The newly signed tax legislation — also known as the One Big Beautiful Bill Act — brings about significant changes for businesses.
From enhanced bonus depreciation and expanded Section 179 expensing, to updates on research and development costs, business credits and opportunity zones, the legislation is designed to spur investment and simplify planning.
Here’s a breakdown of the key tax updates and what they could mean for your business.
Business owners will be very happy about these changes.
The legislation allows businesses to take 100% bonus depreciation on applicable assets put into service on or after January 19, 2025. This provision is permanent, and the allowable bonus percentage will not decrease in future years. This is a major increase from the previous law, which allowed only 40% bonus depreciation for assets placed into service in 2025.
Additionally, companies can expense $2.5 million in qualifying assets put into service in the current tax period, indexed for inflation for future tax years, under Section 179. The amount of expense allowed will be reduced if the amount of total qualifying assets put into service exceeds $4 million. This just about doubles the allowable amount that can be expensed under the previous law.
The current deduction of 20% of qualified business income remains and the deduction becomes permanent. The phase-out range of the deduction was also increased. The bill also provides a minimum $400 deduction for taxpayers with at least $1,000 qualified business income.
The bill allows companies to immediately expense domestic research and development costs for tax years beginning after December 31, 2024. Under the previous law, companies were required to amortize these costs over a five-year period. The law does not change the treatment of foreign research and development costs, which are required to be amortized over a 15-year period.
Small businesses (under the gross average gross receipts tests) will be allowed to retroactively make this change to prior periods beginning after December 31, 2021. All businesses will be allowed to accelerate the remaining amount of unamortized research and development costs from periods beginning after December 31, 2021 and before January 1, 2025 over a one- or two-year period.
The calculation for limiting interest expense deductions no longer uses depreciation, amortization or depletion to reduce the limitation. This change allows businesses that take advantage of depreciation, amortization or depletion to potentially have a lower interest expense limitation, thereby decreasing their taxable income.
The bill increases the exemption from the gain on the sale of Qualified Small Business Stock under §1202 to $15 million per issuing corporation, up from $10 million. The bill also increases the gross asset threshold for issuing qualifying small business stock to $75 million from $50 million. The full exemption is allowed if the stock is held for five years; the bill increases the amount of gain exempt if it is held for four years from 50% to 75%.
Note: Qualified Small Business Stock can only be issued by a C corporation.
The legislation also expands the definition of assets defined as “qualified production property,” which are allowed the 100% special depreciation deduction under §168. Qualified production property is defined generally as nonresidential real property used in manufacturing. This will allow manufacturers to expense real property that was generally depreciated over 39 years previously.
This property must meet the following criteria under amended §168 to be considered “Qualified Production Property”:
The bill increases the advanced manufacturing investment credit to 35%, up from 25% since it was first implemented by the CHIPS Act of 2022. This is effective for property that is placed into service after December 31, 2025.
Eligible property must meet the following criteria:
Opportunity zones have been permanently renewed. The legislation redefines the definition of opportunity zones, which may affect how future zones are designated. The new rules will go into effect on January 1, 2027.
The bill adds a 1% floor on charitable deductions made by C corporations. This means that C corporations will reduce their allowable charitable deductions by 1% of their taxable income. This change is effective for tax years beginning after December 31, 2025.
For example, if a C corporation has $100,000 in taxable income and $2,000 in charitable deductions, the floor that the corporation can deduct the charitable deductions is $1,000. This means the corporation can only deduct $1,000 instead of the full $2,000. Contributions limited by the 1% floor are not carried forward to future periods.
The bill updates the long-held threshold for reporting a Form 1099-NEC for independent contractors to $2,000, up from $600. The $2,000 threshold will be indexed for inflation.
The bill permanently increases the new markets tax credit. The new markets credit is a federal credit that is designed to catalyze private investment in economically distressed communities in the U.S.
The bill permanently increases the paid family and medical leave credit. This credit is provided to employers who pay family or medical leave to employees that meet eligible criteria, up to two weeks per employee. The credit is between 12.5-25% of wages paid during the period of leave.
The bill increases the employer-provided childcare credit from 25% to 40% (50% for qualifying small businesses) of qualified childcare expenses. The bill also increases the maximum amount of the credit allowed to $500,000 ($600,000 for qualifying small businesses), up from $150,000 under previous law.
The bill repeals numerous clean energy credits and tax incentives after the following dates:
The new tax law will undoubtedly affect business decisions and the timing of business investments and purchases. Contact us online or call 800.899.4623 to get started with tax planning for you and your business.