How State Tax Laws May Shift After the One Big Beautiful Bill Act: What Businesses and Individuals in the DMV Need to Know
Key Takeaways
The One Big Beautiful Bill Act includes federal tax changes that may automatically affect state tax codes, depending on IRC (Internal Revenue Code) conformity rules.
Maryland, Virginia, and D.C. each handle IRC conformity differently, meaning the federal tax changes may or may not impact your state tax liabilities in 2024 and beyond.
Individuals, LLCs, partnerships, and S-Corps could see new compliance burdens—or tax planning opportunities—at the state level.
Estate planning and entity selection strategies may need to be reassessed based on each state's legislative response.
Understanding your state's reaction to federal tax law updates is now a critical piece of business and personal tax planning in the DMV area.
Tax reform never arrives quietly. The federal reconciliation package nicknamed the "One Big Beautiful Bill Act" has made its way through Congress, introducing significant tax changes aimed at both individual and business taxpayers. But what passed at the federal level doesn't stop there—which is why business owners and high-net-worth individuals in Maryland, Virginia, and Washington, D.C. need to pay close attention.
State tax laws often "conform" to the Internal Revenue Code (IRC), meaning changes at the federal level can bleed into state taxation. For taxpayers in the DMV, however, what happens next depends largely on state lawmakers, who haven't yet completed—or in some cases, even started—the work of adjusting their own tax codes to reflect (or reject) parts of the federal law.
In this post, we'll unpack the most significant implications of these federal tax updates and how they may ripple into your business, estate planning, tax planning, and overall financial strategy within your specific jurisdiction.
Understanding IRC Conformity: Why It Matters
When Congress passes tax legislation, it amends the federal Internal Revenue Code. But state tax systems don't automatically follow suit unless the state has designed its laws to do so.
There are three general approaches to IRC conformity:
Rolling conformity: The state automatically incorporates changes to the federal tax code as they happen.
Static conformity: The state conforms to the federal tax code as of a specific date—usually requiring legislation to update that date.
Selective conformity: The state chooses which parts of the federal code to adopt.
Maryland, Virginia, and D.C. each fall into different positions, which means the effects of the One Big Beautiful Bill will vary depending on your location and the structure of your business or estate.
Let's break it down.
How the New Federal Tax Law May Impact Taxpayers in Maryland
Maryland generally adopts rolling conformity subject to a revenue-impact threshold. Any IRC amendment projected to change State revenue by over $5 million in the year it is enacted is automatically decoupled for that tax year unless the Legislature acts. As of this writing, Maryland conforms to the IRC as amended through a specific cutoff, and the legislature must act to update that date.
If the General Assembly does not act to update its conformity date, Maryland taxpayers could see a disconnect between their federal and state tax liabilities. For example:
A small business that takes a federal deduction for specific energy credits or depreciation might find those deductions disallowed at the state level.
A high-income individual might owe more Maryland state tax because federally allowable deductions or credits haven't been adopted yet.
Maryland will likely consider conformity legislation. Until then, individuals and business entities need to plan based on potential mismatches between state and federal rules.
What Virginia Businesses and Taxpayers Should Watch
As of tax year 2023, Virginia employs rolling conformity with the IRC, except it automatically decouples from any provision projected to affect general-fund revenues by $15 million or more in the amendment year or the next four years.
This piecemeal approach means planning in Virginia can become complex.
For instance:
If the federal law accelerates depreciation for capital investments, a manufacturer or logistics company in Virginia could benefit federally—but see no advantage on their state return.
If new federal credits reduce taxable income, those same credits might not reduce Virginia state income unless explicitly adopted, altering tax liability projections significantly.
Additionally, Virginia's various credits, deductions, and apportionment methods don't always line up with federal changes—potentially requiring dual tracking for accurate tax planning and reporting.
Business owners should review conformity updates as soon as Virginia's legislative session begins. Any entity decisions made now—such as whether to be taxed as an S-Corp or LLC—could carry state tax ramifications based on how conformity plays out this year.
