On the 4th July of 2025 the president Donald Trump signed P.L. 119-21, also known by the name of “One Big Beautiful Bill Act” into law. The bill’s provisions affect technology companies through reinstatement of bonus depreciation, restructuring research and experimental (R&E) incentives and changes to Section 1202 qualified small-business stock (QSBS) rules, and the amendment of international tax regulations.
Explore more deeply the details of the 2025 final budget reconciliation bill using our in-depth analysis.
Key Tax Provisions Impacting Tech
1. Full Expensing for Infrastructure and Capital Investments
The bonus depreciation rate of 100% is now available to qualified properties that are placed in service after January 19th 2025. Companies can immediately deduct the entire amount of capital investment eligible which include servers, network equipment, laboratory instruments, and tools for software development.
For companies that are scaling AI (AI) infrastructure, semiconductor fabrication, as well as cloud-based computing platforms, this option can significantly increase the ROI of capital-intensive initiatives. It also promotes earlier investments in the next generation of technologies through reducing initial taxes.
2. R&E Capitalization Relief
The bill repeals the rule of 2022 which required companies to amortize section 174 R&E costs over five years. In 2025, companies can once again fully deduct these expenditures in the year they are incurred.
This can be particularly beneficial to tech companies involved in areas in which R&E costs can be very high or are frequently incurred, such as:
- Software Development
- Machine Learning Model Training
- Biotech Research
- Hardware Prototyping
The immediate reduction of domestic R&E expenditure improves cash flow, and also reduces taxable income, allowing funds to invest in new ideas.
Furthermore, companies can increase the domestic unamortized R&E costs until 2025 or spread them across two years, based on their strategic requirements. It is vital to keep in mind that taxpayers are still required to amortize and capitalize foreign R&E expenses over a period of 15 years.
3. Retroactive R&E Deductions for Small Businesses
Small businesses that are eligible, that is, those that have smaller than $31 million in annual gross revenue for the three prior tax years, the bill permits retroactive deductions for domestic R&E expenditures beginning in the tax year 2022 until 2024.
This presents a unique opportunity to amend tax returns for prior years to claim refunds of tax payments already made. It is important to remember that this is an option on the return, and for which currently there is no guidance and accounting method change.
Our advisory services will help you navigate the maze of determining eligibility, filing amending return, accounting technique adjustments and also coordinating to Internal Revenue Code (IRC) Section 280C in order to maximize the potential benefits.
There are many aspects to be taken into consideration in deciding whether to use the retroactive option. The nature of the entity is going to determine the complexity of the evaluation.
4. QSBS/Section 1202: A New Landscape for Startup Investment
The tax reform of 2025 makes significant modifications to section 1202 of the IRC that governs the tax treatment for qualified small-business stock (QSBS). In the past, Section 1202 allowed investors to exclude up to 100% of the capital gains (depending on the date of acquisition) when selling QSBS that were held for longer than five years. This is an incentive that was crucial in driving early-stage investment in technology startups.
For QSBS stocks that was acquired after July 4 2025, there’s a tiered structure for the gain exclusion based on the length of time the stock was held:
- For more than three years: 50% exclusion
- Four years or more: 75% exclusion
- Five years or more: 100% exclusion
Investors can receive certain exclusion benefits so provided that the shares eligible for exclusion are held for a minimum of three years. This may alter the calculation of return on investment and the speed at which founders and investors are able to begin selling their shares while still receiving good benefits.
Two other changes cover the total gain exclusion and the gross asset limitations for shares acquired after July 4, 2025, including:
- Gain exclusion cap per shareholders increased to $15million from $10 million
- The aggregate gross asset limit has been raised to $75 million from $50 million.
- The thresholds are both indexed to inflation beginning in 2027.
These adjustments only apply to shares that were issued after July 4, 2025. The provisions permit investors to enjoy a greater limit on the amount they can earn. They also raise the maximum amount of gross assets and, as a result, growing companies or those that grow too big may be allowed to issue QSBS yet again.
There are also planning opportunities associated with the change to the retroactive election to deduct the capitalized R&E amounts that could make companies fall back under the $50million cap in 2022 – 2024.
5. International Tax Adjustments: GILTI & FDII
The law also brings important changes to two tax rules that apply internationally:
GILTI (Global Intangible Low-Taxed Income)
A new title, “Net CFC Tested Income” (NCTI) will reflect the shift in taxation that currently applies to foreign intangible income, to creating the global minimum tax. The reduction in the deduction from 50% to 40% and the removal from the qualifying business asset investment (QBAI) reduction is expected to boost the offshore earnings of technology companies which are subject to U.S. tax.
However, more specific modifications to the cost of foreign tax credit allocation rules could result in a positive net outcome for companies in the field of technology. Therefore, it is recommended that technology companies consider what changes to the system that take effect in 2026 will affect their particular tax situation, since the effect of NCTI is not identical across all companies.
FDII (Foreign-Derived Intangible Income)
FDII is changed to foreign derived deduction eligible income (FDDEI) in the shift away from focusing on the export of intangible sources and expanding the scope of benefits to include firms with more tangible assets. Although the total deduction has been decreased from 37.5% to 33.34%, a lot of companies will nonetheless reap larger gains due to the elimination of QBAI reduction and decrease of certain expenses apportioned against FDDEI, which formerly reduced the benefit.
Technology-related companies need to examine what the changes to FDDEI rules will affect their specific circumstances and plans according to the new regime. International tax regulations are complex and have been changed drastically. It is crucial for businesses that have foreign subsidiaries or work abroad to prepare for these changes now before they take effect in 2026.
Your Guide Forward: Tax Planning for Technology Companies
The reconciliation bill of 2025 offers huge opportunities for technology companies to profit from the new and improved tax benefits. Businesses should take action quickly to take advantage of the benefit of 100% bonus depreciation and R&E expense deductions.
Companies can also begin planning using the upgraded Section 1202/QSBS benefits, and be ready for the adjustments to taxes for international transactions. Parr & Ibarra CPA in Keller, Texas is well-positioned to help tech companies navigate this exciting moment, from optimizing their tax strategies, to setting up tax structures to meet the needs of the future.
Call us today to find out how our experts can help you realize the full value of your investments in innovation.
