TL;DR
Trump’s One Big Beautiful Bill Act, signed July 4, 2025, delivers massive tax savings for Texas small businesses through permanent 20% pass-through deductions, restored 100% bonus depreciation, immediate R&D expensing, and expanded Section 179 caps to $2.5 million. The legislation also provides temporary deductions for tips and overtime (through 2028) while permanently extending individual tax cuts. Small business owners should immediately review their tax strategies to maximize these new benefits and work with experienced Texas CPA firms to implement compliant optimization strategies.
Executive Summary
The One Big Beautiful Bill Act represents the most significant tax legislation for small businesses since the 2017 Tax Cuts and Jobs Act. This comprehensive analysis examines how Texas entrepreneurs, startups, and established small businesses can leverage permanent tax reductions, enhanced deductions, and strategic planning opportunities. From manufacturing companies benefiting from restored bonus depreciation to service businesses optimizing pass-through deductions, every Texas small business needs an updated tax strategy to capture these opportunities. Professional tax planning services become essential for navigating the complex interactions between permanent provisions, temporary deductions, and existing tax strategies while ensuring full compliance with all requirements.
Extension of TCJA Provisions for Individuals
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| Individual Income Tax Rates | |
| – Temporary reduction of tax rates through 2025 – Tax rates: 10%, 12%, 22%, 24%, 32%, 35% & 37% – Bracket thresholds are adjusted annually for inflation | – Permanent extension of TCJA rates beginning in 2026 – Tax rates: 10%, 12%, 22%, 24%, 32%, 35% & 37% – Bracket thresholds are adjusted annually for inflation |
| Personal Exemptions | |
| • Personal exemptions suspended for 2018-2025 | • Permanent repeal of personal exemptions after 2017 |
| Child Tax Credit | |
| – Credit of $2k per child – Reverts to $1k after 2025 | – Permanent extension and increase to $2.2k per child – Makes permanent the refundable portion of credit of $1.7k – SSN of Taxpayer (or spouse) and qualifying child required – Effective for tax years beginning 1/1/2026 – Refundable portion adjusted annually for inflation |
| Standard Deduction | |
| – Temporary increased standard deduction ($12k S, $24k MFJ, $18k HH) through 2025 – Beginning 2026 reverts to pre-TCJA amounts ($8k S, $6k MFJ, $4k HH) – Adjusted annually for inflation | – Permanent extension of increased TCJA deduction ($15,750 S, $31,500 MFJ, $23,625 HH for 2025) – Adjusted annually for inflation – Effective for tax years beginning 1/1/2026 |
Other Key Individual Provisions – Temporary (2025-2028)
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| No Tax on Overtime | |
| • Overtime pay included in taxable income | – Temporary deduction capped at $12.5k ($25k MFJ) – Phase out if MAGI >$300k MFJ and $150k for all others – Adjusted for inflation beginning in 2026 – Effective for taxable years beginning after 12/31/2024 and before 1/1/2029 |
| No Tax on Tips | |
| • Tips included in taxable income, subject to federal income and FICA taxes | – Temporary deduction for cash tips – Limited to $25k and subject to phase outs if MAGI > $300k MFJ and $150k for all others – Adjusted for inflation beginning in 2026 – Effective for taxable years beginning after 12/31/2024 and before 1/1/2029 |
| Deduction for Auto Loan Interest | |
| • Personal interest on car loans not deductible | – Temporary deduction up to 10k (2025-2028) on new cars purchased 2025-2028, if assembled in US – Phase out if MAGI >$200k MFJ and $100k for all others – Not adjusted for inflation – Effective for taxable years beginning after 12/31/2024 and before 1/1/2029 |
| Deduction for Seniors Aged 65+ | |
| • Seniors receive a slightly higher personal exemption, but no stand-alone senior deduction | – Temporary $6k exemption – Phase out if income > $150k MFJ and $75k for all others – Adjusted for inflation beginning in 2026 – Effective for taxable years beginning after 12/31/2024 and before 1/1/2029 |
Extension of TCJA Provisions for Businesses
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| Bonus Depreciation | |
| • Current expensing: 40% for 2025, 20% for 2026, 0% thereafter | • Permanent restoration of 100% first year bonus depreciation, effective for property acquired on or after 1/19/2025 |
| Section 179 Enhanced Small Business Depreciation Expensing | |
| • Current expensing of up to $1,160k of qualifying property with phase-outs beginning at $2,890k, both indexed for inflation | – Increases current expensing up to $2,500k of qualifying property with phase-outs beginning at $4,000k – Effective for property placed in service after 12/31/2024 |
| Section 163(j) Business Interest Limitation | |
| – Temporarily reinstates EBITDA limitation under Sec. 163(j) (2025 – 2029) – Adjusted taxable income (ATI) computed without regard to deduction for depreciation, amortization, or depletion | – Permanently reinstates EBITDA limitation under Sec. 163(j), starting in 2025 – ATI computed without regard to deduction for depreciation, amortization, or depletion – ATI excludes subpart F and GILTI inclusions and associated Sec. 78 gross-up, and amounts determined under Sec. 956 – Applies to tax years beginning after 12/31/2025 |
| Paid Family and Medical Leave Credit | |
| – Credit to eligible employers of 12.5% to 25% of wages paid to qualifying employees on family and medical leave – Credit to end after 2025 | – Permanently extends credit – Expands scope of credit to allow employers to claim credit based on wages paid to employees on family or medical leave or premiums paid for qualified leave insurance policies – Changes effective after 12/31/2025 |
| Section 174 Research & Experimental Expenditures | |
| – Domestic R&E expenditures amortized over 5 years – Foreign R&E expenditures amortized over 15 years | – Permanent and immediate expensing of domestic R&E, starting in 2025 – automatic, no special elections required – Retroactive expensing for small businesses with avg. annual gross receipts < $31M after 12/31/2021; can amend 2022-2024 returns for refunds by 7/4/26 or take catch-up deductions as sec. 481(a) adjustments going forward – Businesses > $31M can accelerate remaining amortization from 2022-2024 over one or two years, starting in 2025, with transition rules for expenses incurred 12/31/2021 – 1/1/2025 – Foreign R&E expenditures remains amortized over 15 years |
Extension of TCJA Provisions for Passthroughs
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| Section 199A Pass-Through Deduction | |
| – Pass-through owners entitled to 20% deduction for QBI, expires after 2025 – For SSTBs, QBI deduction limited between $100K/$50K (MFJ/all others) above minimum threshold and phases out thereafter | – Permanent extension of 20% deduction – QBI deduction limitation phase-in range increases to $150K/$75K (MFJ/all others) – Deduction cliff remains for SSTBs exceeding max threshold – Effective for taxable years beginning after 12/31/2025 |
| State and Local Tax Deduction for Pass-Through Entities | |
| – Passthrough owners subject to $10K SALT deduction limit – 36 states and 1 locality implemented pass-through tax (PTET) SALT deduction legislation – SALT deducted at entity level is not limited | – Pass-through owners subject to increased SALT deduction limits for 2025-2029, and $10K limit would return in 2030 – SALT deducted at entity level would not be limited – Effective for taxable years beginning after 12/31/2024 |
| Section 461(l) Excess Business Loss Deduction | |
| – Excess business loss limitation expires after 2025 – Any excess loss business loss is treated as an NOL carryforward to next tax year | – Permanent limitation on excess business losses, effective for taxable years beginning after 12/31/2026 – Any excess loss business loss is treated as an NOL carryforward to next tax year, effective for taxable years beginning after 12/31/2025 |
Other Key Business Provisions
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| Sec. 1202 Small Business Stock Gain Exclusion | |
| – Excludes from gross income gain on sale or exchange of qualified small business stock (QSBS) held for > 5 years – 100% exclusion for stock acquired after 9/27/2010 – 50% or 75% for stock acquired before 9/27/2010 depending on the acquisition date – Eligibility limit on corporate-level aggregate assets of $50M | – Tiered exclusion on the gain on the sale or exchange of QSBS from gross income – 100% exclusion if held for 5 or more years, 75% if held for at least 4 years, 50% if held for at least 3 years – Increased eligibility limit on corporate-level aggregate assets to $75 million – Applies to taxable years beginning after the date of enactment |
| Corporate Charitable Deduction | |
