The introduction of new federal legislation can be intimidating, particularly when it significantly impacts tax policies for businesses. With the enactment of the One Big Beautiful Bill Act, businesses face extensive tax reform that builds upon the foundation of the 2017 Tax Cuts and Jobs Act. Understanding these changes can be challenging, but fear not, as we've distilled the essential takeaways to help you navigate what's new and how it may affect your business.
Bonus Depreciation Returns
The act reinstates the capability for businesses to permanently expense 100% of qualified capital assets acquired from January 20, 2025. This includes manufacturing buildings that are placed in service before 2031. This move is set to provide a robust incentive for businesses aiming to expand their asset base.
R&D Expensing Reinstatement
Domestic research costs are now fully deductible, allowing businesses to qualify for more favorable tax treatments. The act also permits accelerated recovery of 2022-2024 capitalized R&D expenses, although foreign R&D costs must still be amortized.
Business Interest Deduction Expansion
Businesses will appreciate the return to the EBITDA-based limit, which facilitates larger deduction claims. Coupled with new guidance on the interactions between capitalization and interest, this offers enhanced flexibility in financial planning.
Qualified Business Income Deduction Update
The 20% QBI deduction becomes permanent, offering a more stable planning horizon for businesses. Additionally, the income phase-ins have expanded to $75,000 for individuals and $150,000 for joint filers, allowing more businesses to benefit from this deduction.
REIT Subsidiary Changes
Starting in 2026, there's an increase in the limit on taxable REIT subsidiary holdings from 20% to 25%. This change gives more leeway for real estate investment trusts to manage their investments and subsidiaries strategically.
Charitable Deduction Limits
The legislation introduces a new 1% floor for corporate giving and a 0.5% AGI floor for individuals itemizing deductions, affecting how businesses and individuals approach charitable contributions.
ERTC Enforcement Expansion
Businesses should be aware of the IRS's expanded authority to enforce claims related to the Employee Retention Tax Credit. This means increased scrutiny and possibly longer statutes of limitations regarding erroneous claims.
The breadth of changes under the One Big Beautiful Bill Act might seem overwhelming, but with proactive and strategic planning, you can mitigate unexpected surprises. We encourage reviewing your tax strategy and consulting with a professional to ensure compliance and able optimization under these new rules. By understanding these critical components, your business can continue to thrive within the evolving tax landscape.
