The One Big Beautiful Bill Act (OBBBA) - Businesses

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduces key changes, including the permanent extension of certain expiring provisions from the Tax Cuts and Jobs Act, updates to the international tax framework, and the reinstatement of favorable tax treatment for specific business provisions. The act has staggered effective dates, with some measures starting in 2025 and others rolling out through 2027. Below is a summary of the major business provisions: 

Corporate Tax Rate

• What’s Changing: No change – corporate tax rate remains 21%

• Who’s Affected: All c-corporations

• When: Ongoing

Bonus Depreciation

• What’s Changing: Restore and permanently extends the Section 168 100% first year bonus depreciation deduction for qualifying assets placed in service on or after January 19, 2025.  OBBB allows an additional first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property.” Qualified production property is generally nonresidential real property used in manufacturing.

• Who’s Affected: Small businesses and rental properties that acquire depreciable assets eligible for bonus depreciation

• When: Effective for assets placed in service on or after January 19, 2025

Qualified Production Property Bonus Depreciation

• What’s Changing: OBBB allows an additional first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property”.  Qualified production property is generally nonresidential real property used in manufacturing.

• Who’s Affected: Businesses acquiring qualified production property

• When: Effective for assets placed in service on or after January 19, 2025 and before January 1, 2031

IRC Section 179

• What’s Changing: The bill increases the maximum amount a taxpayer may expense under Sec. 179 to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million (phaseout threshold amount).

• These amounts will be indexed to inflation for future tax years.

• Who’s Affected: Businesses with new asset acquisition

• When: Effective 2025

Domestic R&D Expensing

• What’s Changing: Permanently suspends capitalization/amortization requirement of domestic research and experimentation costs (R&E) and allows for immediate deduction for domestic R&E effective for 2025. Foreign R&E will continue to be required to be capitalized and amortized over 15 years under IRC Section 174. Small businesses have the option to apply this change retroactively back to 2022 through amended returns. Effective for 2025 any R&D tax credits will reduce the R&E expense deduction. In addition, there is a transition rule that allows previously unamortized capitalized R&E expenses to be deducted in 2025 or spread between 2025 and 2026.

• Who’s Affected: All U.S. businesses conducting qualified research.

• When: Effective 2025

IRC Section 163(j) Business Interest Limitation

• What’s Changing: Permanent EBITA calculation to determine interest limitation.

• Adjusted Taxable Income (ATI) for Section 163(j) will be calculated without deductions for depreciation, amortization, or depletion. This modification will increase the amount of business interest that may be deductible.

• Who’s Affected: Businesses with average gross receipts of $30M or more over the past 3 years that pay interest and rely on debt financing.

• When: Effective 2025

Employer-provided Meals

• What’s Changing: The new law does not extend the deduction for meals provided to employees for the employer’s convenience at their workplace. Without additional action from Congress, the deduction is scheduled to expire at the end of 2025. These meals are typically provided on-site for the convenience of the employer, they could be from restaurants, catering, or an onsite cafeteria. There are exceptions such as if a business (typically restaurants) sells food and beverages to customers and other very specific industries like a fishing vessel.

• Who’s Affected: Businesses

• When: Effective 2026

Pass-Through Entity (PTET) SALT Deduction:

• No change - No state and local tax deduction limitation for pass-through entities (Partnerships, S Corporations, or LLCs taxed as Partnerships or S Corporations).

• 36 states and 1 locality have implemented a PTET SALT deduction that is allowed under approved IRS Notice 2020-75.

• When: Effective 2025

Corporate Charitable Contributions Limitations

• What’s Changing: Imposes a 1% minimum floor for charitable deductions for corporations. If the charitable contribution is less than 1% then the contribution is not deductible and is not carried forward. The current 10% ceiling continues as the maximum deduction in a year but the excess can be carried forward for up to 5 years. Allows carry forward of excess contributions for up to 5 years on a first-in first-out basis, reduced to the extent they reduce taxable income and increase a net operating loss (NOL) carryover to a succeeding taxable year.

