Heading into 2026, business leaders should evaluate the changes that will impact their tax strategy and what practical planning tools they need across federal, state and international tax. The One Big Beautiful Bill Act (OBBBA) reshaped a number of core business tax rules beginning in 2025 and 2026, from fixed-asset recovery, research and experimentation (R&E) expensing, and business interest limits to Qualified Small Business Stock (QSBS) opportunities, state conformity and key international provisions. With many of these changes affecting cash taxes, effective tax rates (ETR) and financial reporting for years to come, a business’s election, timing and entity structure will all play a role in its 2026 tax planning. 


FIXED ASSETS: LEVERAGE 100% BONUS DEPRECIATION AND NEW §168(N) PROVISIONS ALONGSIDE SECTION 179

Bonus Depreciation (§168(k))

The OBBBA reinstated and made permanent 100% bonus depreciation, which applies to most qualified property acquired and placed in service after Jan. 19, 2025. Taxpayers may elect to apply the prior law’s phase down result (40% for most property and 60% for long production property) in the first year ending after Jan. 19, 2025, as this approach can present opportunities for cash tax planning. 

Qualified Production Property (§168(n))

New elective 100% expensing is available for certain production-related nonresidential real property. To qualify, construction must begin after Jan. 19, 2025 and before Jan. 1, 2029, and the property must be placed in service before Jan. 1, 2031.

Section 179

For tax years beginning after Dec. 31, 2024, the §179 expensing limit is $2.5 million with a phase-out starting at $4 million (both indexed thereafter). §179 can be layered with bonus depreciation and §168(n) when beneficial but is still subject to entity and taxable-income limits.

GHJ Observation: Business leaders can compile a detailed 2025 fixed-asset schedule with placed-in-service dates and any firm 2026 capex commitments. On a class-by-class basis, leaders should evaluate whether to elect out of 100% bonus or use the one-time 40%/60% transition and coordinate those decisions with §179 and §168(n) eligibility, binding-contract dates and state conformity to optimize cash taxes.

 

RESEARCH AND EXPERIMENTAL (R&E) EXPENDITURES: ESTABLISH §174 STRATEGY AND TRUE-UP PRIOR-YEAR TIMING DIFFERENCES

Core Change (2025 and Forward)

For tax years beginning after 2024, domestic R&E expenditures are immediately deductible by default under new §174A, effectively rolling back the five-year mandatory capitalization regime for U.S. activities. Foreign R&E remains under the post-Tax Cuts and Jobs Act rules. This means that it must still be capitalized and amortized over 15 years, and that tracking by jurisdiction (domestic vs. foreign) becomes even more important. These rules are in addition to the existing §41 R&D credit regime, as §174A changes the timing of deductions not the definition of qualified research for credit purposes. Leaders will thus need to keep both §174A and §41 data sets aligned but distinct.

Transition for 2022–2024 Domestic §174

When it comes to previously capitalized domestic §174 costs from 2022–2024 that remain unamortized as of the first tax year beginning after 2024, taxpayers may elect to recover those amounts either:

  • Entirely in 2025 or
  • Ratably over 2025–2026, rather than continuing the original 60-month schedule 

These elections interact directly with §41 and §280C, since accelerating deductions can change the effective credit benefit, the §280C add-back and any §280C(c)(3) reduced-credit election. They may also create book–tax differences that affect California AMT (CAMT), effective tax rate metrics and debt covenant discussions.

GHJ Observation: Inventory and reconcile 2022–2024 R&E expenditures by jurisdiction (domestic vs. foreign) and by project/cost center, incorporating those into your existing §41 workpapers. Model the following three scenarios under regular tax, CAMT, §163(j) and key state regimes to see where acceleration is of benefit or not:

  • Full 2025 deduction
  • Two-year recovery (2025–2026)
  • Continuing 60-month amortization 

Use that modelling to select elections and any method-change filings, coordinating with credit strategy (including §280C elections) to maximize after-tax benefit rather than solely focusing on the largest single-year deduction.

 

BUSINESS INTEREST (§163(J)): MORE CAPACITY, NEW CAPITALIZATION TRAPS

Adjusted Taxable Income (ATI) and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

For tax years beginning after Dec. 31, 2024, OBBBA permanently restores EBITDA as the basis for ATI, so depreciation, amortization and depletion are added back when computing the 30% limit under §163(j). This generally increases deductible business interest compared with the 2022–2024 EBIT years, especially for capital-intensive businesses. 

