What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA, also called the “Big Beautiful Bill”) was signed into law by President Trump on July 4th. This legislation addressed a variety of priorities, with its many provisions relating to tax rates, credits, and deductions; border security priorities; and healthcare and entitlements.
Excitingly for businesses conducting R&D, the OBBBA ended the requirement of capitalizing domestic R&D expenses for tax years 2022 and forward (foreign R&D expenses must still be amortized over 15 years). Specifically, the OBBBA brings back full expensing of domestic R&D expenses for tax years 2025 and forward, which was the policy for several decades prior to 2022. Moreover, the legislation contains key relief for small businesses – allowing those businesses under $31 million in revenue with R&D expenses incurred between December 31, 2021 and January 1, 2025 to amend their prior year tax returns to claim available deductions and credits and expense R&D costs. Alternately, businesses of any size can “catch-up” on their deductions on 2025, or 2025 and 2026, filings.
Key Provisions of OBBBA
In addition to the fix for 174 expensing, the OBBBA includes a multitude of provisions geared towards reducing individuals’ and businesses’ tax burdens.
The bill makes permanent current tax rates, first specified in the 2017 Tax Cuts and Jobs Act, which were set to expire in 2025. It also includes provisions to reduce or eliminate tax on tips, overtime, and new car loan interest. Further, OBBBA put in place an additional deduction for seniors aged 65 or older. The cap for state and local tax (SALT) payment deductions was temporarily raised, while the Child Tax Credit and 179 deduction were increased. Additionally, 100% bonus depreciation for qualified capital expenditures has been brought back and the 199A deduction has been made permanent.
On the non-tax side, the OBBBA changed work and other eligibility requirements for benefits under Medicaid and the Supplemental Nutritional Assistance Program (SNAP). Moreover, OBBBA allocated additional funds for border enforcement and hiring as well as defense. The bill also raised the debt ceiling, enabling more borrowing to fund national priorities.
How the Section 174 Fix Will Help American Businesses
The Section 174 fix will allow American businesses to take the kinds of risks that result in new and improved products and technology. With this reinfusion of capital, businesses will be able to invest in more talent and better equipment. Small- and medium-sized businesses in particular will not need to resort to drastic measures like layoffs or owner-backed debt just to make ends meet. The multiple pathways to recouping lost deductions were designed to quickly get money back to American businesses at a critical juncture in our economic landscape.
Moreover, businesses will be less hesitant to claim the R&D tax credit, providing them with even more funding to continue America’s tradition of innovation across a range of industries. A furnituremaker will be able to invest in machinery to produce prototypes more quickly. A software developer will be able to recruit more technical resources to bring products to market faster. A chemicals manufacturer will be able to upgrade testing equipment for more accurate quality control. Thanks to this tax relief, millions of American businesses will benefit.
Next Steps
The IRS has released guidance on specific timeframes and procedures for businesses to recover their 174 deductions in the form of Rev. Proc. 2025-28. However, with the variety of approaches businesses can take, the advice of your CPA or an R&D expert will ensure you are maximizing on the value inherent to the new tax legislation.
alliantgroup has been at the forefront of R&D guidance for over twenty years. If you have questions on how the 174 fix can benefit your company, our experts are available for a gratis consultation at 844.524.0077, or you can book a time below:
