One Big Beautiful Bill Act: What It Means for Manufacturing Accounting and Tax Planning

The One Big Beautiful Bill Act (OBBBA) is a serious advantage for the manufacturing sector. It’s not just a list of new tax rules. It’s a calculated move to boost domestic production and reward the companies that make things here in the United States.

For years, mid-sized manufacturers have faced increasing pressure from rising material costs, overseas competition and complex tax rules. OBBBA shifts that dynamic. With expanded deductions, full expensing opportunities and a stronger framework for reinvestment, this legislation is giving manufacturers room to grow. It’s focused on freeing up capital for those who build, innovate and hire.

Here’s the most important part. This bill is not aimed solely at giant corporations. Mid-sized manufacturers are in a particularly strong position to benefit. These are the businesses that create local jobs and drive regional economies. OBBBA finally reflects that reality.

From restored bonus depreciation and generous expensing limits to permanent changes in R&D treatment, this law redefines how we approach tax planning. The opportunity is here, and the timing could not be better. Let’s walk through the provisions that matter most.

Immediate expensing for R&D: A double tax benefit

If you’ve felt the sting of amortizing R&D costs over five years under Section 174, you’re not alone. That rule never made much sense for manufacturers, where cash flow is king and innovation happens fast. Starting with 2025 tax returns, that problem goes away.

Under OBBBA, businesses with less than $31 million in average gross receipts over the past three years will have the option to:

• Amend 2022 through 2024 returns to apply immediate expensing retroactively, or
• Deduct any remaining unamortized costs all at once in 2025 or split them evenly across 2025 and 2026. (This option is also available for companies over the $31 million threshold.)

This is a major cash flow advantage. Even better, those same expenses still qualify for the R&D tax credit, giving manufacturers two bites at the apple. You can deduct the expense and claim the credit, which directly reduces your tax liability dollar for dollar. For manufacturers looking to invest in process improvements, automation or product testing, this change makes innovation not only smart, but financially strategic.

From our experience, the R&D credit is one of the most underused incentives available to businesses today. OBBBA gives it more muscle by pairing it with immediate cost recovery. Our R&D Tax Credit Services team has guided thousands of businesses through the qualification and filing process of these credits, from initial qualification and credit calculation to documentation and strategic planning for future R&D activities.

100% bonus depreciation made permanent: A capital expenditure game changer

For manufacturers, equipment is more than a line item. It is the backbone of operations. The restoration and permanence of 100% bonus depreciation under OBBBA means you can now fully expense the cost of qualified property like machinery, tools and production equipment in the year it is placed into service. No more spreading deductions over years while waiting to realize the tax benefit.

This change gives manufacturers a powerful planning tool. By allowing immediate expensing, you reduce taxable income and improve cash flow, which opens the door to reinvest in more machinery, hire skilled labor or boost your working capital. Instead of deferring the benefit of capital investments, you get the full impact up front.

If you are planning to modernize your production line, add automation or replace aging assets, now is the time to consider accelerating those purchases. You’ll see the tax benefit in the same year the investment is made, which improves financial flexibility.

And for manufacturers that operate in capital-intensive environments, this provision is also strategic. Aligning your equipment purchases with year-end tax planning could significantly reduce your overall liability.

For more on how we guide capital expense decisions, learn about our manufacturing fractional CFO services.

Full expensing for production space construction

Before OBBBA, if you built out or expanded a production facility, you had to depreciate the cost over 15 to 39 years. Now, that entire investment can be deducted in the year the facility is placed in service as long as it qualifies as a production area.

This includes factory floors, refining halls, assembly lines and any square footage where a substantial transformation of product occurs. Think raw material staging zones that directly feed production or on-site quality control labs used during the manufacturing process. These are now fully deductible in the year you place the space in service.

However, there are limits. Office spaces, cafeterias, HR departments and even corporate R&D wings do not qualify. Even if they are located in the same building, only the space used directly for production can be expensed.

That distinction matters. When planning new construction or renovations, manufacturers should clearly separate eligible space from ineligible areas in their architectural and accounting documentation. Doing so ensures you can confidently claim the full deduction without running into compliance issues.

The opportunity here is substantial. For example, a $3 million expansion of production space could now yield a $3 million deduction in year one. That is a major shift in how manufacturers approach plant growth, and it reinforces the bill’s intention to keep production inside the U.S.

