One Big Beautiful Bill: Business Tax Provisions - YouTube video text script

Hello, and welcome to today's webinar, Understanding the One Big Beautiful Bill: Business Tax Provisions. I see that it is the top of the hour, and we're so excited that you've decided to join us today. My name is Christopher Green, and I am a Stakeholder Liaison with the Internal Revenue Service, and I will be your moderator for today's webinar, which is slated for approximately 120 continuous minutes.

But before we begin, if there is anyone in the audience that is with the media, please send an email to the address on the slide. Be sure to include your contact information and the news publication you're with. Our Media Relations and Stakeholder Liaison staff will assist you and answer any questions you may have.

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Okay. So we're going to stop the polling now. Let's see how the majority of you responded. And I can see that a majority of you actually responded with 47% chose a. So 47% of you know what a Stakeholder Liaison is. And for those of you that selected A, this is wonderful. But for those of you that selected B or C, I encourage you to visit IRS.gov and enter Stakeholder Liaison in the search bar. There you should see a link for Stakeholder Liaison local contacts that should take you to our page to learn more about our role as a collaborative outreach champion and how to reach your local Stakeholder Liaison.

We hope you received the polling question and were able to submit your answer. But if not, now is the time to check your pop-up blocker to make sure that it is turned off. And now that we have concluded our administrative items, we can move along with our session.

Today's webinar is once again titled Understanding the One Big Beautiful Bill: Business Tax Provisions. This webinar is scheduled for approximately 120 minutes from the top of the hour.

And now let me introduce our illustrious presenter, Richard Furlong. Richard is a Senior Stakeholder Liaison within the Stakeholder Liaison office of the Internal Revenue Service’s Communications and Liaison Division. Now each year, Richard represents the IRS at face-to-face seminars and online webinars where he discusses IRS policies and procedures, tax law updates, tax professional data security, and emerging areas of tax administration.

He coordinates the Pennsylvania Practitioner Liaison meetings where PA practitioner organizations meet with the IRS to discuss latest developments in policies, procedures, and practices, and to solicit feedback from the practitioners. Annually, he provides IRS updates on topics including latest tax law changes, tax professional data security, and IRS tax pro accounts.

Richard is also a graduate of the University of Pennsylvania Wharton School, where he acquired a Bachelor of Science Degree in Economics. And with that, I'm going to turn it over to you, Richard, to begin our presentation. The mic is hot and the floor is yours.

Yes, it certainly is hot. Thank you to my colleague, Chris Green, for a great introduction. I hope I can live up to it. So let's begin today. We have a lot of content to discuss, and I think it's appropriate to begin with our objectives. So in today's webinar, we will identify the significant business tax provisions enacted under the One Big Beautiful Bill Act, sometimes referred to as OB3. We will also explain revisions to business information reporting requirements, and those would include changes to third party network transaction rules and some increased reporting thresholds for certain payments.

We'll also discuss OBBBA changes to cost recovery and expensing provisions, including special depreciation allowances, the increased expensing limits for business assets and updates to research and fuel expensing rules. Then we'll move on to analyze modifications to business interest deduction rules, including changes to the definition of adjusted taxable income, also known as ATI, and the updated interest limitation calculations.

We will identify changes affecting partnerships and small businesses. And those would include the treatment of partnership payments to partners, the expansion of the qualified small business stock exclusion, and certain enhancements to the qualified business income deduction, also known as QBID. And then finally, we'll summarize changes to business related credits and deductions, and those would include the employer provided childcare credits, paid family and medical leave credits, dependent care assistance programs, and business meal deduction exceptions.

And then we're going to have a great Q&A with some subject matter experts from IRS Council. So that's quite a bit to cover today. However, let me first move on and provide several disclaimers for today's webinar. And you see here the disclaimers for today's session. Now please note, and this is very important, this is a high level overview of the significant business provisions under the One Big Beautiful Bill Act, which is formally known as Public Law 119-21.

And many of you know that this legislation was passed by Congress on July 3, 2025, and then was signed the next day on July 4th by the President. Our presentation today is based on the Act's statutory language, along with IRS and Treasury Department guidance that has been issued as of the date of today's presentation. And also keep in mind that the Treasury Department and the Internal Revenue Service will continue to carefully consider our stakeholder feedback that we receive on various forms of preliminary guidance before issuing final guidance.

So now, with our disclaimers out of the way, let's move on to our first topic, which are the changes in information reporting by third party settlement organizations. Now, I suspect that many of you know that gig economy, as it's referred has grown significantly over the past decade, and many entrepreneurs these days receive income by way of ride sharing services, food delivery apps and other online marketplaces.

Payments to these self-employed individuals who are receiving these payments through these online platforms may require the filing of a Form 1099-K, and that form is entitled Payment Card and Third Party Network Transactions. And when required, that form has to be filed to the Internal Revenue Service by what is referred to as the Payment Settlement Entity, or PSE for the payments that they are making in settlement of reportable payment transactions for each calendar year.

A PSE or Payment Settlement Entity makes a payment in settlement of a reported payment transaction, that is any payment card or third party network transaction if the PSE submits the instructions to transfer the funds to the account of the participating payee to settle the reportable payment transaction. Now, prior to OBBBA, the original law required third party settlement organizations to report these third party network transactions for a calendar year only if both of a two pronged test applied. And you see it on the slide here.

The gross amount of payments made to a participating employee -- payee, I should say, not employee, payee is more than $20,000 in any one calendar year, and the total number of transactions with that payee is more than $200. And that all went back over a decade. However, then fast forward to 2021, where the American Rescue Plan Act, that significantly changed the threshold to require the 1099-K reporting when payments exceeded $600 to the recipient in the year, not $20,000 but $600 to the recipient in the year. And the number of transaction requirement, that 200 transaction requirement, that was eliminated under the 2021 legislation.

However, under the changes enacted in OBBB, today's discussion, the threshold for filing Form 1099-K has reverted to the reporting threshold in effect prior to the enactment of the American Rescue Plan of 2021 and that this reporting is on payments settled through third party payment networks only required where the gross amount of reportable transactions to the payee exceeds 20,000 and the number of transactions exceeds $200 -- 200 transactions, excuse me. So $20,000 in gross payments and 200 transactions. And this provision under OB3 is retroactive all the way back to 2021. So it's back to the future, in other words.

Now on January 8, 2026 this year, Treasury and the Internal Revenue Service issued proposed regulations governing backup withholding on 1099-K repayments. And these regulations provide clarity that any requirement for the payer to initiate backup withholding and withhold 24% of the payment would provide when the third party settlement organization is required to issue under the new legislation a 1099-K. In other words, these proposed regulations issued on January 8th would not require backup withholding when the third party settlement organization is not required to issue a 1099-K, because the total amounts received are less $20,000 or less and the transactions do not exceed 200.

So our key takeaway on this topic before moving on significant change to the requirement for these PSEs to issue 1099-K. Only if a user using that platform in the gig economy receives more than $20,000 in any one year and has more than 200 transactions in any year. And remember, these thresholds are retroactive back to pre-American Rescue Plan 2021.

Now let's move on to some other changes to information reporting, and these are to the 1099-NEC and the 1099-MISC, because these reporting requirements have changed under the new legislation. And this is probably good news for many of you. The dollar thresholds for filing these 1099-NEC and 1099-MISC forms has increased.

Starting with payments made after December 31, 2025, in other words, beginning in 2026, the minimum dollar amount that requires information reporting on certain business payments that would necessitate these two information returns, that increases from $600 where it was for many decades to now $2,000. And this change applies to payments made by a payor to a payee during the course of the payor's trader business.

So and beginning with calendar years after 2026, IRS now has the authority to adjust this $2,000 threshold for inflation. So this reporting requirement will keep pace with inflation. Now, if a business pays less than $2,000 to another person during the calendar year, the business does not need to file the 1099-MISC, nor send a copy to the payee. And if a business pays less than $2,000 to a non-employee for the non-employee services in 2026. The business does not need to file a Form 1099-NEC nor send a copy to the payee. And again, it's important to remember that these thresholds will be adjusted for inflation beginning in 2027.

Now one important reminder for payees, I think I would hope most everyone knows that even if a payee does not receive a 1099 because the total payments made to them are below the threshold, then those payments are still taxable business income under the Internal Revenue Service for those who are self-employed and running a business. The payee must report all income from their trades or businesses on their tax return unless that income is specifically excluded by law.

And I want to point out a publication that we just updated for the current tax year, and that's Publication 334, Tax Guide for Small Business. When I'm talking to small business owners, I often recommend Publication 334, The Tax Guide for Small Business.

And one final point on these new thresholds. For backup withholding requirement by the payer, the $2,000 threshold also applies for the backup withholding rules. So beginning in 2026, annual payments below $2,000 are not treated as reportable payments and would not necessitate backup withholding by the payer.

Now let's look at something brand new, a new category of depreciable property established under the One Big Beautiful Bill. And as you see on this slide, this header says Special Depreciation Allowance for Qualified Production Property. And as we'll see, that's a new term in the Internal Revenue Code.

