With the recent passage of the One Big Beautiful Bill Act (OBBBA), several tax changes are now in effect, some of which may directly impact professional services firms. Here are some key areas that warrant attention.
Expanded Limitations for QBI Deduction
Professional services firms organized as a pass-through entity (such as a partnership or S-Corporation) are no doubt aware of the Qualified Business Income (QBI) deduction under Section 199A, part of the 2018 Tax Cuts and Jobs Act. Many professional services firms in fields such as law, consulting, accounting, and medical practices are classified as Specified Service Trades or Businesses (SSTBs) and as such, may receive a limited or no QBI deduction at certain income levels. The OBBBA increases the taxable income phase-in range from $50,000 to $75,000, and from $100,000 to $150,000 for joint filers, beginning in 2026. The increased phase-in range may allow for some owners of professional services firms to receive a greater QBI deduction than under the old rules. These increased ranges should be considered when working with your tax advisor on year-end tax planning to minimize your overall tax burden.
No Changes to PTET (Pass-Through Entity Tax)
Business owners in states with PTET regimes can continue to benefit from existing rules. Owners of SSTB’s can breathe a sigh of relief – the House’s original version of the Big, Beautiful Bill called for PTET to be disallowed for SSTB’s beginning in 2026.
Business Meals & Snacks No Longer Deductible
Starting in 2026, certain meals, beverages and snacks provided to employees at the workplace will no longer be deductible. Meals (which generally includes all food and beverages) provided on-site for the convenience of the employer, which were previously subject to a 50% limitation, will no longer be deductible. Businesses which routinely offer meals during meetings, late nights, or ample snacks will need to adjust expectations around tax treatment for these employee perks. Fortunately, the rules have not changed for business meals consumed off-site, including meals consumed during business travel and meals consumed on outing with customers – these remain 50% deductible. Additionally, employee events such as picnics, holiday parties, etc. remain 100% deductible, as long as they qualify under the tax rules as “recreational, social or entertainment gatherings, primarily for the benefit of non-highly compensated employees”.
Additionally, businesses operating employee eating facilities should review Section 274(o) and Section 274(e)(8). Businesses not meeting one of those exceptions will no longer be allowed to deduct the costs (including food and beverage costs) of operating the facility.
Broad Tax Changes Also Affecting Professional Services
In addition to the industry-specific updates, professional services firms should take note of these broadly applicable provisions:
- 100% Bonus Depreciation Returns: Businesses can now deduct the full cost of qualified property and technology upgrades in the year of purchase, if purchased after January 19, 2025.
- Increased Section 179 Limits: Expanding expensing capabilities makes it easier to deduct office equipment, furniture, and software.
- Relaxed 1099 Reporting Requirements: Be prepared for tighter rules and deadlines related to contractor and vendor payments. Reporting thresholds for 1099-MISC and 1099-NEC are increasing from $600 to $2,000 beginning in 2026, which may reduce the amount of 1099’s that professional services firms receive. It may also reduce the number of 1099s your business is required to file for your vendors providing services to you.
- Changes to Overtime Pay Reporting: Hourly employees who work overtime may be entitled to a tax deduction for the increased pay rate on their overtime. Employers will need to properly track and report overtime pay on W-2’s starting in 2025. More information can be found here: OBBBA Deductions for Tips and Overtime: Key Details | The Bonadio Group
- Tax Changes Impacting Individuals: Business owners should be mindful of changes affecting individual income taxation and how that will affect their personal tax returns, including permanent extension of the existing tax rates, increased SALT deduction and other changes impacting itemized deductions.
Time to Review & Plan
While the OBBBA may not dramatically alter the professional services landscape, its impact on owner-level tax benefits and internal expense policies is significant. Firms should meet with their tax advisors to assess how these changes affect their 2025 planning and beyond.
Stay Informed on the OBBBA
We’re continuing to share timely insights to help you navigate the One Big Beautiful Bill Act. Find all our updates on the OBBBA Resource Hub, and follow us on LinkedIn and via email to stay connected.
If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
