On July 4, 2025, President Donald Trump signed into law legislation (H.R.1), known as the One Big Beautiful Bill Act (the “Act”). The legislation was passed through the budget reconciliation process and cements many of the individual and business tax provisions that were originally established under the 2017 Tax Cuts and Jobs Act (“2017 TCJA”) which were set to sunset in 2025. The Act also adds several new provisions that were promised during the 2024 Trump campaign.

This is the third alert in our series examining key provisions of the Act, with this article focusing on how certain provisions affect the decision-making process regarding the selection of an appropriate business entity type.

Permanent Extension of IRC Section 199A Qualified Business Income Deduction
The IRC Section 199A qualified business income deduction was implemented as part of the 2017 TCJA in order to make the tax outcomes for individuals holding interests in flow-through entities (i.e., typically, limited liability company, S Corporation, and general and limited partnerships) more competitive with individuals holding interests in C Corporations. As part of the 2017 TCJA, the C Corporation tax rate was reduced from 35% to 21%.

Under Section 199A, certain non-corporate taxpayers are generally entitled to deduct 20% of their qualified business income to the extent attributable to investments in flow-through entities. Because the qualified business income deduction has been made permanent, advisors will generally not need to reevaluate whether to convert a current flow-through entity to a C Corporation solely for tax reasons.

While the permanence of Section 199A provides greater certainty, businesses should still periodically review their entity structure in light of evolving legal and financial goals, including operational flexibility, investor expectations, state tax considerations, and long-term exit planning.

Expansion of Qualified Small Business Stock Regime
Previously, IRC Section 1202 allowed U.S. individual taxpayers to exclude up to 100% of the eligible capital gains from U.S. income tax upon the sale of stock in a U.S. C Corporation that qualifies as a qualified small business. Prior to July 4, 2025, the following were the rules regarding qualified small business stock (QSBS):

• The QSBS was issued by a domestic C Corporation with gross assets less than $50 million.
• Certain industries are excluded (e.g. professional services, banking and hospitality).
• The QSBS had to be obtained from the corporation at the time it was originally issued.
• The taxpayer was required to hold the QSBS for five years in order qualify for exclusion.
• The exclusion was capped at the greater of $10 million or 10 times the aggregate adjusted basis in QSBS sold during the year.

The Act introduces several taxpayer-favorable enhancements for QSBS acquired after July 4, 2025:

• QSBS will benefit from a tiered-exclusion structure: 50% if held over 3 years; 75% if held over 4 years; and 100% if held over 5 years.
• The exclusion cap is increased to the greater of $15 million or 10 times the aggregate adjusted basis in QSBS sold during the year.
• The gross asset threshold for qualifying C corporations is increased to $75 million.

These enhancements may incentivize entrepreneurs and investors to structure new ventures as C Corporations to take advantage of QSBS treatment. Legal counsel should ensure businesses are properly structured from formation to meet QSBS eligibility requirements, particularly with respect to original issuance, asset thresholds, and qualifying activities. A proactive approach can preserve future tax benefits and avoid costly compliance pitfalls.

If you have questions about how your business can take advantage of these tax provisions, please reach out to attorney Kevin Scott or any member of Barley Snyder’s Business or Tax practice groups. Be on the lookout for the next alert in our series covering key provisions of the Act affecting opportunity zones.

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Check out our other alerts in this series focusing on tax provisions impacting businesses and individuals.