One Big Beautiful Bill Act (OBBBA) Signed Into Law

Jul 10, 2025

On July 4, President Trump signed into law H.R.1, widely recognized as the One Big Beautiful Bill Act (OBBBA). This comprehensive legislation introduces significant budgetary measures addressing border security, defense, energy policy, and federal spending reductions. Most notably, OBBBA represents one of the most consequential federal tax reforms since the Tax Cuts and Jobs Act of 2017 (TCJA), with far-reaching implications for both individuals and businesses.

The most prominent provisions are outlined below. For a more comprehensive overview of how these changes may impact your specific situation, we encourage you to connect with your William Vaughan Company advisor.

Key Provisions for Businesses

  • Research and Experimentation (R&D) Deductions: OBBBA establishes new IRC Section 174A, enabling immediate deductibility of domestic R&D expenses incurred after December 31, 2024, replacing the prior five-year amortization rule, and enhancing tax benefits for U.S.-based innovation. Companies with capitalized domestic R&D expenses between 2022 and 2024 can elect to accelerate those deductions. Eligible small businesses, generally those with average annual gross receipts not exceeding $31 million, can elect to retroactively apply the full expensing of domestic R&D expenses to tax years beginning after December 31, 2021, by amending their returns for 2022, 2023, and 2024 to claim refunds for taxes paid because of amortization. Other taxpayers with capitalized domestic R&D expenses between 2022 and 2024 can choose to accelerate deductions of the remaining unamortized amount over a one or two-year period, starting with the 2025 tax year. Foreign R&D expenditures remain subject to 15-year amortization.
  • Bonus Depreciation: Restores 100% bonus depreciation, allowing businesses to immediately expense qualifying assets placed in service after January 19, 2025, thereby eliminating the previously scheduled phase-down.
  • Qualified Production Property (QPP): Manufacturers can claim a 100% deduction for the cost of new “qualified production property,” including nonresidential real property, defined as property used in a “qualified production activity” (the manufacturing, production, or refining of a qualified product that results in a substantial transformation of the property). This change applies to qualified property placed in service after the date of enactment and before January 1, 2031.
  • Business Interest: Restores the more favorable EBITDA-based calculation for the business interest deduction limitation under Section 163(j) for tax years beginning after December 31, 2024. This reverts to the approach used from 2018 through 2021, which generally allowed larger deductions. It also provides specific rules regarding the interaction of the business interest expense limitation with other tax provisions that capitalize interest.
  • Pass-through Businesses: Makes permanent the Section 199A qualified business income deduction, with no change to the current 20% deduction percentage. Additionally, the bill expands the limitation phase-in window from $50,000 for single filers ($100,000 for married filing jointly) to $75,000 for single filers ($150,000 for married filing jointly).
  • Pass-through Entity Tax (PTET) Elections: Electing pass-through entities (PTEs) can continue to deduct state income taxes paid at the entity level, effectively allowing business owners to bypass the limitation on individual SALT deductions.
  • Advanced Manufacturing Investment Credit: The advanced manufacturing investment credit rate increases from 25% to 35% for property placed in service after December 31, 2025.
  • Federal Tax Exclusion for Capital Gains from Qualified Small Business Stock (QSBS): Updates Section 1202 of the Internal Revenue Code by raising gain exclusion caps from $10 million to $15 million and allowing investors to access tax benefits after a shorter holding period (as little as three years in some cases). The asset limit is also increased from $50 million to $75 million, making it easier for larger start-ups to qualify.
  • Employee Retention Tax Credit: Retroactively bars the IRS from issuing refunds for Employee Retention Tax Credit (ERTC) claims for Q3 2021 (and in some cases Q4 2021) filed after January 31, 2024. The bill also requires ERTC promoters to comply with due diligence requirements regarding a taxpayer’s eligibility and the amount of an ERTC for affected quarters. In addition, OBBBA includes a $1,000 penalty for each failure to comply and extends the penalty for excessive refund claims to employment tax refund claims.

