Last month, I reviewed the key individual tax provisions in the legislation enacted by Congress on July 3, 2025 and signed into law by President Donald Trump on July 4, 2025 (the “2025 Tax Act”).

The 2025 Tax Act also will have a significant impact on business taxpayers. This article describes the key business tax provisions of the 2025 Tax Act.

One key change for business taxpayers under the 2025 Tax Act concerns the tax treatment of “domestic research or experimental expenditures” (often also referred to as “U.S. R&D” costs). Effective beginning in taxable year 2025, such “domestic research or experimental expenditures” may now be 100% fully deducted in the taxable year paid or incurred. For taxable years 2022 through 2024, taxpayers generally were required to amortize such “domestic research or experimental expenditures” over 5 years. The 2025 Tax Act also allows (a) certain businesses (generally with gross receipts of $31 million or less) to amend their tax returns for taxable years 2022 through 2024 and claim a 100% full deduction of their “domestic research or experimental expenditures” in those taxable years, and (b) all businesses to deduct any remaining unamortized “domestic research or experimental expenditures” from taxable years 2022 through 2024 either in taxable year 2025 or ratably over taxable years 2025 and 2026.

Another key change for business taxpayers under the 2025 Tax Act concerns the deductibility of interest. In applying the limitation for certain businesses (generally with gross receipts in excess of $31 million) that defers deductions of “business interest” in excess of 30% of “adjusted taxable income”, effective beginning in taxable year 2025, any deduction for depreciation, amortization, or depletion will be added back; with this “add back”, “adjusted taxable income”, and correspondingly the deduction of “business interest”, will be increased. This “add back” had not been allowed for taxable years 2022 through 2024. In addition, this “business interest” limitation will now also be generally applied to interest that is required to be capitalized (with a new ordering rule that requires permitted “business interest” to first be allocated to capitalized interest and then to deductible interest).

Qualified Opportunity Zone and Small Business Stock

The 2025 Tax Act expands the law regarding two types of business investments that already offered certain tax benefits to taxpayers – “qualified opportunity zones” (first enacted into law under the Tax Cuts and Jobs Act of 2017) and “qualified small business stock” (first enacted into law in 1993).

An investment in a “qualified opportunity zone” can allow a taxpayer to defer and even avoid tax on certain otherwise realized capital gain. The 2025 Tax Act expands the law regarding “qualified opportunity zone” investments, including as follows:

• The “qualified opportunity zone” program was due to expire for new investments on December 31, 2026. This expiration has now been eliminated, and the “qualified opportunity zone” program has been extended indefinitely;
• On July 1, 2026 (and every 10 years thereafter), subject to certain stricter eligibility criteria for what constitutes a “qualified opportunity zone”, state governors will propose, and the Treasury Secretary will certify, new “qualified opportunity zones”, which will remain “qualified opportunity zones” for 10 years;
• For investments made after December 31, 2026, the “deferral” time period with respect to a “qualified opportunity zone” investment will be 5 years. At the end of this 5 year “deferral” time period, gain can be reduced by a 10% (30%, for a new type of “qualified opportunity zone” investment known as a “qualified rural opportunity fund“) “step-up” in tax basis; and
• For investments made after December 31, 2026, any gain on the “qualified opportunity zone” investment can be avoided if held for at least 10, and no more than 30, years.

An investment in “qualified small business stock” can allow a taxpayer to avoid tax on certain otherwise realized capital gain from the sale of such “qualified small business stock”. The 2025 Tax Act expands the law regarding “qualified small business stock”, including as follows:

• The amount of gain that a taxpayer can exclude from the sale of “qualified small business stock” is increased to the greater of $15 million, indexed for inflation for taxable years beginning after taxable year 2026, or 10 times the taxpayer’s adjusted basis in the “qualified small business stock”;
• In addition to the prior rule that a taxpayer can exclude 100% of the gain from the sale of “qualified small business stock” if the taxpayer can meet a “5 year holding period” requirement with respect to such “qualified small business stock”, new rules are added that allow a taxpayer to exclude 50% of the gain if the taxpayer holds the “qualified small business stock” for at least 3 years before sale and 75% of the gain if the taxpayer holds the “qualified small business stock” for at least 4 years before sale; and
• The “aggregate gross assets” ceiling to define a “qualified small business”, for purposes of issuing “qualified small business stock”, is increased to $75 million, indexed for inflation for taxable years beginning after taxable year 2026 (thereby expanding the potential pool of “qualified small businesses” and “qualified small business stock”).

