Author Archives: Archer Lewis

Draft Schedule 1-A (2025): How the Four OBBBA Deductions Work—and Where They Flow on Form 1040

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The IRS has posted a draft of Schedule 1‑A (Form 1040), creating a single place to compute four new deductions from the One Big Beautiful Bill Act (OBBBA). Below, we explain how the math works, where Modified Adjusted Gross Income (MAGI) fits in, and how your final total lands on Form 1040 line 13b.

Start here: calculate MAGI

Part I of Schedule 1‑A walks you from AGI on Form 1040 line 11b to MAGI by adding back specific items (e.g., excluded Puerto Rico income and foreign earned income). This MAGI figure drives phaseouts for each deduction. See the draft Schedule 1‑A for exact line‑by‑line steps.

The four new deductions (and their formulas)

1) “No Tax on Tips” (Part II) — Cap: up to $25,000 per year. Eligibility: qualified tips in occupations the IRS lists as “customarily and regularly” tipped; employees and some self‑employed may qualify, with joint filing and SSN requirements. Phaseout: starts at $150,000 MAGI ($300,000 MFJ). Formula: after you compute qualified tips and apply the $25,000 cap, reduce the result by $100 for every $1,000 of MAGI over the threshold (lines 8–13).

2) “No Tax on Overtime” (Part III) — Cap: $12,500 single / $25,000 MFJ. Eligibility: only the premium portion of overtime (the “half” in time‑and‑a‑half). Joint filing and SSN requirements apply. Phaseout: starts at $150,000 MAGI ($300,000 MFJ). Formula: after the cap, reduce the result by $100 for every $1,000 of MAGI over the threshold (lines 16–21).

3) “No Tax on Car Loan Interest” (Part IV) — Cap: up to $10,000 per year. Eligibility: interest on loans originated after Dec. 31, 2024, for a personal‑use vehicle (not business), original use by the taxpayer, secured by a lien, and final assembly in the United States with GVWR under 14,000 lbs. VIN reporting required. Phaseout: starts at $100,000 MAGI ($200,000 MFJ). Formula: after the cap, reduce the result by $200 for every $1,000 over the threshold (lines 25–30).

4) “Enhanced Deduction for Seniors” (Part V) — Amount: $6,000 per eligible individual age 65+ (i.e., $12,000 if both spouses qualify). Phaseout: starts at $75,000 MAGI ($150,000 MFJ). Formula: multiply excess MAGI over the threshold by 6%, then subtract that amount from $6,000 (lines 31–35).

Where it lands on your Form 1040

Schedule 1‑A adds the four results and carries the total to Form 1040 line 13b (or line 13c on Form 1040‑NR). That amount reduces your income before tax is computed—these are deductions, not credits.

Draft status and OMB approval

All materials linked here are drafts and “DRAFT—NOT FOR FILING.” IRS drafts can change and must receive OMB approval before final release. Expect minor edits to line numbers or instructions.

What to do now

  • Confirm you (or employees) will receive the info needed for tips and overtime totals in 2025.
  • If planning a vehicle purchase, verify U.S. final assembly and keep VIN and loan documents.
  • If 65+, note the separate $6,000 senior deduction in addition to the standard deduction rules.
  • Track MAGI during the year—phaseouts can eliminate some or all of these benefits.

How Archer Lewis can help

Archer Lewis can help you navigate Draft Schedule 1-A from start to finish—calculating MAGI, modeling phaseouts, and documenting each deduction correctly. We’ll verify eligibility for “No Tax on Tips” and “No Tax on Overtime” (including 2025 transition reporting and 2026 W-2 code updates), confirm vehicle loan/VIN requirements for the car-interest deduction, apply the $6,000 senior deduction where it fits, and ensure your totals flow cleanly to Form 1040 line 13b. If you’d like, we’ll coordinate with payroll, set up a simple record-keeping checklist, and file your return accurately and on time. Reach out to Archer Lewis to get started.

Florida Department of Revenue Repeals Commercial Rents

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Big news for Florida commercial property owners and tenants: the state is eliminating sales tax on commercial rent, starting October 1, 2025. This significant change affects not just base rent, but also Common Area Maintenance (CAM) charges, property tax reimbursements, insurance costs, and other charges typically found in triple net leases. If you’re a landlord, property manager, or commercial tenant in Florida, understanding how this repeal impacts your billing, lease agreements, and tax obligations is critical. Here’s everything you need to know to navigate this transition smoothly.

Under current law (through September 30, 2025), Florida imposes sales tax not only on the base rent but also on additional rent charges commonly found in triple net leases (e.g., CAM, property taxes, insurance, maintenance, utilities) when they are required as part of the rental consideration.

    • Florida Admin. Code Rule 12A-1.070(4)(b) treats these payments as part of the taxable rent.
    • So today, if you’re charging CAM or tax reimbursements under a triple net lease, you must collect sales tax on those items just like on base rent.

Starting October 1, 2025, the repeal eliminates the sales tax on all consideration paid for the use of commercial real property, including:

    • Base rent
    • Percentage rent
    • CAM charges
    • Insurance and tax reimbursements under triple net leases

The Department of Revenue’s Tax Information Publication (TIP 25A01-04, July 25, 2025) confirms that “the repeal applies to all charges subject to tax as rent or license fees for real property,” which includes triple net structures. The repeal also eliminates the county surtax on these charges as of the same date.

