How the 2025 Tax Reform Impacts the Technology Industry

Article

August 12, 2025

On July 4, 2025, President Donald Trump signed P.L. 119-21, commonly referred to as the “One Big Beautiful Bill Act,” into law. Many of the bill’s provisions impact the technology industry through the reinstatement of bonus depreciation, restructured research and experimental (R&E) incentives, the revision of Section 1202 qualified small business stock (QSBS) rules and amended international tax rules.

Take a deeper dive into the provisions of the 2025 final budget reconciliation bill with our detailed analysis.

Tax Reform Impact on Tech: Key Provisions

1. Full Expensing for Infrastructure and Capital Investments

100% bonus depreciation is now available for qualified property placed in service after January 19, 2025. This allows companies to immediately deduct the full cost of eligible capital investments — including servers, networking equipment, lab instruments and software development tools.

For firms scaling artificial intelligence (AI) infrastructure, semiconductor fabrication or cloud computing platforms, this provision can dramatically improve the return on capital-intensive projects. It also encourages earlier investment in next-generation technologies by reducing upfront tax costs.

2. R&E Capitalization Relief

The bill reverses the 2022 rule that required businesses to amortize Section 174 R&E expenses over five years. Beginning in 2025, companies can once again fully deduct these expenditures in the year they are incurred.

This change is particularly beneficial for tech companies engaged in activities where R&E costs can be high or incurred frequently, including:

Software Development
Machine Learning Model Training
Biotech Research
Hardware Prototyping

The immediate deduction of domestic R&E spending improves cash flow and reduces taxable income, freeing up capital for reinvestment in innovation.

Additionally, companies can accelerate the unamortized domestic R&E costs into 2025 or spread them over two years, depending on strategic needs. It is important to note that taxpayers are still required to capitalize and amortize foreign R&E expenditures over 15 years.

3. Retroactive R&E Deductions for Small Businesses

For eligible small businesses — defined as those with less than $31 million in average annual gross receipts for the prior three tax years — the bill allows retroactive deductions of domestic R&E expenditures from tax years 2022 through 2024.

This creates a unique opportunity to amend prior-year tax returns to claim refunds on taxes already paid. It is critical to note that this will require an election with the return, for which there is currently no guidance, and an accounting method change.

Cherry Bekaert’s advisory services can help navigate the complexities of eligibility, filing amended returns, accounting method changes and coordinating with Internal Revenue Code (IRC) Section 280C to maximize benefits.

There are a multitude of factors that need to be considered when deciding whether to utilize the retroactive election. The type of entity will drive the complexities of the analysis.

4. QSBS/Section 1202: A New Landscape for Startup Investment

The 2025 tax reform makes significant changes to Section 1202 of the IRC, which governs the tax treatment of qualified small business stock (QSBS). Historically, Section 1202 allowed investors to exclude up to 100% of capital gains (depending on acquisition date) on the sale of QSBS held for more than five years — an incentive that has been instrumental in driving early-stage investment in tech startups.

For QSBS stock acquired after July 4, 2025, there is a tiered structure for the gain exclusion depending on how long the stock has been held:

More than three years: 50% exclusion
More than four years: 75% exclusion
Five years or more: 100% exclusion

This allows investors to receive some exclusion benefits as long as the eligible shares are held for at least three years. This can change the return on investment calculation and how quickly founders and investors can start to sell their shares and still receive benefits.

Two other changes cover the total gain exclusion and the gross asset limitations for shares acquired after July 4, 2025, including:

Gain exclusion cap per shareholder increased to $15 million from $10 million
The aggregate gross asset limit increased to $75 million from $50 million
Both thresholds will be indexed for inflation starting in 2027

These adjustments are only for shares issued after July 4, 2025. These provisions allow investors to have a higher cap on the amount of gain they could exclude. They also increase the gross asset limit, so growing companies or companies that become too large may be able to issue QSBS once again.

There are also planning opportunities associated with the change to the retroactive election to deduct the capitalized R&E amounts that could make companies fall back under the $50M cap in 2022 – 2024.

5. International Tax Adjustments: GILTI & FDII

The legislation also introduces significant changes to two international tax provisions:

GILTI (Global Intangible Low-Taxed Income)

A new name, “Net CFC Tested Income” (NCTI), reflects the change from the current taxation of overseas intangible income to creating a global minimum tax. The reduction in the deduction from 50% to 40%, coupled with the elimination of the qualified business asset investment (QBAI) reduction, is predicted to increase technology companies’ offshore income subject to U.S. tax.

However, detailed changes to the foreign tax credit expense apportionment rules could lead to an overall net favorable result for technology companies. It is therefore recommended that technology companies evaluate how the changes to the regime effective in 2026 impact their specific tax position, as the impact of NCTI will not be the same across the board.

FDII (Foreign-Derived Intangible Income)

FDII changes its name to foreign derived deduction eligible income (FDDEI), reflecting a move away from focusing the benefits on export income from intangible income and broadening the benefit to include companies with more tangible property. While the overall deduction is reduced from 37.5% to 33.34%, many companies may nevertheless realize larger benefits due to the elimination of the QBAI reduction and the decrease of certain expenses apportioned against FDDEI, which formerly reduced the benefit.

Technology companies should take a fresh look at how the new FDDEI regime will impact their particular facts, and plan accordingly. The international tax rules are complex and have changed significantly. It is important for companies with foreign subsidiaries and/or doing work overseas to plan for these adjustments now as they become effective in 2026.

Your Guide Forward: Tax Planning for Technology Companies

The 2025 reconciliation bill provides significant opportunities for technology companies to take advantage of new and revised tax benefits. Companies should act quickly to maximize the 100% bonus depreciation and R&E expenditure deductions.

Businesses can also start planning with the enhanced Section 1202/QSBS benefits and be prepared for the changes to international taxes. Cherry Bekaert is uniquely positioned to help technology companies navigate this exciting time, from optimizing their tax strategies to setting up tax structures for the future.

Contact Cherry Bekaert today to learn how our experienced professionals can help you unlock the full value of your innovation investments.

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