The One Big Beautiful Bill Act (OBBBA) has significantly transformed the business tax landscape starting in 2025. From enhanced bonus depreciation to renewed domestic research cost deductions, these provisions present both valuable opportunities and important compliance considerations. This article outlines the key changes you need to know.
100% Bonus Depreciation Is Back
Full bonus depreciation applies to property placed in service after January 19, 2025. Contracts signed prior to this date generally do not qualify, even if the in-service date is after January 19, 2025.
Section 179 Expensing Limit Jumps to $2.5M
Small businesses can now deduct more upfront with the increased Section 179 limit. Section 179 allows expensing of individual assets, while bonus depreciation applies to an entire class of assets. Certain assets, such as HVACs, qualify for Section 179 but not for bonus depreciation.
Combining Section 179 expensing and bonus depreciation may result in the largest benefit.
Domestic R&D Expensing Returns
Immediate deduction for domestic research expense is reinstated. Small businesses may elect to retroactively deduct costs for the 2022-2024 tax years. The election must be made by July 6, 2026, and amended returns must be filed for each affected year. These businesses may also elect or revoke the election made related to the reduced research credit under Sec 280C(c)(2). All taxpayers have options to deduct the remaining capitalized costs in 2025 or amortize over 2 years.
OBBBA made no changes to the capitalization rule for foreign research costs; these must still be amortized over 15 years.
Interest Deduction Rules Loosened
Section 163(j) interest limitation will be calculated using the EBITDA, rather than EBIT, which is likely beneficial for taxpayers who experienced significant interest limitations.
If the taxpayer capitalized interest expense to inventory, the change in the “ordering rule” for deductions may impact taxable income calculations starting in 2026.
QSBS Gains: Larger Exclusions, Graduated Benefits
If you sell qualified stock after holding it for five years, you may be able to exclude up to $15 million (or 10 x basis, whichever is greater) of gain from tax. Before OBBBA, the exclusion amount was $10 million. Tiered benefits are now available for stock with shorter holding periods. Founders and investors preparing for future exits should ensure documentation of qualification, including but not limited to, aggregate gross assets at the time of stock issuance were under $75 million, if issued after July 4, 2025 ($50 million prior to that date).
Information Return Filing Rules
The IRS requires electronic filing for businesses submitting 10 or more aggregated information returns (e.g., 1099s, W‑2s) in a single year.
OBBBA changed the filing threshold for 1099s (including 1099-MISC and NEC) from $600 to $2,000 effective for payments made in 2026. OBBBA also requires reporting of cash tips, occupational codes, and qualified overtime on W‑2s/1099s. However, the IRS is granting transitional penalty relief for tax year 2025 so there is no change to Forms W-2/1099 for 2025).
Closing Thoughts
The One Big Beautiful Bill Act introduces sweeping changes that can significantly impact tax planning and compliance for businesses. While these updates offer valuable opportunities – such as enhanced deductions and expanded exclusions – they also bring new rules and deadlines that require careful attention. Proactive planning now will help businesses maximize benefits and avoid costly missteps. If you have questions about how these provisions apply to your situation, consult a qualified tax advisor to ensure you’re prepared for the road ahead.
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