What the New Tax Law Really Means for Entrepreneurs - Tom Wheelwright, Garrett Watson

The new tax law introduces significant permanent and temporary changes for entrepreneurs, including favorable adjustments to bonus depreciation, R&D expensing, and interest deductibility, while also phasing out certain clean energy and EV credits.

• Bonus depreciation is largely restored, offering more favorable recapture rules than Section 179.

• R&D expensing is made permanent and retroactive, significantly improving cash flow for businesses.

• Interest deductibility is more generous with a permanent return to the 30% EBITDA limitation.

The new tax law, dubbed the 'One Big Beautiful Bill,' significantly impacts business owners by modifying key tax provisions. It aims to reverse some expirations from the 2017 tax cuts, incentivize domestic investment, and streamline certain deductions. Business owners need to understand these changes, including retroactive applications and specific effective dates, to optimize their tax planning and cash flow.

Key Tax Provisions for Businesses

• 00:01:36 The new tax bill addresses several critical provisions for business owners, notably the expiration of the 2017 tax cuts. Policymakers prioritized reversing the phase-down of 100% bonus depreciation, restoring R&D expensing, and making interest deduction limitations more generous. These changes aim to encourage domestic investment and provide continuity with existing tax structures for businesses.

Bonus Depreciation and Section 179

• 00:04:20 Bonus depreciation, originally enacted in 2017 at 100%, now maintains continuity in its design but interacts with existing phase-down schedules. While Section 179 deduction limits have increased, bonus depreciation is generally more advantageous due to more generous recapture rules; however, specific rules for vehicles like trucks and SUVs remain complex and require careful consideration as they have changed significantly over time.

Qualified Production Facility Deduction

• 00:09:24 A new, temporary provision, Section 163N, offers a 100% depreciation deduction for qualified structures used in tangible production, effectively allowing bonus depreciation on the actual manufacturing facility. This provision, which excludes office space and potentially sale-leaseback arrangements, applies to construction begun between January 2025 and January 2029 and must be placed in service before January 2031, with an intent for future permanence.

Research & Development Expensing and Interest Deductibility

• 00:18:52 The bill permanently reinstates the immediate expensing of domestic R&D costs, reversing the prior five-year amortization requirement, and applies retroactively for small businesses. Additionally, the limitation on business net interest deductions reverts permanently to an EBITDA-based calculation of 30%, making it more generous and aligning with internationally recognized standards.