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What the One Big Beautiful Bill Act Means for Tech Companies: R&D, QSBS and More

In this spotlight episode, Ashley Rowland, Tax Partner, breaks down the OBBBA for tech-focused businesses. From unlocking deductions on R&D expenses to game-changing updates for Qualified Small Business Stock and interest expense limitations, Ashley unpacks how the legislation offers long-awaited relief and powerful new planning opportunities. If you’re a tech entrepreneur, VC-backed startup or just trying to navigate the latest tax landscape, this insight-packed rundown is one you won’t want to miss.

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The Tax Shift in Tech: R&D Relief, Stock Incentives and Smarter Financing

In July, a sweeping piece of legislation H.R.1, also known as The One Big Beautiful Bill Act (OBBBA), made waves across industries — but none more so than the technology sector. With new provisions addressing research and development, stock holdings and interest deductions, this bill reshapes how tech companies approach both operational and financial strategy.

These updates can change the game for startups, growth-stage companies and PE-backed firms. Here’s a breakdown of what you need to know — and why it matters.

1. R&D Expenditures: A Return to Deductibility

Previously, the Tax Cuts and Jobs Act (TCJA) required companies to capitalize R&D expenses starting in 2022 — a shift that imposed substantial tax burdens on innovators who reinvest their cash into product development.

Now, businesses can once again expense domestic R&D costs immediately, relieving pressure on cash-strapped tech firms. Key highlights:

  • Domestic R&D costs can now be deducted in full
  • Foreign R&D costs must still be capitalized over 15 years

Options available to taxpayers include:

  1. Immediate deduction in the 2025 tax year
  2. Retroactive refunds via amended returns (for small businesses with $31 million or less in gross receipts)
  3. Continuation of amortization for capitalized expenses from 2022–2024

Considerations: Amending federal and multi-state returns can be expensive and time-consuming. Businesses must weigh the potential refund against the complexity and cost of filing amended returns across jurisdictions.

2. Qualified Small Business Stock (QSBS): More Generous Exemptions

Tech companies often leverage Section 1202 to offer tax-efficient equity to early investors. Under the new bill, these benefits are significantly expanded.

ProvisionOld LawNew Bill
Holding Period5 years (100%)Phase-in: 3 yrs (50%), 4 yrs (75%), 5 yrs (100%)
Lifetime Exemption$10 million$15 million
Gross Asset Limitation$50 million$75 million

These updates enhance flexibility, improve fundraising appeal, and allow investors to plan with greater tax confidence.

3. Interest Expense Deduction: Back to EBITDA

The TCJA limited interest expense deductions under Section 163(j) using a metric that excluded depreciation and amortization. The new bill reinstates a tax-based EBITDA calculation:

  • More addbacks mean more deductible interest
  • Ideal for VC- or PE-backed firms with leverage exposure

This change is especially impactful for tech companies that rely on debt financing or undergo leveraged buyouts — increasing after-tax profitability.

Operational Impacts: Domestic Sourcing of Tech Services

While domestic R&D is now fully deductible, foreign R&D remains subject to capitalization. As a result, companies may benefit from shifting technology support and software development to US-based providers.

This not only improves deductibility but also boosts eligibility for R&D tax credits — offering financial and operational advantages for companies with flexibility in outsourcing.

Planning for an Uncertain Future

Though the new law brings immediate opportunities, its longevity is uncertain. That’s why forward-thinking tax planning is essential.

Takeaways:

  • Initiate strategic discussions with your tax advisor
  • Develop actionable plans around current provisions
  • Assess amendment costs, timelines, and return on investment
  • Reevaluate outsourcing strategies and capital structures

At FD, our mission is to turn tax compliance into competitive advantage. By anticipating regulatory shifts and tailoring guidance to the goals of each client, we empower tech businesses to scale with precision and confidence.

Need a single source for all things OBBBA?

Explore our OBBBA Resource Hub for the latest analysis, guidance and tools to help your business stay ahead.

Our Speaker:

Ashley Rowland, Partner, Frazier & Deeter Advisory, LLC

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