The One Big Beautiful Bill (OBBB) Act introduced sweeping federal tax reform, including provisions that can dramatically impact business decisions and tax strategies for small businesses. Navigating the complexities of federal tax law and business incentives has always been challenging, but doing so in the wake of major tax law changes creates new complexities—as well as new opportunities. With some forward thinking and the help of a knowledgeable advisor, small business owners can leverage these new provisions to maximize tax savings, improve cash flow, and support long-term growth and success.
Impactful OBBB Act Tax Changes for Small Business Owners
The OBBB Act included widespread changes with implications reaching across individual taxpayers, business taxpayers, and international taxes. Within the large scope of the law are several provisions particularly topical to small businesses, with many offering potentially lucrative benefits with the right tax planning and strategy. These are the provisions small businesses should be keeping top of mind as you wrap up 2025 and look to 2026:
More Accessible Qualified Small Business Stock (QSBS)
QSBS benefits are now more accessible thanks to the OBBB Act, which increased the exclusion limit from $10 million to $15 million and shortened the required holding period from more than five years to a tiered approach of three, four, or five years. These improvements mean small business founders and investors can benefit from faster and larger tax-free exits when selling qualified shares, making equity compensation more attractive and liquidity events more rewarding.
Domestic R&D Costs May Now be Immediately Expensed
The OBBB Act restored the ability for businesses to immediately expense domestic R&D costs, reversing several years of capitalization and amortization requirements imposed by the 2017 Tax Cuts and Jobs Act. Additionally, the 2025 OBBB Act gives qualified small businesses the ability to amend prior years to apply the new rules retroactively. This will mean improved cash flow and reduced taxable income, freeing up resources to reinvest in innovation.
Permanent 100% Bonus Depreciation to Accelerate Write-Offs
After years of being phased out, 100% bonus depreciation is now permanently restored for eligible property. The allowance of 100% bonus depreciation means you can write off the full cost of qualifying assets in the year it was placed in service, accelerating tax deductions and enhancing available capital for further investments.
Expanded Deduction for Eligible Equipment and Software Purchases Empowers Immediate Investments
The OBBB Act increased the deduction limit under Section 179, allowing qualifying businesses to immediately expense up to $2.5 million in eligible business equipment and software purchases each year, with a higher phase-out threshold for larger investments. This provision accelerates the tax savings from essential capital expenditures, making it easier to invest in technology, hardware, and infrastructure when growth demands it.
Permanent QBI Deduction for Long-Term Predictability
The Qualified Business Income (QBI) Deduction allows eligible taxpayers to deduct up to 20% of QBI. It was set to expire after this year, but is now made permanent by the OBBB Act. The permanence of the Qualified Business Income (QBI) deduction offers more certainty for owners of pass-through entities, supporting better forecasting and smoother growth trajectories.
Carried Interest Rules (and Favorable Taxation for Fund Manager) Retained
Despite rumors to the contrary, the OBBB Act did not alter the carried interest rules. For those managing venture capital or private equity funds, retaining favorable carried interest taxation preserves the appeal and structure of performance-based compensation.
More Favorable Interest Limitations for Eligible Businesses
The OBBB Act made interest limitation rules more favorable for certain taxpayers, allowing eligible businesses to deduct a greater portion of interest expenses and reduce taxable income. For small businesses and startups, this improvement increases access to capital, enhances cash flow, and supports growth by making debt financing more efficient.
Sustained and Expanded Limitations on Excess Business Losses
The limitation on excess business losses was set to expire after this year, but the OBBB Act has made the limitation permanent. This rule restricts the amount of business losses a taxpayer (including non-corporate taxpayers) can use to offset non-business income. This change may limit the extent to which early-stage losses can reduce overall tax liability, emphasizing the importance of strategic tax planning to maximize available deductions.
Strategies to Turn Potential into Real Value
Understanding which provisions offer the most potential value to your business is merely the first step; turning that potential into real value requires strategic action. Each of the provisions discussed above carries unique requirements and nuances that can impact eligibility, timing, and next steps. To fully realize the opportunities presented by these OBBB reforms, small businesses should approach each key provision with tailored strategies that align with long-term goals and operational realities.
- Regularly review your business structure to confirm ongoing eligibility for the QBI deduction. Maintain comprehensive records of qualifying activities and expenses, and incorporate multi-year tax planning into your financial strategy to make the most of the deduction’s permanence.
- Continue to structure performance-based compensation to utilize favorable carried interest taxation. Formalize carried interest plans for key team members and ensure all arrangements adhere to regulatory guidelines, safeguarding these benefits for the future.
- Take advantage of the relaxed interest deduction limits by using debt financing to support expansion and key operations. Collaborate with financial professionals to plan borrowing and repayment activities and rigorously track interest expenses to ensure full deductibility under the new rules.
- Adopt proactive tax planning to strategically manage business losses. This may include the timing of expense and income recognition, grouping business activities to offset losses within defined categories, and consulting with tax advisors to avoid surpassing loss limits, helping you optimize your overall tax position.
- Review how research and development costs were categorized for previous tax years. Since eligible small businesses have the opportunity to amend prior tax years and apply the new rules retroactively, there may also be opportunities to capture additional R&D tax credits for those years if you did not previously claim an R&D credit or if you discover additional costs from those years that were not included in the originally filed R&D credit.
Perhaps the most important step a small business can take to benefit from the OBBB Act is to consult a knowledgeable tax advisor. These provisions are nuanced in both their rules and their impact, and they can interact in ways that can impact a business’s whole tax return for current, previous, and future tax years. A tax advisor with a holistic approach can help you understand all the potential benefits and ramifications of each provision and related decisions.
By taking these focused actions, small businesses can not only remain compliant but also turn each legislative change into a catalyst for growth, resilience, and financial efficiency under the OBBB Act.
Seize the Opportunity
The passage of the OBBB Act marks a new era for small businesses, offering enhanced opportunities for tax savings, capital formation, and innovation. Whether you’re a founder seeking a lucrative exit, a small enterprise investing in research, or a growing company acquiring new assets, the OBBB Act’s key provisions are designed to help you thrive.
By understanding the most relevant provisions and their potential value, small businesses can build a stronger financial foundation, attract top talent, and reinvest profits to foster sustainable growth. As always, partnering with knowledgeable advisors and staying proactive can help you transform legislative change into tangible business success.
Dave Hanson is a Tax Partner at Aprio.
Photo Courtesy Katelyn Perry for Unsplash+
