The passage of the One Big Beautiful Bill Act (OBBBA) has significant implications for business owners, particularly in pre-liquidity planning. Key considerations include:
-
Extension and Enhancements to QSBS (Section 1202):
- The QSBS exclusion for taxable gains has been increased to $15 million (with annual inflation indexing), and the gross asset threshold for qualification has risen from $50 million to $75 million.
- The required holding period for the exclusion has been reduced from five to three years, with a 50% exclusion benefit after three years, 75% after four years, and 100% after five years.
- These changes make "stacking" (gifting QSBS to family members or trusts) more attractive, as the higher exclusion threshold encourages such strategies.
-
Certainty Around Gift and Estate Taxes:
- The federal lifetime estate and gift tax exemption has been permanently increased to $15 million per taxpayer in 2026 (indexed annually for inflation), reversing the reduction scheduled under the Tax Cuts and Jobs Act (TCJA).
- This permanence may prompt founder-owners to revisit estate planning strategies involving trusts or gifting, as the uncertainty around the exemption has been eliminated.
-
New Wrinkles in Charitable Donations:
- Taxpayers itemizing deductions are subject to a 0.5% floor on charitable contributions, meaning a taxpayer with $1 million of income cannot deduct the first $5,000 of contributions.
- QSBS charitable donations are subject to complex rules, including state conformity and industry-specific requirements, necessitating careful planning.
- Charitable deductions for individuals in the top tax bracket will be capped at 35% (down from 37% starting in 2026), emphasizing the role of philanthropy in estate planning during liquidity events.
-
Changes to Bonus Depreciation and Section 179:
- The OBBBA restores 100% bonus depreciation for qualifying assets placed into service in the year of purchase, with increased benefit amounts and inclusion of new and used assets.
- The Section 179 deduction cap has been raised from $1 million to $2.5 million, with a phaseout threshold starting at $4 million and full phaseout at $6.5 million for properties put into service in 2025.
- These changes provide tax incentives but require careful planning, especially when selling depreciated assets to account for recapture.
The OBBBA offers significant benefits for business owners but introduces complexities in pre-liquidity planning, highlighting the need for strategic financial and estate planning.
