The New Era of Business Taxes: What Small Business Owners Need to Know for 2025 and Beyond
The tax landscape for small and medium-sized businesses (SMBs) has undergone its most significant shift in years, thanks to the recent passage of the “One Big Beautiful Bill Act” (OBBBA).
This new law effectively stabilizes key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire, while dramatically expanding several key deductions.
The Bottom Line: These changes offer huge incentives for capital investment, provide long-term planning certainty for pass-through entities, and simplify deductions for innovation.
Turbocharged Deductions for Capital Investment
If you plan to buy new equipment, vehicles, or software, the new expensing rules offer the greatest immediate benefit.
| Tax Break | What’s Changing | Strategic Benefit |
| 100% Bonus Depreciation | Made Permanent for qualified property acquired and placed in service after January 19, 2025. This reverses the scheduled phase-out (which was 60% in 2024 and 40% in 2025). | Allows you to write off the full cost of new and used equipment, machinery, and software immediately, maximizing cash flow. |
| Section 179 Expensing | The deduction limit has been doubled to $ 2.5 million (up from $1.25 million), with the phase-out threshold raised to $4.0 million (up from $3.13 million). | Enables SMBs to deduct a substantial amount of investment immediately, targeting the tax break at those who need it most. These limits will be indexed for inflation after 2025. |
| R&D Expensing | The requirement to amortize (deduct over five years) domestic Research & Experimental (R&E) costs has been repealed. | Businesses can immediately deduct domestic research and experimental (R&E) expenses (including software development costs) in the year incurred, starting in 2025. |
Permanent Stability for Pass-Through Entities
For the majority of small businesses (LLCs, S-Corps, and Sole Proprietorships), the deduction for qualified business income is now a pillar of the tax code.
- The Qualified Business Income (QBI) Deduction (Section 199A) is Permanent: The popular 20% deduction for qualified business income, which was set to expire at the end of 2025, has been made permanent.
- Expanded Access: The income thresholds where deduction limitations begin to phase in have been significantly increased, allowing more business owners to claim the full benefit.
- New Minimum Deduction: A new $400 minimum QBI deduction is available for actively managed businesses with at least $1,000 in QBI.
- Permanent Tax Rates: The lower individual income tax rates (10% through 37%) are made permanent, avoiding the major rate hike scheduled for 2026.
Relief for Interest and Cash Management
- Favorable Business Interest Deduction (Starting 2026): For the business interest limitation calculation (Section 163(j)), the definition of Adjusted Taxable Income (ATI) will revert to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
- Impact: This change enables businesses with significant depreciation and amortization to deduct a greater portion of their business interest expense.
- Excess Business Loss Limitation is Permanent: The rule that limits how much non-corporate business owners can deduct in business losses is now permanent. (For 2025, the limits are $313,000 for single filers and $626,000 for joint filers.)
Administrative and Other Changes
- New Qualified Production Property (QPP) Deduction: A new provision allows for 100% bonus depreciation for certain non-residential real property used in manufacturing and production activities (such as new factories or significant improvements).
- Enhanced Employer-Provided Childcare Credit (Starting 2026): The maximum credit is significantly increased, particularly for eligible small businesses, offering a greater incentive to provide this benefit to employees.
- Information Reporting (1099-K): The controversial lower threshold for Form 1099-K reporting has been relaxed to $20,000 and 200 transactions (effective for tax year 2025).
Your Action Plan for 2025/2026
- Revisit Capital Plans: With 100% bonus depreciation and expanded Section 179 now permanent, work with your CPA to strategically time major purchases of equipment, software, and vehicles to maximize your first-year write-offs.
- Rethink R&D: If you’ve been capitalizing R&D costs since 2022, check with your tax advisor about the retroactive election to immediately deduct those prior-year expenses.
- Confirm QBI Strategy: Ensure your entity structure and owner compensation strategies are fully optimized to take advantage of the permanent 20% QBI deduction.
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