Strategic Tax Planning: How the OBBBA Influences Future Business Decisions

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, ushers in myriad changes to the U.S. tax code and stands as the largest overhaul since the Tax Cuts and Jobs Act of 2017. Along with modifying or replacing key provisions from prior legislation, it aims to boost American competitiveness, reduce complexity for multinational businesses, and update core tax treatment for both individuals and enterprises. With so much riding on this new law, taxpayers—ranging from privately held businesses to high-net-worth individuals—are eager to understand what these changes mean for them over the coming years. This article explores the OBBBA’s most significant updates and how proactive tax planning can set you up for success in the new legislative environment.

Overview of the OBBBA

The OBBBA took shape after a thorough drafting process, moving from committee reviews to House and Senate debates before officially becoming law. Not only does it update numerous TCJA-era provisions, but it also introduces new approaches designed to encourage domestic investment. High-level objectives include easing certain compliance burdens for businesses, improving U.S. economic competitiveness on the international stage, and refining rules for complex areas like research and experimentation (R&E) and Controlled Foreign Corporations (CFCs).

Underlying many of these changes are long-standing concerns from states hoping to see federal relief from the SALT cap, as well as businesses wanting friendlier terms for large-scale investments in equipment, infrastructure, and intellectual property. Many also point to the reinstallation of certain protective measures for international tax rules that had previously been rolled back in late 2017. Overall, the OBBBA confirms a continued effort by lawmakers to balance corporate and individual interests while keeping U.S. taxes competitive worldwide.

SALT Deduction Revisions

One of the more headline-grabbing aspects of the OBBBA is its significant modification of the state and local tax (SALT) deduction. The TCJA temporarily limited this deduction to $10,000 (or $5,000 for a married person filing separately). In an effort to modernize and broaden the deduction, the OBBBA lifts the SALT cap to $40,000 per year ($20,000 for married separate filers) from 2025 through 2029. Additionally, there is a scheduled 1% annual boost to the cap through 2030, after which it reverts to $10,000.

At the same time, wealthier taxpayers with modified adjusted gross income (AGI) exceeding $500,000 face a phasedown. Specifically, they lose 30% of any deduction amounts in excess of the $500,000 threshold, though it cannot be reduced below $10,000. While these enhanced deductions are expected to provide immediate tax relief to many middle- and upper-middle-income earners, the changes will require thorough state-specific considerations—especially for owners who are currently using pass-through entity tax (PTET) workarounds set up by various states, including California’s own 9.3% elective tax for passthrough entities. According to the new federal provision, PTET-based positions are unaffected by the revised SALT limitation regulations, which helps preserve the benefit for pass-through owners unless their specific state decides otherwise.

R&E and Depreciation Shifts

The treatment of research and experimental (R&E) expenditures, as well as qualifying property under bonus depreciation, has been a consistent point of contention for both policymakers and businesses. The TCJA required taxpayers to capitalize R&E expenses rather than take immediate deductions. Under the OBBBA, that requirement is overturned, restoring the ability to expense domestic R&E costs right away. The legislation also permits a catch-up for any R&E expenses capitalized from 2022 to 2024, accelerating your recovery of these costs. However these accelerated deductions are available in 2025, or for certain small businesses, by amending 2022-2024 tax returns after the original returns have been filed using 2022-2024 law. This update is permanent, lessening the cash flow strain on businesses that rely heavily on innovation.

The bill also revisits Section 168(k), which covers bonus depreciation, moving it back to a 100% deduction for qualified property placed in service on or after January 19, 2025. It expands bonus depreciation for certain manufacturing buildings placed in service prior to 2031, incentivizing capital-intensive growth strategies. However, state conformity remains an open question, as some states will continue applying their own methods for depreciating assets. California, for example, has never allowed bonus depreciation and has much lower Section 179 amounts. This means taxpayers must be prepared to track potential differences between federal and state basis throughout an asset’s life cycle.

Business Interest Expense: Section 163(j)

The subject of how much business interest expense you can deduct has already gone through a significant evolution in recent years. Previously tethered to a 30% of EBIT standard, the TCJA had shifted the calculation to a 30% of EBIT threshold after certain temporary relief provisions expired. The OBBBA effectively makes the limitation more favorable by returning to a 30% of EBITDA approach in 2025, which may improve the debt financing environment for growth-focused enterprises.

Yet again, taxpayers should brace themselves for fractured state-level treatment. Several states still rely on the older EBIT standard, while others may incorporate the revised EBITDA-based formula. California does not conform to Section 163(j) and therefore businesses will have to calculate an adjustment for their California income tax returns. In addition, potential carve-outs, pro forma calculations, and different standalone entity rules can complicate how you compute and carry forward any disallowed interest at the state level. Close tracking of these specifics is crucial to ensure you don’t pay excess tax due to misaligned calculations.

