One Big Beautiful Bill Act of 2025: Key Business Tax Changes Santa Monica Owners Should Know
The One Big Beautiful Bill Act of 2025 (OBBBA) did more than reshape individual tax rules — it introduced major changes affecting businesses of all sizes. From research deductions and depreciation to employee credits and entity-level planning, OBBBA significantly alters the tax landscape for business owners.
Employee Retention Credit: Enforcement and Disallowances Increase
OBBBA significantly tightens rules surrounding the Employee Retention Credit (ERC).
Key developments include:
- Increased IRS scrutiny of ERC claims
- Expanded authority to disallow improper or unsupported credits
- Aggressive recovery efforts for erroneously issued refunds
Many businesses that claimed ERC benefits through third-party promoters are now facing audits, repayment demands, and penalties. Businesses should carefully review prior ERC claims and documentation before responding to IRS notices.
Research Expenditures and the New IRC §174A Election
One of the most impactful business changes under OBBBA involves research and development costs.
Highlights include:
- A new IRC §174A election allowing amortization of domestic research expenditures
- Retroactive relief for certain small taxpayers
- Accelerated amortization options available to all taxpayers going forward
Proper classification of research costs and timely elections are now critical to preserving deductions and avoiding future adjustments.
Business Interest Expense Limitation Still Applies
The business interest expense limitation under IRC §163(j) remains in place, continuing to restrict interest deductions for many businesses.
Important considerations:
- Certain small businesses and real property trades may qualify as excepted taxpayers
- Capitalization rules may further limit deductible interest
- Elections must be made carefully and consistently
This area continues to create complexity for real estate owners and leveraged businesses.
BOI Reporting: Compliance Deadlines Matter
Beneficial Ownership Information (BOI) reporting requirements continue to apply to many entities, including LLCs and closely held corporations.
Key points:
- Initial and ongoing filing deadlines must be met
- Failure to file can result in significant penalties
- Foreign-owned and complex ownership structures face heightened scrutiny
BOI compliance is now a routine but mandatory part of entity maintenance.
C Corporations: Charitable Deductions and QSBS
OBBBA did not eliminate the benefits available to C corporations, but planning remains critical.
Notable areas include:
- Charitable contribution deduction limitations
- Continued availability of Qualified Small Business Stock (QSBS) exclusions
- Structuring considerations for startups and investors
Entity choice remains a strategic decision with long-term tax consequences.
Partnerships: Payments, Liabilities, and Representatives
OBBBA highlights several partnership-level issues that frequently trigger IRS disputes:
- Disguised payments for services
- Self-employment tax treatment of limited partners
- Final regulations on recourse liabilities
- Rules governing partnership representatives
Errors in partnership agreements or reporting can lead to audits and unexpected tax exposure.
Depreciation, §179, and Business Vehicles
Depreciation rules remain a major planning area for businesses.
Key points:
- IRC §179 expensing remains available but subject to limits
- Bonus depreciation continues to phase down
- Special rules apply to business vehicles and clean vehicle credits
Timing and asset classification are critical to maximizing deductions.
Business Credits and Energy Incentives Scaled Back
OBBBA accelerates the termination of several energy-related credits while preserving others.
Important changes include:
- Early termination of certain clean energy incentives
- Continued availability of credits for FICA paid on tip income
- Ongoing credits for paid family and medical leave and employer-provided childcare
Businesses relying on energy credits should reassess long-term tax projections.
California Nonconformity: A Continuing Trap
California does not conform to many OBBBA business provisions.
As a result:
- Federal deductions may be disallowed for California purposes
- Separate depreciation and amortization schedules may be required
- Entity-level planning must account for dual systems
This divergence significantly increases compliance complexity for California businesses.
Final Thoughts
OBBBA introduces meaningful opportunities — and serious risks — for business owners. Research cost elections, depreciation planning, ERC exposure, and entity structuring decisions now carry heightened importance, particularly in California.
For guidance on how these business tax changes affect your company, visit our
Tax Accountant in Santa Monica page.
Future posts will cover OBBBA-driven tax planning strategies, retirement changes, and California-specific compliance issues.