One big beautiful invoice, HR 1, not everything is beautiful and comes with some big numbers. The Congressional Budget Office estimates that over the next decade, it will add $3.4 trillion more debt to the US balance sheet than if the law had not passed. Cutting federal spending on Medicaid and SNAP will reduce household resources by $1 trillion, according to the CBO. Calculate the impact of the dollar on reductions and tax incentives for the production and consumption of clean energy? It's more than just a number.
However, for most US companies and their CFOs, the OBBA offers a lever to make substantial tax and business plan changes to improve profitability and balance sheets while reducing cash tax payments. With all the changes from bonus depreciation and special incentives to build manufacturing facilities, all the changes from bonus depreciation and equipment spent on domestic R&D tax treatment, and special incentives to build manufacturing facilities, the TAX department has a lot to do. (See the table below.)
“As often the case with tax reform, changes don't necessarily simplify anything,” says Matthew Friedman, senior director of Portage Point Partners.
What area of tax law can CFOs take action to benefit their businesses?
Load up
One of the most notable changes is a permanent extension of 100% bonus depreciation on eligible assets, which will increase from 40% to 100% from January 19th this year.
“For businesses investing in equipment, technology or facilities, this offers immediate tax benefits; “We're looking forward to exploring tax credits and investment management,” said Daniel Cox, CFO at Incentify, a platform for managing tax credits and investments.
Significant pre-tax savings could put taxpayers in a tax loss position with big maintenance, Friedman said. However, before you decide to take the deduction and spend timeline costs, businesses need to consider the entire scope of the law.
The combination of bonus depreciation, R&D expenses and complete deductions for manufacturing facilities means that business taxpayers will need to decide whether loading all deductions in 2025 is a great decision. “Loss on carryover can only offset 80% of your taxable income.” By splitting the deduction, “not only will you save today's cash flow, but you could save up next year as well,” Swanson says.
Companies that estimated tax payments in September will make several decisions in the next two months, Swanson says to ensure they don't overpay. (The story follows the chart. )
R&D, revisiting RERUN ROI
The OBBA will revive and make it permanent in the country's deductibles for research and development expenses. R&D can have a huge impact as it includes a wide range of costs and activities, Friedman says. The numerous mid-market business tax returns he reviewed for transactions showed significant changes in taxable income when R&D expenses began to be capitalized.
100% R&D credits are retroactively applied to small businesses with revenues under $30 million, and “creates time-dependent opportunities to correct previous year returns or accelerate new R&D initiatives that bring immediate tax benefits,” says CPAs in Napoli, CPA, CPA and CPA in Florida.
Restoring the more favorable calculations to determine the 2017 Tax Cuts and Employment Act's 2017 deduction limit means that CFOs want to recalculate the project's tax-effective ROI because the numbers didn't work, Swanson says.
“If you're investing now, you'll probably get deductions on production facilities and a lot of equipment.
This could be a huge benefit for highly utilized manufacturers, Swanson says.
The complexity of foreign taxes
According to Grant Thornton, the OBBA could make significant changes to its core international tax regulations (Gilti, FDII, Beat) and modify the calculation of the transfer of offshore reinvestment strategies and pricing policies.
Companies need to model everything, especially in non-US contexts. Because the regulations are being cut in two directions,” Friedman says. Friedman says that changes to things like income generated from foreign subsidiaries are so fact-specific that companies need to evaluate each set of situations. “That's not something that most clients want to hear, but there's no other way.”
Unkind cut
Not all organizations benefit from an OBBA. The law presents acute risks to the clean energy industry by abolishing clean electricity investments and production tax credits. For example, solar and wind farms that will be in service after 2027 are no longer eligible for credit, according to the Tax Policy Center. Additionally, the federal tax credit for up to $7,500 for new EVs will expire on September 30th.
“The withdrawal of billions in unprecedented inflation-reduction law funds, including the Greenhouse Gas Reduction Fund, advanced vehicle incentives and funds allocated for renewable transmission development, will result in reduced liquidity and investor uncertainty,” Cummings says.
Developers and funds engaged in renewable infrastructure projects should review funding assumptions, federal credit eligibility, and timelines for regulations that could destroy program cancellations, he says. Add Incentify CFO Cox as follows: “Companies that have planned for these incentives should adjust their forecasts and reaffirm their ROI assumptions for sustainability-related projects.”
Business first
All the OBBA's favorable provisions could lead CFOs to become more tax-centric in their thinking. But, as Swanson tells his client, the CFO doesn't want to rock its tail to the dog.
“You always want to run a business to make money. Taxes are one of your biggest spending, so you want to manage your taxes. But you don't want to make bad business decisions. [of the tax treatment benefits]”You can eliminate all your taxable income by investing $1 billion in a manufacturing facility, but if you don't need a $1 billion manufacturing facility, that's probably not the best idea.”
On the other hand, for example, businesses want to consider things like long-term outlook from a facility perspective. “a [facilities] The investment was expected to occur in 2030, but in 2027 or 2028, we are now able to accelerate and deduct that investment. Otherwise, it is unclear what the treatment will be like,” Swanson said.
Develop a plan
The OBBA is the most consequential rewrite of federal tax and fiscal policy since the 2017 Tax Cuts and Employment Act, Cummings says. Did the TCJA tell you that CFOs should be careful?
Swanson said: “The biggest thing I saw in 2017 is that they are clients who have developed plans and mapped the future with tax laws in mind. “They had good business in the first place, [the TCJA] It helped them accelerate their progress. Those who saw it as “it's tax law, I just need to live with it” were still successful, but they didn't enjoy the same benefits, Swanson said.
OBBA also has a good time for businesses to see the overall tax structure, as they inject some degree of certainty into their US business tax plans, Swanson says. For example, a positive change in the treatment of profits of qualified SMEs could lead some companies to consider becoming a company C instead of a flow-through entity.
from now on
The IRS will develop proposed regulations regarding changes to tax laws. Once they are final, the IRS will provide guidance on implementation by the enterprise. If the TCJA is the guide, it could come in the next 6-12 months, Friedman says.
However, many provisions are intended to be permanent, and “I don't know much about Rush Congress.” [or the IRS] He adds. Changes to international tax law see more hashouts, Friedman said.