Key Provisions for Individuals

  • Tax Rates: Permanently extends most of the individual income tax rate structures established by the TCJA of 2017.
  • Standard Deduction: Makes the TCJA’s increased standard deduction amounts permanent. For tax years beginning after 2024, the standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. The standard deduction will be adjusted for inflation thereafter. These changes are retroactive to include 2025.
  • SALT Cap: The $10,000 cap on state and local tax deductions is raised to $40,000 for most taxpayers. However, the benefit phases out for households with adjusted gross income (AGI) exceeding $500,000, tapering to restore the lower cap for high earners. Both the SALT cap and the income threshold for the phase-out will increase by 1% each year from 2026 through 2029. The $40,000 limit is not permanent; it is scheduled to revert to $10,000 starting in 2030.
  • Alternative Minimum Tax (AMT): The higher AMT exemptions under the TCJA are made permanent, reducing the likelihood of AMT applying for many taxpayers. The exemption phase-out threshold is set at 2018 levels under the TCJA ($500,000 for singles and $1 million for joint filers), indexed for inflation. The exemption also phases out more quickly for higher earners.
  • Excess Business Loss (EBL) Limitations: Makes permanent the current limitations on business losses allowed to offset non-business income, with losses exceeding the limit treated as net operating losses (NOLs) and carried forward to future years.
  • New Deduction for Seniors: OBBBA provides a temporary bonus deduction of $6,000 for individuals age 65 or older (and for each spouse meeting the criteria in the case of a joint return) for taxable years 2025 through 2028. The deduction phases out for joint filers with income starting at $150,000 and $75,000 for all other taxpayers.
  • Charitable Contributions: Creates a permanent deduction for taxpayers who do not itemize. For tax years beginning after December 31, 2025, non-itemizing taxpayers can claim a deduction of up to $1,000 (single filer) or $2,000 (married filing jointly) for certain charitable contributions.
  • Child Tax Credit: Extends and enhances provisions related to the Child Tax Credit (CTC), including increasing the nonrefundable portion of the credit to $2,200 per child. The refundable Additional Child Tax Credit (ACTC) remains at $1,700 for 2025 and will be adjusted annually for inflation. The nonrefundable portion of the CTC will also be indexed for inflation beginning in 2026. Taxpayers must have a valid Social Security number for themselves (or one spouse if married filing jointly) and the qualifying child.
  • Tips & Overtime Pay Deductions: Establishes new above-the-line deductions for the 2025–2028 tax years, allowing taxpayers to deduct up to $25,000 per individual in tip income and up to $12,500 per individual (or $25,000 for joint filers) in overtime compensation. These deductions are subject to phase-out at specified AGI thresholds.
  • Individual Trust Accounts (Trump Accounts): Introduces a new category of tax-advantaged accounts specifically designed to support children under age 18. These accounts can be utilized for qualified expenses such as education, small business investments, and first-time home purchases. Annual contributions are capped at $5,000 per account, with a one-time, government-funded deposit of $1,000 for eligible children born between December 31, 2024, and January 1, 2029. Employers are also permitted to make tax-free annual contributions to these accounts.

Other Notable Provisions

  • Estate Planning: Increases the estate, gift, and generation-skipping tax exemption amounts to $15 million for estates of decedents dying and gifts made after December 31, 2025, and makes them permanent. This is compared to the TCJA’s temporary $10 million exemption (adjusted for inflation to $13.99 million in 2025).

Next Steps
The impact of the One Big Beautiful Bill Act is substantial, introducing changes that warrant continuous review and proactive planning. We strongly recommend that you engage with your William Vaughan Company advisor to assess how these legislative developments may affect your tax liabilities, cash flow, and overall business or personal wealth strategies. Our team is here to help you navigate these complexities and identify opportunities aligned with your objectives.

Categories: Tax Planning

Working Capital In A Deal: Deal Maker or Deal Breaker?

May 09, 2025

In M&A transactions, working capital is often a critical but underestimated factor. Misunderstandings or misalignment around this concept can derail a deal, impact the purchase price, or create post-close complications. A clear understanding of working capital and its role in deal mechanics can significantly reduce these risks.

What is working capital?
Working capital represents the liquidity available for a business’s day-to-day operations, calculated as current assets (e.g., cash, receivables, inventory) minus current liabilities (e.g., payables, accrued expenses). Most deals are structured on a cash-free, debt-free basis, with an emphasis on net working capital (NWC)—excluding short-term debt—to evaluate the operational baseline of the business.

