The July 4, 2025 passage of the One Big Beautiful Bill—widely known as OBBB—marks one of the most extensive federal tax revisions in recent years. For closely held businesses, the law introduces a combination of opportunities, limitations, and compliance challenges that demand careful planning. Although many of the provisions aim to simplify reporting and stimulate growth, the ripple effects for small and mid-sized businesses will be significant throughout 2025 and the years ahead. 

This blog provides a comprehensive breakdown of the reforms that matter most to owners of closely held entities, including changes to deductions, credits, reporting requirements, and business structure considerations. It also highlights forward-looking strategies business owners can begin implementing now to stay compliant and optimize their tax position. 

 1. A New Landscape for Pass-Through Entity Taxation

Closely held businesses—particularly S corporations, partnerships, LLCs, and sole proprietorships—experience the greatest impact under OBBB. Several reforms directly affect the flow-through income model many business owners rely on. 

Revised Qualified Business Income (QBI) Deduction Rules 

The 20% QBI deduction introduced in the 2017 Tax Cuts and Jobs Act remains in place, but OBBB brings notable restrictions: 

• A reduced threshold for high-income taxpayers, meaning more owners may now face limitations based on W-2 wages and capital investment. 

• Certain professional service businesses—legal, medical, consulting, engineering, architecture—face an expanded phase-out range, affecting eligibility for owners with substantial pass-through income. 

• Anti-abuse provisions now target business owners who split entities or change classifications solely to preserve the deduction. 

Planning Insight: 

 Owners should examine taxable income projections through at least 2026. In some cases, adjusting compensation, retirement contributions, or entity structure may preserve partial or full QBI benefits. 

 2. Depreciation and Expensing: Better, But More Complex

If your business frequently invests in equipment, technology, or capital assets, OBBB’s depreciation reforms will be front and center. 

Bonus Depreciation Adjustments 

Bonus depreciation was scheduled to decrease gradually under previous law. OBBB provides partial relief by: 

• Re-establishing a 60% bonus depreciation rate for 2025 and 2026, with future reductions following a slower phase-down. 

• Allowing used property to continue qualifying, subject to related-party limitations. 

Section 179 Expensing Increased 

The popular Section 179 deduction receives a meaningful boost: 

• Expensing limit increases to $1.45 million. 

• Phase-out threshold increases to $4 million. 

• More property types now qualify, including select energy-efficient building improvements. 

Planning Insight: 

 Businesses planning major purchases should time acquisitions carefully. Taking full advantage of Section 179 or bonus depreciation may significantly reduce taxable income during the transition years. 

 3. New Reporting Requirements for Entities and Owners

A central theme of OBBB is enhanced transparency, and that means more reporting—not less. 

Expanded Beneficial Ownership Reporting 

Building on the Corporate Transparency Act, OBBB requires: 

• Additional disclosures for multi-tiered partnerships. 

• Updated reporting for changes in ownership within 30 days (previously 90 days). 

• Increased penalties for late or inaccurate filings. 

Stricter Requirements for Intercompany Transactions 

Businesses with related entities—common among closely held groups—face new compliance standards, including: 

• Annual reporting of inter-entity service agreements. 

• Documentation of transfer pricing for transactions between commonly controlled entities. 

• Restrictions on shifting income among subsidiaries to reduce tax liability. 

Planning Insight: 

 Businesses should audit their legal structure and intercompany workflows now. Clean documentation and updated agreements can help avoid penalties and ensure proper filing. 

 4. Limits on Deductions and Credits Many Owners Rely On

Several deductions commonly used by small and mid-sized businesses see modifications under the new law. 

Business Interest Expense Deduction Tightened 

OBBB tightens the limits introduced in earlier tax reforms: 

• Entities with average gross receipts below $30 million may still qualify for the small-business exemption. 

• For others, deductibility is reduced based on a revised 30% EBITDA calculation (moving gradually toward EBIT for larger firms). 

Entertainment Expense Rules Revisited 

While meals remain 50% deductible, OBBB specifically restricts: 

• Mixed-use events that combine entertainment and business development. 

