This article was written by Jason Mollner, Partner
On May 13, 2025, the House Ways and Means Committee approved a sweeping tax reform package that could significantly impact small and medium-sized businesses (SMBs). Dubbed the “One Big Beautiful Bill,” this legislation proposes major changes that SMBs should consider in their tax planning and investment strategies. Importantly, the provisions proposed in the bill are subject to change as it moves through additional committees, the House floor, and the Senate, where edits are expected.
Bonus Depreciation: Five-Year Reinstatement of 100% Expensing
One of the headline provisions in the new tax bill is the five-year reinstatement of 100% bonus depreciation for qualified property placed in service after January 19, 2025, and before January 1, 2030. This replaces the previously scheduled phase-down that had reduced bonus depreciation to 80% in 2023, continuing to decline in subsequent years, and was set to phase-out in 2027. Under the new bill, businesses can fully deduct the cost of qualifying assets such as machinery, equipment, and certain software in the year they are placed in service during this five-year window.
Implications for SMBs:
- Immediate deduction of large capital expenditures enhances cash flow.
- Encourages accelerated investment in productivity-enhancing assets.
- Businesses should align capital planning to maximize the benefit of the 100% deduction before it is again phased out after 2029.
Section 174: Temporary Relief for R&D Expenses
Another significant feature of the bill is the temporary suspension of the TCJA-mandated amortization of research and development (“R&D”) expenses. Effective for tax years beginning after December 31, 2024, and before January 1, 2030, businesses will once again be allowed to fully expense domestic R&D costs in the year they are incurred.
Previously, under the TCJA rules that took effect in 2022, R&D expenses had to be capitalized and amortized over five years (15 years for foreign research), creating a significant financial burden for businesses heavily invested in innovation. The proposed legislation reverses this treatment for domestic expenses, allowing immediate deductions and improving tax efficiency.
Key Provisions:
- Applies only to domestic R&D expenditures.
- Foreign R&D must still be amortized over 15 years.
- Software development is treated as a qualified research expense.
- Taxpayers can elect to capitalize and amortize domestic research expenses over at least 60 months, providing flexibility for US-based activities only.
Implications for SMBs:
- Reduces taxable income in years when significant research investments are made.
- Eases financial strain on startups and tech-forward small businesses.
- Encourages innovation and enhances competitiveness.
- Encourages domestic R&D activities and disincentivizes sending innovation abroad.
Inflation Reduction Act (IRA) Credits: Repeals and Modifications
The House Ways and Means Committee’s draft budget proposal introduces a significant rollback of clean energy incentives established by the IRA, specifically targeting Sections 30C, 45Y and 48E. These provisions, which offer investment and production tax credits for clean energy projects, would experience a phased reduction beginning in 2028 and culminating in their elimination by 2032.
Phaseout Schedule for 45Y and 48E:
- 2028: 100% of the credit value
- 2029: 80%
- 2030: 60%
- 2031: 40%
- 2032: 0%
This accelerated phaseout contrasts with the IRA’s original provisions, which allowed full credit values through 2032.
For Section 30C, there is no phaseout. The credit no longer applies to property placed in service after December 31, 2025.
Eligibility Criteria:
The proposal introduces a “placed-in-service” requirement for eligibility, as opposed to the IRA’s “beginning of construction” standard. This change could disadvantage projects that have started construction but are not yet operational, potentially excluding them from receiving the full value of the credits.
Implications for Clean Energy Projects:
Industry stakeholders express concern that this expedited phaseout could destabilize the clean energy sector. The American Clean Power Association warns that the proposal may disrupt energy markets at a time of increasing demand, potentially leading to higher electricity prices and undermining efforts to decarbonize the energy grid.
Additionally, the proposal’s impact on “clean firm” technologies, such as advanced nuclear and geothermal energy, is a point of contention. These technologies, which provide reliable and consistent power, may be disproportionately affected by the reduced incentives, hindering their development and deployment.
Implications for SMBs:
- Businesses planning to install EV charging infrastructure must act quickly to place property in service before the end of 2025.
