The One Big Beautiful Bill (OBBBA/OB3) materially reshapes entity-choice dynamics for business owners. In short, it favors Corporations (C Corps), supercharges the Qualified Small Business Stock (QSBS) benefits, narrows SALT workarounds for passthroughs, but still leaves 199A as a meaningful domestic benefit for many pass-throughs. We have summarized these benefits below and provided an example of how certain businesses might benefit from a Corporate Conversion.

1. Stronger Case for Corporations in Capital-Intensive and Growth Businesses

Corporations can now retain and reinvest earnings without immediate passthrough taxation, qualify for 100% bonus depreciation, and utilize the expanded §1202 QSBS exclusions. This combination generally outperforms an S corporation for businesses with more than $1 million in income.  

OBBBA also makes key provisions permanent (lower corporate rate, bonus depreciation, QSBS and §199A deduction) which were set to sunset this year. Instead of a 10 year horizon, business owners now have a stable foundation for long-term entity selection and investment strategy.

2. Major QSBS Enhancements and Benefits

a) Exclusion Amount. Qualified Corporations may may exclude the greater of (1) $15 Million per year; or (2) 10 times the taxpayer’s adjusted basis (after depreciation) of all QSBS dispositions in the tax year. The $15 million is limited to related parties, but non-grantor trusts may qualify for the 10 times basis exclusion even if a related shareholder has used the $15 million limitation.

b) Holding Period. OBBBA allows graduated exclusion tiers instead of the flat 5 year requirement. Now the exclusion increases from 3 years as follows: 3 years=50%, 4 years=75%, and 5 years=100%.

c) Originally Issuance Requirement. The Corporate stock must still be original issue stock (i.e. not previously sold or converted) stock. Entities may not aggregate related entities if they share more than 20% common ownership.

d) Asset Value. The Corporation’s “aggregate gross assets” threshold is now $75 million immediately before and after issuance. “Aggregate gross assets” is still the fair market value, but the cash and adjusted basis (after depreciation and amortization) of all Corporate property instead of fair market value.

e) Qualified Business Activities.

The corporation must be engaged in one of the following qualified businesses:

1. Manufacturing, production, and technology development;
2. Research & development, consider biotech and life sciences;
3. Software development, SaaS, or tech platforms (but not licensing-only activities);
4. Retail, wholesale, logistics, or distribution businesses;
5. Construction, engineering, and energy development;
6. Certain professional or industrial services (other than those listed below);
7. Food & beverage, agriculture, and consumer products;
8. Active real property development (not investment holding businesses).

Certain businesses are expressly excluded, including:

1. Services in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage
2. Any business where income depends primarily on the reputation or skill of its owners or employees
3. Banking, insurance, financing, leasing, or investing
4. Farming, resource extraction, mining, oil, gas, or timber
5. Operation of hotels, motels, restaurants, or similar establishment

3. Limited SALT “Workaround” Flexibility

OBBBA raises the individual SALT deduction cap to $40,000 (2025–2029) and restricts the prior pass-through entity tax workaround for S Corporations. Corporations, S corporations, and partnerships now operate on more equal footing for state tax purposes.

4. International Considerations Favor Corporations

For businesses earning income abroad, C corporations remain the most favorable vehicle under OB3. While OBBBA expands the GILTI (Global Intangible Low-Taxed Income) base and reduces the §250 deduction from 50% to 40%, only C corporations (and §962-electing individuals) can claim that deduction. This preserves a structural advantage for corporations in managing cross-border income, utilizing foreign tax credits, and avoiding double taxation.

5. Passthrough Considerations

The §199A deduction—now made permanent—continues to provide a 20% deduction on qualified business income (QBI) a concept similar to the Qualified Business Activities above, but from pass-through entities. The QBI deduction is limited by the greater of (i) 50% of W-2 wages paid to employees or (ii) 25% of those wages plus 2.5% of the unadjusted basis of qualified depreciable property, including real estate. The deduction excludes owner compensation and certain service businesses, but still offers a meaningful advantage for domestic operations and owner-managed enterprises.

EXAMPLE: Hold for Growth

Assume each business has annual earnings of $1,000,000, salaries (or guaranteed payments) of $3,000,000 for the shareholder/partner.