The Big Beautiful Bill: A Tax Landscape Shift

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, marks the most significant federal tax reform since the Tax Cuts and Jobs Act (TCJA) of 2017. This act not only permanently extends and expands numerous TCJA provisions but also introduces new incentives designed to encourage capital investment, R&D, and overall business growth.

Summary of key provisions and business benefits

The OBBBA delivers sweeping, long-term tax advantages for businesses of all sizes, especially medium and large enterprises. While clean-energy incentives were rolled back, the overall package positions many businesses to reinvest, grow, and plan with greater certainty.

Permanent 100% bonus depreciation & expanded § 179 expensing

What changed

• 100% bonus depreciation (IRC §168(k)) is made permanent, allowing full expensing in the year assets are placed in service, beginning January 20, 2025.
• Expanded coverage includes manufacturing buildings, so long as they were placed in service before January 1, 2031.
• Section 179 depreciation deduction for “qualified production property” is expanded to permit a 100% immediate deduction of the adjusted basis.

Note: Now that bonus depreciation has been extended, Section 179 will likely be utilized less. However, there are situations where Section 179 might be more beneficial. While bonus depreciation must be applied to all assets in the class, Section 179 might be the optimal choice if your business has specific assets that it wants to target for full expensing.

Businesses that benefit

• Manufacturers investing in new plant facilities or machinery (e.g., automotive, industrial equipment) can deduct the entire cost in the year of acquisition.
• Data centers and tech firms building server farms or infrastructure can get a full write‑off. This helps boost cash flow and lower taxable income.

Example: A midsize manufacturing company invests $50 million in qualified production property in February 2026. It can immediately deduct the entire amount. At a 21% corporate rate, that yields a $10.5 million tax benefit.

Expanded R&D credits & semiconductor production credit

What changed

The OBBBA made the following modifications to research and production credits:

• Restored full bonus depreciation for R&D costs, reversing the TCJA mandate that forced amortization over five years
• Raised the semiconductor production tax credit to 35%, retroactive for recent investment years
• Expanded the value of the R&D tax credit across sectors, including AI, life sciences, software, and cloud infrastructure

Businesses that benefit

• Tech firms (cloud providers, software development firms, biotech) can deduct R&D expenses immediately rather than amortizing.
• Chip manufacturers or AI infrastructure builders benefit from the 35% credit on qualified manufacturing investment.

Example: A large US company that designs AI chips spent $20 million on R&D and $40 million on a new semiconductor fabrication facility in 2025. Under the OBBBA, it can fully expense the R&D costs, claim a 35% semiconductor production credit ($14 million), and receive enhanced R&D tax credit. These incentives significantly reduce the cost of innovation and expansion.

Permanent QBI deduction (Section 199A)

What changed

The 20% QBI deduction for pass-through and privately held businesses is made permanent. This provides lasting tax relief for pass-through entities like S-corps, partnerships, and LLCs.

Businesses that benefit

• Pass-through entities can continue to deduct up to 20% of qualified income, effectively lowering their marginal tax rate and increasing after-tax profits.

Example: A midsize firm organized as an LLC has $15 million in taxable income and meets the criteria for the 20% QBI benefit. This results in a $3 million deduction, which lowers the taxable income for the LLC members.

Greater interest deductibility (Section 163(j) and NOL rules)

What changed

The bill loosens TCJA restrictions around deducting net interest expenses and offers more flexibility to businesses with high interest costs.

Note: NOL carryforwards remain preserved. While there were no adjustments to carrybacks, carryforwards continue under modified rules consistent with TCJA.

Businesses that benefit

• Companies that invest using debt financing can deduct more interest, reducing taxable income.
• Businesses with prior-year losses can carry them forward.

Example: A midsize energy company takes on $100 million in debt to finance a new plant; previously limited interest expense deduction might clip loss claims. The revised OBBBA rules allow a higher deduction in earlier years when interest in a traditional loan is likely to be higher.

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Raised SALT deduction

What changed

• SALT cap is raised to $40,000 for certain taxpayers under $500,000 income. This $40,000 limitation is more generous than the previous limit of $10,000 under the TCJA.
• The OBBBA does not obstruct the use of the pass-through entity tax workaround employed by many pass-through entities in the states that allow the deduction.

Businesses that benefit

• Taxpayers with less than $500,000 in income are offered meaningful relief, especially if the small business or individual is in a high-tax state. Unlike previous proposals, it preserves popular pass-through entity workarounds that may further enhance deductibility.

Example: A Philadelphia-based LLC with two members pays $90,000 in PA state and local taxes. With the raised cap, members can now deduct up to $40,000 on federal returns. Prior to the OBBBA, each member would be limited to a $10,000 SALT deduction on their individual federal tax returns.

Increased estate tax exemption

The OBBA’s permanent increase to the estate tax exemption offers major relief for family-owned businesses planning generational transfers. Shielding more wealth from taxation helps preserve business continuity and prevents forced asset sales to cover estate tax liabilities.

What changed

The estate tax exemption is permanently raised to $15,000,000 per spouse. This allows for family-owned businesses more room to preserve wealth and continuity of ownership across generations.

Businesses that benefit

• Family-owned medium or large firms can pass a larger share of ownership interests without triggering estate taxes, lowering planning and transfer costs.

Example: A second-generation family-owned manufacturing business valued at $29 million is passed from parents to their children. Under the higher exemption, a married couple can transfer up to $30 million tax-free, meaning the entire business can be passed without incurring estate tax. Prior to the OBBBA, much of the business could have been subject to up to 40% federal estate tax, potentially forcing the sale of business assets to cover the liability.

Clean‑energy incentive rollbacks

What changed

The bill phases out or repeals many clean energy credits introduced under the Inflation Reduction Act (IRA), increasing costs for businesses pursuing renewable energy or energy efficiency projects.

Businesses that benefit

• Businesses planning investment in solar, wind, geothermal, or carbon capture may face higher costs due to fewer federal credits.
• Manufacturing and tech firms emphasizing sustainable production methods will be heavily impacted.

Practical strategies for medium and large businesses

The OBBBA provides businesses with tax planning tools to optimize deductions, credits, and long-term strategy. These tools include enhanced depreciation, R&D incentives, expanded interest deductions, and estate planning.

Here are some strategies that your business should consider:

Enhanced depreciation

• Maximize bonus depreciation in high tax years.
• Use section 179 in cases where property classifications could interfere with the use of bonus depreciation.

R&D structuring

• Identify and document qualified research activities, such as software development, prototype testing, or AI model training, to claim a larger federal tax credit and reduce overall tax liability
• Consider the enhanced semiconductor credit when estimating taxable income, especially if your company is investing in AI or chip production.

Debt & financing

• Reassess the deductible amount of substantial debt, given that the OBBBA allows for more interest to be deducted than in prior years.
• Use debt financing more effectively for tax planning if you have a heavily leveraged business.

Estate planning & succession

• Reassess gifting strategies. The increase in the estate exemption allows tax-free transfer of larger business interests.