New Business Incentives: Tax Advantages Set to Begin in 2025 under OB3's Umbrella
The One Big Beautiful Bill Act, enacted on July 4, 2025, introduces significant changes to the tax landscape, particularly for businesses involved in research and development (R&D) and those dealing with Qualified Small Business Stock (QSBS).
Prior to 2022, businesses could deduct 100% of the cost of qualified property bought and put into use under the Tax Cuts and Jobs Act of 2017 (TCJA), which included a faster tax deduction option called bonus depreciation. However, the TCJA reduced the bonus depreciation deduction in later years, with no bonus depreciation at all starting in 2026.
The situation changed in 2022, as businesses were required to spread out (amortize) R&D costs over several years. But with the introduction of OB3, things have taken a turn. Companies based in the U.S. with tax years beginning after December 31, 2024, can immediately expense U.S.-based R&D costs. This permanent restoration allows eligible businesses, including startups, to fully deduct their domestic R&D expenses immediately instead of capitalizing them.
However, R&D done outside the U.S. under OB3 must still be spread out and deducted over 15 years. To qualify as an eligible small business, the business must have had average yearly revenue of $31 million or less over the last three years.
Businesses have the option to choose not to use bonus depreciation under OB3. For the 2025 tax year, companies can still choose to deduct any leftover R&D expenses from past years, to be taken all at once in 2025 or split between 2025 and 2026.
The new rules for R&D costs under OB3 apply to tax years starting after December 31, 2024. It's important to note that companies should talk to their tax advisors before the end of the 2025 tax year to understand these changes and their implications.
Moreover, the One Big Beautiful Bill Act (OB3) changes the rules for Qualified Small Business Stock (QSBS). To qualify as QSBS under the One Big Beautiful Bill Act (OB3), the stock must be acquired after July 4, 2025. The corporation issuing the QSBS stock can now have up to $75 million in total assets before and after issuing the stock.
The IRS has issued new guidance (Revenue Procedure 2025-28) explaining how to make these elections. The One Big Beautiful Bill Act (OB3) makes the 100% bonus depreciation rule permanent for qualified property bought after January 19, 2025.
In conclusion, the One Big Beautiful Bill Act (OB3) brings substantial changes to the tax landscape, particularly for businesses involved in R&D and those dealing with Qualified Small Business Stock. It's crucial for companies to consult with their tax advisors to understand these changes and their implications.
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