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One Big Beautiful Bill Act: Part 2 – What the New Tax Law Means for Your Business

Part 2

OBBBA for businessesIn this second part of our two-part series on the One Big Beautiful Bill Act (OBBBA), we examine the legislation’s impact on businesses, trusts, and estates. In addition, we will look at its overall economic impact.

Estate Tax Changes

The federal estate tax exemption receives a significant boost under OBBBA. Previously set to go back to pre-TCJA levels at the end of 2025, the exemption is now permanent. For 2026, the exclusion is $15 million per person, adjusted for inflation annually. This represents a substantial increase from the 2025 exemption of $13.99 million per person.

Business Tax Benefits

OBBBA extends several key business tax provisions that were set to expire, ensuring continued tax relief for various business structures.

Pass-Through Entities benefit significantly from the permanent extension of the Section 199A deduction. This 20 percent deduction on business income that applies to LLCs, S corporations, and sole proprietorships was scheduled to expire at the end of 2025. The House’s proposed increase to 23 percent didn’t make the final cut.

Depreciation rules become more favorable permanently. The 100 percent bonus depreciation provision, which was phasing out, is now permanent. Additionally, the Section 179 expensing limit jumps to $2.5 million and begins to get phased out at $4 million.

Research and Development expenses can now be fully expensed for domestic R&D activities, replacing the previous requirement to amortize costs.

Employee Retention Credit Reforms

The pandemic-era Employee Retention Credit faces significant restrictions. Unpaid claims submitted after Jan. 31, 2024, are prohibited from receiving refunds. The legislation also introduces penalties for ERC mill promoters and extends the statute of limitations to six years.

Conclusion

This legislation represents a significant commitment to extending business-friendly tax policies while substantially increasing the federal debt burden. For businesses and high net-worth individuals, OBBBA provides long-term tax planning certainty by making temporary provisions permanent.

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Preventing AI Deepfakes, Deterring Fentanyl and Foreign Aggression, and Strengthening Small Businesses

Preventing AI Deepfakes, Deterring Fentanyl and Foreign Aggression, and Strengthening Small BusinessesHALT Fentanyl Act (S 331) – On Jan. 30, Sen. Bill Cassidy (R-LA) introduced this bipartisan act in order to close a loophole that allowed clandestine drug manufacturers to evade illegal drug laws by altering the chemical composition of fentanyl. The legislation permanently classifies all versions of fentanyl as a Schedule I substance, much like heroin and LSD. The bill passed in the Senate on March 14 and in the House on June 12. It currently awaits the president’s signature for enactment.

TAKE IT DOWN Act (S 146) – This legislation was signed into law on May 19. Introduced by Sen. Ted Cruz (R-TX) on Jan. 16, the bipartisan bill authorizes the internet removal of visual depictions, generated by AI, of intimate acts of identifiable people without their consent.

No Tax on Tips Act (S 129) – Introduced by Sen. Ted Cruz (R-TX) on Jan. 16, this is a stand-alone bill that features the popular provision to provide a $25,000 deduction to non-itemized tax filers who work in common industries where cash tips represent a portion of their income. Note that Social Security and Medicare taxes (FICA) would still be deducted from those tips. The bill passed in the Senate on May 20 and currently lies in the House, where it conflicts with the current House-passed budget reconciliation bill being debated in the Senate.

Rescissions Act of 2025 (HR 4) – This bill would give Congressional consent to rescind previously approved funding for various government agencies and programs, in alignment with the president’s agenda, including USAID and the Public Broadcasting System (PBS). The bill was introduced on June 6 by Rep. Steve Scalise (R-LA), passed in the House on June 12, and currently lies with the Senate.

Connecting Small Businesses with Career and Technical Education Graduates Act of 2025 (HR 1672) – This act is designed to amend the Small Business Act to require that information relating to graduates of career and technical education programs be relayed to small business and women’s business development centers. The goal is to enable hiring of more graduates of career and technical education programs by small businesses. Introduced on Feb. 26 by Rep. Roger Williams (R-TX), this bill passed in the House on June 3 and is under consideration in the Senate.

CEASE Act of 2025 (H 2987) – Introduced on April 24 by Rep. Robert Bresnahan (R-PA), this legislation would limit (to 16) the number of for-profit small business lending companies (SBLCs) that can offer small business loans without further Congressional approval. America’s Credit Unions support the act because they say the SBA has in the past expanded the SBLC license pool without “sufficient guardrails” to regulate fintech lenders, which have been disproportionately associated with fraudulent loans. The bill passed in the House on June 5 and is now in the Senate.

