Tax clients are already starting to ask their accountants about the many changes in the massive One Big Beautiful Bill Act passed by Congress last week.
“I think they’re just kind of waking up and saying, ‘OK, what’s the bottom line here for me, and how does this affect me?'” said Robert Lickwar, a partner at Top 50 Firm UHY. “Certainly there are things in there that will, but then there’s other things that won’t.”
The bill has both pros and cons for various taxpayers. “It’s like anything with any bill that comes out of D.C.,” said Lickwar. “Some people see parts of it as good, others see it as bad. It depends on how it affects your situation.”
On the positive side is tax rate stability, thanks to the many “permanent” features of the bill, which could nevertheless be changed by a future Congress and administration.
“I think the tax rate provisions being stable, at least for another four years, allows for people to better plan their transactions,” said Lickwar. “The fact that there’s certainty with standard deductions and child credits, at least in the short term, is probably good. They made some good adjustments to the qualified small business stock, and they put a couple other things in there, but that’s a big one for most of my clients.”
The rollbacks in renewable energy tax credits and incentives are causing some gnashing of teeth.
“A certain number of people will probably be disappointed with the energy provisions, like the clean vehicles and some of the improvements to the home, including the solar, the wind and the geothermal, and the fact that those are going to be phased out over a relatively short period of time,” said Lickwar. “I’m sure people are probably not overly thrilled about that, and may influence what they do in the next few months, as far as looking to obtain that clean vehicle by September 30 to enable themselves to get the credit.”
Many of the tax incentives for clean energy under President Biden’s Inflation Reduction Act will be coming to an end under Trump’s bill. But there was already some expectation that would happen given the rhetoric coming out of the White House.
“At least from my personal client base, everyone who had something planned is going to proceed,” said Lickwar. “I don’t have any that were waiting till the bitter end to say, ‘What’s going to happen here?’ I have a few clients that have done roofing projects, for example, on their manufacturing facilities and things of that nature. Those projects have already been done, so nothing has really come down to the wire. I think it’s problematic. There was a little bit of an extension on some of those types of products, and certain of the energy credits were pushed out to a later date, depending on when construction starts.”
Other clients, such as restaurants, will be impacted by the tax exemption on tip income.
“Certain of our clients are going to be affected by the tip provisions and the wage provisions,” said Lickwar. “I have no idea how the payroll departments are going to even know where to start. They’re going to have a lot of work to do over the summer.”
The OBBBA and the IRS
Lickwar anticipates guidance will be coming from the Internal Revenue Service in the months ahead, despite cutbacks at the agency. That may be a challenge, though, given the IRS’s diminished workforce. This week, the Supreme Court lifted an injunction imposed by the lower courts on broad restructuring at the IRS and other agencies across the federal government. The agency has already lost about 26% of its workforce so far this year, according to a report from National Taxpayer Advocate Erin Collins.
However, Lickwar thinks the IRS will still have enough staffing to produce guidance, at least in an abbreviated form such as FAQ pages, as long as employees didn’t already take the voluntary buyouts offered under the government’s deferred Resignation programs.
“The IRS recently likes to do a lot of things in the form of frequently asked questions, so I think you’re going to see a lot of FAQs coming out from them,” he said. “They had a really good tax season, so I’ll be optimistic that they’ll be able to get guidance out to address the major issues that they have to deal with,” he added.
He pointed out that many provisions simply extend the tax breaks offered under previous legislation.
“It’s already on the books, so they’re not going to need a lot of guidance there,” he said. ‘[But] there’s a few things in there that they’re going to need guidance on.”
Benefits businesses
Lickwar expects businesses to be pleased with the various provisions.
“I think overall that businesses will be happy,” said Lickwar. “Bonus depreciation is coming back. That’s going to influence some buying habits. The 179 deduction is increased. The interest deduction has been revised back to where it was to be able to add back depreciation and also the R&D stuff — no more capitalization required, beginning in 2025 unless the research is done offshore. There’s even a chance for some small businesses with less than $31 million or so in receipts with the ability to get some of the money back from what they capitalized for 2023 and 2024, so I think there’s a lot of good news for businesses there. We thought we had that a couple of years ago, but it fell apart at the last second.”
It’s unclear how businesses will be able to claim the tax deductions they missed while the provisions weren’t in effect.
“As I read the statute, I’m not really sure whether they’re going to make us do an accounting method change or not,” said Lickwar. “They’re going to allow us a deduction over either one or two years. But do I have to change my method? I hope that some sanity prevails and they say, ‘No, let’s just go back to the way we were so I don’t have to file a 3115.’ It’s good for business, but I’d rather generate business in another fashion.”
Clients should reexamine their estimated payments and withholdings. “In a lot of cases, we set their estimated payments, and they’re withholding using their 2024 tax returns,” said Lickwar.
And accountants should be prepared to offer their clients timely advice.
“With some of these business changes that may affect their partnership, their S corp, tip income or overtime income or whatever the case may be, increased standard deductions, the increase in the state and local tax deduction, things may change significantly enough for them where they may want to take a look at whether the estimates or the withholding that they set is appropriate for the remainder of 2025,” said Lickwar. “You don’t want to be in a situation where you are underpaid because the interest rates are pretty high, but you also don’t want to be writing too much of a check if you don’t have to. I would say that we reach out to our clients and say, ‘Things have changed. This is how it affects you. Let’s take a look and see whether we can adjust your third and fourth quarter or maybe your fourth quarter estimated payments, and take some of these changes into effect, at least the ones effective for 2025 because many of the provisions are retroactive back to the first of the year.'”