What You Should Do Now

  • Landlords and property managers should:
    • Continue collecting and remitting sales tax (and any local surtax) for occupancy periods through September 30, 2025.
    • For occupancy periods on or after October 1, 2025, stop charging sales tax.
    • Update billing systems, lease agreements, and tenant communications to reflect the repeal.
    • File any final returns—even if they are “zero returns”—for the final reporting period. The Department of Revenue will subsequently update your account.
    • Link: The Department of Revenue’s Tax Information Publication (TIP 25A01-04, July 25, 2025)
  • Tenants, especially those in subleased or shared-use arrangements, should:
    • Confirm that invoices no longer include sales tax for periods on or after October 1, 2025.
    • Review lease clauses that reference “applicable sales tax” and adjust mechanisms for automated payments.

Considerations

There are a few scenarios where sales tax returns may still need to be filed for commercial rents:

  • Back Rent
    • If rent is collected after September 30th for a prior period, this rent is still taxable. Sales tax must be collected on only the amounts for the prior period, and a sales tax return must be filed.
  • Property Taxes
    • If a tenant is required to reimburse the landlord for property taxes, this may occur after the last commercial rent sales tax return is required, such as an annual reimbursement for property taxes. Since the property tax reimbursement covers taxable periods, sales tax must be collected, but only on the prorated periods before October 1st, 2025. Alternatively, if property tax is included with the tenant’s rent payment and is remitted on the sales tax return monthly, this additional sales tax return will be unnecessary, as the sales tax has already been remitted.

Tax changes like this don’t have to be complicated. At Archer Lewis, we work alongside Florida property owners and managers to make sense of regulatory shifts and keep your operations running smoothly. We’re not just filing returns—we’re helping you understand what this repeal means for your specific properties, updating your processes, and ensuring nothing falls through the cracks during the transition. From triple net lease adjustments to final return filings and back rent considerations, we’ve got the expertise to guide you through every detail. Reach out today, and let’s make sure you’re positioned to benefit fully from Florida’s commercial rent tax repeal.

Cost Segregation for Vacation Rentals: Maximize Your Tax Savings

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A vacation home can be more than just a personal getaway; it can also be a smart investment when paired with the right tax strategies. One powerful but often overlooked approach is a cost segregation study. This technique allows vacation home owners—especially those using the property as a short-term rental—to accelerate depreciation deductions by reclassifying building components into shorter recovery periods. By doing so, owners can substantially reduce their taxable income in the earlier years of ownership, boosting cash flow and enabling reinvestment in the property or other ventures.

What Is Cost Segregation for Vacation Homes?

Cost segregation breaks down a vacation home into its component parts to identify assets that depreciate faster than the building’s standard 27.5-year schedule for residential rental properties (short-term rental properties are required to be depreciated over 39 years). Items such as flooring, appliances, cabinetry, landscaping, lighting, and even outdoor amenities like hot tubs,  saunas, and outdoor kitchens may qualify for depreciation periods of 5, 7, or 15 years instead of decades. These faster write-offs provide immediate tax relief and improve liquidity for owners, making the vacation home a more financially efficient asset—especially valuable for Airbnb or Vrbo hosts aiming to maximize profitability early in their rental operations.

How the Process Works

The cost segregation study involves several key steps:

  • Engaging Specialists: A qualified team, typically consisting of accountants, tax advisors, or engineers, will review the property, inspect the physical site, and analyze construction documents, purchase agreements, and renovation invoices to identify assets for accelerated depreciation.
  • Asset Classification: The property’s components are categorized under IRS guidelines—personal property assets are depreciated over 5 or 7 years, land improvements over 15 years, and the building itself over 27.5 or 39 years.
  • Tax Adjustments: Once assets are reclassified, tax filings are adjusted accordingly. Often, a form called IRS Form 3115 is used to capture depreciation missed in prior years without filing amended returns.  So, even if the rental property was placed in service in a prior year, you capture all the benefits of accelerated depreciation missed in the tax filing.
  • Applying Bonus Depreciation: Now that bonus depreciation has been made permanent for assets placed in service after January 19, 2025, the tax benefits of a cost segregation will be more valuable than ever.

Financial Benefits of Cost Segregation for Vacation Homes

By accelerating depreciation, vacation home owners can enjoy significantly larger tax deductions during the initial years of ownership. For example, one of our recent studies of a $1.12 million vacation rental found that reclassifying assets into shorter depreciation categories generated a first-year tax saving of nearly $60,000—money that can be reinvested in marketing, upgrades, or additional property acquisitions. This early boost in cash flow not only improves return on investment but also strengthens the financial foundation of the vacation rental business.

Who Should Consider This Strategy?

  • Vacation home owners who rent their properties on platforms like Airbnb, Vrbo, or Booking.com.
  • Properties with significant furnishings, luxury features, or outdoor amenities.
  • Investors planning to hold the property long-term to maximize tax benefits and mitigate depreciation recapture risks.

Risks and Important Considerations

  • Depreciation recapture may increase taxable gains upon sale, so the strategy is most advantageous for owners with medium- to long-term horizons.
  • IRS compliance and documentation are critical to avoid audit risks. Aggressive or poorly documented studies can trigger scrutiny. A properly done cost segregation study is the only way you can substantiate the depreciation of some components of a building using shorter lives.
  • The property must be used for rental or business purposes, not exclusively for personal use.

How Archer Lewis Can Help

Navigating the complexities of cost segregation can be daunting, but Archer Lewis offers expert guidance every step of the way. Our specialists conduct site inspections and thorough document reviews to ensure all qualifying assets are accurately identified and classified according to IRS standards. Archer Lewis assists business and vacation home owners with adjusting current and prior tax filings, including handling IRS Form 3115 submissions for retroactive benefits.

