Year-End Tax Planning for Small Businesses Under the One Big Beautiful Bill Act

As the calendar approaches December 31, 2025, small business owners face a crucial moment for tax planning. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has transformed the U.S. tax landscape by permanently extending and improving key provisions from the 2017 Tax Cuts and Jobs Act (TCJA). This legislation prevents the "fiscal cliff" of expiring deductions and credits, providing stability while adding new incentives for growth.

For pass-through entities like sole proprietorships, partnerships, LLCs, and S Corporations—which make up over 90% of U.S. small businesses—these changes could reduce tax liabilities by thousands. As year-end approaches, proactive strategies can help maximize deductions, defer income, and set your business up for success in 2026. Here’s how to leverage OBBBA during economic uncertainties such as inflation and supply chain pressures.

Harness Permanent 100% Bonus Depreciation and Enhanced Section 179 Expensing

OBBBA restores full 100% first-year bonus depreciation for qualified property acquired and placed in service after January 19, 2025, making it permanent instead of phasing out to zero by 2027 as under previous law. This applies to new or used equipment, machinery, vehicles, and certain manufacturing buildings if construction begins before January 1, 2029. Pair it with Section 179, now increased to a $2.5 million deduction limit (up from $1.25 million), phasing out only above $4 million in purchases—both adjusted for inflation after 2025.

Strategy: Accelerate capital investments before year-end. If you’ve considered a new delivery van or software upgrade, purchase and deploy it now to deduct the full cost against 2025 income. For a $100,000 equipment purchase, this could create immediate savings at your marginal rate (up to 37% for high earners), freeing cash for reinvestment. Small manufacturers benefit most, as OBBBA expands qualifying assets. Audit your asset needs: Defer non-essential purchases if you expect lower income in 2026, but act quickly—used property qualifies retroactively if acquired after January 19.

Optimize the Qualified Business Income (QBI) Deduction

The Section 199A QBI deduction, which was set to expire after 2025, is now permanent at 20% of qualified income. OBBBA eases phase-outs for specified service trades or businesses (SSTBs) like consulting or law. Thresholds increase to $197,300 (single) or $394,600 (joint) for 2025, with expanded phase-in ranges ($75,000 for single filers and $150,000 for joint filers) and a $400 minimum deduction for modest earners. Wage and capital limitations still apply above thresholds, but modifications lessen their impact.

Strategy: Structure income to stay under phase-out cliffs. If your taxable income nears $394,600 (joint), contribute to retirement plans or pay bonuses to dip below, unlocking the full 20% shield. For SSTBs, document active participation to qualify. A business netting $500,000 in QBI could deduct $100,000, saving $37,000 at top rates. Review entity structure: Convert to S-Corp if feasible for salary reasonableness, blending W-2 wages to boost eligibility. Year-end payroll tweaks can fine-tune this.

Restore R&D Expensing for Innovation-Driven Firms

Post-TCJA, domestic research and experimental (R&E) costs required five-year amortization, which placed a burden on startups. OBBBA reverses this, allowing for immediate full deduction of domestic R&E starting in 2025, with retroactive relief for small businesses (under $31 million in average gross receipts). Foreign R&E remains amortized.

Strategy: Track 2025 R&D expenses—such as prototyping, software development, and process improvements—and deduct them fully. Eligible companies can adjust their 2022-2024 tax returns to secure refunds, potentially adding over $50,000 in cash. If engaging in innovation, prioritize experimenting before December 31. This not only reduces taxes but also demonstrates IRS compliance during increased audits.

Manage Losses, Defer Income, and Ease Compliance Burdens

OBBBA extends the limits on excess business losses ($500,000 joint, adjusted for inflation), carrying over the excess as net operating losses (NOLs) that offset up to 80% of income. It also raises the 1099 reporting threshold to $2,000 from $600, reducing paperwork for freelancers and vendors.

Strategy: Harvest losses by writing off obsolete inventory or bad debts now, offsetting gains. Defer income via accrual-method delays or December invoicing if expecting steady 2026 rates. For SALT, the cap rises temporarily to $40,000 (2025-2029), aiding high-tax state owners—bunch deductions accordingly. Retirement max-outs shine: Solo 401(k)s allow $70,000 contributions (including catch-ups), with a deductible and growth that is tax-free.

Estate Planning and Broader Incentives

QSBS gains exclusion increases: 100% for five-year holdings, with caps rising to $15 million (from $10 million) and gross assets up to $75 million. Estate exemptions remain at $15 million permanently. Childcare credits are expanded for small firms with less than $31 million in receipts.

Strategy: Gift QSBS shares or fund trusts before year-end to lock exclusions. Offer employee childcare for credits up to 50% of costs.

In summary, OBBBA empowers small businesses with tools for resilience. By December 31, model scenarios: A $200,000 income business might save over $40,000 through depreciation and QBI. Consult a CPA now—deadlines are approaching, and missed opportunities build up. With strategic moves, turn tax season into growth fuel.