Entity Setup
Entity Setup Considerations After OBBB for Small Business & Trusts
New rules under the One, Big, Beautiful Bill affect how entities and trusts handle deductions, elections, and reporting — critical to entity structure and tax strategy in 2026 and beyond.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## How OBBB Reshapes Entity & Trust Strategy
Entities (LLCs, corporations) and trusts should especially pay attention to three major changes:
### 1. Research & Experimental Expenditures (§174, §174A)
- OBBB introduced election rules allowing **small business taxpayers** to elect to deduct or amortize **domestic research or experimental (R&E) expenditures** incurred after Dec 31, 2021. They can use §174A for certain amortization approaches. ([irs.gov](https://www.irs.gov/irb/2025-38_IRB?utm_source=openai))
- **Rev. Proc. 2025-28** provides automatic consent for eligible taxpayers to change accounting methods to adopt §174A or amortize as required. Deadlines: one year after enactment (so generally by **July 6, 2026**). ([irs.gov](https://www.irs.gov/irb/2025-38_IRB?utm_source=openai))
### 2. Trusts & Safe Harbor for Digital Assets Management
- **Rev. Proc. 2025-31** establishes a **safe harbor** for trusts that qualify as investment trusts under §301.7701-4(c) and as grantor trusts, permitting them to stake digital assets without risking loss of those designations. Trusts can also amend governing instruments within a limited period to adopt this safe harbor. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
### 3. New Reporting & Deduction for Car Loan Interest: Entity Implications
- New information reporting obligations under **section 6050AA**, for entities receiving interest on “specified passenger vehicle loans” from individuals (amounts ≥ $600), as part of deduction for qualified passenger vehicle loan interest. Entities must issue statements or online portals detailing interest received for individuals to claim their deduction (2025 transition relief in effect). ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
## Comparative Example: LLC vs C-Corporation vs Trust
| Structure | Treatment of R&E Costs | Reporting for QPVLI Interest | Effect of Safe Harbor for Digital Assets |
|---|---|---|---|
| **Small LLC (pass-through)** | Eligible to elect under §174A; can deduct or amortize as per Rev. Proc. 2025-28. | If the LLC receives $600+ interest on a vehicle loan from individual, it must report it under §6050AA; furnish statement. | If trust, safe harbor helps preserve investment/trust status if stake digital assets. LLCs pass to members. |
| **C-Corporation** | Same elections allowed. | Reports as trade or business recipient. | Digital assets under trust rules apply if trust holds shares or assets. |
| **Trust** | Trusts with R&E activities must evaluate method elections (if applicable). | If trust receives interest from qualified vehicle loans, same requirements. | Safe harbor under Rev. Proc. 2025-31 protects status when staking digital assets. |
## Best Practices Moving Forward
- Entities should evaluate whether they meet eligibility to elect under §174A; assess whether deducting immediately or amortizing aligns with long-term plans.
- Trusts should review their governing instruments and consider amendments to adopt digital asset safe harbor before the deadline.
- Prepare internal accounting and finance systems to capture vehicle loan interest received from individuals (names, amounts, VINs) so statements can meet requirements or use transition relief in 2025.
## Why It’s All Connected
These entity-level changes influence:
- **Tax timing and cash flow** (e.g. accelerating or deferring deductions for R&E expenditures);
- **Legal and compliance risk**, especially for trusts handling digital assets without clear safe harbor;
- **Administrative burden** on entities receiving or paying vehicle interest or facilitating claiming deductions for individual owners/employees.
Entity choice now influences access to deductions and reporting obligations more than ever. Those who begin planning now will be better positioned for compliance and benefit in 2026.