The One Big Beautiful Bill Act made some of the most significant federal business tax changes in years. You may have heard about permanent 100% bonus depreciation, the continuation of the Qualified Business Income deduction, more favorable treatment of domestic research expenses, and changes to the business interest deduction.
But knowing that the tax law changed is only the first step.
The more important question is whether those changes should affect the decisions you are making about your business today.
For some business owners, the new rules may create opportunities to invest in equipment, expand operations, reconsider financing, or take advantage of deductions that were previously scheduled to disappear. But tax savings should never be considered in isolation. A decision that looks good on a tax return can affect cash flow, liability exposure, insurance needs, ownership structure, and ultimately the value of the business you are building.
That is why I encourage business owners to look beyond the tax provision itself and consider the bigger picture.
What Actually Changed?
Several provisions of the One Big Beautiful Bill Act are particularly important for closely held business owners.
One of the most significant is the return of permanent 100% bonus depreciation. For qualifying property acquired and placed in service after January 19, 2025, businesses may generally deduct the full cost in the first year rather than depreciating that property over a number of years. This can make the tax impact of purchasing qualifying equipment and other business assets much more favorable, although the rules regarding which property qualifies still matter.
The law also made the Section 199A Qualified Business Income deduction permanent. This deduction can allow eligible owners of sole proprietorships and pass-through businesses, including S corporations, partnerships, and certain LLCs, to deduct up to 20% of qualified business income. The new law also expanded the phase-in ranges that apply to certain limitations on the deduction.
Businesses that invest in research, software development, technology, or product development also received an important change. For tax years beginning after December 31, 2024, qualifying domestic research and experimental expenditures may once again be deducted currently rather than being required to be amortized over several years. Businesses may also elect to capitalize and amortize those domestic expenditures under the rules provided by the new law.
Finally, the law changed the calculation used for the Section 163(j) business interest limitation. For businesses subject to those rules, depreciation, amortization, and depletion are once again added back when calculating adjusted taxable income. That can increase the amount of business interest some companies are permitted to deduct.
Those are tax provisions, but the decisions they influence reach much further than taxes.
A Tax Opportunity Is Not Automatically a Good Business Decision
Suppose the new bonus depreciation rules make purchasing $200,000 of equipment more attractive from a federal tax perspective.
That does not necessarily mean you should spend $200,000.
You still need to consider what the purchase does to your cash reserves, whether you are financing it, whether you are personally guaranteeing the financing, whether the equipment creates additional insurance needs, and whether the investment fits your long-term plans for the company.
The tax deduction should be one part of the analysis rather than the reason for the decision.
The same is true when considering debt. More favorable rules for deducting business interest may change the after-tax cost of borrowing for some businesses, but taking on additional debt still affects cash flow and financial risk. If the financing requires a personal guarantee, it may also create potential exposure outside the business itself.
This is where looking at your business through the LIFT framework, Legal, Insurance, Financial & Tax®, becomes particularly valuable.
Legal: Does the Business You Have Today Match the Structure You Created Years Ago?
Tax law changes are a good reason to revisit your business structure, but they should not be the only reason.
Many business owners formed an LLC or corporation when their company was much smaller. Years later, the business may have significantly more revenue, employees, assets, debt, intellectual property, or additional owners, while the original legal structure and governing documents have barely changed.
Your entity choice affects taxation, but it also affects liability, management, ownership, succession, and what happens if you become incapacitated or die.
The permanent Section 199A deduction makes pass-through taxation an important part of the conversation for many business owners, but choosing or changing an entity solely because of one tax deduction would be shortsighted. Your attorney and tax advisor should consider the entire picture.
This is also a good opportunity to revisit your operating agreement, shareholder agreement, buy-sell provisions, and business succession plan. Your documents should reflect the company you own today, not the company you started five or ten years ago.
Insurance: Has Your Protection Kept Up With Your Growth?
A growing business usually accumulates more than revenue. It accumulates equipment, technology, inventory, employees, contractual obligations, and other forms of risk.