Enhanced Section 179 expensing and multi-state implications

Section 179 got a major upgrade. Starting in 2025, the deduction limit will rise to $2.5 million; the phase-out won’t begin until $4 million of qualifying purchases. That’s a big step up from the previous $1 million cap, and it gives manufacturers more breathing room to expense large purchases immediately.

Section 179 applies primarily to tangible personal property, including machines, tools, vehicles and software. What makes it even more valuable now is its flexibility. Many states that don’t follow federal bonus depreciation rules will still conform to Section 179. That means if you operate in multiple states, you may be able to take the full deduction at the state level even when bonus depreciation is not allowed.

For manufacturers with facilities or operations across state lines, this opens up strategic planning opportunities. Timing purchases to match both federal and state tax rules can result in better use of capital and more accurate financial forecasting.

Whether you’re acquiring new CNC machines, upgrading computer systems or rolling out integrated manufacturing software, Section 179 gives you the chance to recoup those costs more quickly. If your state doesn’t allow bonus depreciation, Section 179 might be your best tool to achieve the same full-year write-off.

Explore how we help with multi-state tax planning to take full advantage of these provisions across jurisdictions.

Favorable interest expense rules support growth and debt financing

Financing growth just got more attractive. Under the One Big Beautiful Bill Act, the business interest expense limitation under Section 163(j) will permanently return to using EBITDA, (rather than EBIT) when calculating deductibility. Starting with 2025 returns, manufacturers can once again add back depreciation and amortization when determining their allowable interest deduction.

For companies that carry debt or plan to finance expansion, this is a welcome change. Under the more restrictive EBIT rule, high levels of depreciation from equipment and building investments could shrink your ability to deduct interest expense. That meant some businesses could not fully deduct the cost of borrowing.

Returning to EBITDA expands the deduction base and restores the value of interest expenses for debt-heavy manufacturers. This makes financing new production lines, facility upgrades or even strategic acquisitions more tax efficient.

If you are considering refinancing, leasing new equipment, or securing a line of credit to support your operations, this provision improves your position. The ability to deduct interest more fully can reduce your effective borrowing cost and improve your after-tax cash flow.

It’s also a smart time to revisit your capital structure. If you have been hesitant to take on financing due to interest deduction limits, this change may open the door to smarter borrowing strategies that support long-term growth.

New overtime deduction and QBI permanence support owners and workers

The One Big Beautiful Bill Act introduces two provisions that directly impact both business owners and employees. First, the bill creates a new deduction of up to $12,500 for overtime premiums paid under Section 7 of the Fair Labor Standards Act. This deduction is available to employees on their personal tax returns, which could create a stronger incentive to work additional hours.

For manufacturers, this change means overtime shifts could become more attractive to your workforce. However, to remain compliant, companies will need to update their time tracking systems, payroll software and W-2 reporting. The deduction begins with 2025 W-2s and will affect payroll withholding starting in 2026. Staying ahead of these reporting changes is critical to avoid penalties and ensure your team receives the full benefit.

Second, the Qualified Business Income (QBI) deduction has been made permanent. Originally set to expire in 2025, this 20% deduction now provides long-term certainty for owners of pass-through entities. On top of that, the income thresholds for phaseouts have increased by $25,000 for individuals and $50,000 for joint filers.

This is a win for S corporations, partnerships and LLCs taxed as pass-throughs. Owners will now be able to count on the deduction year after year, which makes it easier to plan for tax liabilities and reinvestment strategies. It also gives manufacturing leaders a stronger financial base to retain earnings, improve operations and reward employees.

With these two changes, OBBBA brings practical relief to the people on the floor and the people at the top. That’s a rare and welcome combination.

Build a bold manufacturing future with James Moore

Manufacturers finally have a tax law that speaks their language. But timing matters. Choosing when and how to implement these opportunities could mean the difference between a minor savings and a major cash flow boost. From optimizing facility expansion to navigating multi-state tax rules and payroll compliance, the smartest move is to plan early and act with confidence.

At James Moore, our Manufacturing Outsourced Accounting team works with manufacturers across the Southeast to build stronger financial operations. Let us help you make the most of these new opportunities and stay ahead of what’s next.

Contact a James Moore professional today to discuss how OBBBA can reshape your tax and accounting strategy.

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