As most of us know, the “One Big Beautiful Bill (Tax) Act” (the “2025 Tax Act”) was signed into law by President Trump on July 4, 2025. Many have yet to review all of its provisions, however, including those that affect federal taxation of founders, investors, and business owners.
Here are three provisions of the 2025 Tax Act that may be of special interest to Weinberg Gonser clients:
1.Superior QSBS (Qualified Small Business Stock) capital gain deductions
Section 1202 of the Internal Revenue Code, which provides capital gain exclusions for purchasers of QSBS, was expanded and improved to the benefit of those who purchase C corporation shares directly from the corporation after July 4, 2025.
The following changes will almost certainly increase the likelihood that founders and investors will elect to form and operate C corporations vs. LLCs, S-corporations and partnerships:
- First, the holding period required to benefit from Section 1202 now begins at year 3 rather than year 5. At year 3, there is now a 50% exclusion of capital gain, and at year 4 there is now a 75% exclusion (with the 100% exclusion remaining at the 5-year anniversary of purchase).
- Second, the maximum exclusion of capital gain per stockholder was increased from $10 million to $15 million.
- Third, the company size limit at the time of purchase was raised to $75 million (up from $50 million).
2.Survival of PTET (Pass-through Entity Tax) “work-around” laws that avoid the SALT deduction cap
While the 2025 Tax Act raises the cap on deductibility of SALT (state and local taxes) from $10,000 to $40,000 for those with adjusted gross income below $500,000 (with a phase-out beyond that until $600,000), a high percentage of business owners pay more than $40,000 of property tax, state income tax, and the like, and/or have income that exceeds the income eligibility cap.
Coming to the rescue since 2017 have been state PTET “work-around” laws. Such laws permit owners of pass-through entities (S-corporations, partnerships, and LLC’s taxed as partnerships) to pay their personal state income taxes via such entities rather than as individual taxpayers. Said another way, use of PTET allows taxpayers to deduct such state tax payments fully at the entity level, thereby avoiding the SALT cap with respect to such tax payments.
Eliminating this SALT “work-around” entirely was part of the discussion early on in Washington. Then, under the House bill, the right to use a PTET work-around was preserved, though it was eliminated for artists, athletes, brokers, law firms, accounting firms, medical practices, and certain other businesses based on the talent of their individual owners (such businesses are called “specified service trade or businesses” or “SSTBs”). Fortunately for such taxpayers, the Senate bill (which ended up in the 2025 Tax Act) preserved PTET for owners of all types of pass-through organizations.
3.Section 199A – the Qualified Business Income deduction
The 2025 Tax Act makes the Section 199A Qualified Business Income (“QBI”) deduction permanent, ensuring that eligible pass-through business owners can continue to deduct up to 20% of their QBI beyond 2025. The 2025 Tax Act sets a $400 minimum deduction for all eligible companies. Principals of law firms, accounting firms, medical practices, and other SSTBs, remain ineligible to participate beyond certain income levels. For 2025, the phase-out for the QBI deduction for SSTBs begins at $197,300 for single filers and $394,600 for joint filers, with a complete phase-out at $247,300 and $494,600, respectively.
Conclusion
Congress and the “One Big Beautiful Bill (Tax) Act” made a number of significant changes to the federal tax code, and there will also be new regulations promulgated by the IRS to interpret these changes and to cover edge cases.
Given that many business decisions are tax driven, founders, investors, and business-owners, should consider the foregoing tax provisions and the other provisions of the 2025 Tax Act when arranging and structuring their business dealings.