Beyond technical expertise, Archer Lewis provides tailored consultations to align the cost segregation study with the owner’s broader tax planning, financial goals, and estate planning. They prepare clients for potential audits by ensuring robust documentation and defensible methodologies. Additionally, Archer Lewis helps manage accounting logistics so owners can focus on enhancing their vacation rental business while confidently leveraging the full tax-saving potential of cost segregation.

In summary, vacation home owners who use their properties as rental investments can greatly benefit from a cost segregation study. By accelerating depreciation on select property components, owners increase early-year cash flow and reduce taxable income substantially. With seasoned guidance from Archer Lewis, the process becomes streamlined, compliant, and fully optimized to support long-term financial success in the vacation rental market. This strategy transforms a vacation home from just a leisure asset into a potent catalyst for growing wealth and strengthening overall investment returns.

Stop the Scroll: How to Avoid IRS Penalties from Viral Tax Tips

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The recent Accounting Today article highlights a critical issue: bad tax tips and advice on social media have led to over $162 million in IRS penalties for taxpayers who followed misleading tips on credits like the Fuel Tax Credit and Sick and Family Leave Credit. This underscores the dangers of relying on unverified sources for complex tax matters. Here’s why Archer Lewis is your trusted partner to avoid these pitfalls and optimize your tax strategy.

Expertise You Can Trust

  • Professional Guidance: At Archer Lewis, our team, including experienced CPAs, offers expert advice grounded in IRS regulations. Unlike social media influencers, we ensure your claims—whether for the Augusta Rule or business credits—are legitimate and fully documented.
  • Avoid Costly Mistakes: The IRS is cracking down on fraudulent claims with audits, penalties (20-75% of underpaid tax), and even criminal charges. Our professionals help you navigate complex rules, ensuring compliance and minimizing risk.

Tailored Tax Strategies

  • Personalized Solutions: Whether you’re a small business owner eyeing Cost Segregation or exploring the R&D Credits, we tailor strategies to your specific needs, unlike one-size-fits-all social media tips.
  • Proactive Planning: We stay ahead of IRS updates and leverage tools to streamline your financials, ensuring no opportunity is missed and no rule is misapplied.

Comprehensive Support

  • Beyond Tax Filing: Archer Lewis integrates tax planning with broader financial strategies, collaborating with experts to align your tax approach with long-term goals like succession or liquidity planning.
  • AI-Enhanced Efficiency: Our firm embraces AI advancements to automate routine tasks, freeing our CPAs to focus on critical thinking and personalized advice for you.

Stay Safe from Scams

  • IRS Compliance: We guide you through legitimate deductions, backed by IRS Publications (e.g., Pub 535 for business credits), and help you report scams via Form 3949-A to protect your financial integrity.
  • Trusted Reputation: Archer Lewis upholds a commitment to accuracy and client success, ensuring you avoid the $162 million trap others have fallen into.

Take Action Today

Don’t risk penalties from bad advice. Contact Archer Lewis for professional, reliable tax services that protect your finances and maximize your returns.

Timely IRS Guidance Makes Taking the R&D Tax Credit Easier

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IRS issues R&D tax credit guidance in Rev. Proc. 2025-28 on August 28, 2025. Many of the issues and unanswered questions from OBBA have been addressed in this Rev. Proc.

Key Highlights:

  • Most Taxpayers can file “Superseding 2024” returns to take the positions described in the OBBA or Rev. Proc. In lieu of an amended return, even if they did not file an extension.
  • Small businesses (gross receipts under $31M for 2025) filing timely returns on or
    before November 15, 2025, will “be deemed” to have elected OBBBA treatment if
    they deduct R&D expenses on the return. Thus, no need to deduct §174A expenses per OBBBA on an “amended return”.
  • IRC §280C(c)(2) Elections to take the reduced credit on “late elections (or
    revocations)” are permitted adjusting the relationship between R&D deductions and credits. This will require an amended Form 6765 and a statement providing certain information elections.
  • Domestic vs. Foreign Expenses. Domestic R&D: Immediate deductions or
    capitalization available under OBBBA for tax years beginning in 2025. Foreign R&D: Pre- and post-2025 tax year expenses must be capitalized under OBBBA, though method changes are available to align with compliance.

Although rather complex, these changes provide taxpayer-favorable changes and will allow most to take the R&D credit without the whipsaw of non-deductibility of §174A expenses.

Please contact the Archer Lewis team to assist with addressing any client situations you might have related to this guidance.

How Archer Lewis Empowers Startups and Early-Stage Companies to Thrive

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Starting a business is exhilarating, but it comes with its fair share of challenges, especially when it comes to managing finances. At Archer Lewis, we understand the unique needs of startups and early-stage companies. Our tailored financial and accounting services are designed to help founders focus on growth while we handle the numbers. Here’s how we can support your startup’s journey to success.

1. Streamlined Bookkeeping for Clarity and Control

Accurate bookkeeping is the backbone of any successful business. Our team ensures your financial records are up-to-date, organized, and compliant. From tracking daily transactions to managing accounts payable and receivable, we use cutting-edge tools like QuickBooks, NetSuite, and Xero to give you real-time insights into your financial health. Say goodbye to late-night spreadsheet struggles and hello to clarity.

