The Big Beautiful Tax Act (BBTA), formally known as the 2025 Budget Reconciliation Act or One Big Beautiful Bipartisan Act (OBBBA), introduces significant changes to the U.S. tax code, impacting small businesses, corporations, and multinationals alike. Signed into law in 2025, this legislation refines existing tax provisions and introduces new rules to balance economic growth, competitiveness, and fiscal responsibility. In this blog post, we’ll dive into the details of five key provisions—Qualified Business Income (QBI) Deduction, Section 179 Expensing, Business Interest Deduction, Allocation of Deductions to Foreign Source Net CFC Tested Income, and the Corporate Charitable Contributions Floor—along with the clean energy and international tax changes. Let’s explore what these could mean for you and your business.
1. Qualified Business Income (QBI) Deduction: A Permanent Boost for Small Businesses
The QBI deduction, under Section 199A, has been a lifeline for owners of pass-through entities like sole proprietorships, partnerships, S corporations, and certain LLCs. The BBTA makes this deduction permanent at 20%. This means eligible businesses can deduct 20% of their qualified business income from their taxable income, reducing their tax liability without expiration.
What It Means for You
- Who Benefits: Small businesses, freelancers, and partnerships in industries like retail, consulting, or professional services (e.g., doctors, lawyers) benefit most, provided they meet income thresholds and business type restrictions (SSTBs).
- Limitations: The Act increases the phase-in threshold for single filers from $50,000 to $75,000 and the joint filer threshold from $100,000 to $150,000. Inflation adjustments apply to the new minimum amounts for tax years beginning after 2026.
- Impact: Permanency provides long-term tax planning certainty. For example, a partnership with $100,000 in QBI could reduce taxable income by $20,000.
Note: This section takes effect for tax years beginning after December 31, 2025. (Act Sec. 70105, amends Code Sec. 199A) potentially saving thousands in taxes annually, depending on the tax bracket.
2. Section 179 Expensing: Bigger Deductions for Business Investments
Section 179 allows businesses to deduct the full cost of qualifying depreciable assets (e.g., equipment, vehicles, or software) in the year of purchase, rather than depreciating them over time. The BBTA increases the expense cap to $2.5 million (up from $1.29 million in 2024) with a phase-out threshold of $4 million, effective for 2025 and indexed for inflation thereafter.
What It Means for You
- Who Benefits: Small and medium-sized businesses investing in new equipment, such as manufacturing firms buying machinery or restaurants upgrading kitchen appliances, will see significant tax savings. Certain commercial building improvements may also qualify (extensions, roofs, HVAC, fire, and security).
- How It Works: If your business purchases $3 million in qualifying assets, you can deduct up to $2.5 million, but the deduction reduces dollar-for-dollar once purchases exceed $4 million. For example, $4.5 million in purchases would reduce the deduction to $2 million ($2.5M – ($4.5M – $4M)).
- Impact: The higher cap encourages capital investment, especially for growing businesses. A construction company buying a $500,000 excavator could deduct the full cost in 2025, lowering taxable income significantly.
Note: Pair Section 179 with bonus depreciation (if available) for maximum savings, but verify asset eligibility (e.g., used equipment qualifies, but land does not).
3. Business Interest Deduction: More Flexibility with EBITDA
The BBTA modifies the business interest limitation under Section 163(j), allowing businesses to calculate their deduction limit using EBITDA (earnings before interest, taxes, depreciation, and amortization) through 2029. Previously, the limit was based on adjusted taxable income (ATI), which excluded depreciation and amortization, often restricting deductions for capital-intensive businesses.
What It Means for You
- Who Benefits: Businesses with significant debt, such as real estate developers or manufacturers, gain more flexibility. The EBITDA-based calculation allows higher interest deductions, especially for firms with large depreciation expenses.
- How It Works: The deduction is capped at 30% of EBITDA plus business interest income. For example, a company with $10 million in EBITDA could deduct up to $3 million in interest, even if depreciation reduces ATI significantly.
- Impact: This change supports industries reliant on borrowing, like construction or hospitality, by reducing tax burdens during expansion.
Note: review your debt structure with a tax advisor to maximize. Consider restructuring loans if interest expenses are high.
