By John Rose, Sam Tuck, Jeffrey Gershen; Aprio

The tax landscape for U.S. businesses is undergoing a dramatic transformation with the enactment of H.R.1, commonly known as the One Big Beautiful Bill (OBBB). Signed into law on July 4, this legislation extends, modifies, and, in many cases, makes permanent key provisions initially established under the Tax Cuts and Jobs Act (TCJA) of 2017. For business owners and financial leaders, these changes will require a careful reassessment of tax strategies, compliance procedures, and long-term planning.

Research and Development: A Shift Back to Domestic Investment

One of the most significant modifications affects research and experimental (R&E) expenditures under Section 174. Under the TCJA, businesses were required to capitalize domestic R&E expenses and amortize them over 60 months, or 180 months for foreign research. Prior to the TCJA, businesses could immediately expense these costs, allowing greater flexibility in managing tax liabilities.

The OBBB restores the ability for businesses to deduct domestic R&E expenditures, signaling a clear policy goal: incentivizing investment in U.S.-based research. This change applies to tax years beginning after December 31, 2024, and does not affect foreign R&E expenditures, which continue to require capitalization. Businesses that previously capitalized domestic R&E can elect to adopt this new method, effectively changing their accounting approach without triggering adjustments under IRC §481(a).

To ease the transition, the legislation includes two key options. Small businesses may retroactively apply the deduction to tax years beginning after December 31, 2021, by filing amended returns. Eligible businesses are defined by the gross receipts test under IRC §448(c), with a threshold of $31 million in average annual receipts for the preceding three years. Alternatively, all taxpayers may elect to deduct unamortized amounts for domestic R&E incurred after December 31, 2021, but before January 1, 2025, either in full in the first year or ratably over two years. These provisions aim to reduce compliance burdens while aligning deductions with the new policy priorities.

Qualified Business Income and Excess Loss Rules

The OBBB also makes the Qualified Business Income Deduction (QBID) permanent, extending its benefits to higher-income taxpayers and introducing a minimum deduction for certain eligible taxpayers. The updated rules increase the phase-in threshold, allowing more individuals to benefit from the deduction, and establish a $400 minimum deduction for taxpayers with at least $1,000 in aggregate QBI.

Similarly, the limitation on excess business losses for noncorporate taxpayers, initially set to expire at the end of 2025, is now permanent. IRC §461(l) restricts the amount of business losses that can offset non-business income, with excess losses carried forward to future years. This provision ensures a more balanced treatment of business losses while preventing excessive offsets of personal income.

Opportunity Zones: Permanency and Expansion

Opportunity Zones, created under the TCJA to encourage investment in economically distressed communities, receive a permanent framework under the OBBB. The legislation introduces a rolling 10-year designation process, allowing governors to nominate new zones every decade beginning in 2026. Investments in these zones continue to offer deferral of capital gains, with potential step-ups in basis and permanent exclusion of future gains if held for ten years.

The OBBB also tightens eligibility criteria, focusing on low-income communities with a poverty rate of at least 20% or a median family income below 70% of the area median. Contiguous higher-income tracts are excluded, and a new subclass of rural opportunity funds provides additional incentives for investments in less populated areas, including a 30% step-up in basis and a lower threshold for substantial improvement on existing structures. These changes make Opportunity Zones an increasingly attractive vehicle for long-term investment in targeted communities.

Depreciation, Section 179, and Energy Incentives

Businesses can also expect changes to depreciation rules. Bonus depreciation at 100% is reinstated under Section 168(k) for qualifying assets placed in service on or after January 19, 2025. New provisions expand the scope of qualified production property, with a 10-year window for construction and service initiation. The Section 179 expensing limit rises to $2.5 million, with a corresponding threshold increase to $4 million, offering broader immediate expensing opportunities for small and mid-sized businesses.

Energy-related assets, however, face a different trajectory. Green energy properties previously depreciated over five years will now follow general class life rules if placed in service after December 31, 2024, potentially reducing early-year depreciation benefits. Businesses should plan carefully for the timing of energy asset investments to maximize available deductions.

Small Business Incentives and Childcare

The OBBB expands the employer-provided childcare credit, raising the rate from 25% to 40% and increasing the annual cap to $500,000 for eligible small businesses. Eligibility is determined using a five-year gross receipts averaging period, providing more predictable access for growing businesses. Similarly, the paid family and medical leave credit is extended, with new options allowing employers to claim credits for premiums paid to qualifying insurance plans and relaxed eligibility requirements for employees, including part-time workers with six months of service.

Tax on Executive Compensation in Nonprofits

The legislation broadens the application of the excise tax on excess compensation in tax-exempt organizations, previously capped at the top five highest-paid employees. Starting in tax years after December 31, 2025, any employee earning over $1 million will be subject to the 21% excise tax, increasing administrative responsibilities and potential tax liabilities for nonprofit organizations.

Other Notable Provisions

Several other areas see meaningful adjustments under the OBBB. The bill introduces a 1% income floor for corporate charitable contribution deductions while retaining the 10% ceiling, modifies the excise tax on private college and university endowments to a tiered structure based on student-adjusted endowment size, and establishes new limits on state-imposed medical provider taxes to prevent excessive taxation of healthcare providers.

Additionally, business meals in certain remote fishing locations are now fully deductible, the Section 1202 small business stock exclusion is enhanced with higher gain caps and shorter holding periods, and business interest deduction rules under Section 163(j) are tightened, particularly for interest linked to foreign income and controlled foreign corporations.

Finally, the OBBB addresses the taxation of dyed fuels, providing a refund mechanism for federal excise taxes paid when fuels are later dyed for exempt non-road use, and adjusts Opportunity Zones and energy-related credits to ensure continued alignment with policy priorities.

The Bottom Line

The One Big Beautiful Bill represents one of the most comprehensive updates to U.S. business tax policy in recent years. By extending, modifying, and in many cases making permanent key TCJA provisions, the legislation reshapes how businesses calculate deductions, manage investments, and structure operations. From research and development to opportunity zones, depreciation, small business incentives, and nonprofit taxation, every corner of the business tax landscape is affected.

Business owners and financial leaders should review the OBBB provisions with a trusted tax advisor to assess strategic impacts and ensure compliance. With careful planning, these changes also offer opportunities to optimize tax positions and support long-term growth objectives.

 

About the Authors

John Rose, J.D., is Aprio’s National Tax Director in the Professional Practice Group, where he provides guidance on federal tax policy and complex compliance matters.

Sam Tuck, CPA, MTX, is a National Tax Co-Leader and Tax Partner at Aprio, advising clients on federal and state tax strategies across multiple industries.

Jeffrey Gershen, CPA, is a National Tax Co-Leader and Tax Partner at Aprio, with experience addressing the technical and practical implications of evolving tax legislation.

About Aprio

Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed, and private client services to build value, drive growth, manage risk, and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,300+ team members providing solutions to clients in industries including Manufacturing and Distribution, Non-Profit and Education, Professional Services, Real Estate, Construction, Restaurant, Franchise & Hospitality, Government Contracting, and Technology. Aprio.com