OBBB Act: Business Tax Changes (Effective 2025)

✅ Positive Changes & Permanent Extensions

These provisions generally provide immediate deductions, lower tax liability, and increased certainty for long-term planning.

100% Bonus Depreciation Restored and Made Permanent

Businesses can immediately deduct 100% of the cost of qualified property (equipment, machinery, etc.) placed in service. This full expensing provision is made permanent, reversing the scheduled phase-out. (Effective for property acquired and placed in service after January 19, 2025.)

Immediate Expensing for Domestic R&D Costs

The prior requirement to capitalize and amortize domestic Research & Experimental (R&E) expenditures is reversed. Businesses may now immediately deduct (fully expense) domestic R&E costs. (Effective for tax years beginning after December 31, 2024.)

Increased Section 179 Expensing Limits

The maximum amount a small business can immediately expense under Section 179 is significantly increased to $2.5 million, with the phase-out threshold starting at $4 million in total asset purchases. (Both amounts are subject to inflation adjustments.)

Permanent QBI Deduction (Section 199A)

The 20% deduction for Qualified Business Income (QBI) earned by most pass-through entities (S-Corps, Partnerships, LLCs, Sole Proprietorships) is made permanent, removing the 2026 expiration date.

Favorable Business Interest Limitation (EBITDA)

The limit on deducting business interest is calculated using the more lenient EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) standard, replacing the more restrictive EBIT standard. This generally allows businesses to deduct more interest. (Permanent, effective for tax years beginning after December 31, 2024.)

Enhanced Qualified Small Business Stock (QSBS)

The maximum lifetime gain exclusion for Qualified Small Business Stock is increased from $10 million to $15 million per shareholder. It also introduces a tiered holding period (50% exclusion after 3 years, 75% after 4 years, 100% after 5 years).

Full Expensing for Qualified Production Property

Introduces a new deduction allowing 100% expensing for certain nonresidential real property used in domestic manufacturing (e.g., manufacturing facilities). (Temporary, with construction beginning before 2029 and placed in service before 2031.)

FICA Tip Credit Expansion

The FICA Tip Credit (employer credit for FICA taxes paid on tips) is expanded beyond the food and beverage industry to include certain beauty services, spas, and similar service industries.

🛑 Negative Changes & Program Repeals

These provisions either increase tax burdens, terminate existing incentives, or impose new compliance requirements.

Repeal of Major Clean Energy Tax Credits

Residential Clean Energy Credits (Solar, etc.) and Energy-Efficient Home Improvement Credits are repealed for property placed in service after December 31, 2025. This eliminates significant savings for many clean energy businesses and projects.

Repeal of Clean Vehicle Tax Credits

The tax credits for purchasing New and Used Clean Vehicles (e.g., Electric Vehicles) are repealed for vehicles acquired after September 30, 2025, immediately impacting auto dealers and fleet purchases.

Permanent Excess Business Loss Limitation

The limitation on non-corporate taxpayers (e.g., sole proprietors, partners, S-Corp shareholders) deducting "excess business losses" against non-business income is made permanent. This restricts the ability to use large losses as a tax shield.

Corporate Charitable Deduction Floor

A new 1% floor is imposed on corporate charitable contributions, meaning corporations can only deduct contributions that exceed 1% of their taxable income.

Increased 1099 Reporting Threshold

The reporting threshold for issuing Forms 1099-NEC and 1099-MISC for payments to independent contractors is increased to $2,000 per payee per year (up from $600), reducing reporting burdens but potentially impacting IRS enforcement.

Tighter International Tax Regime (GILTI/BEAT)

While simplified, the international tax rates are generally increased for U.S. corporations, including the effective tax rate on Global Intangible Low-Taxed Income (GILTI) and the rate for the Base Erosion and Anti-Abuse Tax (BEAT).

Negative Change: Deduction for Employer-Provided Meals Ends

The One Big Beautiful Bill Act (OBBB) includes a significant negative change regarding the deductibility of employer-provided meals and breakroom food, which many businesses have relied on.

The OBBB accelerates the phase-out of the deduction for many common employee meal benefits, effective starting January 1, 2026.

This provision does not affect all business meals but specifically targets those provided primarily to employees for the employer's convenience.

Meals Provided for Employer's Convenience (e.g., in an on-site cafeteria, overtime meals)

Currently: 50% Deductible

After Jan 1, 2026: 0% Deductible (Nondeductible)

"De Minimis" Fringe Benefit Meals (e.g., coffee, water, donuts, breakroom snacks)

Currently: 50% Deductible

After Jan 1, 2026: 0% Deductible (Nondeductible)

Costs of Operating an Employer-Operated Eating Facility (e.g., salaries, utilities for a cafeteria)

Currently: 50% Deductible

After Jan 1, 2026: 0% Deductible (Nondeductible)

Exceptions (What is NOT Affected):

The following meal and food expenses remain deductible under their existing rules:

  • 50% Deductible: Meals with clients, customers, or prospects for business purposes, and meals while traveling away from home on business.

  • 100% Deductible: Employee recreational expenses, such as company-wide holiday parties, annual picnics, or social events.

  • 100% Deductible: Meals treated as taxable compensation to the employee (included on their W-2).

  • Special Industry Exemption: Meals provided to crew members of commercial vessels or on drilling rigs (these remain deductible).

This change means that businesses that provide free lunch, or substantial breakroom food and drink, will no longer receive a tax break for those costs starting in the 2026 tax year.