Key Tax Changes for Businesses from the One Big Beautiful Bill Act (OBBBA)

What makes the OBBBA significant?

The OBBBA represents one of the most comprehensive tax reforms since 2017. Its centerpiece is the effort to make several key business tax provisions permanent, reduce uncertainties, and incentivize domestic investment.

By addressing expiring provisions, simplifying international tax systems, and refining compliance rules, the act aims to solidify the tax environment for businesses operating domestically and globally.

The OBBBA’s key tax changes will undoubtedly influence how businesses plan their investments, manage cash flow, and structure global operations in the years ahead. Along with potential technical corrections or reconciliation bills on the horizon, monitoring updates remains critical for maintaining compliance and leveraging favorable provisions.

Tax legislation doesn’t exist in a vacuum – it impacts strategic decisions, operational models, and competitive positioning. By understanding the most impactful provisions of the OBBBA and acting now, businesses and advisors can position themselves for future success.

Key domestic tax changes

Download our Guide to the One Big Beautiful Bill for concise summaries of tax law changes and side-by-side comparisons with prior law.

1. Research and experimentation (R&E) expensing

The OBBBA reinstates immediate expensing for domestic R&E beginning with expenditures incurred in 2025. Small businesses have the option to retroactively apply these rules to domestic R&E costs from 2022 onward, with accelerated expensing options over shorter timeframes.

Implications for businesses

• Opportunities: Companies can fully deduct domestic R&E costs, providing a significant cash flow boost for research-heavy industries like technology, pharmaceuticals, and manufacturing.
• Challenges: Foreign R&E costs remain subject to a 15-year amortization period, creating discrepancies for businesses with global operations.
• Planning tip: Businesses should evaluate where R&E expenses are incurred and consider shifting more efforts domestically to maximize deductions.

2. Interest deductibility under section 163(j)

The act makes permanent the add-back of depreciation, amortization, and depletion when calculating interest deduction limits. It also introduces exclusions for certain income streams, like subpart F and NCTI (formerly GILTI), starting in 2026.

Implications for businesses

• Benefits: Heavily leveraged businesses gain greater flexibility in maximizing interest deductions, freeing up capital for reinvestment.
• Potential pitfalls: Businesses must carefully align interest deductions with other provisions to avoid unintended consequences, such as falling within the scope of other rules like the Base Erosion and Anti-Abuse Tax (BEAT).

3. Bonus depreciation

The OBBBA permanently reinstates 100% bonus depreciation for qualified property acquired and placed in service after Jan. 19, 2025. The definition of “qualified property” remains consistent, ensuring predictability.

Implications for businesses

• Advantages: Businesses investing in infrastructure or equipment gain a substantial upfront tax benefit, improving cash flow.
• Limitations: Projects not meeting eligibility criteria in timeframes specified by the Act could lose out on these benefits. Companies should monitor acquisition and placement timelines closely to avoid issues.

4. Updates to section 199A (pass-through deduction)

The OBBBA permanently extends the 20% deduction for qualified business income (QBI), but increases the income phase-out thresholds to $75,000 for single filers and $150,000 for joint filers, effective 2026. Additionally, a $400 minimum deduction has been introduced for certain qualified taxpayers.

Implications for businesses

• Smaller pass-through entities may find expanded access to this provision useful.
• High-income filers in phase-out thresholds must consider how W-2 wages or property basis changes affect deductions.

5. Other domestic tax highlights

• SALT deduction cap: Temporarily increased to $40,000 (from $10,000) in 2025 through 2029, allowing businesses and individuals to write off more state and local taxes.
• Energy incentives removed: Several green energy credits tied to the Inflation Reduction Act have either been repealed or phased out, redirecting focus away from renewable projects.

[Hear from experts at EY, Grant Thornton, and Bloomberg Tax on the key provisions enacted in the OBBBA and their impact on business tax obligations, deductions, credits, and business entity structures. Watch the webinar.]

Key international tax updates

1. GILTI becomes net CFC tested income (NCTI)

GILTI is renamed NCTI and amended, effective 2026. The tangible asset exclusion (QBAI) is repealed, broadening the scope of income subject to U.S. tax. However, the foreign tax credit haircut decreases to 10%, and some expense apportionment requirements have been eased.

Implications for businesses

• Multinationals can expect higher tax burdens for low-tax jurisdictions but may see relief in accessing foreign tax credits.
• Companies operating in jurisdictions with higher tax rates might face reduced exposure due to better credit mechanisms.

2. FDII Becomes foreign-derived deduction eligible income (FDDEI)

FDII’s transformation to FDDEI under the OBBBA eliminates the QBAI penalty, broadens eligibility, and lowers the deduction rate slightly to 33.34%, effective 2026. These changes make the regime accessible to manufacturing-heavy industries previously penalized by tangible asset restrictions.

Implications for businesses

• Manufacturers and heavily leveraged companies should revisit their FDII eligibility to leverage these friendlier rules.
• Watch for potential interplay between FDII deductions and domestic incentive provisions, as business models may need fine-tuning.

3. Downward attribution fix

The OBBBA reintroduces limitations on “downward attribution” rules, ensuring that foreign-affiliated entities are not unintentionally classified as CFCs unless there is actual U.S. ownership control.

Implications for businesses

• Businesses can avoid unnecessary complexity stemming from reduced controlled foreign corporation (CFC) inclusions.
• However, compliance efforts for genuinely applicable CFC structures remain unchanged.

4. BEAT Updates

While the BEAT rate increases slightly to 10.5%, concerns over material expansion of its applicability were avoided in the final law. For businesses, this provides continuity without sudden structural changes, limiting uncertainty.

[Download our Guide to the One Big Beautiful Bill for concise summaries of tax law changes and side-by-side comparisons with prior law.]