In our previous articles, we have said that the One Big Beautiful Bill Act (OBBBA) represents one of the most significant tax law updates in years. While the legislation contains hundreds of provisions, several changes are particularly relevant for high-income households, including business owners and families with substantial estates.
Below are ten of the most important changes and the planning conversations they may trigger.
1. Greater Certainty for Long-Term Tax Planning
A major theme of OBBBA is permanency. Several provisions that were previously temporary have now been extended indefinitely. This includes:
- pass-through deductions
- estate tax exemptions
- certain business deductions
Planning opportunity:
Greater certainty allows families and business owners to build long-term tax strategies with fewer sunset concerns.
2. TCJA individual tax rates made permanent
The Tax Cuts and Jobs Act (TCJA) passed in 2017 lowered top federal income tax rate to 37%. Instead of reverting to higher pre-2018 rates, the OBBBA makes it permanent, providing greater long-term planning certainty.
Planning opportunity:
Years with temporarily lower taxable income may still present opportunities to:
- convert portions of traditional IRAs to Roth IRAs
- reduce future required minimum distributions
- leave tax-free assets to heirs
3. The 20% Pass-Through Income Deduction Is Now Permanent
The Internal Revenue Code Section 199A Qualified Business Income deduction allows many business owners to deduct up to 20% of pass-through income. Before OBBBA, this deduction was set to expire after 2025.
Planning opportunity:
Business owners may want to revisit –
- S-corporation salary strategies
- entity structure decisions
- income timing strategies
4. Expanded Tax Benefits for Qualified Small Business Stock
The law enhances the tax advantages under Internal Revenue Code Section 1202 Qualified Small Business Stock (QSBS). Changes include:
- Tiered capital gains exclusion
- 50% exclusion after 3 years
- 75% exclusion after 4 years
- 100% exclusion after 5 years
- Higher exclusion limit
- Increased to $15 million
- Expanded company eligibility
- Asset threshold increased to $75 million
Planning opportunity:
For founders or investors expecting a business exit, entity structure and stock issuance timing may significantly affect future taxes.
5. Immediate Deduction of Domestic R&D Costs
The law restores immediate deductibility of domestic research and development expenses under Internal Revenue Code Section 174. This reverses the previous rule requiring five-year amortization.
Planning opportunity:
Technology firms, engineering companies, and innovation-driven businesses may benefit from improved cash flow and faster tax deductions.
6. More Favorable Interest Deduction Rules
Changes to Internal Revenue Code Section 163(j) increase the allowable deduction for business interest expenses. The formula once again resembles EBITDA rather than EBIT, allowing many leveraged businesses to deduct more interest.
Planning opportunity:
Real estate investors and private business owners may benefit from re-evaluating financing strategies.
7. Changes to Energy and Clean-Technology Credits
Several energy-related incentives are being phased out over the coming years. Credits affected include those related to:
- electric vehicles
- energy-efficient buildings
- clean energy infrastructure
Planning opportunity:
Households and business owners planning energy projects may want to review timelines to capture remaining credits before phase-outs occur.
8. Higher Estate and Gift Tax Exemptions Made Permanent
One of the biggest changes affects estate planning. The law makes the historically high federal estate tax exemption permanent under Internal Revenue Code Section 2010. For 2025 and beyond:
- Individuals can transfer roughly $15 million+ estate-tax-free
- Married couples can transfer $30 million+
Without legislative action, the exemption was previously scheduled to drop roughly in half after 2025.
Planning opportunity:
Families may still benefit from strategies such as spousal lifetime access trusts (SLATs) or dynasty trusts to lock in exemption and protect assets from estate taxes in future generations.
9. Estate Planning Strategies Still Matter
Even with higher estate exemptions, many high-net-worth families still benefit from thoughtful planning using tools such as:
- irrevocable trusts
- dynasty trusts
- lifetime gifting strategies
- charitable planning
Planning opportunity:
Proper structuring can help families reduce estate taxes, protect assets, and preserve wealth across generations.
10. Expanded 529 Education Savings Plan Flexibility
Effective January 1, 2026, the federal 529 plan distribution limit for K–12 education doubles from $10,000 to $20,000 per beneficiary per year. Qualified withdrawals remain federal income tax-free. The $20,000 annual limit is per student (beneficiary), not per family. Also, the OBBBA significantly expanded the definition of qualified K–12 education expenses. In addition to private school tuition, qualifying expenses may now include:
- Certain educational therapies and services for students with disabilities (subject to the statutory rules)
- Tuition at public, private, or religious schools
- Curriculum and instructional materials
- Books
- Online educational materials
- Certain tutoring expenses
- Fees for standardized tests
- Dual-enrollment fees
Planning opportunity:
If you’re planning for private school, the combination of a 529 plan (up to $20,000/year of tax-free qualified withdrawals), and your state’s eligible education savings account could substantially reduce your family’s out-of-pocket education costs.
In summary, the One Big Beautiful Bill Act introduces significant tax changes affecting affluent households, and business owners. While many provisions provide new opportunities, their impact depends heavily on your:
- income level
- business structure
- estate size
- investment strategy
A coordinated approach between your financial professionals and attorneys can help ensure these changes are incorporated into your broader wealth plan.