2. Strategic Financial Planning to Fuel Growth

Cash flow is king for startups, and running out of runway is not an option. We work with you to create robust budgets, cash flow forecasts, and financial projections that align with your business goals. Whether you’re preparing for a funding round or scaling operations, our financial planning services help you make informed decisions and stay ahead of the curve.

3. Tax Compliance and Optimization

Navigating tax regulations can be daunting, but we’ve got you covered. Our experts handle federal, state, and local tax filings, ensuring compliance while maximizing deductions. From income and payroll taxes to sales tax obligations, we help you avoid costly penalties and keep more money in your business.

4. Seamless Payroll Management

Your team is your greatest asset, and paying them shouldn’t be a headache. We offer comprehensive payroll services, including salary processing, tax withholdings, and benefits management. By leveraging platforms like Gusto, we ensure your employees are paid on time and your business stays compliant with labor laws.

5. Professional Employer Organization (PEO) Services

Scaling your team comes with HR complexities, but our PEO services simplify the process. As your co-employer, we handle payroll, benefits administration, workers’ compensation, and HR compliance, allowing you to attract top talent while reducing administrative burdens. Our PEO solutions are flexible and cost-effective, tailored to your startup’s needs.

6. Investor-Ready Financial Reporting

Impressing investors requires more than a great pitch—it demands solid financials. We prepare professional balance sheets, income statements, and cash flow reports that tell your startup’s story in numbers. Our reports are clear, accurate, and tailored to meet the expectations of angel investors, VCs, or lenders.

7. Fundraising Support to Secure Capital

Raising capital is a critical milestone for startups, and our deep knowledge of fundraising sets us apart. Our team assists with financial modeling, pitch deck preparation, and due diligence, ensuring your business stands out to investors. Whether you’re seeking seed funding or a Series A round, we help you showcase your growth potential and build trust with stakeholders.

8. Equity and Cap Table Management

As your startup grows, so does the complexity of your ownership structure. We provide cap table management services to track equity, stock options, and grants.  We ensure your equity records are accurate and transparent, giving you peace of mind as you scale.

9. Fractional CFO Expertise for Big-Picture Strategy

Not ready for a full-time CFO? Our fractional CFO services offer strategic financial guidance without the hefty price tag. From managing your burn rate to optimizing your cash runway, we provide the high-level insights you need to make bold, confident decisions.

10. Financial Planning & Analysis (FP&A) for Data-Driven Decisions

To stay competitive, startups need more than just historical data; they need forward-looking insights. Our FP&A services deliver detailed analysis of your financial performance, including variance analysis, scenario planning, and key performance indicator (KPI) tracking. We help you identify trends, optimize resource allocation, and drive profitability, empowering you to make data-driven decisions with confidence.

Why Choose Archer Lewis?

At Archer Lewis, we’re more than just accountants; we’re your partners in growth. Our team combines deep industry expertise with a passion for helping startups succeed. We offer flexible, scalable services that evolve with your business, so you get the support you need at every stage.

Ready to take your startup to the next level?

Contact us today to discover how Archer Lewis can streamline your finances and drive your growth. Let’s build your success story together.

Why Choose Archer Lewis: Your Local Accounting Firm with Nationwide Expertise

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At Archer Lewis, we’re your local accounting team with serious backup when you need it. We combine deep personal relationships with the resources of a national firm—because we believe that’s how businesses get the best support. As a local accounting firm, we’re deeply rooted in our community, offering the personalized service and presence our clients value, backed by the diverse expertise of our nationwide team.

A Local Partner You Can Trust

When you work with Archer Lewis, you’re not just a client, you’re a valued partner. We take pride in being there when you need us, whether it’s for a quick consultation, tax planning, or navigating complex financial decisions. Each one of our clients is very important to us, and our 70-year legacy with our clients is a testament to the special relationships we build. Our local presence means we understand the unique challenges and opportunities businesses in our area face. We don’t just work in your community—we’re part of it. When local businesses thrive, we all do.

  • Face-to-Face Support: We’re here for in-person meetings, site visits, or just a coffee to discuss your goals.
  • Community Focus: As a local firm, we prioritize building long-term relationships based on trust and mutual success.
  • Responsive Service: Need answers fast? Our team is just a call or visit away, ready to provide tailored solutions.

Nationwide Expertise, Local Delivery

While we’re proud of our hometown roots, our reach extends far beyond. Archer Lewis brings together nationwide professionals with specialized skills and industry backgrounds. With hundreds of specialists and enterprise-grade technology in our corner, we can tackle even the most complex challenges, no matter your industry or business size.

  • Diverse Skill Sets: From tax strategy to financial forecasting, our team brings specialized expertise to meet your needs.
  • Industry Experience: Whether you’re in manufacturing, construction, tech, healthcare, or one of the creative industries, our nationwide team has deep knowledge of your sector.
  • Scalable Solutions: As your business grows, we tap into our broader resources to provide the support you need, when you need it.

The Archer Lewis Difference

If it matters to your business (even if it’s just organizing a shoebox full of receipts), it matters to us. Whether you need help with day-to-day bookkeeping or a complex tax strategy, we’re equally invested in your success. Our team works right alongside you, blending the personal touch of a local firm with the resources of a national network. We stay on top of local, state, federal, and international regulatory changes that can impact your business, ensuring you’re always compliant and positioned for success. We get that every decision matters when you’re running a small business. That’s why we take time to really understand your goals and vision. We’re not just keeping your books—we’re helping build your future.

