What Solopreneurs Need to Know About the OBBB

Headlines around the OBBB can be misleading for solopreneurs, so the real focus should be on how IRS guidance and income definitions like AGI and MAGI affect your specific situation, since even a small income spike can cost you deductions or credits, and the biggest risk is quietly missing those opportunities rather than facing dramatic audits, which is why calm, informed planning matters most.

New tax laws create confusion before they create clarity

Whenever a major tax bill passes, I see the same pattern with solopreneurs.

Headlines spread fast. Details don’t.

And by the time clear guidance actually arrives, many people have already made assumptions that turn out to be wrong.

That gap between headlines and reality matters more than ever with the OBBB (One Big Beautiful Bill). This bill is also now known as the Working Families Tax Cut Act. The goal here isn’t speculation or panic. It’s understanding what actually affects solopreneurs now, what doesn’t, and where the real risks tend to show up.

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Why headlines rarely tell solopreneurs what they need to know

Tax headlines are written to be memorable, not precise.

You’ve probably seen claims like:

• “No tax on tips”

• “No tax on Social Security”

• “No tax on overtime”

Those ideas may resonate politically, but they don’t translate cleanly into how the tax code actually works. That’s especially true for solopreneurs.

Most solopreneurs don’t earn tips, don’t receive Social Security as their primary income, and don’t get paid overtime. Yet those headlines still shape expectations.

The result is confusion. People assume benefits apply broadly when they don’t, or dismiss the law entirely because it sounds irrelevant. Both reactions can be costly.

What the OBBB is - and what it isn’t

The OBBB sets broad policy direction. It does not, by itself, answer how every provision will work in real life.

That gap is filled later by:

• IRS guidance,

• Dept of the Treasury regulations, and

• Definitions and interpretations that determine how the law is applied.

Those details matter more than the bill’s name or talking points.

A good example came after the OBBB was passed in January 2025. Nearly 11 months later, the IRS issued new definitions affecting how certain Health Savings Account rules interacted with existing law. Those definitions materially changed how parts of the law worked in practice, even though Congress never revisited the issue.

That’s not unusual. It’s how tax law actually functions.

Implementation often lags legislation, and when it arrives, it can change planning assumptions retroactively. That’s why reacting to headlines instead of mechanics is risky.

Where solopreneurs are most likely to feel the impact

Income thresholds and why definitions matter more than ever

One of the most overlooked issues with the OBBB is which income number applies.

Depending on the provision, thresholds may be based on:

• Total income: gross receipts before deductions

• Adjusted Gross Income (AGI): income after certain adjustments

• Modified AGI (MAGI): AGI plus specific add-backs

• Taxable income: what’s left after deductions

These are not interchangeable. With the OBBB, definitions matter more than ever because a single increase in business income can cascade through multiple calculations.

An unplanned income spike doesn’t just increase taxes. It can push MAGI over a threshold and cause the loss of deductions or credits you’ve always relied on. That cascading effect has been magnified under the new rules.

When tax laws like the OBBB introduce new thresholds and income definitions, having automated systems that track and optimize your AGI and MAGI becomes even more valuable. Lettuce automates everything—from S Corp formation and payroll to quarterly tax payments and year-end filing—so you can focus on running your business while we handle tax compliance.

Where solopreneurs feel pain first in real life

In practice, solopreneurs tend to feel impact first in a few predictable places:

• Basis issues: Distributions in excess of basis resulting in an unexpected tax penalty, or being unable to deduct a loss against other income

• Capital gains: Especially from crypto or stock sales layered on top of business income

• Deadlines: Missing a cutoff by a day that changes tax treatment entirely (January 19th versus January 20th issues)

• Retirement plans: Missing a setup or contribution deadline wipes out the strategy for the year

These aren’t theoretical risks. They show up on real returns, often when people least expect them.

A note on enforcement and AI

One more shift is worth acknowledging.

Enforcement is becoming more automated, more data-driven, and less forgiving of inconsistencies. While “AI audits” isn’t a technical term, the direction is clear. AI systems are increasingly cross-checking reporting, timing, and consistency without a human reviewer initiating the process.

The takeaway here shouldn’t be fear. It’s awareness. Your defense is clean records, consistent and accurate reporting, and intentional planning. Those matter most in this new tax compliance environment.

What hasn’t changed

Despite the noise, many foundational principles remain intact.

• Structure still matters

• Timing still matters

• Documentation still matters

What has changed is the margin for error. It’s much smaller now. Be careful to not overreact to headlines.

Be prepared to wait until we get the whole picture on new law. And, at the same time, be aware. Ignoring the changes can mean you lose out on new tax breaks.

Good planning often starts with a pause, but an informed one. Understand the rule before reacting to it.

A real-life snapshot

I worked with a business owner who dismissed the OBBB entirely. “That’s for big business,” was the assumption based on what he’s read on social media.

Because of that, he didn’t revisit equipment purchases and missed out on 100% bonus depreciation. He also overlooked new rules affecting medical expense deductions and failed to adjust planning when income increased unexpectedly.

He didn’t do anything illegal. He didn’t take any aggressive or sketchy positions. He lost opportunities simply because he ignored the law entirely, dismissing it with a “that doesn’t apply to little guys like me.”

That’s often the real cost of headline-driven thinking.

Awareness beats urgency

The OBBB doesn’t require most solopreneurs to overhaul their businesses overnight.

But it does reward those who understand where definitions changed, where thresholds tightened, and where timing became more critical.

Good planning absorbs change. Reactive planning amplifies it.

Solopreneur OBBB Frequently Asked Questions (FAQs)

Is the OBBB already in effect for this tax year?

Some provisions are already effective for 2025, and others take effect in 2026. Still others are uncertain, as we wait for IRS and Dept of the Treasury guidance.

Will solopreneurs owe more taxes under the OBBB?

Most likely, no. There are great tax breaks that will actually reduce taxes if you set yourself up properly with good documentation to take advantage of the available changes. Your personal situation will depend on income, structure, timing, and how thresholds apply to your situation.

Do I need to change my business structure because of the OBBB?

Most solopreneurs do not need immediate structural changes. The more important step is understanding how the rules interact with your existing setup.

If you're still operating as a sole proprietor or standard LLC and earning consistent income over $80,000, the OBBB's emphasis on income thresholds and definitions makes this an ideal time to evaluate S Corp election; and Lettuce can help. The combination of OBBB tax breaks plus S Corp savings can be substantial, but only if your structure and compliance are set up correctly. See if an S Corp is right for you.