The One Big Beautiful Bill Act, HR 1, comes with some big numbers, not all of them beautiful. The Congressional Budget Office estimates that over the next 10 years, the law will add $3.4 trillion more debt to the U.S.’s balance sheet than if it hadn’t passed. Just the international tax provisions would reduce revenues by roughly $170 billion over 10 years relative to current law, according to Congress’s Joint Committee on Taxation.
The cuts in federal spending on Medicaid and SNAP will reduce household resources by $1 trillion, according to the CBO, primarily for lower-income families. Calculating the dollar impact of cuts to tax incentives for producing and consuming clean energy? That extends beyond mere numbers.
However, for most U.S. companies and their CFOs, OBBA offers levers to make substantial tax and business planning changes to boost profitability and balance sheets while reducing cash tax payments. With all the changes—from bonus depreciation and equipment expensing to domestic R&D tax treatment and special incentives to build manufacturing facilities—tax departments have a lot of work to do. (See table below.)
“As is often the case with tax reform, the changes didn’t necessarily simplify anything,” says Matthew Friedman, a senior director at Portage Point Partners.
What areas of the tax law can CFOs take action on to benefit their businesses?
Loading Up
One of the most notable changes is the permanent extension of 100% bonus depreciation on qualified assets, which increases to 100% from 40% permanently starting January 19 of this year.
“For companies investing in equipment, technology or facilities, this offers immediate tax advantages and removes the urgency of previous expiration timelines,” says Daniel Cox, CFO of Incentify, a platform for managing tax credits and investments. “It’s an opportunity to reassess stalled investments and evaluate new ones under more favorable tax conditions.”
The significant upfront tax savings could put a taxpayer with a large capex into a tax loss position, says Friedman, which could generate an operating loss carryforward. But before taking deductions and deciding on expensing timelines, companies need to consider the law’s entire scope.
The combination of bonus depreciation, the full deduction for R&D expenses and manufacturing facilities means business taxpayers will have to decide whether it’s a great decision to load up on all their deductions in 2025. “They may want to spread it over ’25 and ’26,” says Andy Swanson, a partner in RSM’s Washington national tax practice. “A loss carryforward can only offset 80 percent of taxable income.” By splitting up the deductions, “there’s a possibility of not just saving the cash flow today but also next year,” says Swanson.
Companies that have estimated tax payments coming in September have some decisions to make in the next two months, says Swanson, to ensure they don’t overpay. (Story continues after chart.)
Revisit R&D, Rerun ROI
OBBA reinstates and makes permanent the deductibility of domestic R&D expenses. It could have a huge effect, because R&D encompasses a wide range of costs and activities, Friedman says. The tax returns of dozens of midmarket businesses he reviewed for deals showed a large shift in taxable income when R&D expenses started to be capitalized.
The 100 percent R&D credit applies retroactively for small businesses with under $31 million in revenue, creating “a time-sensitive opportunity to amend prior-year returns or accelerate new R&D initiatives with immediate tax benefit,” says Chad Cummings, CPA, a Naples, Florida-based tax attorney.
Restoring the 2017 Tax Cuts and Jobs Act’s more favorable calculation for determining the limit on business interest expense deductions means CFOs may want to recalculate tax-effective ROI for projects turned down because the numbers didn’t work out, Swanson says.
“Now, if you make the investment, you’re going to be able to get deductions for, possibly, production facilities and a lot of the equipment, which will allow you to finance some of the investment cost through that tax savings, which can affect the ROI,” he says.
That could be a massive benefit to manufacturers that are highly leveraged, says Swanson.
Foreign Tax Complexities
OBBA makes substantial changes to core international tax provisions—GILTI, FDII and BEAT— that may alter a company’s calculus of offshore reinvestment strategies and transfer pricing policies, according to Grant Thornton.
Businesses need to model everything—particularly in the non-U.S. context—”because the provisions are cutting in two directions,” says Friedman. Since the changes to things like income derived from foreign subsidiaries are very fact-specific, a company has to assess each set of circumstances, says Friedman. “That’s not something that most clients like to hear, but there’s no other way around it.”
Unkindest Cuts
Not all organizations will benefit from OBBA. The law presents acute risks to the clean energy industry by phasing out clean electricity investment and production tax credits. For example, solar and wind farms entering service after 2027 would no longer be eligible for the credits, according to the Tax Policy Center. And the federal tax credit of up to $7,500 for new EVs will expire on September 30.
Developers and funds engaged in renewable infrastructure projects must reexamine funding assumptions, eligibility for federal credits and the regulatory timelines that program cancellations may disrupt.
“The rescission of billions in unspent Inflation Reduction Act funds—including funds allocated for the greenhouse gas reduction fund, advanced vehicle incentives and renewable transmission development—will result in diminished liquidity and investor uncertainty,” Cummings says.
Developers and funds engaged in renewable infrastructure projects must reexamine funding assumptions, eligibility for federal credits and the regulatory timelines that program cancellations may disrupt, he says. Adds Incentify CFO Cox: “Businesses that had planned around these incentives should adjust their forecasts and revalidate ROI assumptions for sustainability-related projects.”
Business First
All the favorable provisions in OBBA could lead CFOs to be more tax-centric in their thinking. But as Swanson is telling clients, a CFO doesn’t want to let the tail wag the dog.
“You always want to run your business to make money, and tax is one of your biggest expenditures, so you want to manage tax. But you don’t want to make a bad business decision, because [of the tax treatment benefits],” he says. “I can eliminate all of my taxable income by investing a billion dollars in a manufacturing facility, but if I don’t need a billion-dollar manufacturing facility, that’s probably not the best idea.”
On the other hand, for example, a business will want to consider things like its long-term outlook from a facility standpoint. “If a [facilities] investment was going to occur in 2030, I could potentially accelerate that investment to 2027 or 2028 and wind up being able to deduct it; otherwise, it’s unclear what the treatment will wind up being,” says Swanson.
Formulate A Plan
OBBA is the most consequential rewrite of federal tax and fiscal policy since the Tax Cuts and Jobs Act of 2017, says Cummings. What lessons did the TCJA teach that CFOs should heed?
Says Swanson: “The biggest thing that I saw in 2017 was that clients that paid attention and formulated a plan and mapped out their future, taking the tax law into account, flourished,” Swanson says. “They had good businesses to begin with, but [the TCJA] helped accelerate their progress. Those who looked at it as, ‘It’s tax law, I just have to live with it,’ were ere still successful, but they didn’t reap the same benefits,” Swanson says.
OBBA injects some certainty into U.S. business tax planning, so it’s also a good time for companies to look at their overall tax structure, Swanson says. Favorable changes in the treatment of gains on qualified small business stock, for example, might cause some companies to think about becoming a C corporation instead of a flow-through entity.
Moving Forward
The IRS will be writing the proposed regulations for the changes in tax law. Once they are final, the IRS will then provide the guidance for implementation by businesses. That could come in the next six to 12 months, if the TCJA is any guide, says Friedman.
However, since many of the provisions are intended to be permanent, “I don’t know much of a rush Congress [or the IRS] is going to be in,” he adds. The changes to international tax laws will see more hashing out, says Friedman, so expect more activity around those regulations.
