Blog adapted by: Tyler Petzel, a partner at Abdo Solutions, a top 200 accounting firm with offices in Mankato, Minneapolis, Scottsdale, and Salt Lake City, is a preferred partner with True North M&A and Sunbelt, advising their clients on transaction tax structures, quality of earnings analysis, and general accounting matters.
Over the last few years, the future of several tax laws has hung in the balance. The lingering unknowns have complicated key business decisions—ranging from equipment purchases to facility upgrades—and left some manufacturers in the lurch. Now, with the July 4 signing of the One Big Beautiful Bill Act (OBBB) into law, the uncertainty has diminished.
The OBBB is a wide-ranging piece of legislation that impacts all taxpayers. In addition to addressing the expirations of the Tax Cuts and Jobs Act (TCJA), it brings about additional changes to U.S. tax laws.
Here are a few key highlights of the OBBB, effective for tax year 2025, that could impact your manufacturing business.
Immediate R&D expensing
The question of whether to capitalize research and design (R&D), or research and experimentation (R&E), expenses has plagued manufacturers in recent years. The OBBB has removed this uncertainty: immediate expensing for domestic R&D is now permanent.
In other words, R&D expensing has been restored to its pre-TCJA rules. One change worth noting: Qualified R&D expenses now include software development costs.
Not only does the OBBB allow expenses paid after December 31, 2024, to be eligible for immediate expensing but also it provides for a “catch-up.” This added perk allows business owners to expense their remaining capitalized expenses from 2022, 2023, and 2024, and to expense all R&D costs in 2025 or split them between 2025 and 2026.
What’s more, the updated R&D rules include a “carve out” for small businesses that allows them to amend prior tax returns to deduct R&D expenses in the years they were paid.
Permanent 100% bonus depreciation
Per the OBBB, business owners can now take 100% bonus depreciation for assets placed in service after January 19, 2025—permanently.
This means there is no longer a phase out for bonus depreciation, which should help to simplify tax planning.
Permanent Section 199A QBI deduction
Many business owners will celebrate that the OBBB has made the Section 199A pass-through deduction for qualified business income (QBI) permanent.
The OBBB also makes some changes to current 199A rules. In addition to bumping up the phase-in range of limitation to $50,000 ($100,000 for joint returns), it creates a minimum deduction of $400 for taxpayers with $1,000 or more of QBI for material participants.
Increased (permanent) Section 179 expensing limit
Previously, the Section 179 expensing limit was capped at $1 million. The OBBB has permanently increased this to $2.5 million with a phase-out threshold of $4 million. This new limit applies to property placed in service after December 31, 2024.
Given the rising costs of equipment, this change could be immensely beneficial for larger manufacturers. This is especially true for Minnesota-based manufacturers, as the state currently does not allow for bonus depreciation. (An increased Section 179 limit affords these manufacturers more flexibility when it comes to expensing.)
What should you do next?
Considering that the OBBB is effective for the 2025 tax year, it’s important to start thinking about its impacts now, especially if your business engages in R&D activities.
