The Tax Landscape Just Changed—Is Your Business Ready?
Business owners face a transformed tax landscape in 2025. The One Big Beautiful Bill Act (OBBBA) introduces sweeping changes through the newly released draft Schedule 1-A, fundamentally altering how businesses approach compensation, benefits, and tax planning.
These aren’t minor adjustments—they’re structural shifts that impact everything from how you pay overtime to the deductions your employees claim. Smart business owners who act now can turn these changes into competitive advantages. Those who wait risk missing opportunities that won’t come again.
What’s Actually Changing: The Four Pillars of Schedule 1-A
The IRS draft Schedule 1-A introduces four new above-the-line deductions that directly impact your business operations and employee compensation strategies. (Note: These reduce income tax at the individual level—they do not change payroll/FICA taxation.)
1. No Tax on Tips (Line 13)
Qualified tips up to $25,000 annually become deductible for employees in hospitality, service, and related industries. But here’s what matters for your business: this isn’t automatic. Employees must receive tips as part of their regular employment, and both employer and employee must have valid Social Security numbers.
The business impact:
If you operate in hospitality or service industries, this provision fundamentally changes your compensation conversations. Employees effectively receive a raise without costing you a dollar—but only if you structure it correctly.
To comply, businesses must ensure that tips are properly identified, tracked, and reported as qualifying gratuities under the new rule. That means:
- Separating tips from wages in payroll systems so they are properly reported.
- Maintaining accurate records of all tips received and paid to employees.
- Updating payroll and point-of-sale systems to classify these amounts correctly.
- Educating managers and staff so compensation conversations reflect the change.
When structured correctly, employees receive the full benefit of their tips—effectively a raise without additional employer cost—while the business avoids payroll tax exposure or compliance risk.
2. No Tax on Overtime (Line 21)
Employees may claim up to $12,500 for single filers, $25,000 for married filing jointly, of qualified overtime compensation (the premium portion of time-and-a-half) for 2025-2028.
The catch?
There is an implementation timeline – For 2025, businesses must use a “reasonable method” approved by the Treasury Secretary to track and report this overtime. Starting in 2026, Form W-2 will include a specific code in Box 12 for qualified overtime.
The business impact:
Your payroll systems need updating now. The businesses that implement robust tracking systems in 2025 will seamlessly transition to the formal requirements in 2026. Those that don’t will scramble to reconstruct records.
To comply with the no-tax-on-overtime provision, businesses will need to:
- Configure payroll to identify overtime premium separately.
- Tighten time-tracking in 2025 to support 2026 reporting.
- Maintain hours and overtime calculation records.
- Coordinate with payroll providers/Accountants to align with IRS guidance.
- Train managers/HR on how overtime will be tracked and communicated.
Employers that put these systems in place now will create a smooth transition and avoid the scramble of trying to reconstruct historical records later.
3. Car Loan Interest Deduction (Line 30)
Interest paid on loans for “applicable passenger vehicles” is deductible—up to $10,000/year (2025–2028).
- Vehicle must be new, U.S.-assembled, under 14,000 lbs. GVWR.
- Reported by VIN with lender statement.
- Applies to personal vehicles under Schedule 1-A; business-use vehicles remain deductible under Schedules C, E, or F.
Business impact:
Lowers the after-tax cost of commuting for many employees (sales, service, shift workers).
How Businesses Can Help Employees Benefit
While the car loan interest deduction is ultimately claimed on an employee’s tax return, businesses can turn it into a meaningful workplace advantage by helping their teams understand and use it effectively:
- Provide Clear Communication – Share plain-English explainers so employees know how the deduction works, who qualifies, and what steps they need to take.
- Empower Managers and HR – Equip leaders with simple talking points so they can answer questions and reinforce the value of the provision.
- Incorporate Into Total Rewards – Frame the deduction as part of the company’s broader compensation story, showing how it reduces employees’ after-tax cost of reliable transportation.
- Connect to Reliability – Emphasize how this provision helps employees access dependable vehicles, supporting attendance, performance, and peace of mind without additional payroll expense.
By proactively educating employees, companies can turn a tax-law change into a practical employee benefit—strengthening recruiting, retention, and overall workforce stability.
4. Enhanced Deduction for Seniors (Line 37)
Seniors born before January 2, 1961, receive up to $6,000 in additional deductions, phasing out at higher income levels ($75,000 single, $150,000 married filing jointly).
