How the One Big Beautiful Bill Act Could Shake Up State Budgets
Discover how the One Big Beautiful Bill Act reshapes state taxes in MD, VA, and DC—impacting businesses, deductions, estate plans, and compliance for local owners.
How the One Big Beautiful Bill Act Impacts State Taxes: What Business Owners in Maryland, D.C., and Virginia Need to Know
Key Takeaways
The One Big Beautiful Bill Act (OBBBA) significantly altered federal tax law—and states that conform to the federal tax code will feel the impact.
States like Maryland, Virginia, and D.C. must now decide which parts of OBBBA to adopt into their tax systems, creating uncertainty for businesses and individuals.
For LLCs, S-corporations, and partnerships, the interplay between state and federal tax conformity could affect deductions, pass-through tax treatment, and compliance costs.
High-income individuals and closely held businesses in the DMV region should pay close attention to how their state reacts to newly enacted federal tax rules.
Now is the time to think strategically about entity structure, tax planning, and estate strategies to stay ahead of any indirect state-level consequences.
Congress passed the One Big Beautiful Bill Act (OBBBA) with great fanfare, billed as a sweeping overhaul of the federal tax system. But while the headlines focus on what OBBBA means at the federal level, state lawmakers in Maryland, Virginia, and Washington, D.C. now face a critical choice: which parts of the law to adopt—and which to reject.
If your business or personal financial strategy depends on knowing how state taxes will behave, you can't afford to ignore this issue. Most states—including all three in the DMV region—conform in some way to the federal tax code. That means changes enacted through OBBBA won't just affect your IRS returns—they may filter directly into your state tax bill.
Let's walk through what this means for local business owners, professionals, and taxpayers—and how you can prepare.
Why This Matters for DMV-Based Businesses and High-Income Taxpayers
All three jurisdictions in our region—Maryland, Virginia, and the District of Columbia—tie their tax laws to the Internal Revenue Code (IRC), the body of federal tax law that OBBBA just rewrote. But each state does so a little differently.
Maryland uses a rolling conformity system, which means it automatically conforms to updates in federal law unless the legislature specifically opts out.
Virginia relies on rolling conformity for tax years beginning on or after January 1, 2023, but with some key carve-outs where it chooses to decouple from federal law.
Washington, D.C. also uses rolling conformity, but with some key carve-outs where it chooses to decouple from federal law.
Both Maryland and Virginia have temporarily suspended portions of their rolling conformity for tax years 2025–2026 due to OBBBA. This patchwork approach makes it critically important to watch each state's legislative response to OBBBA, especially when large federal tax changes are involved. Business owners, professionals, and estate planners need to think several steps ahead.
1. Federal Changes May Sneak Into Your State Return
If you're running a business entity like an S-corporation, LLC, or partnership in the DMV region, it's essential to understand how OBBBA's provisions might impact your state tax filings. For example:
Business Interest Deductions. If OBBBA changes how interest deductions are calculated at the federal level, and your state conforms to that provision, your allowable state deductions change too.
Bonus Depreciation Rules. OBBBA may have extended or altered bonus depreciation at the federal level. Maryland and D.C., which automatically conform, may reflect that on your return—whether you planned for it or not.
If Virginia does not update its static conformity, it may not adopt the new depreciation rules, resulting in businesses filing under two different depreciation schedules—creating more complexity and planning challenges.
Example: Suppose OBBBA allows quicker expensing for qualifying equipment purchases. A Virginia business may not yet be allowed to take the full expense deduction at the state level, depending on whether and when the General Assembly adopts conformity. This could shift a company's effective tax rate noticeably.
2. Estate and Trust Planning Is Affected More Than You Think
OBBBA also alters several provisions tied to estate and gift taxes, trusts, and high-net-worth individuals. While federal estate taxes may be top-of-mind for many, don't overlook state-level implications:
Grantor Trust Treatment. If OBBBA adjusts how grantor trusts are taxed federally, conformity means similar changes could automatically apply at the state level.
Valuation Discounts and Gifting Limits. Some proposed changes in OBBBA attempt to limit valuation discounts for closely held business interests. Depending on conformity laws, states could adopt these shifts and apply them to local estate planning strategies.
