural Opportunity Zones

• New definition of “Qualified Rural Opportunity Fund”

• Rural OZs get higher basis increases (30%) and looser improvement requirements

• “Rural” defined as outside cities of 50,000+ or adjacent urbanized areas

New Transparency and Reporting Rules

The old OZ rules were heavily criticized for lacking oversight. That’s been fixed:

• Qualified Opportunity Funds (QOFs) must now file detailed annual reports

• Reports must include:

  • Property values, business activity, jobs created, residential units, NAICS codes

  • Investor-level reporting on buy/sell dates and amounts

• These rules apply to both regular and rural QOFs

These transparency rules are designed to prevent abuse and measure real economic impact, especially in housing and employment.

Why It Matters for You

If you're a:

• Developer looking to revitalize a neighborhood

• Investor sitting on large capital gains

• Small business owner in an eligible tract

• Local leader seeking to attract capital into your area

…these changes open a fresh window of opportunity.

You can now defer capital gains, potentially avoid tax on future growth, and invest in communities that need it most — all with a better reporting framework and longer planning horizon.

When Do These Changes Take Effect?

• Most enhancements apply to investments made after Dec 31, 2026

• Some administrative provisions (like reporting) take effect immediately

• New designations begin July 1, 2026

Need Help Navigating the New OZ Rules?

We can help you:

• Identify eligible zones (including new ones in 2026)

• Evaluate whether your capital gains qualify

• Set up or invest in a compliant Qualified Opportunity Fund

• Prepare for new reporting obligations

Schedule a consultation today to explore how Opportunity Zones can support your tax strategy and community impact goals.

Investing in Families, Kids, and Community: Tax Changes You’ll Actually Notice

The latest tax bill isn’t just about corporate reform and international compliance — it also delivers meaningful support to families, small businesses, and students. Here’s a quick overview of some of the biggest wins from Chapter 4 of the One Big Beautiful Bill.

Employer-Provided Child Care Credit: Now Bigger, Better, and More Accessible

For businesses helping employees with child care, the tax code just got a lot more generous.

• Credit increased to 40% of qualified child care costs (up from 25%)

• Small businesses (those with <$25M in average gross receipts) get an even bigger break: 50% credit

• New credit cap:

  • Up to $600,000/year for eligible small businesses

  • Up to $500,000/year for larger businesses

  • Indexed for inflation starting in 2027

Other enhancements:

• You can now claim the credit even if you partner with a third-party intermediary that contracts with providers.

• Joint ownership or operation of a facility won’t disqualify it from the credit.

Bottom line: This provision gives employers more flexibility and more reward for investing in working parents — especially small businesses.

The Adoption Tax Credit: Now Partially Refundable

Adopting a child is expensive — and this credit helps, especially now that up to $5,000 of it is refundable.

• That means even if your tax bill is low, you can still get money back.

• The refundable portion will increase with inflation starting in 2026.

• Indian Tribal governments are now recognized when determining whether a child has “special needs” for adoption credit eligibility.

Effective for tax years after 2024.

Dependent Care Accounts: Bigger Limits Ahead

Section 129 (your Dependent Care Assistance Program, or DCAP) just got an inflation-adjusted facelift:

• Old max: $5,000 ($2,500 married filing separately)

• New max: $7,500 ($3,750 MFS) — starting in 2026

This increases the tax-free amount that employers can contribute toward dependent care, providing real value to working parents.

The Child and Dependent Care Tax Credit: More Value for More People

The Child and Dependent Care Credit (CDCTC) has been expanded again:

• Base credit stays at 50% of expenses (up to $3,000 per child)

• Phaseouts start at $15,000 of AGI, but the minimum credit is now locked at 20% for households earning up to $150,000 (joint)

This helps middle-class families get more out of the credit — not just the lowest earners.

Applies starting in 2026.

New Tax Credit for Private School Scholarships (Section 25F)

Here’s a brand-new provision: a $1,700 annual federal tax credit for individuals who donate to approved scholarship-granting organizations that help fund K–12 private school tuition for lower-income families.

Key details:

• Scholarships go to kids from households earning up to 300% of area median income

• Donations must be made to approved nonprofit organizations

• If you also get a state tax credit, it reduces your federal credit (no double-dipping)

• The unused portion of the credit can be carried forward up to 5 years

• No charitable deduction allowed for the same gift

This is an opt-in program for states, so it’ll only be available where governors (or designated state agencies) choose to participate.

What Should You Do Now?

These changes are phased in across 2025 and 2026, but now is the time to prepare:

• Business owners: Talk to your accountant about setting up or expanding employer-provided child care support and DCAPs.

• Adoptive parents: Plan your timing to capture the refundable credit.

• Philanthropists and parents: Watch for your state’s participation in the new scholarship credit — it could give you a win-win: help kids, reduce your tax bill.

Have questions about how to take advantage of these new provisions?
Let’s talk — our team can help you strategize before these updates take effect.

International Tax Overhaul: What Changed and Why It Matters

The latest tax reform package brings sweeping updates to how the U.S. taxes foreign income, shifting the language, rules, and incentives that govern global business activity. If your company operates internationally or has controlled foreign corporations (CFCs), these changes are worth a close look.

A New Name and Framework: Goodbye GILTI, Hello Net CFC Tested Income

One of the headline changes is mostly semantic—but symbolically important:

• “Global Intangible Low-Taxed Income (GILTI)” has been rebranded as “Net CFC Tested Income.”