The business impact:
Your senior employees just became less expensive to retain. This natural tax advantage might influence your decisions about retirement transitions and knowledge transfer programs.
To comply and make the most of this provision, businesses should:
- Update HR and payroll records to identify employees eligible for the enhanced deduction (born before January 2, 1961).
- Coordinate with payroll providers to ensure W-4 and withholding adjustments reflect the additional deduction where applicable.
- Incorporate this benefit into workforce planning, since senior employees may choose to extend their careers when their after-tax income improves.
- Reassess retirement transition strategies, recognizing that employees might delay retirement, giving employers more time to plan succession and knowledge transfer.
- Communicate clearly with senior employees so they understand how the deduction impacts their net pay, while avoiding giving tax advice beyond confirming eligibility.
Employers that adapt early will not only remain compliant but also strengthen retention strategies by highlighting this built-in tax advantage as part of their overall employee value proposition.
The Income Thresholds That Matter
Every deduction phases out at specific Modified Adjusted Gross Income (MAGI) levels:
- Tips and Overtime: $150,000 (single) / $300,000 (married filing jointly)
- Car Loan Interest: $100,000 (single) / $200,000 (married filing jointly)
- Senior Deduction: $75,000 (single) / $150,000 (married filing jointly)
These aren’t arbitrary numbers—they’re strategic planning thresholds. Your compensation strategies need to account for where your employees fall relative to these limits.
Beyond Schedule 1-A: 12 Provisions Every Business Owner Should Know
1. 100% Bonus Depreciation Made Permanent (Section 168(k))
This change makes permanent what had been one of the most valuable temporary tax incentives: the ability to deduct the full cost of qualified property in the year it’s placed in service. Capital-intensive businesses—such as manufacturing, logistics, and construction—gain a significant advantage in planning future investments.
- Applies to property acquired and placed in service after January 19, 2025.
- Eligible property includes both new and used tangible assets under 20-year recovery, certain improvements, and qualified production property (with additional rules).
- This is a significant opportunity for capital-intensive businesses planning large investments.
2. R&D Costs Return to Immediate Expensing
The OBBBA eliminates the unpopular requirement to amortize R&D costs over five years, restoring immediate expensing. This is a major boost for innovation-driven sectors where upfront costs are high, but time-to-market is critical.
- Domestic research and development costs may be expensed immediately.
- Particularly valuable for technology, pharmaceutical, and manufacturing firms.
- Encourages reinvestment in U.S.-based innovation.
3. 100% Expensing for Manufacturing Structures (2025 – 2031 Window)
For the first time, businesses can fully expense the cost of certain qualified production property — nonresidential real property used in manufacturing, refining, or production. This provision can significantly reduce upfront tax costs, freeing up capital for businesses to reinvest in growth and expansion.
- Construction begins after January 19, 2025 and before January 1, 2029.
- The property is placed in service before January 1, 2031.
- The property is used by the owner in a qualified production activity. Portions of a building used for non-qualifying purposes (such as administrative, lodging, or office space) do not qualify.
- For existing buildings, additional thresholds apply — for example, the property must not have been used in a qualified production activity during certain prior years.
4. 20% Pass-Through Deduction Made Permanent (Section 199A)
The 20% pass-through deduction (Qualified Business Income deduction under Section 199A), previously scheduled to expire at the end of 2025, is now made permanent under recent legislation. This gives business owners greater certainty for long-term tax planning.
- Applies to qualified business income (QBI) from sole proprietorships, partnerships, and S-corporations.
- Specified Service Trades or Businesses (SSTBs) still face income-based limitations: at certain taxable income levels, the deduction for SSTB-derived income may be reduced or eliminated.
5. Expanded Business Interest Deduction for Leveraged Companies (Section 163(j))
Businesses that rely on financing—especially in real estate and private equity—benefit from more generous rules on interest deductibility. By coordinating with interest capitalization provisions, these changes provide greater flexibility in structuring debt.
- Permanently expands the limitation on interest deductibility.
- Particularly impactful for leveraged businesses and capital-intensive real estate projects.
6. SALT Deduction Cap Raised to $40,000 (Until 2030)
The OBBBA raises the cap on state and local tax (SALT) deductions, but only for certain income levels. This will directly affect business owners who itemize personal deductions, particularly in high-tax states.
- New cap of $40,000 for incomes under $500,000 (up from $10,000).
- Gradually reduced for higher incomes.
