Businesses that spend heavily on research and experimentation are likely to benefit from what some experts are saying is perhaps the biggest change in tax policy for the 2025 tax year.
It’s one of a few changes in the tax code, much of which emanates from the passage of what Republicans dubbed the “One Big Beautiful Bill” they passed last year.
In this particular change, businesses involved in research and experimentation are now allowed to capture those expenses and can deduct them 100%. Previously, businesses had to capitalize those expenses and write them off over a period of five years.
“So if I’m a business and I spend $1 million on research and experimentation prior to 2025, I had to take that million dollars, park it on my balance sheet, capitalize it, and write that million dollars off over five years,” explained Staci Rewalt-Kolasa, director of business tax for Troy-based DKSS CPAs + Advisors (they also have an office in St. Clair Shores). “So if I spent a million dollars in 2024, I only got to deduct $200,000 for the next five years. That’s bad.
“Now with 2025, with the One Big Beautiful Bill, I get to take that million dollars and deduct it all this year,” she added. “It’s an additional $800,000 deduction that now I can take advantage of this year.” Expenses that were on the books prior to 2025 can now be written off in total in 2025 or 2026.
Jen Gunn, Managing Director, Business Incentives & Tax Credits at BDO USA, one of the largest accounting and professional services firms in the country, and Andrea Collins, BDO’s Tax Managing Director, State and Local Tax, explained there’s another impact that comes with the Michigan R&D credit.
“Because it is refundable, taxpayers who haven’t historically claimed the federal R&D credit—or who have been in a loss position—should reassess this opportunity, as they may realize a benefit,” Gunn said. “The credit is available to all taxpayer types and can help offset some of the increased tax resulting from Michigan’s decoupling from the OBBBA.”
Rewalt-Kolasa said the obvious benefit comes in the time value of the investment. Instead of getting the tax benefit from the investment in five years, it comes now.
“So really I’m saving the tax now instead of saving the tax in smaller chunks over the next five years,” she said. “It helps companies pay for the cost of research by giving them that deduction now.”
Another change comes in the calculations and deductibility of depreciation. Much like the research deduction, a change this year allows businesses to recoup the depreciation in one year, rather than waiting the seven years that were previously required.
“If I buy this table for $1,000, the IRS says you have to park it on your balance sheet and you have to write it off over a period of seven years,” Rewalt-Kolasa said. “There’s something called bonus depreciation that the IRS is reinstating 100% depreciation that says you can write this whole thing off this year.”
Another change comes in the area of charitable contributions. Normally businesses could make donations to charities and could write off all of it up to a ceiling of 10% of the company’s income. Now there’s a 1% floor.
According to Rewalt-Kolasa, “there’s a possibility that companies are going to make charitable donations that they’re not going to get any tax deduction for if they don’t watch that.”
BDO’s Gunn and Collins point out that, while changes in the tax code derive from the One Big Beautiful Bill Act, not every state is buying them lock, stock and barrel. For example, they point out, Michigan has “decoupled” from all major business taxpayer-friendly provisions included in the OBBBA.
Michigan’s legislature evaluated the negative impact of many OBBBA changes on state revenue and its budget and in fall 2025, decoupled from certain OBBBA-related IRC provisions — effective for tax years beginning after December 31, 2024—treating those federal changes (e.g., Sections 174A, 168(n), etc.) as though they do not exist for Michigan income tax purposes.
“This decoupling could lead to underpaid estimated taxes and unexpected state income tax liabilities, both in Michigan and potentially across other states, as state governments attempt to balance budget requirements with the taxpayer-friendly provisions of OBBBA,” Gunn and Collins wrote in a statement to Corp! Magazine. “Another layer of complexity this creates is the additional administrative burden for taxpayers attempting to track even more state-level modifications and carryovers due to decoupling from various OBBBA provisions.”
It’s important to note, they said, that the uncertainty around conformity is much higher with OBBBA than under the Tax Cuts and Jobs Act (TCJA), which largely increased state revenues, incentivizing many states to conform.
“Since many business provisions of the OBBBA have the opposite effect, even jurisdictions that previously followed federal changes are selectively decoupling,” Gunn and Collins wrote. “Nowhere is the conformity debate more visible than in the District of Columbia. The standoff related to conformity between DC Council (attempted to decouple) and Congress (attempted to override this using the Home Rule Act to force conformity) highlights the growing tension between federal policy goals and local revenue needs.”
Collins and Dunn said one of the most important things businesses need to know about this tax season is that, while Michigan issued early guidance regarding decoupling, the related forms were not updated (only the instructions).
“In some states, taxpayers are being advised by the state tax department (and likely their preparers) to file for extensions because it’s still unclear whether those states will conform or decouple,” they said. “The key takeaway is that state conformity remains uncertain, so careful planning is especially important this tax season.”
DKSS’s Rewalt-Kolasa said the biggest thing business leaders need to know is to avoid trying to navigate the system by themselves.
“You probably can’t do it alone.,” she said. “They always say check with your tax advisor.”
BDO’s Gunn and Collins agree that’s good advice.
“One question we keep getting is how taxpayers should manage the uncertainty when deadlines approach,” they said. “BDO recommends working with an experienced and trusted advisor to make the best determination based on the information available at the time of filing.”
