Navigating the Big Beautiful Tax Bill: Exciting Changes for Small Business Owners in 2025
- Small Business Solutions & Services
- Jul 6, 2025
- 4 min read
On July 4, 2025, the "One Big Beautiful Bill Act of 2025" (Public Law No: 118-92) was signed into law, enacting one of the most significant federal tax reforms since the Tax Cuts and Jobs Act (TCJA) of 2017. This legislation retroactively affects tax year 2025 and includes permanent extensions and targeted modifications that directly impact small businesses, particularly those operating as sole proprietors, partnerships, LLCs, and S Corporations.
This article outlines every major change in the new law that affects small business owners, citing the relevant sections of the Internal Revenue Code (IRC) and referencing the legislative text from the One Big Beautiful Bill Act (H.R.1 - One Big Beautiful Bill, 119th Congress), which you can access alongside this post for verification. https://www.congress.gov/119/bills/hr1/BILLS-119hr1eas.pdf
🔹 Section 199A: Qualified Business Income (QBI) Deduction Made Permanent
IRC §199A, enacted under TCJA, allows a 20% deduction on qualified business income (QBI) for pass-through entities. The 2025 Act makes this deduction permanent, eliminating the prior sunset provision scheduled for 2026. (Bill Reference: Sec. 70105)
Applies to sole proprietors, partnerships, LLCs, and S Corps.
Full 20% deduction available for 2025 taxable income below:
$191,950 (Single)
$383,900 (Married Filing Jointly)
Specified Service Trades or Businesses (SSTBs) still face income-based phaseouts above these thresholds.
W-2 wage and UBIA (unadjusted basis in qualified property) tests remain in effect for high-income businesses.
Planning Tip: Review reasonable compensation for S Corp owners and SSTB status to maximize eligibility.
🔹 Section 179 Expensing Expanded
Under IRC §179, small businesses can immediately expense the cost of qualifying property. The deduction limit has been expanded under the 2025 law. (Bill Reference: Sec. 70301)
New 2025 Limits:
Deduction cap: $2.5 million
Phase-out threshold: $4 million
Applies to tangible personal property used in business (equipment, software, certain improvements).
Vehicles qualify with special limitations (e.g., SUVs subject to $28,900 cap in 2025).
Note: Section 179 cannot create a loss; any unused amount carries forward.
🔹 Bonus Depreciation Reinstated at 100%
IRC §168(k) was modified to make 100% bonus depreciation permanent, reversing the phase-down that had begun in prior years. (Bill Reference: Sec. 70302)
Applies to qualified property (new or used) with recovery periods of 20 years or less.
No cap on the deduction; can create or increase a loss.
Strategic Use: Can be stacked with §179 or used alone for larger purchases.
🔹 Business Interest Deduction Expanded
IRC §163(j) limits business interest expense deductions based on adjusted taxable income. The new law restores the EBITDA calculation method (earnings before interest, taxes, depreciation, and amortization), retroactive to 2025. (Bill Reference: Sec. 70304)
This change allows more interest to be deducted, especially for capital-intensive businesses.
🔹 R&D Expensing Restored
IRC §174, which previously required amortization of research and experimental expenditures over five years, is reversed for domestic R&D: (Bill Reference: Sec. 70303)
Effective 2025, qualified research expenses can be fully expensed in the year incurred.
Applies only to U.S.-based research activities.
🔹 PTET (Pass-Through Entity Tax) Workaround Preserved
The new law explicitly allows PTET elections to continue, letting business entities pay state income taxes at the entity level. This enables owners to bypass the federal $10,000 SALT cap. (Bill Reference: PTET unchanged—no modification to IRC §164(b)(6))
No changes made to current PTET structure.
Beneficial for owners in high-tax states with PTET legislation.
🔹 Simplified Home Office Deduction Remains Unchanged
IRC Rev. Proc. 2013-13: Simplified home office deduction remains $5/sq ft, capped at 300 sq ft (max $1,500).
No official increase to $6/sq ft has been passed or issued by IRS.
Actual expense method remains available for higher deductions with proper substantiation.
🔹 Corporate Rate and C Corp Planning
Corporate tax rate remains at 21% under IRC §11(b).
No changes to double-tax structure; planning for S Corp vs. C Corp status remains relevant.
🔹 No Change to Self-Employment Tax or Payroll Tax Rates
No changes made to FICA, FUTA, or SE tax rules in this bill.
Business owners should continue accurate payroll classification and wage planning.
🔹 Employee Retention Credit (ERC) Shut Down
As of January 31, 2024, no new ERC claims may be filed. (Bill Reference: Sec. 70431)
Claims submitted after this date will be rejected; statute of limitations for prior claims remains under review (IRS Notice 2025-04).
🔹 Other Notable Provisions for Business Owners
No new energy credits specific to small business installations were introduced.
No expansion of Section 1202 (Qualified Small Business Stock) was enacted.
No changes to meal or entertainment deductions (still 50% for meals, 0% for entertainment under §274(n)).
Final Summary for Small Business Owners
Provision | Change in 2025 |
QBI Deduction (§199A) | Made permanent (20% deduction) |
Section 179 Expensing (§179) | Increased to $2.5M, phase-out $4M |
Bonus Depreciation (§168(k)) | Restored to 100%, made permanent |
R&D Expensing (§174) | Full expensing reinstated |
Business Interest (§163(j)) | EBITDA calculation restored |
Home Office Deduction | No change, $5/sq ft max 300 sq ft |
ERC | Closed to new claims after 1/31/24 |
Corporate Rate (§11) | Remains at 21% |
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