• While the term “GILTI” is being retired, the core mechanics remain in place—with a key difference: the tax-free deemed return on certain foreign investments has been repealed.

In other words, businesses will no longer receive a built-in exclusion for a “normal” return on foreign assets, meaning more foreign profits may now be subject to U.S. tax.

FDII Is Now Foreign-Derived Deduction Eligible Income (Still a Mouthful)

Another terminology shift: Foreign-Derived Intangible Income (FDII) is now Foreign-Derived Deduction Eligible Income (FDDEI).

This change reflects a move away from targeting “intangible” income specifically. Instead, the deduction is now tied to export-related income more broadly—still an incentive for U.S.-based companies selling goods or services abroad, but with less emphasis on IP.

Base Erosion Minimum Tax (BEAT) Gets a Slight Bump

To discourage multinational corporations from shifting profits offshore through payments to related foreign entities, the BEAT rate has been increased from 10% to 10.5%.

While this is a relatively small rate increase, the modification signals an effort to maintain pressure on base erosion strategies. Key structural clarifications and corrections were also made to the BEAT rules.

Coordination Between Business Interest Deductions and Capitalization Rules

New rules clarify how interest deductions work when businesses are required to capitalize interest under other tax rules (like Section 263A for inventory or long-term production):

• The Section 163(j) limitation now applies before determining whether interest should be deducted or capitalized.

• If limited, deductible amounts are first applied to interest that would otherwise be capitalized, which may reduce basis in assets rather than creating an immediate tax deduction.

This change could impact how and when businesses get tax benefit from interest expense, especially in real estate, manufacturing, or infrastructure-heavy sectors.

Other International Updates You Should Know:

• Look-through rule made permanent: Section 954(c)(6), which helps prevent foreign-to-foreign dividends from being taxed as Subpart F income, is now permanent (was previously extended annually).

• One-month deferral repeal: The election allowing certain foreign subsidiaries to use a tax year that ends one month before the U.S. parent is being repealed. This aligns reporting periods and may impact consolidation and foreign tax credit timing.

While many of these changes may seem like technical adjustments, they represent a larger effort to tighten loopholes, simplify compliance, and reinforce U.S. tax on foreign earnings. For multinational businesses, especially those relying on foreign IP, low-tax jurisdictions, or intercompany payments, the cost of foreign profits just went up.

Big Wins for Manufacturers, Exporters, and Even Spaceports

The latest tax legislation brings a slew of changes aimed at boosting American innovation and competitiveness—both at home and abroad. Here are some of the biggest takeaways from this part of the bill:

Bigger Tax Credit for Advanced Manufacturing Investments

If your business manufactures semiconductors or other advanced technology components, you're in luck. The Advanced Manufacturing Investment Credit has been increased from 25% to 35% of qualified property placed in service after December 31, 2025.

This means qualifying businesses can claim a larger upfront credit when investing in manufacturing infrastructure—especially important for U.S. competitiveness in high-tech sectors.

Spaceports Now Treated Like Airports for Bond Financing

In a nod to the growing commercial space industry, the bill updates tax-exempt bond rules to include spaceports—facilities used for launching, reentering, manufacturing, or repairing spacecraft and space cargo.

Key points:

• Spaceports can now benefit from tax-exempt facility bonds, just like airports.

• Ground leases on federal land won’t disqualify a spaceport from being treated as publicly owned.

• A spaceport does not need to be open to the general public.

• Industrial parks and manufacturing facilities for spacecraft are included in the definition.

This could help attract private capital to space infrastructure, especially in states investing heavily in aerospace.

Foreign Tax Credit Changes: More Relief, More Complexity

A series of international tax reforms aims to ease the burden for multinational businesses while tightening some loopholes.

Key adjustments include:

• Increased deemed-paid foreign tax credit: The share of foreign taxes that U.S. companies can claim as a credit on foreign income rises from 80% to 90%.

• Better sourcing rules for U.S.-produced inventory: Income from sales of U.S.-made goods through foreign branches can now be partially sourced as foreign, allowing better use of foreign tax credits (limited to 50% of the sale income).

• Updated deduction rules: The bill prevents some indirect expense allocations that previously reduced foreign-source income (such as interest and R&D), potentially improving foreign tax credit utilization.

FDII and GILTI Deductions Trimmed

Two deductions that benefit U.S. exporters and multinationals—FDII (Foreign-Derived Intangible Income) and GILTI (Global Intangible Low-Taxed Income)—are getting a haircut starting in 2026:

• FDII deduction drops from 37.5% to 33.34%

• GILTI deduction drops from 50% to 40%

While not drastic, these reductions will increase the U.S. tax liability on international income, slightly narrowing the advantage for U.S. multinationals.

Clarified FDII Scope: Now Covers More Sales

The definition of what qualifies for the FDII deduction has been expanded to explicitly include income from the sale or disposition of depreciable, amortizable, or intangible property, including things like patents and machinery.

At the same time, expense allocations have been tightened to ensure only directly related deductions count against this income.

This part of the bill reinforces a theme: invest in America, and you’ll be rewarded—especially in manufacturing, infrastructure, and advanced technology. At the same time, international tax changes aim to level the playing field without completely reversing prior incentives for global operations.

If your business deals in exports, manufacturing, tech, or operates internationally, these provisions could materially impact your tax planning starting in 2026.