| – Corporations can deduct charitable contributions up to 10% of taxable income – Contributions over 10% may be carried forward to the next 5 taxable years, subject to same 10% limit each year | – Corporations can deduct charitable contributions up to 10% of taxable income – Creates a floor of 1% of taxable income – Contributions over 10% ceiling may be carried forward to the next 5 taxable years and amounts disallowed under 1% floor may be carried forward if contributions > 10% ceiling – Applies to taxable years beginning after 12/31/2025 |
TCJA Extension of International Provisions
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| Global Intangible Low-Taxed Income (GILTI) | |
| • Deduction for corporations for 2025 is 50% and set to be reduced to 37.5% after 12/31/2025 | – Deduction for corporations is permanently reduced to 40% after 12/31/25 – Net deemed tangible income return currently utilized in determining US shareholder’s GILTI inclusion is eliminated – Renames GILTI to Net CFC tested income (NCTI) – Applies to taxable years beginning after 12/31/2025 |
| Foreign-Derived Intangible Income (FDII) | |
| • Deduction for corporations for 2025 is 37.5% and set to be reduced to 21.875% after 12/31/2025 | – Deduction for corporations reduced to 33.34% after 12/31/25 – Modifies definition of deduction eligible income – Renames FDII to foreign-derived deduction eligible income (FDDEI) – Applies to taxable years beginning after 12/31/2025 |
| Section 958(b) | |
| • Section 958 applies the constructive ownership rules of section 318(a) with modifications | – Restores limitation on downward attribution of stock ownership in applying constructive ownership rules under section 958(b) – Creates new section 951B – Effective for taxable years beginning after 12/31/2025 |
| Sourcing of Inventory for Foreign Tax Credit Limitation | |
| • Income from sale or exchange of inventory property produced in the U.S. treated as U.S. source income | – Sourcing certain income from sale of inventory produced in the U.S. solely for foreign tax credit limitation under section 904 – 50% limitation – Effective for taxable years beginning after 12/31/2025 |
| Repeal of Election for 1-Month Deferral for Tax Year | |
| • A specified foreign corporation may elect for a taxable year beginning 1-month earlier | – Repeal of election for 1-month deferral in determination of taxable year of specified foreign corporations – Effective for taxable years beginning after 11/30/2025 |
Other Key Tax Provisions
| Law Prior to H.R. 1 | H.R. 1 |
|---|---|
| Employee Retention Credit (ERC) | |
| – Employers could file 2020 claims through 4/15/2024 and 2021 claims through 4/15/2025 – IRS has 3-year statute of limitations, except 5 years for Q3 and Q4 2021 claims | – No payment of Q3 & Q4 2021 ERC claims filed after 1/31/2024 – Defines COVID-ERTC promoter & increases penalties on them – Extends statute of limitations to 6 years for IRS and taxpayers |
| Section 529 Plans | |
| – Use of 529 plans limited to qualified K-12 and higher education – Annual withdrawal limit on qualified K-12 tuition expenses of $10k, no annual withdrawal limit on other qualified expenses | – Expands use of 529 plans to include certain postsecondary credentialing expenses (e.g., expenses to obtain and maintain CPA license) – Increases annual withdrawal of qualified K-12 tuition expenses to $20k, no annual withdrawal limit on other qualified expenses – Effective for distributions made after date of enactment |
| Section 4960 Excise Tax | |
| • Subjects exempt orgs to 21% tax on compensation paid over $1M for top five highest compensated employees | – Amends “covered employees” to include all employees of exempt org – Effective for tax years after 12/31/2025 |
Published July 14, 2025
- TL;DR
- Executive Summary
- Understanding the One Big Beautiful Bill Act for Texas Businesses
- Permanent Small Business Tax Wins
- Key Takeaway: Section 199A pass-through deduction is now permanent at 20% with expanded income thresholds
- Section 199A Pass-Through Deduction Made Permanent
- Enhanced Section 179 Expensing: $2.5 Million Cap
- Business Interest Deduction Restored to EBITDA Calculation
- Why Permanency Changes Your Long-Term Strategy
- Game-Changing Capital Investment Incentives
- Key Takeaway: 100% bonus depreciation returns permanently, allowing immediate expensing of qualifying business assets
- 100% Bonus Depreciation Restored for All Qualifying Assets
- New Manufacturing Bonus Depreciation Through 2032
- Research & Development Expensing Returns
- Strategic Asset Purchase Timing for Maximum Benefits
- New Temporary Deductions Your Employees Can Use (2025-2028)
- Individual Tax Changes Affecting Business Owners
- Key Takeaway: Higher SALT caps and permanent estate tax exemptions significantly benefit high-earning Texas entrepreneurs
- SALT Deduction Increased to $40,000 Through 2029
- Estate Tax Exemption Jumps to $15 Million Permanently
- Enhanced Child Tax Credit: $2,200 Per Child
- Senior Tax Deduction for Business Owners 65+
- International and Corporate Tax Modifications
- Energy Tax Credit Eliminations
- Strategic Tax Planning Opportunities for 2025
- Industry-Specific Impacts for Texas Businesses
- FAQ
- How does the permanent Section 199A deduction affect my Texas LLC or S-Corp?
- What equipment purchases qualify for 100% bonus depreciation in 2025?
- Can my restaurant employees really get a $25,000 tax deduction on their tips?
- How does the SALT cap increase affect high-earning Texas business owners?
- Should I accelerate my R&D spending now that immediate expensing is back?
- What's the deadline for maximizing 2025 tax benefits under the new law?
- How do the new overtime deductions work for my employees?
- Will the estate tax exemption increase affect my business succession planning?
- Expert Q&A Section
- Q1: How should pass-through entities modify their tax elections to maximize the permanent Section 199A benefits?
- Q2: What documentation requirements exist for the new tips and overtime deductions?
- Q3: How does the restored business interest deduction interact with other debt financing strategies?
- Q4: What immediate steps should technology companies take regarding R&D expense timing?
- Q5: How do the energy credit eliminations affect existing installations and contracts?
- Q6: What planning opportunities exist with the permanent estate tax exemption increase?
- Q7: How should seasonal businesses optimize the temporary overtime and tips deductions?
- Q8: What compliance changes are needed for the revised 1099-K reporting thresholds?
- Website Reference
Understanding the One Big Beautiful Bill Act for Texas Businesses
Key Takeaway: The legislation permanently extends TCJA provisions while adding powerful new deductions specifically benefiting small businesses
The One Big Beautiful Bill Act fundamentally reshapes the tax landscape for Texas small businesses by making the most beneficial provisions of the 2017 Tax Cuts and Jobs Act permanent while introducing entirely new deduction opportunities. This 870-page piece of legislation affects virtually every aspect of business taxation, from equipment purchases to employee compensation strategies.
What Every Texas Business Owner Needs to Know
Texas entrepreneurs face a unique advantage under the new legislation. With no state income tax, Texas businesses can fully leverage federal tax benefits without worrying about state tax complications that affect business owners in high-tax states. The permanent nature of key provisions eliminates the uncertainty that has plagued business planning since 2017, when many tax benefits were set to expire after 2025.
The legislation operates through multiple mechanisms that directly impact cash flow. Unlike temporary tax credits that require careful timing, many provisions now provide permanent benefits that businesses can rely on for long-term strategic planning. This stability proves especially valuable for small businesses that need predictable tax treatment to make confident investment decisions.
For service-based businesses, the permanent Section 199A qualified business income deduction provides ongoing tax relief equal to 20% of qualified business income. Manufacturing and technology companies benefit from immediate expensing opportunities that dramatically improve cash flow for equipment purchases and research activities.
Timeline and Effective Dates That Matter
Understanding the effective dates becomes critical for maximizing benefits. Most provisions became effective for tax years beginning after December 31, 2024, meaning they apply to your entire 2025 tax year. Some benefits apply retroactively to January 1, 2025, allowing mid-year optimization strategies.
The temporary provisions for tips, overtime, and auto loan interest expire on December 31, 2028, creating a four-year window for employees to benefit from these deductions. This timeline requires strategic planning to help employees maximize their tax savings while these provisions remain in effect.
