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Client Alert: Important Tax Law Changes for Your Business Under the "One Big Beautiful Bill Act" (OBBBA)

As of July 4, 2025, the "One Big Beautiful Bill Act" (OBBBA) has been signed into law, bringing forth substantial and far-reaching changes to the U.S. tax code. These reforms will significantly impact how your business files its tax returns, whether you operate as a C-Corporation (Form 1120), an S-Corporation (Form 1120-S), or a Partnership (Form 1065).

Many of these provisions are effective for the 2025 tax year (returns filed in early 2026), making it crucial to understand how they will affect your bottom line and future tax planning. Here's a summary of the key changes:

Key Changes Impacting All Business Entities (C-Corps, S-Corps, Partnerships):

The OBBBA introduces several universal changes that will benefit most businesses, regardless of their entity structure:

• 100% Bonus Depreciation is Back and Permanent!
  
  
  
  
  • This is a massive win for businesses making capital expenditures. The bill permanently restores 100% bonus depreciation for qualified property acquired on or after January 20, 2025, and placed in service before January 1, 2030 (with a slightly longer window for certain long-production-period property). This means you can immediately deduct the full cost of eligible new or used machinery, equipment, certain qualified improvement property, and off-the-shelf computer software, rather than depreciating them over several years.
  
  
  • Note: Property placed in service between January 1, 2025, and January 19, 2025, will still be subject to the previously scheduled 40% bonus depreciation rate.
  
  
  
  


• Immediate Expensing for Domestic R&D Costs:
  
  
  
  • For tax years beginning after December 31, 2024, businesses can now elect to immediately deduct 100% of their domestic research and development (R&D) expenditures in the year incurred. This reverses the TCJA's requirement to amortize these costs over five years, significantly improving cash flow for innovation-driven companies. (Note: Foreign R&D expenses still require 15-year amortization.)
  
  
  
  


• Increased Section 179 Expensing Limits:
  
  
  
  • The maximum amount you can expense under Section 179 has been significantly increased to $2.5 million (up from $1 million), with the phase-out threshold rising to $4 million (up from $2.5 million) for property placed in service after December 31, 2024. These amounts will be indexed for inflation.
  
  
  
  


• Relief on Business Interest Deduction Limitations (Section 163(j)):
  
  
  
  • For taxable years beginning after December 31, 2024, the calculation of "Adjusted Taxable Income" (ATI) for purposes of the 30% limit on business interest deductions will exclude depreciation, amortization, and depletion deductions. This change effectively returns to a more favorable EBITDA-like calculation, allowing many businesses to deduct more of their business interest.
  
  
  
  


• New 100% Expensing for "Qualified Production Property" (Temporary):
  
  
  
  • A brand new provision allows for 100% expensing of the cost of new non-residential real property placed in service before January 1, 2034, provided its construction began after December 31, 2024. This applies to real property used as an integral part of manufacturing, production, or refining of certain tangible personal property in the U.S. This excludes property used for offices, sales, or research. This is a significant incentive for U.S. manufacturing expansion.
  
  
  
  


• Employee Retention Tax Credit (ERC) Clawbacks & Penalties:
  
  
  
  • The OBBBA retroactively bars the IRS from issuing refunds for Q3 2021 (and some Q4 2021) ERC claims filed after January 31, 2024. The IRS's statute of limitations to examine and deny or "claw back" erroneous ERC claims for these affected quarters is extended from five to six years. Businesses that claimed the ERC should be prepared for increased scrutiny. New penalties also apply to ERC promoters.
  
  
  
  

Specific Impacts by Entity Type:

C-Corporations (Form 1120):

• Corporate Tax Rate Unchanged: The flat corporate income tax rate remains at 21%.


• Corporate Charitable Contribution Floor: A new 1% "floor" on corporate charitable deductions is introduced, meaning corporations can only deduct charitable contributions to the extent they exceed 1% of the corporation's taxable income, in addition to the existing 10% "ceiling."


