This post is Part 2 in an ongoing series that analyzes the impact of the “One Big Beautiful Bill” (“Act”) which was signed into law on July 4, 2025. Click here to read Part 1.
The new Act makes the tax cuts from the 2017 Tax Cuts and Jobs Act permanent and provides extensive new tax benefits. Many of the most significant changes are beneficial for small businesses.
This post briefly discusses these benefits, including the following:
· Benefits for “Passthrough” businesses (QBI deduction, increased SALT cap, increased standard deduction)
· Property depreciation and deduction benefits
· Benefits for investing or founding startups
Furthermore, the ACT introduces some negative changes for businesses, which are also discussed in this post, including:
· Increased Employee Retention Credit enforcement
· Increased employer compliance burdens
· Negative impacts on certain clean energy related purchases and investments
“Passthrough Benefits”
Several of the Act’s most significant tax benefits for businesses accrue to so-called “passthrough” entities.
“Passthrough” entities are business entities that are either regarded as partnerships or have elected to be taxed as S-Corporations and, therefore, do not pay tax at the entity level. Instead, their tax benefits and liabilities are directly reflected on their individual or corporate tax returns.
QBI Deduction
The most significant of the Act’s benefits for “passthrough” entities is that the act makes the Qualified Business Income (“QBI”) deduction permanent and raises the phase out threshold on the deduction.
The QBI deduction, which was set to expire after 2025, allows eligible “passthrough” small business to deduct up to 20% of their qualified business income. However, professional services business are generally excluded from using this deduction. Furthermore, the deduction is subject to income thresholds, such that the deduction percentage decreases once the relevant business passes a certain threshold.
The Act makes the QBI deduction permanent. Furthermore, the Act increases the phase-out threshold for single filers from $50,000 to $75,000 and the joint filer threshold from $100,000 to $150,000. Finally, inflation adjustments apply to the new minimum amounts for tax years beginning after 2026.
SALT Cap Raised
Prior law introduced a $10,000 cap on personal deductions of state and local taxes (SALT). This cap effectively disadvantaged passthrough entities that paid significant amounts of state and local taxes by capping the amount of these taxes that passthrough owners can deduct. Businesses that receive corporate treatment for tax purposes are not subject to SALT caps.
Many states and at least one locality have offered IRS-approved elections that allow passthrough owners to bypass this cap. However, not all states or localities offer such workarounds.
The Act addresses this issue for passthrough owners by increasing the SALT cap amount from the individual SALT deduction cap from $10,000 to $40,000 for 2025. It further increases the cap to $40,400 in 2026, and by an additional 1% in 2027, 2028, and 2029. Thereby, allowing passthrough owners to deduct greater amounts of SALT before having to resort to state and local workarounds.
On the other hand, the Act phases out the deduction for taxpayers with modified adjusted gross income (MAGI) greater than $500,000 (subject to annual 1% increases until 2030) in 2025. The cap is reduced by 30% of the excess of the taxpayer’s MAGI over the threshold amount, but the deduction will not be reduced below $10,000.
Standard Deduction increases
Unlike the QBI Deduction, which is only available to businesses conducted in passthrough form, the standard deduction is only available to individual taxpayers. However, in certain cases, forming a business in a passthrough structure may allow its owners to fully realize the benefit of the standard deduction.
The Act increases the instances where a passthrough business structure might be preferrable for accessing the standard deduction by increasing the amount of the standard deduction. The standard deduction amount for the tax year ending in 2025 to $30,000 for joint filers and surviving spouses; $22,500 for heads of household; and $15,000 for single individuals and marrieds filing separately (with further inflation adjustments for subsequent tax years).
We are happy to assist you with choosing entities and accessing all of the new benefits for passthrough structures implemented by the Act.
Property Deduction/Depreciation Benefits
Bonus Depreciation
The Tax Cuts and Jobs Act of 2017 introduced the business-friendly tax benefit of “bonus depreciation, which allowed a taxpayer to deduct a large portion (100% in 2017, but phased down by 20 percentage points per year beginning in 2025) of qualifying property (most tangible property that is used within your trade or business and is subject to wear and tear).
This tax break was being phased out and originally set to expire in 2027, however, the Act made the benefit permanent and permanently increased the immediate depreciation percentage on qualifying property to 100%. This means that businesses can immediately deduct 100% of the cost of qualifying property in the year it is placed in service, accelerating their tax savings.
Increased 179 Expensing Limits
179 expenses, named after the Internal Revenue Code section that implements them, are expenses for qualifying property that are immediately deductible in the year that such property is placed in service. Tangible personal property such as machinery, equipment, and furniture; certain qualified real property improvements such as roofs, HVAC, security systems); and off-the-shelf software generally qualify.
Prior to the enactment of the Act, 179 deductions were subject to an individual annual cap of $1.5 million dollars per unit of property and an aggregate annual cap of $3.05 million dollars. However, the ACT increased these caps to $2.5 million and $4 million respectively. While many 179 expenses are now deductible through bonus depreciation, this benefit nonetheless opens a pathway for fully expensing other expenses such as those that are not subject to wear and tear (e.g., software), those only indirectly used in a business or certain real property related expenses.
