Individuals and businesses in Michigan are subject to both state and federal tax regulations. In addition to filing a federal income tax return annually, taxpayers in Michigan must file a state return to ensure that they have fulfilled all of their state income tax obligations.
Federal rules regarding income taxes shifted significantly in 2025. The One Big Beautiful Bill Act (OBBBA) included numerous tax provisions that impact both individuals and businesses. Michigan joins multiple other states in refusing to fully adopt those federal changes at the state level.
State lawmakers passed a bill addressing the OBBBA’s tax changes. This decoupling from federal tax policies may have implications for businesses and even individual taxpayers. What rules are different at the state level versus the federal level?
Different rules for businesses
Business taxpayers make use of a variety of write-offs and deductions. The new tax rules under the OBBBA offer benefits for business entities that state lawmakers determined could create a substantial income tax shortfall at the state level. Therefore, while taxpayers can make use of those changed policies at the federal level, they may have to factor in expenses and eliminate deductions or write-offs available at the federal level when preparing a Michigan state income tax return.
For example, the law in Michigan does not allow businesses to fully write off investments made into research and development. Also known as research and experiment (R & E) expenses, these investments may involve both domestic and international spending. Michigan requires that taxpayers calculate deductions for research expenses by amortizing them over five years for domestic expenses and 15 years for foreign expenses.
Michigan also has a different approach to depreciable business assets. The new higher limits under federal rules do not apply when filing a Michigan state income tax return, requiring additional calculations. Finally, Michigan limits deductions for business interest to 30% of earnings before interest and taxes.
Changes for individual taxpayers
Michigan also decoupled from the federal policy addressing bonus depreciation, which could affect individual taxpayers. There are strict limitations for bonus depreciation claims. The type of tax return dictates the obligation, as does the year of the income tax return, with the amount of bonus depreciation claimable declining to 0% by 2027.
These changes mean that business leaders and individuals with complex holdings may face a much more difficult time when preparing an income tax return for state income taxes. Having assistance while adjusting federal income tax calculations to comply with Michigan state income tax rules is of the utmost importance for those intending to make use of the OBBBA’s tax policies.
Insight and support when reviewing changing policies and preparing tax returns can help ensure compliance while minimizing overall Michigan income tax obligations. Seeking personalized legal guidance can help.