The OBBB: How to Factor Tax Law Changes Into Your Year-End Financial Statements
In July 2025, significant changes to the federal income tax rules were signed into law. While the OBBB primarily grabs attention from a tax compliance angle, they may also have significant financial reporting implications — even though some changes don’t go into effect until 2026 or later.
Businesses must address the effects of the changes under the One Big Beautiful Bill Act (OBBBA) in their 2025 financial statements. For many companies, that will be a complex task. Here are the details.
OBBBA business provisions
Companies’ financial statements must reflect the effects of new laws in the period they’re enacted, under the Financial Accounting Standards Board’s Accounting Standards Update No. 2009-06, Income Taxes (Topic 740). Public companies were required to assess the effects of the OBBBA changes in their third-quarter financial reports. However, most private businesses and not-for-profit organizations issue financial statements only at year end — and many haven’t yet fully assessed how the OBBBA will affect their tax outcomes for 2025 and beyond.
Key tax law changes for businesses under the new law include:
· Making permanent and, beginning in 2026, expanding the 20% qualified business income deduction for owners of pass-through entities (such as partnerships, S corporations and, generally, limited liability companies) and sole proprietorships,
· Permanently restoring 100% bonus depreciation for the cost of qualified new and used assets acquired and placed in service after January 19, 2025,
· Creating a 100% deduction for the cost of “qualified production property” for qualified property placed in service after July 4, 2025, and before 2031,
· Increasing the Section 179 expensing limit to $2.5 million and the expensing phaseout threshold to $4 million for 2025, with annual inflation adjustments going forward,
· Increasing the cap on the business interest deduction by excluding depreciation, amortization and depletion from the calculation of “adjusted taxable income” beginning in 2025,
· Permanently restoring the immediate deduction of domestic research and experimentation expenses beginning in 2025 (retroactive to 2022 for eligible small businesses),
· Making permanent the excess business loss limit for noncorporate taxpayers,
· Accelerating the termination dates for certain clean energy tax incentives, including the qualified commercial clean vehicle credit, the alternative fuel vehicle refueling property credit and the Section 179D deduction for energy-efficient commercial buildings,
· Permanently renewing the Qualified Opportunity Zone program,
· Permanently extending the New Markets Tax Credit,
· Permanently increasing the maximum employer-provided child care credit to $500,000 ($600,000 for small businesses) beginning in 2026, with annual inflation adjustments going forward,
· Making permanent and, beginning in 2026, modifying the employer credit for paid family and medical leave,
· Making permanent the exclusion for employer payments of student loans, with annual inflation adjustments to the maximum exclusion beginning in 2027,
· Making permanent the foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI) deductions and the minimum base erosion and anti-abuse tax (BEAT), and
· Expanding the qualified small business (QSB) stock gain exclusion for stock issued after July 4, 2025.
This list provides only a brief overview of the key business provisions under the OBBBA. To fully understand how the new law will affect your business, contact your Hood & Strong advisors.
Financial reporting requirements
Because of the OBBBA tax law changes, business owners will have to reassess 2025 estimated tax obligations. They may also need to adjust deferred tax assets and liabilities to reflect the changes. Under U.S. Generally Accepted Accounting Principles, these adjustments are recorded in income from continuing operations — even when related to items in other comprehensive income (OCI), such as pension adjustments, cash flow hedge gains/losses, or foreign currency translation.
In addition, private companies must disclose:
· The nature and effect of the new law on current and deferred taxes,
· Significant adjustments made in the period, and
· Other information needed to comply with Accounting Standards Codification Topic 740.
Sometimes, the effects of major tax law changes can’t be fully measured by year end. This can happen if management is still gathering data, updating systems or awaiting IRS guidance. In these cases, management must disclose why the amounts aren’t yet available and update the financial statements in future periods once the effects can be determined. Public companies may be required to provide additional disclosures.
Don’t delay
The OBBBA could affect both your company’s tax situation and its financial statements. Proactive planning is essential. Work with your Hood & Strong team to learn how the new law will impact your specific company. Some changes don’t go into effect until the 2026 tax year or later, but it’s possible the effects could spill over to your company’s 2025 financials.
