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Business and professional services and the OBBBA: Implications of tax changes

Services companies may save by aligning tax changes with business objectives

July 30, 2025
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Law firms Business services Federal tax Accounting & consulting Professional services Transfer pricing International tax
Business tax Tax policy Architecture & engineering M&A tax services

Executive summary: Tax relief for business and professional services companies and their owners

The One Big Beautiful Bill Act (OBBBA) introduces significant tax changes that could affect the following key business issues for BPS companies:

  • Debt: Restored favorable interest deduction limits may improve cash flow and borrowing capacity, especially for private-equity-backed firms.
  • Innovation and R&D: Several domestic and international tax reforms incentivize U.S.-based innovation and investment in new service lines.
  • Capital expenditures: Permanent 100% bonus depreciation for qualifying property encourages investment in technology, infrastructure and productivity-enhancing assets. It also increases the importance of lease-vs.-ownership analyses of large fleets.
  • Mergers and acquisitions: Business tax relief provisions, modified tax benefits and international tax reforms combine to create opportunity and complexity in an active M&A environment. It is critical for buyers and sellers to work with M&A specialists when material tax attributes—such as capitalized R&D costs and/or carried-forward disallowed business interest deductions—exist on the target’s balance sheet.
  • Entity structure: Changes to international tax rules and permanence of a popular deduction may shift the calculus between pass-through and C corporation structures.
  • Workforce: New overtime provisions present communication opportunities with employees, potential changes to payroll systems, and new payroll tax compliance challenges.
  • SALT planning for owners: A temporary increase in the SALT cap and preserved PTET rules offer planning opportunities for high-income owners.
  • Global footprint and supply chain: U.S. international tax reforms and tariff considerations may influence IP location, transfer pricing, and sourcing strategies. Pay particular attention to AI data centers for potential exemptions.
  • Energy-efficient design and construction: The termination of a crucial clean-energy deduction after June 2026 may compel architecture firms and engineering firms to accelerate project timelines.
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Law firms Business services Federal tax Accounting & consulting Professional services Transfer pricing International tax
Business tax Tax policy Architecture & engineering M&A tax services

Business and professional services companies and their owners face a combination of enhanced tax benefits and business challenges stemming from tax provisions in the OBBBA. Now that companies have a tax policy roadmap for the foreseeable future, here is a closer look at key OBBBA tax items and how they could affect BPS companies.

Debt: Business interest expense limitation

The OBBBA returns to the original Tax Cuts and Jobs Act calculation for business interest expense limitations. It allows the addback for depreciation, depletion and amortization to the adjusted taxable income calculation, effectively allowing deductions up to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). This provision is permanent.

Learn more about the technical changes to the business interest expense limit under section 163(j) and the implications for businesses.

What it means for BPS companies

For BPS companies—especially those backed by private equity or operating with high leverage—this change may significantly improve cash flow and borrowing capacity. Businesses that previously faced constrained interest deductions may now find it easier to finance growth, acquisitions or technology upgrades.

The restored favorable limitation also enhances deal modeling. With EBITDA as the benchmark, buyers may better assess how much leverage a target can support, and sellers may demonstrate stronger adjusted earnings to justify valuation. This clarity is particularly valuable in sectors such as consulting, IT services, and engineering, where intangible assets and amortization commonly distort EBIT-based metrics.

Innovation: Research and development expenses

The OBBBA makes domestic R&D costs fully deductible on a permanent basis, starting with 2025. Foreign R&D spending is still amortized over 15 years.

Qualified small businesses may be able to apply full expensing retroactively to accelerate deductions for expenses currently being amortized.

Learn more about the technical changes to the tax treatment of R&D expenses and the implications for businesses.

What it means for BPS companies

While BPS companies may not always identify as R&D-intensive, this change may represent a compelling incentive for those engaged in work such as software development, technical consulting or engineering design.

The ability to immediately expense domestic R&D costs can significantly improve after-tax cash flow, freeing up capital for reinvestment in innovation, workforce development or digital transformation. The change to immediate expensing for R&D conducted in the U.S., while maintaining the 15-year amortization requirement for R&D conducted abroad, may have U.S. BPS companies reconsidering their ratio of U.S.-to-foreign R&D spending.

Capital expenditures: Bonus depreciation

The OBBBA introduces significant changes to 100% bonus depreciation, making it permanent for most property acquired after January 19, 2025, and establishing a new temporary allowance for qualified production property.

Learn more about the technical changes to bonus depreciation and implications for businesses.

What it means for BPS companies

Restored bonus depreciation could improve after-tax cash flow and simplify capital planning—especially for companies investing in advanced technology and infrastructure, including new equipment, software, large fleets and office improvements.

