If you are a business owner, you may be looking for ways to optimize your finances and lower your business tax liability. In considering your business strategy and tax situation, you also may want to work with your advisors to determine whether legislation changes might impact you.
Steve McConley and Eric Smith, business owner advisory strategists, Wealth & Investment Management, Wells Fargo Clearing Services, LLC, answer some key questions that business owners should be considering.
The One Big Beautiful Bill Act (OBBBA) is one of the most favorable business tax laws passed in recent years. OBBBA changed how businesses can deduct the cost of equipment, software, and property improvements. According to Smith, you now have two powerful tools for accelerating deductions: Section 179 expensing and bonus depreciation. Both provide immediate tax benefits, but they work differently and may be best used in different situations.
Section 179 allows you to deduct the cost of qualifying business assets up to an annual limit of $2.5 million, phased out after $5 million. Section 179 is elected on an asset by asset basis, making it a flexible planning tool — especially for companies with steady taxable income and moderate equipment purchases.
Bonus depreciation, restored to 100% under OBBBA for assets acquired after January 19, 2025, allows you to deduct the full cost of qualifying property with no dollar limit. It applies automatically unless you opt out. Bonus depreciation can create or increase net operating losses, which may be useful if you expect lower future income or want to carry losses forward.
Many companies start off as one type of business structure and change to another type as the business grows and evolves. For example, if you’re planning to sell your business to a third party in five or more years, you may want to change to a flow-through entity (for instance, S corporation) because there may be potential tax advantages for an asset sale compared with selling assets as a C corporation.
OBBBA brought favorable changes to Qualified Small Business Stock (QSBS) treatment which allows certain C corporation owners an increased exclusion from capital gains when they sell stock in the future. (Contact your tax advisor for timing and eligibility requirements.) According to Smith, these changes give founders, key employees, and early stage investors more flexibility and a greater chance to benefit from significant tax savings when they eventually sell their stock.
McConley recommends revisiting the business structure on a regular basis with your tax advisors to help ensure that you’re choosing the best structure for the business today and in the future.
Start by hiring a good CPA who does more than just prepare taxes and audit the books — someone who can provide strategic business tax guidance. Your team may also include a commercial banker, financial advisor, and business advisor with specific knowledge of running a business.
A good team can provide guidance based on your specific situation because that’s what they do for businesses day in and day out. Wells Fargo has a team of specialists to help business owners navigate these types of business structure issues.
OBBBA introduced powerful new tax benefits for businesses and business owners — from immediate write offs on equipment and improvements, to expanded opportunities for tax free gains on the sale of qualifying small business stock.
Don’t have an advisor?
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
Wealth & Investment Management offers financial products and services through bank and brokerage affiliates of Wells Fargo & Company.
