The new Budget Reconciliation Law, the so-called “One Big Beautiful Bill Act” (OBBBA), prevented a $4 trillion tax hike from occurring at the end of February 2025, extending -– and making permanent -– the temporary tax cuts of the 2017 Tax Cuts and Jobs Act (TCJA).

For archery pro shop owners and others in the outdoor sports industry, the OBBBA created new incentives — and a few potential pitfalls — that will impact on their tax strategies and long-term planning. Of most interest to archery retailers are the many business-related tax breaks, such as the deductible profits of pass-through archery pro shops.

Pass-Through Businesses

The TCJA was originally created to reduce taxes, simplify the tax code and stimulate growth. The TCJA did lower income tax rates, and it also increased deductions for the owners, shareholders and partners in pass-through business entities.

The OBBBA makes permanent the deduction from the income of archery businesses operating as pass-through entities, such as sole proprietorships, partnerships and S corporations, allowing a deduction of up to 20% of their Qualified Business Income (QBI).

The new tax law also created an 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.

Partnerships

The tax rules have long required services and property transfers (or disguised sales) between a partner and his or her partnership to be treated as arms-length transactions.  Under the OBBBA the partnership rules now include a technical clarification.

Judging whether a transaction is done at arms-length or not can now rely on a simple “except as provided by the Treasury Secretary” clause, making the arm’s length rules apply — except in instances where guidance provides an exception. The clarification applies to services performed and transactions occurring from now on.

Time for Overtime for Workers and Employers

Unless exempt, employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked over 40 in a work week at a rate not less than time and one-half their regular rates of pay. The OBBBA created a new tax deduction for the overtime pay of workers with employers impacted.

Workers making less than $150,000 annually can deduct as much as $12,500 for single filers and $25,000 for those filing jointly. This deduction begins to phase out for single filers earning $150,000 or more, and for joint filers earning $300,000 or more and will expire in 2029.

The archery business (the employer) should remember that overtime is still considered to be “wages” for FICA tax purposes. Thus, the wages are still subject to Social Security and Medicare tax.  What’s more, workers can only deduct overtime that is reported by their employer on information returns, such as Form W-2.

The 2025 tax year was a so-called “transition” year with employers allowed to approximate overtime using any “reasonable method.”  Starting in 2026, employers must report qualified overtime separately on Forms W-2 and Form 1099.

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 —  including store fixtures. The intent was to galvanize capital spending, which many experts believed would improve productivity and growth. Unfortunately, under the original rules, that 100% deduction was reduced, year-after-year.

Today, bonus depreciation is back in full. Also, the full 100% deduction will apply through 2029 for property acquired after Jan. 19, 2025.

In addition to bonus depreciation, the OBBBA doubled the current Section 179 first-year expense deduction from $1,250,000 to $2,500,000 and increased the limit on the amount that can be spent acquiring that property before a reduction set in from the current $3,130,0000 to $4,000,000. In other words, the full deduction would be phased out should the pro shop’s fixture, equipment or other asset purchases reach the $4,000,000 ceiling. The increases applied for the 2025 tax year.

Capping the Deduction of Business Interest

The tax rules have long placed a limit on the amount of interest paid by a business that could be claimed as a tax deduction to 30% of the operation’s adjusted gross income.  Most small businesses — defined as businesses with average annual gross receipts for a three-year period that don’t exceed $31 million — were exempt, and could continue deducting the full amount of their business interest. The OBBBA restored the interest expense limitation to its initial form.

Since its inception in 2022, the limit on business interest has been calculated after allowing deductions for depreciation, amortization and depletion. Those reductions reduced adjusted taxable income (ATI), the base upon which the limit is applied, thereby reducing annual business interest expense deductions for many taxpayers.  Because the OBBBA has restored the add-backs for depreciation, amortization and depletion deductions, smaller pro shops and other businesses may find their status has changed.

Energy Deductions Now Lacking Longevity

Those archery business owners who have been making plans to “Go Green,” now must make adjustments to those plans thanks to the many energy-related tax provisions in the OBBBA. For example, businesses that construct, improve or design the building they own to be energy efficient may continue to qualify for the Section 179D, deduction for energy efficient commercial buildings. Under OBBBA, this credit won’t terminate for any property for which construction began before June 30, 2026.

On the other hand, properties that meet the IRS’s criteria, including green energy producing assets, recycling and storage, will no longer be considered five-year properties for depreciation purposes.

Now, these former green energy-related assets will be subject to depreciation using the general class lifetime rules. While any property placed in service prior to Dec. 31, 2024, can continue the five-year depreciation, other businesses will be required to depreciate assets and properties over longer periods resulting in smaller depreciation expenses in earlier years.

The OBBBA and Employee Benefits

The Employee Retention Credit (ERC) was created to help businesses that continued to pay their employees despite COVID-19 shutdowns or significant decreases in gross receipts between March 13, 2020, and Dec. 31, 2021. Unfortunately, numerous third-party advisors pushed employers to claim these credits without proper documentation. Beware, the OBBBA extended the statute of limitations for the IRS to examine ERC claims.

The OBBBA also contained an expansion of the penalties and additional taxes for erroneous ERC claims. “Certain” responsible parties will, thanks to the OBBBA, be held personally liable for those penalties. Fortunately, other employee benefits were not overly impacted, including:

*Employer Childcare Credit: Employers are permitted a tax credit (a direct reduction of their tax bill rather than a deduction from the income that tax it is based on) of up to $150,000 for providing childcare for the benefit of employees. The credit is calculated as 25% of the employer’s costs of building and operating a childcare facility — or the cost of contracting with a third party provider.

