In our last article, we discussed the numerous changes the One Big Beautiful Bill (BBB) made to your individual tax return.   The law also makes significant changes to business taxes that will help owners, especially middle-class entrepreneurs, reinvest in their business, community, and family.  

Although large corporations will also benefit from the BBB, the savings are geared to incentivize factory construction, investments in technology and equipment, and the expansion of US domestic operations.  Money must be spent on these activities to reduce taxes, making the law a far cry from being a batch of corporate crony handouts.  

How will the Big Beautiful Bill impact businesses?  In this article, we’ll discuss some major provisions, including two significant changes for small business owners and a number geared to incentivize larger corporations to invest in US operations.  

Contents:

• The Qualified Business Income Deduction Made Permanent
• 100% Bonus Depreciation Made Permanent
• Clean Energy (Wind & Solar) Production Credits Eliminated
• Alternative Fuel Vehicle Refueling Property Credit Eliminated
• Commercial Electric Vehicle Credit Eliminated
• Immediate Research and Development Expensing 
• Expensing of Qualified Production Property
• Section 179 Expensing Election Increased
• Business Interest Limitations Recalibrated

SMALL BUSINESS PROVISIONS

The Qualified Business Income Deduction Made Permanent

This is a big deal.  In my experience, the Qualified Business Income (QBI) Deduction represents the most significant (and poorly communicated) middle-class tax cut in history.  It arrived with the creation of Internal Revenue Code Section 199A via the Tax Cuts and Jobs Act of 2017 and was scheduled for elimination after 2025.  In the paragraphs that follow, I’ll share some good news and QBI basics.

Good News - The One Big Beautiful Bill makes the Qualified Business Income Deduction Permanent!  I should point out that, in taxation, the term permanent does not mean forever, as it can be easily altered or eliminated by future legislation.  But, by not having a set end date, it is hoped the provision will blend in and escape scrutiny.

What is the QBI deduction?  In a nutshell, the Qualified Business Income Deduction allows small business owners to deduct 20% of their business income from taxable income.  However, like anything tax-related, the rules governing the QBI deduction can become quite complex.  So, sticking to our nutshell discussion, the bottom line is this: If you’re a business owner (sole proprietor, partner, or S Corp shareholder) and your Adjusted Gross Income (AGI) is less than $197,300 if you’re single and $394,600 if you’re married, you’re (nearly) guaranteed a deduction equal to 20% of your business income! 

Middle Class Windfall: Most (by a vast margin) US business owners earn between $50,000 and $150,000 annually, placing them in the lower and middle-middle class (depending on where they live).  What impact can the 20% QBI deduction have on an owner’s livelihood?  Consider this example.  A single contractor who makes $100,000 profit in 2025 is in the 22% federal tax bracket.  The Qualified Business Income Deduction allows them to deduct $20,000 (20% of profit) from their taxable income.  The result: A $4,400 raise to spend on more employees, tools, advertising, food, kids’ clothes, whatever!

When Things Get Complicated: All business owners with Adjusted Gross Income below the thresholds listed above qualify for the full QBI deduction.  If their income exceeds this level, the calculation becomes more intricate.  Owners of Specified Service Trade or Businesses (one whose primary asset is the skill or reputation of employees or owner(s), such as law, healthcare, consulting, or investing), enter a phase-out range, and lose the deduction entirely once their income reaches $247,300 for single filers and $494,600 for those Married Filing Jointly.  

Owners with non-Specified Service Trade or Businesses can escape the phaseouts and qualify for the QBI deduction, but it’s limited by calculations involving non-owner wages and the purchase price of business assets. 

More QBI Changes: In addition to making the QBI deduction permanent, the One Big Beautiful Bill increases the upper end of the phaseout range mentioned above.  Single filers get a $25,000 boost, and married folks get $50,000.  This change takes effect in 2026 and will allow more owners to qualify. 

In a particularly complex and nonsensical wrinkle, the BBB also adds a minimum QBI deduction of $400 for active businesses earning at least $1,000 if the owner materially participates.

