Consumer products and the OBBBA: Implications of tax changes

Consumer products companies face pricing pressures and tight margins that put a premium on strategic investments. When it comes to acquiring fixed assets and placing them into service, more favorable deductions can widen avenues for companies to expand their product mix, consumer segments or new sales channels.

How the OBBBA could affect the cost of capital for consumer products companies

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.

Qualified production property is defined as non-residential building property with a depreciable life of 39 years that is used integrally in qualified production activities and placed in service in the U.S.

The construction of such property must generally begin after Jan. 19, 2025, and before Jan. 1, 2029, with a placed-in-service date before Jan. 1, 2031. There is an ability for used property to qualify, but such property must not have been used in a manufacturing or production activity by any taxpayer between Jan. 1, 2021, and May 12, 2025.

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

Clean energy tax credits and incentives

On the other hand, the OBBBA curbs many clean energy tax credits and incentives associated with wind and solar power and electric vehicles, and it limits the transferability of credits. 

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

Consumer businesses should consider:

• Reviewing planned expansions and determining whether construction or acquisition timelines coincide with qualified production property eligibility dates.
• Performing a cost segregation study and repairs study concurrently with any planned improvement projects in order to properly classify shorter-lived property. Properly identifying asset classes and deductible repair costs is the best way to ensure the fastest recovery of capital expenditures.
• Making various depreciation-related elections (e.g., an election not to claim bonus depreciation) that can be used to increase taxable income in one year without imposing similar treatment in a future year. If used correctly, these types of elections can minimize current-year taxable income while preserving future deductions not limited by the 80% net-operating loss (NOL) utilization restriction.
• Modeling how various elections and the interplay of various business tax relief provisions would affect their tax positions in 2025 and future years. This could help a company determine whether it needs to update cash tax forecasts to take into account potentially smaller estimated payments in 2025.
• State and local tax incentives for capital expenditures that may be available for one jurisdiction over another. To the extent the expenditures create new jobs, there may be hiring or training grants/credits available.
• How phaseout dates and modified eligibility rules for clean energy projects affect their credit forecasting.
• State-level clean energy tax incentives that could be attractive alternatives to the curbed federal incentives.
• Carefully reviewing their organizational chart to determine whether influence or control by certain foreign entities renders them ineligible for various energy credits.
• Whether to accelerate certain clean energy projects to obtain the corresponding credit before it phases out.

As growth-minded consumer products companies have taken on debt in the wake of interest rate cuts, the unfavorable limit to deducting interest expense has handcuffed their ability to pursue crucial initiatives, such as fix equipment, manage inventory, enhance automation capabilities, improve products, update commercial space, hire talent and more.

How the OBBBA could affect debt financing for consumer businesses

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). It also expands floor plan financing rules and modifies elective interest capitalization rules, with phased effective dates starting after 2024 and 2025.

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

Consumer businesses should consider:

• How more favorable deductibility of business interest affects their investment and financing strategies.
• Modeling multiyear impacts of this provision to optimize tax outcomes, considering the staggered effective dates, economic changes, refinancing schedules, and elective capitalization of research costs.

As the U.S. economy shows signs of slowing, consumers are left to navigate a fragile economic landscape. Job growth is cooling, and tariffs are expected to continue weighing on prices in the second half of 2025. Against this backdrop, the OBBBA offers financial relief for some but creates financial strain for others. While the package aims to stimulate spending and ease tax burdens, its benefits appear to be unevenly distributed.

How the OBBBA could affect consumer behavior—and the implications for consumer products companies

The OBBBA provides tax relief for some individuals in the form of:

• Reduced federal income tax on tips and overtime wages
• Increased SALT deduction cap
• Expanded child tax credit
• Extended lower individual income tax rates
• Increased standard deduction

Those provisions are expected to increase take-home pay for millions of Americans, particularly middle-income families and service workers. According to the House Ways and Means Committee, the average family could see up to $10,900 in additional after-tax income, potentially boosting discretionary spending and consumer confidence.

However, the OBBBA also includes cuts to key safety net programs, such as the Supplemental Nutrition Assistance Program (SNAP) and Medicaid. Those reductions could tighten financial conditions for lower-income households, offsetting the benefits of tax relief and increasing economic strain.