Capital investment provisions became effective immediately upon signing, meaning equipment placed in service after January 19, 2025, qualifies for enhanced depreciation benefits. This creates immediate opportunities for businesses planning equipment purchases or facility improvements.
How This Impacts Your 2025 Tax Planning
The retroactive nature of many provisions requires immediate adjustments to 2025 tax strategies. Businesses that made estimated tax payments based on the previous law may have overpaid and should work with their accounting professionals to adjust future payments and potentially claim refunds.
Research and development expenses incurred since January 1, 2025, can now be immediately deducted rather than amortized over five years. This change alone can significantly impact cash flow for technology companies and innovative manufacturers who previously faced mandatory capitalization requirements.
The enhanced Section 179 expensing limits mean businesses can immediately deduct up to $2.5 million in qualifying equipment purchases, up from the previous $1.16 million limit. Combined with restored 100% bonus depreciation, virtually any equipment purchase can now be immediately expensed, creating powerful tax planning opportunities.
Permanent Small Business Tax Wins
Key Takeaway: Section 199A pass-through deduction is now permanent at 20% with expanded income thresholds
The permanent extension of the Section 199A qualified business income deduction represents one of the most significant victories for small business owners. This provision allows eligible businesses to deduct 20% of their qualified business income, effectively reducing the tax rate on business profits.
Section 199A Pass-Through Deduction Made Permanent
The permanency of the Section 199A deduction eliminates the uncertainty that has affected business planning since 2017. Previously scheduled to expire after 2025, business owners can now rely on this 20% deduction for long-term strategic planning without worrying about Congressional extensions or modifications.
The legislation expands the income thresholds where limitations begin to apply. Single filers now enjoy full deduction benefits until their taxable income reaches $75,000 above the base threshold (increased from $50,000), while married couples filing jointly get protection until $150,000 above the threshold (up from $100,000). These expanded ranges mean more growing businesses can claim the full 20% deduction even as their income increases.
For Texas service businesses, this expanded threshold proves particularly valuable. Many professional service firms previously faced deduction limitations as they grew, but the higher thresholds provide additional room for growth while maintaining full deduction benefits. This includes accounting firms, consulting practices, legal services, and healthcare providers.
The deduction also includes a new minimum benefit for active business participants. Taxpayers with at least $1,000 of qualified business income from businesses where they materially participate can claim a minimum $400 deduction, regardless of their total income level. This provision ensures that even smaller operations receive meaningful tax benefits.
Understanding the interaction between the Section 199A deduction and other tax provisions becomes crucial for optimization. The deduction applies to qualified business income after considering all other business deductions, including the enhanced Section 179 expensing and bonus depreciation benefits discussed below.
Enhanced Section 179 Expensing: $2.5 Million Cap
The Section 179 expensing limit increases to $2.5 million (from the current $1.16 million) with phase-outs beginning at $4 million. This allows businesses to immediately deduct qualifying equipment purchases rather than depreciating them over multiple years.
This enhancement particularly benefits Texas businesses in manufacturing, construction, agriculture, and transportation industries that rely on expensive equipment. A construction company purchasing new machinery, vehicles, or tools can now immediately expense up to $2.5 million in qualifying purchases, creating substantial first-year tax savings.
The phase-out threshold also increased to $4 million, meaning the Section 179 deduction doesn’t begin reducing until total qualifying purchases exceed $4 million in a single tax year. This higher threshold ensures that most small and medium-sized businesses can fully utilize the enhanced expensing benefits without worrying about limitations.
Businesses should understand that Section 179 deduction opportunities work in conjunction with bonus depreciation for maximum tax benefits. Strategic planning can help businesses optimize the combination of Section 179 expensing and bonus depreciation to achieve the largest possible deductions.
For businesses considering vehicle purchases, the legislation maintains special rules for heavy vehicles over 6,000 pounds. Texas businesses can immediately expense the full cost of qualifying business vehicles, including trucks, vans, and SUVs used primarily for business purposes. Our detailed guide to vehicles over 6,000 lbs under Section 179 provides specific examples and qualification requirements.
Business Interest Deduction Restored to EBITDA Calculation
The permanent restoration of the more favorable business interest deduction calculation provides significant benefits for businesses with substantial debt financing. Under the enhanced Section 163(j) rules, businesses can now compute their adjusted taxable income without reducing it for depreciation, amortization, and depletion deductions.
This change increases the amount of business interest expense that companies can deduct each year. Previously, businesses could only deduct interest up to 30% of adjusted taxable income computed after depreciation and amortization. The restored EBITDA-based calculation typically results in higher deductible interest amounts.
For Texas businesses with equipment financing, real estate mortgages, or working capital loans, this change can substantially reduce their tax burden. Manufacturing companies that finance equipment purchases, real estate developers with construction loans, and retail businesses with inventory financing all benefit from enhanced interest deductibility.
The provision applies permanently for all tax years beginning in 2025 and beyond, providing certainty for businesses making long-term financing decisions. This permanency allows businesses to confidently structure debt financing knowing that the favorable interest deduction rules will remain available.
Strategic debt structuring becomes more attractive under the enhanced rules. Businesses can consider refinancing existing debt or structuring new acquisitions with debt financing to maximize the tax benefits of deductible interest expenses.
Why Permanency Changes Your Long-Term Strategy
The permanent nature of these key business provisions fundamentally changes how small businesses should approach long-term planning. Instead of temporary tax benefits that require careful timing and create planning uncertainty, businesses can now build strategies around reliable, permanent tax advantages.
Succession planning becomes more predictable with permanent Section 199A benefits that will continue benefiting the next generation of business owners. Family businesses can structure ownership transitions knowing that the 20% deduction will remain available to reduce the tax burden on business income.
Investment decisions gain clarity when businesses know that equipment purchases will qualify for immediate expensing indefinitely rather than facing potential expiration dates. This permanency encourages capital investment and business expansion that might otherwise be delayed due to tax uncertainty.
Professional service firms can confidently grow their practices knowing that the Section 199A deduction will continue providing tax benefits even as their income increases. The expanded thresholds provide additional room for growth while maintaining full deduction eligibility.
Game-Changing Capital Investment Incentives
Key Takeaway: 100% bonus depreciation returns permanently, allowing immediate expensing of qualifying business assets
The restoration of 100% bonus depreciation creates one of the most powerful tax incentives available to businesses making capital investments. Combined with enhanced Section 179 expensing, virtually any equipment purchase can now be immediately deducted rather than depreciated over multiple years.
100% Bonus Depreciation Restored for All Qualifying Assets
The permanent restoration of 100% bonus depreciation applies to most business equipment with a recovery period of 20 years or less. This includes computers, machinery, vehicles, furniture, software, and most other business assets that qualify for depreciation.
The key requirement is that qualifying property must be placed in service after January 19, 2025. “Placed in service” means the asset is ready and available for its intended use, not merely purchased or ordered. This timing requirement creates opportunities for businesses to accelerate equipment installations to qualify for immediate expensing benefits.
For Texas manufacturing companies, this provision proves transformative. A manufacturer purchasing $1 million in new production equipment can immediately deduct the full amount rather than depreciating it over seven years. This creates substantial first-year tax savings and dramatically improves cash flow for growing businesses.
Technology companies benefit enormously from immediate expensing of computer equipment, software, and related technology infrastructure. Previously, many technology investments required depreciation over three to seven years, delaying tax benefits and creating cash flow challenges for rapidly growing companies.
The provision applies without dollar limitations, unlike Section 179 expensing that caps at $2.5 million. Businesses making large capital investments can combine both provisions for maximum tax benefits: use Section 179 for the first $2.5 million, then apply 100% bonus depreciation to any additional qualifying purchases.
New Manufacturing Bonus Depreciation Through 2032
The legislation introduces an additional bonus depreciation provision specifically for qualified production property used in manufacturing. This special provision allows 100% immediate expensing for manufacturing equipment through 2032, providing an extended window for manufacturers to invest in domestic production capacity.
Qualified production property includes machinery, equipment, and other tangible property used in manufacturing, production, or refining activities where substantial transformation occurs. This definition encompasses traditional manufacturing as well as food processing, chemical production, and other industrial activities.
