How the OBBB Will Impact Your Small Business Profits

American businesses are poised to save an estimated $455 billion over the next decade thanks to the One Big Beautiful Bill Act's sweeping tax reforms. 

When President Trump signed the One Big Beautiful Bill Act (OBBB) into law on July 4, 2025, American businesses received the most significant tax overhaul since 2017. This sweeping legislation doesn't just tweak the tax code; it could potentially reshape your business’ profitability, growth investments, and plans for the future. 

The sheer scope of the OBBB is staggering, encompassing over 1,000 pages that will affect everything from standard business deductions to complex acquisitions. As with any major reform, there are winners and losers, and understanding where your business falls on this spectrum is crucial for-profit maximization, risk/loss mitigation, and strategic planning.

Although there are many provisions within the OBBB that will affect businesses of all sizes, below are some of the most significant and potential impacts on small and medium-sized businesses.

Section 179 Supercharging

OBBB increases Section 179 limits from $1.25 million to $2.5 million, and increases the phase-out ceiling to $4 million. This expansion particularly benefits small and medium-sized businesses that previously bumped against the lower limits. Section 179 property generally covers Qualified Improvement Property (QIP) such as interior improvements made to a nonresidential building after it was first placed into service, other types of qualifying real property, and certain computer software. 

OBBB makes Section 179 more powerful by expanding the definition of qualifying real property. It now includes roofing, HVAC systems, fire protection, alarm systems, and security systems as qualified real property eligible for Section 179 treatment. If your business is a restaurant planning to renovate or a medical practice upgrading its facilities, this would allow you to capture an immediate tax benefit that was previously spread over 39 years.

100% Bonus Depreciation

The centerpiece of the OBBB's profit enhancement strategy is the permanent establishment of 100% bonus depreciation for qualified property, which applies when Section 179 is maxed out. Qualified property includes most tangible personal property with a recovery period of 20 years or less. This means businesses can immediately write off the full cost of equipment, machinery, and certain property improvements in the year of purchase, rather than spreading deductions over multiple years. For capital-intensive businesses, this translates to massive first-year tax savings that can fundamentally alter investment decisions.

Consider a manufacturing company purchasing $5 million in new equipment. Under the old rules, they might depreciate this over 7-10 years using IRA’s MACRS depreciation schedules. Now, they can deduct the entire $5 million immediately, potentially saving over $1.05 million in taxes in year one alone (assuming a 21% corporate tax rate). Business owners can redeploy this money into growth initiatives or improve the bottom line.

New: Manufacturing Real Estate Revolution With Section 168(n)

While bonus depreciation covers equipment and machinery, Section 168(n) allows manufacturers to immediately expense 100% of the cost of nonresidential real property (think “real estate”) used for qualified production activities. The property must be used by the taxpayer as an integral part of a qualified production activity, which includes manufacturing, producing, and refining qualified products. This provision significantly accelerates depreciation on property that is otherwise depreciated over 39 years. 

NOTE: Section 168(n) excludes the portion of the property which is used for offices, administrative services, or other functions unrelated to manufacturing, production, or refining of tangible personal property. In addition, it excludes food or beverage prepared in the same building as a retail establishment in which such property is sold, among other key considerations.

Consider a company building a $50 million manufacturing facility. Under traditional rules, it would be depreciated over 39 years, deducting roughly $1.28 million annually. With Section 168(n), they can deduct the entire $50 million in year one, generating immediate tax savings of $10.5 million at the 21% corporate rate.

NOTE: The provision includes a recapture mechanism: if a taxpayer stops using the property for qualified production activities within 10 years, they must repay a portion of the tax benefit. This prevents gaming the system while still providing flexibility for evolving business needs.

In addition, unlike many OBBB provisions, Section 168(n) is temporary, creating a limited window of opportunity. Businesses must break ground by the end of 2028 and complete construction by 2030 to qualify, creating a surge of manufacturing construction activity expected over the next three years.

