One Big Beautiful Bill: What Every Fintech Company Needs to Know
President Donald Trump’s signing of the One Big Beautiful Bill Act (OBBBA) into law on July 4, 2025, introduces significant changes and new tax provisions that have a crucial and immediate impact on the fintech sector.
The changes include restoring full research and experimental expenditures (R&E) expensing, increasing the deductibility of business interest expense and expanding the provisions governing Qualified Small Business Stock (QSBS) for fintech founders. These provisions offer immediate and future benefits, enhance cash flows and provide investment opportunities for fintech companies and founders.
Here is a detailed look at the three major areas of impact on the fintech sector:
1. Restoration of Full R&E Expensing (Section §174A)
The OBBBA introduces §174A, which removes the 60-month capitalization and amortization period requirement and restores immediate expensing of domestic R&E expenses.
- Such expenses include direct and indirect costs related to software development, product design and process innovation.
- Foreign-based expenditures continue to be capitalized and amortized over 15 years.
- Small businesses, defined as those with gross receipts under $31 million on average from 2022 to 2024, can amend their 2022 to 2024 tax returns to retroactively apply immediate expensing.
- Such changes lead to immediate and future benefits, including potential refunds or reduced tax liabilities in prior years, improved after-tax cash flows and reduced related liabilities in future years.
- The bill provided different alternatives for the ability to deduct any remaining capitalized 174 costs as of December 31, 2024 related to the 2022, 2023, and 2024 taxable year including amending previously filed returns, electing to deduct the remaining unamortized balance in 2025 or over 2025 and 2026.
Overall, this creates a beneficial environment for fintech companies that substantially invest in internally generated products, software and tools.
2. Changes to Deductibility of Business Interest Expense [Section §163(J)]
To set the stage, §163(j) was introduced as part of the Tax Cuts and Jobs Act (TCJA) of 2017, establishing a limitation on the business interest expense deduction of 30% of adjusted taxable income (“ATI”).
- Between 2022 and 2024, ATI was calculated solely based on EBIT (earnings before interest and taxes) and excluded depreciation and amortization, resulting in a lower level of deductible interest.
However, the OBBBA changed the ATI to be an EBITDA-based calculation, now including depreciation and amortization, which increases the ATI and results in a higher deduction.
- For example, if a company’s depreciation and amortization were $400,000, it would receive an additional $120,000 of allowable interest expense deduction (i.e., 30% of the depreciation and amortization amount).
- For the 2025 tax year, the §163(j) limitation applies to companies with average gross receipts (as defined in the Internal Revenue Code) of $31 million or less (previously $30 million for the 2024 tax year) in the preceding three tax years, with future amounts subject to inflation adjustments.
- Before the enactment of the OBBBA, the disallowed interest could be carried forward indefinitely. The OBBBA affirmed the carry-forward provision.
- Fintech companies that rely on debt capital — whether to fund operations, issue loans or installment payment options or support growth — stand to benefit significantly from the increased interest deduction limits. By allowing a greater portion of interest expense to be deducted, the updated rules under the OBBBA can improve after-tax cash flow.
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3. Beneficial Changes for Fintech Founders via QSBS
A valuable incentive to encourage investment into small businesses is the exclusion from the sale of QSBS, as defined in §1202. QSBS is stock issued by a small business, which is defined as a domestic C corporation whose aggregate gross assets must not have exceeded $50 million at any time before or immediately after (and as a result of) the stock issuance.
- Pre-OBBBA, §1202 provided that QSBS acquired after September 27, 2010, would have a 100% exclusion on the greater of: (1) $10 million in capital gains or (2) 10x your initial tax basis in the stock, as long as the QSBS is held for more than 5 years.
The OBBBA enhanced multiple aspects of the QSBS rules for all QSBS issued on or after July 5, 2025, as follows:
- The per-issuer gain exclusion cap is increased from $10 million to $15 million for stock acquired after July 4, 2025 (and the cap will be indexed for inflation beginning in 2027).
- The aggregate gross asset threshold of a “small business” increases from $50 million to $75 million.
- Gain exclusion is now tiered, and an exclusion can be had in as little as three years.
- QSBS held for at least three years is eligible for a 50% exclusion.
- QSBS held for at least four years is eligible for a 75% exclusion.
- QSBS held for at least five years is eligible for a 100% exclusion.
Note that if the 50% or 75% exclusion, the amount not excluded is subject to a 28% tax rate, plus the net investment income tax, if applicable.
Takeaways
Overall, these changes will result in enhanced tax benefits for investors and founders, as well as flexibility in decision-making, as stockholders no longer feel pressure to hold stock for five years or make certain investments in fear of triggering an asset value above the $50 million requirement.
As the fintech industry adapts to these new regulations, businesses must understand how these changes impact their unique circumstances.
Author: Matthew Bostjancic, CPA, MSA | [email protected]