7(a) Loan Agent Oversight Act (HR 1804) – This bill requires the SBA’s Office of Credit Risk Management to provide Congress with an annual report on SBA 7(a) loans generated through loan agent activity. Specifically, the report would collect and analyze the necessary data to ensure oversight for fraudulent loans, default rates, and risk analysis of SBLC loan agents. The bill was introduced by Rep. Tim Moore (R-NC) on March 3 and passed in the House on June 3. It now lies with the Senate.

American Entrepreneurs First Act of 2025 (HR 2966) – On June 6, the House passed this bill, designed to require SBA loan applicants to provide citizenship status documentation. It was introduced by Rep. Beth Van Duyne (R-TX) on April 17 and is currently under consideration in the Senate.

DETERRENCE Act (S 1136) – Introduced by Sen. Margaret Hassan (D-NH) on March 26, this bipartisan bill would step up criminal penalties for federal crimes funded, conducted, or perpetrated in concert with foreign governments. The acronym stands for “Deterring External Threats and Ensuring Robust Responses to Egregious and Nefarious Criminal Endeavors,” and includes crimes such as murder, kidnapping, or threatening violence against certain present and former federal officials or their families. The act passed in the Senate on June 10 and is under consideration in the House.

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Dissecting Working Capital

What is Working CapitalWorking capital is the difference between a business’ current assets and liabilities. Negative working capital can happen when a business’ current assets are below its current liabilities. Therefore, working Capital = Accounts Receivable + Inventory – Accounts Payable. It’s a way to measure a company’s ability to meet short-term liabilities, such as managing inventory, satisfying vendor bills, etc., and how well its longer-term investments are implemented.

When a business has a surplus of current assets against its current liabilities, it’s said to have positive working capital. Generally speaking, when it’s positive, the business is able to service liabilities over the next 12 months, putting it in a good financial position. However, it’s important to understand how positive working capital is comprised. If a business has a sizeable outstanding accounts receivable account or has too much inventory, the company’s resources are not utilized efficiently. With money tied up in such areas and not financed by short-term liabilities, but with long-term capital, the long-term capital can’t be used for long-term investments.  

When working capital is either even or negative, it’s a way to gauge how (in)efficiently a business handles near-term financial obligations. Reasons why negative working capital exists include a business making one-time cash payments due to a business’ current assets markedly dropping. Similarly, current liabilities can increase massively with more accounts payable and increasing credit.

Delving into Negative Working Capital

When analyzing negative working capital, it’s important to see how it’s connected to the current ratio. The current ratio is a business’ current assets divided by its current liabilities. When the current ratio’s calculation is less than 1.0, the business has more current liabilities than current assets, resulting in negative working capital.

Temporary negative working capital may exist when a company spends excessively or sees a steep increase in outstanding bills due to buying input materials and services from its suppliers. Though extended periods of negative working capital could be a red flag because the business might have a problem paying immediate bills and is being forced to depend on financing or raising funds via equity issuances to manage its working capital, it gives insight into the company’s financial barometer.

Negative Working Capital Requires Judgment

Depending on the type of business and its working capital levels, a negative working capital figure may or may not indicate there’s a concern. Retail, grocery, and subscription negative working capital may not be bad; however, for capital-intensive companies, negative working capital might indicate trouble. One way to measure working-level capital is through the Cash Conversion Cycle (CCC). The CCC determines whether negative working capital is from efficient operations or cash flow constraints.

It looks at:

1. Days Inventory Outstanding (DIO) or how long the inventory waits before a sale is made.

2. Days Sales Outstanding (DSO) or how long before an invoice is paid to the company.

3. Days Payable Outstanding (DPO) or how many days it takes a company to pay its vendors’ invoices.

Where: CCC = DIO + DSO – DPO

If the resulting number from the CCC is negative, it indicates the company is receiving payments from its customers well before it needs to pay vendors/suppliers. A company with this type of result is in good shape financially. However, if the CCC is positive and meets some of the criteria, it would require further investigation to see if the negative working capital is worrisome. Examples of a company’s poor operation include higher accounts payable days, turnover slows, falling revenue, and accounts receivable collection timeframes increasing.

Conclusion

When it comes to working capital, it requires analysis as to why a company’s working capital level is at the level it is. Taking the level at face value doesn’t give the evaluator the full picture.