Tax policy rarely changes in ways that are purely administrative. For small business owners, shifts in the tax code often reshape how capital flows, how companies hire, and how growth is funded.

The One Big Beautiful Bill Act, signed into law on July 4, 2025, is one of the most significant tax overhauls in years. It makes permanent several provisions that were set to expire, like the QBI deduction, while introducing new deductions for overtime, tips, and car loan interest. Some changes took effect retroactively to January 1, 2025, meaning they could affect the return you're filing right now.

There's a lot to navigate. But when approached intentionally, tax planning stops being a cost of doing business and becomes a tool for building it. Below, we break down the changes that matter most for small businesses, from what's new to what's different and what to do about it. 

At a Glance

One Big Beautiful Bill Act (OBBBA) introduces major tax changes for small businesses: permanent QBI deductions, higher SALT caps, expanded Section 179 and bonus depreciation, a new deduction for qualified overtime, and EBITDA-based business interest limits. Strategic planning can maximize deductions, reduce taxable income, and impact long-term business value.

The Qualified Business Income Deduction

What’s Changed: The Qualified Business Income (QBI) deduction is now permanent. This allows eligible pass-through businesses—such as LLCs, S corporations, partnerships, and sole proprietors—to deduct up to 20% of qualified business income. The amount you can deduct depends on your total income, wages you pay, and business property.

Additionally, starting in 2026, a new minimum QBI deduction of $400 (adjusted for inflation in future years) is available to taxpayers who materially participate in their business and have at least $1,000 in qualified business income.

What to Do: Review your business entity and compensation approach to make the most of the permanent QBI deduction.

Higher SALT Deduction Cap for 2025–2029

What's Changed: If you live in a high-tax state, you can now deduct up to $40,000 in state and local taxes (SALT) on your federal return—up from the previous $10,000 cap. This applies to the 2025 through 2029 tax years, after which it drops back to $10,000. The higher cap phases down for those earning over $500,000, shrinking back to $10,000 at around $600,000 of income.

For pass-through business owners, the existing workaround—where your state allows the business itself to pay state taxes at the entity level, bypassing the SALT cap—remains fully intact under the new law.

What to Do: Talk to your tax advisor about whether the higher SALT cap changes your filing strategy, particularly whether itemizing now makes more sense. If your state offers a pass-through entity tax election, compare that option against the individual SALT deduction to see which saves you more.

Immediate Expensing for Qualified Property

What’s Changed: Businesses can now expense certain qualified property immediately, rather than spreading deductions over multiple years. This includes equipment, machinery, furniture, and other eligible assets. 

In addition, Section 179 expensing limits have been significantly expanded. The maximum deduction has increased from roughly $1.25 million to $2.5 million, and the phase-out threshold has risen from approximately $3.13 million to $4 million, both indexed for inflation going forward.

The law also introduces a new, temporary 100% expensing provision for "qualified production property" (QPP): nonresidential real property used as an integral part of U.S.-based manufacturing, agricultural production, chemical production, or refining. 

This allows businesses to fully deduct the cost of eligible production facilities (such as a new factory or manufacturing plant) in the year they are placed in service, rather than depreciating them over the usual 39 years. To qualify, construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031. 

Note that QPP does not include portions of buildings used for offices, administrative functions, sales, research, or other non-production purposes, and leased property does not qualify. There is also a 10-year recapture rule—if the property stops being used for qualified production within 10 years, a portion of the deduction may be clawed back.

What to Do: Equipment must be placed in service—not just ordered or paid for—to qualify for immediate expensing. For the 2026 tax year, plan purchases strategically, combining Section 179 and bonus depreciation where possible, and align them with your cash flow and growth plans to maximize deductions.

No Tax on Overtime — A New Deduction for Qualified Overtime Pay

What’s Changed: For the 2025 through 2028 tax years, eligible workers can deduct the premium portion of their overtime pay—the extra "half" of time-and-a-half—from federal taxable income. The deduction is capped at $12,500 per year ($25,000 for joint filers) and phases out for those with modified adjusted gross income over $150,000 ($300,000 for joint filers).

To qualify, overtime must be required under the Fair Labor Standards Act (FLSA) for hours worked over 40 in a workweek. Overtime paid solely under state law, employer policies, or union contracts doesn't qualify, as well as independent contractors or salaried exempt employees. 

Payroll taxes (Social Security and Medicare) still apply; this deduction only reduces federal income tax.

What to Do: Keep accurate records of any qualified overtime pay for yourself or employees, and make sure it’s reported correctly on your 2025 federal return. Use this deduction to plan withholding and estimated tax payments, ensuring your filings reflect all eligible income and reduce overpayment without taking shortcuts.

Business Interest Deduction Reverts to EBITDA Standard

What’s Changed: The rules for limiting how much business interest expense can be deducted have reverted to using EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of EBIT. This generally allows more interest expense to be deductible, particularly for companies with significant depreciation or amortization.

What to Do: Review your current and planned debt‑related expenses with your tax advisor to see whether the EBITDA‑based interest limitation allows you to deduct more interest this year. If you’re financing growth, equipment, or expansion, consider how timing interest payments and structuring loans could improve cash flow and reduce your 2025 tax liability.

Final Thoughts

The OBBBA brings some of the most meaningful tax changes for small businesses in years—bringing back key deductions, easing certain limitations, and expanding credits that could have a real impact on your tax position. At the same time, it introduces new thresholds, timing considerations, and planning decisions that make it more important than ever to be thoughtful about your approach. 

But the decisions you make at tax time don’t just impact this year’s return. It’s just as important to understand what that means for the bigger picture. Your tax returns and financials ultimately help determine what your business is worth.

Start with a free business valuation and see what your business could be worth.