On July 4, 2025, President Trump signed the “One Big Beautiful Bill Act” (H.R. 1) into law (the “OBBB”), after narrow passage in both the House and the Senate. This sweeping fiscal package includes major changes to taxes, energy incentives, healthcare, welfare programs, and more.
Improving the landscape for American businesses is a major priority of the Trump Administration, and the OBBB includes a significant number of tax incentives beneficial to business owners.
Importantly, many of the tax incentives set to expire or phase out at the end of 2025 have either been made permanent, extended, or expanded in some way. More specifically, positive changes have been made to bonus depreciation, R&D expensing, business interest deductions, Qualified Small Business Stock exclusions, the federal Opportunity Zone program, the Qualified Business Income deduction, and many other areas affecting business or business owners. While some eligibility standards have been tightened for certain programs, and certain changes may require increased compliance work, overall, many businesses should see a reduced federal tax burden, freeing up more capital for investment or distributions.
This article is not intended to be a comprehensive overview of the OBBB’s vast overhaul of the federal government. Instead, the focus is on certain tax-related changes that may affect business owners’ bottom lines.
Individual Tax Brackets
The lower individual tax rates enacted under the Tax Cuts and Jobs Act of 2017 (the “TCJA”) during the first Trump Administration were scheduled to expire after 2025. Instead, the OBBB makes these rates permanent, preserving:
- A top individual tax rate of 37%,
- Lower brackets across the board (e.g., 10%, 12%, 22%, 24%, etc.), and
- Higher thresholds for each bracket.
Since many business owners report profits from S corporations or LLCs on their personal returns, this extension is welcome, as it keeps pass-through income taxed at lower rates indefinitely— no automatic tax hike in 2026.
Qualified Business Income (“QBI”) Deduction Made Permanent
The 20% QBI deduction under IRC §199A—one of the most important tax benefits for many small business owners who have pass-through income via LLCs or S corporations—is now permanent thanks to the OBBB. Under the TCJA, this benefit would have expired after 2025.
This deduction effectively reduces the tax rate on eligible pass-through business income by up to 20%, subject to certain income and qualification limitations.[1] Additionally, the new law phases the QBI deduction out at higher income levels than the TCJA, further reducing the tax burden for some business owners.
While making QBI permanent is a welcome development for many small and mid-size business owners, there are some types of businesses and business owners that won’t qualify (or will only qualify for part of the deduction), so business owners will want to consult their CPAs about the best approach to taking this deduction, if available.
100% Bonus Depreciation Restored
Another big (but temporary) benefit to business owners under the TCJA was “bonus depreciation”—that is, the ability of business owners to “expense” in a single year most or all of the cost of certain business property, rather than taking depreciation deductions over its useful life. Under the TCJA, bonus depreciation was 80% in 2023, 60% in 2024, and scheduled to fall further.
The Act makes permanent the 100% first-year bonus depreciation deduction under IRC §168(k) for “qualified property” acquired and placed in service after January 19, 2025. “Qualified property” generally includes tangible personal property with a useful life of 20 years or less (such as equipment and machinery).
This means businesses can immediately deduct the full cost of eligible property when calculating taxable income, rather than depreciating it over multiple years. This first-year tax savings will allow for more immediate free cash for further investment. Your CPA should be consulted to determine if a particular expenditure qualifies for bonus depreciation.
Full Expensing of R&D Costs
The OBBB also repeals the TCJA’s research and development (“R&D”) cost amortization rules, restoring full R&D expensing under newly-created IRC §174A. Previously, under the TCJA, businesses were required to capitalize and amortize domestic R&D costs over five years, resulting in a tax penalty for companies with significant R&D costs. Businesses can now fully deduct domestic research and development costs in the year incurred, beginning in 2025. A “catch up” deduction is also allowed for 2025 (and, in some cases, 2026), for certain unamortized domestic research expenses previously capitalized during 2022-2024. Additionally, certain small business taxpayers may be able to deduct research expenses from those prior years in the year incurred and file amended returns. Businesses will need to consult with their CPA on the mechanics and eligibility for their specific situation.