Now later in today's presentation, I'm going to discuss other OB3 changes to an existing special depreciation allowance. You may know it as bonus depreciation. However, on this slide, we're looking at new Internal Revenue Code Section 168(n). It was added by the One Big Beautiful Bill. And this code section allows an elective. And I want to repeat that. This is an elective choice by the taxpayer to take a special depreciation allowance for qualified production property that was placed in service after July 4, 2025. As you know, that was the date that OB3 was enacted. And also, the construction of the property began or the property was acquired after January 19, 2025.

Under OBBBA, the qualified production property must be placed in service no later than December 31, 2030. So it's not a permanent provision, but it has a long window. Now, if a natural disaster occurs that could delay placing the property in service, that deadline to place it in service would be extended about a year until December 31, 2031.

Now, on our next slide, I'd like to discuss what are the basics of Qualified Production Property, because in order to consider this opportunity for this new elective special depreciation allowance, you have to know what is QPP. And as you see here, QPP will allow you to designate up to 100% of the depreciable basis of the eligible property if all of that property is QPP as allowable for the special depreciation allowance.

So your property is eligible property for QPP if it meets all of the following requirements. And I think you'll see six bullets here on the slide. It's non-residential real property that qualifies for maker's depreciation, modified adjusted cost recovery depreciation. The property has to be used as an integral part of what is referred to as qualified production activity. And I'll define that in a moment, qualified production activity.

The property, as I said, has to be constructed beginning after January 19, 2025 or acquired and before January 1, 2029 and then it has to be placed in service, ready to be used in the trade or business in The United States or in a U.S. territory after July 4, 2025 and before January 1, 2031. And keep in mind, eligible property, QPP property that is, could be either new property or certain used property. So what is the definition of qualified production activity?

And this is significant. It is the manufacturing, could be the chemical production, could be the agricultural production or refining of a product of tangible personal property and the manufacturing, chemical production, agricultural production, refining of that tangible personal property has to result in a substantial transformation of the property comprising the product. Additionally, certain activities that do not themselves result in a substantial transformation of the property comprising that product, they still could be a qualified production activity if those ancillary activities, I'll call them are essential to the quantity or quality of the main activity's output.

Now, if you lease property to someone else and that someone else conducts a qualified production activity within it, you, the lessor do not qualify for this new special depreciation allowance. Now, what about a building? What if a portion of the building is used in a qualified production activity, as just described? The depreciable basis of the overall property or the depreciable basis, I should say, of the eligible qualified production property, that could be less than the depreciable basis of the overall property.

For example, the depreciable basis of the eligible property you may designate, if it meets the requirements, as QPP may be less than the overall depreciable basis of the building. And then you would have to look at the basis of the portion of that real estate that is Qualified Production Property. And again, remember that property must not be leased to others to qualify.

So here's the key takeaway. Businesses can claim a new 100% bonus depreciation on Qualified Production Property built during 2025 and through 2028 and then placed in service by 2030. They can also claim it on certain used property acquired during this period, but not if they owned or used it earlier. And only property directly related or tied into manufacturing, production or refining qualifies, not offices, no research facilities, nor administrative spaces. We issued on January 14, IRS Notice 2016-11. I recommend that to you.

Again, Notice 2016-11. And we also have some excellent information on the newly revised IRS Publication 946, which is entitled How to Depreciate Property. And after today's webinar, you can go and download that from IRS.gov. And I suspect we'll probably be getting questions on this that our subject matter experts will address during our Q&A.

So Chris, I think I'm going to pause, grab a sip of water and let you push out our first polling question.

Absolutely, Richard. Well deserved sip of water. Audience, on your screen, we have our first polling question. And here it goes, under Internal Revenue Code Section 168(n), when may a taxpayer claim the special depreciation deduction for Qualified Production Property or QPP?

Is it A, when the taxpayer purchases any commercial building located in The United States, B, when the taxpayer places qualifying new non-residential production property into service and makes the election for that year. Is it C, when the taxpayer leases office space used for administrative activities? Or is it D, when the taxpayer renovates an existing hotel building used for lodging?

The polling question example we did at the beginning of this presentation will again count toward the requirement. And now I'll give you a few seconds so you can make your selection and or submit your answer in the ask question feature if it didn't pop up on your screen. Okay? So we'll give you a moment to answer this question.

Okay, audience, we're going to stop the polling now and share the correct answer on the next slide. All right. And I can see that well, you can see and I can see that the answer is B. When the taxpayer places qualified new nonresidential production property into service and makes the election for that year. So now let's take a look and see how well you've done with this first polling question. And from what I can see here, 88% of you responded correctly. That's a great response rate. Richard, I hope you're done with your water, because now I'm going to turn it back over to you.

I am indeed, Chris. Thank you. And thank you, everybody. So let's move on to certain exceptions from limitations on deductions for business meals, because the deduction by an employer for business meals has changed. Beginning in 2026 under OBBB, most employers can no longer deduct expenses for employer provided meals that are either excluded from the employee's income or treated as a de minimis fringe benefit, such as small occasional perks like coffee or snacks.

So no longer for most employers can they deduct these expenses. However, there are exceptions, as often is the case in the code. Certain employers may continue to deduct these expenses if they provide the meals on certain vessels or on oil or gas platforms or drilling rigs or at support camps for these types of operations.

The new law also expands the exception to the 50% meal deduction limit to include crew members on commercial fishing vessels. However, employees may continue to deduct these expenses if what is referred to as the Internal Revenue Code Section 274(e)(8) exception applies, and I'll describe that in a moment, Or if they provided the meals again on certain vessels, on oil and gas platforms or drilling rigs or at support camps for these operations.

So where it would be hard for the individuals, employees working to go off these vessels or platforms to get a meal, employers can continue to deduct those meals they provide. The law also expands the exception to the 50% meal deduction limit to include crew members on commercial fishing vessels. Now, what about food and beverage sold to customers by the business? Under Internal Revenue Code Section 274(e)(8), employers may deduct 100% of the cost of food and beverages they sell to customers, including the use of facilities used to prepare and serve these meals. So think of a restaurant.

So who's the customer for purposes of this provision and the 100% deduction? A customer includes any paying individual. It could include employees who purchase the meals. So, for example, a restaurant can fully deduct the cost of preparing food that it sells to customers, including meals that employers provide to employees for no consideration or are bought by the employees to eat at the worksite. Now, coming back to that special rule for vessels and rigs, the elimination of the meal deduction does not apply, again to crew members on commercial vehicles because federal law often requires the employer to provide those meals.

So in those circumstances, they still would get the meal deduction, they the employer. And again, the meals provided to crew members on offshore drilling rigs if the rigs meet requirements under Internal Revenue Code Section 274(o). And that was amended by the One Big Beautiful Bill Act. So the key takeaway here before we move on is that starting in 2026, as I think we see now, most employer provided meal expenses will no longer be deductible by the employer as an ordinary and necessary business expense. There are those exceptions.

They could apply to meals sold to customers, meals provided on certain vessels, rigs, support camps, and meals for fishing vessel crews and processing facilities. Until the end of 2025, businesses can still deduct up to 50% of qualifying meal expenses, but it changes dramatically as we've seen in 2026. So now let's move on, on our next slide, to a new provision impacting the sale of certain farmland property. For tax years beginning after July 4^th, 2025, so for calendar year taxpayers, this would take effect in 2026, taxpayers can elect to pay the net income tax attributable to the gain or sale of a qualified farmland property to a qualified farmer in a qualified sale or exchange, the seller can elect to pay the net income tax on the gain of that farmland property in four equal installments of 25% each.

Now the first installment payment, if the taxpayer takes this election and they're eligible, is due on the due date without extensions of the return for the year of the qualified sale or exchange. This new provision applies both to individuals and business entities. If that business entity is a partnership or a subchapter S corporation and has a qualified sale or exchange under Code Section 1062 that you see on the slide, then the election itself will be made at the partner or the shareholder level.

So I think we have to define what is qualified farmland property, and you see the definition on the screen. It's defined as real property located in The United States that has been used by the taxpayer either as a farm for farming purposes or possibly leased by the taxpayer to another qualified farmer for farming purposes. The property itself must have been used or leased by the taxpayer during substantially all of the 10 year period ending on the date of the qualified sale or exchange, the property itself must be subject to a covenant or some other legally enforceable restriction that would prohibit the use of such property other than for uses of farm for farming purposes for at least 10 years after the date of the qualified sale or exchange.

So they want to take this provision. The land has to be continued to be used in farming by the buyer. And the qualified farmer is a qualified farmer who is actively engaged in farming. There's a separate U.S. Code Section 7 that applies here. So there's another provision.

Let's move on to the next provision that applies to lenders to certain individuals involved in farming. So this is the benefit to lenders. New Code Section 139L, as you see, was added to the Internal Revenue Code under the One Big Beautiful Bill. And this provision allows eligible lenders to exclude from their gross income 25% of the interest that they receive from loans where the loans are secured by rural or agricultural property. Now, of course, the lenders must still include the remaining 75% of interest income received during the year as part of the taxable income.