  • Personalized Relationships: We earn your trust in one conversation at a time, understanding your business and its unique needs.
  • Access to Specialists: Our nationwide team includes experts in auditing, compliance, and business advisory services, supported by cutting-edge technology.
  • Seamless Collaboration: Our local and national teams work together to deliver comprehensive, cohesive support.

Partner with Archer Lewis Today

Whether you’re just starting out or ready to scale up, Archer Lewis is here to help. We’re more than just accountants; we’re your partners in success, committed to helping you achieve your goals. Visit us at archerlewis.com to learn more about how we combine local presence with nationwide capabilities to support your business.

One Big Beautiful Bill Act Brings Notable Updates to U.S. Tax Policy

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The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, represents a significant change in U.S. tax policy. This legislation introduces new tax benefits and adjustments that impact individuals, families, and businesses. This article dives deeper into the OBBBA’s key provisions:

  • Permanent TCJA individual tax rates,
  • Increased standard deductions,
  • Expanded SALT deduction cap,
  • Temporary deductions for tips and overtime income

At Archer Lewis, we understand how overwhelming major tax changes can be. That’s why we’re breaking down what you need to know about the OBBBA so you can focus on what really matters to you.

Permanent Extension of TCJA Individual Tax Rates

The OBBBA solidifies the TCJA’s individual income tax rates—10%, 12%, 22%, 24%, 32%, 35%, and 37%—preventing their scheduled expiration at the end of 2025.

What It Means for You

This permanence provides long-term certainty for taxpayers across income brackets, ensuring continued tax relief. According to Deloitte’s tax policy analysis, this move stabilizes financial planning for individuals and families, as the lower rates encourage consumer spending and investment, potentially boosting economic growth

For businesses, the permanence of these rates indirectly supports pass-through entities (e.g., S corporations, partnerships), as owners benefit from lower individual tax rates on business income. Taxpayers should work with advisors to optimize their tax strategies, especially for those with complex income sources.

Note: We recommend that individuals review their income projections for 2025 and beyond to leverage these stable rates. For example, accelerating income into lower-tax years or deferring deductions could maximize savings. Businesses structured as pass-through entities should consult with their CPAs to align their income allocation strategies with the permanent rates.

Increased Standard Deduction

The TCJA nearly doubled the standard deduction, and the OBBBA makes this increase permanent while further raising it to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly, with annual inflation adjustments starting in 2026. Additionally, a temporary $6,000 “senior bonus” deduction for taxpayers aged 65 and older is available through 2028, phasing out for single filers with modified adjusted gross income (MAGI) over $75,000 or joint filers over $150,000.

What It Means for You

The increased standard deduction simplifies tax filing for millions, as fewer taxpayers need to itemize—only about 9% did so in 2018 compared to 30% pre-TCJA. The bonus deduction offers significant relief for retirees, particularly those reliant on fixed incomes like Social Security, but its temporary nature requires proactive planning before 2028. Seniors with MAGI near the phase-out thresholds should consider bunching charitable contributions or other deductions into years where their income is lower to maximize this benefit.

Note: We are advising taxpayers to compare the standard deduction against potential itemized deductions annually, especially with the new SALT cap changes (discussed below). Seniors should work with advisors to strategize income timing, such as deferring IRA distributions, to stay below the phase-out thresholds for the $6,000 deduction.

Individual State and Local Tax (SALT) Deduction

The OBBBA temporarily raises the SALT deduction cap from $10,000 to $40,000 for taxpayers with MAGI below $500,000 ($250,000 for married filing separately), with a 1% annual increase through 2029, after which it reverts to $10,000. For taxpayers with MAGI above $500,000, the deduction phases down by 30% of the excess income, but never below $10,000. This change, effective for 2025–2028, addresses concerns from high-tax state residents, particularly in states like New York and California.

What It Means for You

This increase provides substantial relief for homeowners and high earners in high-tax jurisdictions, potentially saving them thousands annually. Taking the time to model your SALT deductions under various income scenarios can help optimize your tax positions.

Note: We recommend that taxpayers in high-tax states consult with a CPA to evaluate whether itemizing deductions with the higher SALT cap outweighs the

standard deduction. Businesses using PTET workarounds should confirm state-specific compliance with advisors to ensure continued SALT benefits.

No Tax on Tips and Overtime

The OBBBA introduces temporary deductions for 2025–2028, allowing workers in tipped occupations to deduct up to $25,000 in tip income and overtime workers to deduct up to $12,500 ($25,000 for joint filers), subject to phase-outs for MAGI above $150,000 (single) or $300,000 (joint). These provisions, reported separately on W-2 or 1099 forms, aim to support service and labor-intensive industries.

What It Means for You

These deductions significantly reduce tax burdens for workers in hospitality, retail, and manufacturing, but the phase-out limits mean high earners may see reduced benefits. The administrative burden of tracking and reporting qualified tips and overtime can be a challenge for smaller businesses, requiring robust payroll systems.

Note: We are suggesting that tipped workers and overtime earners maintain detailed income records and CPA to ensure proper reporting. Employers should partner with payroll specialists to comply with IRS guidance, which may expand to hundreds of pages given the complexity of these provisions, as noted by the Tax Foundation.

Conclusion

The One Big Beautiful Bill Act reshapes the tax landscape by cementing TCJA provisions, enhancing deductions, and introducing targeted relief for tipped and overtime workers. While these changes offer opportunities for tax savings, their temporary elements and income phase-outs require careful planning. At Archer Lewis, we encourage taxpayers and businesses to collaborate with trusted advisors to tailor strategies to their unique financial situations. By staying informed and proactive, you can navigate the OBBBA’s complexities and maximize its benefits.