This change especially benefits startups and tech companies, and coordinates with the still-available R&D tax credit under §41.[2] Notably, however, the OBBB keeps the TCJA’s requirement that foreign R&D costs must continue to be capitalized and amortized over 15 years under IRC §174 (along with providing some additional anti-abuse rules), so businesses with significant foreign R&D costs will want to review the changes carefully with their tax advisors.
Increased Business Expensing
Under IRC §179, businesses are generally permitted to expense the cost of certain tangible personal property and certain qualified real property improvements placed in service during a given tax year, including equipment, machinery, furniture, some software, certain vehicles, and certain commercial real estate improvements. The amount permitted to be expensed and therefore deducted in a given tax year has now been increased: The OBBB increases the §179 expensing limit to $2.5 million (from its prior limit of $1.25 million), with a phase-out threshold starting at $4 million, for property placed in service in 2025 and beyond. Additionally, these limits will now be indexed for inflation starting in 2026. As the phase-out begins at $4 million and fully phases out at $6.5 million, this tax benefit is primarily targeted at small- and medium-sized businesses.
While the expanded limits are welcome, business owners should note that §179 expensing must be elected asset-by-asset, is only available for assets used in an active trade or business, and is limited by income (therefore, it can’t be used to create or increase a net loss).[3]
Interest Deduction Limitation Based on EBITDA, Not EBIT
The TCJA limited the amount of net business interest expense taxpayers may deduct, beginning in 2022. Now, under the OBBB, the business interest expense limitation under IRC §163(j) will once again be based on EBITDA rather than EBIT, beginning in tax year 2025.
Companies that pay interest on debt used in a trade or business can now deduct that interest to the extent of 30% of earnings before interest, taxes, depreciation, and amortization — rather than being limited to EBIT (excluding depreciation/amortization). This change will be welcome to capital-intensive businesses that rely on debt financing.
Qualified Small Business Stock
Business owners who own their business in a C corporation (rather than an S corporation or an LLC) should be aware that the OBBB makes significant changes to §1202 Qualified Small Business Stock (“QSBS”).
Under IRC §1202, eligible noncorporate taxpayers can receive exclusions from capital gains on the sale of qualifying C corporation stock. Prior to the OBBB, taxpayers could exclude up to 100% of gain on QSBS held more than five years, subject to a cap of the greater of $10 million or 10 times the taxpayer’s basis, with eligibility restricted to C corporations with no more than $50 million in gross assets at issuance. The OBBB retains the general structure of Section 1202 but introduces three key enhancements:
- a reduction in the required holding period from five years to as little as three years, with phased-in exclusion rates (50% for three years, 75% for four, 100% for five);
- an increase in the eligible issuer’s gross asset limit from $50 million to $75 million, indexed for inflation; and
- an increase in the per-issuer flat exclusion cap from $10 million to $15 million, also indexed.
These changes apply only to stock acquired after July 4, 2025, with pre-OBBB stock remaining subject to the five-year holding period and previous exclusion limits. Importantly, the alternative cap based on 10 times adjusted basis remains unchanged. The expansion of QSBS eligibility is expected to increase its attractiveness to founders, early investors, and private equity participants, especially for those investing in slightly larger emerging companies or seeking shorter investment horizons.
However, the existing limitations, such as exclusions for service businesses and structural complexities for passthrough entities, remain unaltered, and the partial exclusions reintroduce a special 28% capital gains rate on the non-excluded portion of gain. We should expect IRS and Treasury to issue additional guidance and regulations relating to interpretation of the new QSBS provisions, so stay tuned.
Temporary 100% Expensing for Manufacturing Facilities
The OBBB introduces a temporary full deduction for investments in specific structures involved in the tangible production of goods within the United States. This applies to qualifying structures that begin construction between January 19, 2025, and January 1, 2029, and are placed in service before January 1, 2031. The entire value of these investments can be deducted from taxable income.
This measure enhances cost recovery for structures that typically have long depreciation periods, sometimes up to 39 years. The provision is expected to stimulate investment in manufacturing build-out while it remains effective. We expect guidance from IRS and Treasury laying out more details on qualifying structures in the coming months.
