Big Beautiful Business Tax Breaks

The many items addressed by the new Budget Reconciliation law, the so-called “One Big Beautiful Bill Act (OBBBA),” include changes, new deductions and technical modifications that will impact every integration business, from global integrators to small businesses.

These changes will require the owners and managers of many security businesses to adjust their tax strategies; in fact, the OBBBA complicates tax rules in several ways, meaning integrator business executives face new rules and compliance costs.

On the plus side – and of interest to many security business owners – are tax breaks such as the deductible profits of pass-through businesses, and extending and making permanent quite a few of the temporary tax cuts that were part of the 2017 Tax Cuts and Jobs Act (TCJA).

As always, seek professional assistance to help with both planning and reaping the potential tax savings. That said, here are a handful of OBBBA provisions that should be on your radar:  

Pass-Through Business Tax Rate Cut: The TCJA was originally created to reduce taxes, simplify the tax code and stimulate growth. The TCJA lowered income tax rates and it also increased deductions for pass-through business entities. Under the OBBBA, there is a more favorable tax rate for the income of pass-through businesses, such as sole proprietorships, partnerships, and S corporations.

The now permanent deduction for the owners of businesses operating as pass-through entities allows up to 20% of qualified business income (plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income) to be ignored for tax purposes.

The OBBBA also creates a new inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 in qualified business income to ensure eligible small business owners can access an enhanced baseline deduction.

Depreciation Write-offs: One of the key elements of the 2017 TCJA was a 100% bonus depreciation write-off that allowed businesses to immediately deduct the full cost of business equipment. The intent was to galvanize capital spending, which many experts believed would improve productivity and growth. Unfortunately, as that 100% deduction was reduced year after year, the production of business equipment sharply declined.

The OBBBA brings back the full 100% bonus depreciation. What’s more, the deduction will apply through 2029 for property acquired after January 19, 2025.

In addition to bonus depreciation, the OBBBA doubles the current Section 179 first-year expensing deduction from $1.25 million to $2.5 million, and increases the asset acquisition limit from the current $3.13 million to $4 million. In other words, the full deduction would be phased out should a security integrator’s equipment or other asset purchases reach the $4 million ceiling. These increases will take effect for 2025.

Interest Expense Caps: Many larger businesses faced a limit on the amount of interest they could deduct. That meant their tax deduction for business interest expense was limited to 30% of the operation’s adjusted gross income. Most small businesses – defined as businesses whose average annual gross receipts for a three-year period do not exceed $27 million – the inflation-adjusted amount for tax years beginning in 2022 was exempt, and they could continue deducting the full amount of their business interest.

Since 2022, the limitation has been calculated after allowing deductions for depreciation, amortization, and depletion. That, of course, reduced the operation’s adjusted taxable income (ATI), the base upon which the limit was applied, thereby reducing the annual business interest expense deductions of many taxpayers.

The OBBBA will restore the add-backs for depreciation, amortization, and depletion deductions, thus increasing the amount of the amount of ceiling on which the business interest expense deduction is calculated.

Overtime: Unless exempt, employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked over 40 in a workweek at a rate not less than “time and a half.” Individuals who are classified as executive, administrative, or professional employees are considered “exempt employees” and aren’t required to be paid for overtime.

After a failed attempt to increase the threshold for the overtime exemption, it has reverted to $35,568 per year ($484 per week). Employees earning below this threshold are generally entitled to overtime pay.

Now, however, the OBBBA has created a new tax deduction for overtime pay. Workers making less than $150,000 can deduct as much as $12,500 for single filers and $25,000 for those filing jointly. Unfortunately, this deduction begins to phase out for single filers earning $150,000 or more, and for joint filers earning $300,000 or more, and it will expire in 2029.

Employers should remember that overtime is still considered as wages for FICA tax purposes, meaning the wages are still subject to Social Security and Medicare tax. What’s more, workers can only deduct overtime that is reported on information returns, such as Form W-2. This year, 2025, is a “transition year” – which allows employers to approximate tip and overtime amounts using a “reasonable method.”

Starting in 2026, employers must report qualified overtime separately on Forms W-2 and Form 1099. While there will likely be updated IRS withholding tables and changes to Forms W-2, 109, and W-4, uncertainty remains about how employers can distinguish “qualified” vs. “general” overtime given varying state labor laws.

Business meal deductions: Tax rules generally allow deductions for 50% of the cost of business meals, provided certain criteria are met. This 50% limit applies to meals incurred while traveling away from home on business, as well as meals with clients, customers, or employees. Naturally, the meal should not be extravagant, with the taxpayer or an employee present. Additionally, full deductibility is still allowed for expenses such as recreational expenses primarily for the benefit of all employees (e.g., company holiday parties).

The OBBBA disallows a variety of other business-meal related deductions, including the write-off for meals provided at the convenience of the employer on the business premises; however, the OBBBA relaxes this and other business meal explense limits by allowing the deduction for disallowed business meal costs to be taken as an expense for “goods and services.” This new category now includes the use of facilities -– so long as the transaction was bona fide and transacted at full value.

Partnerships: Tax rules have long governed services and property transfers (or disguised sales) between a partner and his or her partnership requiring them to be treated as arms-length transactions. New OBBBA rules now include a technical clarification – a simple “except as provided” – by the Treasury Secretary that expands the rules, making them applicable unless guidance provides an exception. The clarification applies to services performed and transactions occurring from now on.

Family and Medical Leave: The TCJA created a tax credit for compensating employees while they are on family or medical leave – as long as the business had a qualified plan for those payments. The OBBBA permanently extends and expands this credit.

First, the credit is expanded to include premiums paid by an employer on an insurance policy covering employee family and medical leave. Next, the amounts paid under the plan might not qualify for the credit where any leave paid for or by a state or government is considered when determining whether the employer has a plan that meets the requirements. Finally, when the new rules take effect in 2026, the minimum employee work requirement is lowered from one year to six months.

Charitable Donations: New rules for charitable donations by incorporated businesses might discourage smaller, routine donations in favor of larger, more substantial contributions to qualify for maximum tax benefits.

Incorporated security businesses are currently allowed to deduct the amount of charitable contributions they make up 10% of their taxable income; however, beginning in 2026, the OBBBA has made a new 1% floor for deductions for charitable giving, and only amounts above that floor will be considered tax-deductible.

The 10% ceiling remains, and contributions exceeding the 10% limit can be carried forward for up to five years. Unfortunately, contributions below the 1% floor can only be carried over if the total amount of contributions for the year exceeds the 10% ceiling.

In other words, in order for charitable contributions to be deductible, they must fall within a 9% window. They must exceed 1% of taxable income but not exceed 10% of taxable income.