Reach out to Archer Lewis to discover how your business can leverage these new changes and develop a customized plan to optimize your tax benefits. Even if you’re partnered with another accounting firm, we can collaborate with you and your current firm to adapt to the new tax landscape.

For personalized advice, contact our team to discuss how the 2025 Reconciliation Bill can impact your business’s financial strategy.

Understanding Additional Key Business Focused Provisions from the Big Beautiful Tax Act: What It Means for Your Business 

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The Big Beautiful Tax Act (BBTA), formally known as the 2025 Budget Reconciliation Act or One Big Beautiful Bipartisan Act (OBBBA), introduces significant changes to the U.S. tax code, impacting small businesses, corporations, and multinationals alike. Signed into law in 2025, this legislation refines existing tax provisions and introduces new rules to balance economic growth, competitiveness, and fiscal responsibility. In this blog post, we’ll dive into the details of five key provisions—Qualified Business Income (QBI) Deduction, Section 179 Expensing, Business Interest Deduction, Allocation of Deductions to Foreign Source Net CFC Tested Income, and the Corporate Charitable Contributions Floor—along with the clean energy and international tax changes. Let’s explore what these could mean for you and your business.

1. Qualified Business Income (QBI) Deduction: A Permanent Boost for Small Businesses 

The QBI deduction, under Section 199A, has been a lifeline for owners of pass-through entities like sole proprietorships, partnerships, S corporations, and certain LLCs. The BBTA makes this deduction permanent at 20%. This means eligible businesses can deduct 20% of their qualified business income from their taxable income, reducing their tax liability without expiration.

What It Means for You

  • Who Benefits: Small businesses, freelancers, and partnerships in industries like retail, consulting, or professional services (e.g., doctors, lawyers) benefit most, provided they meet income thresholds and business type restrictions (SSTBs).
  • Limitations: The Act increases the phase-in threshold for single filers from $50,000 to $75,000 and the joint filer threshold from $100,000 to $150,000. Inflation adjustments apply to the new minimum amounts for tax years beginning after 2026.
  • Impact: Permanency provides long-term tax planning certainty. For example, a partnership with $100,000 in QBI could reduce taxable income by $20,000.

 

Note: This section takes effect for tax years beginning after December 31, 2025. (Act Sec. 70105, amends Code Sec. 199A) potentially saving thousands in taxes annually, depending on the tax bracket.

2. Section 179 Expensing: Bigger Deductions for Business Investments 

Section 179 allows businesses to deduct the full cost of qualifying depreciable assets (e.g., equipment, vehicles, or software) in the year of purchase, rather than depreciating them over time. The BBTA increases the expense cap to $2.5 million (up from $1.29 million in 2024) with a phase-out threshold of $4 million, effective for 2025 and indexed for inflation thereafter.

What It Means for You

  • Who Benefits: Small and medium-sized businesses investing in new equipment, such as manufacturing firms buying machinery or restaurants upgrading kitchen appliances, will see significant tax savings. Certain commercial building improvements may also qualify (extensions, roofs, HVAC, fire, and security).
  • How It Works: If your business purchases $3 million in qualifying assets, you can deduct up to $2.5 million, but the deduction reduces dollar-for-dollar once purchases exceed $4 million. For example, $4.5 million in purchases would reduce the deduction to $2 million ($2.5M – ($4.5M – $4M)).
  • Impact: The higher cap encourages capital investment, especially for growing businesses. A construction company buying a $500,000 excavator could deduct the full cost in 2025, lowering taxable income significantly.

Note: Pair Section 179 with bonus depreciation (if available) for maximum savings, but verify asset eligibility (e.g., used equipment qualifies, but land does not).

3. Business Interest Deduction: More Flexibility with EBITDA 

The BBTA modifies the business interest limitation under Section 163(j), allowing businesses to calculate their deduction limit using EBITDA (earnings before interest, taxes, depreciation, and amortization) through 2029. Previously, the limit was based on adjusted taxable income (ATI), which excluded depreciation and amortization, often restricting deductions for capital-intensive businesses.

What It Means for You

  • Who Benefits: Businesses with significant debt, such as real estate developers or manufacturers, gain more flexibility. The EBITDA-based calculation allows higher interest deductions, especially for firms with large depreciation expenses.
  • How It Works: The deduction is capped at 30% of EBITDA plus business interest income. For example, a company with $10 million in EBITDA could deduct up to $3 million in interest, even if depreciation reduces ATI significantly.
  • Impact: This change supports industries reliant on borrowing, like construction or hospitality, by reducing tax burdens during expansion.

 

Note: review your debt structure with a tax advisor to maximize. Consider restructuring loans if interest expenses are high.

4. Allocation of Deductions to Foreign Source Net CFC Tested Income: Boosting Multinational Competitiveness 

The BBTA refines the treatment of foreign source net Controlled Foreign Corporation (CFC) tested income, formerly known as Global Intangible Low-Taxed Income (GILTI). It introduces a 50% deduction for this income, increasing to 60% after 2027, for foreign tax credit (FTC) purposes. This reduces the effective tax rate on CFC income, making U.S. multinationals more competitive globally.