Washington, D.C.: A Different Kind of Tax Landscape
Washington, D.C. has rolling conformity with the IRC, but often delays implementation of major tax changes until the Council of the District of Columbia passes separate enabling legislation. This creates a hybrid situation for taxpayers.
Currently, D.C. may adopt new federal provisions in stages or modify them significantly to suit its own budget objectives.
Some takeaways for businesses and professionals in the District:
If you rely on pass-through deductions or plan to use new federal incentives for renewable energy or research and development, be cautious. D.C. might not recognize these adjustments immediately—or at all.
Estate and gift tax planning should be reviewed, especially if new federal rules affect valuation discounts, basis adjustments, or trust structures that may not translate at the D.C. level.
Real estate investors operating in D.C. could experience mismatches if federal changes affect 1031 exchanges or depreciation rules that D.C. law doesn't mirror.
For sophisticated taxpayers or enterprises with multi-jurisdictional operations, this patchwork conformity becomes a critical planning factor.
Examples: What Might This Mean for You?
Here are a few scenarios that help illustrate how the federal changes and varying state conformity rules could impact you or your business in practical terms:
Example 1: An S-Corp in Maryland
Your S-Corp may benefit from new federal depreciation rules that reduce federal taxable income. But if Maryland hasn't conformed, your state taxable income remains higher. When projecting distributions or next year's income tax installments, this state-level disconnect could cause surprise liabilities.
Example 2: A High-Net-Worth Individual in Virginia
Let's say Congress expands itemized deductions or increases thresholds for the Net Investment Income Tax (NIIT) at the federal level. If Virginia doesn't conform to these changes, you could lose out on deductions in your state return—and pay more Virginia tax despite lower federal obligations.
Example 3: A Family-Owned LLC Holding Real Estate in D.C.
You're planning an estate transfer using a stepped-up basis under federal rules. But if D.C. law hasn't conformed, trust distributions and entity transfers could trigger local tax consequences. Your estate plan might avoid federal tax but still face a local bill.
Each of these scenarios points to the same theme: tax planning can't stop at the federal level. You need to model and map both federal and state outcomes.
Risk Management and Strategic Response
For business owners and professionals, the strategy here isn't to "wait and see." The real advantage lies in proactive planning:
Tax Modeling Across Jurisdictions: Don't assume your federal position translates to your state return. Modeling income across different scenarios can help expose risk points now rather than in tax season.
Entity Assessment: Businesses considering transitioning to or from an S-Corp, partnership, or LLC should consult an attorney about both federal and state impacts—especially if they're seeking to use pass-through treatment under new federal provisions.
Renewable Energy and R&D Credits: Many incentives in the new federal act reward specific investments. However, those credits may not apply at the state level—or may need extra filings. Missing these steps could reduce your benefit.
Trust and Estate Planning: New federal rules may alter what tools are best for minimizing tax and ensuring generational transfer. But if your state law doesn't line up, you may need parallel planning for state-level taxes or valuation mismatches.
Big Picture: The Disconnect Between Federal and State Isn't Temporary
Business owners in the DMV must understand that state lawmakers often move slower than Congress. That creates potentially long-lasting gaps in tax treatment.
Even more important, state conformity doesn't mean uniformity. Each of the three jurisdictions—Maryland, Virginia, and D.C.—may respond differently, ignore certain provisions, or delay conformity for budget reasons. Some may even decouple permanently from select federal law changes.
In light of that, planning must become multidimensional. The good news is that with professional advice and careful forecasting, you can avoid negative surprises and make the most of available strategies and credits.
We Can Help You Navigate What Comes Next
If you're a business owner, investor, or professional operating in Maryland, Virginia, or D.C., the tax fallout from the One Big Beautiful Bill Act is only beginning. While Congress has moved on, your state government is just getting started.
This transitional period is a key opportunity to revisit your structure, planning priorities, and compliance posture. At Thienel Law, we specialize in helping business owners and high-net-worth individuals align their long-term goals with the evolving tax landscape.
If you're unsure how this applies to your business or personal situation, we're here to help. Schedule a consultation with Steve Thienel to get advice tailored to your goals.