The recently passed One Big Beautiful Bill Act (OBBBA) has made many provisions from the Tax Cuts and Jobs Act permanent, creating opportunities for many middle-market businesses.
“For too many years we’ve been dealing with tax law that will sunset in a couple of years,” says Henry Gingerich, Director at Corrigan Krause. “The rules change all the time without new legislation passing. But the OBBBA has made a lot of the provisions from the Tax Cuts and Jobs Act permanent, which gives middle-market business leaders a little more stability as they plan for the future.”
Additionally, there are many favorable provisions that business leaders should review soon so they can leverage them fully — now, in the future and retroactively.
Smart Business spoke with Gingerich about the OBBBA and what business leaders should do now to take full advantage of the opportunities it offers.
What provisions in the OBBBA should get the most attention from business leaders?
One the more significant provisions for middle-market businesses, the treatment of research and development expenses, will have a number of implications. The extension of bonus depreciation to be 100 percent deductible will have a significant impact on businesses. And the calculation for the interest limitation under 163(j) by adding back depreciation will affect a lot of companies.
For R&D, the rules have been changed so that companies are not required to capitalize their expenses and amortize them over five years, which is a big benefit. Now, depending on the size of the business, they’re able to fully deduct their expenses starting in 2025. Companies should take a close look at what they can do with any R&D expenses that they capitalized between the years 2022 and 2024 because there are now more options — they can go back and amend those years, take all those expenses in 2025 or take those expenses over 2025 and 2026. That will require a lot of planning related to that provision to ensure that the overall tax benefit is maximized.
Bonus depreciation is going back to 100 percent deductibility for 2025 for any equipment that a company is looking to buy. For companies that are looking to expand, the extra tax benefit of the immediate write off could push them over the line to make a decision to expand.
The act changed the formula on how to calculate the interest expense limitation under 163(j). Companies are able add back depreciation and amortization to taxable income when calculating interest expense in excess of 30 percent of their taxable income limitation. The adding back of their depreciation and amortization will increase the amount of interest that is deductible in the current year.
What changes in the OBBBA require business leaders to act sooner rather than later?
For companies that had in their plans a use for the energy credits, many of those credits are going to either expire at the end of October of this year or shortly after. So, companies that intend to take advantage of those will need to act.
Looking ahead, entity choice is something business leaders might want to spend time considering. The qualified business income deduction has been made permanent, so that will make pass-through entities a more valuable structure to be in with the 20 percent income reduction.
Generally, if the bill had not passed, many of the provisions in the Jobs Cuts and Tax Act would have expired, and that would have increased taxes on a lot of people who would not be ready for that. Every company’s tax situation is different and the OBBBA is going to affect each differently. Now is a good time for companies to reach out to a tax professional to better understand how the specific provisions in this bill will affect their taxes. ●
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