• Significant International Tax Reforms: For C-Corps with foreign operations, the OBBBA implements substantial changes to the U.S. international tax framework, including:
  
  
  
  • Reduced GILTI and FDII Deductions: The Section 250 deductions for Global Intangible Low-Tax Income (GILTI) and Foreign-Derived Intangible Income (FDII) are permanently decreased to 40% and 33.34% respectively, impacting the effective tax rate on these income streams.
  
  
  • BEAT Rate Increase: The Base Erosion and Anti-Abuse Tax (BEAT) rate is permanently set at 10.5%.
  
  
  • Foreign Tax Credit Changes: Adjustments to deemed paid credits and limitations on foreign tax credits related to certain distributions.
  
  
  • Restoration of Downward Attribution: Section 958(b)(4) is restored, impacting how U.S. shareholder status and Controlled Foreign Corporation (CFC) status are determined, potentially affecting the taxation of foreign subsidiaries.
  
  
  
  

S-Corporations (Form 1120-S) & Partnerships (Form 1065):

As pass-through entities, S-Corps and Partnerships generally do not pay income tax at the entity level. Instead, income and deductions flow through to the owners' individual tax returns (Form 1040). Therefore, the following changes primarily impact your individual tax situation as a business owner:

• Qualified Business Income (QBI) Deduction (Section 199A) Made Permanent!
  
  
  
  
  • The popular 20% QBI deduction for pass-through entities has been permanently extended. The OBBBA also includes taxpayer-favorable adjustments to the phase-in ranges for the deduction, potentially allowing more business owners to fully utilize this benefit. This means a sustained reduction in taxable income for many S-corp shareholders and partners.
  
  
  
  


• Excess Business Loss (EBL) Limitation Made Permanent:
  
  
  
  • The limitation on excess business losses for noncorporate taxpayers (which includes S-corp shareholders and partners) is now permanent. This means that business losses exceeding a certain threshold (adjusted for inflation) cannot be fully deducted against non-business income in the current year. Any excess losses are carried forward to future years.
  
  
  
  


• Impact of Individual Tax Changes: As mentioned above, since S-Corp and Partnership income flows to your individual return, many of the OBBBA's individual tax changes (e.g., permanent individual tax rates, increased standard deduction, SALT cap changes, new tip and overtime deductions) will ultimately affect your personal tax liability derived from your business income.

What This Means for Your Business:

The "One Big Beautiful Bill Act" brings both significant opportunities and new complexities. Here's how you should prepare:

• Capital Investment Planning: The restoration of 100% bonus depreciation and the increased Section 179 limits provide a strong incentive for immediate investment in qualified business assets and manufacturing facilities.


• R&D Strategy Review: If your business engages in research and development, the immediate expensing of domestic R&D costs offers a substantial cash flow advantage.


• Interest Expense Analysis: Re-evaluate your business's interest expense deductions based on the updated Section 163(j) rules.


• International Operations Review: If your C-Corp has foreign subsidiaries or operations, the international tax reforms necessitate a thorough review of your tax planning strategies.


• ERC Claim Verification: If you claimed the Employee Retention Tax Credit, be aware of the extended statute of limitations and potential increased IRS scrutiny.

We are here to help you navigate these changes. The specific impact of the OBBBA on your business will depend on your unique circumstances, entity structure, and operations. We highly recommend scheduling a consultation with our team to discuss your particular situation and develop a proactive tax strategy.

Sincerely,

RUCHI GUPTA CPA LLC

Important Disclaimer: The information contained in this newsletter is provided for general informational purposes only and is not intended to be, and should not be construed as, tax, legal, or accounting advice. While we have made every effort to ensure the accuracy and completeness of the information, tax laws are complex and subject to constant change. The "One Big Beautiful Bill Act" (OBBBA) introduces significant changes, and its full implications may require further guidance or interpretation.