Manufacturers should keep a close eye on Washington, D.C., this year. Indeed, many of the federal government's proposed tax and spending policies will have a direct impact on the U.S. manufacturing industry. Two top examples include the uncertainty surrounding tariffs and the proposed One, Big, Beautiful Bill Act (OBBBA).

The U.S. House of Representatives passed the OBBBA in May. The bill includes extensions of many provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire, as well as some enhancements and new provisions.

Here's an overview of the major business tax proposals included in the House-passed bill that manufacturers need to know about:

Bonus depreciation. This additional first-year depreciation is available for qualified assets, which include tangible property with a recovery period of 20 years or less, such as manufacturing equipment. Under the TCJA, first-year bonus depreciation has been phasing down 20 percentage points annually since 2023 and is set to drop to 0% in 2027. It's 40% for 2025.

Under the OBBBA, bonus depreciation would reset to 100% for eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030.

Section 179 expensing election. This tax break allows businesses to currently deduct (rather than depreciate over a number of years) the cost of purchasing eligible assets, such as equipment, furniture, off-the-shelf computer software and qualified improvement property. An annual expensing limit applies, which begins to phase out dollar-for-dollar when asset acquisitions for the year exceed the Sec. 179 phaseout threshold. For 2025, the expensing limit is $1.25 million and the phaseout threshold is $3.13 million. Both amounts are adjusted annually for inflation.

The OBBBA would increase the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would continue to be adjusted annually for inflation.

Section 199A qualified business income (QBI) deduction. Created by the TCJA, the QBI deduction is currently available through 2025 to owners of pass-through entities — such as S corporations, partnerships and limited liability companies. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income. But it's subject to additional rules and limits that can reduce or eliminate the tax benefit.

Under the OBBBA, the deduction would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Domestic research and experimental expenditures. The TCJA generally requires these expenses to be amortized over five years. The OBBBA would temporarily reinstate a deduction for such expenses. Specifically, the deduction would apply to eligible research and development costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. (The requirement to amortize such expenses would be suspended while the deduction is available.)

Pass-through entity "excess" business losses. Under the TCJA, business losses incurred by noncorporate taxpayers generally can offset a taxpayer's income from other sources, such as salary, interest, dividends and capital gains, only up to an annual limit. "Excess" losses are carried forward to later tax years and can then be deducted under net operating loss rules. This limitation was extended by the Inflation Reduction Act and is scheduled to expire after 2028. The OBBBA would make it permanent.

Be aware that these are only some of the business-focused tax provisions in the OBBBA. For example, it would also reduce or rescind many green-energy-related tax breaks.

The proposed legislation is likely to change (perhaps significantly) as it moves through the Senate and possibly back to the House. In addition to disagreements about the tax provisions, there are Senators who don't agree with some of the spending cuts. Regardless, manufacturers should expect tax law changes this year.