As a result, while many consumers may enjoy short-term gains, others may face heightened hardship. The OBBBA’s impact, then, on consumer behavior will likely be mixed—stimulating spending for some, while deepening financial insecurity for others.

Consumer products companies should consider:

• How advanced analytics capabilities could help them understand target markets and the extent to which consumer demand may be impacted by the OBBBA, especially for households that may find themselves with additional discretionary funds.
• Leveraging promotions and campaigns targeted toward consumers seeking value as a result of tighter financial conditions.

The U.S. tax system incentivizes innovation and promotes global competitiveness through credits and cost recovery mechanisms intended to reduce the financial burden companies take on when they invest in new products and technologies.

Greater or more immediate deductions, for example, could free up cash for producers and resellers of consumer goods to fund new product development, technology innovation—including automation and artificial intelligence—and efficiencies to widen their operating margins.

How the OBBBA could affect innovation and R&D for consumer businesses

Tax treatment of R&D expenses

The OBBBA reinstates the ability for taxpayers to immediately recover costs of R&D (including software development) conducted domestically beginning in 2025, while keeping the 15-year amortization requirement for R&D performed outside the United States.

Small business taxpayers have the option to electively apply the law retroactively and amend prior tax returns or elect to treat as a method change, while other taxpayers must make an election to accelerate the costs over a one- or two-tax year period in the first tax year beginning after Dec. 31, 2024. The provision to expense domestic research costs is permanent.

U.S. international tax reform: Foreign-derived deduction eligible income (FDDEI)

The foreign-derived intangible income (FDII) regime—now known as FDDEI—was designed to incentivize businesses to conduct R&D in the U.S. by offering lower tax rates on income from U.S.-held intellectual property used abroad. Under the current framework, U.S. corporations conducting R&D domestically can benefit from two layers of incentives: the R&D credit and the FDII deduction.

The OBBBA includes changes that could increase the amount of foreign-derived income eligible for the FDDEI deduction, and it makes the FDDEI deduction more favorable for R&D-heavy companies.

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

Exclusions for small business stock

As consumer products companies contend with intense marketplace competition, elevated costs and economic uncertainty, innovation could take the form of a new product line. Relatedly, the OBBBA expands the scope and benefits of exclusions for small business stock, which are designed to incentivize investment in startups and small businesses. This could be an attractive benefit for a parent company looking to diversify its products.

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

Consumer businesses should consider:

• How their approach to R&D may change, given the immediate expensing of domestic R&D costs, including whether it makes financial sense to outsource R&D.
• How to leverage tax benefits related to R&D and innovation to enhance market positioning amid elevated costs, widespread uncertainty, and intense competition.
• Whether it makes sense to transition R&D to the U.S. from abroad, given that the OBBBA did not change the required 15-year recovery period for R&D conducted outside the U.S.
• Whether it makes sense for eligible small businesses to amend returns to claim immediate domestic R&D expensing or to deduct these costs over a one- or two-year period.
• The completeness and accuracy of their reporting for R&D tax credit claims. The IRS is requiring additional detailed project reporting on future tax returns and has announced it is more heavily scrutinizing R&D tax credits.
• How technology-enabled tax planning tools can help minimize the cost of capital deployment and R&D strategies by ensuring all OBBBA benefits are maximized, reducing administrative friction while maximizing the long-term value of available incentives.
• That accelerating the amortization of prior-year R&D expenses for federal tax purposes may not immediately reduce or eliminate significant state taxable income. After the Tax Cuts and Jobs Act was enacted in December 2017, the tax treatment of R&D expenses didn’t change until 2022. Now, with an immediate federal change, it remains to be seen how quickly states will react.
• Whether corporations would benefit from keeping or moving IP to the United States to achieve a lower effective tax rate on their export sales and services.
• How a newly formed business may qualify for exclusions for small business stock, and proactively documenting qualification such that dispositions beginning at the three-year mark are already well documented as at least partially qualifying.
• Monitoring the fair market value of a subsidiary’s assets in the context of QSBS, identifying when the potential to exceed the new higher asset threshold of $75 million is on the horizon, and taking on new investments prior to any value spike.

Events and market factors in recent years have exposed vulnerabilities in global supply chains, prompting companies to rethink their sourcing and manufacturing strategies and diversify their suppliers and manufacturing locations. In addition, ongoing trade tensions, shifts in U.S. tariff frameworks, and changes in industrial policies across jurisdictions are leading to a realignment of global trade flows.

