Business Tax Provisions in the Big Beautiful Bill

As a continuation to my previous post on impact of the BBB Act on individual taxes, let’s review some important business changes as well.

Bonus depreciation – from expected 40% for 2025 and 20% for 2026, the permanent extension is now 100% for property acquired on or after 1/19/25.

Sec 174 R&D (Research & Development) – this has been a highly anticipated change to the existing new law enacted back in 2021 requiring that all R&D domestic expenses be capitalized and amortized over 5 years starting in 2022, while foreign R&D expenses be capitalized and amortized over 15 years. This had an immediate negative tax impact on many businesses, especially in Silicon Valley. Thankfully, under the BBB, there is permanent and immediate deduction of domestic R&D expenses starting in 2025 (no special election needed).

As for years 2022-2024, small businesses with average annual gross receipts of <$31M after 12/31/21 can amend their 2022-2024 returns with capitalized R&D for refunds. The deadline to amend those returns is 7/4/26. As an alternative, small businesses can take catch-up deductions as Sec 481(a) adjustment going forward. This requires filing a special form 3115 requesting this adjustment, but it may still be more straightforward option compared to amending for many businesses.

Foreign R&D remains subject to amortization over 15 years.

Sec 199A Qualified Business Income (QBI) deduction – one of the favorite deductions for businesses which was set to expire in 2025 gets permanently extended.

PTET deduction for SALT taxes – another favorite deduction for businesses especially located in states with high income taxes got extended and will continue allowing pass-through business owners to enjoy state business tax deduction even with increased SALT limit under the BBB.

Sec 1202 Small Business Stock Gain Exclusion -  this important provision is back in spotlight. The BBB Act revises the law as follows:

-       100% exclusion if stock is held for 5 or more years, 75% if held for at least 4 years, 50% if held for at least 3 years

-       Increased eligibility limit on corporate-level aggregate-assets to $75 million.  

-       Applies to taxable years beginning after the date of enactment of the BBB Act.  

The major change here is allowing for phased-out gain exclusion vs all-or-nothing after holding stock for just 3 or 4 years. This puts a C corporation which may otherwise be less advantageous entity choice back into consideration for companies dealing with certain technologies which tend to have shorter lives and which cannot necessarily wait for 5 years before they sell to get gain exclusion. Of course, this change is in no way limited to just companies in the technological sector.

Just a reminder, California does not conform to Sec 1202, so all gain is taxable for CA tax purposes.

Form 1099-NEC and 1099-MISC – increases reporting threshold from $600 to $2,000 for payments made after 12/31/25. Thus, this update will impact only 2026 1099-MISC and 1099-NEC and not the 2025 forms. Nevertheless, it is an important update reducing compliance burden for many.

Overall, these are taxpayer friendly provisions which many of us working with small businesses welcome.