Changes to the Opportunity Zone Program
The Opportunity Zone (“OZ”) program is a federal tax incentive created under the TCJA that lets investors defer—and potentially reduce or even eliminate—capital gains taxes by reinvesting those gains through Qualified Opportunity Funds (“QOFs”) into designated low‑income census tracts. Under the TCJA, the key deferral and basis step‑up benefits were slated to sunset at the end of 2026.
The OBBB establishes a new, permanent OZ program for investments made in 2027 and beyond. The TCJA framework will be replaced with rolling 10-year designations (beginning with governor submissions in 2026 for effectiveness in 2027), replacing the fixed 2026 recognition date with a rolling 5‑year deferral for post‑2026 investments, together with a permanent 10% basis step‑up at five years. To push capital to non‑metro areas, the OBBB creates Qualified Rural Opportunity Funds/Zones that earn a 30% basis step‑up at five years and face a reduced substantial‑improvement standard.
Simultaneously, eligibility is tightened (e.g., curtailment of the contiguous‑tract rule, stricter distress tests, Puerto Rico’s blanket designation ends after 2026) and reporting and penalty provisions are strengthened. For real estate and operating‑business investors, the longer runway and rural uplift are significant positives, but expect extra compliance costs and monitoring obligations for QOFs and sponsors.
Other Changes
The OBBB includes several additional provisions that may benefit business owners and individuals alike. Most notably, the new law provides, subject to certain income limits, above-the-line deductions of up to $25,000 per year for “qualified tips” and up to $12,500 per year for “qualified overtime compensation” through 2028, easing tax burdens for qualified service-sector workers (and possibly raising compliance challenges for employers in tracking these categories of compensation, which we may deal with in a future article).
The OBBB also introduces “Trump Accounts”—a new tax-advantaged savings vehicle for children born between 2025 and 2028, with seed contributions and flexible uses for education, job training, or home purchases. Additional individual tax changes include a slightly larger standard deduction, a higher child tax credit, deductions for certain seniors, and restoration of a $40,000 SALT deduction cap.
The unified credit for federal estate and gift tax, set to decline under prior law to about $7.2m per individual beginning in 2026, was instead increased, to $15m for an individual or $30m for married couples. This means that high net worth individuals no longer face a looming deadline at the end of 2025 to make large gifts. Moving forward, the unified credit will be indexed to inflation from these new rates.
Other business provisions we didn’t cover above include, but are not limited to, industry-specific incentives for defense contracting, phase out of a number of clean energy tax credits, and new restrictions on foreign tax creditability and the use of certain offshore structures—changes especially relevant to multinational businesses and U.S. owners of foreign subsidiaries.
Again, the above is not meant to be a comprehensive summary of tax matters or planning opportunities created by the OBBB. And, of course, Congress can always change tax laws again, so anything we noted as “permanent” is always subject to change by Congress or, potentially, the courts. IRS and Treasury will also have to further elucidate some of the changes above with appropriate guidance and regulations, so those may provide further opportunities or limitations as they set out additional rules and procedures for the affected sections of the Tax Code.
If you own a business and have questions, please feel free to reach out to our Firm and set up a consultation.
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Prepared by Ethan S. Moore of the Corporate Law Practice Group at Rossway Swan Tierney Barry & Oliver, P.L. Contact Kevin M. Barry or Ethan S. Moore for more information.
[1] For example, more stringent requirements apply at higher levels of income, and many services businesses (including, for example, law, accounting, consulting, medicine, and other similar professional services businesses) may have their deductions partially or fully reduced at higher income levels and depending on other factors such as the amount they pay in W-2 wages.
[2] Note that under the OBBB, IRC §280C(c) continues to govern coordination between the deduction and the credit. Taxpayers claiming the §41 credit must either (1) reduce their R&D expense deduction by the amount of the credit or (2) elect a reduced credit to preserve the full deduction. This election provides a simplified way to avoid the deduction disallowance while still benefiting from both provisions. If your business may be eligible for either the deduction, the credit, or both, you should discuss with your CPA to determine the best approach.
[3] Note that, combined with bonus depreciation, some planning opportunities may be possible whereby R&D assets are expensed where income limitations aren’t a concern, then bonus depreciation is used for other assets to create a net operating loss. Feasibility of this approach for a specific situation should be discussed with and signed off on by your CPA.
