Entity Setup
Entity Setup Essentials: How New Inflation Adjustments Under OBBBB Should Guide Your Business Structure Choices
The One, Big, Beautiful Bill’s inflation adjustments for tax year 2026 change thresholds for many provisions—choosing LLC vs. S-Corp, managing AMT, and timing deductions becomes more critical than ever.
By NomadicTax Research Team • 5-8 min read • November 20, 2025
## Inflation Adjustments that Matter to Businesses
The One, Big, Beautiful Bill (OBBBB), through **Revenue Procedure 2025-32**, made inflation adjustments across 60+ tax provisions effective in tax year 2026. These include adjusted tax brackets, AMT exemption amounts, credit phase-outs, and estate tax thresholds. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
Key adjusted items:
- **Standard deductions**: rise to $16,100 (single), $32,200 (married filing jointly), and $24,150 (head of household) in 2026. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **Alternative Minimum Tax (AMT) exemption** increases, raising both the base exemption and phaseout thresholds. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **Estate tax exclusion** goes up to $15,000,000 for decedents dying in 2026, up from ~$13.99M in 2025. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## How This Guides Entity Type Decisions
### LLC vs. S-Corp vs. C-Corp
- Entities taxed as **pass-throughs** (LLCs, S-Corps) benefit from higher standard deductions and thresholds before higher tax brackets kick in. If your business income sits just under a new bracket, pass-through status might save taxes.
- **C-Corps** are unaffected in personal brackets, but owners' distributions still subject to personal tax. Be aware of these brackets when planning compensation or dividends.
### Managing AMT Exposure
- With higher AMT exemptions and phase-outs, fewer individual owners may be subject to AMT in 2026. But large capital gains or investment income could still push them into AMT territory.
- For corporations, ensure your entity structure and compensation strategies (e.g., bonuses vs. salary) consider AMT rules for related shareholders.
### Timing Deductions, Credits & Growth Investing
- Credits like for adoption, energy, childcare (employer-provided) have been enhanced and are inflation adjusted. Being structured to take advantage of such credits—say through employee benefits—can be more beneficial for larger employers. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- Real estate and QOZ (Qualified Opportunity Zone) entities: OBBBB modifies rules for “rural area” definitions and substantial improvement thresholds. If you're investing in a QOZ, ensure the location and improvement budget meet the new 50 % test for rural areas. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Action Steps When Setting Up or Restructuring Your Entity
- Run projections using **2026-adjusted thresholds**—simulate income, deductions, and credit phase-outs under all relevant entity types.
- If considering employee benefits like employer childcare expense credits, determine if being classified small business (per OBBBB definition) unlocks higher limits.
- For real estate entities: verify QOZ properties’ locations, adjust investment plans to meet the new definitions to unlock tax advantages.
- Consult your legal/tax advisors upfront: entity formation, bylaws, operating agreements should consider AGI, estate thresholds, AMT, and credit eligibility under the new inflation adjustments.
## Example Scenario
Jane is starting a consultancy projected to earn $300,000 in 2026. If incorporated as LLC (pass-through), her AGI will face higher tax brackets, but the inflation adjustments in standard deductions and AMT exemptions may keep effective rates lower compared to being taxed as C-Corp with salary + dividends. But if she anticipates needing capital via QOZ investments or access to employer credits, forming a C-Corp that can offer benefits may be preferable. Running both “pass-through vs. corporation” scenarios is critical.
## Bottom Line
OBBBB’s inflation adjustments change the financial calculus for business structure decisions. They affect what you pay in tax brackets, how credits phase out, and what entity types help you save most. Staying aware of changes and running projections now lets you choose a structure optimized for tax savings and compliance come 2026.