Capitalized Interest Coordination

For tax years beginning after Dec. 31, 2025, a new ordering rule requires applying the §163(j) limitation before any elective interest capitalization (e.g., under §263(a)/§266). Electively capitalized interest generally retains its character as interest and remains subject to §163(j), eliminating prior strategies that used capitalization to sidestep the limit. 

Small-Business Exemption (§448(c))

The small-business exemption continues to use the inflation-indexed §448(c) gross-receipts test with a threshold of $31 million for 2025 applied on a three-year average basis. Related entities must be aggregated under §52 and §414 rules, which is critical for testing §163(j) exemption. For 2026 and later, certain manufacturers may qualify for a higher $80 million threshold, but 2025 planning still hinges on the $31 million amount. 

GHJ Observation: It is important to reforecast 2025–2026 interest limits using EBITDA-based ATI and model the 2026 capitalized-interest rule. In doing this, revisit any strategies that relied on elective interest capitalization. Taxpayers should also refresh Form 8990 workpapers (including §448(c) aggregation and small-business testing) and align §163(j) modeling with their updated depreciation/expensing profile under the OBBBA and state conformity positions. 

 

CHARITABLE GIVING (§170):

Corporate giving rose 9.1% to $44.4 billion in 2024, making it one of the fastest-growing segments of charitable contributions. A meaningful part of the surge was driven by strong equity markets, with many companies donating appreciated stock — a highly tax-efficient way to give while supporting brand reputation, community impact and broader ESG goals.

Starting in 2026, the OBBBA introduces a 1% floor on corporate charitable deductions, which means that any deduction that does not exceed the floor of 1% of taxable income will not be deductible. The intention of this change is to promote high-intent, purpose-driven giving, rather than nominal contributions made primarily for tax purposes.

GHJ Observation: This change makes it critical for businesses to evaluate their giving levels, align contributions with strategic priorities and understand how the new 1% floor interacts with existing limits. In some cases, companies can structure certain initiatives as business expenses under §162 when they provide a clear commercial benefit, such as sponsorships with marketing value, co-branded campaigns, workforce or community investments that support operations, or research that directly benefits the business. When the primary purpose is commercial (not philanthropic), these costs could remain fully deductible outside the new 1% floor.

 

QSBS (§1202): BIGGER EXCLUSIONS AND BROADER ELIGIBILITY AFTER OBBBA

Enhanced Exclusion Caps and Holding Periods

For QSBS issued on or after July 4, 2025, the OBBBA layered in a staggered exclusion, rather than an all-or-nothing five-year rule: 

  • 50% of gain after three years
  • 75% after four years
  • 100% after five+ years

The per-taxpayer cap for post-July 5, 2025 stock also increased from $10 million to $15 million (still measured as the greater of the dollar cap or 10 times basis and indexed beginning in 2027), materially expanding the upside for successful exits. 

Eligibility and Issuer Size Tests

Core §1202 rules still apply: 

  • Non-corporate taxpayers must hold original-issue stock of a domestic C-corporation engaged in a qualifying active trade or business
  • Have at least 80% of assets used in that business and no disqualified “service/finance” activities
  • Must meet the required holding period

For QSBS issued on or after July 4, 2025, the issuer’s aggregate gross-asset ceiling increases from $50 million to $75 million (tax basis), expanding the pool of companies that can issue QSBS without exceeding the cap. Pre-July 5, 2025 stock remains under the prior regime of five-year holding for up to 100% exclusion with a $10 million/10 times cap. 

Stacking, Spreading and State/Entity Considerations

Because the exclusion is per taxpayer, founders and early investors can still explore “stacking” by gifting to family members or non-grantor trusts to multiply the $10 million/$15 million caps, although it is still subject to standard QSBS and transfer rules as well as estate/gift planning constraints. Entity maps (LLC/S Corp vs. C Corp or blocker structures) and state conformity need to be evaluated up front, as some states either decouple from §1202 entirely or limit the exclusion.

GHJ Observation: It is advised to inventory all current and planned equity issuances by date, holder and issuer size to identify which shares fall under pre- or post-OBBBA rules. Further, taxpayers can model potential exits using the new three/four/five-year staggered exclusions, the $10 million vs. $15 million caps and the 10 times-basis alternative. Coordinate with corporate and estate planners on C Corp eligibility, recapitalizations and any trust/family “stacking” so that the QSBS benefits are preserved (and not inadvertently affected) while aligning with §1202, §1045 and state-law conformity.