Working capital from the seller’s perspective.
Before entering the market, it is crucial for a seller to establish a comprehensive working capital mechanism. This should encompass precise definitions and the relevant accounting principles, leaving no room for misinterpretation. Collaborating with a due diligence advisor to establish realistic figures and draft clear agreement language can help ensure a fair and balanced transaction. Neglecting this step may inadvertently provide the buyer with a competitive advantage.

Key considerations for a seller in developing a working capital mechanism include:

  • Business Seasonality: Understanding seasonal fluctuations that may affect working capital requirements.
  • Business Growth: Anticipating future working capital needs that may diverge from historical data due to growth.
  • Industry Working Capital Trends: Being aware of prevailing trends within the industry that could impact working capital expectations.
  • Single Transaction Impact: Identify any significant one-time transactions that could cause deviations in the company’s working capital from the norm.

Working capital from the buyer’s perspective.
Buyers rely on NWC as an indicator of operational health and aim to avoid post-close capital injections. The working capital “peg” is a negotiated target that ensures the business is transferred with adequate operating capital. Factors for a buyer to consider:

  • Review Working Capital Agreements: Proactively addressing potential issues can prevent delays in closing the deal.
  • Accruals & Reserves: Include items like vacation pay, bonuses, warranties, and sales allowances.
  • Assess Cutoff Issues: Verify that interim period cutoff issues are adequately accounted for.
  • Consider Business Growth: Determine if the business and its working capital needs are expanding.

Avoid letting working capital derail your transaction.
Understanding the intricacies of working capital—an often highly negotiated component of M&A transactions—can significantly enhance both buyers’ and sellers’ prospects for post-closing success. Engaging a due diligence advisor early in the process, particularly during the LOI phase, can help navigate complexities, mitigate unexpected challenges, and contribute to the overall success of the transaction.

Connect With Us.
Patrick Mannion, Managing Director
Transaction Advisory Services

Categories: M&A

IRS Releases New Employee Retention Tax Credit Guidance

Mar 28, 2025

Wait, we’re talking about the Employee Retention Tax Credit (ERC) yet again? Yes, you read it right, after hearing very little on the topic for the past 18 months, ERC is back in the news. On March 20, 2025, the IRS released new Employee Retention Tax Credit Guidance in an updated FAQ.

Specifically, the IRS introduced a new section entitled “Income Tax & ERC,” that addresses, one, situations where taxpayers didn’t reduce their claimed wage expense but received the ERC, and two, situations where taxpayers did reduce wage expenses but had a disallowed ERC claim. The tax authority also expanded guidance on reporting ERC fraud.

Here is what you need to know:

Income Tax & ERC

  • The IRS stands by its original position that taxpayers should have reduced their deductible wage expense by the amount of allowed ERC in the tax year the qualified wages were paid or incurred. However, the IRS is now providing alternative solutions for claiming unreduced wages. Under the revised guidelines, taxpayers now have the option to report the overstated wage expense as gross income in the tax year when the Employee Retention Credit was received, rather than amending their previous returns. This marks a shift from the earlier policy.
  • The updated FAQ also addresses scenarios where an ERC claim was denied after a taxpayer had already reduced their wage expenses for the year in which the qualified wages were paid. In these cases, taxpayers can now adjust their current return to reflect the increased wage expense corresponding to the disallowed ERC, instead of filing an amended tax return, an AAR, or a protective claim for refund for the earlier tax year. It’s important to note that taxpayers may still opt to amend previous returns to recapture the previously reduced wages.

ERC Scams

  • The IRS has issued further guidance on the procedures for reporting ERC-related fraud, strongly urging taxpayers to report any suspicious activities, including illegal, tax-related activities involving ERC claims, individuals who promote improper and abusive tax schemes, and tax return preparers who deliberately prepare improper returns. The step-by-step process for reporting ERC fraud can be found in the “ERC Scam” section of the FAQ.

To read the full FAQ along with the updated guidance, please refer to the IRS website here. To better understand how this new guidance may impact your business, we encourage you to connect with our Employee Retention Tax Credit (ERC) lead, Mike Hanf.

