💰 Turbocharge Your Tax Prep: How the One Big Beautiful Bill Act Affects Your SMB Filing
The One Big Beautiful Bill Act (OBBB) significantly affects small to medium-sized businesses (SMBs) by providing powerful new incentives for capital investment, primarily through permanent changes to accelerated depreciation. Specifically, the Act makes 100% Bonus Depreciation permanent and substantially increases the Section 179 deduction limit. Consequently, SMBs must proactively review 2024 and 2025 purchases with their tax accountant. This careful review ensures they maximize these powerful, growth-oriented tax.
Decoding the OBBB: Key Tax Changes
The OBBB provides certainty to business investment. Therefore, SMB owners can confidently plan large purchases. The core changes focus on accelerating deductions.
1. Section 179 Expensing: Higher Limits
The Act dramatically increases the maximum amount a business can deduct immediately. In addition, it raises the phase-out threshold.
- Deduction Increase: The Section 179 deduction limit permanently increased to $2.5 million for qualifying property placed in service in 2025 and subsequent years. Furthermore, this amount is indexed for inflation.
- Retroactive 2024 Adjustment: Importantly, the OBBB retroactively increased the 2024 deduction limit to $1.5 million (up from the previous $1.22 million). Thus, businesses that filed their 2024 returns already should consult their accountant about filing an amended return.
- Phase-out Threshold:Likewise, the threshold where the deduction begins to decrease permanently jumped to $4 million (indexed for inflation). As a result, more SMBs qualify for the full deduction.
2. Bonus Depreciation: Permanent 100% Expensing
This change is critical for large capital expenditures. Previously, Bonus Depreciation was phasing down (60% in 2024).
- Permanent 100% Rate: The OBBB permanently reinstates 100% Bonus Depreciation. This applies to qualified property acquired on or after January 20, 2025, and placed in service after that date.
- No Income Limit: Crucially, Bonus Depreciation has no business income limitation. Hence, a business can use it to create a net operating loss (NOL) that offsets future income.
- Eligibility: Furthermore, this applies to new and used tangible personal property with a recovery period of 20 years or less.
Best Practices: Getting Started with Tax Prep
How do I get started and what are the best practices for utilizing these new rules? First, year-round organization is essential. Second, strategic communication with your accountant must occur early.
3. Immediate Action: Documenting Capital Expenditures
Your tax prep process must specifically target capital assets. Consequently, gather all documentation now.
- Organize Invoices: Collect invoices for all major equipment, machinery, software, and vehicle purchases made during 2024 and 2025.
- Verify “In-Service” Dates: In addition, document the precise date each asset was placed in service. The placed-in-service date determines the correct tax year and the applicable deduction rules.
- Review Used Property: Note whether the property was new or used property that is new to your business. Both can qualify for Section 179.
4. Proactive Q4 Planning is Mandatory
The biggest tax prep savings happen before December 31. Therefore, do not wait until January.
- Project Income: Work with your TYS accountant to project your 2025 net income. Then, determine the optimal level of Section 179 expensing you can claim (limited by income).
- Execute Purchases: Hence, if projections show high profit, execute planned equipment purchases before year-end. This secures the immediate deduction under the 100% Bonus Depreciation rule for 2025.
The Construction Accounting Nexus
The construction industry sees massive benefits from the OBBB. However, it demands specialized tax prep expertise.
5. Managing Specialized Deductions
The construction industry sees massive benefits from the OBBB. However, it demands specialized tax prep expertise.Construction firms require precision in expense allocation. For example, general equipment purchases must be distinguished from job-specific costs.
- Cost Segregation: Furthermore, owners of commercial property should explore a Cost Segregation Study. This technique reclassifies interior and non-structural components (e.g., HVAC, lighting) into 5, 7, or 15-year property. Thus, it allows for massive, accelerated depreciation deductions.
- WIP Schedule Integration: Crucially, capital deductions must be integrated with the Work-in-Progress (WIP) Schedule. The WIP Schedule dictates revenue recognition for long-term contracts under the Percentage of Completion Method (IRC Section 460). An error here can nullify deduction benefits.
- TYS Source Signal: With over 60 years of specialized construction accounting expertise, TYS ensures your firm correctly applies these enhanced rules. We maximize deductions while maintaining compliance in complex multi-state environments like Rochester, NY, and Walnut Creek, CA.
Q&A: The OBBB and Tax Prep
| Q1: Can I use 100% Bonus Depreciation and Section 179 on the same asset? | No. You cannot double-dip on the same cost. However, you can use Section 179 first (up to the $2.5M limit). Then, you can use 100% Bonus Depreciation on any remaining cost of the same asset. |
| Q2: Why must I amend my 2024 return due to the OBBB? | The Act retroactively raised the 2024 Section 179 limit to $1.5 million. If your business bought assets in 2024, you may be eligible for a larger deduction. Therefore, amending the return secures a potentially large tax refund. |
| Q3: What documentation is required for the “placed in service” date? | You need any record showing the asset was ready and available for use. For instance, this might be the date the equipment was delivered and set up, or the installation completion date for software. |
| Q4: How does the OBBB help a high-net-worth owner of a C-Corp? | A C-Corp benefits from the higher deductions. Consequently, the corporation pays less corporate tax. In turn, this leaves more after-tax earnings for the owner or for reinvestment. |
Ready to capture every deduction created by the One Big Beautiful Bill Act? Contact TYS today for specialist tax planning and Construction Accounting services in Rochester, NY, or Walnut Creek, CA.