Overview: Why 2025’s One, Big, Beautiful Bill (OBBB) Matters
The OBBB introduced changes that affect how business deductions and entities are treated. These include:
- The ability to take full first-year bonus depreciation for qualifying business property bought and placed in service after January 19, 2025, instead of spreading depreciation over many years. (irs.gov)
- Adjustment in thresholds and deductions that affect business structure decisions like LLC vs S-Corp. (irs.gov)
LLC vs S-Corporation: Key Differences
| Feature | LLC (Taxed as Sole Proprietor or Partnership) | S-Corporation Election |
|---|---|---|
| Self-employment taxes | Owners pay SE tax on all net income | Only salary is subject to payroll taxes, distributions are not—if reasonable salary set |
| Required formalities | Less rigid—operating agreement, fewer compliance requirements | Must file separate tax return (Form 1120S), issue K-1s, maintain payroll, etc. |
| IRS audit risk | Lower risk in simple LLC structure | Higher scrutiny on “reasonable salary” in S-Corps |
How OBBB Bonus Depreciation Changes Affect Structure Choice
Because the law now allows businesses to deduct 100% of the cost of most qualifying property in the year placed in service, LLCs can benefit immediately from major purchases. S-Corps can also use bonus depreciation—but since S-Corps have payroll obligations, the tax savings strategy may tilt more favorably if cash flow is strong.
Example Scenario
Linda has an LLC doing consulting. In 2026 she buys $50,000 of 5-year business equipment.
- If LLC taxed as sole proprietor, all $50,000 (assuming qualifies) may be deducted in 2026 under bonus depreciation.
- If she elects S-Corp and pays herself reasonable salary (say $40,000) and receives the rest as distribution, the equipment deduction still applies—but her payroll taxes are only on the salary, not the distribution.
The S-Corp structure saves on SE taxes if distributions exceed reasonable salary, but triggers more compliance costs.
Practical Steps to Decide
- Estimate your revenue and profit in 2026 and beyond. Large one-time purchases make bonus depreciation more valuable.
- Test whether an S-Corp’s payroll burden plus formal compliance cost is less than the savings in self employment taxes.
- Ensure you set a reasonable salary for S-Corp owners to avoid IRS penalties.
- Use projected cash flows to see if operating under LLC vs S-Corp will give you net present value savings.
Compliance Risks and Best Practices
- Keep separate bank accounts and records whether choosing LLC or S-Corp.
- Maintain payroll compliance: S-Corps must run payroll and adhere to associated tax withholding and filings.
- Document decisions: for example, write in operating agreement or bylaws your compensation strategy.
- Consult a tax advisor when taking on large business asset purchases (to verify eligibility for bonus depreciation).
Bottom Line
If you anticipate heavy investment in business assets, LLC with bonus depreciation is powerful. If your business generates consistent profits and you’re looking to minimize payroll taxes, an S-Corporation might be better despite more structure. Use models to compare both in your specific situation.