Business Tax Implications of the OBBBA

The “One Big Beautiful Bill Act” (OBBBA) extends some of the previous tax items in the Tax Cuts and Jobs while also introducing some changes. There are several tax planning opportunities to consider as managing tax due and the impact on cash flow for businesses and their owners can be challenging.

Permanent Key Business Tax Provisions

Key business tax provisions enacted in the 2017 Tax Cuts and Jobs Act (TCJA) that were set to either set to expire or had hit milestones included in the TCJA that had negative tax implications for businesses and their owners. These provisions include:

Bonus Depreciation

The bill revives 100% bonus depreciation for property acquired and placed in service on or after January 19, 2025.  Businesses planning capital investments may benefit from bonus depreciation, which allows them to reduce taxable income and improve cash flow—freeing up funds to reinvest in growth.

Section 179 Expense

Sec. 179 previously allowed businesses to expense up to $1,160,000 of qualifying property, with a phase-out threshold beginning at $2,890,000, both indexed for inflation. The OBBA increased the maximum amount a taxpayer can expense to $2,500,00 and increased the phase-out threshold amount to $4,000,000.

Domestic Research & Experimental (R&E) Expenditures

Businesses were previously required to capitalize and amortize domestic research and experimental expenses (section 174 expenses) from January 1, 2022 onward. This put stress on businesses and start-ups that had significant investment in R&D. The OBBA suspends the required capitalization of domestic research and experimental expenditures for amounts paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030, allowing for immediate expensing. Foreign R&E expenditures must still be capitalized and amortized over 15 years. The bill provides small businesses with the option to apply this change retroactively back to 2022 through amended returns. It also allows taxpayers to accelerate any remaining Sec. 174 deductions in 2025 or over 2025 and 2026.

Business Interest Deduction Limitation (Section 163(j))

Businesses were subject to a limitation on deducting interest expense based on Adjusted Taxable Income (ATI) that did not allow for an addback of depreciation and amortization for tax years beginning after December 31, 2021. The OBBA changes this for taxable years beginning after December 31, 2024, the adjusted taxable income for purposes of the Section 163(j) limitation regarding ATI will be computed by reference to earnings before interest, taxes, depreciation, and amortization (EBITDA), rather than EBIT, potentially allowing for larger interest deductions for many taxpayers.

Section 199A Qualified Business Income (QBI) Deduction

The 20% QBI deduction for pass-through businesses is made permanent. This allows business owners of pass-through entities to deduct up to 20% of their qualified business income on individual tax returns.

Other Key Business Tax Provisions

Several additional changes were made in the OBBBA that are temporary or have an impact to specific businesses. These provisions include:

Lower International Rates

The bill extends lower tax rates on international income with other modifications. The anticipated future rates were effectively higher as there were scheduled increases that will not be implemented due to changes established in the OBBBA.

Opportunity Zones

The bill establishes a permanent Opportunity Zone policy while also modifying and expanding the program. Significant new reporting requirements were also included.

Expensing of Manufacturing Property

Allows for the bonus depreciation of Qualified Production Property “Manufacturing Property” through 2031.

Clean Energy Tax Credits

The bill rolls back or phases out significant green energy tax credits from the Inflation Reduction Act (IRA), including those for electric vehicles, home energy upgrades, wind, and solar. The roll back or phase out dates are important as any purchases must be made or projects must be placed in service prior to these dates for businesses to take advantage of these tax credits.

Form 1099 Reporting

Increases the information reporting for payments made to certain persons engaged in a trade or business from $600 to $2,000 with the amount to be indexed annually for inflation in calendar years after 2026.

Sec. 1202, Qualified Small Business Stock Exclusion

The OBBBA expands eligibility for the exclusion by raising the cap on a corporation’s aggregate gross assets at the time of issuance from $50 million to $75 million and modifies the exclusion to provide a tiered approach based on the year the taxpayer

Tips credit

Expanded to include beauty service industry starting in 2025. Previously only applied to food and beverage industry only and provides a credit for the FICA paid by the employer on tips.

Careful consideration should be given to plan for the implementation of these changes. There are options for qualified businesses to apply some of these changes retroactively or on a go forward basis. Tax planning should also consider the interaction of any elective changes on other tax deductions along with the overall impact on taxable income. With proactive planning with your Brady Ware team your business can maximize tax savings strategies with the new OBBBA.

There are also benefits and changes for individuals that are discussed in our related article on the OBBBA “The One Big Beautiful Bill Act: An Individual Taxpayer Perspective.”

Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.