On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. While the name may be lighthearted, the changes it introduces to the tax code are anything but. With a mix of favorable and less favorable updates for small business owners, it’s important to stay informed—and that’s where your Padgett advisors come in.
We’re keeping a close eye on the changes and how they may affect your business. Below is a summary of key business-related tax provisions you should know about. We’ll continue to monitor IRS guidance and provide updates as new details become available.
First-year bonus depreciation
The OBBBA permanently brings back 100% first-year depreciation for eligible assets you purchase after January 19, 2025. This is a significant jump from the previous 40% bonus depreciation rate, meaning you can now write off the full cost of qualifying equipment in the first year instead of spreading it over several years.
First-year depreciation for qualified production property
If you’re in manufacturing, there’s even better news. The law allows additional 100% first-year depreciation for qualified production property, which generally means nonresidential real property used in manufacturing. This benefit applies when construction begins after January 19, 2025, and before 2029, and the property must be located in the United States or its territories.
Section 179 expensing
For eligible assets placed in service during 2025, you can now immediately write off up to $2.5 million (doubled from the previous $1.25 million limit). The phase-out threshold has also increased to $4 million (up from $3.13 million). These amounts will adjust annually for inflation starting in 2026.
R&E expenditures
The OBBBA allows taxpayers to immediately deduct eligible domestic research and experimental expenditures starting in 2025, rather than having to spread them over five years as required before.
Small business taxpayers can generally apply this favorable rule retroactively to tax years beginning after 2021. If you made R&E expenditures from 2022–2024, you can elect to write off the remaining unamortized portion over just one or two years starting with your first taxable year beginning in 2025.
Business interest expense
For tax years after 2024, the OBBBA permanently restores a more favorable limitation rule for determining the amount of deductible business interest expense. Specifically, the law increases the cap on the business interest deduction by excluding depreciation, amortization and depletion when calculating the taxpayer’s adjusted taxable income (ATI) for the year. This change generally increases ATI, allowing taxpayers to deduct more business interest expense.
Qualified small business stock
The law makes it easier to qualify for tax-free gains on qualified small business stock (QSBS) by introducing a graduated system:
- 50% gain exclusion for QSBS held at least three years
- 75% gain exclusion for QSBS held at least four years
- 100% gain exclusion for QSBS held at least five years
These improvements generally apply to QSBS issued after July 4, 2025.
Excess business losses
The OBBBA makes permanent an unfavorable provision that disallows excess business losses incurred by noncorporate taxpayers. Before the new law, this provision was scheduled to expire after 2028.
Paid family and medical leave
The law makes permanent the employer credit for paid family and medical leave (FML). It allows employers to claim credits for paid FML insurance premiums or wages and makes other changes. Before the OBBBA, the credit was set to expire after 2025.
Employer-provided child care
Starting in 2026, the OBBBA increases the percentage of qualified child care expenses that can be taken into account for purposes of claiming the credit for employer-provided child care. The credit for qualified expenses is increased from 25% to 40% (50% for eligible small businesses). The maximum credit is increased from $150,000 to $500,000 per year ($600,000 for eligible small businesses). After 2026, these amounts will be adjusted annually for inflation.
Termination of clean-energy tax incentives
The OBBBA terminates a host of energy-related business tax incentives including:
- The qualified commercial clean vehicle credit, effective after September 30, 2025.
- The alternative fuel vehicle refueling property credit, effective after June 30, 2026.
- The energy efficient commercial buildings deduction, effective for property the construction of which begins after June 30, 2026.
- The new energy efficient home credit, effective for homes sold or rented after June 30, 2026.
- The clean hydrogen production credit, effective after December 31, 2027.
- The sustainable aviation fuel credit, effective after September 30, 2025.
Looking Ahead
Legislation like this takes time to fully digest, and the IRS is expected to issue further guidance in the months ahead. At Padgett, we’re staying ahead of the changes so you don’t have to.
While some of these updates may not apply to your specific business today, we’ll continue to monitor what’s relevant and help you prepare for what’s next.
Have questions about how these changes may impact your business? Reach out to your closest Padgett office today with any questions.