How Tech Companies Can Win Big Under the One Big Beautiful Bill

The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, introduces tax changes that open new doors for planning, growth, and capital efficiency for technology companies, including:

• Reinstating full expensing for domestic R&D
• Enhancing the benefits of Qualified Small Business Stock (QSBS)
• Revising the definition of adjusted taxable income under 163(j)
• Bringing back 100% bonus depreciation

Whether a company is scaling rapidly, investing in innovation, or positioning for a future exit, these updates create real opportunities to strengthen financial foundations.

Unlocking R&D Tax Savings: How OBBB Restores Full Domestic Expensing

The One Big Beautiful Bill (OBBB) delivers a significant win for businesses by restoring immediate expensing of domestic research and development (R&D) costs under Section 174 for tax years beginning after Dec. 31, 2024. Importantly, the requirement to capitalize and amortize foreign R&D expenses over 15 years remains unchanged. The ability to fully deduct domestic R&D expenditures in the year incurred reverses the prior five-year amortization mandate and may substantially improve cash flow and reduce taxable income – particularly for innovation-driven tech companies and startups reinvesting heavily in development.

Taxpayers have flexibility in how the remaining unamortized domestic R&D costs will be deducted:

• Elect to deduct the full amount in 2025
• Elect to deduct the full amount over a two-year period (i.e., the 2025 and 2026 tax years)
• Choose to continue amortizing the amount of the remaining life

Tech companies with taxable income and significant domestic R&D spend should revisit their 2025 estimated tax payments to reflect the increased deduction. In addition, qualifying small businesses with tax liabilities in prior years (2022-2024) may consider amending returns to claim previously amortized R&D deductions if they were limited under the former rules.

It’s important to note that the IRS recently issued Revenue Procedure 2025-28 – which provides practical guidance and procedures for implementing the new rules – to include allowing taxpayers to deduct 2024 research expenses on the original return (if it has not already been filed) or to file a superseded return to deduct the expenses.

(Note: State-level implications and conformity should also be monitored closely.) 

QSBS Supercharged: Bigger Breaks for Tech Founders and Early Investors

The One Big Beautiful Bill (OBBB) significantly enhances the tax benefits available under Section 1202 for Qualified Small Business Stock (QSBS) acquired after July 4, 2025, expanding its value for founders, early investors, and tech companies planning strategic exits.

Key updates include raising the gross asset threshold from $50 million to $75 million – broadening company eligibility – and increasing the maximum gain exclusion for post-OBBB acquisitions to $15 million or 10-times basis, whichever is greater.

Perhaps most impactful change, however, is the introduction of a tiered holding period structure, which allows taxpayers to receive partial gain exclusions after just three years (50%), with full exclusion available at five years. These updates add flexibility to exit planning and make QSBS a more powerful tool for tech startups and growth-stage businesses alike. Inflation indexing of key thresholds further preserves the long-term value of the incentive. Companies and investors should act now to assess eligibility and plan for optimal QSBS treatment under the new rules.

The enhanced benefits do not apply to QSBS issued prior to July 4, 2025.

 163(j) Simplified: Smarter Interest Deductions for Growth-Focused Tech Firms

The One Big Beautiful Bill (OBBB) includes a key fix to the Section 163(j) interest expense limitation that will benefit many growing tech companies. Starting in the 2025 tax year, businesses can once again add back depreciation and amortization when calculating adjusted taxable income (ATI) for purposes of determining how much interest expense is deductible. This change reverses a stricter rule that had been in place since 2022, which excluded those adjustments and often reduced the allowable deduction – particularly for companies investing heavily in technology, equipment, or intellectual property.

For tech companies using debt to fund growth, the updated rule means more flexibility and greater potential to fully deduct interest costs. It also opens the door to more strategic financing decisions, especially for businesses planning large infrastructure investments or M&A activity. Now is a good time to re-evaluate your capital structure and interest expense projections in light of this more favorable treatment.

100% Bonus Depreciation Returns: Maximizing Capital Efficiency in Tech

The One Big Beautiful Bill (OBBB) restores 100% bonus depreciation for qualified property placed in service after Jan. 19, 2025. This retroactive change reverses the phasedown that had reduced the immediate deduction to 80% in 2023 and was set to decline further. For tech companies investing in equipment, software, or leasehold improvements, this means the full cost can be deducted upfront, freeing up cash and improving after-tax ROI on capital expenditures.

Section 179 Expanded: Immediate Expensing Options for Startups and Scale-Ups

In addition, OBBB increases the Section 179 expensing limit to $1.5 million (up from $1.22 million) and raises the phaseout threshold to $4 million. This expansion benefits smaller tech companies and startups with more modest capital investment needs, offering flexibility to deduct the full cost of qualifying property in the year it’s placed in service. Together, these changes allow tech companies at all stages to better align tax strategy with growth, reinvestment, and scaling plans.

When choosing between Section 179 expensing and bonus depreciation, assuming a company has taxable income, both provide immediate deductions, but they differ in flexibility, eligibility, and long-term planning impact.

Turning OBBB Into a Growth Strategy

The OBBB represents more than just a series of tax changes; it’s a toolkit for tech companies to optimize long-term planning. The updates create powerful avenues for innovation-driven businesses to strengthen their financial position. By proactively evaluating how each provision aligns with a company’s strategy, tech leaders can turn OBBB into a catalyst for smarter reinvestment, capital efficiency, and sustainable success in a rapidly evolving industry.

For more information on how to leverage these and other OBBB changes, please reach out to your KSM advisor or fill out the form below.