So what type of lenders would enjoy this new benefit? It's available to qualified lenders who are U.S. banks and savings associations, certain regulated insurance companies, farm credit institutions and other lenders that meet IRS eligibility requirements. And what is a qualified loan for this purpose?

To qualify again for this tax benefit to exclude up to 25% of the interest received, the loan itself must be secured once again by farm or rural real property. The property itself must primarily be used for agricultural or rural purposes. The loan has to be made on or after July 4, 2025, the date of enactment. The loan has to be secured by the property itself. However, the proceeds of the loan used by the buyer, that has no bearing on the lender's ability to exclude 25% of the interest received.

And there is guidance that was issued on refinance loans and property value limits. November 20 of 2025, we issued Notice 2025-71, which is available on the One Big Beautiful Bill Act landing page along with all of our other guidance on IRS.gov. And this November 2025, Notice 2025-71, it provides interim guidance that taxpayers may rely on until the Treasury Department and the IRS issue forthcoming proposed regulations. The interim guidance provided in this Notice 2025-71, It actually goes into some depth, providing key terms for this new Section 139L, It establishes the standards for determining whether a loan is secured by rural or agricultural property, and it provides rules regarding refinancing.

Now let's move on to some provisions that were amended by the One Big Beautiful Bill Act, because there were a number of existing provisions that have been amended by the One Big Beautiful Bill Act. And the first one, I would like to discuss is the enhancement of a dependent care assistance program under Internal Revenue Code Section 129. So beginning with taxable years after 12-31-2025; in other words, this begins in 2026 this year the maximum amount that employees can exclude from their income for any employer provided dependent care assistance, that increases to $7,500 per year.

However, if that taxpayer employee getting this assistance files married filing separately, the maximum they can exclude is $3,750 a year, half of the $7,500 So a little bit of background here on this Internal Revenue Code, Section 129. This provision has been in the law for a while.

Employers may exclude, as a very nice benefit to the employees, the amount they pay for or incur for dependent care assistance services offered through a written dependent care assistance program offered by the employer. So it has to be a written plan, and that's been allowed under Section 129. However, previously, the annual exclusion was $5,000 for most employees to be excluded and half of that, $2,500 for those who file married filing separately.

Keep in mind that this exclusion cannot exceed the employee's earned income or, if that employee is married, the lesser of the employee's or spouse's earned income. Any amount over the annual limit provided by the employer counts as taxable income to the employee in the year the services are provided, even if the employee pays for the services in a later year.

Now the definition of dependent care assistance, this includes payments for these services or the provision of services that would allow the employee to claim the child and dependent care credit under Code Section 21. Many of you are familiar with the child independent care credit that individuals can claim if they meet certain requirements and are paying out of pocket. So the dependent care assistance under these plans offered by the employers tracks those same requirements as the child and dependent care.

In other words, these expenses being used by the money provided by the employer has to be for household services or the care of the child or the other dependent, so that employee and their spouse can work or look for work. Employers may offer this dependent care assistance through what is referred to as a flexible savings arrangement or FSA, could be part of a cafeteria plan. However, these plans cannot generally favor highly compensated employees. In other words, they can't discriminate in favor of highly compensated employees.

So the good news, just to sum this up, beginning in 2026, employees can exclude up to $7,500 of dependent care assistance from their income each year provided by the employer, half of that $3,750, if the employee files married filing separate. So the intent of this provision is to allow more families to benefit from employer sponsored dependent care programs, while keeping the same eligibility rules and income limits for these very attractive programs.

Now let's move on to changes to the business interest limitation deduction. Now this gets a little technical, so bear with me here on the next few slides. And the first thing I want to mention before I get into this Code Section 163(j) provision, this applies to taxpayers with average annual gross receipts for the three year tax period ending with the prior tax year, where those gross receipts on average over a three year window are over $31 million. So this might not apply to you or to all of your clients. So there's that threshold for this to apply. But for those who -- it does apply, this definition of adjusted taxable income, or as you see on the slide, ATI is the acronym, that has changed. And as we'll see, in a favorable way.

Starting with tax years beginning after 2024, in other words, in 2025, the IRS will calculate the adjusted taxable income, or ATI which has to be calculated to determine the business interest deduction limits under Code Section 163(j) using something called EBITDA, E-B-I-T-D-A. Some of you may be familiar with that accounting term. EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. And we'll show you that calculation in a subsequent slide.

This new provision, which uses EBITDA, earnings before interest, taxes, depreciation and amortization, it replaces the current EBIT base calculation. EBIT is just earnings before interest and taxes. And as you'll see, with using EBITDA that could reduce or that could help in the calculation of adjusted taxable income. Now this change is increases the cap, and this is the intent of this provision, increases the cap on deductible business interest expense because now ATI, adjusted taxable income will exclude depreciation and amortization, as we'll see when we look at the formula.

Also beginning for years after 2025, adjusted taxable income also excludes certain foreign income that U.S. Shareholders must otherwise recognize, and that would include what is referred to as Subpart F income and net CFC tested income, and those code sections are 951(a) and 951A(a). Now, the Treasury Secretary may issue rules for applying this new EBITDA limitation to the calculation of adjusted taxable income if the taxpayer is a short year. A short year could be a year beginning after December 31, 2024, and ending before July 04, 2025, the date of enactment.

And again, I want to remind you that this EBITDA limitation for these businesses who meet that average gross receipts test applies only to tax years after 2024. It's not retroactive provision. So that more restrictive EBIT limitation in calculating adjusted taxable income that applies for years 2022 or 2024. Also, for purposes, as we'll see when we look at the formula for calculating ATI, now there's an expanded definition of motor vehicles for floor plan financing. You may know that auto dealerships will borrow to finance the vehicles on their floor, and that's what's called floor plan financing. They pay interest on that. Now the definition of motor vehicles, beginning in 2025, expands to include certain trailers and campers that are designated to be towed or permanently attached to other motor vehicles.

Now moving on to our next slide. I just want to have a quick mention here of how this new rule, a 163(j), interacts with what are referred to as the interest capitalization rules under another section of the code. The interest deduction limitation that we're discussing now under 163(j), that's calculated before you apply any elective or mandatory interest capitalization rules. Interest capitalized under Internal Revenue Code Section 263(G), that does not count as business interest for the 163(j) provisions that we're discussing now. So businesses must apply the limitation first to amounts that would be capitalized under Code Section 263(G) and then to amounts that would be deducted and possibly subject to this interest limitation deduction. Carryforward interest amounts are not treated as business interests subject to the capitalization provisions under Code Section 263(G).

So now I think it's helpful, I know it is to me, to look at on our next slide, the calculation of this term of adjusted taxable income. So we know it's been modified by OBD. And in the second bullet there, you see the deduction for business interest income. It's a limitation, it's generally limited to the sum of first, any business interest income received by the taxpayer during the year. Secondly, and this is the important part for today, this adding to any business interest income, 30% of adjusted taxable income for the tax year, not less than zero, and floor plan financing interest. So if we've expanded the type of vehicles on which the dealer is borrowing for interest, that can be added to this. And also, if ATI now to get to ATI, you use earnings before you deduct any interest, tax, depreciation, amortization, whereas previously you were only deducting interest before interest and tax, that would mean the ATI would be higher, and 30% of that higher number potentially gives you a higher current deduction.

So now let's move on to a provision that many of you probably are more familiar with, and that's Section 179 of the Internal Revenue Code. And this has been very favorably modified under the One Big Beautiful Bill Act. So as you probably know, Section 179 been in the code for many, many years, allows taxpayers to elect to choose to treat the cost of qualifying property, sometimes referred to in the profession as Section 179 property, as a deductible expense rather than a capital expenditure that would have to be depreciated.

Now, under OBBBA, for tax years beginning in 2025, so this provision in the law passed on July 4th is retroactive to the beginning of the year, the maximum Section 179 limitation is increased significantly to a maximum of 2.5 million per year for a 179 property that the taxpayer can elect to deduct. And the investment limitation, the amount of 179 property placed in service during the year by the taxpayer, that's increased dramatically to $4 million for tax years beginning in 2025.

For tax years beginning in 2026, the maximum 179 expense deduction, that will go up to $2,560 million and it will only start to be reduced dollar-by-dollar when that place in service threshold is increased and that place in service threshold to begin the phase out of the full deduction, that will go up slightly in 2026 to $4,090 million That's what's referred to as the investment limitation. Now these increases to 179 are permanent. That is attractive to a lot of businesses, and they will be inflation adjusted for years beginning after 2025. However, please note that the One Big Beautiful Bill Act does not increase the 179 limitation for sport utility vehicles.

This is a much lower cap for SUVs. This limitation for SUVs is adjusted for inflation annually. So the base year for cost of living adjustments under the new law has not changed. And good before we move on to our polling question, I will mention again and I'll probably mention it later when we talk about bonus depreciation, I find Publication 946, how to depreciate property extremely valuable throughout the year as a reference tool when we get questions. We just posted the updated version on IRS.gov. It has all of the OBBBA changes impacting depreciation and Section 179 election.