 

STATE CONFORMITY: MANY STATES ARE NOT FULLY SYNCHRONIZED WITH FEDERAL LAW

Many states have either fully decoupled from, selectively conformed to or significantly lag behind federal changes to §174A, §168(k)/§168(n) and §163(j). In practice, that can mean:

  • Required bonus depreciation addbacks with slower state recovery
  • No recognition of new §168(n) expensing
  • Continued use of pre-OBBBA EBIT-based §163(j) limits
  • No adoption of the new capitalization-coordination rules

R&E is often its own pain point as well, since some states still require capitalization, while others offer separate R&D incentives or adjustments that do not track federal §174A/§41 results. Ultimately, this means that a “federal win” does not always translate into a parallel state win.

GHJ Observation: For key filing jurisdictions, a detailed state-by-state conformity matrix should be considered to track §174A, §168(k), §168(n) and §163(j). This should include bonus addbacks, interest disallowance and carryforwards, and any special R&E or credit regimes. That matrix can then be used to refine quarterly estimates, ETR forecasting and valuation-allowance analysis, as well as to identify where federal elections (e.g., bonus vs. §179 vs. §168(n); §174A transition choices; §163(j) positions) create material state-only timing differences that may warrant additional planning or disclosure. Work with a tax advisor to evaluate whether such a matrix is appropriate and to assist in building it where useful, as well as to integrate state conformity into the business’s broader OBBBA and year-end planning.

 

INTERNATIONAL: SECTION 250/BASE EROSION AND ANTI-ABUSE TAX (BEAT) – GET READY FOR 2026 RATES

Global Intangible Low Tax Income (GILTI)/Net CFC Tested Income (NCTI)

The OBBBA introduced important changes to the GILTI regime, renamed to NCTI. The effective U.S. tax rate on NCTI is now generally 14% before foreign tax credits, due to a reduced §250 deduction. There is also a lower haircut on foreign tax credits against U.S. taxes as a result of GILTI/NCTI. Multinational groups should review their foreign tax positions to ensure they are optimizing their U.S. tax outcomes under these new rules.

Foreign-Derived Intangible Income (FDII)/Foreign-Derived Deduction Eligible Income (FDDEI)

The FDII regime is now called FDDEI under the OBBBA, and the §250 deduction is permanently set at 33.34%. This increases the ETR on FDDEI from 13.125% to 14%. The OBBBA also eliminated the 10% Qualified Business Asset Investment (QBAI) reduction, so that more income is eligible for the FDDEI deduction. This is favorable for asset-intensive businesses. Interest and R&D expenses are also no longer allocated to deduction eligible income for FDDEI purposes, but gains from the sale or disposition of intangibles and depreciable property are excluded from the FDDEI base for transactions after June 16, 2025.

Base Erosion and Anti-Abuse Tax (BEAT)

The BEAT rate is permanently set at 10.5% (up from 10%), rather than 12.5% as it was previously scheduled to be. The OBBBA also made the favorable treatment of research credits and certain other general business credits for BEAT purposes permanent, allowing these credits to continue to offset BEAT liability. No other major changes were made to BEAT, so the threshold and base erosion percentage rules remain as they were under prior law.

Foreign R&D Capitalization

For research and development (R&D) expenditures, the OBBBA allows immediate expensing of all domestic R&D costs for tax years beginning after Dec. 31, 2024, reversing the prior requirement to capitalize and amortize these costs over five years. Foreign R&D expenditures must still be capitalized and amortized over 15 years. This change, combined with the new expense allocation rules, means domestic R&D costs will not reduce the FDDEI deduction or the foreign tax credit limitation for NCTI, providing a more favorable outcome for innovative U.S. multinationals as compared to the prior rules.

GHJ Observation: Updated 2026 provisional rates and ASC 740 models now reflect the reduced §250 deductions and resulting higher FDDEI/GILTI effective rates, as well as the stabilized 10.5% BEAT rate. Revisit supply chain, IP location, cost-sharing and intercompany financing to manage FDDEI/NCTI and GILTI bases, optimize Foreign Tax Credit (FTC) utilization and limit BEAT exposure. Coordinate with a tax professional to refresh a company’s §250 and BEAT modeling, pressure-test international structures under the 2026 landscape, and align tax planning with operational and financial reporting goals. 

 

NEXT STEPS

The OBBBA changed how and when key deductions and income items show up, so the best results come from coordinating fixed assets, R&E, interest limits, QSBS, state and international planning as one package — not in silos. To see what this looks like with your business, work with GHJ to model scenarios, highlight the highest-impact elections and turn these rules into a practical 2025 year-end action plan.