These changes to the requirements concerning “qualified small business stock” investments generally are effective for “qualified small business stock” acquired after July 4, 2025.

The 2025 Tax Act permanently enacts into law the provision from the Tax Cuts and Jobs Act of 2017 that created the “qualified business income” deduction – generally allowing a 20% deduction with respect to the “qualified business income” from partnerships, S corporations, and sole proprietorships. Without action by the 2025 Tax Act, the “qualified business income” deduction otherwise would have expired at the end of year 2025, resulting in an adverse tax impact for many business taxpayers.

There are two depreciation rules that are favorable for business taxpayers under the 2025 Tax Act. First, certain “qualified property” (generally tangible property with a recovery period of 20 years or less and certain computer software) acquired after January 19, 2025 is eligible for “100% first-year bonus depreciation” (full 100% “first-year expensing” for tax purposes). This provision was initially enacted by the Tax Cuts and Jobs Act of 2017, but was subject to phase-out after taxable year 2022 over the 5 years from taxable year 2023 through taxable year 2027; it has now been permanently extended. Second, such “100% first-year bonus depreciation” (full 100% “first-year expensing” for tax purposes) is also applicable to a new category of property – “qualified production property” that is used in a “qualified production activity” (generally nonresidential real property used in activity that involves certain manufacturing, producing, or refining tangible personal property in the United States or its possessions). This provision only applies to property for which construction begins after January 19, 2025 and before January 1, 2029 and is placed in service before January 1, 2031. In addition, effective for taxable years beginning in taxable year 2025, the amount of “section 179 property” that may be immediately deducted (another example of full 100% “first-year expensing”) is in effect increased to $2.5 million of purchases in the year the “section 179 property” is placed in service; this amount will be adjusted annually for inflation.

Charitable Contribution Deductions

One provision under the 2025 Tax Act that may adversely affect some business taxpayers is that effective for taxable years beginning in taxable year 2026, corporations are subject to a 1% “taxable income floor” to deduct their charitable contributions. Thus, under this new rule, corporations must make charitable contributions that exceed 1% of their taxable income in order to claim any charitable contribution deductions.

Another area in which the 2025 Tax Act may have a negative impact on some business taxpayers concerns the “employee retention credit” (“ERC”) – the payroll tax credit with respect to certain wages intended to help businesses recover from the “COVID-19” pandemic. First, all pending ERC claims related to the third and fourth quarters of year 2021 that were filed after January 31, 2024 are disallowed. Second, the statute of limitations for assessment of ERC claims related to the third and fourth quarters of year 2021 is extended to 6 years after such claims were filed.  Third, there are new due diligence requirements (and $1,000 penalties for failure to meet these due diligence requirements) for certain “ERC promoters” when providing aid, assistance, or advice with respect to any documents for ERC claims related to the third and fourth quarters of year 2021.

There are various other business tax provisions under the 2025 Tax Act that can have an impact on business taxpayers, including without limitation, with respect to such matters as real estate investment trusts, publicly-traded partnerships (including master limited partnerships), intangible drilling costs, low-income housing tax credit, new markets tax credit, advanced manufacturing investment credit, paid family and medical leave credit, sound recording productions, business meals, and the “disguised sale” rules applicable to partnerships.

If you have any questions concerning any business tax provisions under the 2025 Tax Act, please discuss this issue with your advisers.

Note – International Tax Provisions Under 2025 Tax Act

Another area significantly affected by the 2025 Tax Act, relevant to both individual and business taxpayers, is international taxation. First, the rules regarding “global intangible low-taxed income (“GILTI”) have been changed. The deduction for GILTI has been reduced to 40%, and the term, “GILTI”, has been renamed as “net CFC tested income”. Second, the rules regarding “foreign derived intangible income” (“FDII”) have been changed. The deduction for FDII has been reduced to 33.34%, and the term, “FDII”, has been renamed as “foreign-derived deduction eligible income”. Third, the concept of “qualified business asset income” has been eliminated from the determinations of both “net CFC tested income” (GILTI) and “foreign-derived deduction eligible income” (FDII). Fourth, the “base erosion and anti-abuse minimum tax” (“BEAT”) has been increased to 10.5%. Fifth, the rules used to determine whether a foreign corporation is a “controlled foreign corporation” and the pro rata share of income taken into account by U.S. taxpayers that hold interests in “controlled foreign corporations” have been modified. Any taxpayer that directly or indirectly is involved in international transactions will need to review the international tax provisions of the 2025 Tax Act.

If you have any questions concerning the international tax provisions under the 2025 Tax Act, please discuss this issue with your advisers.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.