The OBBBA increased this portion of the credit to 40% (50% for small businesses). It also increased the total credit limit to $500,000 ($600,000 for small businesses). Most importantly, small businesses can now pool their resources to provide childcare for their employees. Plus, all businesses can now use third-party intermediaries to facilitate childcare services on their behalf. These changes all take effect in 2026.

*Employer Family and Medical Leave credit: The TCJA created a tax credit for compensating employees while they are on family or medical leave as long as the employer had a qualified plan for those payments. The OBBBA has permanently extended and expanded this credit.

Not only has the credit been extended, it has been expanded to include premiums paid by an employer on an insurance policy covering employee family and medical leaves.  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 will be lowered from one year to six months.

*Business meals: Current law disallows a variety of deductions, such as the cost of meals provided “at the convenience of the employer.” The OBBBA relaxes this limitation by allowing a deduction if the meals (or their ingredients) are labeled on the tax return as expenses for goods and services sold in a bona fide transaction for full value. This treatment also applies to the use of facilities with all changes taking effect beginning in 2026.

New Limits on Giving More not Less

Rules designed to discourage smaller, routine donations while, hopefully, encouraging larger, more substantial charitable contributions were part of the OBBBA. Beginning in 2026, charitable deductions by incorporated businesses have a newly created 1% floor.  

Incorporated businesses are currently allowed to deduct the charitable contributions they make up 10% of their taxable income. The 10% ceiling remains with contributions exceeding the 10% limit carried forward for up to five years.

In other words, in order for charitable contributions to be deductible, they must exceed 1% of the incorporated business’s taxable income but not exceed 10% of its taxable income.

Those Excess Business Losses

A little-known, and often overlooked, provision in the tax law places a limit on an individual taxpayer’s ability to offset business-related losses against nonbusiness income. Under the rules, business losses may offset business income, but the net business loss can only offset $313,000 of nonbusiness income this year ($626,000 for joint filers).

While originally scheduled to expire in 2028, the OBBBA has permanently extended the limits for the amount of nonbusiness income that can be offset to the original $250,000 ($300,000 for joint filers) in 2026. What’s more, the amended provision also resets the annual inflation adjustments beginning in subsequent years. Losses that aren’t allowed in the current year can be carried forward to the following year as net operating losses (NOLs).

The Bottom Line

The OBBBA has made significant changes to business taxes, extending, modifying, and in many cases making many of the tax provisions initially enacted as part of the TCJA permanent. Despite the corporate tax rate having been permanently set at 21%, many lawmakers have claimed this pro-growth bill will create a more vibrant small business economy, increasing opportunities, customers and earnings for Main Street.  

The President’s Council of Economic Advisers estimates that over the next four years, the bill will increase real economic growth by up to 5.2 percent, create or save up to 7.4 million full-time American jobs, increase investments by up to 14.5%, and boost wages by $11,600 per worker.

Although, again, according to some lawmakers, this bill will allow small businesses to usher in the next “American economic Golden Age,” other changes — new deductions and technical modifications — will obviously require archery pro shop owners, distributors and manufacturers to adjust their tax strategies. In addition to monitoring further developments, seeking professional assistance can help both with planning and on reaping the potential tax savings.

Sidebar: On a Personal Note

For individuals, the OBBBA’s main changes included permanently extending the 2017 tax cuts of the Tax Cuts and Jobs Act (TCJA). The OBBBA also nearly doubled the standard deduction created as part of the TCJA making them permanent as well as the individual tax brackets (10% to 37%).

Most importantly, the OBBBA impacted the estate planning every archery business owner should be thinking about. The new law permanently increased the amounts that are exempt under both the estate, gift and generation skipping transfer tax (GSTT) rules. The tax law’s so-called “Unified Credit” allows individuals to transfer wealth without incurring federal estate and gift taxes up to a specified limit. Similarly, the GSTT exemption allows transfers to certain future generations without incurring additional tax. 

Raising the estate tax exemption to $15 million will allow everyone to pass greater amounts to others as either gifts or inheritance without incurring a tax bill — beginning in 2026 when the new exemption limits kick-in.

Sidebar: Tariffs, Taxes and Trade

Tariffs — real, proposed or eventually ruled illegal — provided a controversial sidebar to the OBBBA. Tariffs are currently creating a host of challenges. In today’s ever-changing environment, many retailers, pro shop owners and others in archery-related businesses are reevaluating how to navigate expensive tariffs while maintaining compliance.

When, for example, a business imports inventory or materials, the tariffs paid on those imports are not immediately deductible. Under the IRS’s uniform capitalization (UNICAP) rules, those costs must be capitalized as part of the inventory’s total value.

If a business immediately expenses tariffs, they could end up underreporting inventory values and overstating the cost of goods sold (COGS), resulting in an unexpected tax adjustment. To ensure compliance, it is important to track and allocate tariff-related costs properly.

Pricing pressures are a more common consideration for archery-related businesses.  When hit with tariffs, the retailer, distributor or supplier must decide whether to pass the expense on to their customers, absorb it, or if size warrants it, utilize other legal options, such as foreign trade zones (FTZs), to defer duties and mitigate the impact. Obviously, whatever is decided can impact profitability, revenue recognition, and the timing of income for tax purposes.