One Big Beautiful Bill Act (OBBBA) - Personal Financial Planning Strategies for Business Owners and Founders
After months of negotiations, the One Big Beautiful Bill Act (OBBBA) is now the law of the land, and it includes numerous provisions that will have profound tax and financial implications for business owners and founders for many years. Given the vast number of new tax provisions being implemented and current tax provisions being altered, taxpayers have a lot to consider with upcoming investment and business decisions. Here’s a high-level overview of some of the most impactful provisions and potential personal financial planning strategies that owners and founders might want to consider.
QSBS Strategies Are Even More Attractive
Qualified small business stock (QSBS), already one of the most profound financial planning opportunities for entrepreneurs in the tax code, just got significantly more attractive. QSBS allows qualifying businesses and founders to exclude up to $10 million in capital gains during a liquidity event. However, under the OBBBA, that exclusion increases to $15 million for shares issued after July 4, 2025 and it will continue to rise over time, as it becomes indexed to inflation. The gross aggregate asset test limitation also increases from $50 million to $75 million, which broadens the universe of eligible QSBS eligible companies and shareholders. This more liberal limitation will also be indexed over time.
Moreover, the holding period requirements for QSBS eligibility have been relaxed. Investors can now receive a 50% exclusion after holding the stock for 3 years, and a 75% exclusion after 4 years. Pre-OBBBA shares still have an all-or-nothing exclusion with a 5-year required holding period though. The new rules may allow many startup founders and employees to avoid triggering the alternative minimum tax (AMT) by reducing the pressure to exercise ISOs immediately just to start the 5-year QSBS holding period. Similarly, many founders and employees who typically make an 83(b) election and pay income tax on unvested shares to begin the 5-year clock may no longer feel the same urgency. With a shorter holding period now in place, taking these steps right away may be less compelling.
Many pass-through business owners (S-corps and LLCs) businesses that are expecting high growth and a potential sale may want to consider analyzing the pros and cons of converting to a C-corp given that QSBS is more attractive and the timeline to tax savings is shorter.
Opportunity Zones Are Back
OBBBA resets the three potential tax benefits for Qualified Opportunity Zones (QOZs) originally introduced under the 2017 Tax Cuts and Jobs Act. Beginning January 1, 2027, investors with significant capital gains can reinvest in QOZs and potentially receive:
A 10% step-up in basis after holding the investment for 5 years,
Deferral of the original capital gain until the 2033 tax year, and
Full exclusion of future gains on the QOZ investment if held for at least 10 years.
In addition, OBBBA introduces Rural Qualified Opportunity Zones (RQOZs), which offer an enhanced 30% basis increase for investments held at least 5 years.
Given that the tax benefits are only available to investments made in 2027 or later, investors looking to defer or eliminate capital gains before then should carefully consider their options. One potential strategy for investors with large capital gains is to contribute the appreciated assets to a charitable remainder trust (CRT). The CRT can then sell the assets without immediate tax consequences and pay the grantor an annuity over time. Because capital gains are recognized only as distributions are made, the grantor could reinvest those proceeds in 2027 or later, when Qualified Opportunity Zone (QOZ) investments once again become eligible for tax benefits. Alternatively, an installment sale could be used to defer recognition of gains from the sale of a business interest or real estate until 2027, aligning with the new QOZ timeline.
That said, investors should be aware that the areas eligible for qualified opportunity zones will now have a narrower criteria to fit. Under the new bill, the median family income in a QOZ census tract must be no more than 70% of the statewide average, down from 80% under the TCJA. In theory, this narrower definition could limit the pool of eligible investment areas and potentially increase the risk profile of available QOZ opportunities.
SALT Deduction Cap Up To $40K
Many high-income earners in high-tax states stand to benefit significantly from the state and local tax (SALT) cap which was increased from $10,000 to $40,000. It should be noted that limitations on SALT workarounds, like the Pass-Through Entity Tax (PTET) in New York, were not included in the bill. Unfortunately, for highest earning tax payers, the bill introduces a phaseout of the SALT deduction, reducing the cap back to $10,000 for those with incomes over $600,000. This phaseout, which applies to incomes between $500,000 and $600,000, effectively results in an additional $30,000 being taxed as the taxpayer’s earnings increase from $500,000 to $600,000.
Business owners earning mid six figures should generally prioritize pre-tax 401(k) contributions over Roth 401(k) contributions, and also explore opportunities to defer significant income through qualified retirement plans such as cash balance and profit-sharing plans. For real estate owners in the highest tax brackets, establishing separate non-grantor trusts for vacation homes could allow property taxes to be deductible up to the $40,000 limit. While there are new charitable contribution limitations outlined below, non-grantor trusts remain a potential strategy to maximize the deductibility of charitable donations.
