Introduction
Meta Platforms paid $7.6 billion of income taxes in cash in 2025, down from $10.6 billion the year before, helped by a new US tax law that let it deduct research spending immediately and write off new equipment at once. Its income tax expense in the income statement went the other way, tripling to $25.5 billion. The reason was a $15.9 billion charge in the third quarter of 2025, most of it a valuation allowance against its US federal deferred tax assets, because the same law meant Meta expected to pay the 15% corporate alternative minimum tax, which limits the benefit of those deductions, as its 2025 annual report explains.
The One Big Beautiful Bill Act, signed in July 2025, changed the tax treatment of two of the largest categories of corporate spending: research and development (R&D), and capital equipment. For most companies, the effect is a timing difference that lowers cash taxes for years while barely moving the reported tax rate. For some, as Meta's case shows, it changes the accounting dramatically. Understanding which is which matters for every forecast of cash taxes.
What Changed
Two provisions matter most for financial statements. First, domestic research and experimental expenditures can again be deducted in full in the year incurred, for tax years beginning after December 31, 2024, under new Section 174A. From 2022 to 2024 they had to be capitalized and amortized over five years, which raised many companies' taxable income and cash taxes; companies can now deduct the remaining unamortized domestic balance from those years either all in 2025 or spread over 2025 and 2026. Research performed abroad must still be amortized over fifteen years.
Second, 100% bonus depreciation became permanent for qualifying property acquired after January 19, 2025, reversing the phase-down that had reduced it to 40% for 2025. Equipment and other property with a tax life of twenty years or less can be deducted in full in the year it is placed in service. The law also restored the more generous limit based on earnings before interest, taxes, depreciation and amortization (EBITDA) on interest deductions, described in interest deductibility limits under Section 163(j), and changed the rules on foreign income.
- Corporate alternative minimum tax
A US federal tax, in effect since 2023, equal to 15% of adjusted financial statement income for corporations whose average annual adjusted financial statement income over three years exceeds $1 billion. A company in effect pays the higher of its regular tax and the minimum tax. Because the minimum tax starts from book income, a deduction that exists only for the regular tax, such as immediate R&D expensing, provides little cash benefit once a company is paying it; tax depreciation, including bonus depreciation, replaces book depreciation in the minimum tax base, so it keeps much of its value.
How the Changes Flow Through the Accounts
Both provisions change when costs are deducted for tax, not whether they are deducted, so in the language of deferred tax liabilities, they create or reverse temporary differences. For a company paying regular tax, the pattern is predictable. Current tax expense, and cash taxes, fall. Deferred tax expense rises by roughly the same amount, as deferred tax assets on previously capitalized research reverse and deferred tax liabilities on accelerated depreciation grow. Total tax expense, and the effective tax rate, change little.
Meta's deferred tax balances show the pattern. Its deferred tax asset for capitalized research and development fell from $16.7 billion to $4.1 billion in 2025, as the unamortized costs became deductible, while its deferred tax liability for depreciation and amortization rose from $11.0 billion to $15.9 billion as new data center equipment was written off faster for tax.
When the Minimum Tax Changes the Answer
The minimum tax breaks the pattern. A company that will pay the 15% minimum tax for years cannot use all its deductions to reduce its tax below that floor, so some of its deferred tax assets, including tax credit carryforwards, may never produce a benefit under the regular tax. Meta concluded that its US federal deferred tax assets were no longer more likely than not to be realized, and recorded a valuation allowance, the judgment described in deferred tax assets and valuation allowances. The resulting accounts show both effects at once:
| Line item | 2024 | 2025 |
|---|---|---|
| Income before provision for income taxes | 70,663 | 85,932 |
| Current tax expense | 13,040 | 6,719 |
| Deferred tax expense or benefit | (4,737) | 18,755 |
| Provision for income taxes | 8,303 | 25,474 |
| Effective tax rate | 11.8% | 29.6% |
| Cash paid for income taxes | 10,554 | 7,578 |
| Deferred tax asset for capitalized research and development | 16,743 | 4,138 |
| Deferred tax liability for depreciation and amortization | (10,959) | (15,901) |
| Valuation allowance | (3,506) | (15,895) |
Source: Meta Platforms 2025 Form 10-K. Current tax is the provision less deferred tax. The valuation allowance mainly relates to US federal deferred tax assets after the law's enactment.
Current tax nearly halved while deferred tax swung from a benefit to an expense of $18.8 billion, most of it the valuation allowance. Meta's effective tax rate rose from 11.8% to 29.6% even though the law reduced the cash it paid.
The charge did not stand in full. In February 2026 the Treasury issued Notice 2026-7, which lets companies reduce the minimum tax base by the deductions they take on their 2022 to 2024 domestic research costs, so those catch-up deductions now lower the minimum tax as well as the regular tax. Meta recognized an $8.03 billion benefit in the first quarter of 2026 that partly reversed the charge, and its first-quarter 2026 report says it still expects to pay the minimum tax for 2026 and later years.
What It Means for Analysis
The first consequence is that book tax expense is a poor guide to cash taxes for the next several years. Companies with heavy research spending or capital investment will pay less tax in cash than their income statements suggest, and the gap will be largest in 2025 and 2026 for companies deducting their unamortized 2022 to 2024 research costs. The general relationship between book and cash taxes is set out in effective, statutory and cash tax rates.
The second consequence is for valuation. In a discounted cash flow, faster tax deductions raise near-term free cash flow, and permanent bonus depreciation means the benefit continues for as long as a company keeps investing, as covered in the Valuation guide's article on unlevered free cash flow. For acquisitions, permanent bonus depreciation makes a stepped-up tax basis in equipment more valuable, because the step-up can be deducted at once. And for companies near the minimum tax, the benefit of new deductions may be limited, so the forecast has to model both the regular and the minimum tax.
Who Benefits Most
The cash benefit is largest for companies that invest heavily in US equipment or domestic research and pay regular tax. Chevron's 2025 annual report notes that its US federal taxes paid, just $143 million, were affected by accelerated depreciation and the immediate expensing of research costs under the new law, along with loss carryforwards and tax credits. Home Depot's fiscal 2025 annual report says the same provisions reduced its cash tax payments without a material effect on its effective tax rate. DT Midstream, a pipeline operator, explained that bonus depreciation and the new interest limit would defer part of its current federal tax for several years with no material effect on its income statement, because its provision combines current and deferred tax: the textbook timing effect. Companies whose research is mostly performed abroad gain less, because foreign research must still be amortized, and companies paying the minimum tax gain least from research expensing, although tax depreciation still lowers their minimum tax base. The broader treatment of such changes is covered in tax law changes in the financial statements.
Because these provisions are now permanent rather than temporary, their effects will become part of the normal relationship between book and cash taxes for investment-heavy companies, much as accelerated depreciation always has been. The one-off adjustments will fade from the statements over the next two years; the lower cash taxes for companies that keep investing will remain.
