Tax Bill Highlights and What It Means for Tax Strategy: CLA

On July 1, the Senate narrowly passed its version of the One Big Beautiful Bill Act (OBBBA) in a 51 – 50 vote, with Vice President JD Vance casting the decisive tie-breaking vote.

Republican leaders are now pushing for a swift vote on the Senate package in the House, aiming to meet the July 4 deadline set by President Donald Trump.

While the bill shares broad goals with the House-passed version, there are notable differences between the two. Slim margins in the House could complicate efforts to pass the Senate’s version without changes.

Whether you’re a business owner, nonprofit leader, or individual taxpayer, understanding the implications of this law is critical to making informed decisions. With the potential for final legislation now on the horizon, this is a great time to connect with your CLA tax advisor to review your tax strategy and model potential impacts.

Here’s how you can prepare and plan ahead.

Tax opportunities to consider now

1. Reevaluate your choice of entity

With the corporate tax rate remaining low and the expanded Section 1202 proposals now available to more small business shareholders, consider revisiting your entity structure.

Pass-through businesses with enterprise value under $75 million should begin modeling whether converting to a C corporation could offer long-term tax advantages — especially if a future sale or outside investment is anticipated.

Strategic consultations, tax structuring, and scenario analysis can help determine your path forward as final legislation takes shape.

2. Analyze impacts of tax changes to business deductions

Several provisions in the OBBBA could retroactively affect your 2025 tax position. Scenario modeling can help you evaluate the effects of changes to bonus depreciation, business interest expense, and R&D deductions.

3. Plan ahead for clean energy credit changes

With over a dozen Inflation Reduction Act-related credits scheduled for accelerated phaseouts, timing plays a critical role. Key planning steps include:

• Reviewing applicable sunset dates for relevant credits
• Assessing the strategic timing for renewable energy project construction
• Intentionally plan tax credit purchases and sales to manage cash flow and tax liabilities

4. Evaluate cost segregation scenarios

With the proposed revival of 100% bonus depreciation in the OBBBA, cost segregation studies are an even more powerful tool. In addition, now is a great time to explore new opportunities to fully expense qualified production property — a new proposal that temporarily allows immediate deductions for newly constructed nonresidential real property used in manufacturing, production, or refining.

Consider:

• Launching or accelerating cost segregation projects
• Modeling scenarios to assess the impact on your 2025 estimated tax payments

5. Exempt entities: Prepare for changes

Nonprofits with employees receiving compensation in excess of a $1 million should be prepared to pay the 21% executive compensation excise tax. This tax is paid by the nonprofit organization and not the employee. It may also apply to certain employee severance agreements.

Colleges and universities can plan for major changes to the endowment excise tax which has been expanded under the proposals.

Key Senate proposals at a glance

Some key tax proposals in the Senate’s version of the OBBBA, in addition to the TCJA extensions and Trump’s campaign promises, include:

1. Extending current tax rates: The current income tax rates and brackets for individuals, estates, and trusts would continue (adjusted for inflation).

2. Bigger tax break for owners of pass-through businesses: The 20% tax deduction for owners of qualified pass-through businesses would be made permanent, maintaining the top 29.6% tax rate on qualified business income.

3. Higher limit for state and local tax (SALT) deductions for individuals, estates, and trusts: The SALT cap would be raised to $40,000 ($20,000 for married filing separately) for filers with modified adjusted gross income (AGI) up to $500,000 ($250,000 for married filing separately) before phasing down.

Both the SALT cap and the modified AGI levels would increase by 1% annually through 2029. Taxpayers in the 37% tax bracket may have their SALT deduction further limited by the Pease limitation.

The SALT cap increase is a temporary benefit; beginning in 2030, the SALT cap would revert back to the $10,000 limitation.

4. SALT cap workaround preserved: Despite previous proposals in both the House and Senate to limit the pass-through entity tax (PTET) workaround for state and local tax deductions, the final Senate package did not include any restrictions — a win for taxpayers following strong lobbying efforts.

5. Larger estate and gift tax exemption: The amount you can give away during your lifetime without paying estate or gift taxes would increase to $15 million, adjusted for inflation, starting from the 2026 tax year.

6. Changes to tax credits: Various tax credits under the IRA would be significantly changed and phased out.

7. Enhanced expensing of certain property: Businesses would be able to fully deduct the cost of certain property and equipment with enhanced bonus depreciation starting January 19, 2025, and increased Section 179 expensing starting January 1, 2025.

8. Restoration of full deduction for research and development costs: Beginning in 2025, companies would be able to fully deduct their domestic research and development expenses. Under the Senate version, previously capitalized costs can be deducted in 2025, with even more favorable options for certain small business taxpayers.

9. Increased business interest deduction: Beginning in 2025, businesses may be able to deduct more interest expense due to the reinstatement of the depreciation and amortization addback when computing the Section 163(j) business interest limitation.

10. More generous tax break for “small business” investors: The Senate package expands who can qualify and how much gain can be excluded when selling qualified small business stock.

11. New reporting rules for tips and overtime deductions: Employees would now be able to deduct certain tips and overtime pay from their federal taxable income, but employers must continue to report these amounts on Form W-2. Payroll systems may need updates to track and separately report these items accurately.

12. Changes to the employee retention credit (ERC): The period for the IRS to challenge an ERC claim for the third and fourth quarter of 2021 would be extended to at least six years from the date the claim is filed. The IRS would stop processing refunds for Employee Retention Credit claims for Q3 and Q4 of 2021 filed after January 31, 2024.

13. Renewed opportunity zone program: The program that encourages investment in economically distressed areas would be renewed and modified.

14. International tax implications: Key updates include a modest increase in the base erosion and anti-abuse tax (BEAT) rate (from 10% to 10.5%), making the controlled foreign corporation (CFC) look-through rule permanent, and restoring limitations on downward attribution when determining CFC status.

It also adjusts how a U.S. shareholder’s share of CFC income is calculated and reduces the GILTI and FDII deduction percentages. Most of these provisions apply to tax years beginning after December 31, 2025, though some may take effect earlier.

15. Tariffs: The de minimis commercial import exception to U.S. tariffs would be repealed, effective July 1, 2027.

How CLA can help with tax law changes

Whether you’re a business owner, nonprofit leader, health care administrator, or international investor, we work with you to develop effective tax strategies aligned with your goals.

Our team is available now to consult with you on recent policy changes and discuss how they may impact your family and your business. We can connect for planning meetings and provide ongoing support to help you make informed decisions this year and beyond, regardless of where trade and tax policy lands.

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