Business Tax Highlights from the "One Big Beautiful Bill Act"
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What the “One Big Beautiful Bill Act” Means for Your Taxes - An In-Depth Summary for Clients of Shifflett & Philips CPA – July 2025
Congress has passed sweeping tax legislation known as the One Big Beautiful Bill Act, which includes major reforms for both individuals and businesses. These provisions affect everything from bonus depreciation and pass-through deductions to R&D and Opportunity Zones.
Here’s what’s changing—and how you can take full advantage of it before year-end.
1. 100% Bonus Depreciation is Back—and Permanent
Summary: Businesses can now immediately deduct 100% of the cost of qualified property placed in service on or after January 20, 2025. This includes machinery, equipment, computers, vehicles, and real estate improvements classified as Qualified Improvement Property (QIP).
Planning Considerations:
Bonus depreciation now applies permanently for property placed in service after the effective date.
If you signed a binding contract before January 20, 2025, and place the asset in service after that date, the deduction drops to 40%.
This provision can significantly boost real estate deductions when used in conjunction with a cost segregation study, as it allows shorter-life assets (e.g., flooring, cabinetry, parking lots) to be immediately expensed.
Watch for: Expanded loss limitation rules under Section 461(l) could prevent individuals from fully using bonus depreciation in a given year.
2. Full Expensing for Manufacturing and Production Facilities
Summary: A new Section 168(n) allows taxpayers to deduct 100% of the cost of qualifying real estate improvements used in production, manufacturing, agriculture, or chemical processing.
To Qualify:
Property must be used in a qualified production activity.
Construction must begin after December 31, 2024, and be placed in service before January 1, 2034.
Original use must begin with the taxpayer.
Office space, lodging, software engineering, and administrative areas do not qualify.
Planning Opportunities:
If your business involves agriculture or manufacturing, this creates an incentive to build or improve facilities.
Applies for both regular tax and AMT purposes.
Treasury will issue guidance on what constitutes a “substantial transformation” activity.
3. Section 179 Expensing Limit Increased
Summary: The limit for expensing business equipment under Section 179 has increased to $2.5 million, with a phase-out threshold of $4 million starting in 2025.
Key Points:
Applies to new and used equipment, software, and certain real estate improvements.
Phase-out begins once total equipment purchases exceed $4 million in a year.
Unlike bonus depreciation, Section 179 allows you to pick and choose which assets to expense.
Planning Opportunities:
Excellent for small and mid-size businesses with predictable taxable income.
Check your state’s treatment—some states may not conform.
4. Interest Deduction Rules Return to EBITDA Basis
Summary: The business interest deduction limit under Section 163(j) reverts to being calculated using EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of EBIT.
What This Means:
More generous deduction rules, especially for capital-intensive businesses.
Begins in 2025 and is permanent under the final version of the bill.
Capitalized interest (other than under Sections 263(g) and 263A(f)) will be subject to limitation rules starting in 2026.
Planning Opportunities:
Businesses with significant debt and depreciation may see increased deductions under the new rules.
This change also eliminates the need for costly interest capitalization studies in many cases.
5. Qualified Business Income (QBI) Deduction Made Permanent
Summary: The 20% QBI deduction for pass-through businesses (S corporations, partnerships, sole proprietors) is no longer set to expire after 2025. It is now a permanent part of the tax code.
Additional Changes:
Minimum deduction of $400 for active businesses with at least $1,000 in QBI.
The phase-in range for income limitations is widened, giving higher earners more room before limits apply.
Planning Opportunities:
Review your S-corporation compensation to ensure you’re optimizing the deduction.
Consider aggregating related businesses or restructuring entities for maximum benefit.
6. Full Deduction of Domestic R&D Expenditures Restored
Summary: Section 174 changes now allow immediate deduction of domestic research and software development costs, reversing the TCJA's five-year amortization rule.
Key Details:
Applies to expenses incurred after December 31, 2024.
Small businesses with gross receipts under $31 million may apply the rule retroactively to 2022–2024.
Foreign R&D must still be amortized over 15 years.
Optional amortization under Section 59(e) is now limited to domestic R&D only.
Planning Opportunities:
Companies with unamortized research costs from 2022–2024 may elect to deduct them in 2025 over one or two years.
Businesses should revisit R&D tax credit strategies and coordinate with this new treatment.
Consult with your CPA about whether retroactive application or accounting method changes are appropriate.
7. Excess Business Loss Limitation Made Permanent
Summary: Section 461(l), which limits the amount of business losses that can offset non-business income, is now permanent.
Key Points:
Losses above the annual threshold convert into net operating losses (NOLs) and carry forward.
No adverse recharacterization of losses, as had been proposed in the House bill.
Planning Opportunities:
Carefully manage the timing of major business deductions, losses, or sales.
Use cost segregation and bonus depreciation strategically to remain under thresholds.
8. Expanded Qualified Small Business Stock (QSBS) Benefits
Summary: Section 1202 QSBS rules have been enhanced to provide more gain exclusion at earlier holding periods and higher caps.
Key Enhancements:
3-year holding = 50% gain exclusion
4-year holding = 75% gain exclusion
5+ years = 100% gain exclusion
Gain exclusion cap increased from $10 million to $15 million per issuer (adjusted for inflation starting in 2027)
Gross asset threshold increased from $50 million to $75 million
Planning Opportunities:
Early-stage investors and founders should ensure they meet QSBS eligibility at acquisition.
Consider timing stock sales to benefit from new graduated exclusion levels.
Married couples filing separately must watch the reduced per-spouse cap.
9. Major Opportunity Zone (OZ) Updates
Summary: Opportunity Zone incentives are extended and enhanced for rural development, with new rules taking effect in 2027.
Key Changes:
OZ program now resets every 10 years with updated zones.
10-year capital gain exemption remains intact.
Capital gains can now be deferred for 5 years, not just through 2026.
10% basis step-up returns at year 5.
Rural OZ investments get additional benefits:
30% basis increase after 5 years
Lower improvement thresholds (only 50% instead of 100%)
Stricter reporting requirements and penalties for non-compliance
Planning Opportunities:
Evaluate QOF investments for gain deferral and potential exclusion.
Rural property investors and developers have even more reason to explore OZ opportunities.
10. Employee Retention Credit (ERC) Program Shut Down
Summary:
No new ERC claims will be processed after January 31, 2024.
The IRS has extended the statute of limitations to 6 years for ERC audits.
Promoter penalties and enforcement will increase significantly.
Planning Considerations:
Ensure you retain proper documentation if you claimed ERC in 2021–2023.
Be cautious with promoters or firms still offering ERC filing services.
If you've already filed an ERC claim after the deadline, be aware that clawbacks may occur.
What You Should Do Next
The One Big Beautiful Bill is one of the most taxpayer-friendly bills in recent memory—but many of its benefits require proactive action in 2025. Here’s how we can help:
Evaluate capital expenditures for full expensing
Conduct cost segregation studies for real estate
Maximize pass-through income deductions
Reassess R&D expense strategies
Explore QSBS and Opportunity Zone investments
Review projected income and losses for Section 461(l) planning
Contact us today to schedule your 2025 mid-year tax strategy session. These changes represent a rare opportunity to make your business and investments more tax-efficient—and we’re here to help you take full advantage.
Shifflett & Philips CPA - Proactive tax planning for entrepreneurs, investors, and growth-minded professionals.