Texas manufacturers gain a significant competitive advantage through this provision. The extended timeline through 2032 provides certainty for long-term capital investment planning, allowing manufacturers to confidently invest in automation, efficiency improvements, and capacity expansion.
The provision requires that construction of the manufacturing facility begin after January 19, 2025, and the property must be placed in service before January 1, 2031. This timeline encourages immediate investment in domestic manufacturing capacity while providing sufficient time for complex projects.
Strategic planning around this provision can help manufacturers optimize their tax benefits. Businesses can phase equipment installations to maximize immediate expensing benefits while ensuring all qualifying property meets the construction and service dates.
Research & Development Expensing Returns
The restoration of immediate R&D expensing represents a crucial victory for innovation-driven businesses. Domestic research and development expenses can now be immediately deducted under new Section 174A, reversing the mandatory capitalization and amortization rules that took effect in 2022.
This change provides immediate cash flow benefits for technology companies, pharmaceutical developers, manufacturers with R&D activities, and any business investing in innovation. Previously, these expenses required amortization over five years, creating cash flow challenges and reducing the incentive for R&D investment.
Small businesses with average annual gross receipts under $31 million can retroactively expense R&D costs from 2022-2024 and file amended returns for refunds by July 4, 2026. This creates a valuable catch-up provision for smaller innovation-driven companies.
Larger businesses (over $31 million) can accelerate remaining amortization from 2022-2024 over one or two years starting in 2025, with transition rules for expenses incurred between December 31, 2021 and January 1, 2025.
Foreign research and development expenses remain amortized over 15 years. This creates a strong incentive for businesses to conduct R&D activities domestically rather than overseas.
Proper documentation and classification of R&D activities becomes crucial for maximizing these benefits. Businesses must carefully track and document qualifying research activities to ensure they meet the requirements for immediate expensing rather than mandatory capitalization.
Strategic Asset Purchase Timing for Maximum Benefits
The combination of enhanced Section 179 expensing, restored bonus depreciation, and improved business interest deductions creates opportunities for strategic tax planning through asset purchase timing. Businesses can optimize their tax benefits by carefully coordinating equipment purchases, financing decisions, and installation schedules.
Year-end planning becomes particularly important for maximizing 2025 benefits. Equipment placed in service by December 31, 2025, qualifies for immediate expensing, while purchases made but not yet installed may need to wait until the following tax year for deduction benefits.
Businesses should consider accelerating planned equipment purchases to capture immediate expensing benefits. The permanent nature of the provisions means there’s no risk of missing temporary opportunities, but immediate deductions provide better cash flow than future depreciation.
Financing strategies should consider the enhanced business interest deduction rules. Businesses might benefit from debt financing for equipment purchases to maximize deductible interest expenses while also claiming immediate expensing for the underlying assets.
For businesses with multiple locations or expansion plans, careful timing of investments across tax years can help optimize the total tax benefits. Spreading large investments across multiple years might help businesses avoid alternative minimum tax implications while maximizing the value of immediate expensing.
New Temporary Deductions Your Employees Can Use (2025-2028)
Key Takeaway: Tips and overtime deductions provide direct tax savings for service industry workers
The legislation introduces three temporary deductions available to employees that can significantly reduce their personal income tax burden. These provisions run through 2028 and require careful documentation and compliance to ensure employees can claim the maximum benefits.
No Tax on Tips: $25,000 Annual Deduction
The new tips deduction allows qualifying employees to deduct cash tips up to $25,000 annually, effectively eliminating federal income tax on qualifying tips. This provision benefits workers in restaurants, hospitality, personal services, and other tip-based industries throughout Texas.
To qualify, employees must earn less than $150,000 in total annual income and must work in positions where tips constitute a regular part of their compensation. The deduction applies to cash tips, credit card tips, and tip sharing arrangements, but requires proper documentation and reporting.
The deduction is limited to $25,000 and subject to phase-outs if modified adjusted gross income exceeds $300,000 (MFJ) or $150,000 (all others). Adjusted for inflation beginning in 2026.
Employers face new reporting requirements under this provision. W-2 forms must now separately report total tip amounts received by employees, requiring enhanced payroll tracking systems. Businesses in hospitality industries should work with their bookkeeping services providers to implement compliant tip reporting procedures.
The deduction excludes tips from gross income for income tax purposes but doesn’t affect Social Security and Medicare tax obligations. Employees still pay payroll taxes on tip income, but avoid income tax on amounts up to the $25,000 annual limit.
Strategic implementation requires coordination between employers and employees. Restaurants, bars, hotels, and personal service businesses should educate employees about documentation requirements while ensuring their payroll systems capture the necessary information for accurate W-2 reporting.
No Tax on Overtime: $25,000 Annual Deduction
The overtime deduction allows employees earning less than $150,000 annually to deduct up to $12,500 in qualified overtime compensation ($25,000 for married filing jointly). This provision benefits workers in manufacturing, healthcare, public safety, and other industries where overtime work is common.
Qualified overtime compensation includes payments for hours worked in excess of 40 hours per week under Fair Labor Standards Act requirements. The deduction applies to traditional time-and-a-half overtime as well as double-time payments for holidays or extended shifts.
Phase out if modified adjusted gross income exceeds $300,000 (MFJ) or $150,000 (all others). Adjusted for inflation beginning in 2026.
Employers must track and separately report overtime compensation on W-2 forms starting with 2025 tax returns. This requires payroll system modifications to distinguish between regular wages and qualifying overtime payments for accurate employee reporting.
The deduction phases out as employee income approaches $150,000, ensuring the benefit targets middle-income workers rather than high earners. Employees approaching the income limit should consider timing strategies to maximize their deduction benefits.
For Texas businesses with significant overtime operations, this provision can improve employee retention and satisfaction by reducing the tax burden on extra work. Manufacturing companies, healthcare providers, and emergency services particularly benefit from having a more attractive overtime compensation package.
Auto Loan Interest Deduction for US-Made Vehicles
The temporary auto loan interest deduction allows individuals to deduct up to $10,000 annually in interest paid on loans for NEW vehicles purchased between 2025 and 2028 that are assembled in the United States. This provision runs from 2025 through 2028 and phases out for higher-income taxpayers.
The deduction applies to vehicles purchased between 2025 and 2028 that are assembled domestically, regardless of the manufacturer’s nationality. This includes vehicles from traditional American manufacturers as well as foreign manufacturers with domestic assembly operations.
Income limitations restrict the deduction to individuals earning less than $100,000 ($200,000 for married couples filing jointly). The deduction phases out completely for individuals earning more than $150,000 ($250,000 for married couples), targeting the benefit toward middle-income taxpayers.
Qualifying vehicles must be used primarily for personal purposes, distinguishing this deduction from business vehicle expenses that might qualify for Section 179 expensing or regular business deductions. Employees cannot claim both business and personal deductions for the same vehicle.
Documentation requirements include maintaining loan statements showing interest payments and verification that the vehicle qualifies as domestically assembled. Taxpayers should retain purchase documentation and loan records throughout the deduction period.
Payroll and Compliance Considerations
The new employee deductions create compliance obligations for employers that extend beyond simple payroll reporting. Businesses must implement systems to track and report tips, overtime compensation, and other qualifying amounts for accurate W-2 preparation.
Payroll system modifications may require software updates or manual tracking procedures to separately identify qualifying tip income and overtime compensation. Businesses should evaluate their current payroll systems and implement necessary changes before year-end to ensure accurate 2025 reporting.
Employee education becomes crucial for maximizing the benefits of these provisions. Businesses should inform eligible employees about the deduction opportunities while explaining documentation requirements and income limitations that might affect eligibility.
Some businesses may face increased administrative costs for enhanced tracking and reporting requirements. However, the employee benefits can improve retention and satisfaction, particularly in industries where tips and overtime comprise significant portions of worker compensation.
Professional guidance from experienced small business accountants can help businesses implement compliant systems while educating employees about available deductions. Proper implementation ensures maximum employee benefits while avoiding compliance issues with new reporting requirements.
Individual Tax Changes Affecting Business Owners
Key Takeaway: Higher SALT caps and permanent estate tax exemptions significantly benefit high-earning Texas entrepreneurs
Business owners benefit not only from enhanced business deductions but also from improvements in individual tax provisions that affect their personal tax situations. These changes prove particularly valuable for successful entrepreneurs and family business owners planning wealth transfer strategies.
