The One, Big, Beautiful Bill (OBBB), enacted July 4 as H.R. 1, provides long-awaited clarity for business taxation heading into and beyond 2025. For manufacturers, the bill largely extends and modifies rules originating from the Tax Cuts and Jobs Act (TCJA). While not a complete tax overhaul, the OBBB reshapes core provisions involving business income, R&D, depreciation, interest deductibility, energy credits, international tax, SALT deductions, and reporting requirements. The result is a more stable environment for long-term tax planning — with new opportunities and new complexities.
Business entity parity permanently retained
The TCJA permanently lowered the corporate tax rate to 21% and created the 20% Qualified Business Income Deduction (QBID) for pass-through entities, which was set to expire after 2025.
The OBBB makes QBID permanent, preserving long-term parity between corporate and pass-through structures. It also adjusts income thresholds that trigger QBID limits for W-2 wages, asset basis, and specified service businesses, though these changes should have minimal impact on most manufacturers.
In addition, the bill creates a $400 minimum deduction for certain active pass-through owners who might otherwise be restricted from claiming QBID. The extension gives manufacturers continued flexibility when assessing whether a corporate or pass-through structure best suits their long-term tax strategy.
R&D: Restoration of full expensing of domestic expenditures
Before the TCJA, companies could immediately deduct domestic R&D expenses under Section 174. The TCJA ended this benefit starting in 2022, requiring businesses — including manufacturers — to capitalize and amortize R&D expenditures over five years (domestic) or fifteen years (foreign).
The OBBB reverses this rule for domestic activity, restoring immediate expensing of U.S.-based R&D beginning in 2025. Foreign R&D expenses must still be amortized over 15 years.
Manufacturers with unamortized domestic R&D costs from 2022–2024 can manage them in three ways:
- Continue amortizing over the remaining five-year period.
- Elect in 2025 to immediately deduct all remaining unamortized amounts.
- If classified as a small business taxpayer (less than $31 million in average gross receipts and not a tax shelter), amend 2022-2024 returns to remove amortization entirely.
Modification of limitation on business interest
The TCJA limited deductible business interest to 30% of Adjusted Taxable Income (ATI), and after a phase-in period, removed depreciation, amortization, and depletion addbacks — making the cap far more restrictive.
The OBBB restores these addbacks permanently starting in 2025. This change will significantly increase allowable interest deductions for capital-intensive manufacturers.
Additional adjustments include:
- Beginning in 2026, ATI excludes certain foreign income inclusions (GILTI, Subpart F, Section 78 gross-ups).
- Beginning in 2026, Section 163(j) must be applied before elective interest capitalization under Sections 263(a) or 266 — reversing TCJA legislative history and tightening limitation outcomes.
- Required capitalization rules under Sections 263(g) and 263A(f) continue to apply before the interest limitation.
These updates increase the importance of planning around depreciation, as higher depreciation reduces taxable income while simultaneously increasing available ATI.
Increased SALT cap
The TCJA’s $10,000 cap on state and local tax (SALT) deductions significantly affected owners of pass-through manufacturing businesses.
Under the OBBB:
- The individual SALT cap rises to $40,000 beginning in 2025.
- It increases slightly in 2026 and grows 1% annually through 2029.
- A phase-out applies at higher income levels, but the cap never drops below $10,000.
- The cap returns to $10,000 in 2030 unless future legislation changes it.
The bill does not change federal treatment of pass-through entity taxes (PTETs), which many states adopted to help business owners circumvent the SALT cap.
Scaling back the IRA’s energy-related credits
The Inflation Reduction Act (IRA) created or expanded a wide spectrum of renewable energy tax credits. The OBBB tightens or accelerates the expiration of many of these benefits.
Expiration of EV and recharging property credits
Credits for purchasing clean vehicles expire for vehicles acquired after Sept. 30, 2025.
The Section 30C credit for installing alternative fuel refueling property remains available through June 30, 2026.
Modification of the Section 45X advanced manufacturing production credit
Key modifications include:
- Termination of credits for wind energy components produced and sold after 2027
- Expansion of “critical minerals” to include metallurgic coal
- New restrictions on foreign entities
New restrictions on wind and solar credits
- Credits terminate for projects placed in service after 2027
- Exception: projects that begin construction within one year of OBBB enactment
- Other rule adjustments may further restrict eligibility
International tax changes
The OBBB makes several important changes to international tax rules first introduced under the TCJA. It removes the 10% Qualified Business Asset Investment (QBAI) base for both GILTI and FDII. Without this base, GILTI inclusions generally increase, while FDII deductions become more accessible for manufacturers with significant fixed assets. Beginning in 2026, interest, R&D, and other expenses will no longer be allocated to GILTI income, which should improve foreign tax credit results.
That same year, the Section 250 deduction for GILTI drops from 50 to 40 percent, and the FDII deduction decreases from 37.5 to 33.334 percent. Together, these changes are designed to create an effective 14 percent tax rate, requiring careful modeling by globally active manufacturers.
New reporting for overtime pay and 1099s
The OBBB introduces a temporary (2025–2028) deduction for individuals receiving overtime pay, allowing:
- Up to $12,500 deduction ($25,000 for joint filers)
- Phaseout applies at higher income levels
- Employers must report qualified overtime separately on Form W-2
Additionally:
- Form 1099-MISC and 1099-NEC thresholds increase from $600 to $2,000 in 2026
- Amounts will be indexed for inflation beginning in 2027
Manufacturers with large workforces must prepare payroll systems for the new reporting standard.
Final thoughts on the One, Big, Beautiful Bill’s impact on manufacturers
The One, Big, Beautiful Bill gives manufacturers a clearer tax landscape with opportunities such as restored R&D expensing, improved interest deductions, greater SALT flexibility, and updated international tax rules. However, several energy incentives are ending, and new reporting rules will affect operations. Manufacturers should work with tax advisors to model impacts and position themselves to benefit from the bill’s changes.
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