With the recent passage of President Trump’s “One Big Beautiful Bill” Act (OBBB), many question marks that have been floating in the air since the start of the year are finally being resolved. Business owners and tax professionals alike have been waiting with bated breath to see what the new tax policies will be. Now that the act has been signed in ink, the work of tax planning can begin. 

For business owners, a number of the changes coming down the pipeline for 2025 can be used to your advantage—with a little preparation. Which provisions offer the biggest potential benefits? Read on to discover more.

100% Bonus Depreciation
The trouble with tangible assets is that they wear down over time. Real estate needs repairs, manufacturing equipment starts to slow, and computer software becomes outdated. Fortunately, the IRS factors this into business tax breaks in the form of depreciation deductions. Businesses are allowed to write off the cost of assets that decrease in value (or depreciate) over time. 

The OBBB makes 100% bonus depreciation a permanent fixture. The benefit? Businesses can deduct the full cost of the asset immediately, meaning immediate tax savings and increased cash flow. Of course, not every business will want to opt into bonus depreciation for every asset. That really depends on whether the deduction will be more helpful this year or in future years (a question to pose to your tax planner). 

What types of items qualify for bonus depreciation? Again, these must be assets that decrease in value over time. This includes automobiles, computer equipment and software, land improvements, manufacturing equipment, office furniture, and real property. Just as importantly, the property must also: 

• be an asset you own
• be used in your business or an income-producing activity
• have a determinable useful life
• be expected to last at least one year

Business owners can consult IRS guidelines to see if their assets qualify. 

There is one catch to this new provision. To qualify for 100% bonus depreciation, the property must have been acquired and placed in service after January 19, 2025. For an asset to be “placed in service,” this means it has been put into use. So the asset must be available for whatever business purpose or income-producing activity it was purchased to do. 

Those who had already created a tax plan around the old provisions still have the option to stick to their plan. Before the OBBB was enacted, the highest bonus depreciation rate available for 2025 was 40%, so Congress included a “transition rule” that allows businesses to opt into the 40% rate (instead of 100%) for 2025 only if that works better for their tax plans. 

Lastly, the maximum deduction has been permanently increased to $2.5 million for any property that qualifies for depreciation under Section 179 of the tax code. The deduction also starts to phase out at $4 million of qualifying property starting in 2025. 

100% R&D Expenses

Research and development (R&D) activities have often been favored by the tax code. To nudge businesses into investing in innovation, lawmakers create R&D tax deductions or credits to reduce the overall costs. Much like the bonus depreciation benefit, the OBBB reintroduces the option to fully deduct all domestic research or experimental expenses in the year they occur. The key word here is “domestic.” If the expenses go toward “foreign research” completed outside the U.S., immediate expensing is not an option. Foreign R&D has to be deducted gradually over the course of 15 years, which is the requirement set up by the 2017 Tax Cuts and Jobs Act. 

What counts as an R&D expense? The IRS has existing guidelines on qualified research expenses, which include in-house research expenses and contract research expenses. This can even cover employee wages, supplies used, and computers used for qualified research. Some items that would not count as R&D expenses include land improvements or other depreciable property and certain ore or mineral deposit exploration costs. 

The way the R&D provision is structured fortunately leaves a lot of room for creative tax planning. The default for 2025 is that you would fully expense any R&D costs in the year they’re paid or incurred. However, you do have a second option of gradually writing off the expenses (known as “amortization”) for up to 60 months. The best part is that you can pick the amortization period. This allows you to choose the exact tax year when those deductions will be the most beneficial to you—but you need to make your election by the tax return due date. Once you choose your amortization method (100% or otherwise) and time period, that’s it. You can’t change it without IRS consent, which is a process that has not been determined yet. 

So that’s the layout for R&D expenses for 2025. What about R&D expenses incurred from 2022 through 2024 that are still in the process of being written off? Businesses have three options on how to handle these expenses:

1. Keep on keeping on. Stick with your current amortization schedule.

2. Retroactively apply the new provision—if you qualify. If you meet the small business cash method gross receipts test, you can file an election with the IRS to apply the 100% expense deduction all the way back to December 31, 2021. To pass the test, your average gross receipts for the last three tax years has to be under $31 million. The election must be made within one year of the law taking effect. 

3. Deduct the remaining expenses now. You can also take the unamortized expenses and deduct them all in 2025—or split them between 2025 and 2026.

This flexibility allows us to customize the deduction to our needs and figure out when it will impact our tax bill the most! However, take note that if you already took a deduction for 2022-2024 expenses, if you reverse that decision, you’ll have to pay interest on the deduction. Reversing could still be the best choice, and result in the most savings—consult your tax planner to figure out the best way to apply this new provision. 

Summary
The new bonus depreciation and R&D expensing rules both have the potential to make a big difference for small businesses. Like many tax provisions, maximizing the benefits requires advance planning. Weighing the pros and cons and calculating the impact of these deductions can be a complicated process—which is why we recommend relying on a professional. For expert help in applying the OBBB to your next tax return, reach out to a Certified Tax Planner today.