Business Deductions After the One Big Beautiful Bill Act (OBBBA)

​Jason Innerfield •

​The One Big Beautiful Bill Act (OBBBA), signed in July 2025, made changes to business expense deductions starting in 2025. Here is a quick overview of some of the changes and why they matter.

Business Interest Deduction

• What Is the Business Interest Deduction?
  • The business interest deduction lets businesses reduce taxable income by deducting interest paid on loans and other business debt, such as mortgages, lines of credit, or equipment loans. Under Internal Revenue Code Section 163(j), the deduction is generally limited to the sum of 30% of adjusted taxable income (ATI), plus business interest income, and for certain industries, floor plan financing interest. Any excess interest can be carried forward to future years.

 

• What Changed?
  • Adjusted Taxable Income (ATI) Calculation:
    • Pre-2022: ATI was calculated based on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), allowing businesses to add back depreciation and amortization expenses.
    • Post-2021: The calculation shifted to EBIT (Earnings Before Interest and Taxes), excluding depreciation and amortization, thereby reducing the amount of income available for the interest deduction.
    • OBBBA Restoration: The OBBBA permanently restores the EBITDA-based calculation for ATI, effective for tax years beginning after December 31, 2025. This change allows businesses to add back depreciation and amortization expenses, increasing the amount of income available for the interest deduction.
  • Small Business Exemption:
    • Pre-OBBBA: Businesses with average annual gross receipts of $30 million or less over the previous three years were exempt from the interest expense limitation.
    • OBBBA Adjustment: The Act keeps the small business exemption tied to the gross receipts test under Section 163(j). For 2025, businesses with average annual gross receipts under $30 million (inflation-adjusted, measured over the prior three years) remain exempt from the limitation.

 

• Who’s Eligible?
  • All businesses subject to Section 163(j) interest deduction rules. Those with average annual gross receipts under $30 million for 2025 (over the previous three years) are fully exempt from the interest limitation.

 

• Why It Matters:
  • Restoring EBITDA means businesses with significant depreciation and amortization expenses will be able to deduct more interest, lowering their taxable income. The higher exemption threshold helps more small businesses avoid these limits, providing tax relief, particularly for companies with substantial debt.

 
Business Meals

• What Changed?
  • Most business meals = 50% deductible (post-pandemic rules)
    • Our earlier post from May 15, 2023, “Meals and Entertainment … Are They Tax Deductible?” covers much of the same ground with the exception of the updates noted below, most guidance remains unchanged. You can read it here for a solid historical baseline and context.
  • Employer-operated facility meals and convenience meals will become 0% deductible beginning in 2026 under pre-existing law. The OBBBA did not create this change—it only introduced limited exceptions (e.g., for restaurant meals and certain industries).
    • Employer-operated facility means a dining location or eating area that is owned, controlled, and operated by the employer on the business premises. This includes places like company cafeterias, kitchens, or snack bars where the employer provides meals directly to employees.
    • Convenience meals generally refer to food and beverages provided by the employer for the employer’s convenience, such as meals furnished on the business premises so employees are available for overtime work, meals provided to keep employees on call, or snacks and food stocked in breakrooms or kitchens.

 

• What Meals Are Still Deductible?
  • Eligible meals include food and beverages provided to employees during business activities, such as client meetings, employee travel, or company events. To qualify, meals must be reasonable, directly related to the business, and either served on the employer’s premises.

 

• Why It Matters:
  • Less favorable treatment means it’s important to track and justify meal expenses. Businesses may need to revise their chart of accounts to separately capture meal categories for example, ensuring that “convenience meals” are recorded to a non-deductible account, so they aren’t mistakenly deducted. This added tracking will help avoid surprises in the event of an IRS exam and ensure only allowable meals are deducted.

 
Our team at Mason + Rich is here to help you navigate the changing deduction rules under the OBBBA and beyond. If you have questions about how these updates affect your business, feel free to give us a call at (603) 224-2000.