What It Means for You

  • Who Benefits: U.S.-based multinationals with foreign subsidiaries, such as tech or pharmaceutical companies, benefit by lowering taxes on foreign earnings.
  • How It Works: The deduction applies to income from CFCs (foreign entities controlled by U.S. shareholders). For example, if a CFC generates $1 million in tested income, a 50% deduction reduces the taxable amount to $500,000, with foreign tax credits further offsetting the U.S. tax liability.
  • Impact: The change enhances FTC utilization, reducing double taxation. For instance, a company paying 15% tax abroad could offset more U.S. tax with the 50% deduction, lowering the effective rate below the 10.5% GILTI minimum. Post-2027, the 60% deduction further sweetens the deal.

 

Note: Work with an international tax specialist to optimize your global tax strategy and FTC, especially if your CFCs operate in high-tax jurisdictions.  

5. Corporate Charitable Contributions: New 1% Floor 

The BBTA introduces a 1% floor for corporate charitable contributions, effective for contributions made after December 31, 2024. Corporations can only deduct contributions exceeding 1% of their adjusted taxable income (ATI), a shift from the prior 10% cap with no floor.

What It Means for You

  • Who’s Affected: Corporations making charitable donations, such as to nonprofits or community programs, face a new hurdle.
  • How It Works: If a corporation has $10 million in ATI, only contributions above $100,000 (1% of ATI) are deductible, up to the existing 10% cap ($1 million). A $150,000 donation would yield a $50,000 deduction ($150,000 – $100,000).
  • Impact: This provision may discourage smaller donations, as only contributions exceeding the 1% threshold qualify for deductions. Large corporations with significant giving programs will need to adjust their charitable budgets.

 

Note: Plan your corporate giving to exceed the 1% floor while staying within the 10% total cap. Document contributions meticulously to substantiate deductions.

6. Clean Energy and International Tax Changes 

The BBTA reshapes clean energy and international tax provisions

  • Clean Energy Credits: The Act phases out certain Inflation Reduction Act credits, such as those for electric vehicles (EVs) and charging stations, while extending biofuel credits through 2031.
  • Commercial Building Deductions: The Act terminates the energy efficiency commercial building deductions for buildings that begin construction after June 30, 2026.
  • 1% Remittance Tax: A new 1% tax on remittances (e.g., payments to foreign entities) could increase costs for businesses with international operations.
  • GILTI and FDII Modifications: Beyond the CFC deduction, the BBTA tweaks GILTI and Foreign-Derived Intangible Income (FDII) rules to encourage domestic investment while maintaining global competitiveness.
  • International Taxes: The remittance tax and GILTI/FDII changes require multinationals to reassess cross-border transactions. For example, a 1% tax on a $10 million remittance adds $100,000 in costs.

 

Note: Evaluate your exposure to the remittance tax and consult a tax advisor to adjust your international payment structures.

Conclusion 

The Big Beautiful Tax Act (BBTA) introduces sweeping changes with far-reaching implications for businesses of all sizes. By making the Qualified Business Income deduction permanent, raising expensing limits, and adjusting interest deduction rules, the Act aims to foster long-term growth and provide greater certainty for business planning. The refined treatment of foreign income and the introduction of a 1% floor on corporate charitable contributions reflect a balance between competitiveness, fiscal responsibility, and evolving policy priorities.

However, these benefits come with new complexities, particularly for businesses navigating international operations, charitable giving, and the phase-out of certain clean energy incentives. To fully leverage the opportunities and minimize risks, business owners should:

  • Review their current tax strategies, considering the new provisions.
  • Consult with tax professionals to address technical nuances and compliance.
  • Monitor how federal changes may interact with state tax laws and transition rules.

Reach out to Archer Lewis to discover how your business can leverage these new changes and develop a customized plan to optimize your tax benefits. Even if you’re partnered with another accounting firm, we can collaborate with you and your current firm to adapt to the new tax landscape.

For personalized advice, contact our team to discuss how the 2025 Reconciliation Bill can impact your business’s financial strategy.

2025 Budget Reconciliation Act: 100% Bonus Depreciation and R&D Tax Benefits for Businesses

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The Big Beautiful Tax Act (BBTA), formally known as the 2025 Budget Reconciliation Act or One Big Beautiful Bipartisan Act (OBBBA), introduces significant changes to the U.S. tax code, impacting small businesses, corporations, and multinationals alike. Signed into law in 2025, this legislation refines existing tax provisions and introduces new rules to balance economic growth, competitiveness, and fiscal responsibility. In this blog post, we’ll dive into the details that reshape how businesses approach capital investments and innovation. Key provisions for business owners include the reinstatement of 100% bonus depreciation for qualifying assets placed in service from January 19, 2025, through December 31, 2029, and the restoration of immediate expensing for domestic Research and Development (R&D) expenses. These powerful tax incentives allow businesses to immediately deduct the full cost of eligible assets and R&D expenses in the year they are incurred, rather than spreading deductions over several years. Here’s what you need to know about these game-changing opportunities.

What is 100% Bonus Depreciation?

Bonus depreciation allows businesses to deduct a substantial portion of the cost of qualifying assets in the year they are placed in service. Under the 2025 Reconciliation Act, this deduction has been restored to 100% for assets acquired and placed in service after January 19, 2025, and before January 1, 2030. This applies to a wide range of assets, including machinery, equipment, and certain real property improvements like driveways, sidewalks, landscaping, and fences, as well as building components with a useful life of less than 20 years.

This provision is a significant shift from the previous phase-down schedule, which had reduced bonus depreciation to 40% for 2025 under the Tax Cuts and Jobs Act (TCJA). The reinstatement of 100% bonus depreciation is a major win for businesses looking to optimize cash flow and invest in growth.