Changes to International Tax Rules

International tax structures are deeply impacted by the OBBBA, as the Act restores Section 958(b)(4), which was eliminated in 2017, triggering a broadening of Controlled Foreign Corporation (CFC) status through so-called “downward attribution.” Reintroducing Section 958(b)(4) blocks foreign parents from passing ownership down through a U.S. subsidiary to inadvertently create new CFCs.

However, it’s not all about narrowing the rules; the OBBBA also introduces Section 951B. This new measure acts as a targeted safeguard where foreign multinational groups might otherwise sidestep classification as a CFC by running ownership indirectly through U.S. businesses. Section 951B effectively reestablishes Subpart F and net CFC tested income (NCTI, formerly GILTI) obligations where foreign entities exert genuine control, preventing them from avoiding U.S. tax on offshore income.

Another major development is the rebranding of GILTI as NCTI and the revision of FDII to FDDEI. Not only are these rules made permanent, but the deductions for each are reduced from what they were under TCJA, while the foreign tax credit haircut is lowered to 10%. These changes, combined, leave both types of foreign income subject to a 14% effective rate. Consequently, multinational groups must reevaluate their ownership structures, tax credits, and overall cost of capital in light of the new environment.

Impact on Pass-Through Entities and Individual Taxpayers

The OBBBA addresses previously temporary provisions that have weighed on small businesses and individual taxpayers alike. A prime example is the 20% Qualified Business Income (QBI) deduction for pass-through entities, which is now permanent. Certain limitations around the type of service business and the income threshold remain, so some owners might re-assess their entity structure, compensation practices, or profit distributions to fully harness this deduction. Strategic but careful reclassification of activity and potential expansions to workforce can add additional dimension to the planning.

On the individual side, the OBBBA merges an increased standard deduction with new itemized deduction limitations for high earners. Taxpayers might consider bunching large charitable contributions in a single year, particularly if incremental charitable gifts trigger an additional 0.5% limitation in the taxable year. For those whose itemized deductions dip below the threshold, the improved standard deduction remains an appealing alternative. Utilizing vehicles such as donor-advised funds provides additional flexibility in timing bulk charitable gifts while retaining control over end beneficiaries.

State Conformity and Timing Concerns

Given that each state follows its own conformity rules—some adopt IRC changes automatically (rolling conformity), while others refer to a fixed date—much remains subject to the legislative calendar. Many state legislatures have already adjourned, so they won’t address OBBBA alignment until 2026 or beyond. As a result, you should be prepared for transitional chaos on your 2025 and 2026 tax returns. Some states may never adopt certain federal provisions, or might adopt them retroactively, complicating the filing season.

Extended filing or estimated tax payments may prove desirable strategies, as it’s not uncommon for states to align with federal changes a year or more after they’re enacted. Given how widespread the OBBBA’s revisions are, the potential for a patchwork of rules across the country is high. Tracking these developments and planning carefully based on your portfolio of investments, your operating structure, and your locations will help you sidestep unnecessary complexity or penalties.

Preliminary Steps for Businesses and Individuals

With so many threads of the new legislation branching out across various areas of taxation, a cautious, forward-looking plan is paramount. Businesses should review their entity structures to see if a C corporation format is more advantageous, especially under changes in bonus depreciation and NCTI. Those with foreign operations need to dig into whether the new Section 951B rules place them back into subpart F territory. For pass-through owners, the permanent QBI deduction might spark fresh discussions on how best to identify and classify income in order to stay below any limitations.

On the individual front, monitoring the new SALT caps and itemized deduction restrictions could influence decisions around real estate purchases, philanthropic giving, and business expansions you might have been planning. Meanwhile, families or trusts with R&E-heavy businesses, especially in technology, manufacturing, or pharmaceuticals, could see a positive cash flow adjustment thanks to the restored right to expense research costs immediately.

How Bartlett, Pringle & Wolf, LLP Can Help

As the largest accounting and consulting firm on the Central Coast, Bartlett, Pringle & Wolf, LLP offers unparalleled expertise in navigating complex tax landscapes. We track legislative changes closely and can guide you through the intricacies of OBBBA, whether you need assistance with domestic entity structures, international tax compliance, or multi-state SALT issues. Our firm specializes in:

• Managing SALT deductions, including PTET elections and multi-state interplay, to help you take full advantage of the updated SALT cap.
• Advising on immediate expensing strategies for R&E costs and enhanced bonus depreciation opportunities.
• Helping determine whether an EBITDA-based business interest limitation will affect your financing approach.
• Optimizing the structure for CFCs and other international matters, ensuring you remain compliant with Section 951B and 958(b)(4) guidance.
• Offering estate, trust, and gift tax planning to safeguard the next generation of your business.

At Bartlett, Pringle & Wolf, LLP, our team of professionals is equipped to develop custom solutions that reflect the unique goals and challenges of our clients. From sophisticated tax planning and compliance to next-level strategy, we serve as a trusted partner in staying ahead of legislative twists and turns. By taking advantage of our deep experience and personalized approach, you can feel confident that your tax strategies align with OBBBA guidelines, the shifting state landscape, and your broader vision for growth.