R&D Expense Liberation Under Section 174A

The OBBB reverses the Tax Cuts and Jobs Act’s provision that removed a 100% deduction for domestic R&D expenses and required capitalization and amortization of R&D over 5 years. Starting with tax years beginning after January 1, 2025, businesses can once again fully deduct qualified domestic R&D expenses in the year incurred, but foreign R&D must still be capitalized and amortized over 15 years.

R&D heavy industries such as technology, pharmaceuticals, and manufacturing will benefit the most, but the impact extends beyond just those industries to any business developing new products, improving manufacturing processes, or creating proprietary software. Even restaurants developing new recipes or retail chains creating private label products may qualify for R&D expense treatment.

For eligible small businesses (those with average annual gross receipts under $31 million), the OBBB even allows retroactive expensing back to 2021, potentially generating substantial tax refunds. 

From EBIT to EBITDA

For tax years beginning in 2025, the limit on deductible business interest expense (generally 30% of adjusted taxable income) will revert to the more lenient standard based on Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). The return to the more lenient EBITDA standard for business interest expense limitations means businesses can deduct more of their borrowing costs. This change is particularly significant given the higher interest rate environment, where the difference between EBIT and EBITDA calculations can mean millions in additional deductions for leveraged businesses.

For leveraged businesses or those financing expansion, this change alone could significantly improve total profits. For example, a private equity-owned manufacturing company with $100 million in EBITDA and $30 million in interest expense can now fully deduct its interest costs, whereas under the stricter EBIT standard, it might have been limited to much less.

The QBI Permanent Extension

The 20% QBI deduction for pass-through businesses is made permanent. This allows business owners of pass-through entities to deduct up to 20% of their qualified business income on individual tax returns. This effectively caps the tax rate on qualified business income at 29.6% for high earners, providing substantial savings compared to ordinary income rates.

Who is Best Positioned to Benefit?

• Manufacturing and Industrial Businesses. The combination of 100% bonus depreciation for Qualified Production Property through 2031, expanded Section 179 benefits, and R&D expensing creates a perfect storm of tax advantages. Heavy equipment manufacturers, automotive suppliers, and industrial processors could see a significant drop in their effective tax rates. For certain industries, like semiconductor manufacturers, the OBBB increases the investment tax credit from 25% to 35% for post-2025 investments via Section 48D created under the CHIPS Act of 2022. 
• Technology and Software Businesses are poised to benefit due to the massive relief from R&D expensing provisions (if investment is domestic). The distinction between domestic and foreign R&D expenses (foreign R&D must still be amortized over 15 years) creates strong incentives to locate development teams in the United States.
• Small and Medium-Sized Businesses will benefit across all sectors from multiple provisions. Businesses with revenues between $5 million and $50 million may see the greatest relative benefit from the OBBB's changes through the permanent 20% QBI deduction, increased Section 179 limits, and reduced reporting burdens (with 1099 thresholds rising from $600 to $2,000). For large, family-owned businesses, a particular benefit will come from the permanent increase of estate tax exemption amounts to $15 million for individuals, and $30 million for couples.
• Real Estate and Construction Businesses gain from permanent mortgage interest deductions, protected 1031 exchanges, and enhanced depreciation for property improvements. The expansion of Opportunity Zones provides additional tax-advantaged investment opportunities. 
• Startups and High-Growth Businesses. Increases in the exclusion cap for Qualified Small Business Stock (“QSBS”) ($15 million vs. $10 million) and a higher gross asset threshold ($75 million vs. $50 million) will make more companies eligible. In addition, the new partial exclusions (50% at 3 years and 75% at 4 years) provide earlier liquidity options, making venture investment more attractive.

Who May Be at a Disadvantage?