Mike Hanf, Tax Partner – mike.hanf@wvco.com

Categories: Tax Compliance

Before the Deal: An Introduction to Due Diligence

Mar 24, 2025

Understanding Buy-Side and Sell-Side Due Diligence

Buying or selling a business is a highly intricate process that requires strategic foresight and rigorous analysis. Whether operating on the buy-side or sell-side, conducting comprehensive due diligence is the cornerstone of deal success, mitigating exposure to financial, operational, and legal risks.

What is due diligence?
Due diligence is an investigative process designed to validate and assess all material aspects of a potential transaction. It involves a deep dive into financial, legal, operational, technological, and commercial factors to ensure a well-informed decision-making process. Due diligence highlights considerations by providing an investigative lens that ultimately protects the buyer and the seller from potential pitfalls, safeguarding against unforeseen liabilities and value erosion.

Basics of Buy-Side Due Diligence
On the buy-side of a transaction, ensuring that a potential target is a solid investment and aligns with your business’s overarching goals is paramount. Therefore, the primary focus of buy-side due diligence is to verify the accuracy and integrity of the seller’s financial disclosures while identifying potential red flags. Key areas of review include:

  • Quality of Earnings (QoE): Assessing revenue sustainability, EBITDA adjustments, and non-recurring expenses to gauge true earnings power.
  • Cash Flow Analysis: Examining historical and projected free cash flow to ensure liquidity adequacy and debt serviceability.
  • Balance Sheet Strength: Evaluating working capital efficiency, asset quality, contingent liabilities, and off-balance sheet exposures.
  • Legal & Compliance Risks: Identifying potential litigation, contractual obligations, and regulatory concerns that could impact post-transaction integration.

While audited financial statements provide a fundamental baseline, they often fail to capture operational synergies, market positioning, and cultural fit – making an integrated due diligence approach essential.

Basics of Sell-Side Due Diligence
For sellers, a proactive due diligence strategy enhances deal certainty and strengthens negotiating leverage. The goal is to preemptively identify and address areas of concern that could derail valuation or delay closing. Sell-side due diligence entails:

  • Financial Statement Readiness: Ensuring GAAP/IFRS compliance, reconciling discrepancies, and preparing robust financial models to withstand buyer scrutiny.
  • Legal and Regulatory Preparedness: Resolving outstanding liabilities, clarifying ownership structures, and securing necessary approvals to expedite deal execution.
  • Commercial Positioning: Validating customer contracts, market share stability, and competitive differentiation to justify premium valuations.

By conducting due diligence preemptively, sellers can bolster buyer confidence, minimize post-LOI renegotiations, and drive a more efficient closing timeline.

Making Informed Decisions
Regardless of deal positioning, due diligence is a critical component of transactional success. Whether assessing an acquisition target or preparing for a liquidity event, the process is inherently resource-intensive and demands meticulous planning. Engaging a third-party advisory firm can provide an independent, data-driven perspective, enhance deal certainty, and optimize transaction outcomes.

Connect With Us.

Patrick Mannion, Managing Director

Transaction Advisory Service

spatrick.mannion@wvco.com

Categories: M&A

Social Security Retroactive Payments: What You Need To Know

Mar 07, 2025

In January, President Biden signed into law the Social Security Fairness Act, significantly increasing benefits for nearly 3 million former public employees in the United States through Social Security retroactive payments.

This week the Social Security Administration (SSA) announced that back payments have been sent to over 1.1 million beneficiaries. These payments reflect the retroactive benefits owed to retirees, spouses, and surviving spouses due to the elimination of the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP).

How This May Impact You:

  • Retroactive Payments: As of March 4, over $7.5 billion in retroactive payments have been distributed to 1,127,723 individuals.
  • Monthly Increases: Starting in April, beneficiaries will notice an increase in their monthly payments, corresponding to higher benefits for March.

Next Steps:

Beneficiaries can visit SSA’s dedicated website to learn more about the Fairness Act and see updates on the agency’s progress. The SSA is expected to release more details soon.

For any assistance or further inquiries regarding the Social Security retroactive payments, please do not hesitate to contact our team. We are here to help you navigate these changes and understand how they impact your benefits.

Categories: Other Resources

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