SALT Deduction Increased to $40,000 Through 2029
The temporary increase in the state and local tax (SALT) deduction cap provides meaningful benefits for Texas business owners who pay significant local property taxes or travel frequently to high-tax states for business purposes. The cap increases from $10,000 to $40,000 annually through 2029.
While Texas imposes no state income tax, business owners often face substantial local property taxes on business real estate, personal residences, and investment properties. The higher SALT cap allows full deductibility of these local taxes up to the new $40,000 limit.
The deduction phases down for taxpayers with modified adjusted gross income over $500,000, reducing the available deduction by 30% of the excess over the threshold. However, the deduction never falls below the original $10,000 limit, ensuring some benefit for all taxpayers regardless of income level.
Texas business owners who maintain operations or travel frequently to states like California, New York, or Illinois may incur state income tax obligations that qualify for the SALT deduction. The higher cap provides more room to deduct these interstate tax obligations.
The temporary nature of the enhancement through 2029 requires strategic planning. Business owners should consider timing major property purchases or interstate expansions to maximize the benefit while the higher cap remains available.
Estate Tax Exemption Jumps to $15 Million Permanently
The permanent increase in the federal estate tax exemption to $15 million for individuals ($30 million for married couples) dramatically affects succession planning for family businesses. This represents a significant increase from the previous $13.61 million exemption and eliminates estate tax concerns for most family enterprises.
The permanent nature of the higher exemption provides certainty for long-term succession planning that was previously complicated by scheduled exemption reductions. Family business owners can now confidently structure ownership transfers without worrying about future changes to exemption amounts.
Combined with the permanent Section 199A deduction, family businesses enjoy enhanced value and reduced transfer tax costs. The ongoing 20% income tax benefit increases business valuations while the higher estate tax exemption reduces transfer costs for the next generation.
Generation-skipping transfer tax planning also benefits from the enhanced exemptions. Business owners can structure transfers to grandchildren or later generations while avoiding both estate and generation-skipping taxes up to the enhanced exemption amounts.
Professional succession planning becomes more valuable with the enhanced exemptions. Business owners should review existing estate plans and consider opportunities to transfer additional business interests while avoiding transfer tax implications.
Enhanced Child Tax Credit: $2,200 Per Child
The permanent increase in the child tax credit to $2,200 per qualifying child provides additional tax savings for business owners with families. The credit applies to children under age 17 and remains fully refundable up to $1,700 per child for 2025.
Income phase-out thresholds remain unchanged at $200,000 for single filers and $400,000 for married couples filing jointly. Most successful small business owners fall within these thresholds and can claim the full credit amount for each qualifying child.
The permanent nature of the enhancement provides predictability for family financial planning. Business owners can rely on the $2,200 credit amount for long-term budgeting and tax planning without worrying about Congressional extensions or modifications.
Strategic income timing can help business owners optimize child tax credit benefits. S-corporation owners might adjust their salary levels to stay within phase-out thresholds while pass-through entity owners can time income recognition to maximize credit eligibility.
The credit provides particularly valuable benefits for business owners in their wealth-building years when family expenses are high and business investments compete for available cash flow. The additional $200 per child reduces the overall tax burden during crucial business development phases.
Senior Tax Deduction for Business Owners 65+
The temporary senior deduction provides up to $6,000 in additional tax benefits for business owners age 65 and older. This above-the-line deduction reduces adjusted gross income and is available through 2028 regardless of whether taxpayers itemize deductions.
The deduction phases out for modified adjusted gross income exceeding $75,000 for single filers ($150,000 for married couples), but many senior business owners can benefit from at least partial deduction amounts. The phase-out structure ensures broader eligibility while targeting benefits toward middle-income seniors.
Senior business owners can combine this deduction with other business benefits for substantial tax savings. A 65-year-old business owner claiming Section 199A deductions, equipment expensing, and the senior deduction can achieve significant overall tax reductions.
Retirement planning strategies should consider the temporary nature of the senior deduction. Business owners approaching age 65 might time their retirement or business exit strategies to maximize benefits while the deduction remains available through 2028.
The deduction applies to both earned income and business income, making it valuable for senior business owners who continue operating their enterprises. Unlike some deductions that only benefit employees, the senior deduction provides equal benefits for entrepreneurial income.
International and Corporate Tax Modifications
Key Takeaway: GILTI modifications and 1099-K threshold changes affect reporting requirements
While most small businesses focus on domestic operations, the legislation includes important changes to international tax rules and corporate reporting requirements that affect some Texas businesses with foreign activities or significant payment processing volumes.
Third-Party Payment Reporting Returns to $20,000 Threshold
The restoration of the $20,000 threshold for third-party payment reporting under Form 1099-K provides administrative relief for many small businesses. Previously scheduled to drop to $600 under the American Rescue Plan Act, the threshold returns to $20,000 in payments from more than 200 transactions.
This change affects businesses that receive payments through platforms like PayPal, Square, Stripe, and other payment processors. Under the $600 threshold, most small businesses would have received 1099-K forms for relatively small payment amounts, creating additional record-keeping and reconciliation requirements.
The $20,000 threshold with 200-transaction minimum ensures that only businesses with substantial payment processing activity receive 1099-K forms. This reduces administrative burden while maintaining adequate reporting for businesses with significant electronic payment volumes.
Texas service businesses, consultants, and e-commerce companies particularly benefit from the higher threshold. Many professional services firms that occasionally receive electronic payments can avoid the administrative complexity of reconciling numerous small 1099-K reports.
Businesses should still maintain accurate records of all income regardless of 1099-K reporting requirements. The absence of a 1099-K form doesn’t eliminate income reporting obligations, but the higher threshold reduces the documentation burden for smaller businesses.
Foreign Tax Credit Limitations for International Businesses
The legislation modifies foreign tax credit rules for businesses with international operations. The changes primarily affect larger corporations, but some provisions impact smaller businesses with foreign subsidiaries or international activities.
The new rules disallow foreign tax credits on 10% of foreign taxes related to distributions of previously taxed income from controlled foreign corporations. This change affects businesses that have accumulated earnings in foreign subsidiaries and plan to repatriate those earnings to the United States.
Limited sourcing rules apply to income from US-produced inventory sold abroad through foreign branches. Only 50% of such income qualifies as foreign-source income, potentially reducing foreign tax credit benefits for businesses with international sales operations.
Most Texas small businesses operate domestically and won’t be affected by these international provisions. However, businesses considering international expansion should understand how these rules might affect their tax planning and overall expansion costs.
Professional guidance becomes essential for businesses with existing international operations. The complex interaction between US and foreign tax systems requires careful planning to optimize overall tax costs while maintaining compliance with both domestic and international requirements.
Corporate Charitable Deduction Floor Added
The legislation adds a 1% floor to corporate charitable deductions, requiring C-corporations to exceed 1% of taxable income in charitable contributions before claiming any deduction. This floor operates in addition to the existing 10% ceiling on corporate charitable deductions.
This change primarily affects C-corporations and doesn’t impact pass-through entities like S-corporations, partnerships, or sole proprietorships. Most small businesses operate as pass-through entities and can continue claiming charitable deductions without the new floor limitation.
C-corporations must now calculate their charitable deduction as the amount exceeding 1% of taxable income, subject to the 10% overall limitation. A corporation with $1 million in taxable income must contribute more than $10,000 to charity before claiming any deduction.
Strategic charitable giving planning can help affected corporations optimize their deduction benefits. Corporations might consider timing charitable contributions to exceed the 1% threshold in profitable years while avoiding contributions that fall below the floor.
The provision encourages more substantial corporate charitable commitments rather than nominal contributions. Corporations serious about charitable giving can still achieve meaningful deductions while smaller, token contributions lose their deductibility.
Energy Tax Credit Eliminations
Key Takeaway: Most clean energy credits terminate by 2026, requiring immediate action for affected businesses
The legislation substantially reduces or eliminates many clean energy tax credits introduced under the Inflation Reduction Act. These changes affect businesses in construction, automotive, and renewable energy industries that previously relied on these incentives.
