Several tax benefits that were previously expired or were set to expire at the end of 2025 will now continue due to the One Big Beautiful Bill Act (OBBBA) that President Donald Trump signed into law on July 4, 2025. Some tax benefits were enhanced or expanded.

According to Grant Thornton’s fourth quarter survey and as highlighted in CFO magazine, 44% of chief financial officers (CFOs) expect to benefit from OBBBA’s tax benefits. Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, summarized many of these specific opportunities in a virtual Small Business Update interview.

The tax cliff

The Tax Cuts and Jobs Act of 2017 (TCJA) lowered taxes on individuals, families, and large publicly traded corporations but also included features like the 20% qualified business deduction for small businesses. Many of the 2017 provisions were set to expire at the end of 2025. For the business community, OBBBA makes permanent many expiring items, which provides the clarity and stability businesses need to plan, including potential reinvestment in workforce or expansion of operations. Some items that have been made permanent include the 20% qualified business income (QBI) deduction, the 100% bonus depreciation, and business interest deduction.

The 20% qualified business income (QBI) deduction, Section 199A, is for pass-through businesses such as LLCs, S corps, and sole proprietorships. Additionally, taxpayers with at least $1,000 of QBI from eligible businesses are eligible for a minimum deduction of $400, adjusted for inflation. This minimum deduction amount spreads the benefit to include owners of even very small businesses.

The 100% bonus depreciation allows businesses to deduct the full amount in the first year instead of spreading depreciation deductions for capital equipment over several years under the Modified Accelerated Cost Recovery System (MACRS) rules. This encourages investment by improving cash flow (lower taxes) for businesses putting qualifying equipment into service. Under (IRC) Section 168(k), the ability to deduct the entire cost of new capital is retroactive to January 19, 2025. Apart from bonus depreciation under OBBBA, a Section 179 deduction may be allowed for investment in qualified equipment and certain other assets subject to limitations. OBBBA increased the Section 179 deduction cap from $1 million to $2.5 million for property placed in service after December 31, 2024.

Business interest deduction restores and makes permanent TCJA’s original, more favorable EBITDA-type calculation of the business interest deduction limit for tax years beginning in 2025. Taxpayers are generally allowed to deduct business interest expenses only to the extent of business interest income plus 30% of adjusted taxable income (ATI). The higher the calculation of ATI, the higher the amount of deductible business interest. The OBBBA increases the amount of business interest expenses that taxpayers will be allowed to deduct by removing depreciation, amortization, and depletion deductions from the calculation of ATI. This is particularly beneficial for capital-intensive businesses that carry debt.

Research and experimental expenses

According to the IRS and tax firms that specialize in research tax credits, research and experimental (R&E) expenditures are those that represent research and development costs in the experimental or laboratory sense. These expenses are incurred to discover information that will eliminate uncertainty about the development or improvement of a product, process, or design. The term product is broadly defined: it can include a pilot model, process, formula, invention, technique, patent, or similar property. This type of developmental spending can be materially significant in value for start-up technology or early-stage life science companies.

Prior to TCJA, companies could choose to immediately deduct (expense) R&E costs or amortize them (capitalize) over a period of not less than five years. Starting in 2022, however, the law changed to require that R&E expenditures be amortized. The OBBBA restores the R&E deduction and the ability to deduct US-based research, development, and experimentation expenses in the year incurred versus amortizing. OBBBA also provides a mechanism to catch-up or accelerate the deduction.

For small businesses, if a company has gross receipts of less than $31 million and R&D expenses that have been amortized over the last several years, this tax change is retroactive back to January of 2022. Therefore, it's an opportunity to go back and revisit recent tax filings and get the entire benefit of fully deducting R&D expenses. Additionally, if as a small business owner it's too much trouble to go back and revisit those prior filings, there is also the ability to pull forward any remaining unamortized balances into the next two years and get a more immediate tax benefit when filing taxes calendar year 2025.

OBBBA also allows small businesses and startups to receive refundable credits, meaning companies can receive cash returns even if they have not yet generated taxable income.

State and local tax

Historically, companies can deduct taxes paid to the state or local governments (income taxes or property taxes, for example) on a federal tax return. This is referred to as the state and local tax (SALT) deduction. In 2017, however, the deductible amount was capped at a $10,000 deduction for state and local taxes. Any taxes above $10,000 could not be deducted on a federal return. The new bill increases that SALT cap to $40,000 for those with income of less than half a million dollars a year. For small business owners in high-tax states like California or New York, the new $40,000 SALT cap could translate into significant savings. For instance, a business owner paying $30,000 in state income taxes can now deduct the full amount.

