Recently enacted tax legislation known as The One Big Beautiful Bill was passed by Congress and signed into law on July 4, 2025.
This new legislation brings immediate relief in several key areas while creating strategic decisions that require prompt attention. Here’s a summary of the most critical provisions that may impact your business:
Research and Development (R&D) expensing. Businesses can once again fully deduct domestic R&D expenses in the year they’re incurred. Small businesses can amend 2022-2024 tax returns to claim immediate R&D deductions previously capitalized which may generate refunds and improve cash flow.
Large corporations cannot amend prior years but can take the full remaining deduction in 2025 or split it between 2025 and 2026.
Research credit coordination. New rules require choosing between claiming the full R&D tax credit or taking the full expense deduction, as you can no longer maximize both.
If you claim the Section 41 research credit, you must reduce your R&D deductions by the same amount. Alternatively, you can elect a smaller credit to preserve your full deduction.
Business interest limitation. The bill’s business interest deduction now limits returns to the more favorable 30% of EBITDA calculation, reversing the restrictive EBIT-based rules that had been in effect since 2022. This change is permanent, eliminating previous uncertainty about future policy shifts.
The key improvement is that depreciation and amortization are back in the calculation base, increasing the threshold for allowable interest deductions. This benefits manufacturers and other capital-intensive businesses that were hit hard by the previous rules.
But there’s one important clarification: Capitalized interest (interest added to asset costs rather than immediately deducted) must now be included in the limitation calculation, with the 30% cap applied to capitalized interest first before current deductible interest.
Foreign-derived income changes. The foreign-derived income deduction is being scaled back in two phases. The deduction rate drops permanently from 37.5% to 33.34% for tax years beginning after 2025. And starting mid-2025, income from selling intangible property and depreciable assets won’t qualify for the deduction, and only expenses directly tied to qualifying foreign income can reduce the benefit.
The 100% bonus depreciation is back for all qualifying equipment and property purchased after that date. This reverses the phase-down schedule that reduced the benefit to 60% in 2024 and 40% in early 2025. The reinstatement applies to plant, equipment and tangible personal property, including both new and used assets. There’s also a special elective provision for manufacturing and refinery property placed in service through 2031, giving these businesses additional flexibility in timing their depreciation benefits.
International tax changes. Starting in 2026, Global Intangible Low-Taxed Income (GILTI) rules are being renamed Net CFC Tested Income (NCTI), affecting businesses with foreign operations.
The deduction rate drops from 50% to 40%, which increases the effective tax rate from approximately 13.1% to 12.6% (around 14% when factoring in foreign tax credits). The previous exclusion for tangible asset investments is eliminated, meaning all foreign income is now subject to tax under these rules.
In addition, the foreign tax credit rate increases from 80% to 90%, and rules for allocating deductions against this income are being tightened to exclude interest and R&D expenses from the calculation base.
Next steps for your business
The One Big Beautiful Bill offers substantial tax relief, but maximizing these benefits requires proactive planning and strategic decision-making now. The professionals at Magone & Co can help. Reach out to our knowledgeable team or give us a call today at (973) 301-2300.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your business situation.