Electric Vehicle Credits End September 2025
The $7,500 tax credit for new electric vehicles and $4,000 credit for used electric vehicles both terminate for vehicles acquired after September 30, 2025. This creates a narrow window for businesses considering electric vehicle purchases to capture existing credit benefits.
Fleet operators, delivery companies, and businesses with substantial vehicle needs should evaluate accelerating electric vehicle purchases to qualify for existing credits. The deadline applies to vehicles acquired, not merely ordered, requiring completed transactions by September 30, 2025.
The termination affects both business and personal electric vehicle purchases. Business owners who use vehicles for both business and personal purposes should consider the impact on their overall transportation costs and tax planning strategies.
Alternative tax benefits may still apply to electric vehicle purchases after the credit termination. Business vehicles may qualify for Section 179 expensing or bonus depreciation, providing different but potentially valuable tax benefits for qualifying purchases.
The policy change reflects a broader shift away from renewable energy incentives toward traditional energy production support. Businesses should adjust their fleet planning and transportation strategies accordingly.
Commercial Clean Vehicles Credit Eliminated
The Section 45W credit for qualified commercial clean vehicles terminates for vehicles acquired after September 30, 2025. This credit previously provided up to $40,000 for heavy commercial vehicles and $7,500 for lighter commercial vehicles meeting specified emissions requirements.
Commercial trucking companies, delivery services, and fleet operators face the most significant impact from this termination. Businesses that planned to electrify their fleets using these credits must reassess their strategies and potentially accelerate purchase timelines.
The narrow deadline creates urgency for businesses with pending clean vehicle orders. Companies must ensure vehicle delivery and acquisition occur before October 1, 2025, to qualify for existing credit benefits.
Alternative financing and tax strategies become more important for businesses committed to clean vehicle adoption. While federal credits disappear, some state and local incentives may remain available, and traditional business tax benefits still apply to qualifying vehicles.
Long-term fleet planning should consider the total cost of ownership for clean vehicles without federal tax subsidies. Businesses may find that operational savings from fuel and maintenance costs still justify clean vehicle adoption despite the credit elimination.
Energy-Efficient Buildings Credits Terminated
Multiple commercial building energy efficiency credits face termination under the new legislation. The Section 179D deduction for energy-efficient commercial buildings ends for properties beginning construction after June 30, 2026, while the Section 45L credit for new energy-efficient homes terminates for properties acquired after June 30, 2026.
Commercial real estate developers and construction companies must adjust their project timelines to qualify for existing credits. Buildings must begin construction before July 1, 2026, to qualify for Section 179D benefits, requiring immediate planning for projects currently in development.
The energy-efficient home credit termination affects residential builders and developers who previously received credits for qualifying energy-efficient home construction. These businesses must factor the credit elimination into their pricing and project economics.
Existing projects under construction or in planning phases may still qualify for credits if they meet the construction timeline requirements. Developers should review their project schedules and consider accelerating construction starts to capture remaining credit benefits.
Alternative energy efficiency strategies remain available through traditional tax provisions. Energy-efficient equipment purchases may still qualify for Section 179 expensing or bonus depreciation, providing some tax benefits despite the credit eliminations.
Planning Around Terminated Energy Incentives
The systematic elimination of clean energy credits requires businesses to reassess their environmental and sustainability strategies. Companies committed to renewable energy adoption must find alternative financing and economic justifications for their initiatives.
Some clean energy credits survive with modifications rather than complete elimination. The carbon sequestration credit expands while the clean fuel production credit receives extension, indicating selective support for certain renewable energy activities.
Businesses should evaluate their energy strategies based on operational benefits rather than tax incentives. Many renewable energy investments provide long-term operational savings that justify adoption even without federal tax credits.
State and local incentives may partially offset the federal credit eliminations. Texas businesses should investigate state-level programs and utility incentives that might support continued renewable energy adoption.
Long-term energy planning should anticipate continued policy changes around environmental incentives. Businesses making significant energy-related investments should build flexibility into their strategies to adapt to future policy modifications.
Strategic Tax Planning Opportunities for 2025
Key Takeaway: Immediate action on equipment purchases, R&D timing, and entity structure can maximize tax savings
The combination of permanent and temporary provisions in the One Big Beautiful Bill Act creates unique planning opportunities for 2025. Businesses that act strategically can capture significant tax benefits while positioning themselves for continued optimization in future years.
Accelerating Capital Investments Before Year-End
The restored 100% bonus depreciation and enhanced Section 179 expensing create powerful incentives for accelerating equipment purchases into 2025. Businesses can immediately deduct virtually any equipment purchase placed in service before December 31, 2025.
Construction companies should consider accelerating purchases of heavy equipment, vehicles, and tools to capture immediate expensing benefits. A single excavator purchase might generate $200,000 or more in immediate tax deductions, creating substantial cash flow benefits.
Technology companies can immediately expense computer equipment, software licenses, and technology infrastructure placed in service during 2025. The permanent nature of bonus depreciation means there’s no risk of missing temporary opportunities, but immediate deductions provide better cash flow than future depreciation.
Manufacturing businesses should evaluate their capital investment schedules to optimize equipment purchases across tax years. Large investments might be strategically timed to maximize immediate expensing benefits while avoiding alternative minimum tax complications.
Professional service firms can immediately expense office equipment, technology upgrades, and facility improvements. Even smaller purchases like computers, furniture, and software can generate meaningful tax deductions when combined with other optimization strategies.
R&D Expense Timing and Catch-Up Deductions
The restoration of immediate R&D expensing creates opportunities for both current expenses and catch-up deductions from previous years. Businesses can elect to immediately deduct 2025 domestic R&D expenses while potentially accelerating unamortized amounts from 2022-2024.
Technology companies with substantial R&D activities should immediately evaluate their capitalized R&D assets from previous years. The catch-up provision allows acceleration of remaining unamortized amounts, creating potential one-time deductions that significantly impact 2025 tax liability.
Manufacturing companies with product development activities can immediately deduct qualifying research expenses incurred during 2025. This includes both internal research costs and payments to external research organizations for qualifying activities.
Pharmaceutical and biotechnology companies face particularly significant benefits from restored R&D expensing. These industries typically incur substantial research costs that previously required five-year amortization but now qualify for immediate deduction.
Proper documentation becomes crucial for maximizing R&D benefits. Businesses must carefully track and classify research activities to ensure they qualify for immediate expensing rather than mandatory capitalization or alternative treatment.
Pass-Through Entity Structure Optimization
The permanent Section 199A deduction with expanded income thresholds creates opportunities for optimizing business entity structures. Many businesses should evaluate whether their current entity choice maximizes available tax benefits under the new rules.
S-corporations can optimize the balance between salary and distributions to maximize Section 199A benefits while meeting reasonable compensation requirements. The expanded income thresholds provide more room for optimization before deduction limitations apply.
Multi-member LLCs should consider their tax election choices and management structure to optimize Section 199A benefits. Partnership taxation might provide better optimization opportunities than S-corporation elections for some businesses.
Single-member LLCs operating as sole proprietorships can evaluate whether S-corporation elections might provide benefits through salary optimization and self-employment tax savings. The permanent Section 199A deduction adds another factor to consider in entity choice decisions.
Professional service firms should understand how the specified service trade or business limitations interact with the expanded income thresholds. Many firms can now accommodate more growth before facing deduction limitations that previously applied at lower income levels.
Estate Planning with Enhanced Exemptions
The permanent estate tax exemption increase to $15 million per individual creates significant opportunities for family business succession planning. Business owners can transfer substantial business interests to the next generation without incurring federal estate taxes.
Valuation discounts for family limited partnerships and other planning structures become more valuable with higher exemptions. Business owners can transfer larger amounts while applying traditional discounting techniques to maximize the effective transfer amounts.
Generation-skipping transfer tax planning benefits from parallel exemption increases. Business owners can structure transfers that benefit grandchildren and later generations while avoiding both estate and generation-skipping transfer taxes.
Annual gifting strategies should consider the higher exemptions when evaluating whether to use annual exclusion gifts or lifetime exemption amounts. Some families might benefit from larger transfers that use exemption amounts rather than limiting gifts to annual exclusion amounts.
Charitable planning strategies can leverage the higher exemptions to achieve both charitable objectives and family wealth transfer goals. Charitable remainder trusts and other split-interest gifts become more attractive with enhanced exemption protection.