So with that, Chris, I think it's now a great time to pause for another polling question.

I totally agree. A lot of good information here, audience. So, I hope you're ready for your second polling question. Take a deep breath, and here we go. Audience, select that answer that best completes the statement under Public Law 119-21. What is the new Section 179 deduction dollar limitation for tax years beginning after December 31, 2024? Is it A, $1,000,000 B, $1,500,000 C, $2.5 million or 2,500,000, or is it D, $4,000,000.

And same as before, please click the radio button that best answers the question. If you do not receive the polling question, please enter only the letter A, B, C, or D that corresponds with your response in the ask question text box. Your response is time stamped. So I'll give you a few minutes to or a few seconds, I should say, to make your selection and/or submit your answer in the ask question feature. And okay, audience, we're going to stop the polling, and of course, share the correct answer on the next slide. And the correct answer is $2,500,000 I hope you all had the right answer there as this one's a bit tricky.

So let me see how well you did with this question. And what I can see here is 81% of you answered the question correctly. Excellent job. Richard, looks like the audience is paying attention to you. So, I will turn it back over to you.

Thank you, Chris. So let's move on to some modifications to an existing provision in the code, in terms of the Code Section 707. And as you see here, the One Big Beautiful Bill, it amends 707(a)(2), and it strikes out the language under regulations prescribed and inserts new language except as provided. So this change eliminates what was some uncertainty in the previous language in this code section on whether or not treasury would be required to issue regulations to recharacterize allocations for distributions made to a partner for services or for transferred property as transactions that are between the partner and a person who is not a partner.

This is sometimes referred informally to the disguised payment rules. And this is a compliance area of the Internal Revenue Code. Even though the changes made to Code Section 707(a)(2) clarify that under the legislation now, regulations are not required for these rules to apply, IRA still has the authority to limit or adjust how these rules work through possible future regulation or guidance at our discretion.

So these new rules only apply to services performed by the partner for the partnership for which they're compensated and property transferred on or after July 04, 2025, the date of enactment. It doesn't change nor imply anything about how similar transactions would be treated by IRS before July 04, 2025. Prior to the changes enacted here by OBBB, Irish Chief Counsel's position was that Code Section 707(a)(2), it was a self-executing provision and that, therefore, transfers between a partner or partners and a partnership could be treated by the IRS as a disguised sale of a partnership interest under Code Section 707(a)(2)(b).

So now let's move on to a provision that has been in the law for a number of years to Internal Revenue Code Section 1202, referred to as Qualified Small Business Stock Gain Exclusion. It's been expanded significantly under the OBB. So when we're discussing this provision, think of it as the Section 1202 exclusion. So now under the new law, the qualified small business gain exclusion for rules for stock acquired after July 4, 2025, they now use what we'll call and we'll see in a moment as a tiered exclusion system. And that would be based on how long the taxpayer holds the stock before they sell it.

So you can exclude from your gross income up to 50% or half of your gain from the sale or exchange of qualified small business stock held for at least five years, the stock would have had to have been acquired before February 17, 2009. This exclusion could be up to 75% of qualified small business stock if the stock was acquired between February 17, 2009 and September 27, 2010. And then under the old rules, up to 100% of the exclusion of the qualified small business stock gain acquired after September 27, 2010.

So now let's go on to our next slide where we have a very nice chart to show how the applicable percentage of excludable gain based on the holding period. And this is what has been impacted by OBBB, as you'll see on this chart. So again, we're talking about 1202 stock. And 1202 stock is defined in-depth in IRS Publication 550 Investment Income and Expenses. The gain on the sale of 1202 stock, again, under prior law, the amount of the gain from the stock of any one issuer that's eligible for the exclusion is limited to the greater of 10x your basis in all qualified stock of the issuer that you sold or exchanged during the year or, if it's greater $10 million, $5 million for those filing married filing separately minus the amount of the gain from the stock of the same issuer used to figure any exclusion in an earlier year because you could have sold some of the 1202 stock in an earlier year.

However, as you see on the slide here at the bottom, under OBBBA, the stock acquired after the date of enactment, after July 4, 2025, the aggregate amount of excluded gain per issuer goes up to $15 million. And if you hold that stock acquired after July 4, 2025, it has to be qualified small business stock, as discussed in IRS Publication 550. If you hold it for five years or more, you could exclude up to 100% of the gain. So that's a very attractive provision for 1202 of the Internal Revenue Code.

Now let's move on to some existing provisions that were extended, but with certain changes under the One Big Beautiful Bill Act. And the first one, I want to discuss is Section 199A, the Qualified Business Income Deduction. Now this provision came into the code in the Tax Cuts and Jobs Act that was passed at the end of 2017.

The new law, the OBBBA, it makes the qualified business income deduction permanent. It was not permanent previously. It was going to expire if not for this legislation. Permanent for years after 2026, it also modifies the phase in limits for the deduction because there are phase in limits and adds an inflation adjusted minimum amount that we'll look at minimum deduction, I should say, that we'll look at in a moment.

So just a little background on 199A. For tax years beginning after December 31, 2017 which was the year that the Tax Cuts and Jobs Act was passed. And under that law, before January 1^st of 2026, individuals, certain trusts, the states, they could deduct 20% of their qualified business income from a partnership, S-Corporation, a sole proprietorship.

It could also be a 20% QBID, Qualified Business Income Deduction for the amount of any qualified real estate investment trust dividends or publicly traded partnership income. All of that came into existence following TCJA. And there were special rules under that legislation that are still in effect that apply to agricultural and horticultural cooperatives.

Now taxpayers who take this QBI deduction, and some of you, if you're tax pros attending today, probably have taken this deduction for clients on tax returns over the past few years. It's a deduction when calculating their taxable income, not their adjusted gross income.

So the QBI deduction applies whether or not the taxpayer itemizes deductions on Schedule A. However, the QBI deduction cannot exceed 20% of the taxable income, reduced by any net capital gains of that taxpayer. And in addition, this deduction for income for what I referred to as specified service trades or businesses, those are various categories of service type businesses, it's phased out once taxable income exceeds a set threshold. So now let's move on, on our next slide, to what has changed with this provision under OBBB. It makes it permanent, very important takeaway today, it expands the income phase in limits for the deduction.

So now single filers, the threshold for phasing it in increases from $50,000 to $75,000 of income. For those couples filing jointly, the threshold increases from $100,000 to $150,000 And here's what's new on the bottom of the slide. There's a new minimum deduction of $400 that will be adjusted for inflation annually for any taxpayer who earns at least $1,000 in net qualified business income from one or more active businesses in which they materially participate.

So these changes with that $400, I'll call it a de minimis deduction for QBID, it gives small business owners a higher baseline deduction and ensures the deduction grows with inflation starting in the years after 2025 in other words, beginning in 2026.

Now, on the next slide, we're going to have two slides with a snapshot of the 1040, just as a reminder as to where to take the qualified business income deduction. The first slide will just show the front page of the 1040. Given that it's tax season when we're delivering this webinar, I'm sure many of you attending today are familiar with the 1040. But the deduction itself is on the next slide on Page 2 on Line 13A. It's a below the line deduction, meaning it's below AGI, adjusted gross income. And the amounts that go in Line 13A, they're first calculated on the Form 8995 or the Form 8995-A.

So now let's move on, go beyond the tax forms and move to the enhancement of the employer provided child care credit, excuse me, the enhancement of the employer provided child care credit. And this is Code Section 45F. Now, this is very favorable credit as part of the general business credit for employers, beginning with amounts paid or incurred after December 31, 2025. These employers can now claim a credit equal to 40% of qualified child care expenses up to a maximum of $0.5 million, $500,000 per year. Now, to contrast that with the old law, that credit that the employers could take is an increase from the previous 25% credit maximum and $150,000 credit cap.

Now, if you're an eligible small business, as defined, you can claim a credit of up to 50% of -- in other words, one half of your expenditures for child care facilities up to a maximum of $600,000. And for purposes of defining a small business here, it again is a business that if they meet the gross receipts test under code Section 448(c), generally they have annual gross receipts of $31 million or less, then they could have an even higher credit as we see on the slide here.

And then beginning with years after 2026, these amounts will be adjusted for inflation annually. And there are some small businesses that combine their resources to jointly own and operate a qualified child care facility. Businesses may also use a third-party with whom they contract to provide the child care services to the employees if they're incurring these expenses.

Now let's move on to another credit for employers, and it's an extension enhancement of the paid family and medical leave credit under 45S as you see here. Now, the new law makes the credit for paid family and medical leave permanent beginning with tax years beginning or after December 31 of 2025. So for calendar year taxpayers, it begins in 2026. Employers can claim the credit for either the wages they're paid to qualifying employees while they're on leave or a percentage of insurance premiums that they pay for family and medical leave coverage so that they can pay these employees where they're on family and medical leave.

Starting in 2026, the employers may claim a credit of anywhere from 12.5% to 25% of the premiums paid during the year for qualified insurance premiums that provide for family and medical leave benefits. The law will reduce the employer's deduction for insurance premiums by the amount of the credit claim for those premiums.