Determining where to locate new distribution centers or factories, or how to optimize global footprint, is a complex and multidisciplinary process. Anticipating and responding to the tax and tariff impacts on existing business models and new scenarios are key to business strategy and decision-making.

How international tax reforms in the OBBBA could affect consumer businesses’ global footprint and supply chain

American competitiveness

Tax rates for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) were designed to encourage U.S. companies to keep intangible assets within the United States. Together, they aimed to balance American competitiveness globally with the federal government’s need for revenue. The OBBBA maintains the concepts but modifies FDII and GILTI by:

• Modifying the calculations
• Renaming to foreign-derived deduction eligible income (FDDEI) and net CFC tested income (NCTI), respectively
• Slightly increasing the corresponding effective tax rates (ETRs) and changing the foreign tax credit limitation

FDII, now FDDEI: The FDII deduction regime was 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 Organisation 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

Tariffs are separate from the OBBBA, but as they continue to be applied, they 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, impact export revenues if trading partners retaliate, and compel companies to further reconfigure their supply chains.

Consumer products companies should consider:

• U.S. international tax changes and the corresponding implications on their global footprint. Consumer products companies should pay particular attention to their supply chain and economic presence in foreign jurisdictions, as tariffs could significantly limit their cash flows. Additionally, they should be mindful of the global minimum tax.
• That an increase in the ETR on GILTI (i.e. NCTI) could affect the overall ETR on foreign activity and the company’s cash position.
• Although the United States has not adopted Pillar Two rules, U.S. multinational enterprises operating in countries that have adopted Pillar Two are subject to the GLoBE rules. They need to assess their exposure to the top-up tax and establish a robust reporting process. Compliance with Pillar Two will necessitate the aggregation of extensive global data and the execution of complex calculations.
• Updating transfer pricing strategies to optimize how much profit is subject to tax in various jurisdictions.  
• Importers may be able to capitalize on several well-established customs and trade programs to mitigate the effects of increased tariffs.
• Companies that source certain machinery from China should consider filing for a tariff exclusion.
• Importers should confirm the tariff classification codes they use are precise, as imprecise codes commonly result in unnecessary costs.
• Setting up foreign sales offices and distribution centers that participate in the sales of their export products. Such income could potentially increase their ability to utilize foreign tax credits.

Payroll administration in the restaurant, retail and hospitality sectors is complex due to high turnover, seasonal staffing and a mix of hourly and salaried roles. Businesses must navigate varying federal, state, and local tax rules, including tips and overtime. Accurate time tracking, worker classification, and compliance with reporting requirements—such as Forms W-2 and 1099—are essential.

 Many companies use third-party providers, making system integration and data accuracy critical for streamlined reporting and compliance.

How tax changes in the OBBBA could affect payroll administration and reporting

Federal taxes on tips and overtime compensation

The OBBBA reduces federal taxes on tips and overtime compensation income for taxpayers earning less than a certain threshold. Specifically, it introduces above-the-line deductions for 2025–2028 tax years, up to certain dollar amounts for tips ($25,000 per individual) and overtime compensation ($12,500 per individual or $25,000 for joint filers). The deductions phase out at certain levels of adjusted gross income.

Learn more about the technical changes to taxes on tips and overtime income and the implications for employers.

Employer-provided meals

The OBBBA provides relief from the meal expense deduction disallowance for certain restaurant employers. Specifically, it adds an exception for establishments that sell food and beverages to customers and also provide meals to their employees (e.g., restaurants). In the case where these exceptions apply, the deduction disallowance that becomes effective in 2026 will not apply to the food and beverage expenses.

These rules do not have an effect on the employee income treatment, but as the federal tax rules for meals are complex, most employers may want to review their positions taken for taxable income reported to employees and the deductions taken by the employer.

Learn more about the technical changes to taxes on employer-provided meals and the implications for employers.

Consumer products companies should consider:

• Updating payroll systems to reflect new federal income tax deductions for qualified tips and overtime, supporting accurate tracking and withholding.
• Revising Form W-2 procedures to continue reporting tips and overtime for withholding taxes, while clearly identifying them for federal income tax purposes.
• Communicating with employees about how the changes may affect their taxable income .
• Confirming eligibility for the new meal deduction exception and updating expense tracking or documenting support for the exception.