July 7, 2026 · AE Tax Advisors
For the past several years, business owners using C corporations have watched two of their most powerful tax tools slowly disappear. Bonus depreciation -- which let them immediately write off the full cost of equipment, software, and other assets -- was phasing down by 20% per year. And the ability to deduct domestic research and development costs immediately was replaced in 2022 with a mandatory five-year amortization schedule that forced businesses to spread their R&D write-offs over 60 months.
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, reversed both of those changes. For C corporation owners who understand how to use these tools, the timing creates one of the most favorable windows for business tax planning in years.
Under the Tax Cuts and Jobs Act of 2017, bonus depreciation allowed businesses to immediately deduct 100% of the cost of qualifying property -- equipment, machinery, certain software, vehicles, and improvements to nonresidential property. That 100% rate held through 2022, then began phasing down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and a full phase-out by 2027.
Separately, the TCJA changed the treatment of domestic R&D costs. Starting in 2022, businesses could no longer deduct R&D expenses in the year incurred. Instead, they had to capitalize those costs and amortize them over five years for domestic research or 15 years for foreign research. For technology companies, manufacturers, and any business investing in product development, this change created a significant and often unexpected cash tax burden.
The OBBBA fixed both problems. It retroactively restores 100% bonus depreciation to assets placed in service after January 19, 2025 and makes it permanent going forward. It also restores the immediate expensing of domestic R&D costs for tax years beginning after December 31, 2024, giving businesses the choice of deducting the full cost in the year incurred.
Pass-through entities -- S corporations, partnerships, and sole proprietors -- also benefit from these changes. But C corporations are uniquely positioned to use them strategically in ways that pass-through owners often cannot.
The core reason is the passive activity loss rules. Most real estate and equipment-heavy investments generate large deductions that are classified as passive. Pass-through owners can only use passive losses against passive income -- meaning a software company owner who buys $600,000 in equipment cannot always use that $600,000 deduction against their ordinary business income. The deduction gets suspended until they have passive income to offset it.
A C corporation does not have this problem. All income inside a C corporation is corporate income, and all deductions run against it. The corporation buys $600,000 in equipment and deducts $600,000 in the same year, period.
There is also the rate advantage. When a C corporation takes a $600,000 bonus depreciation deduction, it reduces income that would have been taxed at 21%. The immediate tax savings are $126,000 -- money that stays inside the corporation to fund growth. In a pass-through, the same deduction reduces income taxed at the owner's marginal rate, which is typically 32% to 37%. The pass-through actually gets a larger dollar savings per dollar of deduction, but only if the deduction is usable. If passive activity rules suspend it, the C corporation wins by a large margin.
Consider a manufacturing company operating as a C corporation with $2,000,000 in net income before deductions. In 2026, the company makes two investments: it purchases $800,000 in production equipment, and it spends $300,000 on domestic R&D for new product development.
Before the OBBBA, under the phase-down schedule, bonus depreciation would have been only 20% in 2026 -- meaning the company could immediately deduct $160,000 of the $800,000 equipment purchase and had to depreciate the rest over its useful life. The $300,000 in R&D would have been capitalized and deducted at $60,000 per year over five years.
Under the OBBBA, the picture changes dramatically. The full $800,000 equipment purchase is deductible in 2026. The full $300,000 in R&D is deductible in 2026. Total immediate deductions: $1,100,000.
Starting from $2,000,000 in income, the corporation deducts $1,100,000 and arrives at $900,000 in taxable income. At 21%, the federal tax bill is $189,000. Without the OBBBA, the same corporation would have deducted only $220,000 in combined deductions and paid tax on $1,780,000 in income -- a tax bill of $373,800. The difference is $184,800 in additional tax savings in a single year, purely from using the deductions the OBBBA restored.
The OBBBA also introduced a new provision that goes beyond equipment: a 100% deduction for qualified production property, which includes commercial and industrial structures associated with tangible production activities. This applies to buildings placed in service before 2031.
