U.S. Tax Reform - What Business Owners Need To Know

What it is: The State and Local Tax (SALT) deduction allows taxpayers to deduct certain taxes paid to state and local governments, but has been capped since 2018.
 

OBBBA update: The SALT cap is expanded to $40,000 from 2025 through 2029. However, the deduction begins to phase out for taxpayers with adjusted gross income (AGI) over $500,000, and the cap reverts to $10,000 in 2030. Importantly, the Pass-Through Entity Tax (PTET) workaround remains available in many states.
 

Action: Taxpayers in high-tax states should coordinate SALT payments and PTET elections to optimize deductions. Trust structures and income smoothing strategies may help stay below phase-out thresholds. Consider timing income and deductions to maximize the benefit during the expanded cap period.

What it is: Charitable contributions can reduce taxable income. Planning for charitable giving in high-income years can both maximize tax efficiency and support charities for years to come.
 

OBBBA update: A new 0.5% AGI floor applies before charitable deductions can be claimed, meaning only contributions exceeding that threshold are deductible. The 60% AGI cap for cash gifts to public charities is made permanent. Additionally, a new above-the-line deduction of up to $2,000 for joint filers is available for cash gifts to qualified charities, even for non-itemizers.
 

Action: High earners should reassess charitable giving strategies, especially in years with large income. Consider “bunching” gifts into a single year, using donor-advised funds, or donating appreciated assets to maximize tax efficiency. Review how the AGI floor affects planned contributions.

What it is: The corporate tax rate affects C corporations and investors in corporate structures, including family offices and private equity vehicles.
 

OBBBA update: The 21% corporate tax rate, introduced under the TCJA, is made permanent. This provides long-term clarity for corporate tax planning and removes uncertainty around potential rate increases.
 

Action: Investors should evaluate entity choice—C corporations may now offer more favorable tax treatment, especially when paired with QSBS benefits. Consider the impact on portfolio companies, family office structures, and exit strategies.

What it is: Itemized deductions allow taxpayers to reduce taxable income beyond the standard deduction, but many were eliminated under the TCJA.
 

OBBBA update: A new 2/37 limitation applies to total itemized deductions for high earners, meaning deductions are capped at 35% marginal tax – a 2% haircut for those in the 37% tax bracket.
 

Action: Review deduction strategies, especially in years with large expenses. Consider timing and bunching deductions to maximize benefit. Explore alternative planning tools such as charitable trusts or tax-efficient investment vehicles.

What it is: QSBS refers to shares in certain domestic C corporations that meet specific requirements under Section 1202 of the Internal Revenue Code. If held for a qualifying period, gains from the sale of QSBS can be excluded from federal income tax—making it one of the most powerful tax planning tools for founders, early employees, and investors in startups.
 

OBBBA update: The Act introduces three major enhancements to QSBS treatment for stock acquired after July 4, 2025.

• A taxpayer can now exclude up to $15 million in capital gains per company (up from $10 million previously), or 10x the original investment basis, whichever is greater.
• The time required to hold the investment is also reduced, offering more flexibility for earlier exits. Now, 50% of the gain may be excluded after 3 years, 75% of the gain may be excluded after 4 years, and 100% gain may be excluded after 5 years.
• Finally, the asset threshold for eligible companies has increased from $50 million to $75 million, making more companies eligible for QSBS treatment.
   

Action: Identify QSBS-eligible investments in their portfolios and confirm compliance with Section 1202 requirements, as not every business qualifies. Time exits strategically to maximize the tiered exclusion benefits. Document QSBS status carefully, including maintaining a “QSBS file” with proof of original issuance, gross assets, and active business status. Work with legal counsel to ensure proper documentation and compliance, and explore rollover opportunities if selling before the holding period is met.

What it is: QOZs offer tax deferral and exclusion for capital gains invested in designated low-income areas.
 

OBBBA update: The current OZ program sunsets in 2026. A new, permanent OZ regime begins in 2027, with updated zone definitions and enhanced benefits for rural investments, including a 30% basis step-up after five years and longer deferral periods. New zones will be identified, offering new real estate development opportunities. 
 

Action: Review existing OZ investments for compliance and exit timing. Prepare for the new OZ system by identifying potential Rural Opportunity Funds and aligning capital gains strategies accordingly.

What it is: The QBI deduction allows pass-through business owners to deduct up to 20% of qualified income, reducing effective tax rates.
 

OBBBA update: The 20% QBI deduction is made permanent, removing the sunset provision that would have ended it after 2025. This applies to eligible income from partnerships, S corporations, and sole proprietorships, subject to limitations for specified service trades or businesses (SSTBs).
 

Action: Business owners should optimize structure and income to maintain eligibility. SSTBs should monitor phaseouts and consider restructuring. Coordinate with tax advisors to ensure compliance and maximize the deduction.

What it is: The EBL limitation restricts the amount of business losses that can offset non-business income, affecting entrepreneurs and investors.
 

OBBBA update: The EBL limitation is made permanent, capping deductible business losses at $500,000 for joint filers ($250,000 for singles). Disallowed losses carry forward as net operating losses (NOLs), subject to separate limitations.
 

Action: Business owners should model income and loss scenarios to manage EBL exposure. Consider timing of income and deductions, and explore entity restructuring or income deferral strategies to optimize tax outcomes.