The comprehensive tax reform, formally Public Law 119-21 (H.R.1, 119^th Congress), commonly known as the One Big Beautiful Bill (OBBBA), was enacted on July 4, 2025. This tax reform package introduces several significant changes with broad implications for businesses, especially in the franchising sector. OBBBA was strongly supported by the International Franchise Association and brings both financial relief and new opportunities for franchise owners and franchisors. Below are some of the key provisions that franchisors should know about:

1. Change in Interest Deduction Calculation: From EBIT to EBITDA

Franchise businesses can now calculate interest deductions using EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than EBIT. This change means they can deduct more interest expenses, potentially saving the industry around $6 billion. It’s especially helpful for multi-unit operators and those making large capital investments.

2. Extension of Section 199A Deduction

The Section 199A deduction, which allows pass-through businesses like LLCs and S corporations to deduct up to 20% of their income, has been extended. Since many franchisors and franchisees operate under these structures, this change offers continued tax relief and supports business growth.

3. Restoration of 100% Bonus Depreciation

Businesses can now take 100% bonus depreciation on eligible purchases made after January 19, 2025. For franchisees and franchisors investing in new equipment or property, this means they can fully write off those costs in the year of purchase, easing the financial burden of expansion or upgrades.

4. Immediate Deduction of R&D Expenses

Research and development expenses can now be deducted in the same year they occur. This helps franchisors, especially smaller ones, invest in innovation without worrying about delayed tax benefits.

Final Takeaway: The changes introduced by OBBBA include several key tax provisions that affect the franchising sector. From expanded deductions to restored depreciation benefits and R&D incentives, these updates offer new financial planning opportunities for both franchisors and franchisees. Understanding these changes is essential for adapting to the evolving tax landscape and making informed business decisions moving forward.