The One Big Beautiful Bill Act (OBBB) has introduced tax changes that will directly impact 2025 financial reporting, tax filings, and cash-flow planning. Companies should be aware of:

  • Time-sensitive opportunities due to retroactive provisions affecting 2025 returns, amended filings, and financial statements;
  • Changes and new complexities across R&E expensing, interest deductibility, bonus depreciation, and international tax rules; and
  • Ripple effects on tax filings at the state and local level

Early, coordinated action across tax, finance, and accounting teams will be crucial in managing risk and maximizing benefits under the new law.

Tax Law Update: One Big Beautiful Bill Act

As 2025 comes to a close, businesses are beginning to see the real-world impact of the new federal tax law commonly known as the One Big Beautiful Bill Act (OBBB). Unlike prior tax reforms that phased in gradually, OBBB introduces a mix of retroactive provisions and near-term effective dates that require immediate attention, many of which will directly affect 2025 financial statements, ongoing tax return preparation, including amended return opportunities, and multi-year cash-flow forecasts. 

Several core provisions take effect retroactively for the 2025 tax year and must be reflected in upcoming filings, while others apply beginning in 2026 but demand planning now to avoid missed opportunities or unintended penalties. Forward-looking businesses should be implementing changes throughout the year to ensure compliance with the changing tax landscape and capitalize on new potential tax opportunities.

The ramifications of the OBBB will not be limited to federal tax responsibilities. Some of the reforms implemented in the OBBB are expected to have significant ripple effects at the state, local, and international levels—such as the permanent 100% bonus depreciation and changes to research and experimentation expensing rules, which have sparked tax reform legislation in various states.

Key Federal Tax Changes and Business Ramifications

R&E Credits and Expenses

One immediate change that has gone into effect retroactively is the implementation of permanent research and experimentation (R&E) expensing domestically. Taxpayers may still elect to capitalize and amortize R&E expenditures over a period of at least 60 months under Section 174A, or a ten-year period under Section 59(e)(2)(B).

The OBBB introduces the option to accelerate any unamortized expenses related to domestic R&E over a one- or two-year period, beginning with the 2025 tax year.

The claims an organization makes related to these deductions will impact Internal Revenue Code Section 280C, a provision that disallows taxpayers from deducting business expenses, such as research costs, from their federal taxable income if they have already claimed those expenses as federal tax credits. Organizations have the option to claim a full R&E credit and reduce their domestic R&E expense deduction by the full amount of the credit or elect to claim a reduced R&E credit and take the full R&E expense deduction.

Whether a business should elect to take the full R&E credit or a reduced one will vary based on specific circumstances and expenses. Small businesses can also elect to apply the provision retroactively to qualifying expenditures incurred in tax years later than 2021.

While there are no changes made to foreign R&E rules, and businesses must capitalize and amortize those expenses over 15 years, the domestic R&E changes are expected to result in immediate cash tax benefits for many businesses. For small businesses that qualify for the opportunity to amend 2022–2024 tax returns, the potential is even greater.

Greater Interest Deductibility

The OBBB has made some adjustments to the calculation of the 30% limitations under Section 163(j), effective starting in 2025. For most businesses, deductible business interest is capped at 30% of adjusted taxable income (ATI). The OBBB permanently changes the definition of ATI to include the addback of depreciation, amortization, and depletion, increasing the amount of deductible interest for those that reach the limit.

The new calculation excludes Subpart F and GILTI in computing the limitation, as well as the 245A deduction.

These new calculations go into effect in the tax year 2025, while a new interest capitalization coordinate rule, applying the Section 163(j) limitation before the elective interest capitalization provisions, will go into effect starting in 2026.

The changes will primarily benefit leveraged businesses, such as PE-backed companies, real estate, and infrastructure, and will likely result in a shift in financing and capitalization strategies.

Bonus Depreciation

New bonus depreciation rules, allowing for 100% bonus depreciation, apply to qualified properties acquired after January 19, 2025. A new 100% expensing allowance is in place for qualified production properties, a new category for U.S. manufacturing facilities that meet strict construction and in-service deadline requirements.

