With greater predictability built into the tax code, year-end tax planning for businesses becomes more about strategic planning and less about rushing to use expiring incentives.
Among its nearly 900 pages, the One Big Beautiful Bill Act (OBBBA), signed in July 2025, overhauls the tax landscape and brings a new lens to planning. Between permanent expensing provisions and larger deductions, businesses across industries have an opportunity to tie these provisions to broader business decisions and find the interconnectedness where tax strategy, cash flow, and growth align.
As the year winds down, businesses should take this opportunity to evaluate the new rules and plan how to maximize their benefits.
100% Bonus Depreciation and Section 179
The OBBBA reinstates and makes permanent 100% bonus depreciation on qualified assets placed in service after Jan. 19, 2025, ending the planned phase-out that was scheduled to reduce the incentive over time. It also doubles the Section 179 expensing limit to $2.5 million (from $1.25 million) and raises the threshold to $4 million (from $1.25 million).
In general, qualified property includes:
- Tangible assets with a recovery period of 20 years or less (equipment, vehicles, furniture, and fixtures)
- Computer software
- Qualified improvement property
- Certain production costs (film, television, live theatre)
Planning opportunities: Front-loading deductions could potentially provide a short-term cash flow advantage by lowering current-year taxable income and freeing funds that would have otherwise been paid in taxes. From there, that liquidity can either be reinvested back into the business, applied to debt, or used for working capital.
That said, if the immediate deduction is large enough to create a net operating loss, businesses should model whether deferring part of the expense would better preserve taxable income for future periods. In addition, it could also affect how performance is perceived by lenders and investors, which in turn, may influence loan ratios, valuations, and transaction optics.
R&D Expensing for Domestic Activities
The research and development (R&D) tax credit has also been reinstated and made permanent under the OBBBA. Starting in 2025, businesses can elect to:
- Immediately deduct domestic R&E expenses in the tax year incurred.
- Capitalize and amortize them over the life of the project (min. of 60 months) or over 10 years.
- Amend prior year returns for 2022-2024 costs, if eligible as a smaller business.
Planning opportunities: Businesses that invest heavily in innovation could stand to benefit from stronger cash positions, particularly those in the technology, healthcare, and manufacturing sectors. However, before deciding on an expensing strategy, it’s important to run multiyear projections to weigh the outcomes of full expensing versus amortizing those costs over several years. Be sure to factor in how each choice may interact with other provisions to avoid downstream impacts on taxable income and future tax positions.
Higher Business Interest Expense Limit
The EBITDA calculation is back and welcomed news for manufacturers, construction companies, and other capital-intensive businesses. Beginning in 2025, the OBBBA adds back depreciation and amortization into adjusted taxable income (ATI), effectively increasing the base used to determine how much interest expense can be deducted under the 30% limitation.
Planning opportunities: With more room to deduct interest expenses, the restored calculation gives businesses more flexibility in managing debt and capital structure. Companies financing equipment, facilities, or expansion projects may see improved after-tax cash flow, making borrowing a more attractive tool for growth.
Higher leverage can also increase risk, so modeling interest coverage ratios under different earnings scenarios is still critical. Businesses should also combine both regular and capitalized interest when calculating their deductions, since the new rule treats them together and could change how financing and inventory costs are recorded.
Expanded Qualified Small Business Stock Exclusions
The new rules under the OBBBA for Qualified Small Business Stock (QSBS) help owners and investors in qualifying C corporations reduce or even eliminate federal tax when they sell their shares. Designed to incentivize investment, these changes give growing businesses more flexibility to raise capital and plan for future ownership transitions.
For QSBS issued after July 4, 2025, the OBBBA introduces the following revisions:
- Shorter holding periods: Under previous law, investors had to hold QSBS for at least five years to qualify for any tax exclusion. The OBBBA implemented a new tiered system: 50% exclusion if held three years, 75% exclusion if held for four years, and 100% exclusion if held for five years.
- Higher exclusion cap: The amount of gain that can be excluded from federal tax increased from $10 million to $15 million.
- Broader eligibility: The gross asset threshold rose from $50 million to $75 million.
