Tax Law Changes - For Businesses

Hello! I hope that you are having a good day.

It is time to explain more about that new law that just passed, in the "One Big Beautiful Bill Act" (OBBBA). Again, I think that it is important to note that "beauty is in the eye of the beholder".

This post is to provide insight to business owners and those with interests in a business, in how the new tax law might change the way that they operate their business.

Tax law is complex, and you can trust us at Cloud Financial Solutions to implement the best tax strategies for your business. Adam Ausperk, the writer of this post, has over 14 years of full time experience working in taxation, teaches taxation as a professor, and has been a CPA in Ohio for 11 years. Adam is well prepared to help your business find the best tax solutions.

This post does not cover all of the ways that the OBBBA will affect businesses, it will instead focus on the most impactful parts of the OBBBA as the OBBBA relates to business operations.

Bonus depreciation & section 179 expensing

The bonus depreciation rate was going to be just 40% in 2025 before the OBBBA was passed. Now, full 100% expensing has returned to being the law for 2025 and also moving forward. The section 179 limitation for the amount of assets that can use full section 179 expensing has also more than doubled to being $ 2.5 million.

The effect of these changes would be that businesses will invest more in machines, equipment, and qualified improvement property.

These are permanent changes, and will not automatically expire in a future tax year

Research & experimental cost expensing

From a businsess perspective, one of the major issues of the Tax Cuts and Jobs Act of 2017 was complying with the disallowance and resulting necessary capitalization of research & development costs. Prior to the OBBBA, these costs were required to be capitalized and expensed over 5 years for domestic based research, and over 15 years for foreign based research.

The OBBBA bill aimed to fix the problems that the TCJA created regarding the treatment of R&D expenses. Beginning on January 1, 2025, all R&E expenses are deductible in year 1. The capitalization requirement has been removed.

Small businesses can also generally elect to amend their tax returns beginning with the 2022 tax year to treat R&E expenses as being deductible. If a business has capitlalized R&D costs from prior years on their tax balance sheet, the OBBBA allows the business to deduct those costs over a 1 or 2 year period, beginning with the 2025 tax year.

These are permanent changes, and will not automatically expire in a future tax year

No federal tax on overtime compliance and planning opportunity

Businesses now have the ability to pay wages to hourly employees that is tax free to the employee, and also deductible to the business. The limit for such wages is $12,500 per employee. So a business can plan to pay overtime up to $ 12,500, and not more, to its employees, and in doing so will increase the after tax wealth of their employee more than standard wages would.

When planning for the tax exclusion on up to $12,500 in wages, businesses should consider that the exclusion would have limited or no effect on employees that are reasonably expected to have modified adjusted gross income that exceeds $ 150,000. This is because once an individual's MAGI begins to exceed $ 150k, the deduction for overtime wages up to 12.5k begins to phase out.

Businesses will also need to take care to fulfill the requirement of reporting the overtime wages that could be eligible for the deduction separately on the employees W-2.

The no tax on overtime provision is by law schedled to end after the 2028 tax year

No federal tax on tips compliance and planning opportunity

Restaurants, banquet halls, bars, beauty salons, barber shops, listen up! You should be taking action now to help your employees to have an efficient and easy process for having their tips to not be taxed.

Up to $ 25,000 in tips will not be taxable to individuals that have a modified adjusted gross income of 150k or less beginning in 2025. You will need to furnish a statement to your tipped employees at year end that tells them how much tips constituted their total annual wages. Tips received in excess of 25k will be taxed.

The no tax on tips provision is by law schedled to end after the 2028 tax year

Section 163(j) use of EBITDA for the limitation on business interest

In a taxpayer friendly move, the OBBBA reinstates the use of EBITDA in the calculation of the section 163(j) interest expense deduction limitation. The OBBBA also made the use of EBIDTA permanent.

This is a permanent change, and will not automatically expire in a future tax year

Form 1099 reporting threshold increase for some payments

Before the OBBBA, 1099 reporting was generally required for payments to people engaged in a trade or business when those payments exceeded $ 600 in a tax year. After the OBBBA, certain types of these payments will only be required to be reported with Form 1099 when they exceed $ 2,000.

This is a permanent change, and will not automatically expire in a future tax year

Section 461 "excess business loss" limitation continuation

The Tax Cuts and Jobs Act of 2017 introduced the the excess business loss limitation, which limited the amount of a business loss that an individual taxpayer can use against his or her personal income. If, after a threshold limitation as well as the passive activity and at-risk rules, a loss remained, it would become a business NOL that is deductible only against busines income in future years.

The EBL rules were scheduled to expire in 2028. The OBBBA made the EBL rules permanent. This part of the OBBBA could impact S-Corp owners and partners in partnerships.

This is a permanent change, and will not automatically expire in a future tax year

Elimination of many "clean energy" tax credits

The below tax credits have been eliminated as a result of the OBBBA. In parentheses you can find the effective date of a given type of credit's elimination.

Previously owned clean vehicle credit (9/30/2025), clean vehicle credit (9/30/2025), qualified commercial clean vehicle credit (9/30/2025), alternative fuel vehicle refueling credit (6/30/2026), energy-efficient home improvement credit (12/31/2025), residential clean energy credit (12/31/2025), energy-efficient commerical buildings deduction (6/30/2026), new energy-efficienct home credit (6/30/2026), clean hydrogen production credit (1/1/2026), and the sustainable aviation fuel credit (9/30/2025).

Other clean energy credits and tax breaks have been modified, including the nuclear power production credit, clean electricity production credit, clean electricity investment credit, and the clean fuel production credit.

These are permanent changes, and will not automatically expire in a future tax year

Just like with the blog for individual tax impacts, this is a lot! But there is also a lot more in the OBBBA that could affect businesses. With that said, I will note that the "big ticket" items are noted above.

All businesses are required to pay taxes. Cloud Financial Solutions, LLC is here to help your business best plan for and comply with the tax laws that exist in the jurisdictions in which your business operates. Consider if asking for professional help in the tax world might help your business, and reach out to us at Cloud Financial Solutions at any time!

Please have a good day!