For manufacturing companies, food processors, distribution centers, and similar businesses, this is significant. A company that builds or acquires a $3,000,000 production facility can potentially deduct the full cost in the year it is placed in service rather than depreciating a commercial building over 39 years. At 21%, a $3,000,000 deduction generates $630,000 in immediate federal tax savings.
The rules around qualified production property have specific requirements, and the interaction with bonus depreciation and the existing cost segregation framework requires careful planning. For properties with a mix of production and non-production use, an engineering-based cost segregation study is often the right starting point -- the same approach used to accelerate depreciation on real estate investments more broadly, as covered in The Real Estate Tax Playbook.
The restoration of immediate R&D expensing under the OBBBA is particularly significant for C corporations in the technology and life sciences sectors, where R&D spending can represent a large portion of total operating expenses.
Under the five-year amortization rule that was in effect from 2022 through 2024, a company spending $1,000,000 per year on domestic R&D could only deduct $200,000 in year one. This created a situation where companies were paying tax on income they had already reinvested into product development. For early-stage technology companies with significant R&D investment and modest revenues, this created real cash flow pressure.
The OBBBA allows immediate deduction of domestic R&D costs for tax years beginning after December 31, 2024. For C corporations specifically, this deduction runs against the 21% corporate rate and can be carried forward if it creates a net operating loss -- there is no passive activity limitation to navigate.
The real power comes from combining these deductions with the C corporation structure itself. A C corporation paying the 21% rate has more room to absorb large deductions without the pass-through complications. Here is a realistic planning scenario for a professional services or technology business.
A C corporation earns $1,500,000 in net income. In that year, it pays $200,000 in deductible owner-employee compensation and benefits, leases $400,000 in equipment (purchased, not leased, to qualify for bonus depreciation), and invests $250,000 in software development that qualifies as domestic R&D. Total deductions in the year: $850,000. Taxable income drops to $650,000. Federal tax at 21%: $136,500. Effective tax rate on the original $1,500,000: about 9.1%.
In a pass-through with similar investments, the same $850,000 in deductions would reduce the owner's individual income, but the passive activity rules might suspend portions of the equipment deductions depending on the owner's involvement. The owner could also face self-employment tax on earned income that does not apply to C corporation retained earnings.
For a deeper look at how S corporation compensation planning compares, see The S Corp Tax Playbook.
Not every C corporation benefits equally from the OBBBA depreciation and R&D provisions. The businesses that benefit most share a few characteristics.
First, they make meaningful annual investments in equipment, machinery, vehicles, or technology infrastructure. A service business with minimal capital expenditures gets little from bonus depreciation. A manufacturing company or a logistics business buying trucks and equipment every year gets enormous value.
Second, they spend on domestic R&D -- product development, software engineering, testing, prototype manufacturing, or process improvement that qualifies under Section 41 of the tax code. The restoration of immediate expensing is essentially free money for businesses that were already doing this work and had been forced to defer their deductions.
Third, they have retained earnings inside the corporation rather than distributing everything to owners each year. The retained earnings strategy, combined with the 21% rate and these deductions, is the foundation of AE Tax Advisors' C corporation planning framework.
Service businesses, consulting firms, and professional practices that do not invest heavily in equipment or R&D will benefit less directly, though the interest deduction changes and other OBBBA provisions may still apply.
For C corporation owners, the practical steps coming out of this analysis are straightforward. Review planned capital expenditures for 2026 and accelerate purchases where it makes sense -- the 100% deduction applies to assets placed in service this year. Identify all domestic R&D expenditures and confirm they are being properly documented and categorized. If the company invested in R&D during 2022, 2023, or 2024 and amortized those costs under the now-repealed five-year rule, consult with a tax advisor about the available catch-up options. And model the interaction between these deductions and the retained earnings strategy to ensure the corporation is using capital at peak efficiency.
The OBBBA changed the calculus in meaningful ways, and the C corporations that update their planning accordingly will have a significant advantage over those that are still operating under pre-2025 assumptions.
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