4. Allocation of Deductions to Foreign Source Net CFC Tested Income: Boosting Multinational Competitiveness
The BBTA refines the treatment of foreign source net Controlled Foreign Corporation (CFC) tested income, formerly known as Global Intangible Low-Taxed Income (GILTI). It introduces a 50% deduction for this income, increasing to 60% after 2027, for foreign tax credit (FTC) purposes. This reduces the effective tax rate on CFC income, making U.S. multinationals more competitive globally.
What It Means for You
- Who Benefits: U.S.-based multinationals with foreign subsidiaries, such as tech or pharmaceutical companies, benefit by lowering taxes on foreign earnings.
- How It Works: The deduction applies to income from CFCs (foreign entities controlled by U.S. shareholders). For example, if a CFC generates $1 million in tested income, a 50% deduction reduces the taxable amount to $500,000, with foreign tax credits further offsetting the U.S. tax liability.
- Impact: The change enhances FTC utilization, reducing double taxation. For instance, a company paying 15% tax abroad could offset more U.S. tax with the 50% deduction, lowering the effective rate below the 10.5% GILTI minimum. Post-2027, the 60% deduction further sweetens the deal.
Note: Work with an international tax specialist to optimize your global tax strategy and FTC, especially if your CFCs operate in high-tax jurisdictions.
5. Corporate Charitable Contributions: New 1% Floor
The BBTA introduces a 1% floor for corporate charitable contributions, effective for contributions made after December 31, 2024. Corporations can only deduct contributions exceeding 1% of their adjusted taxable income (ATI), a shift from the prior 10% cap with no floor.
What It Means for You
- Who’s Affected: Corporations making charitable donations, such as to nonprofits or community programs, face a new hurdle.
- How It Works: If a corporation has $10 million in ATI, only contributions above $100,000 (1% of ATI) are deductible, up to the existing 10% cap ($1 million). A $150,000 donation would yield a $50,000 deduction ($150,000 – $100,000).
- Impact: This provision may discourage smaller donations, as only contributions exceeding the 1% threshold qualify for deductions. Large corporations with significant giving programs will need to adjust their charitable budgets.
Note: Plan your corporate giving to exceed the 1% floor while staying within the 10% total cap. Document contributions meticulously to substantiate deductions.
6. Clean Energy and International Tax Changes
The BBTA reshapes clean energy and international tax provisions
- Clean Energy Credits: The Act phases out certain Inflation Reduction Act credits, such as those for electric vehicles (EVs) and charging stations, while extending biofuel credits through 2031.
- Commercial Building Deductions: The Act terminates the energy efficiency commercial building deductions for buildings that begin construction after June 30, 2026.
- 1% Remittance Tax: A new 1% tax on remittances (e.g., payments to foreign entities) could increase costs for businesses with international operations.
- GILTI and FDII Modifications: Beyond the CFC deduction, the BBTA tweaks GILTI and Foreign-Derived Intangible Income (FDII) rules to encourage domestic investment while maintaining global competitiveness.
- International Taxes: The remittance tax and GILTI/FDII changes require multinationals to reassess cross-border transactions. For example, a 1% tax on a $10 million remittance adds $100,000 in costs.
Note: Evaluate your exposure to the remittance tax and consult a tax advisor to adjust your international payment structures.
Conclusion
The Big Beautiful Tax Act (BBTA) introduces sweeping changes with far-reaching implications for businesses of all sizes. By making the Qualified Business Income deduction permanent, raising expensing limits, and adjusting interest deduction rules, the Act aims to foster long-term growth and provide greater certainty for business planning. The refined treatment of foreign income and the introduction of a 1% floor on corporate charitable contributions reflect a balance between competitiveness, fiscal responsibility, and evolving policy priorities.
However, these benefits come with new complexities, particularly for businesses navigating international operations, charitable giving, and the phase-out of certain clean energy incentives. To fully leverage the opportunities and minimize risks, business owners should:
- Review their current tax strategies, considering the new provisions.
- Consult with tax professionals to address technical nuances and compliance.
- Monitor how federal changes may interact with state tax laws and transition rules.
Reach out to Archer Lewis to discover how your business can leverage these new changes and develop a customized plan to optimize your tax benefits. Even if you’re partnered with another accounting firm, we can collaborate with you and your current firm to adapt to the new tax landscape.
For personalized advice, contact our team to discuss how the 2025 Reconciliation Bill can impact your business’s financial strategy.