Now, that should be obvious. You can't take a business deduction for the insurance premiums if you're getting a credit under this 45S provision. Who are the qualified employees for this provision? Well, beginning in 2026, any employee must normally work at least 20 hours per week. The employer could choose a lower minimum employment period, anywhere from one year to six months.

For a part time employee, the employer annualizes their compensation to determine if it does not exceed 60% of the highly compensated employee threshold from the prior year. Now, some employers are subject to what we call the aggregation rules because they are part of a controlled group under Internal Revenue Code Section 414(b). And in that case, if you're subject to these aggregation rules for purposes of this credit, all members of the controlled group must have a written paid family medical leave policy, and they almost all members of the controlled group that must meet the requirements for claiming the credit.

So an employer may treat some employees differently, but only if it has a substantial business reason. A substantial and legitimate business reason does not include, I repeat, does not include the operation of a separate line of business, the rate of wages or category for jobs for employees, or any other similar basis, or the application of any state or local laws related to family and medical leave.

And I want to mention, many states have their own paid family and medical leave laws. Beginning in 2026, employers must include any state and local government mandated leave when calculating the total amount of leave provided, and they do that in determining whether the 50% threshold is satisfied. So this is an employer friendly change. More employers, we believe will be eligible for the credit. However, any state and local mandated leave under state law or local law does not count towards the credit amount.

And remember, this provision begins for years that begin after December 31, 2025. So Chris, we're going to pause here now for our next polling question.

Sure thing. All righty, folks. Here is our third polling question, which states, beginning with tax years after December 31, 2025, how may an employer claim the paid family and medical leave credit under the updated law? Is your answer A? The employer may claim the credit for insurance premiums paid and also claim a deduction for the premiums paid. Or is it B, the employer may claim the credit only for wages paid during leave? Is it C, the employer may claim the credit for wages paid during leave or for qualifying insurance premiums? Or finally, D, the employer may claim the credit only if the leave is required by state law.

Again, your response is timestamp. So take a moment and click the radio button that best answers the question. And again, if you do not receive the following question, please enter only the letter A, B, C or D that corresponds with your response in the ask question text box. We'll give you a couple more seconds to answer that. Okay, folks.

At this time, we are going to stop the polling and on the next slide, share what is the correct answer. And the correct answer is C. The employer may claim the credit for wages paid during leave or for qualifying insurance premium. So, let's see how well get you guys done with this question here. And I see that we have 81%, once again, success rate.

So, wonderful response rates. Richard, it's back on to you. Continue on.

Thank you very much, Chris. So we'll continue on with some further changes under the One Big Beautiful Bill Act to existing provisions of the code. And the first one deals with tax exempt organizations. And it deals with an excise tax on what is referred to as excess compensation within tax exempt organizations. It's Code Section 4960.

So the changes under the new law remove the limit on individuals for whom this excise tax applies to excess compensation paid by tax exempt organizations. So beginning with tax years, after December 31, 2025, this excise tax which is a 21% excise tax, applies to any employee who receives more than $1 million in remuneration paid or any excise parachute payments due to departing employees of over $1 million. Previously, it was just the five highest paid employees.

Now it's any employees. So this code section looks at the definition of covered employee, as you can see on the slide. The definition of covered employee, again, is expanded. It could be not only current employees who receive compensation of $1 million or more for any year after December 31, 2016, it could also include any former employee who received this type of compensation. So again, it was previously just applicable to the five highest paid employees.

Now it's to all employees, whether current or former. What type of tax exempt organizations are we talking about? They could be under Code Section 501(a), they could be farmer cooperatives under Code Section 521(b). They could be political organizations under Code Section 527(e)(1) and any organization with income excluded from tax under Internal Revenue Code Section 115(1).

So remember, previously a covered employee was for purposes of potentially exposing the tax exempt organization to this 21% excise tax of compensation over $1 million. It was only the five highest paid employees for the current year, or an employee who was previously a covered employee for any tax year after 2016.

Now it's to any employee, not just the top 5. So this will significantly broaden potentially the tax exempt organization's exposure to this excise tax. Now let's turn to C Corporations, for profit corporations and new limitations on corporate charitable contribution deductions. So beginning in 2026, there's what is referred to as a new 1% floor and a 10% limit on charitable contributions by C-Corporations.

Beginning for years after December 31, 2025, in other words, for calendar year corporations, it begins in 2026, the corporation can only deduct charitable contributions if the total contributions made to qualified charities by the corporation exceed 1% of the corporation's taxable income. That's the 1% floor that we're looking at. And it's a two pronged test and the total contributions do not exceed 10% of taxable income. That's the 10% limit that you see on the slide. Now, there are carryforward rules where the corporations make carryforward contributions that exceed that 10% cap or limit.

They can carry them forward if they're not able to use them in the current year for five tax years using a First-In, First-Out or FIFO method for the carryforward. The corporation must first apply current year contributions they make during the tax year and then apply any carryforward amounts from a prior year.

Corporations may also carry forward contributions disallowed under the 1% floor, but only if in that year the total contributions exceed the 10% limit. If the corporation has a net NOL or net operating loss carryover -- NOL carryover excuse me, it must reduce the charitable contribution carryforward to avoid increasing the NOL amount in a later year. So in other words, corporations now must contribute at least 1% of their taxable income before they deduct any charitable contributions on their corporate income tax return.

And this rule once again applies beginning in 2026, tax years beginning after December 31, 2025. Now let's turn to qualified opportunity zones, which came into existence back with the Tax Cuts and Jobs Act, sometimes referred to as QOZs. A Qualified Opportunity Zone, or a QOZ, is a designated geographic area in The United States that offers tax benefits to investors through qualified opportunity funds. And there are well over 10,000 of these QOZs in The United States. And after the Tax Cuts and Jobs Act was passed, certain economically distressed census tracts in The U.S. and U.S. territories were designated by Governors or the other elected officials responsible for the territory as qualified opportunity zones based on the geographic requirement and the fact that they were considered to be in distressed areas.

So the Governors and the state executives, they nominated these tracts back in 2018. They were nominated and designated as QOZs for 10 years under the Tax Cuts and Jobs Act. Treasury Department, U.S. Treasury approved the designations from the Governors. And then each state could designate up to 25% of their low income communities as QOZs.

And some adjacent tracts, census tracts, also qualified if their income levels were within certain limits. So again, these QOZ designations that began in 2018, they lasted 10 calendar years. So what's the benefit? Well, the benefit, in addition to hopefully jump starting economic activity within the geographic tract, investors can receive certain tax benefits by investing in these qualified opportunity zones. Under the One Big Beautiful Bill now, this program, the Qualified Opportunity Zone program, it is now made permanent.

That gives a lot of certainty to investors and those doing business and seeking investment capital within the QOZ. But also the legislation creates a new category referred to as a qualified rural opportunity fund that invests solely in certain rural areas.

Now, without going into an extraordinary amount of depth here for the benefits for the investors, they can defer capital gain by investing in a qualified opportunity fund for a period of time. And then they can also exclude certain gains on appreciation of the capital within the fund if the fund does well that isn't and the fund itself is really the one investing either in a business, in a QOZ, or in rehabilitating or building new commercial or residential real property. So we won't get into a lot of detail other than to say that qualified opportunity zone businesses must use substantially all of their tangible property within the zone.

And the QOZ, the Qualified Opportunity Fund, which many of these came into existence following the passage of the Tax Cuts and Jobs Act, that fund itself must be very focused. It must have at least 90% of its assets, and it's getting its assets from investors looking to defer gain. And those investments, 90% of those assets have to be in what's referred to as qualified opportunity zone property, could be stock in U.S. Corporations, engaging in a trade or business in the zone, qualified opportunity partnership could be qualified opportunity business property itself.

Now moving on to the final slide that discusses this provision. Now that the program is permanent, there will be a fixed decennial, i.e., 10-year schedule for Opportunity Zone designations by the states and the territories. Also beginning in 2027, the Qualified Opportunity Zone Program will allow a rolling 10-year zone designation. There will be also a new rolling gain deferral rule. One of the benefits to the investors who are deploying capital through the Qualified Opportunity Fund into the QOZ is that they can get a certain basis step up, tax basis step up of 10%, and that's made permanent.

I mentioned the new category of qualified rural opportunity funds, so that could jumpstart investment in rural areas. We issued a notice that the one piece of technical guidance to date was issued on September 30th. It's Notice 2025-50 and that notice clarifies the definition of a rural area and the application of what is referred to as the substantial improvement threshold for certain improvements to the property that is located in the Qualified Opportunity Zone geographic track.

What is a rural area? Well, in a nutshell, it's any area other than a city or town with a population greater than 50,000. So it'd have to generally have a population of less than that. And any urbanized area contiguous and adjacent to a city or town with a population greater than 50,000. And that is covered again in the Notice 2025-50. So there will be penalties. This program requires fairly strict reporting by these qualified opportunity funds, and they are subject to penalties if they don't meet that 90% asset test, where 90% of their assets are invested in qualified property. And that could be a monthly penalty. So they have very rigorous requirements for the funds themselves. And the funds report their investments and their compliance with these requirements on an Annual Form 8996 to certify and report compliance.