R&D Tax Benefits

The 2025 Reconciliation Act also restores immediate expensing for domestic R&D expenses under a new Section 174A, effective for tax years beginning after December 31, 2024, through December 31, 2029. This reverses the TCJA’s requirement to amortize domestic R&D expenses over five years, which had been in place since 2022. Key details include:

  • Retroactive Relief for Small Businesses: Businesses with average annual gross receipts of $31 million or less can retroactively apply immediate expensing to R&D expenses from tax years beginning after December 31, 2021, allowing amendments to prior returns (2022–2024) for immediate deductions.
  • Catch-Up Deduction: All taxpayers can elect to deduct the remaining basis of previously capitalized domestic R&D expenses from 2022–2024 over one or two years starting in 2025, boosting cash flow.
  • Foreign R&D: Amortization over 15 years for foreign R&D expenses remains unchanged.
  • R&D Tax Credit (Section 41): The Act does not alter the R&D tax credit’s structure, which provides approximately $0.13 per dollar spent on qualified research. However, adjustments to Section 280C prevent duplicate benefits when claiming the credit alongside immediate expensing, ensuring compliance. The IRS’s proposed changes to Form 6765 may increase documentation requirements for credit claims.

 

These R&D provisions encourage innovation, particularly in industries like technology and manufacturing, with the National Association of Manufacturers noting that every $1 billion in R&D spending supports 17,000 jobs.

Key Benefits for Businesses

The 2025 Reconciliation Act offers several advantages for businesses:

  • Immediate Cash Flow Boost: Immediate deductions for both qualifying assets and R&D expenses reduce taxable income, freeing up capital for reinvestment or operational needs.
  • Encourages Investment and Innovation: The ability to write off the full cost of assets and R&D expenses upfront incentivizes businesses to invest in new equipment, technology, infrastructure, and research, enhancing productivity and competitiveness.
  • Cost Segregation Opportunities: For real estate investors, cost segregation studies can maximize benefits by identifying property components eligible for bonus depreciation, potentially yielding significant first-year deductions.

 

Qualifying Assets for Bonus Depreciation

To take advantage of the 100% bonus depreciation, assets must meet specific criteria:

  • Eligible Property: Includes tangible personal property with a recovery period of 20 years or less, such as machinery, equipment, and certain improvements to nonresidential real property.
  • Placed in Service: The property must be acquired and placed in service (ready and available for its intended use) between January 19, 2025, and December 31, 2029. For certain longer-production-period property and aircraft, the deadline extends to January 1, 2031.
  • Qualified Production Property (QPP): The Act introduces a 100% depreciation allowance for QPP, including nonresidential real property used in manufacturing, production, or refining of tangible personal property in the U.S., with construction or acquisition after January 19, 2025.

 

Strategic Considerations

To maximize these opportunities, business owners should:

  • Plan Acquisitions and R&D Investments: Time asset purchases and R&D spending to fall within the bonus depreciation and Section 174A windows to maximize tax savings. Consider accelerating planned investments to leverage the 2025 start date.
  • Conduct Cost Segregation Studies: For real estate, a cost segregation study can identify components eligible for bonus depreciation, potentially increasing first-year deductions significantly. For example, a $400,000 depreciable basis on a rental property could yield a $150,000 deduction with proper segregation.
  • Enhance R&D Documentation: With potential IRS scrutiny on R&D tax credit claims, maintain detailed records of qualified research activities and expenses to substantiate claims under Section 41.
  • Consult Tax Professionals: Work with a tax advisor to ensure compliance with IRS requirements and optimize your depreciation and R&D strategies. The Act’s provisions are complex, and professional guidance is critical.

 

Limitations and Caveats

While these provisions are powerful, there are limitations to consider:

  • No Retroactive Relief for Bonus Depreciation: The 100% bonus depreciation does not apply to assets placed in service before January 19, 2025. Assets from 2023 and 2024 remain subject to prior rates of 80% and 60%, respectively.
  • R&D Retroactivity Limited to Small Businesses: Only businesses with $31 million or less in gross receipts qualify for retroactive R&D expensing for 2022–2024.
  • State Conformity: Some states may not conform to federal bonus depreciation or R&D expensing rules, affecting state tax obligations. Check with your tax advisor for state-specific policies.

 

  • Section 179 Alternative: The Act increases the Section 179 expensing limit to $2.5 million with a $4 million phase-out threshold for 2025, adjusted for inflation. However, Section 179’s limitations, such as not creating a loss for certain entities, may make bonus depreciation or R&D expensing more attractive. We will cover this in more detail in our next blog post.

 

Conclusion

The 2025 Reconciliation Act’s reinstatement of 100% bonus depreciation and immediate R&D expensing offers significant opportunities for businesses to enhance cash flow, accelerate growth, and drive innovation. By allowing full deductions for qualifying asset costs and domestic R&D expenses in the year they are incurred, these provisions encourage investment in equipment, technology, real estate improvements, and research. To maximize benefits, businesses should strategically plan acquisitions and R&D spending, consider cost segregation studies, maintain robust R&D documentation, and consult tax professionals to ensure compliance and optimize savings.

Reach out to Archer Lewis to discover how your business can leverage these new changes and develop a customized plan to optimize your tax benefits. Even if you’re partnered with another accounting firm, we can collaborate with you and your current firm to secure these Tax Credits for you.

Stay informed about the latest tax strategies and updates by subscribing to our blog at Archer Lewis. For personalized advice, contact our team to discuss how the 2025 Reconciliation Act can impact your business’s financial strategy.