• Who’s Affected: C Corporations

• When: Effective 2026

Paid Family and Medical Leave Credit

• What’s Changing: Section 45S Credit: Makes the paid FML credit permanent and extends eligibility to additional employees. Revises the credit to be, at the employer’s election, either: (1) a percentage of wages paid to qualifying employees during the period employees are on paid family medical leave (FML), or (2) a percentage of premiums paid by the employer for insurance for providing paid FML.  Credit applies to up to 12 weeks of paid leave per qualifying employee per year. Employee must have been employed for at least 1 year. Must have earned ≤ $78,000 (2025 indexed threshold) in the prior year.

• Who’s Affected: Employers

• When: Effective 2026

Employer Provided Childcare Credit

• What’s Changing: Increases the amount of employer-provided childcare credit from 25% to 40% (50% for eligible small businesses) and the maximum credit per taxable year to $500,000 ($600,000 for eligible small businesses), indexed annually for inflation.

• Who’s Affected: Employers

• When: Effective 2027

New Itemized Deduction Limitation for 37% Tax Bracket

• What’s Changing: 1099-K threshold raised to $20,000 AND 200 transactions 1099-NEC/1099-MISC threshold increased from:$600 → $2,000 Threshold amount to be indexed annually for inflation in calendar years after 2026.

• Who’s Affected: Contractors, small business vendors, platforms like Paypal, Venmo, Etsy

• When: Effective 2025

Deduction for Tip Income

•  What’s Changing: Above-the-line deduction for qualified tip income. This means eligible taxpayers can deduct tip income directly from their gross income, reducing taxable income even if they don't itemize deductions. Employees can deduct up to $25,000 in reported tip income ($50,000 for joint filers). Phase out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $300k(MFJ)/$150k(Single). Phases out completely for MAGI more than $350K (MFJ)/$175k (Single).

• A transition rule will allow employers required to furnish statements enumerating an individual’s tips for tax year 2025 to use “any reasonable method” to estimate designated tip amounts.

• Who’s Affected: Doesn’t directly impact businesses but businesses should be aware. The change does impact individuals such as employees in hospitality (food/beverage), service industries (hair, nail, esthetics, spa).

• When: Effective for tax years from 2025 – 2028

Overtime Wages Deduction

•  What’s Changing: Above-the-line deduction for qualified overtime compensation. This means eligible taxpayers can deduct overtime pay (extra 50%) directly from their gross income, reducing taxable income even if they don't itemize deductions. "Qualified overtime compensation" refers to wages paid at a rate exceeding the regular hourly rate, as mandated by the Fair Labor Standards Act (FLSA) Section 7.  Employees can deduct up to $12,500 in reported qualified overtime compensation ($25,000 for joint filers). Applies only to W-2 reported overtime pay, no self-reported cash overtime. Phases out by $100 for each $1,000 by which the taxpayer’s MAGI exceeds $300k(MFJ)/$150k(Single). Phases out completely for MAGI more than $350K (MFJ)/$175k (Single).

• Who’s Affected: Individual taxpayers who meet the requirements.

• When: Effective for tax years from 2025 – 2028

• Reporting: Additional reporting by employers will be needed to identify overtime wages. Some employers may restructure compensation to take advantage of the rules.

Bonus Depreciation

• What’s Changing: Restore and permanently extends the Section 168 100% first year bonus depreciation deduction for qualifying assets placed in service on or after January 19, 2025.  OBBB allows an additional first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property.” Qualified production property is generally nonresidential real property used in manufacturing.

• Who’s Affected: Small businesses and rental properties that acquire depreciable assets eligible for bonus depreciation

• When: Effective for assets placed in service on or after January 19, 2025

Qualified Small Business Stock

• What’s Changing: Liberalizing the qualified small business exclusion by increasing the gross asset test from $50 million to $75 million, increasing the gain exclusion from the greater of $10 million or ten times basis to $15 million or ten times basis (indexed for inflation), and introducing a tiered holding period where if the stock is held for 3 years the gain exclusion is 50%, 4 years is 75% and 5 years is 100%. The previously holding period was a flat five years.

• Who’s Affected: Individuals with stock in certain corporations

• When: Effective for stock issued after July 4, 2025