Congress recently passed the One Big Beautiful Bill Act (OBBBA) into law, which made many of the provisions from the Tax Cuts and Jobs Act (TCJA) of 2017 permanent. As a business owner, understanding these changes ensures that you avoid potential violations and penalties while enabling you to maximize tax-saving opportunities.
That said, states can choose to conform or decouple from this new federal law. Decoupling means ignoring or refusing to adopt the federal tax changes, whether due to their potential impact on the state’s revenue or misaligned goals. Even if they make changes, most states use the federal tax code as a starting point for calculations. This article highlights the most notable changes from the OBBBA that can impact your state tax computations and how you can navigate the situation.
States may have a fixed-date or rolling conformity, where:
If a state chooses to decouple, taxpayers must add back any exempt income when calculating their state taxes. States that decouple will also have their own changing tax requirements.
Navigating the new landscape of business tax reform and how it affects your state tax obligations requires thorough planning. Some notable changes at the federal level include:
TCJA originally included a 100% bonus depreciation, which started phasing out in 2022. OBBBA reinstated this benefit, applicable to qualified properties. These properties include:
The bonus depreciation enables businesses to immediately deduct the full cost of their equipment or assets, which can be beneficial for cash flow, providing more room for long-term investing. You can also reduce the percentage of the bonus, for instance, to 40% or 60%, then depreciate the remaining value. Doing so applies to all qualified assets in the same class, for instance, all five-year properties in service starting in 2026.
The law also added a new, temporary 100% expensing for qualified production properties (QPP), essential for manufacturers and producers. QPPs only need to meet certain requirements. Some of these requirements include:
Parts of the property not used for production, such as offices and lodging, as well as leased property, are not considered QPP.
Section 179 of the tax code allows full cost deductions for qualified equipment and property in the first year. Previously capped at $1.25 million, OBBBA doubles this cap to $2.5 million. Unlike depreciation schedules that spread the deductions over several years, deducting the cost in the first year can benefit a business’s cash flow. It can also reduce capital costs and encourage more companies to invest in their business.
This amendment applies to properties used after December 31, 2024. Qualified properties include:
Many states, like Illinois and Pennsylvania, decouple from bonus depreciation but adopt Section 179. However, states may also set their own caps.
The TCJA offered a temporary 20% deduction for QBI of pass-through entities, including sole proprietorships, partnerships and S corporations, amending Section 199A of the tax code. OBBBA makes this 20% deduction permanent starting after December 31, 2025.
The deduction is subject to limitations, such as income thresholds, special rules for specified service trade or businesses (SSTBs), and wage and property tests. OBBBA also expanded the phase-out ranges, allowing high-income earners to enjoy the deduction for a longer period.
Additionally, OBBBA set a minimum deduction amount of $400 for QBI activities that generate $1,000 or more. This is indexed after 2026 in $5 increments.
If you’re a business owner of a pass-through entity, then you usually pay state income taxes on your personal returns. By itemizing your deductions, you may reduce your federal income tax liabilities through the SALT deduction, which refers to the state and local taxes (SALT) you’ve paid. Eligible taxes include:
OBBBA temporarily increases the SALT cap from $10,000 to $40,000 in 2025, for those earning under $500,000. This increases by 1% annually through 2029, after which it reverts to $10,000.
OBBBA extended or made some TCJA changes permanent regarding employee benefits. These include:
Public companies currently cannot deduct compensation above $1 million annually for covered employees. In 2025, covered employees include the chief executive officer (CEO), chief financial officer (CFO), and the next three highest-paid executive officers. By 2027, this would already include the five highest-paid employees, regardless of whether they are officers or not.
Once an employee is covered, they remain covered in future years. This results in more executive pay that is not tax-deductible.
When navigating the new landscape of business tax reforms in your state, keep the following strategies in mind:
The many changes brought about by the OBBBA offer opportunities for businesses to optimize and save on taxes. If you don’t know where to start, Polston Tax can help you out. Working with businesses for over two decades, our full-service tax and accounting firm has been helping people navigate tax situations, whether it’s managing back taxes, negotiating resolutions or preparing tax returns.
Our team comprises over 100 attorneys, certified public accountants (CPAs), tax preparers, case managers and other professionals — amounting to over 100 years of combined experience. Whatever tax situation you’re in, we can help find the best solution for you. Contact us today to learn more.
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