If new tax incentives make a significant equipment or property purchase attractive, the conversation should not end once the purchase is made. You should also ask whether your existing insurance properly protects the new asset and whether your overall coverage still reflects the size and complexity of the company.
The same is true when the value of the business increases. If you have partners, does the life insurance intended to fund a buy-sell agreement still correspond to the value of the ownership interests? If the company depends heavily on one owner or key employee, has key-person coverage been considered? If your family depends on income from the business, what would happen to that income if you died unexpectedly?
Insurance is most effective when it grows with the business rather than being addressed only after a loss occurs.
Financial: What Does the Decision Do to Your Business Beyond the Deduction?
A tax deduction can make an investment less expensive. It does not make it free.
Before making a significant purchase, expanding a facility, hiring additional employees, or taking on new debt, you still need to understand what the decision does to the financial health of the business.
How much cash will remain after the investment? Can the company comfortably service the debt if revenue decreases? Are you using business assets or personal assets as collateral? Have you personally guaranteed the loan? Would the business have enough liquidity to continue operating if something happened to you?
For businesses investing in research and development, the ability to currently deduct qualifying domestic expenditures may also change the economics of projects that were previously postponed or scaled back. That creates an opportunity to revisit those projects, but they should still be evaluated based on their business value, not simply their tax treatment.
Good financial planning asks what happens after the deduction is taken.
Tax: Look at the Rules Together, Not One at a Time
This is where coordination becomes particularly important.
Bonus depreciation can reduce taxable business income. A change in taxable income may affect other calculations, including the Qualified Business Income deduction. Financing decisions may affect the amount of deductible interest. Entity structure determines how business income ultimately reaches the owner and which tax provisions may apply.
In other words, optimizing one tax provision without considering the others can produce a very different result than expected.
This is also why I encourage business owners to involve their tax professionals before making major transactions rather than waiting until tax return preparation begins. Your CPA or tax advisor can analyze how the federal provisions apply to your specific numbers, while your legal and financial advisors can help make sure the transaction also supports the broader goals of the business.
Tax planning works best when it takes place before the decision is made.
California Business Owners Need to Be Especially Careful
For California business owners, there is another very important consideration: federal and California tax law are not the same.
Although California updated its general conformity date to the Internal Revenue Code as of January 1, 2025, the One Big Beautiful Bill Act was enacted later, on July 4, 2025. As a result, California generally does not conform to the changes made by the OBBBA.
There are also longstanding differences between federal and California tax law. For example, California does not allow the federal Section 199A Qualified Business Income deduction, and California generally does not conform to federal bonus depreciation.
That means a strategy that produces a significant deduction on your federal tax return may produce a very different result for California purposes.
For a California business owner, this makes coordinated tax planning even more important. Before making a major purchase or changing your business strategy because of a federal tax benefit, understand both sides of the equation.
Your Business Planning Should Change as Your Business Changes
The One Big Beautiful Bill Act creates meaningful opportunities for many business owners, but perhaps its greatest value is the reminder that business planning is not something you do once.
Your company changes. Tax laws change. Your assets grow. Your family changes. Your goals evolve.
If you have not revisited your entity structure, governing agreements, insurance coverage, financing, succession plan, or estate plan in several years, they may no longer fit the business you have today.
As a LIFTed Advisors® firm, I help business owners look at these issues together through the Legal, Insurance, Financial & Tax® framework. My role is not to replace your CPA, financial advisor, or insurance professional. It is to help make sure the different pieces of your planning are coordinated rather than operating independently of one another.
We begin by understanding your business, how it is structured, what you have built, where you want it to go, and who depends on it. From there, we can identify gaps in the legal and succession planning and collaborate with your other advisors when tax, financial, or insurance issues need to be addressed.
The goal is not simply to take advantage of the latest tax law.
The goal is to make thoughtful decisions today that protect the business you are building, the people who depend on it, and the legacy you ultimately want that business to create.
If your business planning has not been reviewed since these federal tax changes took effect, now is a good time to make sure your legal and succession planning still supports where your business is headed.
To learn more about how we help California business owners coordinate their business, estate, and succession planning, contact us or schedule a 15-minute introductory call today.