They'll also give information to the taxpayers who've deferred the gain. They'll give them a Form 8997 to annually report their qualified opportunity fund investments, any deferred gains and any disposition of property that they invested into the qualified opportunity fund. And we can and probably will issue regulations going forward to prevent abuse and set rules for reinvestment and certification. So there's much more to come, I believe, under formal guidance beyond Notice 2025-50 in coming months from treasury and the IRS.

So I'm going to pause there, Chris, for our next polling question.

Absolutely. I'm ready to go. And I know our audience is alert and ready for this one. So for the fourth question, go ahead and select the answers that best correspond to the question. Beginning January 1, 2027, what is a key structural change to the Qualified Opportunity Zone or QOZ program under Public Law 1 19-2 1? Is your answer A, the program expires, and no new zones may be designated. Is it B, the program allows successive 10-year zone designations and makes the 10% basis step-up for investments held for five years no longer subject to a sunset date. Is it C, the program eliminates the 90% asset test for Qualified Opportunity Funds. Or D, the program limits investments only to urban census tracks.

And again, folks click the radio button that best answers the question or please enter only the letter A, B, C, or D that corresponds with the response in the ask question text box. If you do not -- that's if you do not receive the polling question. And again, your response is timestamp. So take a minute, think about the question and answer your answer now.

Okay, folks. And let's go ahead and stop right there and share the correct answer on the next slide. And I hope you all can see the answer is B. The program allows successive 10-year zone designations and makes the 10% basis step up for investments held for five years no longer subject to a sunset date. And as I check to see how you all have done on this particular question, which you've answered 80% of you have responded accurately. So well done. Well done.

I'm going to hand it back to Richard. I think you can move on.

Thank you, Chris. Thank you. Yeah, that was a pretty tricky question on a very technical area. We do have a fair amount of resources, again, on IRS.gov for you to dig a little deeper on Qualified Opportunity Zones. So now let's continue on with some changes to what is referred to as the excess business loss limitations for non-corporate taxpayers. And the key here is that this provision under Code Section 461 has now been made permanent. That means any non-corporate taxpayers cannot, I repeat, cannot deduct any excess business loss in the year that it occurs. And we'll define what excess business loss is in a moment.

Now before the change under the One Big Beautiful Bill Act, non-corporate taxpayers could not deduct any excess business losses for tax years beginning before January 1, 2029, which is a few years away. Instead, they had to treat the disallowed losses as an NOL or net operating loss carryover to the next year. This provision was first created under the Tax Cuts and Jobs Act of 2017, which created the excess business loss limit. And then a few years later in the CARES Act of 2020, it delayed the rule until 2021. Remember that we were in the middle of the COVID-19 crisis.

And then the Inflation Reduction Act of 2022 extended the limitation through 2028. But now it is a permanent limitation in the Internal Revenue Code. Now an excess business loss happens when the taxpayer's total business deductions are greater than their total business income or gain for the year plus an inflation adjusted amount, which you see on the slide. That amount is $626,000 for married filing joint filers, half of that $313,000 for other taxpayers. And that was created in revenue procedure 2024-40.

So in an overview of how to calculate this loss limitation, the calculation first, it excludes any net operating loss deductions, and it also excludes the qualified business income deduction. So they're not taking into account for calculating this loss limitation. Capital losses from selling or exchanging assets, they do not count as business deductions, and capital gains are only counted up to the smaller of the net capital gain attributable to the trader business or any total net capital gain. And any wages from being an employee do not count towards business income for this rule.

In terms of ordering the application of this limitation on excess business losses, taxpayers must first apply the passive activity losses, those rules first, and then apply these rules for the excess business loss limitation. And again, if you're a partner in a partnership or an S-Corp as shareholder in an S-Corporation, this limitation applies at the partner or the shareholder level. So you would pick it up if you're an individual on your 1040. So just a key takeaway here now, non-corporate taxpayers must now permanently defer excess business losses. They essentially turn them into NOL carryovers to a subsequent year. And the purpose of this rule is to eliminate the ability to deduct large business losses in the same year that they occur.

So now let's move on to certain provisions that were reinstated under the OBB. And two in particular, I think you'll see these are very favorable to taxpayers. So the first one is Code Section 168(k). This is what some of you refer to as bonus depreciation. It's technically the full expensing for certain business property. So bonus depreciation is now extended and increased to 100% of adjusted taxable basis for qualified property that's acquired and placed in service after January 19, 2025. That was the date, probably not coincidentally of inauguration last year. The bonus depreciation rate is also increased to -- excuse me, the bonus depreciation rate also is increased to 100% of specified agricultural plants that are planted or grafted after January 19, 2025.

Now, there was a prior to OBB, a 40% bonus appreciation rate would have been 60% for what is referred to as longer production property and certain non-commercial aircraft, that also those types of property have been increased to 100% for qualified property acquired after January 19, 2025. And also, the One Big Beautiful Bill Act amended this code Section 168(k) by expanding the definition of qualified property. Now it includes certain qualified sound recording productions that commence in taxable years after July 4, 2025.

Now as you see here, there's a transition rule. You see on the slide here, Code Section 168(k)(10), taxpayers who otherwise could take the 100% additional first year or bonus depreciation, they can choose reduced percentages for the first tax year after January 19, 2025. As you see on the slide, 40% for general qualified property, 60% for longer production period or certain aircraft property, 40% of specified plants. They might want to do that to save some of that amount to depreciate in subsequent years rather than taking the full 100% in the current year.

And I think this is the third time and probably the final time I'll refer to IRS Publication 946. We did get a question on that. I talked about that publication when talking about qualified production property back at the beginning then Section 179. I really like -- you can tell I like Publication 946. You can't memorize all these rules, but it's a great one stop source, and it was updated to reflect the changes to this provision under OBB.

Now let's turn, before we get to our next polling question, to what I am told is a very favorable benefit, which brings back full expensing of domestic research and experimental expenditures. That's code Section 147A. Now, and I heard a lot about this from the tax pros with whom I interact over recent years, because when the Tax Cuts and Jobs Act was passed in 2017, it amended Internal Revenue Code Section 174, and it eliminated existing provisions at that time that allowed taxpayers to immediately deduct research and experimental expenditures beginning for amounts paid or incurred in tax years after December 31, 2021.

In other words, TCJA had a prospective provision that beginning in 2022, eliminated the ability to fully deduct qualified research and experimental expenditures, or R&E in the year. They would have had to have been amortized and did have to be amortized under TCJA over a 15-year period, so not as favorable. So there was a lot of concern by practitioners who are involved and a lot of businesses are involved in domestic R&E expenses. They incurred domestic R&E expenses. So now, beginning in 2025, under the One Big Beautiful Bill, taxpayers can immediately deduct domestic R&E costs in the year they're paid or occurred. So this essentially restores the rule that was in place prior to the 2017 Tax Cuts and Jobs Act.

Now, the taxpayer does have a choice under OBB. They can, if they choose, if it's more beneficial, elect to capitalize and take an amortization deduction for domestic R&E expenditures over a period of no less than 60 months or the equivalent of five years, beginning in the month in which the taxpayer first realizes benefits from these expenditures. However, expenditures for acquiring or improving land or other depreciable or depletable property, they are not eligible. Now, this is for domestic R&E. Taxpayers must continue to capitalize and amortize foreign R&E costs over 15 years. So foreign R&E costs, they have to be capitalized and amortized over a 15-year period.

Again, the domestic R&E costs, they could include expenses related to the taxpayer's trade or business for activities that they're conducting within the United States, but they cannot include in other words, they must exclude land and acquisition improvements, depreciable property, or minimal exploration. Those do not qualify for the domestic R&E expensing. And now the taxpayer could choose not mandatory, but they could choose to amortize over again 60 months, as I just mentioned, in the month the benefits arise. Foreign research expenditures, just to reinforce that a point, because there are many companies of various sizes that incur these R&E expenses in places outside the U.S. They cannot take this full deduction. They must amortize.

Now, what about a small business? Again, for this provision, as was the case when we talked about small business previously, any average annual gross receipts of $31 million or less, they can retroactively they can go back and apply this new favorable provision to expense R&E domestic expenditures for any year beginning after December 31, 2021. But this clock is ticking. They have to make this election if they're a small business and they want to go back and amend the return to get perhaps a refund on a prior year return by claiming the full deduction, they have to make the election by July 4, 2026, the one year anniversary of the law.

So -- and then taxpayers who are not eligible small businesses, they and any others, they can elect if they incurred domestic R&E expenses beginning in 2022 before January 1, 2025, and they were forced to amortize them, they now can choose to accelerate any remaining deduction that they were previously amortizing under the old law over one year or evenly over two years so they could accelerate that, what they were amortizing under the new law. So just a key takeaway here before we get into pause for our next polling question. This is very favorable.

