Architecture & Engineering (A&E) firms now have new opportunities to reduce taxes, invest in growth, and strengthen competitiveness under the One Big Beautiful Bill Act (OBBBA). Across a series of webinars presented by the American Council of Engineering Companies (ACEC), our team contributed as featured speakers. In those sessions, A&E professionals made it clear that understanding these provisions is top of mind. From permanent tax incentives to state-level updates, the most common questions focused on what firms should prioritize now to stay competitive.
“The extension of the 2017 tax law will deliver critical certainty for American businesses. These are pro-growth policies that directly support investment, innovation, and workforce expansion, especially in the engineering sector,” said Linda Basuer Darr, President and CEO of ACEC. “Engineering firms play a foundational role in the economy. The ACEC Research Institute found that 82% of firms used their tax savings from the 2017 Tax Cuts and Jobs Act to hire new employees. Firms also invested in technology and expanded their services – investments that had a broader benefit to the nation’s economy. By locking in these provisions, Congress has ensured that firms can continue to create, compete, and grow in communities across America.”
Signed into law on July 4, 2025, the OBBBA expands key tax provisions from the 2017 Tax Cuts and Jobs Act and introduces new opportunities for A&E firms. Discover top insights on a broad range of OBBBA provisions from our recent webinars – and where your firm should focus next. In the meantime, below are some of the more impactful changes benefiting A&E firms.
New Era of Tax Opportunity for Architects and Engineers
R&D Expenses Are Fully Deductible Again
One of the most impactful changes is the return of full expensing for domestic research and development (R&D) costs. Firms that previously claimed the R&D tax credit can now fully deduct these expenses on their 2025 tax returns, reversing the amortization requirement from 2022 to 2024. For unamortized R&D expenses, firms can choose:
- Expense all unamortized expenses in 2025
- Expense half in 2025 and the remainder in 2026
- Continue amortizing expenses over the next six years.
In a significant win for small firms, those with gross receipts under $31 million have a fourth option of amending tax returns from the 2022 through 2024 tax years and reclaiming valuable deductions for previously amortized R&D spending. That means firms may be eligible to amend past tax returns and reclaim valuable deductions for previously amortized R&D spending.
QBI Deduction Made Permanent
The 20% Qualified Business Income (QBI) deduction for pass-through entities is now permanent, supporting long-term planning for eligible pass-through businesses, including S corporations and partnerships. For firms subject to the Federal Acquisition Regulation (FAR), proper compensation, bonus, and distribution planning ensure the full advantage of this deduction while balancing the overhead rate.
Bonus Depreciation and Section 179 Provide Major Write-offs
The OBBBA permanently reinstates 100% bonus depreciation and expands Section 179 expensing limits ($2.5M deduction with a $4M phase-out). This is a significant win for A&E firms investing in new technology, software, equipment, or vehicles. It also offers flexibility in tax planning by allowing firms to time asset purchases in a way that maximizes deductions and supports growth.
SALT Deduction Cap Raised and PTET Elections Continue
The OBBBA temporarily raises the federal cap on state and local tax (SALT) deductions to $40,000 for individuals with income under $500,000. While the cap phases out above that, pass-through entity tax (PTET) elections remain in place and may offer a more strategic option for high-income owners in states with PTET laws, especially states with higher state and local tax rates such as New York, California, and Illinois.
Interest Deduction Rules Relaxed for Capital Projects
The law restores the business interest deduction limitation (Section 163(j)) to 30% of EBITDA rather than EBIT. This benefits highly leveraged A&E firms and those taking on debt to fund capital-intensive growth, such as facility upgrades, equipment leasing, or expansion efforts.
A Modest Bonus: Overtime Wage Deduction
For A&E firms with hourly staff, field teams, or high overtime usage, the OBBBA introduces a new above-the-line deduction for qualifying overtime pay. While modest, this benefit could help reduce taxable income at the individual level for certain employees.
What A&E Firms Should Do Now
Based on the OBBBA provisions and webinar insight, here are the key next steps:
- Review R&D activity and determine the best course of action for expensing unamortized costs.
- Strategically time capital purchases to leverage bonus depreciation and Section 179.
- Reassess owner compensation, bonus, and distributions as well as business structure to ensure maximum QBI benefit.
- Model SALT/PTET scenarios and plan for year-end estimated payments.
- Review financing strategies and assess how the revised interest deduction applies.
How We Help A&E Firms Take Action
The OBBBA creates opportunities, but navigating them requires industry-specific insight. Our A&E tax professionals understand the unique demands of project-based businesses, capital planning, and state-level complexity.
We help architecture and engineering firms:
- Identify and document qualifying R&D expenses
- Plan asset investments and depreciation strategy
- Optimize pass-through structures and owner compensation
- Leverage state and federal credits and incentives
Ready to Take the Next Step?
While the legislation is set, the opportunity is just beginning. With a strategic approach, your firm can improve cash flow, reduce taxes, and plan for future growth. Connect with our A&E tax professionals to explore how the OBBBA could impact your firm in 2025 and beyond.
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