Posted by Jeffrey Feingold on 06.24.26
Massachusetts recently enacted legislation that temporarily decouples the state from several tax provisions included in the federal One Big Beautiful Bill Act (OBBBA). While the federal law restored valuable tax incentives for businesses, Massachusetts has chosen to delay adoption of certain measures, creating differences between federal and state tax treatment beginning in 2025.
One of the most significant changes involves Section 174A, which allows businesses to immediately deduct qualifying domestic research and development (R&D) expenses for federal tax purposes. Massachusetts will not immediately conform to this provision, meaning companies investing in innovation may need to calculate R&D expenses differently for state and federal returns. This could impact manufacturers, software developers, engineering firms, and other businesses that rely on R&D incentives.
The state is also postponing conformity with other OBBBA provisions, including enhanced Section 179 expensing, changes to business interest expense limitations, and certain depreciation benefits for qualified production property. As a result, businesses may face additional compliance requirements and potentially higher state taxable income than expected.
In addition, Massachusetts introduced a new elective Pass-Through Entity Tax (PTET) structure beginning in 2026. The election is designed to help owners of partnerships, LLCs, and S corporations address the state's 4% surtax while potentially improving federal deductibility of state taxes. Business owners should evaluate whether this election fits their overall tax strategy.
With federal and Massachusetts tax rules moving in different directions, proactive planning is essential. Businesses should review their R&D deductions, depreciation strategies, and pass-through entity structures to understand the impact of these changes. Tax Point Advisors can help businesses and CPA firms navigate the evolving tax landscape and identify opportunities to maximize available tax savings. To learn more about Massachusetts’ delay from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.
