When it comes to tax-saving plans by Main Street business owners, many aspects of President Trump’s One Big Beautiful Bill Act were incremental at best, unlike the fundamental reforms introduced under the Tax Cuts and Jobs Act of 2017.
“The corporate tax rate is still 21%,” said Ben Rizzuto, wealth strategist at Janus Henderson. “That hasn’t changed.”
But notable changes are layered in new tax laws for the business world, which in particular may cause entrepreneurs launching new ventures and their investors to take a closer look at organizing their startups as C corporations.
The bill makes C corp status more attractive to startups seeking capital gains tax exemption under the revised Qualified Small Business Stock (QSBS) exemption, expanding the $10 million cap to $15 million for stock acquired on or after July 4, 2025. To receive the full exemption, investors must hold the stock for at least five years, but become eligible for a 50% exemption after three years and a 75% exemption after four years. This creates an opportunity to sell your shares early without losing all tax benefits (previously the minimum holding period was 5 years).
“The changes to QSBS are some of the biggest changes we have seen at OBBBA,” Rizzuto said. “For founders and early employees, it provides the ability to protect a larger portion of their profits, perform more robust estate planning, and have more flexibility in choosing when to realize benefits based on a new tiered exclusion system.”
He estimates that the increase from $10 million to $15 million will save shareholders nearly $1.2 million in taxes.
And this is happening in the midst of a new IPO boom, in a market where new technologies, especially artificial intelligence, are leading to the creation of new business models at a rapid pace, influxing large amounts of capital and creating significant wealth for new founders. It also occurs when faster-growing start-ups seek to raise money in the private markets to fund the stock they issue to early employees.
“Increasing the exclusion limit will allow investors to increase their investments,” said Alison Flores, manager of the H&R Block Tax Institute. “At the same time, eligible companies will be able to raise larger amounts of capital. Generally, this provides opportunities for these companies to pursue growth opportunities and potentially create more value for stakeholders,” she said.
A “game changer” for startup capital formation
The new rules also increase the total assets limit for C corps, allowing companies with up to $75 million in total assets to qualify for QSBS status (the previous limit was $50 million). This provision makes forming a C corp particularly attractive to companies looking to expand quickly or attract outside investors.
Such changes could ultimately increase access to capital for fast-growing startups, especially for companies expected to exit within a few years. The rules generally exclude service industries and primarily benefit companies in the technology, manufacturing, retail and wholesale sectors, said Barbara Weltman, president of Big Ideas for Small Business, a resource site for small businesses.
“The QSBS expansion is a game-changer for startup capital formation,” Rizzuto said. “This reduces friction in early-stage investing, fosters long-term collaboration between founders and investors, increases equity liquidity, and increases tax efficiency.”
This means angel investors and venture capital firms may begin structuring deals to maximize such returns, while taking a more active role in encouraging portfolio companies to maintain QSBS status, he added.
Although valuations for many startups, particularly in the AI space, are rapidly growing to levels well above $75 million, the total asset limit at the time of issue is $75 million (or less than $50 million for shares issued before July 4, 2025), defined by the amount of cash and other assets held by the company on a “gross adjusted basis.”
“There’s a difference between appraised value and total assets,” Rizzuto said. “If you run a startup out of a garage, have a few computers, and a great idea, you can potentially get a high valuation. Just because you have a high valuation doesn’t mean you have the same amount of assets,” he explained.
Pass-through revenue still makes sense for S Corp, Main Street
Despite the new incentives for C corporation status, Bill Smith, national director of tax technical services at CBIZ Internal Revenue Service, says most small businesses that don’t plan to keep profits in-house for reinvestment or don’t have specific organizational needs should still consider forming as a pass-through entity such as an S corporation or limited liability company (LLC).
In fact, when the 2017 tax law made more businesses subject to pass-through income taxation, many businesses converted to S corp structures. This is because owners of C corporations are subject to double taxation because the corporation pays 21% corporate tax on its profits and the owners must also pay taxes on the dividends they receive. Therefore, it is imperative that founders carefully consider their timeline and business model before choosing a business entity.
“The minimum holding period (to take advantage of the QSBS exclusion) is three years, and the maximum tax reduction is available for five years or more,” said Steven Stagaitis, director of small business advisory at Kreischer Miller. He added: “Owners who are trying to extract a large portion of their profits from the business on an annual basis are going to see significant tax friction along the way as a C corporation.”
C corporations must also hold regular board of directors and shareholder meetings, file required annual reports, and maintain required corporate records.
“Some people may not be able to withstand some of the government’s requirements for a C corp, so they may need to become an LLC,” Flores said.
Exit strategy and business tax
Flores said there is at least one message that should be delivered to all business owners when it comes to the new tax law: “This is a good time to evaluate the structure of your business entity, take inventory of your assets and liabilities, and do a little planning to see if it’s worth making changes.”
When choosing a business entity, founders should choose one that aligns with their long-term goals, such as whether to remain private, raise venture capital, or pursue an initial public offering.
Rizzuto said the C corp structure is “something that serial entrepreneurs have to sit down and think about.”
“If you’re just starting a business and you think it’s going to be very successful or you think you’re going to make some kind of profit, a C corp might be the best way to eliminate that profit,” he said.
C corp status also makes sense for companies considering employee stock ownership plans (ESOPs) as an exit strategy, Stagaitis said, and could provide additional tax deferral opportunities when QSBS doesn’t apply.
“OBBBA increases certainty in the tax field, which allows entrepreneurs to plan more concretely their future options for expansion and exit of their companies,” Flores said. “Experienced entrepreneurs in particular may benefit from bringing in members of their tax, accounting and legal teams to identify risks and opportunities when launching new businesses in 2025 and beyond.”
Founders who do not anticipate a quick exit with venture capital funding may enjoy additional tax benefits by organizing their business as a pass-through entity.
OBBBA also made permanent the 20% qualified business income deduction (QBI), which is set to expire at the end of this year. That makes LLC or S corp status attractive to many people, especially startups that are bootstrapped, service-based, or don’t plan to exit anytime soon.
“If you want to make this your lifelong business and pass it on to your daughters, you’re likely interested in a pass-through entity,” Smith said. “On the other hand, if you want to grow your business and make some cash, QSBS may be a better answer,” he added.