With the higher SALT cap, it’s likely so many more Americans will be itemizing. Many taxpayers should get back into the habit of keeping records for charitable contributions, medical expenses, and other potential itemized deductions they weren’t getting the benefit of since TCJA. OBBBA also continues the TCJA prohibition on investment management fees as a miscellaneous itemized deduction. One strategy for business owners to consider is working with their financial planner to potentially separate out the business owner portion of financial planning fees and running them through the business to garner a deduction.
Roth Conversions Now Have More Potential Pitfalls
With the OBBBA, Roth conversions, a common strategy to reduce overall lifetime tax liability, are suddenly much more complicated. Typically, in a Roth conversion you would convert pre-tax IRA money into a Roth IRA account, if you expect the marginal tax rate you pay today on the distribution would be lower than the marginal rate you expect on distributions in the future. With so many new phaseouts, including the new senior deduction phaseout, the SALT deduction phaseout, the tips deduction phaseout, the auto loan deduction phaseout, and the overtime deduction phaseout, it makes sense to tread carefully to model out the impact of additional income of a potential Roth conversion with your CPA or financial planner. Speaking of tips and overtime, business owners will now be responsible for providing income information on tips and overtime on the W2s they provide to employees.
Alternative Minimum Tax (AMT) Changes and Stock Option Planning
Many startup founders and employees caught a break as the OBBBA for the most part continues the post-TCJA favorable high exemption and phaseout exemptions. Large AMT payments can be triggered when executing incentive stock options (ISOs) with 409A valuations above their strike price. However, between 2025 and 2026 the exemption phaseout will decrease from $1,252,700 to $1,000,000 (MFJ), and the exemption phaseout will decrease at a faster rate (50% versus 25%). For some, it may make sense to run an analysis on exercising some ISOs in 2025 while the current, more favorable exemption is still in effect. The good news is that the phaseout income threshold will continue to rise with inflation after 2026.
Should Prior Planning Around the Estate Exemption Be Reversed?
America's wealthiest families avoided a significant reduction in the estate and gift tax exemption with OBBBA’s passage, and will see a lifetime limit of $15 million for individuals ($30 million per married couple) in 2026 with inflation increases thereafter. For families that engaged in significant gifting to non-grantor trusts, irrevocable life insurance trusts (ILITs), spousal lifetime access trusts (SLATs), family limited partnerships (FLPs) for family business owners, and other planning vehicles in anticipation of lower gift and tax exemption, several strategic options remain. One approach is simply to hold steady, recognizing that future legislative changes could once again lower the exemption.
Some families may now consider reversing earlier planning strategies by bringing previously gifted assets back into their estate. This could provide greater access to those assets without the restrictions of trust structures, or allow them to benefit from the step-up in basis at death, something that assets held in non-grantor trusts typically do not receive. For families exploring this path, it may be worth evaluating options such as unwinding trusts, adding a general power of appointment through decanting, engaging a trust protector, or seeking court-approved modifications.
If bringing assets back into the estate proves to be the best strategy, it’s also wise to incorporate flexibility for future legislative changes. For example, a trust could include a general power of appointment to include the assets in the estate, while also allowing for the power to be converted to a limited power, effectively removing the assets from the estate again if needed.
While many families won’t have to do significant Federal estate tax strategies anymore, many states still have an inheritance or estate tax at much lower thresholds. There are numerous estate tax mitigation strategies that high net worth New Yorkers should consider, given its $7.16 million 2025 estate tax exemption, which isn’t portable.
$750K Home Interest Deduction Cap Made Permanent
In a setback for homeowners, the TCJA’s $750,000 cap on mortgage interest deductibility has been made permanent. Compounding the averse effects of this provision is that both average home prices and mortgage rates are significantly higher than when this limitation was enacted in 2017. However, for those with substantial balance sheets, one potential workaround is to pay down mortgage debt exceeding the cap using asset-based lending secured by their investment portfolio. Investors with sizable accounts can often negotiate favorable borrowing rates through custodians like Schwab or Fidelity. Investment interest may be deductible to the extent it’s offset by net investment income on the tax return. That said, this strategy carries risk and may not be suitable for those without a strong financial foundation. It should be noted that the OBBBA still allows those with mortgages that were issued December 15, 2017 or earlier, and any related refinancing, to deduct interest up to $1,000,000 of principal.
QBI Deduction Made Permanent
For many business owners, one of the most significant provisions in OBBBA is the permanent extension of the 20% Qualified Business Income (QBI) deduction under Section 199A. The deduction becomes even more valuable with expanded phaseout thresholds, rising from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for those married filing jointly. The deduction will continue to exclude businesses in the legal, financial, health care, and other service industries. With the QBI made “permanent”, pass-through entities like LLC and S corps are incrementally more attractive as an entity choice for business owners.