You want to be very careful about the rules here. You can deduct domestic research costs beginning in 2025. But again, foreign research costs have to be amortized over a 15-year period. And there's also simplifying tax treatment for domestic R&E and those retroactive relief for qualifying small businesses.

So Chris, I'm going to pause for another sip of water and turn it over to you for I think this is our fifth polling question.

You're right. So, we are at our fifth and final polling question. Thank you, Richard. Here's your question. Under Public Law 119-21, when may a business claim 100% business depreciation for qualified property? Is your answer A, when the business places any property into service in 2025 regardless of acquisition date. B, when the business acquires qualified property after January 19, 2025 and meets the place in service requirements. Is it C, when the business enters into a binding written contract to acquire qualified property before January 20, 2025 or D, when the property qualifies under prior phase down rules only.

Take a moment, select the right answer to the question and if you didn't get the polling question, make sure you put in letter A, B, C or D into the ask text, ask question text box. And again, responses are time stamped. We'll give you a couple more seconds to answer. And we'll go ahead and stop the polling now and share with you on the next screen what the actual answer is. I hope you got it. The answer is B. When the business acquires qualified property after January 19, 2025 and meets the place and service requirements.

And I can see once again, we're above the 80% threshold, 83% of you have responded correctly. So Richard, take us down the stretch.

We are indeed in the home stretch, and I'm going to move fairly quickly in the terminating provisions because I've been checking the questions coming in, and they are great questions, and we want to give sufficient time to get to them. So quickly going to go through the provisions that were terminated under the One Big Beautiful Bill Act. The first one was the provision that allowed for a credit for commercial clean vehicle that ended with respect to any vehicle acquired after September 30, 2025.

Originally, and that credit came into existence with the Inflation Reduction Act. The original termination date was all the way going forward in December at the end of 2032. Now it's basically gone if you acquired a qualified commercial clean vehicle after September 30, 2025. Similarly, on the next slide, there previously was a provision under the Inflation Reduction Act that allowed for a five year cost recovery period for certain energy property, which includes solar energy property, geothermal energy property, fuel cell property, wind energy property. So that five year cost recovery or depreciation period, that is now eliminated for any property for which construction began in 2025.

The next provision, Code 45X, a gradual phase out in certain restrictions on the advanced manufacturing production credit. That begins to phase out for and the new restrictions begin for years after July 4, 2025. Without going into a lot of depth here, wind components under this Advanced Manufacturing Production Credit, they're not eligible for this credit if they are produced or sold after December 31, 2027. Metallurgical coal is not eligible after December 31, 2029. And there are also new restrictions on what are referred to as foreign entities.

These foreign entities begin these restrictions for foreign entities, I should say, begin after the date of enactment, after July 4, 2025, and the taxpayer cannot claim this credit if they qualify as a specified foreign entity. They cannot transfer the credit to any specified foreign entity. And a component does not qualify for the credit if it includes material assistance from a prohibited foreign entity.

So just a takeaway here, the 45 CapEx credit is narrowing sharply over the next few years. Early termination for wind and coal, gradual phase out for certain critical minerals, tighter domestic production requirements and strict foreign entity restrictions. So these businesses seeking to claim this credit, they have to plan carefully to qualify before the credits are reduced or eliminated.

Similarly, moving on to the 45Y, the clean electricity production costs. The only thing I want to say here in summarizing this, this credit ends for wind and solar facilities placed in service after 2027. There are new restrictions again here, which we won't get into detail because of time. So taxpayers will need to act quickly before the cut of supply.

On our next slide, there's a 48E. This is a clean electricity investment credit. This credit ends for most wind and solar property placed in service if construction begins after July 4 of this year, July 4^th of 2026. A lot of details to this credit, but the takeaway here is that this 48E investment credit, it's ending early under the One Big Beautiful Bill for most wind and solar. It's expanded for fuel cells, but they're now very strict domestic content and foreign entity rules. So again, you have to plan carefully to qualify for this credit.

Moving on under 45L, there was an Inflation Reduction Act deduction excuse me -- credit, I'm sorry, under 45L for builders constructing new energy efficient homes. It was due to sunset on December 31. Now the credit will not be allowed for homes acquired after June 30 of 2026. So that's coming up on us very quickly. Next, the 179D, which is a deduction for retrofitting commercial buildings to make them energy efficient.

That deduction similarly expires, the 179D deduction for energy efficient commercial buildings, that expires after June 30 of this year. And then finally, before we get to our Q&A, the rule OBBA now prevents the IRS from issuing any employee retention credit for any returns filed after January 31 of 2024, if the calendar quarter for which that credit is being claimed was either third or fourth quarter of 2021. And was not allowed before July 4^th of 2025. So the big takeaway here, and we have a very good fact sheet. You may want to write this down.

It's not on the slide. Fact Sheet 2025-7 was issued in October of 2025. It summarizes these restrictions to the Employee Retention Credit. So now, let me just give you one slide, our next slide, on the resources. If there's one key takeaway today, I would suggest you want to bookmark IRS.gov/OBBB.

I'll repeat that IRS.gov/OBBB. Save it as a favorite, where we will add subsequent guidance. And now, Chris, I'm going to pause and let's get to some of these great questions coming in for our subject matter experts.

Absolutely. An outstanding job accomplished here today, Richard. Couldn't ask for better. Audience, once again, my name is Chris, and I'll be moderating the Q&A. I'll try to make this as quick as I possibly can. I want to thank everybody for attending and staying engaged during today's presentation, understanding the One Big Beautiful Bill business tax provisions. If you haven't already input your questions, there's still time, go ahead and click on the drop-down arrow next to the ask question field and go ahead and hit send. Okay?

Rich should be hanging around with us. Maybe we can get to a question for him to answer. But for right now, I want to inform you we're joined by two members of Special Counsel, Christopher Wrobel and Karla Meola and a subject matter expert, Filomena Mealy. So let me introduce them really quickly.

Filomena is a 38 year veteran and currently serves as a management and program analyst in the Stakeholder Liaison planning special projects office that focuses on in on the implementation, strategic outreach efforts to the tax professional and small business community. Filomena has held several positions ranging from relationship manager, auditor, quality reviewer, electronic filing coordinator, and earned income tax credit coordinator.

Christopher Wrobel is Special Counsel to the Associate Chief Counsel IT&A division, also known as income tax and accounting. In this role, Chris advises the Associate Chief Counsel in matters pertaining to regulatory and other IRS published guidance projects within IT&A's jurisdiction. Prior to joining IT&A in 2014, Chris served eight years as an Attorney with LB&I, Large Business & International in Washington DC field office.

And as an LB&I Attorney, Chris was responsible for litigation and providing legal advice to the IRS during examinations of large taxpayers. Karla Meola is a Special Counsel in income tax and accounting division of the IRS Office of Chief Counsel. Ms. Meola has worked within IRS's Chief Counsel income tax and accounting for over 19 years. Ms. Meola has a JD from Syracuse University and an LLM degree with Masters of Law degree from Georgetown University of Law.

So welcome to Christopher, Karla, and Filomena. Let's get into this. And I'm going to go ahead and start us off with you, Ms. Meola. I see we have a question regarding Internal Revenue Code 168(k). Ms. Meola, I'd love you to answer this question for our attendee today.

It's a bit technical, so take your time. They're asking, how can I use cost segregation studies when applying the restored 100% bonus depreciation provision?

Hi, Chris. Thank you. Yes, cost segregation studies may help identify components of a building that qualify as shorter lived properties that's eligible for the bonus depreciation By separating qualifying property from non-qualifying building components, taxpayers may accelerate depreciation deductions where permitted under Section 168(k).

Practitioners should ensure, though, that the classification follows established IRS guidance and the engineering standard.

Perfect. Perfect. Thank you for that one. That was a good question to get us going. Hey, Filomena, as I'm scrolling through the responses here, I'm seeing one regarding the paid family and medical leave credit, but it's kind of twofold. So I will have a small, like, backup question to this. Our attendee would like to know if an employer actually claims this particular credit for wages during leave, how does the credit affect the employer's wage deduction?

Hi, Chris. Thanks for the question. Yes. Generally, the employer must reduce the wage deduction by the amount the credit is claimed. This adjustment prevents the employer from receiving both the full wage deduction and a credit for the same expense. Hopefully, that answers the question.

Sure does. And moving on to the second part, the participant is asking, if I get the question wrong on participant, please let us know in the text box. But they also ask, must employers reduce their deductions when claiming the credit based on premiums?

Good question. And, yes, employers must reduce their deduction for premiums by the amount that the credit is claimed. That was an easy one. Thanks, Chris.

Perfect. Perfect. So, attendee, I hope that helps. Hey, Chris. Looks like I have a technical question that would be perfect for you. The attendee asks, even though the law increased the deduction limit to $2.5 million, does the taxable income limitations still apply? And what it looks like, I think it's referenced in the IRC Section 179 just to be specific. So hopefully you understand that question.