- Reverts back to $10,000 in 2030 unless extended.
7. Corporate Alternative Minimum Tax (CAMT) Relief for Oil & Gas
Oil and gas producers gain relief through a modified CAMT calculation that allows them to deduct intangible drilling and development costs. This provision will reshape tax planning in the energy sector.
- Applies to taxable years beginning after December 31, 2025.
- Specifically benefits companies with significant development investments.
8. Form 1099-K & 1099 NEC Reporting Updates
The OBBBA resets 1099-K reporting requirements closer to historical norms, easing concerns that small-dollar, casual transactions would trigger unnecessary reporting. This change reduces administrative burdens for both businesses and individuals who use third-party payment platforms.
- 1099-K Reporting Thresholds – Beginning in 2025, businesses will only receive a 1099-K if payments exceed $20,000 and involve more than 200 transactions on a single platform. This is a major shift from the previously proposed $600 threshold, which could have triggered reporting for many minor or non-business transactions.
- 1099-NEC Reporting for Non-Employee Compensation – Starting with 2026 taxes, payments of $2,000 or more to freelancers, contractors, and other non-employees must be reported on Form 1099-NEC. Beginning in 2027, this threshold will be indexed annually for inflation.
The business impact: These changes create a clearer distinction between casual transactions and genuine business activity. For employers and business owners, it means less paperwork for small-dollar payments, but greater responsibility for accurately classifying and tracking payments to contractors. Businesses that rely heavily on independent workers or the gig economy will need to tighten their reporting processes to remain compliant.
9. Green Energy Credit Restrictions, Carbon Captur Expanded
Several clean energy incentives from the Inflation Reduction Act are being repealed or restricted, but other credits are extended, with a focus on carbon capture and clean fuel production. Businesses in energy transition industries will need to re-map strategies.
- Repeals or phases out EV and residential energy credits more quickly.
- Expands carbon oxide sequestration credit.
- Extends clean fuel production credit.
10. Child Tax Credit Permanently Increased to $2,200 per Child
Though not a business deduction, the Child Tax Credit’s permanence matters for business owners balancing company and family planning. Increased credit amounts strengthen after-tax household cash flow, indirectly influencing compensation and benefits decisions.
- Increased to $2,200 per child (up from $2,000).
- Refundable portion set at $1,700 for 2025.
- Adjusted annually for inflation starting after 2025.
11. Tax Rates Made Permanent
The OBBBA makes the current individual tax rate brackets permanent, eliminating the uncertainty of prior sunset provisions. For business owners, this provides:
- Predictable tax planning horizons
- A stable basis for long-term compensation strategies
- A clear framework for business structure decisions
12. Estate Tax Exemption Made Permanent
The OBBBA permanently fixes the elevated federal estate, gift, and generation-skipping tax exemptions, removing the risk of an automatic reduction scheduled for 2026. For 2025, the exemption is approximately $13.99 million per person ($27.98 million per couple), rising to $15 million per person ($30 million per couple) in 2026, with future amounts indexed for inflation.
For business owners, this permanence has important implications: the way your company is structured, how ownership is transferred, and how gifts are made can determine whether your estate remains under exemption thresholds or becomes subject to estate taxes. Valuation, entity structure, and strategic gifting are more critical than ever now that the exemption level has been solidified.
Your Action Plan: Converting Rules into Opportunities
1. Audit Your Payroll Systems
These new provisions flow directly through payroll. If your current system can’t separately identify and track qualified overtime and qualified tips, you’ll struggle to calculate employees’ new deductions at tax time and mistakes can be costly.
- 2025 is the transition year. The IRS allows use of a “reasonable method” to estimate qualified amounts while updated forms are developed.
- 2026 forward: Expect revised W-2/W-4 instructions and required reporting changes.
- Employers who modernize tracking now will transition smoothly; those who wait may face reconstructing data under pressure.
2. Review Compensation Structures
The OBBBA provisions fundamentally change how employees perceive compensation. Every worker earning between $10,000 and $300,000 deserves a fresh look at their package. These new deductions could allow you to deliver more net value at the same—or even lower—gross cost. Restaurants, manufacturers, and professional services firms that optimize comp now will gain a recruiting and retention advantage over competitors who don’t adjust.
3. Document Everything
The IRS will require substantiation. Vague records won’t cut it. Businesses need to create disciplined documentation protocols now that cover:
- Overtime hours and calculations: Track the premium portion under FLSA (the “half” in time-and-a-half).