100% Depreciation for Certain Manufacturing Real Property
Finally, the ACT creates a new deduction for expenses to purchase real property used for manufacturing, production and refining purposes. For businesses in the manufacturing space, this can be a powerful incentive to expand or to consider purchasing rather than leasing property.
Overall, several new pathways to business deductions have become available under the Act. We can help you to plan for ways to qualify for these tax reductions.
QSBS Benefits
The Qualified Small Business Stock (QSBS) rules are a set of rules that provide extensive tax benefits to investors that buy and hold stock of certain early-stage U.S. companies. Broadly speaking, the Act broadens access to these powerful QSBS benefits by shortening waiting periods, raising caps on gains, and expanding qualifying company size.
These rules are too complex to discuss in detail in this short primer article, but the key takeaway is that the Act is supercharging incentives for early-stage investing and startup formation. If you are interested in founding or investing in startups, we can help ensure your properly access QSBS benefits.
Employer provided benefits
Paid Family and Medical Leave
Employers are eligible to receive a 12.5% to 25% tax credit on the amount of wages paid to qualifying employees for up to twelve weeks of family or medical leave taken by such employees during the taxable year. However, this benefit was scheduled to expire in 2025.
The Act made the credit for family and medical leave permanent. It also added two further benefits. First, it allows employers to receive the credit with respect to payments for insurance premiums that cover paid medical and family leave. Second, it now expands the credit to cover wages required to be paid by the employer under applicable state and local law.
Child Care Credit
Employers are eligible to claim a tax credit to offset costs for helping to provide child care for their employees. Previously employers could claim a credit for up to 25% of certain expenses for building, acquiring or operating childcare facilities, or contracting with licensed childcare providers to serve their employees. Employers were also eligible for a 10% credit for providing employees with certain childcare resources and referral services.
However, the credit was subject to an annual cap of $150,000 per year per employer. The ACT raised this cap to $500,000 per year, with inflation indexing beginning in 2027.
Furthermore, the ACT increases accesses to the credit for smaller businesses by allowing businesses to pool their resources together to share childcare facilities or co-contract providers and thereby share a joint credit. In addition, the ACT simplifies reporting requirements for accessing the credit.
We can help employers confirm their eligibility for these credits and to review their documentation and compliance with the credit requirements.
Increased EPC enforcement
The employee retention credit (“ERC”) was a refundable tax credit created to encourage businesses to retain their employees during the COVID-19 crisis. The ERC program ended in 2021, but employers could file retroactive claims until April 15, 2025.
Unfortunately, the ERC has been subject to significant exploitation, leading the IRS to campaign to crack down on abuse. The Act supports these campaigns by increasing IRS funding for ERC audits and investigations, extending the statute of limitations of ERC claims to six years, giving IRS explicit authority to deny ERC claims, and by introducing penalties for promoters of ERC abuse schemes.
Even for employers that have not engaged in abusive ERC transactions, these provisions can increase compliance costs or the possibility of audit. Therefore, we recommend businesses that have claimed the ERC to consult with us to re-confirm their eligibility for the ERC and review documentation and compliance for ERC. Furthermore, we can also assist businesses that are under investigation or audit with respect to claiming ERC credits.
Employer Compliance Burdens
While not directly affecting employers’ tax liability, the Act effectively requires additional compliance burdens by employers through several newly-introduced employee benefits. These benefits include the well-known “no tax on tips rule,” a temporary deduction for certain overtime pay, making tax exclusions of employer payments of student loans permanent, and increasing the exclusion limit for dependent care assistance programs.
To minimize friction and assist employees with accessing these benefits we recommend taking the following steps:
· Update Payroll Systems: Adjust withholding tables and tax calculations for 2026 and beyond. Implement new W-2 reporting fields for tips and overtime deductions.
· Review Benefit Offerings: Evaluate dependent care, student loan repayment, and child care programs. Coordinate with benefit providers to ensure compliance with new limits and credits.
· Communicate with Employees: Inform employees about new deductions (tips, overtime) and benefit changes. Update onboarding and open enrollment materials accordingly.
· Monitor IRS Guidance: Stay alert for IRS implementation rules and clarifications. Track effective dates for payroll-related provisions.
We can assist with any of these steps.
Impact on Certain Energy Purchases and Investments
Finally, the Act rolled back several of the clean energy related tax benefits introduced by previous tax acts, including those for electric vehicles (EVs), solar and wind projects, and EV charging stations, making clean tech purchases and installations more expensive for businesses and less attractive to investors.
However, for businesses that are still looking for tax efficient ways to reduce their carbon footprints, clean energy retrofits of existing real property are eligible for the increased deduction of 179 expenses. We can assist in finding other tax-efficient ways for your business to implement environmentally responsible changes.