Sure, Chris and thanks for the question. Yes. So Section 179 deductions cannot exceed the taxpayers taxable income derived from the active conduct of a trade or business during a tax year. So if the deduction exceeds the taxable income limitation, the taxpayer must carry the excess forward to future tax years.

Good, good, good question everyone. Questions, everyone. It looks like we have some time to get back to Rich. So now, Richard, I'm coming to you with this one. It's coming straight from a tax pros perspective, and this is a common concern that this person is actually sharing with us. So I hope you're ready. They write, if a taxpayer operates multiple business or trade, and I'll help them out by saying qualified businesses or trades, right? How do I figure out the QBID? That's the qualified business income deduction.

Well, thank you. Thank you, Chris. And actually, I've seen a few questions on QBID or 199A. So, yes, if a taxpayer operates multiple qualified trades or businesses, they determine their QBID by calculating the qualified business income separately for each of those separate trades or businesses. And then the practitioner must then apply the wage and qualified property limitations.

They must apply the aggregation rules if it's a controlled group and the overall taxable income limitation before determining the final deduction that ends up on the 1040. So the law, the OBBA, extended 199A permanently as we discussed, but it does not change in any way the structure of the calculation established under Code Section 199A.

That still remains under the new law. And again, I recommend the instructions for Form 8995 and 8995-A. They can be very helpful in looking at the structure of this calculation, Chris. Thank you.

Awesome. And we're running out of time, so let's keep it going, team. Chris, we're going to come back to you for this one. This one is regarding qualified production property. From what I can see, they're referencing the special depreciation allowance for it.

Again, a very good deep question here. So I'll try to word it in a way that, that you can understand and answer. So let's say a manufacturer expands an existing production facility, right? Does the new portion of the building qualify under that code 168(n)?

Yes, so this is a great question, Chris. So the answer is yes. If the expansion of an existing production facility meets the statutory requirements of 168(n) which here would include the requirement that a taxpayer affirmatively elect to treat the expansion as qualified production property. The expansion has to represent new non-residential real property, which would be also used as an integral part of manufacturing, production or refining. And the taxpayer also would have to satisfy the construction start date, the place and service deadline, and the original use requirement, which is set forth in part of Section 168(n).

And Chris, as a backup to that thought, how should practitioners evaluate whether an activity is a "qualified production activity", you know, for purposes of the QPP deduction?

Yes, so for that question, Chris, I mean, I'd look to the statute and 168(n) defines qualified production property in part as property used as an integral part of a qualified production activity. And remember that a qualified production activity includes manufacturing production, which includes agricultural production, chemical production, as well as refining provided the activity results in a substantial transformation of the property, which makes up all the product.

And some helpful guidance that we recently released on this topic was Notice 2026-16. And that notice provides interim guidance defining all these terms, and also provides that activities such as minor assembly, packaging, repackaging, and labeling do not qualify because they either do not meet the definition of manufacturing or do not result in a substantial transformation of the property making up a product.

So I encourage people to take a look at Notice 2026-16 for more detailed information on this topic.

Very good information right there. Fantastic. Ms. Meola, we'll swing the mic over to you. Have a question for you. If a taxpayer purchases used equipment from last year, 2025, does the restored 100% bonus depreciation apply?

Hey, Chris. This is definitely a good question. I think the answer is possibly. Qualified used property may be eligible for bonus depreciation if the taxpayer or its predecessor did not previously use the property, and the acquisition meets the certain requirements in Section 179(b)(2), which generally is that the purchase is from a related party or the purchaser, they had a prior interest in the property, it is not an acquisition that's eligible for the 168(k) depreciation deduction.

And they have to acquire the property after January 19^th, 2025, so that the property could be eligible for the restored 100% depreciation rate. So, as all other requirements of section 168(k) in that.

Got you. And I'm just trying to get through as many questions we have. We have so many questions coming in, and I know we're going over time, guys. Thanks for your patience. Filomena, I have another one regarding Family and Medical Leave Credit. Here it goes, If an employer provides paid leave that exceeds the statutory minimum requirement, can an employer still claim the credit?

Thanks, Chris. Yes. The short answer is yes. An employer may claim the credit as long as the employer's written policy meets the statutory requirements and that the wages or insurance premiums paid satisfy the eligibility rules and other requirements relating to the leave for which the credit may be claimed? And I believe Richard covered that as far as the written statement was concerned.

Yes, he did. Thanks for that. Chris, we'll swing it back to you. Do the increased section 179 limits actually change the eligibility rules for qualified improvement property?

No. So the changes to Section 179 increase the dollar limits, but did not change the underlying eligibility rules. So qualified improvement property, roofs, HVAC systems, fire protection systems, and security systems installed non-residential buildings may still qualify under the existing 179 rules.

So if a business places, $4.2 million of qualifying property and service during the year, how does the phase out affect the Section 179 deduction?

Yes, so in that situation, the deduction would begin to phase out once the taxpayer places more than $4 million of qualified property and service. And the phase out would reduce the deduction dollar for dollar for the amount which exceeds the threshold.

Hope that makes sense to you attendee. I'm just looking through here, see what I have. Ms. Meola, if a taxpayer elects out of bonus depreciation for a class of assets, can a taxpayer later revoke that election?

That's a good question. Once the taxpayer elects out of bonus depreciation for a class of property for the tax year, the election is usually irrevocable without the consent of the IRS.

Very good, very good, very good. And let me just see if there any more questions that are coming in. Just taking a look here. Looks like, let's see here. I don't see any other questions coming in. What? Oh, wait, wait, wait. I got one more. Hey, Richard. Did the new law eliminate the restrictions that apply to specified service trades or businesses under the qualified business income deduction? It's a good one.

Thank you, Chris. And the answer is no. The new law made this deduction permanent, as we've discussed at various times today, it adjusted the income thresholds, but it did not eliminate this category of specified service trade or business limitations. So taxpayers and professions such as law, accounting, consulting, athletics, financial services and health care, all of them are SSTBs or Specified Service Trades or Businesses, those taxpayers must still evaluate those restrictions if their income exceeds the applicable amount. So, it did not eliminate those restrictions, Chris, for SSTBs. So, thanks for that question.

Absolutely. Perfect. Audience, you've been asking wonderful questions. And I'm looking here, we're still getting questions coming in, but unfortunately, we have far exceeded our time and we have no more time for questions. So, I want to give a special thanks to Richard Furlong for such a comprehensive presentation along with our fantastically intelligent members of counsel and our ever bright and shining subject matter expert for answering your questions and sharing their knowledge and expertise.

But before we close the Q&A session, Richard, what key points do you want the audience to remember from today's webinar?

So thanks, Chris. Yes, we've tossed a lot at you today. But the key points, I think, as a takeaway initially are that beginning for 2026, the 1099-NEC and 1099-MISC information reporting thresholds, they've increased from $600 to $2,000 per recipient, and they will be adjusted further annually for inflation. However, remember that all income remains taxable even if the threshold for filing these information returns to IRS and furnishing them to the taxpayers is not met in the year.

We've talked about the fact that eligible taxpayers can elect this new 100% special depreciation for qualified production property used in manufacturing, production and refining activities. As we've discussed and as Christopher was discussing, the Section 179 expensing limitations, there's a significantly increase to up to $2.5 million for a maximum 179 deduction, and the phase out of the deduction begins at $4 million of 179 property placed in service during the year. Again, these amounts will be indexed for inflation after 2025.

And then finally, one of my favorites, the 20% qualified business income deduction under Code Section 199-A, that becomes permanent in 2026. And remember, there's that higher income thresholds for the phase out of the deduction. And don't forget that new minimum $400 deduction for active small business owners. The paid family and medical leave credit is now permanent, along with that new provision that allows the employer to choose the credit for the applicable percentage of premiums paid or incurred for an insurance policy that provides paid family and medical leave.

But as Filomena mentioned in answering the question, you cannot double dip. So if you take the credit, you cannot deduct the insurance premiums that are allowing the credit. And then finally, and this is the key takeaway perhaps, remember the one stop resource for all of the IRS OBBA guidance, and that could be news releases, fact sheets, tax tips, notices and proposed or final regs.

All of that is continuing to come out completely. Your one stop resource is IRS.gov/OBBB. So Chris, let me turn the microphone back over to you, my friend, to wrap it up for us today.

Thank you for those key points. Folks, I hope you took a lot of good notes today. And note that it is important to watch for announcements on future webinars. To register for any upcoming webinar, please visit IRS.gov keyword search webinars and select the webinars for tax practitioners or webinars for small businesses. When appropriate, we will offer certificates and CE credit for upcoming webinars.

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Another big thank you to our presenter and subject matter experts for a great webinar and Q&A session. I also want to thank you, our attendees, for attending today's webinar, understanding the One Big Beautiful Bill, Business Tax provisions. Remember, if you attended today's webinar for at least 100 minutes after the official start time and answered at least four polling questions during the live broadcast, you will receive a certificate of completion for two IRS CE credits, or if you attended for at least 50 minutes after the official start time and answered at least three polling questions during the live broadcast, you will receive a certificate of completion for one IRS CE credit.

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