How your small business can save more money through the One Big Beautiful Bill Act

    The opinions of contributing entrepreneurs are their own.   </p><div>

With nearly 900 pages and more than 100 tax-related provisions, HR1, the One Big Beautiful Bill Act, which was signed into law on July 4, 2025, has a number of important changes for small businesses. Changes to wage, employment tax and employee benefits are among the most important provisions of the law, some of which will take effect retroactively from January 1, 2025.

While the Treasury Department and the IRS are expected to issue further guidance on implementing certain provisions, there are steps small businesses can take now to prepare for potential impacts.

Tax credits for benefits

For small businesses competing for talent, a comprehensive benefits strategy can help and often go a long way in helping employees feel valued. The latest benefits data from ADP shows that 78% of employees say they feel valued by their employer for the medical benefits offered, while an even higher percentage (82%) feel valued for the non-medical benefits their employer offers. When looking for opportunities to expand employment benefits, keep the following changes in mind:

• Improved childcare credit: For small businesses, the law increases employer tax credits for qualified expenses for employer-provided child care. Covered costs generally include employer direct payments to qualified child care facilities or caregivers, costs of starting and operating on-site child care, and a more limited credit for child care referral services. Additionally, the law allows small businesses to pool their resources to provide childcare to their employees and for companies to use a third-party intermediary to facilitate childcare services on their behalf.

• Increased paid credits for family and medical leave: The employer tax credit for paid family and medical leave benefits would expire at the end of this year. The law makes the credit permanent. The law also reduces the required length of employment for eligibility from one year to six months, increasing the number of employees covered by the scheme. Beginning in 2026, employers can also take a credit for amounts paid as premiums for eligible insurance policies that pay employee wages for family and medical leave.

Related: 20 Tax Deductions Online Businesses Can Take to Save Thousands

Opportunities to offset R&D costs

As small businesses look for ways to increase flexibility and differentiate the products and services they offer customers, opportunities arise to help offset the costs associated with research and development (R&D).

• Extensive domestic R&D deduction: Instead of writing off research and development costs over several years, the law allows companies to immediately deduct domestic R&D expenses starting in 2025. (R&D conducted outside the US is still depreciated.)

Small businesses (with average annual gross revenues of $31 million or less) will generally be able to retroactively claim domestic R&D costs incurred after December 31, 2021. The retroactive deductions can also be used as a catch-up deduction in 2025, spread over tax years 2025 and 2026, or the company can file amended tax returns for the applicable years. To be eligible, changes must be submitted by July 4, 2026. The law also includes rules to coordinate the immediate deductibility of R&D costs with the federal research and development tax credit.

Prepare for income tax changes

In addition to changes in business tax, there are some important personal tax provisions in the law that may affect payroll and deductions. Small businesses should prepare for the following changes, which may impact record keeping and require employee communications:

• New deductions for qualified overtime and tips: Overtime pay required by the federal Fair Labor Standards Act is deductible up to $12,500 (or $25,000 if you file a joint tax return). Only the premium portion of overtime is deductible. For example, if an employee’s regular wage is $10/hour and he/she receives $15/hour for overtime, only the $5 overtime premium is eligible for the deduction. Additionally, the new deduction for tip income is up to $25,000, including tips received in cash, charged, or received under a tip sharing arrangement. In all cases, tips must be voluntary (meaning mandatory service charges are not deductible). The tips must be received in an occupation that habitually and regularly received tips as of December 31, 2024 – a proposed list of these occupations has been released by the IRS. Certain professions – typically those that are recognized as a specific service sector or business, or SSTB, are not eligible for the tip deduction. Both deductions apply only to federal income taxes and are phased out when a taxpayer’s modified adjusted gross income exceeds $150,000 (or $300,000 if filing jointly). Additionally, both deductions are retroactive and can be applied for the entire 2025 tax year.

To assist with any record-keeping challenges, the law provides a transition rule that allows for reasonable accounting measures to calculate eligible deductions for 2025. Due to the retroactive approval of these deductions for 2025, the Treasury Department has released guidance stating that employers and payers are not required to provide employees and beneficiaries with estimates of qualified overtime and cash tips for 2025, but are encouraged to do so.

Separate guidance was issued in late November to help individual taxpayers estimate their 2025 deductions by describing how they can use work-related documents, such as payroll statements and IRS forms, to derive their amounts of deductible overtime and tips if that information is not provided by their employer or payer. The Treasury Department and the IRS are also expected to release final guidance on tipped occupations and qualified tips, as well as guidance for employers and payers on supporting these deductions for 2025. 2026-28.

Related: Switching to a C Corp Can Save Your Business Thousands – Here’s How

Stay focused on business growth

Staying abreast of complex regulatory changes requires both proactive monitoring and reliable support. Accountants and trusted service providers can help interpret new regulations, provide guidance on appropriate actions, and help identify relevant tax credit opportunities that could benefit your business.

As further guidance is issued for HR1, and as with all tax matters, you should work with your trusted tax advisors to stay informed of new requirements specific to your business. Having technology that monitors regulatory updates and integrates changes directly into payroll and HR workflows can help reduce risk and also enable continuity.

Because small business owners are often pulled in many directions, building a strong support system—from the solutions you use to the advisors you engage—can help you stay focused on strategy and business growth.