On July 4, President Donald Trump signed the One Big Beautiful Bill Act (“OBBB”) into law after the Senate and House passed the bill on July 1 and July 3, respectfully.
The OBBB includes numerous tax changes, including permanent and limited modification of many tax provisions under the Tax Cuts and Jobs Act of 2017 (“TCJA”) that were set to expire after 2025, new provisions promised by President Trump during his 2024 campaign, elimination or modification of most green energy provisions, and dozens of other changes affecting individuals and businesses.
This is the third in a three-part blog series on how the bill will affect individual and business tax provisions.
Business Tax Provisions
The OBBB essentially preserves the TCJA’s tax structure relating to individual taxpayers on a permanent basis.
Extended or Modified Provisions (Businesses)
- Qualified business income deduction (“QBID”): The OBBB includes a permanent extension of the QBID, which first came into existence under TCJA and was to sunset after 2025. It also expands the deduction limit phase-in range by increasing the $50,000 (non-joint returns) and $100,000 (joint returns) amounts to $75,000 and $150,000, respectively, to tax years beginning after 2025. It also creates a minimum deduction of $400 for certain taxpayers with active business income for tax years beginning after 2025.
- R&D expenditures under Section 174: The OBBB reinstates the immediate deductions for all domestic research and experimental expenses in 2025. This will replace the current law, which required a five-year amortization period for such expenses. Foreign costs are excluded from the OBBB changes and will continue to be amortized over 15 years. Under the OBBB, any remaining domestic R&D capitalized in 2022, 2023, or 2024 may be deducted immediately in 2025, or else spread evenly between 2025 and 2026. Certain small taxpayers with gross receipts under $31 million will be permitted to amend their returns from 2022 through 2024 to remove the capitalization of domestic R&D. Finally, software development expenses will be permanently treated as research expenses under Section 174.
- Interest expense limitation under Section 163(j): Since 2022, the interest expense limitation under IRC 163(j) has been calculated based on 30% of EBIT (earnings before interest and taxes). The OBBB will calculate the limitation based on 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization) which should increase deductible interest for taxpayers subject to 163(j). This modification is effective for 2025 and is permanent.
- Bonus depreciation: 100 percent bonus depreciation under TCJA was phasing out over five years and was to be fully phased out by 2027. The OBBB makes 100 percent bonus depreciation permanent on eligible asset purchases for property acquired and placed in service after Jan. 19, 2025.
- Section 179 expensing: The OBBB doubles the Section 179 deduction from $1,250,000 to $2,500,000 and increases the asset acquisition limit from the current $3,130,000 to $4,000,000. These increases take effect in 2025.
- Employer childcare credit: Employers are permitted a credit of up to $150,000 for providing childcare for the benefit of employees. The credit is calculated as 25 percent of the employer’s costs of building and operating a childcare facility or the cost of contracting with a third-party provider. The OBBB increases this portion of the credit to 40 percent (50 percent for small businesses). It also increases the total credit limit to $500,000 ($600,000 for small businesses). These changes all take effect in 2026.
- Employer family and medical leave credit: The TCJA created a two-year credit for compensation paid to employees while on family or medical leave as long as a plan existed for such arrangement that met certain requirements. That credit was subsequently extended several times and was set to expire at the end of 2025. The OBBB permanently extends this credit while also expanding it in three key ways:
- The credit is expanded to include premiums paid by an employer on an insurance policy covering employee family and medical leaves.
- Any leave paid for by a state or local government is included in the determination of whether the employer has a plan that meets the thresholds, but the amounts paid under the plan still do not qualify for the credit.
- It lowers the minimum employee work requirement from one year to six months.
These changes all take effect in 2026.
New Provisions (Individuals)
- Special depreciation for qualified production property (“QPP”): The OBBB will create a new 100 percent deduction for QPP constructed after Jan. 19, 2025, and before Jan. 1, 2029, that is placed in service no later than Dec. 31, 2030. QPP is any nonresidential real property that is integral to the taxpayer's qualified production activity (“QPA”). The property must be in the U.S. for the deduction to be available. A QPA is any manufacturing, production, or refining of tangible personal property that results in the substantial transformation of the product.
- Charitable contributions of corporations: Corporations are permitted to deduct charitable contributions up to 10 percent of taxable income. The OBBB will place a 1 percent floor on deductions to charitable contributions made by corporations beginning in 2026. The contributions under the floor would become permanently nondeductible unless the corporation exceeds the 10 percent limitation in which case the amount disallowed within the 1 percent floor will carry forward to prevent the same contributions from being subjected to a 1 percent floor across multiple years.
- ERC retroactive termination and enforcement: The OBBB disallows refund claims filed for the third and fourth quarters of 2021 that weren’t filed by Jan. 31, 2024. Generally, the statute of limitations will be extended to six years, and additional rules will coordinate wage deductions for disallowed claims.
- Increased threshold for 1099 reporting: The OBBB increases the 1099 reporting threshold from $600 to $2,000 beginning with payments made in 2026. The reporting threshold will also be adjusted for inflation beginning with payments made in 2027.
Please check out our other OBBB blogs to learn more about business taxes and new provisions for individual taxes.
If you have any questions about how the OBBB may affect your individual or business taxes, please reach out to your Zinner & Co. Tax Team representative.