- Tip reporting: Ensure accurate reporting; only IRS-designated occupations qualify for the new tip deduction.
- Vehicle loan interest: To qualify, lenders must issue statements and employees must report the VIN. The deduction applies only to new, S.-assembled passenger vehicles under 14,000 lbs., for tax years 2025–2028.
- Senior enhanced deduction: Maintain accurate date-of-birth records so employees age 65 and older can claim the additional $6,000 per-taxpayer deduction available for tax years 2025–2028.
The businesses that treat documentation as a strategic discipline—not just a compliance chore—will minimize audit risk and maximize the value of these new provisions.
Strategic Considerations
Recruitment and Retention:
These provisions create natural advantages in hiring and workforce management. A restaurant employing tipped workers may offer stronger take-home pay without increasing costs. A manufacturer with significant overtime can deliver higher net compensation while keeping gross wages steady. For business owners, this means turning tax law into a competitive edge in attracting and retaining talent.
Business Structure Optimization:
With permanent tax rates and new deductions now in place, entity choice deserves a fresh evaluation. A structure that worked in 2024 may not be the most tax-efficient in 2025 and beyond. The right structure not only reduces taxes, but also supports succession planning, cash flow, and long-term wealth goals.
Integrated Planning Requirements:
These changes don’t exist in isolation. To capture their full value, business owners need coordinated planning that connects:
- Payroll and HR systems
- Benefits design
- Tax strategy
- Cash flow management
- Succession planning
Bottom line: These tax changes create opportunities but also raise the stakes. Businesses that plan proactively will be better positioned to strengthen their workforce, optimize their structure, and secure long-term financial health.
The Gatewood Difference: Why Coordination Matters Now More Than Ever
Tax law changes create complexity—but complexity also creates opportunity when you have the right team. At Gatewood, we don’t just prepare your taxes; through Gatewood Tax & Accounting, we integrate tax strategy into your complete financial picture.
Our Firm-to-Family™ approach means your business planning connects seamlessly to your personal wealth strategy. When Schedule 1-A changes how your employees are taxed, our Tax & Accounting team is already modeling the ripple effects on business value, cash flow, and succession timelines.
This level of coordination is what makes Gatewood different. With a dedicated Tax & Accounting team working alongside your Wealth Advisor, Wealth Planner, Wealth Coordinator, and other specialists, you gain clarity and confidence that every decision is backed by both tax expertise and financial strategy.
The OBBBA doesn’t just change tax forms—it changes the mathematics of business ownership. With Gatewood Tax & Accounting integrated into your planning process, you avoid making decisions with incomplete information and instead turn new legislation into long-term opportunity.
Three Questions Every Business Owner Should Be Asking
- Are your systems capturing the data needed to maximize these new deductions?
- Have you modeled how tax law changes will impact recruiting, retention, and total compensation costs?
- Is your advisory team coordinating tax strategy with your broader business and personal wealth plan?
If the answer to any of these is “not yet,” then now is the time to put the right plan in place.
The Bottom Line: Preparation Separates Winners from Survivors
The One Big Beautiful Bill Act isn’t just another tax change—it’s a fundamental shift in how businesses manage compensation, benefits, and long-term planning.
The businesses that thrive won’t just check the compliance box. They’ll seize the opportunity to align tax advantages with strategic growth, succession, and wealth creation.
Smart planning starts with knowing the rules. But building enduring wealth with purpose requires more: integrated thinking, proactive preparation, and a team that sees your complete picture.
The changes are here. The only question is whether you’ll react—or leverage them.
Ready to Turn Tax Changes into Strategic Advantages?
The OBBBA creates both obligations and opportunities. At Gatewood, we help business owners capitalize on both—working to keep your tax strategy fully aligned with your long-term business and wealth objectives.
Let’s discuss how these changes affect your business before year-end—and what steps to take now.
Because building wealth that lasts requires more than filing forms. It requires Gatewood’s integrated Firm-to-Family™ planning across every aspect of your financial life.
Important Disclosures
This article provides general information about tax law changes and should not be construed as specific tax advice. The One Big Beautiful Bill Act provisions discussed are based on draft IRS Schedule 1-A and are subject to change. Consult with your tax professional about how these changes affect your specific situation.
Tax information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Updated based on IRS draft Schedule 1-A released September 2025 and AICPA guidance.