Significant Business Purchase Deductions
Under OBBBA, businesses with significant capital, research, and real estate investments stand to gain substantial benefits. Small businesses can once again immediately expense research and development costs, with the added advantage of amending tax returns to claim U.S. R&D expenses from 2022 through 2024.
Additionally, owners can fully depreciate “qualified production property” (QPP) which are facilities used to manufacture, produce, or refine eligible US products. QPP could be very attractive for certain businesses. It may make sense to review future capital projects, and analyze whether it makes economic sense to accelerate potential capital projects. Other favorable measures include 100% bonus depreciation for qualified assets placed in service after January 19, 2025 as well as more favorable limits on Section 179 expensing. As many business owners have made estimated payments based on pre-OBBBA depreciation expenses, it makes sense to revisit upcoming estimated payment calculations in light of the more favorable property expense provisions.
Business owners and entrepreneurs may also benefit from more relaxed limitations on business interest. Prior to OBBBA, the interest deduction limit was calculated using earnings before interest and taxes. Under OBBBA, depreciation and amortization are now included, potentially allowing greater interest deductions. With all the new provisions, business owners, especially those with pass-through entities, should consider the secondary effects of lowering taxable income, such as triggering excess business loss limitations and potentially reducing the value of itemized deductions or qualified business income deductions.
Trump Account Child Ownership - Is It Worth It?
Although the new Trump Accounts (TAs) introduced in OBBBA provide a $1,000 government deposit for children born between 2025 and 2028, it isn’t entirely clear if they are a compelling alternative to 529 plans for parental contributions. Gains in 529 plans are distributed tax-free when used for qualified education expenses, whereas distributions from gains in Trump Accounts are treated as ordinary income. Furthermore, while these accounts allow contributions of up to $5,000 per year, 529 plans support much larger contributions and now cover a broader range of qualified expenses. Additionally, 529 contributions are deductible in many states, including New York, offering further advantages for parents.
On the other hand, perhaps it makes sense for business owners to also contribute up to the additional $2,500 employer contribution limit for a total of $7,500 annually. We’ll need more guidance on this from the IRS in the coming months, but it may be possible to build this balance over time and convert the proceeds to a Roth IRA at age 18. Taxes could be low, since the child would likely be at low marginal rates at that time.
Charitable Giving Strategies Increase in Complexity
There are multiple rule changes that will impact the deductibility and tax efficiency of charitable contributions. Given the interplay between many of the new rules, it’s prudent to model out the timing and amount of large potential contributions with robust up-to-date software. Here are some of the OBBBA changes:
In a boon for non-itemizers, OBBBA introduces a new above-the-line charitable deduction, capped at $2,000 for those filing jointly.
A new 100% dollar-for-dollar tax credit (rather than a deduction) for donations up to $1,700 made to scholarship-granting organizations will be implemented in 2027. Since the program has a $4 billion annual cap, taxpayers should plan ahead and act early in 2027 to take advantage of the benefit.
The bad news is that only charitable contributions that exceed 0.5% of adjusted gross income (AGI) will now be eligible as itemized deductions. When it comes to structuring around a business sale, owners should be thoughtful about the timing and amount of charitable donations in the year of a liquidity event. In such a high AGI year, the charitable floor could be a very high dollar amount. Also, since the 0.5% does not kick in until 2026, some owners may want to consider accelerating 2026 contributions into 2025.
Itemized deductions will be reduced by the lessor of 2/37 of the total amount claimed or the amount that exceeds the start of the 37% bracket.
The 60% AGI limitation for cash charitable contributions, originally set to expire in 2026, has been made permanent.
C corporations are now subject to a new rule requiring charitable contributions to exceed 1% of taxable income before they become deductible.
Because the SALT deduction cap phases down from $40,000 to $10,000 for incomes between $500,000 and $600,000, it may still be advantageous to maximize profit-sharing or cash balance plan contributions to reduce AGI and preserve the full SALT deduction thus helping to ensure charitable contributions remain itemized. Additionally, bunching several years’ worth of donations into a single upfront contribution to a donor-advised fund (DAF) can further increase the likelihood of itemization to maintain the deductibility of charitable gifts.
For many taxpayers, the new tax provisions in the OBBBA could prove to be more impactful than 2017’s Tax Cuts and Jobs Act. Our thoughts in this article are meant to provoke discussion and dialogue around potential planning ideas, but they do not comprehensively address all or even most of the bill’s new provisions. Given the scope and complexity of the new bill, we highly recommend consulting a qualified tax professional to optimize your tax and financial planning strategy.
David Flores Wilson, CFP®, CFA, CM&AA, CEPA is a New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioner & Managing Partner at Sincerus Advisory. Click here to schedule a time to speak with us.
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