100% Bonus Depreciation Made Permanent

Bonus Depreciation allows owners to avoid depreciating property by automatically expensing a set percentage of qualified assets in the year purchased (or placed in service, if later).   Bonus depreciation had been on the way out, declining by 20% per year until it was scrapped after 2026.  For 2025, the bonus percentage was set to be 40%.

However, the BBB has retroactively reinstated 100% bonus depreciation for most tangible assets with depreciable lives of 20 years or less.  The retroactive date is January 19th, 2025, meaning that the asset must be purchased after this date to qualify.  Assets purchased in 2025 before the seemingly arbitrary date, January 19th, are stuck with the 40% limit regardless of when they are received from the seller and placed in service.

Bonus depreciation is required by law, meaning owners cannot choose which assets will be 100% depreciated in the first year.  They can, however, opt out of applying bonus depreciation for a particular class of assets (based on depreciable life) each year if needed.  This differs from Section 179 expense because, via Section 179, owners can choose how much of the asset they want to expense in the first year.  Additionally, bonus depreciation can help to generate a loss for the business; Section 179 cannot. 

LARGER BUSINESS PROVISIONS

Clean Energy (Wind & Solar) Production Credits Eliminated

These credits heavily subsidize the creation of solar and wind farms across the United States, providing owners with a taxpayer-funded subsidy equal to 30% of their cost.  The Big Beautiful Bill eliminates these credits for facilities placed in service after December 31st, 2027; December 31st, 2028, if construction begins before July 4th, 2026.  

Personal Note: I look forward to discovering if these farms are financially viable without taxpayer funding.

Alternative Fuel Vehicle Refueling Property Credit Eliminated

This is a long name for an electric vehicle charging station credit.  You’ve likely heard of the individual version, which is equal to 30% of hardware and installation costs up to $1,000.  The business version of the credit equals 6% of the cost up to $100,000 per location and includes a set of restrictive (to the point of being ridiculous) requirements.

Both versions of this credit disappear after June 30th, 2026.

Commercial Electric Vehicle Credit Eliminated

The Inflation Reduction Act of 2022 created several tax credits for the purchase of Electric Vehicles.  The credit is equal to 30% (up to $7,500 per vehicle) of the cost of qualified commercial electric vehicles with gross vehicle weight ratings (GVWR) under 14,000 pounds.  For commercial EVs with GVWRs over 14,000 pounds, the credit maxed out at $40,000.  Yes, you heard that right, $40,000!   Now, before you run out and purchase a brand-new electric tractor and trailer, let me cool your heels.  The credit only covers the extra (incremental) cost of foregoing a diesel to buy an EV, up to the lesser of 30% of its price or $40,000.

If you're still amped to buy the rig, you'd better get moving.  The Big Beautiful Bill ends these commercial credits effective September 30, 2025.  

For those interested, I discuss the fate of EV credit, including Congress’s foray into critical mineral market manipulation and the credit’s sloppy rollout, in our article Big Beautiful Tax Changes. 

Immediate Research and Development Expensing 

Research and Development (R&D) are covered under Section 174 of the Internal Revenue Code and include activities (investment) geared to improve products, processes, and technologies or generate new ones related to the organization's trade or business.  Examples are chemists experimenting on a compound that makes paint longer-lasting or sharpshooters paid to take shots at newly designed Kevlar vests.

Like the cost of building a house or manufacturing a cruise ship, one could (and many have) take the position that such expenses should be treated more like an asset.  This means you add them up and expense them over time as depreciation or amortization.  This was the case with the Tax Cuts and Jobs Act.  Starting in 2022 (contrary to the claims, the legislation amounted to a giant corporate crony kickback), the law required R&D costs occurring in the US to be amortized over 5 years and R&D taking place in other nations over 15 years.  

However, in a global marketplace, the rise and fall of nations follow military and economic innovation.  Does forcing innovators to pay higher taxes disincentivize investment in new technology?  Yes.  According to Bloomberg Tax, the growth rate of research and development decreased in anticipation of required amortization and decreased after becoming effective.