- Long-term planning for clean transportation investments may be curtailed without the extended credit horizon.
- Accelerated phase-out may impact projects dependent on the credit’s availability through 2032.
Section 179 Expensing: Higher Thresholds Proposed
The bill raises the Section 179 expensing limits to better reflect inflation and encourage small business investment. For tax year 2025, the expensing cap would increase to $2.5 million, with a phase-out threshold beginning at $4 million in total purchases. These amounts would be indexed for inflation in future years.
Implications for SMBs:
- Expensing thresholds better aligned with real-world equipment and software costs.
- Greater incentive for smaller firms to invest in new technologies and infrastructure.
- More SMBs can benefit from full expensing without hitting the phase-out threshold.
Section 163(j): EBITDA-Based Interest Deduction Limit Restored
The TCJA had introduced a limitation on the deductibility of business interest expenses, tying it to 30% of adjusted taxable income (ATI). Beginning in 2022, this ATI calculation excluded depreciation and amortization, which disproportionately affected capital-intensive businesses.
The new bill temporarily reinstates the more generous EBITDA-based limitation for tax years beginning after December 31, 2024, and before January 1, 2030.
Implications for SMBs:
- Restoring the EBITDA standard increases the amount of interest expense that can be deducted.
- Particularly beneficial for businesses that rely on financing to fund growth or capital projects.
Full Expensing for Industrial Facilities
In a move designed to promote domestic manufacturing, the bill includes a provision allowing full expensing for newly constructed or acquired industrial facilities with construction beginning between January 19, 2025 and January 1, 2029 and placed in service before January 1, 2033. This includes factories, production facilities, and certain warehouse properties used for manufacturing or assembly operations.
Key Provisions:
- 100% first-year expensing for eligible industrial buildings.
- Applies to both new construction and qualifying acquisitions.
- Limited to facilities primarily used for manufacturing, assembly, or production.
Implications for SMBs:
- Reduces upfront tax burden for companies investing in physical infrastructure.
- Supports reshoring and expansion of domestic operations.
- Encourages long-term planning and capital investment in industrial growth sectors.
Contingent Fees: Treasury Regulation Prohibited
Section 112211 of the May 13 bill introduces a notable limitation on regulatory authority over contingent fees. Specifically, the bill states that the Secretary of the Treasury may not regulate, prohibit, or restrict the use of a contingent fee in connection with tax returns, claims for refund, or any related documents prepared on behalf of a taxpayer.
Key Details:
- This provision effectively prevents the IRS or Treasury Department from imposing limitations or bans on the use of contingent fees in these contexts.
- The change reinforces taxpayers’ and practitioners’ freedom to structure fee arrangements—including those based on outcomes—without federal interference.
Implications for SMBs:
- Provides greater flexibility in negotiating payment structures with tax professionals.
- May increase access to tax representation services, especially in refund claims and amended return scenarios.
- Encourages broader participation in claiming legitimate tax benefits where fees may have previously been a barrier.
Conclusion
The May 13, 2025, House tax bill presents both opportunities and challenges for small and medium-sized businesses. From the return of 100% bonus depreciation and immediate R&D expensing to the rollback of clean energy incentives, full expensing of industrial facilities, accelerated EV infrastructure credit termination, and the introduction of new rules around contingent fees, the proposed changes could have a profound impact on tax planning, investment strategies, and cash flow.
While the bill awaits further legislative action, SMBs should begin preparing now by:
- Evaluating the potential benefits of accelerated asset purchases.
- Reviewing capital expenditure and R&D project timelines.
- Revisiting sustainability initiatives in light of credit phaseouts and Section 30C limitations.
- Assessing legal and tax advisory fee arrangements in light of new rules.
- Considering industrial expansion projects to leverage new full-expensing options.
- Consulting with tax professionals to model potential impacts.
MSC can help you position yourself to take full advantage of the opportunities—and navigate the risks—presented by this comprehensive tax legislation.
Connect with us to explore your opportunities.