by David Zaiken

This is Part 3 of a three-part series on U.S. tariffs, refund strategies, and tax planning opportunities. Originally published in full on Bloomberg Tax, this series was authored by David Zaiken, Tax Director of Consulting at WebsterRogers LLP, alongside partners John Scannapieco and Alan Enslen of Womble Bond Dickinson (US) LLP, and Professor William VanDenburgh, PhD., of the College of Charleston.

Most businesses think about tariffs as a cost management problem. That framing is incomplete. The same environment that created tariff exposure has also produced a set of federal tax changes enacted through the One Big Beautiful Bill Act (OBBBA) in 2025 that represent some of the most significant planning opportunities for U.S. businesses in years. Understanding how these provisions interact with your tariff strategy could materially improve your bottom line.

Here is what business owners, CFOs, and their advisors need to know.

Federal Tax Changes: What the OBBBA Did

Bonus Depreciation and Section 179 Expensing

OBBBA permanently restores 100% bonus depreciation for property and equipment acquired and placed in service after January 19, 2025. This reverses the phase-down that had been occurring under the Tax Cuts and Jobs Act. For businesses investing in domestic manufacturing or assembly, a logical response to tariff pressure, the ability to expense equipment immediately is a meaningful offset to upfront capital costs.

OBBBA also introduces an election to deduct 100% of the cost of “qualified production property,” including plants and buildings tied to manufacturing, agriculture, chemical production, and refining. This election applies to construction beginning after January 19, 2025, and before December 31, 2029, with the property placed in service before the end of 2030. Portions of a building used for offices, administration, parking, or sales are excluded.

Section 179 expensing limits were also increased: businesses can now deduct up to $2.5 million in qualifying property, with the phase-out threshold raised to $4 million. These limits apply to property placed in service after December 31, 2024.

Planning note: If asset purchases were made around January 19, 2025, review acquisition and in-service dates carefully. Assets placed in service before January 19 may fall under the older 40% bonus depreciation rate. Cost segregation studies remain highly relevant given these expanded expensing provisions.

Research and Development Expensing Restored

Under prior law, domestic R&D costs had to be amortized over five years beginning in 2022 rather than expensed outright. OBBBA reverses this, allowing full deduction of U.S.-based research costs for tax years beginning after December 31, 2024.

Small businesses may be eligible to amend 2022 through 2024 returns to claim the deduction. Larger businesses can apply for an accounting method change and either deduct remaining amortized costs in 2025 or spread the recovery across 2025 and 2026.

Planning note: The R&D deduction must be reduced by any R&D credit claimed. Foreign research remains on a 15-year amortization schedule. Before taking the full deduction, model the impact on other favorable provisions, particularly Foreign-Derived Deduction Eligible Income (FDDEI) and foreign tax credits, which are interrelated.

Section 163(j): Business Interest Deduction

For tax years ending after December 31, 2024, OBBBA restores the EBITDA-based limitation for calculating adjusted taxable income under Section 163(j). This replaces the less favorable EBIT-based limit that had excluded depreciation and amortization from the calculation.

For highly leveraged or capital-intensive businesses, this change meaningfully increases the amount of interest expense that can be deducted. Taxpayers with accumulated excess interest carryforwards should model their opportunity to use them.

Qualified Opportunity Zones Extended

OBBBA indefinitely extends the Qualified Opportunity Zone (QOZ) program, which was set to sunset at the end of 2026. Starting January 1, 2027, QOZ census tracts will be redesignated every 10 years. Capital gains will be deferred but recognized five years after the investment date, and a new Qualified Rural Opportunity Fund (QROF) designation has been added.

The extension comes with expanded reporting requirements and noncompliance penalties. Real estate investors and developers using the program will need tighter compliance infrastructure going forward.

Section 1202: Qualified Small Business Stock

OBBBA adjusts QSBS exclusion rules for stock sold or exchanged on or after January 1, 2025:

• The percentage of gain excluded is now indexed between 50% and 100% depending on holding period.
• The gross asset eligibility threshold increases from $50 million to $75 million.
• The per-issuer cumulative gain exclusion cap increases from $10 million to $15 million.

If a business exit or stock sale is under consideration, these changes could significantly affect the tax position. Timing, valuation, and issuer-level thresholds all matter.

Completed Contract Method Expanded for Contractors

OBBBA expands eligibility for the completed contract method of accounting to all residential construction contracts, removing the prior size-based restriction. If your construction business was previously ineligible due to gross receipts or contract type, it may now qualify and the resulting deferral of revenue and expenses until project completion could improve both cash flow and current tax liability.

