First Things First: A Step-by-Step Approach to the 2025 Tax Law
The massive tax and reconciliation bill signed into law on July 4, 2025, will affect nearly every US business and individual taxpayer. Known informally as the One Big Beautiful Bill (OBBB), the new law made significant changes to US tax and energy policies, eliminating some recent tax incentives while extending or enhancing many provisions of the 2017 Tax Cuts and Jobs Act (TCJA).
With so many extensive changes, even deciding where to begin can be overwhelming for business leaders. Although this is by no means a complete list of the law’s provisions, the following summary can help companies prioritize some steps to take in the near term.
Phase 1: Immediate action steps
These are some issues businesses should address quickly, as they may require immediate systems changes or accelerated decision-making.
- Update payroll systems. Later this year, the IRS will issue guidance on how to calculate and report the new deductions eligible employees can claim for tips and overtime pay. In the meantime, businesses should update their payroll systems, if necessary, to accurately track these amounts for W-2 reporting purposes.
- Review ongoing clean energy projects. Many clean energy tax incentives from the 2022 Inflation Reduction Act are phasing out. These include clean vehicle credits (ending September 30, 2025), the Section 179D deduction for energy efficient buildings (which will no longer apply for properties where construction begins after June 30, 2026), and various other clean energy production and investment credits. Businesses pursuing such projects should reassess the viability of their plans, as it may be necessary to accelerate timelines to meet new deadlines.
- Communicate with employees. In addition to the new deductions for tips and overtime, employers should also alert employees to other changes such as the increased state and local tax (SALT) deduction limit, the continuation of higher standard deductions, and other provisions that could affect their 2025 tax bills. Employees should consult with their own tax professionals regarding possible changes to their paycheck withholding.
- Review industry-specific and international concerns. In addition to its many general business tax provisions, the OBBB also includes changes that apply to specific industries, particularly the energy, agriculture, manufacturing, and real estate sectors. It also contains provisions affecting companies with international operations or multinational ownership issues. Businesses with such considerations should work closely with their tax teams to determine next steps.
Phase 2: Issues to address by year end
Although OBBB provisions will have an immediate impact on businesses’ 2025 taxes, many specific action items will need to wait until the IRS issues implementing guidance. Nevertheless, businesses should be prepared to act quickly in concert with their tax advisors once the direction is clear.
- R&D expensing. The OBBB reinstates 100 percent expensing for domestic research and development in the current tax year and also offers businesses several ways to deduct R&D costs they had to capitalize in previous years. Once IRS guidance on these alternatives is released later this year, companies should coordinate with their tax professionals to determine the best approach.
- Bonus depreciation and Section 179 expensing. The law restores 100 percent bonus depreciation, retroactive to January 20, 2025. In addition, it created a new bonus depreciation election for buildings used in manufacturing, agriculture, and refining that can qualify as “qualified production property”. It also increases the maximum expense amount eligible for Section 179 expensing for qualifying property. Once again, companies will need to consult their tax advisors to choose the most effective path.
- QBI deduction adjustments. The 20 percent Qualified Business Income (QBI) deduction is now permanent, with updated thresholds and a new $400 minimum deduction for active owners. Pass-through entities should review their ownership structure and compensation packages before year end to maximize this benefit.
- Interest expense. The new law restores the prior method for calculating Section 163(j) interest expense limitations, so depreciation, amortization, and depletion are again included when calculating the 30 percent of income limitation.
Phase 3: Longer-term strategic issues
Many OBBB provisions have broader tax planning implications that may unfold over multiple years.
- Qualified small business stock (QSBS) exclusion. In many cases, gain on the sale of qualified small business stock can be excluded from taxable income, potentially resulting in zero tax on the sale of a business. The new law increases the maximum allowable gain exclusion to $15 million and for the first time allows partial exclusion for stock that is held for less than five years. Note, however, that these new provisions apply only to stock issued after July 4, 2025. Owners and investors should consult their tax professionals prior to any M&A activity and consider these new provisions’ impact on capital structure and new investment strategies.
- Opportunity Zone extensions. The OBBB made the Opportunity Zones program permanent but significantly revised the eligibility requirements, timing, and scope of the associated tax benefits. Most of the changes take effect on January 1, 2027.
- Long-term business planning. In addition to addressing the OBBB’s business tax provisions, executives and managers should also consider how the law’s personal tax provisions could indirectly affect business planning. For example, the increased gift tax exemption could influence long-term family business planning, the significantly enhanced credit for employer-provided child care and the new “Trump Accounts” might warrant adjustments to employee benefit plans. In addition, with the new, higher SALT deduction limits, some pass-through businesses might want to revisit any elective pass-through entity (PTE) tax workarounds they initiated in previous years.
As noted earlier, this summary covers only a portion of the OBBB tax code changes that companies need to consider. For virtually every business, the first step should be close consultation with qualified tax professionals to develop a comprehensive compliance plan that identifies and addresses the most urgent and pressing priorities. Please contact us if you have any questions about the new tax law.