By allowing immediate expensing, businesses can avoid complex multiyear depreciation schedules and more easily forecast the tax impact of capital investments. This is particularly valuable for companies operating large vehicle fleets, data centers or proprietary IT systems, in which capital outlays are significant and recurring.

The permanence of the bonus depreciation provision also renews the importance of lease vs. purchase analysis and/or negotiating with lease companies to capture the bonus depreciation benefits.

Exclusions for qualified small business stock (QSBS)

The OBBBA expands the gain exclusion rules for the sale of qualified small business stock (QSBS), mainly through the following three changes applicable to QSBS issued after July 4, 2025:

  • Provides a tiered exclusion: Allows taxpayers a 50% exclusion for shares held more than three years, a 75% exclusion for shares held more than four years, and a 100% exclusion for shares held more than five years.
  • Increases per-issuer limitation: Raises the per-issuer gain exclusion cap from $10 million to $15 million (indexed for inflation) while still leaving available the 10-times-basis limit if greater.
  • Increases corporate-level gross asset threshold for qualification: Increases the gross asset threshold from $50 million to $75 million (also indexed for inflation).

Learn more about the technical changes to the exclusions for small business stock and the implications for businesses.

What it means for BPS companies and investors in them

Individuals or private equity firms with original investments in eligible services companies now have a much more difficult decision to make when formulating a long-term legal entity structure for qualified investments below $75 million. Legal entity choice modeling may lead to more favorable after-tax ROI forecasts operating as a C corporation versus a flow-through structure.

Qualified business income (QBI) deduction

The OBBBA makes permanent the QBI deduction at the current 20% rate. Certain pass-through entities are eligible. This was a temporary provision in the TCJA that was set to expire after 2025.

Learn more about the technical changes to the QBI deduction and the implications for businesses.

What it means for BPS companies

The deduction puts pass-throughs in parity with corporations, so it generally rewards BPS firms that get other benefits from operating as pass-throughs.

Although this is not a departure from prior law, taxpayers who may have planned around the scheduled expiration of the QBI deduction can retool with more certainty around significantly reduced taxable income.

Overtime wages

The OBBBA creates a new individual income tax deduction for qualified overtime pay. Employers will need to consider wage eligibility, reporting requirements, and implications for payroll administration.

The “No tax on overtime” provision authorizes eligible individual workers to deduct qualified overtime pay from their federal taxable income for 2025–2028, but Social Security and Medicare taxes still apply. Thus, employers will still have to withhold employment taxes for their employees who receive overtime.

Learn more about the technical changes to deductions for overtime wages and the implications for businesses.

What it means for BPS companies

Professional services companies should maintain current employment tax practices while preparing for increased employee interest in tracking eligible compensation. Employers must separately identify overtime wages on Form W-2, which may require payroll system and withholding table updates. For business services employers, the deduction introduces administrative burdens, with caps and income-based phaseouts requiring clear employee communication.

Qualifying tips are restricted to occupations customarily tipped, as defined by the U.S. Department of the Treasury, adding complexity for firms with varied roles. Employers should anticipate system upgrades and train payroll teams to handle new reporting formats. These changes offer a chance to improve compensation transparency but demand swift operational adjustments to ensure compliance.

State and local tax deduction limitation (SALT cap) and pass-through entity tax (PTET) deduction

The OBBBA raises the SALT cap to $40,000 beginning in 2025 through tax year 2029, after which it will revert to $10,000. The limitation is phased down for taxpayers with modified adjusted gross income (AGI) over $500,000 for the same period. Both the limitation and the modified AGI threshold are increased by 1% each year through 2029.

Meanwhile, the OBBBA makes no changes to the deductibility of PTET by a pass-through entity, what types of taxpayers can make state PTET elections, or the ability of taxpayers to make state PTET elections.

The final legislation omitted some proposals that would have severely restricted the ability of certain professional services businesses to benefit from PTET regimes. The omitted proposals could have had significant negative impacts on after-tax cash flows for business owners.

Learn more about the technical changes to the SALT cap and the implications for taxpayers.

What it means for BPS firm owners

Owners have a window to reduce federal tax liability on state income taxes. This is especially relevant for owners in high-tax states, especially partners and shareholders in law firms, consulting practices and other professional services entities with high personal income. Meanwhile, the unchanged deductibility of PTET remains a valuable tool for managing state-level tax exposure.

U.S. international tax reforms and tariff policy

American competitiveness: Tax rates for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) were initially designed to encourage U.S. companies to keep intangible assets and the associated profits within the United States. Together, they aim to balance American competitiveness globally with the federal government’s need for revenue.

