Greg O’Brien, CPA

OBBB Tax Law Updates: Key Changes That Impact Startups and Tech Companies

Startups and technology companies face unique tax challenges: volatile income, high upfront R&D costs, and heavy reliance on capital investment. The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, reshaped multiple provisions that directly affect this sector. From restoring full R&D expensing for domestic research to reviving 100% bonus depreciation, the law alters cash flow planning, credit claims, and long-term strategy.

In this post, we’ll cover:

how OBBB changes R&D deductions and credits,
the impact of bonus depreciation on tech investments,
new rules for interest limitations and loss carryforwards,
and key compliance actions for founders and CFOs in 2025.

Background: Why startups and tech companies are affected

Tech firms often incur high research & experimental (R&E) costs and invest in expensive equipment, software, and office buildouts. Under pre-OBBB law, R&E had to be amortized over five or fifteen years, and bonus depreciation was phasing down to 40% in 2025. That created significant tax strain in the early years of a company’s growth.

OBBB directly addresses these challenges by restoring full expensing and offering temporary relief on capitalization requirements (Source: OBBB §§131, 174A, enacted July 4, 2025).

Definition Block: Net Operating Losses (IRC §172)

Net operating losses (NOLs) occur when deductions exceed taxable income. Under IRC §172, NOLs can offset taxable income in future years, subject to limitations. OBBB made adjustments to carryforward percentages and clarified how bonus depreciation and R&D expensing affect NOL calculations.

Key takeaway: Startups with negative income but large R&D or equipment investments must reassess their NOL strategy under OBBB.

R&D expensing and credits under OBBB

Domestic R&E costs may now be fully expensed under new Section 174A starting in 2025.
Foreign R&E costs remain amortizable over 15 years.
The Section 41 credit remains intact but interacts differently with expensing. Expensed costs reduce the credit base, so founders should evaluate whether electing amortization produces a better combined deduction-plus-credit result (Source: IRC §§41, 174A, 280C).
Transition relief applies to 2022–2024 costs, with method change elections available under Rev. Proc. 2025-28.

Key takeaway: For many startups, OBBB provides faster cost recovery, but modeling is critical to maximize both deduction timing and credit utilization.

Bonus depreciation restored

OBBB restores 100% bonus depreciation for assets placed in service 2025–2027.
This includes computers, servers, software, and qualified improvement property, common expenses for tech firms.
After 2027, bonus depreciation phases down again (80% in 2028, 60% in 2029, 40% in 2030, 20% in 2031).

Key takeaway: Founders should time capital investments within the 2025–2027 window to lock in maximum immediate deductions.

Interest limitation and loss rules

Amortization deductions for R&E are now added back when computing adjusted taxable income under Section 163(j). That makes the interest limitation test more favorable for companies electing expensing.
OBBB also clarified that NOLs generated from full expensing and bonus depreciation remain subject to the 80% limitation on taxable income in future years (Source: IRC §172(a)(2), as amended by OBBB).

Key takeaway: Startups relying on debt financing may see greater flexibility under OBBB, but carryforward planning still matters.

Worked example

Example
A startup incurs $3,000,000 of domestic R&E costs and $1,000,000 of server purchases in 2025. It has no taxable income in 2025.

Under OBBB, it may expense the $3,000,000 under §174A and take 100% bonus on $1,000,000 of servers.
Total deductions = $4,000,000.
If the startup raises revenue in 2026, it can apply its NOL carryforward (limited to 80% of taxable income).
If it had amortized R&E, 2025 deductions would have been much smaller, deferring the benefit.

Assumptions

All R&E is domestic and qualifies under §174A.
Assets meet placed-in-service tests.
No state tax conformity assumed.

Action steps for startups and tech CFOs

Re-evaluate your 2025 R&D expensing vs. amortization election to balance credits and deductions.
Accelerate server, equipment, and office improvement investments to capture 100% bonus depreciation.
Forecast NOLs and plan around the 80% income limitation.
Review financing arrangements under revised §163(j) to ensure optimal deductibility of interest.
Track placed-in-service dates carefully to preserve eligibility for 100% bonus.

Structured summary

OBBB (July 2025) restores 100% bonus depreciation through 2027 and introduces Section 174A allowing full expensing of domestic R&E.
Foreign R&E still requires 15-year amortization.
The Section 41 R&D credit interacts differently under full expensing, requiring recalibration of claims.
NOL carryforwards remain capped at 80% of taxable income, but OBBB improves interest deductibility under §163(j).
Startups should treat 2025–2027 as a high-value window for expensing investments and planning around credit optimization.

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