Example: A business owner in Maryland who has used valuation discounts for gifting shares of a family company into a trust may find their planning affected if OBBBA narrows or removes those discounts—and Maryland doesn't carve out the provision.
Estate advisors will need to track both federal changes and state adoption closely, especially since Maryland and D.C. impose their own estate or inheritance taxes, separate from the IRS.
3. Pass-Through Entities Face New Complexity
For LLCs, partnerships, and S-corporations in the DMV region, OBBBA's changes can substantially alter planning.
Many of these businesses are taxed on a pass-through basis—where the income flows through to individual owners and is taxed on their personal returns. One provision in OBBBA may change how income from pass-throughs is calculated or limited at the federal level.
The problem? State tax treatment often mirrors federal treatment closely.
If your state conforms to the new federal rules (intentionally or automatically), pass-through income could be treated differently than it was in prior years—potentially increasing individual income tax liability.
Example: D.C. and Maryland automatically conform to the federal Qualified Business Income (QBI) deduction framework. If OBBBA scales back that deduction, D.C. residents who rely on that 20% deduction might see their state income taxes rise in lockstep.
Virginia, by contrast, may stick with the current federal rules unless it passes a conformity update—meaning some business owners could face different QBI deduction treatment at the state level depending on where they reside. This kind of divergence makes tax planning increasingly fragmented.
4. Potential Traps for the Unwary: Compliance and Recordkeeping
Differences in state conformity can lead to risk for those who file too quickly—or too slowly. If one jurisdiction adopts federal changes mid-year or retroactively, certain filings may need to be amended. This creates compliance stress and sometimes triggers interest or penalties if misaligned.
Another key issue: software and automation tools used to prepare returns may not be updated to handle state-specific decoupling.
Issues can include:
Inconsistent income recognition
Mismatched depreciation schedules
Erroneous credits or deductions
Penalties for underpaying estimated taxes based on incorrect assumptions
Pro Tip: Business owners and professionals should avoid relying solely on DIY software or templates. A custom review of your corporate structure, revenue timing, deferred expenses, and deductions is essential this year.
5. Strategic Takeaways: Planning Steps to Take Now
With tax laws in flux at both the federal and state level, consider taking these action steps:
Review Your Entity Structure. Pass-through or C-corp? The answer may shift based on how your state responds to OBBBA. Run projections on both scenarios.
Adjust Estimated Payments. If your pass-through or individual income will be higher due to OBBBA changes, increase state estimated tax payments to avoid penalties.
Watch for Decoupling Legislation. In Maryland and D.C., lawmakers can and often do pass laws to decouple from parts of the IRC. Work with your advisor to monitor legislative developments during budget season.
Reassess Depreciation Strategies. Staying flexible with asset purchases until clarity on state conformity arrives could save money—or at least avoid accounting headaches.
Involve Your Estate Planner. If you own a closely held business, gift strategies may need to be accelerated or adjusted before valuation discount rules are altered further.
What's Next in Maryland, Virginia, and D.C.?
Each state will now decide how to react to the sweeping federal changes. Here's the current outlook as of this writing:
Maryland may choose to decouple from certain costly federal provisions, especially if they threaten to reduce state revenue. Legislators will likely debate these items during the upcoming General Assembly session.
Virginia will need to pass conformity legislation to align with OBBBA. In recent years, Virginia lawmakers have selectively conformed to certain IRS updates, especially those impacting business investment.
D.C. is expected to conform rapidly but may carve out provisions that significantly affect revenue or equity considerations.
We're monitoring each jurisdiction closely as bills are filed, voted on, or enacted.
Final Thought: Use This Uncertainty to Strategize
Tax law changes—even large ones—don't have to be a liability. For proactive business owners and professionals, this is a chance to restructure, reschedule income, or seize planning advantages while lawmakers sort out the details.
But don't wait too long. Many of OBBBA's changes are already in effect, and state conformity (or decoupling) could happen retroactively—leaving you accountable for taxes based on old assumptions.
If you're unsure how this applies to your business or personal situation, we're here to help. Schedule a consultation with attorney Steve Thienel to get advice tailored to your goals, based on both federal law and the unique rules in your state. With offices serving Maryland, Virginia, and Washington, D.C., our firm offers the local insight and legal clarity you need to move forward with confidence.
Let's turn this moment of change into your next advantage.