The OBBBA maintains those concepts but modifies FDII and GILTI by:

  • Modifying the calculations to remove exclusions based on fixed asset investment and soften expense allocation requirements
  • Slightly increasing the corresponding effective tax rates (ETRs) and changing the foreign tax credit limitation
  • Renaming to foreign-derived deduction eligible income (FDDEI) and net controlled-foreign-corporation-tested income (NCTI), respectively

FDII, now FDDEI: The FDII deduction regime is designed to encourage U.S. corporations to retain high-value functions, such as intellectual property ownership and sales operations, within the U.S. by offering a reduced ETR on income earned from exporting goods and services to foreign markets.

GILTI, now NCTI: NCTI is the closest domestic tax regime to an income inclusion rule (IIR) under the Organization for Economic Co-operation and Development’s (OECD) Pillar Two framework. On June 28, 2025, the G7 recognized that the U.S. minimum tax architecture, namely the NCTI regime and the corporate alternative minimum tax (CAMT), provides a functionally equivalent response to the OECD’s Pillar Two tax, sufficiently close in substance to avoid additional top-up taxes under OECD rules.

Profit shifting and base erosion: The base-erosion and anti-abuse tax (BEAT) is a minimum tax designed to prevent large multinational corporations from avoiding U.S. tax liability by shifting profits abroad. The OBBBA permanently lowered the scheduled BEAT rate from 12.5% to 10.5% and eliminated the unfavorable treatment of certain credits that could be applied against regular tax liabilities after Dec. 31, 2025. 

Learn more about U.S. international tax reforms in the OBBBA.

Tariffs: How tariffs continue to be applied could have profound implications for U.S. importers specifically and the economy in general. Depending on the details, increased tariffs could increase companies’ sourcing costs, affect export revenues if trading partners retaliate, and compel companies to further reconfigure their supply chains.

For example, many architecture firms and engineering firms building AI data centers have seen significant price increases, which they are compelled to pass on to customers. Consulting with tariff subject matter experts can in many cases produce refunds, reduce tariffs and/or even eliminate tariffs on a go-forward basis.

What it means for BPS companies

The OBBBA’s international tax reforms—particularly the shift to FDDEI and NCTI—offer BPS firms new incentives to retain intellectual property and high-value functions within the U.S. For companies with cross-border operations, this means greater complexity in modeling effective tax rates and managing foreign tax credit limitations. Firms that export U.S.-developed services or hold intellectual property domestically may still benefit from preferential rates, but the margin of advantage has narrowed.

Meanwhile, tariffs have raised costs for imported materials and equipment for some businesses, such as architecture and engineering firms building AI data centers. These companies face pressure to reconfigure supply chains, reassess sourcing strategies, and explore exemptions or incentives—such as duty draw-backs and/or state-level credits—to offset rising costs and preserve profitability.

Deduction for energy-efficient commercial property

The OBBBA terminates the section 179D deduction for energy-efficient commercial buildings for property of which construction begins after June 30, 2026.

Learn more about the technical changes to clean energy tax credits and incentives and the implications for businesses.

What this means for architecture firms and engineering firms

Federal tax incentives have helped architecture firms offset design costs for energy-efficient buildings by allowing them to claim tax benefits when working on government-owned or nonprofit projects. Engineering firms have similarly benefited by receiving allocations of the deduction from nonprofit entities, especially when their work directly contributes to reduced energy consumption in HVAC, lighting or building envelope systems.

Termination of the deduction may reduce architecture firms’ and engineering firms’ financial incentive to prioritize energy-efficient design features unless clients are willing to absorb the full cost. Firms may assess current and upcoming energy-efficiency design and construction projects to determine which can begin before the June 30, 2026, deadline to preserve eligibility. Similarly, if they have incorporated these savings into their pricing, they will need to consider whether to adjust pricing going forward after the law change.

Adapting to OBBBA changes: Next steps for BPS companies

OBBBA tax provisions represent significant opportunities for BPS companies, but they come with eligibility rules and planning considerations. Companies can work with their tax advisor to align their business objectives to OBBBA changes by taking the following steps:

  • Review your capital investment, R&D and financing plans to align with the new incentives.
  • In any transaction, work with an M&A specialist on either the buy- or sell-side when material attributes exist on the target’s balance sheet.
  • Examine your global structure to understand how U.S. international tax reforms could change how your global tax profile aligns with your business objectives.
  • Model your tax position under the new rules to identify savings opportunities. Leveraging tax technology can enhance modeling precision, streamline compliance workflows, and improve visibility across capital, R&D, and international tax positions—ultimately supporting more agile and informed decision-making. RSM has designed a modeling tool that can be customized to any business to allow forecasting various scenarios available to taxpayers as a result of the OBBA changes.

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