Industry-Specific Impacts for Texas Businesses
Key Takeaway: Manufacturing, technology, and service businesses each have unique optimization strategies
Different industries face varying impacts from the One Big Beautiful Bill Act, requiring tailored strategies to maximize benefits while addressing industry-specific challenges and opportunities.
Manufacturing and Production Companies
Texas manufacturers gain substantial benefits from multiple provisions that directly support domestic production activities. The combination of restored bonus depreciation, enhanced manufacturing depreciation through 2032, and immediate R&D expensing creates powerful incentives for domestic manufacturing investment.
The special manufacturing bonus depreciation provision allows 100% immediate expensing for qualified production property through 2032. This extended timeline provides certainty for long-term capital investment planning while encouraging automation and efficiency improvements.
Traditional bonus depreciation applies to most manufacturing equipment placed in service after January 19, 2025. Combined with enhanced Section 179 expensing, manufacturers can immediately deduct virtually any equipment purchase, creating substantial cash flow benefits for expansion and modernization.
Supply chain optimization benefits from enhanced business interest deduction rules. Manufacturers with inventory financing, equipment loans, or facility mortgages can deduct more interest expense under the restored EBITDA-based calculation.
Export-oriented manufacturers should understand the modified international sourcing rules that limit foreign-source treatment for US-produced inventory sold abroad through foreign branches. These rules might affect foreign tax credit planning for manufacturers with international sales operations.
Texas manufacturers in the Gulf Coast petrochemical complex particularly benefit from the legislation’s support for domestic energy production. Enhanced depreciation rules apply to refining and processing equipment while the broader business climate supports continued manufacturing investment.
Technology and R&D-Heavy Businesses
Technology companies experience transformative benefits from restored immediate R&D expensing combined with enhanced equipment depreciation rules. These provisions directly address the cash flow challenges that R&D-intensive businesses faced under mandatory capitalization rules.
Software development companies can immediately deduct domestic software development costs that previously required amortization over multiple years. This change particularly benefits companies developing proprietary software for internal use or customer licensing.
Biotechnology and pharmaceutical companies can immediately expense qualifying research activities while potentially accelerating unamortized amounts from previous years. The catch-up provision creates one-time opportunities for significant tax savings.
Technology infrastructure investments qualify for immediate expensing under bonus depreciation rules. Data centers, server farms, and cloud infrastructure can be immediately expensed rather than depreciated over multiple years.
Startups benefit from the minimum Section 199A deduction for material participants with qualifying business income. Even small technology companies with limited profitability can claim minimum deductions that provide meaningful tax benefits.
International technology companies should consider the modified sourcing rules for foreign sales activities. The 50% limitation on foreign-source treatment might affect transfer pricing strategies and overall international tax planning.
Service Industries and Hospitality
Service-based businesses benefit primarily from permanent Section 199A deductions and temporary employee deduction opportunities. The expanded income thresholds allow more service businesses to claim full pass-through deductions as they grow.
Restaurants and hospitality businesses gain significant advantages from the temporary tips deduction available to their employees. This provision can improve employee retention and satisfaction while providing meaningful tax benefits to workers in tip-based positions.
Professional service firms including accounting, legal, consulting, and healthcare practices can optimize their growth strategies around the expanded Section 199A thresholds. The higher income limits before deduction phase-outs provide more room for practice expansion.
Personal service businesses like salons, spas, and fitness centers benefit from both Section 199A deductions for owners and tips deductions for employees. The combination creates tax benefits across the entire business structure.
Hospitality businesses with significant equipment needs can utilize enhanced depreciation rules for restaurant equipment, hotel furnishings, and facility improvements. Most hospitality equipment qualifies for immediate expensing under either Section 179 or bonus depreciation rules.
Franchise operations should understand how the various provisions interact with their business models. Franchisees typically qualify for Section 199A benefits while employees may benefit from tips or overtime deductions depending on their specific roles.
Real Estate and Construction
Real estate and construction businesses experience mixed impacts from the legislation, with significant benefits from equipment depreciation rules offset by the elimination of some energy efficiency credits.
Construction companies benefit enormously from enhanced equipment depreciation rules. Heavy equipment, vehicles, and tools can be immediately expensed under Section 179 or bonus depreciation, creating substantial tax savings for equipment-intensive operations.
Real estate developers lose some energy efficiency credits but retain traditional depreciation benefits for most property improvements. The loss of Section 179D and Section 45L credits requires adjustment of project economics and pricing strategies.
Commercial real estate investors continue benefiting from traditional real estate depreciation rules while gaining enhanced business interest deduction benefits. The EBITDA-based calculation improves deductibility for businesses with significant real estate debt.
Residential builders must adjust to the elimination of energy-efficient home credits while leveraging equipment depreciation benefits for their construction equipment and tools. The balance of benefits varies depending on each company’s specific business mix.
Property management companies can immediately expense technology improvements, office equipment, and property maintenance tools under enhanced depreciation rules. These businesses also benefit from permanent Section 199A deductions on their management income.
REIT and real estate investment structures should consider how the various provisions affect their overall tax efficiency and investor returns. Enhanced business interest deductions might improve cash flow while Section 199A benefits could enhance pass-through investor returns.
FAQ
How does the permanent Section 199A deduction affect my Texas LLC or S-Corp?
The 20% qualified business income deduction is now permanent with expanded income thresholds. Single filers can earn up to $75,000 above the base threshold (increased from $50,000) before phase-out limitations apply, while married couples get $150,000 (up from $100,000). This means more Texas small businesses can claim the full 20% deduction even as they grow. For 2025, the base thresholds are $191,950 for single filers and $383,900 for married filing jointly, so the full deduction applies until $266,950 (single) or $533,900 (married) in taxable income. The deduction reduces your effective tax rate on business income and works alongside other small business tax deductions for maximum tax savings.
What equipment purchases qualify for 100% bonus depreciation in 2025?
Most business equipment with a recovery period of 20 years or less placed in service after January 19, 2025, qualifies for immediate 100% expensing. This includes computers, vehicles, manufacturing equipment, office furniture, and technology infrastructure. The key is the “placed in service” date, not the purchase date – equipment must be ready and available for its intended use by December 31, 2025. You can combine this with the enhanced $2.5 million Section 179 limit for maximum benefits. Heavy vehicles over 6,000 pounds used primarily for business qualify for immediate expensing, and our comprehensive vehicle guide provides specific examples and requirements.
Can my restaurant employees really get a $25,000 tax deduction on their tips?
Yes, but with income limitations. Employees earning under $150,000 annually can deduct qualifying tip income up to $25,000 per year through 2028. This requires proper documentation and reporting, which means restaurants need enhanced payroll systems to track and report tip amounts on W-2 forms. Cash tips, credit card tips, and tip-sharing arrangements all qualify. Employees still pay Social Security and Medicare taxes on tips, but avoid income tax on amounts up to the limit. Your bookkeeping services should help implement compliant tip tracking procedures to ensure employees can claim maximum benefits.
How does the SALT cap increase affect high-earning Texas business owners?
Texas business owners can now deduct up to $40,000 in state and local taxes (up from $10,000) through 2029, as long as their modified adjusted gross income stays under $500,000. While Texas has no state income tax, this helps with local property taxes, sales taxes on major purchases, and any state income taxes incurred while traveling or operating in other states. Above the $500,000 income threshold, the deduction phases down by 30% of the excess but never goes below $10,000. This temporary increase reverts to $10,000 after 2029, so strategic tax planning should consider timing major purchases or interstate activities during the higher cap period.
Should I accelerate my R&D spending now that immediate expensing is back?
Absolutely. Domestic research and development costs are now immediately deductible under new Section 174A, and you can accelerate remaining unamortized amounts from 2022-2024. This creates significant cash flow benefits for technology companies and innovative manufacturers who previously faced mandatory five-year amortization. However, foreign R&D expenses disposed of after May 12, 2025, cannot be recovered, creating incentives for domestic R&D activities. Proper documentation distinguishing domestic from foreign activities becomes crucial for maximizing these benefits.
What’s the deadline for maximizing 2025 tax benefits under the new law?
