Key insights
- New rules on deductions, expensing, and entity structure may require professional services firms to rethink their tax strategies to stay compliant and take advantage of the benefits under these fresh regulations.
- From permanent deductions that reshape cash flow to new incentives for domestic innovation and capital investment, discover how the One Big Beautiful Bill Act (OBBBA) introduced shifts directly affecting how firms operate and compete.
Reduce taxable income and reinvest in your operations.
Key OBBBA tax strategies for professional services firms
1. Enhances the qualified business income (QBI) deduction
The QBI deduction, also known as Section 199A deduction, allows eligible taxpayers to deduct up to 20% of their qualified business income from their taxable income. Eligible taxpayers include pass-through entities and self-employed individuals.
What changed
The OBBBA permanently extends the QBI deduction and expands the income phase-in thresholds for specified service trades or businesses (SSTBs). The phase-in range increased to $75,000 for single filers and $150,000 for joint filers.
What’s next
Firms structured as pass-through entities (e.g., partnerships, S-corps) should reassess owner compensation and income distribution to make the most of the 20% QBI deduction.
2. Leverage immediate expensing for R&E expenditures
Research and experimental (R&E) expenditures are costs incurred by a business in the process of developing or improving a product, process, or technology — such as expenses related to software development, prototype creation, and patent applications.
What changed
Immediate expensing for domestic research & experimental (R&E) costs is permanently restored, with no scheduled sunset date. Domestic R&E costs no longer have to be amortized over five years; however, foreign R&E costs must still be amortized over 15 years.
What’s next
Businesses involved in software development, engineering, or specialized consulting should accelerate R&E investments to benefit from full deductions in the year incurred.
- Catch-up amortization — Businesses can also choose to deduct unamortized domestic R&E costs from 2022–2024 either all at once in 2025 or spread them over 2025–2026.
- Retroactive relief for small businesses — Businesses with average gross receipts less than or equal to $31 million over the prior three years can amend their 2022–2024 returns to deduct previously capitalized R&E costs. This may allow them to claim refunds for overpaid taxes.
3. Use 100% bonus depreciation
Bonus depreciation allows businesses to immediately deduct 100% of the cost of eligible property in the year it is placed in service, rather than depreciating it over several years. This accelerates tax deductions and improves cash flow.
What changed
Full expensing of qualified property, including technology upgrades, is permanently reinstated effective for property acquired and placed in service after January 19, 2025.
What’s next
Invest in office infrastructure, IT systems, and productivity-enhancing assets before year-end to deduct the full cost immediately.
4. Plan around business interest deduction changes
The shift from EBIT (earnings before interest and taxes) to EBITDA (earnings before interest, taxes, depreciation, and amortization) in calculating the business interest deduction has a significant impact on how much interest a business can deduct.
What changed
For tax years beginning after December 31, 2024, the limitation permanently reverts to 30% of EBITDA, allowing more interest expense to be deducted.
What’s next
Firms with leveraged growth plans (e.g., office expansion, acquisitions) should revisit financing structures to enhance interest deductibility.
5. Review entity structure
When you start a business, one of the first decisions you make is choosing a legal structure, or "entity type." This affects how you pay taxes, how much personal liability you have, and how your business can grow.
What changed
The permanence of the QBI deduction may shift the balance between pass-through and C corporation structures.
What’s next
Evaluate whether your current entity type still aligns with long-term tax efficiency and growth plans.
6. Adjust for non-deductible meals and snacks
What changed
Starting in 2026, on-site meals and snacks are no longer deductible.
What’s next
Reassess employee rewards and consider shifting to off-site or travel-related meals, which remain 50% deductible.
7. Take advantage of PTET rules
PTET is a tax strategy allowing certain businesses — like partnerships, S corporations, and LLCs taxed as partnerships — to pay state income taxes at the business level instead of the owner level.
What changed
Pass-through entity tax (PTET) rules remain intact for SSTBs.
What’s next
As states permit, continue using PTET elections to bypass the federal SALT cap and reduce owner-level taxes.
Individuals can also take advantage of the increase to the SALT deduction cap. Effective January 1, 2025, the SALT deduction cap temporarily increased from $10,000 to $40,000, scheduled to revert back to $10,000 in 2030. These caps will also be indexed for inflation at 1% per year starting in 2026.
Learn more about significant changes within the new tax law and connect with CLA to review your tax strategy and model potential impacts.
8. Prepare for 1099 reporting changes
OBBBA brought major changes to Form 1099 reporting rules, aiming to reduce paperwork and simplify compliance for businesses, gig workers, and payment platforms.
What changed
Thresholds for 1099-MISC and 1099-NEC reporting increased from $600 to $2,000 in 2026 and will be indexed for inflation.
What’s next
Update vendor tracking systems and review contractor relationships to facilitate compliance.
9. Prepare for no tax on overtime
Overtime wages have historically been treated as ordinary income, subject to federal income tax, Social Security, and Medicare taxes — just like regular wages.
What changed
Effective January 1, 2025, eligible employees can deduct a portion of their overtime pay from their federal taxable income.
What’s next for employees
Employees should keep a detailed record of the hours worked over 40/week and the premium portion of their pay. Use pay stubs or employer-provided breakdowns to isolate the extra half-time that qualifies as tax exempt.
What’s next for employers
Employers must keep payroll software updated to track and report qualified overtime separately on W-2s starting in 2026. For 2025, reasonable estimation methods approved by the IRS are acceptable.
How CLA can help with tax planning
OBBBA isn’t just another tax reform; it’s a recalibration of how service-based businesses can structure, invest, and grow.
Whether it's modeling the impact of R&E expensing, evaluating interest deduction changes, or reassessing your personal tax return, CLA can help. We offer scenario modeling and strategic consultations to help you understand how these changes could affect your 2025 tax position — and build a strong plan for how much you keep, how you borrow, and how you move forward.
Contact us