Planning opportunities: The new QSBS rules give privately held businesses an opportunity to revisit their entity structure. With the threshold now raised to $75 million, business can remain pass-through entities longer to use early-stage losses, then convert to a C corporation once they’re ready to raise capital or issue stock.
To stay within the $75 million limit, businesses need to keep close track of what the business is worth. Those nearing the threshold amount should obtain a formal valuation before bringing in new investors, buying major assets, or changing ownership. For investors planning an exit earlier than five years, the OBBBA’s tiered exclusion system allows for partial tax benefits, and any taxable portion can be rolled over into another qualified small business within 60 days under Section 1045 to defer tax on the gain.
No Tax on Tips or Overtime
New payroll-related changes stemming from the OBBBA will take effect in 2025 through 2028, introducing new deductions and reporting thresholds that will impact employers, workers, and independent contractors.
Although these new deductions are claimed on individual tax returns, employers and payroll providers are responsible for accurately tracking and reporting tip and overtime income so eligible workers can claim them. Doing so may require updates to payroll processes and systems to capture the necessary data.
The following outlines the details behind these new provisions:
No Tax on Tips
- Qualified workers can deduct up to $25,000 of reported tips.
- The deduction phases out once modified adjusted gross income (MAGI) exceeds: $150,000 for single filers and $300,000 for joint filers (married couples must file jointly).
- The IRS provides a list of 68 occupations that may qualify for the deduction, including in the restaurant, hospitality, salon, and valet service industries.
- Tips must be voluntary and reported to qualify; automatic or mandatory service charges do not apply.
No Tax on Overtime
- Employees who work overtime can now deduct the “extra” half above their base rate (not the full amount).
- The maximum deduction is: $12,500 for single filers and $25,000 for joint filers.
- The phaseout thresholds mirror those for the tip deduction: $150,000 of MAGI for single filers and $300,000 for joint filers (married couples must file jointly).
For independent contractors, the OBBBA also raises the reporting threshold from $600 to $2,000 (indexed for inflation) starting in the 2026 tax year.
Planning opportunities: Because automatic service charges don’t qualify as tips, restaurants, clubs, and other service-based businesses may want to reconsider policies for large parties or events and confirm that their point-of-sale systems can clearly separate voluntary tips from service charges.
Employers should also be sure that their payroll systems can identify the premium portion of overtime pay, since only that amount is eligible for the deduction. Clear reporting will help employees claim their deductions accurately and reduce the chance of filing errors once the new rules take effect in 2025.
Permanent QBI Deduction
In what was set to expire at the end of this year, the 20% qualified business income deduction under section 199A was made permanent under the OBBBA. This means owners of pass-through entities will receive a lower top federal tax rate on qualified business income of 29.6%, compared to the ordinary top rate of 37%. The OBBBA also includes minor adjustments to the income phaseouts to reflect inflation.
Planning opportunities: From a planning standpoint, permanence of the QBI deduction provides long-term rate stability for pass-through businesses. Owners can evaluate compensation structures, distributions, and reinvestment strategies with greater certainty about after-tax outcomes. The continued availability of the deduction also helps offset tax exposure for asset-intensive operations where depreciation recapture and other ordinary income adjustments may increase taxable income.
Next Steps
While in some years minimal legislative changes may prompt idleness in planning, this is not one of those years. The OBBBA represents one of the most comprehensive sets of tax updates in recent times, affecting everything from expensing, payroll, and entity-level taxation. If leveraged effectively, the new provisions could mean savings of thousands—if not millions—when applied strategically. The focus needs to shift from the individual tax code to broader strategy: how can businesses align the new legislation with capital investments, cash flow, and innovation to create long-term value?
For some, adapting to these changes will be a heavy administrative and financial lift. The scope of new rules makes coordination with advisors critical to avoid missed opportunities and compliance setbacks.
Contact Kerry McMenamy at kerry@erocktax.com or 781-247-5569 to connect the dots across business, tax strategy, and personal financial planning. When all the moving parts are aligned, year-end planning can be a proactive exercise that can influence long-term outcomes.