• Healthcare-Dependent Businesses: With over $1 trillion in cuts to Medicaid and the Affordable Care Act (“ACA”), affordable healthcare coverage could be stripped from millions of small business owners and employees. Small businesses relying on ACA subsidies for employee healthcare may see benefit costs rise, potentially offsetting tax savings entirely.
• Import-Heavy Retailers: Uncertainty from tariff policies means retailers could see costs increase faster than tax benefits accumulate. Businesses sourcing primarily from tariff-affected countries may see margin compression despite tax relief. 
• Green Energy Businesses: The OBBB rolls back or phases out significant credits from the Inflation Reduction Act. Solar installers losing the 30% Investment Tax Credit may see project economics deteriorate dramatically. Wind developers face the elimination of Production Tax Credits by 2027, making many projects financially unviable.
• Large Charitable Organizations: Unfortunately, they may see reduced corporate donations due to the new 1% minimum contribution floor for deductibility. Corporations must now donate at least 1% of taxable income before any charitable deduction applies, potentially reducing corporate philanthropy by billions annually.

Maximizing OBBB Benefits for Your Business

• Accelerate Capital Investments: With permanent 100% bonus depreciation confirmed, there's no benefit to waiting. Purchase equipment, vehicles, and technology now to maximize 2025 deductions. Consider pulling forward planned 2026-2027 investments if cash flow permits.
• File Amended Returns: Eligible small businesses should immediately work with tax advisors to file amended returns for R&D expenses dating back to 2021. The IRS has indicated it will prioritize these refund claims, with many businesses receiving checks within 90 days.
• Restructure Debt: Take advantage of improved interest deductibility by refinancing or restructuring debt. Consider converting variable-rate debt to fixed rates to lock in deductibility certainty under the new EBITDA standards.
• Review Entity Structure: The permanent QBI deduction makes pass-through structures more attractive. C-corporations with revenues under $50 million should model whether converting to S-Corp status would be beneficial.
• Manufacturing Pivot: Consider shifting business models toward domestic production to capture manufacturing-specific benefits before incentives expire.
• Investment in Innovation: Create or increase R&D capabilities to take full advantage of permanent expensing and/or consider acquiring technology companies or establishing research divisions. 
• Portfolio Optimization: The combination of enhanced depreciation, QSBS benefits, and improved interest deductibility creates a favorable environment for leveraged acquisitions.
• Geographic Expansion: Target expansion into Opportunity Zones and rural markets where additional tax benefits apply. The rural loan interest exclusion and Opportunity Zone benefits can reduce effective tax rates significantly for qualifying investments.

Protect the Downside

While the OBBB offers substantial benefits, businesses must prepare for potential challenges that could erode or eliminate tax savings if not properly managed.

• Healthcare Cost Management: With ACA cuts potentially increasing, small business healthcare costs could substantially increase. Consider joining purchasing cooperatives, implementing reference-based pricing, or exploring self-insurance options for groups with over 50 employees. 
• Tariff Mitigation: Increase supply chain flexibility. Develop multiple sourcing strategies, build strategic inventory buffers, and consider forward purchasing contracts to lock in pre-tariff pricing. 
• Tax Compliance Complexity: OBBB’s numerous provisions require sophisticated tax planning and compliance systems. Budget for increased professional advisory fees as complexity grows. Invest in upgraded ERP systems that can handle multiple depreciation schedules, complex entity structures, and new reporting requirements. Don’t forget state tax considerations, as many states don't automatically conform to federal depreciation rules, creating complexity. 
• Cash Flow Management: Businesses taking massive first-year deductions may face higher taxes in subsequent years as depreciation benefits diminish. Develop 5-year cash flow models incorporating tax impacts to avoid surprises.

A New Era of Business Profitability

It’s not how much you earn, it’s what hits your bottom line. The OBBB has fundamentally rewritten the rules of American business taxation. Businesses that understand these changes, act decisively to capture benefits, and carefully manage emerging risks will thrive in this new environment. Those that fail to adapt risk being left behind as competitors leverage tax savings to invest in growth, innovation, and market expansion. 

Don’t be left behind. 

DealStream, its authors and affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.