By Mark Puckett, CPA | Tax Principal
Most business owners were concerned about the impending expiration of the business-friendly provisions of the Tax Cuts and Jobs Act enacted in 2017 that were set to expire at the end of this year. The One Big Beautiful Bill Act (OBBBA) extends those business-friendly items and adds some new ones as well. The key highlights of the business-related provisions included in the legislation follow:
Qualified Business Income deduction made permanent: The legislation makes the Sec. 199A qualified business income (QBI) deduction permanent, maintaining the deduction rate at 20%.
Bonus depreciation: The legislation makes the Sec. 168 additional first-year (bonus) depreciation deduction permanent. It increases the allowance to 100% for property acquired and placed into service on or after January 19th, 2025.
Limit for Sec. 179 asset expensing increased: The legislation raises the maximum amount the taxpayer may elect to expense under Sec. 179 to $2.5 million. The deduction limit is reduced when the cost of qualifying asset additions exceeds $4 million.
Research-and-development expenses: The legislation restores the deduction for domestic research and development expenditures paid or incurred in tax years starting after December 31, 2024. Note however, smaller businesses (those with average annual gross receipts of $31 million or less) are permitted to apply this change retroactively to tax years beginning after December 31, 2021.
Limitation on business interest is relaxed: For tax years beginning after December 31, 2024, the legislation allows the interest expense deduction to be computed without regard to the deductions for depreciation, amortization, or depletion. Essentially, this change restores the prior EBITDA limitation.
Special depreciation deductions allowed for qualified production property: The legislation permits a first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property.” Qualified production property is nonresidential real property used in manufacturing.
Tax break for “small business” investors made more generous: The new law expands which businesses qualify and how much gain can be excluded when selling qualified small business stock.
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The entire OBBBA exceeds 900 pages in length and contains many complexities. There may be other beneficial provisions in the new law that may save taxes on your business income. Accordingly, please reach out to your ATA advisor to obtain further details and address your questions.