Employee paid leave and other benefits

Given the tight labor market and the concern around workforce hiring and retention, small business owners may also want to consider some other opportunities in the OBBBA. These opportunities help companies better compete for employees by offering benefits on childcare, student loan reductions, or the structure of compensation and overtime.

Employers are required to provide unpaid time for certain family and medical leave under the Family and Medical Leave Act (FMLA). In the TCJA 2017 bill, Congress created a tax credit that was eligible for businesses in states that did not have state paid-leave requirements. If employers decided to provide pay for their employees while on FMLA, the 2017 provision provided a partial tax reimbursement. For example, if the employer was paying 50% of wages, reimbursement was approximately 12.5%, and this could escalate to 25%.

The provision would have expired on December 31, 2025, but OBBBA offers three changes related to tax credits. First, it makes the tax credit permanent. Second, if a company is located where the state requires the company to offer some levels of paid medical leave, this previously was not eligible for the tax credit. Now, employers in all 50 states may qualify for it. Third, many businesses, particularly small businesses, use an insurance program to provide their employees with paid leave. Previously, the tax credit could not be applied toward those insurance premiums. OBBBA now permits the use of the tax credit for the insurance premiums an employer paid to help employees access paid medical leave.

In the 2017 TCJA bill, Congress provided a modest tax credit for expenses that a business incurs in providing either on-site or other off-site childcare accessible to their employees. Generally, only the biggest companies could afford the expenses of putting together some type of on-site or accessible off-site childcare. OBBBA has several important elements that will help small businesses. First, it increases the value of the tax credit for an eligible small business (defined as less than or equal to $31 million for 2025) up to $600,000 or 50% of the costs (versus $500K and 40% for other companies. Second, multiple small businesses in the community can get together in a pool of childcare services, and each company can take advantage of this child tax credit. This expands access for childcare, particularly for small employers that cannot normally afford to do it on their own. Dependent-care flexible spending accounts (FSA) limits also increase under OBBBA from $5,000 to $7,500.

Another small business opportunity that has been made permanent under OBBBA allows employers to contribute up to $5,250 annually per employee toward student loan repayment without those payments being counted as taxable wages. Originally expanded by pandemic relief measures, this provision allows workers to receive tax-free help paying down qualifying student debt. Employers can include student loan payments as part of their broader educational assistance programs, which traditionally cover tuition, books, and other education expenses.

Under OBBBA, tips and overtime will not be taxed for tipped employees in a traditional tip occupation (servers at restaurants, barbers and beauticians, Uber drivers, and so on). For those individuals, up to $25,000 in tips (phase-out limits apply) can be deducted or excluded from income. For overtime, individuals and couples can exclude the first $12,500 and $25,000, respectively, with phase-out limits.

This benefits employees who earn tips or get overtime. The issue for employers will be navigating possible new employee interest in more compensation in the form of tips or additional overtime pay as a form of compensation, as well as adjusting work schedules or overtime or method of how tips are pooled, for example. Small businesses are more likely to have employees who are subject to tips and overtime, and this could provide these types of businesses with more flexibility in attracting workers or meeting short-term workforce needs.

Reduced administrative burden

Finally, to reduce the paperwork and compliance burden for small businesses that pay many contractors or smaller payments, under OBBBA, the threshold for reporting payments on 1099-MISC and 1099-NEC rises from $600 to $2,000 for independent contractors and service providers. For third-party settlement organizations, the 1099-K reporting threshold returns to $20,000 and 200 transactions.

Table 1: Summary of why OBBBA changes matter.

What can you do?

Despite CFOs’ generally positive view of the OBBBA, concerns remain around the understanding and implementation of the law’s business tax provisions, especially with regard to eligibility and compliance requirements. Some small business owners and CFOs may lack confidence in their ability to take advantage of these opportunities on their own. Consider your company’s internal people and experience, and lean on other more knowledgeable finance professionals or service providers.

• Work with your accountant or tax professional to determine your QBI eligibility and claim the maximum deduction each year.

• Review past returns with your tax professional to seek retroactive R&E refunds on all domestic expenses if eligible.

• Consider accelerating or increasing purchases of machinery, software, or other qualifying property to leverage increased Section 179 depreciation expensing.

• Evaluate options for providing or expanding employee child-care benefits or programs and coordinate with nearby businesses if pooling is an option.

• Talk with a tax advisor about no tax on tips and overtime for your employees.