The BBB aims to reverse this trend by, once again, allowing companies to immediately expense R&D costs that occur in the United States after December 31, 2004.  It also includes a provision enabling smaller businesses (those with $31 million or less in annual receipts) forced to amortize US R&D costs to amend their return and claim the full deduction or expense them currently via what is called a Change in Accounting Method Application.  Foreign R&D expenditure treatment, however, remains the same - fifteen-year amortization.

Expensing of Qualified Production Property

The One Big Beautiful Bill added a new subsection to Section 168 of the tax code, which, in effect, creates a new form of bonus depreciation for U.S. manufacturing facilities.  Entities that build factories and production facilities for manufacturing qualified products in the United States can immediately expense the cost of the facility.  

Qualified products include most tangible property directly related to manufacturing, chemical, or agricultural production.  The property must be utilized by the builder (leased construction does not count) and directly related to the manufacturing process.  The construction of administrative areas, retail locations, parking lots, research and development, professional services, or engineering facilities (even if inside the factory) is excluded.

The provision is also temporary.  To qualify, construction must begin after January 19, 2025, and before January 1st, 2029, and be completed by December 31, 2030.

The United States has lost 30% of its manufacturing jobs since 1980, and, with those jobs, the ability to competitively create strategically vital items such as ships, heavy equipment, and medicine.   Like many of Big Beautiful Bill’s tax provisions, the goal here is to entice the reshoring of domestic manufacturing.  Generally, the cost of commercial real estate, including the most expensive of all, factories (which can run hundreds of millions of dollars), must be depreciated over 39 years.  The post-tax cash boost created by expensing the entire project may prove a competitive game-changer for these companies.  As Gollum might say as a financially savvy rabbit, “Code Section 168 is one precious carrot!”

Section 179 Expensing Election Increased

Section 179 of the Internal Revenue Code has been around for a long time, since 1958 in one form or another.  It allows businesses to expense a chosen amount of a qualified asset’s cost in the year they are placed in service.  Qualified assets include most tangible personal property, such as tools, equipment, off-the-shelf software, computers, and office equipment.  Business vehicles also qualify (with certain limits).  There is even a carveout for nonresidential building improvements, which otherwise would depreciate over 39 years, such as HVAC, fire suppression, and security systems.

For small businesses, particularly sole proprietors filing Schedule C, this ability allows them to control their income level to maximize certain credits while minimizing tax liability.  Bonus Depreciation, on the other hand, is “all or nothing” and does not offer this benefit.  Another factor differentiating Section 179 from bonus depreciation is that bonus depreciation can generate a business loss; Section 179 cannot.

I have included Section 179 in the larger business section because of the changes made by the Big Beautiful Bill.  Before the BBB, this expensing election was limited to $1,250,000 (2025).  The BBB doubles this limit, increasing it to $2.5 million for 2025, and indexes this amount for inflation.  It also increases the phaseout range that limits the application of Section 179.  This phaseout is a dollar-for-dollar reduction in the $2.5 million limit once the entity's amount of qualified property placed in service for the year exceeds $4 million (also indexed for inflation).  Before the BBB, this phaseout began at $3,130,000 (2025). 

Business Interest Limitations Recalibrated

The Tax Cuts and Jobs Act of 2017 created a permanent (remember what I said about something being permanent in the tax code?) interest limitation (IRC 163(j)) for large businesses, roughly defined as having average revenue of $30 million or meeting other criteria (in 2024).  It limited deductible interest to 30% of a company's Adjusted Taxable Income (ATI), which removed depreciation and amortization from the previously used Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

The Big Beautiful Bill restores the EBITDA definition in the interest limit calculations starting in 2025. It also made some modifications to IRS 163(j) specific to the camper and RV industry and changed some of the interest capitalization rules related to the 30% limitation.

Thanks for Reading!

Well, there you have it.  A summary of a few business tax provisions included in the One Big Beautiful Bill.  If you’re interested in cutting taxes or growing your business, we invite you to check out our blog and courses at Overnight Accountant and follow us on Twitter and YouTube.