By Paul Truber, Partner, UHY
The One Big Beautiful Bill Act (OBBBA) has introduced several changes with important implications for businesses. While many believed that this bill was intended to be an extension of the 2017 Tax Cuts and Jobs Act, the final piece of legislation became much more than that. There are benefits that have been reinstated, revised, and also some new opportunities.
Clocking in at nearly 900 pages, and touching on business verticals from EVs to retail, corporate financial teams—particularly CFOs—are still working to understand how the legislation will affect their organizations and what steps they can take to adjust their financial strategies accordingly.
Below is a snapshot of the key provisions that organizations need to keep in mind as they look to optimize their financial footing under this new legislation.
Permanent Full Expensing for Business Property
One of the most notable developments stemming from the OBBBA for the corporate community is that it allows for 100% bonus depreciation (full expensing) for qualified business property permanently removing the previous phase-down schedule under IRC §168(k).
Meaning, corporations may now immediately deduct the full cost of qualified property – with a recovery period of 20 years or less – placed in service after January 19, 2025, rather than depreciating it over several years. Transitional options allow for reduced percentages in 2025 for certain property, but the default is 100% expensing.
This accelerates tax deductions, improves cash flow, and incentivizes capital investment in equipment, machinery, and other tangible assets.
Increased Section 179 Expensing Limits
Corporations will also be able to further improve their cash flow and reduce taxable income as a result of increased expensing limits under IRC §179, which now has an annual limit for expensing at $2,500,000, with the phase-out threshold raised to $4,000,000, both indexed for inflation.
These higher limits will allow more corporations to fully expense qualifying property in the year placed in service, rather than depreciating over time – which will likely be beneficial for small and medium-sized businesses in particular.
Full Expensing of Domestic Research and Experimental Expenditures
Aimed at boosting innovation and investment in U.S.-based research activities the OBBBA also makes key changes in relation to corporate deductions of domestic R&D costs. Under these revised rules, domestic research or experimental expenditures, notwithstanding section 263, are now fully deductible in the year incurred under new IRC §174A, reversing the prior requirement to amortize such costs over five years.
Small business taxpayers – those meeting the average gross receipts test of section 448(c) – will generally be permitted to apply this change retroactively to tax years beginning after December 31, 2021. This will require small business taxpayers to amend prior year returns to claim immediate deductions for domestic R&D expenditures that were previously capitalized.
All taxpayers that capitalized R&D expenditures for years beginning after December 31, 2021, and before January 1, 2025, can elect to accelerate the remaining unamortized deductions for those capitalized expenditures over a one- or two-year period.
Optionally, taxpayers may still elect to amortize qualifying domestic research over a period of not less than 60 months. Foreign research expenditures still remain subject to 15-year amortization.
Restoration and Enhancement of Business Interest Deduction
Adjusted taxable income now permanently excludes deductions for depreciation and amortization, which enables taxpayers to deduct more of their interest expense under section 163(j). This provision is effective for years after December 31, 2024.
The definition of a “motor vehicle” was modified to allow interest on floor plan financing for certain trailers and campers.
The business interest limitation is calculated before applying any capitalization of interest under section 263(g) or 263A(f). Any limitation under 163(j) is generally applied first to capitalized interest and then to deductible interest. This provision is effective for years after December 31, 2025.
This will allow corporations with significant debt financing to deduct more interest, reducing taxable income and the after-tax cost of borrowing.
Special Depreciation Allowance for Qualified Production Property
Aimed at providing a strong incentive for domestic manufacturing and infrastructure investment, the OBBBA introduces a new 100% expensing provision for certain nonresidential real property used in qualified production activities (IRC §168(n)).
This provision applies to qualifying domestic property used in manufacturing, production, or refining, that is both constructed and placed in service between January 19, 2025, and January 1, 2031. An activity generally does not count as a qualified production activity unless it results in a substantial transformation of the property comprising a product and the provision includes recapture rules if the property ceases to be used in qualified production within 10 years.
Employer-provided Childcare Credit
The OBBBA also introduces substantial increases in the value of employer-provided childcare credit, which makes this more accessible for both small and large businesses. The Act increases the amount of qualified childcare expenses taken into account for purposes of the Section 45F employer-provided childcare credit from 25% to 40%. The maximum amount of the credit increases from $150,000 to $500,000, and this amount will be adjusted for inflation.
Eligible small business taxpayers – those meeting the average gross receipts test of section 448(c) – but substituting 5-year average gross receipts instead of 3-year average gross receipts) will generally be eligible for an enhanced credit equal to 50% of qualified childcare expenses. The maximum credit for eligible small businesses is $600,000, and this will be adjusted for inflation.
A childcare facility will not fail to qualify because it is jointly owned or operated by the taxpayer and other persons.
These provisions are effective for years beginning after December 31, 2025.
Corporate Charitable Deductions
The Act imposes a 1% floor on the deductibility of charitable contributions by corporations. Only the amount above 1% of its taxable income is deductible, and the total deduction remains capped at 10% of taxable income.
Only charitable contributions in excess of the 10% limitation can be carried forward. Qualified amounts can be carried forward for 5 years and are subject to the same 1% floor in the carry-over years.
Looking ahead
To say that the impact of the OBBBA is anything short of sweeping would be a huge understatement. However, by keeping these few key provisions and updates in mind, corporations can begin to get a better grasp of the true effects of this legislation on their businesses and lay the foundation for further growth and expansion in the years to come.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
Tags: business taxes, obbba, tax law, tax law changes, UHY