These rules are intended to accelerate investment incentives for reshoring and domestic manufacturing and allow for a planning window through 2031. However, these expenses are subject to the risk of recapture rules if they do not meet the deadline requirements.

International Tax Changes

Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII)

The OBBB has shifted the tax law known as Global Intangible Low-Taxed Income (GILTI) to the Net CFC Tested Income (NCTI) regime. The new rules eliminate the qualified business asset investment exception (QBAI) entirely, bringing new income into the U.S. tax base and reducing the significance of Section 245A. The new law reduces and makes permanent the Section 250 deduction on GILTI from 50% to 40%, increasing the effective tax rate on net controlled foreign corporation (CFC) tested income to approximately 12.6% from 10.5%.

The NCTI also reduces the FTC haircut, a limitation on the amount of foreign income a U.S. corporation can credit against U.S. tax liability, from 20% to 10%, limits the deductions that may be allocated to income in the net CFC tested income category, and disallows interest expense and R&E expense to be allocated to the net CFC tested income category.

Another change effective in 2026 is a change to the foreign-derived intangible income (FDII), which is now foreign-derived deduction-eligible income (FDDEI). The OBBB reduces and makes permanent the Section 250 deduction for FDDEI from 37.5% to 33.34%, resulting in an increased effective tax rate of 14% from 13.125% on FDDEI. The new rules also disallow interest expense and R&E expense allocations to FDDEI, while allowing directly allocable expenses.

These changes will increase the U.S. tax base on foreign operations but are expected to be more favorable for heavily leveraged groups such as PE-backed organizations. They also adjust incentives to keep intellectual property (IP) in the United States, with implications for transfer pricing and IP holding structures that are currently in use.

Other provisions include changes to the Base Erosion and Anti-Abuse Tax (BEAT), which was increased to 10.5% with no high-tax exception. This will result in increased exposure for large multinational corporations but grants more predictability. Other rules include structural changes to CFC and attribution rules, where the look-through rule is made permanent and the one-month deferral election is eliminated.

Tax experts have concerns regarding the ramifications of these changes for cross-border payment structures, potential new filings and inclusions, and reassessment of entity and ownership structures.

State and Local Tax Ramifications

For state and local taxes, the ramifications of the OBBB will vary, with different states experiencing different results. A few states, notably Michigan and Rhode Island, have already implemented new tax regulations to account for the changes resulting from the OBBB.

Key provisions that are expected to impact the state and local tax regimes across the United States are the R&E expensing changes, interest limitations, bonus depreciation, GILTI and FDII modifications, and CFC provisions.

On a macroeconomic level, state-level taxes will be impacted by the changes in ways that can be difficult to anticipate and calculate appropriately. This does place some state-level planning at risk of being subject to lags as states recalculate their expected income from taxes.

Tax Accounting & Financial Reporting Implications

As part of the OBBB, companies will face significant financial-statement impacts beginning in 2025. The various legislative updates and effective dates will result in adjustments that ripple through discrete items, EAETR calculations, valuation allowances, foreign tax credits, and CFC basis differences. Auditors and stakeholders will apply heightened scrutiny, increasing the importance of accurate modeling, clear documentation, and a thoughtful narrative around the bill’s staggered effective dates.

Against this backdrop, organizations must move quickly from awareness to action. Now is the time to revisit eligibility for retroactive R&E deductions, rerun multi-year tax and cash-flow forecasts, and assess the bill’s influence on debt structure, interest deductibility, and global supply-chain or holding-company arrangements. Monitoring state conformity will be equally important, as divergent state responses could create both complexity and opportunity for businesses where they are domiciled and in opportunities to relocate.

Ultimately, the OBBB is a strategic inflection point. Businesses that engage early with the strongest tax accounting teams will be best positioned to unlock cash, mitigate risk, and strengthen long-term financial resilience.