Section 199A: Qualified Business Income Deduction Made Permanent

The 20% deduction for pass-through business income is now permanent under OBBBA. Phase-out thresholds have been revised for taxpayers who do not meet wage and capital investment tests or who are engaged in specified service businesses. This deduction remains one of the most significant tools for pass-through entity owners, and the new rules should be reviewed to confirm continued eligibility.

International: FDII Reformed as FDDEI

OBBBA replaces the Foreign-Derived Intangible Income (FDII) regime with the Foreign-Derived Deduction Eligible Income (FDDEI) regime, effective for tax years beginning after December 31, 2025. Key changes include:

• The deduction is reduced from 37.5% to 33.34% (yielding a 14% effective tax rate).
• Interest and R&D expenses are no longer allocated against FDDEI; only directly allocable deductions apply.
• The Deemed Return on Qualified Business Asset Investment (QBAI) is eliminated.

This is directly relevant to tariff planning. Onshoring production and using the U.S. entity as an exporter drives significant tax reduction under FDDEI. The exclusion of R&D from FDDEI allocation in 2026 also creates a planning opportunity to accelerate qualifying export income in 2025.

International: GILTI Renamed and Restructured

OBBBA renames GILTI as “Net CFC Tested Income” and makes several structural changes effective for tax years beginning after December 31, 2025:

• The deduction is reduced from 50% to 40%.
• 90% of foreign tax credits are allowable against this income.
• QBAI is repealed for GILTI calculations.
• Only directly allocable expenses apply for FTC purposes.

Taxpayers with CFCs should run side-by-side models to understand how these changes shift liability between 2025 and 2026.

State and Local Tax: The Layer Most Businesses Miss

Tariffs do not stop at the federal level. They have significant state and local tax implications that are frequently overlooked.

Sales and use tax: When a seller passes tariff costs to customers as a line item on an invoice, states generally treat that amount as part of the taxable sales price, even if separately stated. California, New Jersey, and Washington have all issued guidance confirming this position. Businesses that have been adding tariff line items to customer invoices need to verify they are collecting and remitting sales tax on those amounts. Conversely, when a business pays tariffs directly to CBP as the IOR, those payments are generally not subject to sales tax.

Use tax: Purchases from foreign suppliers often fall into the category of taxable purchases on which no sales tax was charged. Tariffs capitalized as part of asset cost may or may not belong in the use tax base depending on the state. Careful analysis can prevent significant overpayment.

Personal property taxes: Many states assess property taxes on fixed assets and inventory based on cost. Higher tariff-inflated costs can mean higher assessed values and higher tax bills. Investigate whether your state permits tariff costs to be excluded from the property tax valuation base, and whether Freeport exemptions may apply to inventory stored temporarily in the state.

If You Are Considering Onshoring Manufacturing

The decision to relocate manufacturing to the United States is both a tariff question and a state tax question. Businesses evaluating this move should consider:

• Entity structure: C corporations generally do not create nexus for their owners; passthrough entities often do. This matters significantly if you are establishing a new U.S. operating entity.
• State of incorporation: Delaware, Texas, and Wyoming are popular for business-friendly environments, but Delaware’s franchise tax can be substantial if entity capitalization is not structured carefully.
• Location selection: State tax rates, property tax levels, sales tax manufacturing exemptions, and available incentives, both statutory and negotiated, vary significantly. State and local incentives for capital investment and job creation have become highly competitive and should be modeled before a location decision is finalized.
• Nexus: Even if your new U.S. entity operates from a single state, the volume of sales to customers in other states can trigger filing obligations in those states. An upfront nexus analysis is advisable before operations begin.

Act Now — Favorable Provisions Do Not Last Forever

The energy credit provisions of the 2022 Inflation Reduction Act offer an instructive parallel: favorable tax provisions can be rescinded quickly as fiscal and political priorities shift. With the federal deficit exceeding $39 trillion and annual shortfalls running near $1.78 trillion, future administrations and Congresses will be under pressure to pare back these provisions.

The combination of restored bonus depreciation, R&D expensing, and a permanent 199A deduction represents a rare alignment of incentives that rewards domestic investment and production, which is precisely what a sound tariff response strategy requires. Businesses that model both the tariff and tax dimensions of their planning together will be better positioned than those that address them in isolation.

Part 1 of this series covers the IEEPA tariff refund process and the CAPE filing system. Part 2 covers 13 practical tariff mitigation strategies, from HTS classification and tariff engineering to transfer pricing and contract provisions.

To discuss how these developments affect your federal and state tax planning, contact David Zaiken at WebsterRogers LLP.