• Deductions for outings involving family members or non-employee participants unless strict documentation is maintained. 

Workforce and Training Credits Modified 

The law introduces new incentives for hiring and training employees but removes several smaller, older credits. In some cases, the credit consolidation results in lower overall benefit but easier qualification for mid-sized employers. 

Planning Insight: 

 Employers should review hiring projections for 2025 and 2026. New worker-training credits may substantially offset the cost of onboarding or upskilling staff. 

 5. Entity Structure Considerations: Is It Time to Reevaluate Your Model?

One of the ripple effects of OBBB is renewed discussion around whether pass-through entities still offer the best long-term tax advantages for owners. 

C Corporations See a Mild Rate Reduction 

OBBB introduces a new 19% corporate tax rate, reduced from the previous 21%. Although modest, this rate—combined with elimination of certain limitations on corporate charitable deductions—makes the C corporation option appealing for: 

• Businesses reinvesting profits rather than distributing them 

• Multi-owner operations seeking simpler equity structures 

• Companies preparing for acquisition 

Pass-Through Entity Owners Must Factor in More Variables 

Owners must now consider: 

• QBI limitations 

• New reporting requirements 

• Restrictions on certain pass-through losses 

Planning Insight: 

 Entity restructuring should never be rushed. Owners should review a multi-year tax projection comparing S corporation, partnership, and C corporation treatment before making changes. 

 6. Payroll and Compensation: New Compliance Rules

Closely held businesses often use flexible compensation strategies. OBBB reshapes several areas, including: 

New Payroll Credit Standards 

Some payroll-related incentives now require: 

• Clear documentation of employee classification 

• Proof of domestic hours worked 

• Compliance with wage thresholds 

Misclassification penalties also increase, reinforcing the importance of proper HR and payroll systems. 

Owner Compensation Scrutiny 

OBBB introduces new tests for determining “reasonable compensation” for S corporation shareholders. The IRS is expected to publish additional guidelines in late 2025. 

Owners receiving comparatively low wages may face: 

• Reclassification of distributions 

• Payment of back payroll taxes 

• Accuracy-related penalties 

 7. How Closely Held Businesses Should Prepare

The passage of OBBB makes 2025 a transition year. The best-prepared business owners will be those who proactively analyze the new law’s impact instead of waiting for year-end surprises.

1. Reevaluate Tax Projections Now

Estimate your income and deductions under both prior law and OBBB to identify where adjustments can yield immediate savings.

2. Strengthen Your Recordkeeping

Enhanced reporting means stronger documentation will be required for: 

• Ownership changes 

• Intercompany transactions 

• Compensation decisions 

• Deduction eligibility 

3. Review Capital Expenditure Plans

Updated depreciation rules may create opportunities to accelerate or delay purchases depending on the strategic benefit.

4. Consider Multi-Year Planning

Some reform provisions begin phasing in or out through 2028. A multi-year tax strategy helps smooth fluctuations in liability.

5. Consult a CPA Specializing in Business Taxation

OBBB introduces nuanced rules where interpretation matters. Working closely with a tax professional helps avoid pitfalls and uncover overlooked opportunities. 

Final Thoughts 

The One Big Beautiful Bill brings meaningful change to the tax landscape for closely held businesses. While some provisions streamline operations or offer new incentives, others increase complexity, tighten deductions, or require more rigorous reporting. These reforms can influence everything from how a business compensates its owners to how it structures its entities, finances new investments, and plans future growth. 

With thoughtful planning and a proactive approach, closely held businesses can navigate the new requirements successfully—while positioning themselves to take advantage of the benefits the reform provides. 

If your business needs help evaluating the impact of OBBB or developing a forward-looking tax plan, Glater & Associates, P.A. is here to assist. 

Disclaimer:
The information provided in this blog is for general informational purposes only and should not be construed as legal, financial, or tax advice. Every individual’s situation is unique, and laws or regulations may change over time. Before making any financial or business decisions, please consult a qualified CPA or financial advisor who can provide guidance tailored to your specific circumstances.