OBBBA: What Small Business Owners Need to Know

The Opportunity for Business and Benefit Act (OBBA) is a major tax bill recently passed by Congress, now awaiting President Trump’s signature. It includes several provisions aimed at supporting small business growth, reducing tax burdens, and boosting U.S. production.

The new bill aims to put more cash in business owners’ hands and encourage smart investments. Here’s what changed:

• Research & Development (R&D) Costs:

  • Old Rule: If you spent money on R&D in the US, you had to spread out those deductions over five years.

  • New Rule(for US R&D after Dec 31, 2024): You can now choose to either:

    • Deduct all your R&D costs immediately in the year you spend them.

    • Or, you can still spread them out, but over at least 5 years.

  • Foreign R&D: No change, still spread out over 15 years.

  • Extra Perks: The bill also makes it easier to get tax credits for R&D, including software development, and allows small businesses to get cash refunds even if they don't have taxable income yet. This means more money in their pockets for innovation.

• Bonus Depreciation & Section 179:

  • Bonus Depreciation:

    • Old Rule: You could deduct only 40% of the cost of certain new business equipment in the first year.

    • Old Rule (for property acquired and used after Jan 19, 2025): You can now deduct 100% of the cost of qualified business property in the first year you buy it. This is made permanent.

    • New for Real Estate: There's also a new 100% first-year deduction for certain newly built or existing commercial real estate used for manufacturing in the US, lasting until 2030.

  • Section 179 Deduction: This lets small businesses immediately deduct the full purchase price of equipment.

    • Old Cap: $1 million.

    • New Cap (after Dec 31, 2024): $2.5 million. This means businesses can deduct more up front. (This deduction starts to shrink if you buy more than $4 million worth of property.)

• Permanent Small Business Deduction (199A QBI Deduction):

  • What it is: This allows many small businesses (those not structured as regular corporations) to deduct 20% of their qualified business income.

  • New: This deduction is now permanent. The income limits for when this deduction starts to be limited have also been increased, meaning more businesses can claim the full amount. There's also a new minimum deduction for very small businesses.

• More Flexibility for Business Interest Deductions:

  • What it is: The amount of interest a business can deduct on its loans is usually limited.

  • New: The bill makes it easier for businesses to deduct more of their interest expenses by changing how "adjusted taxable income" is calculated (it now excludes depreciation, amortization, and depletion). This means a higher deduction limit for many businesses.

• Changes to "Excess Business Losses":

  • What it is: This rule limits how much business losses a non-corporate taxpayer can deduct against their other income.

  • New: This limit is now permanent, and the way "aggregate business deductions" are calculated is modified. This is a technical change that could affect how some large business losses are handled.

• Qualified Opportunity Zone (QOZ) Program Gets a Makeover and Made Permanent:

  • What it is: This program gives tax breaks to investors who put money into designated low-income areas (Opportunity Zones) to help those communities develop.

  • New: The program is now permanent. There will be new zones designated every 10 years, and the rules for what areas qualify are tighter.

  • Important Note: If you invested in an Opportunity Zone before January 1, 2027, your deferred gains will still be taxed by December 31, 2026. The new, improved benefits (like a bigger basis increase for holding investments long-term) apply to investments made on or after January 1, 2027.

  • New Reporting: More detailed reporting will be required from these investment funds.

• More Tax Credits for Specific Investments:

  • Rural and Agricultural Investments: New tax incentives to encourage investments in rural and farming areas, including a partial tax break on interest from certain loans for farms and ranches.

  • Low-Income Housing: More tax credits will be available to help build and renovate affordable housing for low-income families.

  • New Markets Tax Credit: This credit encourages investment in low-income communities. It was set to expire but is now made permanent.

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• Expanded Benefits for Qualified Small Business Stock (QSBS):

  • What it is: This allows shareholders of certain small businesses to exclude a large portion of the gain when they sell their stock.

  • New (for stock acquired after the effective date):

    • Shorter Holding Period: You only need to hold the stock for 3 years (instead of 5) to start getting benefits, with full benefits after 5 years.

    • Higher Exclusion Limit: You can exclude up to $15 million (up from $10 million) of gain.

    • Higher Asset Limit: The company's total assets can be up to $75 million (up from $50 million) to qualify.

• Spaceports Treated Like Airports: This is a technical change that means private space launch facilities can get the same tax-exempt bond financing benefits as airports.

Restrictions on Employee Retention Credit (ERC) Claims:

• • • What it is: This was a COVID-era tax credit for businesses that kept employees on payroll.

    • New (effective immediately):

      • Deadline for Claims: If you hadn't filed an ERC claim by January 31, 2024, you can no longer file one, even if you would have been eligible under old rules.

      • Longer Audit Period: The IRS now has 6 years (instead of the usual 3) to audit all ERC claims, giving them more time to catch fraudulent or incorrect claims.