Most equipment purchases must be “placed in service” by December 31, 2025, to qualify for bonus depreciation and enhanced Section 179 benefits. “Placed in service” means ready and available for use, not just purchased or delivered. Some provisions like tips and overtime deductions apply retroactively to January 1, 2025, so employees can benefit for the entire tax year. Energy credits like electric vehicle incentives terminate September 30, 2025, requiring immediate action for affected purchases. Working with experienced small business accountants helps ensure optimal timing for maximum benefits.
How do the new overtime deductions work for my employees?
Employees earning under $150,000 can deduct up to $25,000 in qualified overtime compensation through 2028. This applies to time-and-a-half and double-time payments for hours worked over 40 per week under Fair Labor Standards Act requirements. Employers must track and separately report overtime amounts on W-2 forms, requiring payroll system modifications to distinguish regular wages from qualifying overtime. This benefits manufacturing, healthcare, and public safety workers while potentially improving employee retention for businesses with significant overtime operations.
Will the estate tax exemption increase affect my business succession planning?
The permanent increase to $15 million ($30 million for married couples) starting in 2026 significantly impacts family business transfers. Combined with permanent Section 199A benefits that enhance business valuations, this creates powerful succession planning opportunities. The certainty of permanent exemptions allows confident long-term planning without worrying about scheduled reductions. Generation-skipping transfer tax planning also benefits from parallel exemption increases. Family businesses should review existing succession plans and consider transferring additional interests while avoiding transfer tax implications.
Expert Q&A Section
Q1: How should pass-through entities modify their tax elections to maximize the permanent Section 199A benefits?
A1: Pass-through entities should evaluate their current structure against the enhanced income thresholds and consider strategic income timing. With the phase-in range expanded to $75,000/$150,000 above base thresholds, more businesses can access the full 20% deduction. S-corporations should optimize the balance between salary and distributions to maximize Section 199A benefits while meeting reasonable compensation requirements. Multi-member LLCs might benefit from partnership taxation rather than S-corporation elections, depending on their specific circumstances. Professional service firms should understand how specified service trade or business limitations interact with expanded thresholds. We recommend analyzing three-year income projections and potentially adjusting compensation strategies to optimize deduction eligibility while maintaining compliance with reasonable compensation standards for S-Corps.
Q2: What documentation requirements exist for the new tips and overtime deductions?
A2: The legislation requires employers to report total tip amounts and overtime compensation on W-2 forms starting with 2025 tax returns. This means implementing robust payroll tracking systems that separately identify and document these categories. For tips, businesses must track cash tips, credit card tips, and tip-sharing arrangements with proper documentation linking amounts to specific employees. Overtime tracking requires distinguishing between regular wages and qualifying overtime compensation under Fair Labor Standards Act requirements. We help clients establish compliant documentation procedures that satisfy IRS requirements while simplifying employee deduction claims. The system must integrate with existing payroll processes while ensuring accurate W-2 reporting that employees need for their personal tax returns.
Q3: How does the restored business interest deduction interact with other debt financing strategies?
A3: The permanent restoration of EBITDA-based adjusted taxable income calculations significantly expands deductible business interest under Section 163(j). Businesses can now compute ATI without reducing it for depreciation, amortization, and depletion, typically resulting in higher deductible interest amounts. This makes debt financing more attractive relative to equity financing, especially for capital-intensive businesses. The enhanced deduction works synergistically with bonus depreciation – while depreciation reduces current-year taxable income, it doesn’t reduce the ATI calculation for interest deduction purposes. We model the interaction between Section 163(j), bonus depreciation, and specific capital structures to optimize financing decisions. Businesses should consider refinancing existing debt or structuring new acquisitions with debt financing to maximize tax benefits from enhanced interest deductibility.
Q4: What immediate steps should technology companies take regarding R&D expense timing?
A4: Technology companies should immediately elect to deduct domestic R&D expenses under new Section 174A while accelerating any remaining capitalized amounts from 2022-2024. This requires careful documentation of domestic versus foreign activities and potentially changing accounting methods using automatic change procedures. The catch-up provision creates significant one-time benefits that require immediate attention – businesses can elect to accelerate remaining unamortized amounts from previously capitalized R&D expenses. Software development costs, product development expenses, and innovation activities qualify for immediate deduction if conducted domestically. However, foreign R&D expenses face restrictions, so companies should evaluate their research location strategies. Transitions between deduction and capitalization are treated as automatic accounting method changes without Section 481(a) adjustments, simplifying the implementation process.
Q5: How do the energy credit eliminations affect existing installations and contracts?
A5: Most energy credits terminate for property placed in service after specific dates in 2025-2026, but existing contracts and installations completed before termination dates remain protected. The $7,500 electric vehicle credit expires September 30, 2025, while commercial building efficiency credits end June 30, 2026. Businesses with pending energy projects should accelerate installation timelines where possible to capture existing credits. However, some credits like carbon sequestration expand while clean fuel production credits receive extensions, indicating selective rather than universal elimination. Businesses should evaluate whether to complete planned projects under existing credit rules or pivot to alternative strategies that rely on traditional tax benefits like Section 179 expensing or bonus depreciation for energy-efficient equipment purchases.
Q6: What planning opportunities exist with the permanent estate tax exemption increase?
A6: The permanent $15 million exemption creates significant family business transfer opportunities, especially combined with permanent Section 199A benefits that enhance business valuations for gift and estate tax purposes. Business owners can transfer larger ownership interests through lifetime gifts or testamentary transfers without federal estate tax implications. Generation-skipping transfer tax planning benefits from parallel exemption increases, allowing transfers to grandchildren and later generations. Valuation discounts through family limited partnerships and other planning structures become more valuable with higher exemptions. We recommend comprehensive succession planning that leverages both enhanced exemptions and ongoing income tax benefits. The permanency allows confident long-term planning without worrying about future exemption reductions that previously complicated family business succession strategies.
Q7: How should seasonal businesses optimize the temporary overtime and tips deductions?
A7: Seasonal businesses should restructure compensation timing to maximize employee deduction benefits during high-earning periods while staying within the $150,000 annual income limitation. This might involve concentrating overtime hours during peak seasons when employees can best utilize the deduction benefits. Restaurants and hospitality businesses can implement formal tip reporting systems that properly document tip income throughout seasonal fluctuations. We help design compensation strategies that benefit both employers and employees – businesses might adjust overtime scheduling or implement tip pooling arrangements that optimize employee deduction opportunities. The temporary nature through 2028 requires immediate implementation to capture maximum benefits. Seasonal variations in income can help employees stay within deduction thresholds that might otherwise be exceeded in year-round operations.
Q8: What compliance changes are needed for the revised 1099-K reporting thresholds?
A8: The return to $20,000 and 200-transaction thresholds reduces reporting burdens compared to the previously scheduled $600 threshold, but businesses should verify their reporting status under the restored rules. Payment processors may need system updates to implement the higher thresholds, and businesses should confirm their transaction volumes meet the reporting requirements. The change affects businesses receiving payments through platforms like PayPal, Square, Stripe, and other third-party processors. While fewer businesses will receive 1099-K forms, income reporting obligations remain unchanged regardless of form receipt. We help clients understand their obligations and implement appropriate record-keeping systems that track all income sources. For sales and use tax compliance, the 1099-K changes don’t affect underlying sales tax obligations that apply regardless of payment processing thresholds.
Ready to optimize your taxes under the One Big Beautiful Bill Act? Schedule your free consultation and discover precisely how much you could save with the strategic implementation of these powerful new tax benefits.
Website Reference
Visit SDO CPA at https://www.sdocpa.com for expert tax planning and business advisory services for Texas small businesses and startups.
Important Disclaimer
Tax legislation is subject to ongoing interpretation and guidance from the IRS, Treasury Department, and other regulatory bodies. The provisions outlined above represent the current understanding of H.R. 1, but additional clarifications, technical corrections, and implementation guidance will continue to emerge. Tax rules can be modified through subsequent legislation, regulatory updates, or IRS notices that may alter how these provisions are applied in practice. The effective dates, phase-out thresholds, and specific requirements may be subject to refinement as the IRS issues regulations and guidance documents. We strongly recommend working with a qualified CPA firm to best apply these opportunities to your specific situation and to stay current with the latest interpretations and changes as they develop.