One Big Beautiful Bill Act: 4 Ways It Can Help Small Business Owners Save on Taxes

The One Big Beautiful Bill Act (OBBBA or The Act) introduces sweeping reforms to the federal tax code, creating long-lasting implications for many owners of small business and pass-through entities. The provisions highlighted below address key tax-related deductions to consider as you are budgeting for future years.

1) Restoration of 100% Bonus Depreciation and Section 179 Expensing Increases

The Act restored 100% bonus depreciation for qualified property acquired and placed in service on or after January 20, 2025. Qualified property generally includes most tangible property with a recovery period of 20 years or less, such as land improvements, machinery, computers, and furniture and equipment. While buildings themselves don’t qualify for bonus depreciation, obtaining a cost segregation study can identify particular components of a building that does. This is especially useful for commercial and investment property owners.

The Act also raises the Section 179 deduction limit to $2.5 million with a phaseout threshold of $4 million. This allows small and mid-size businesses to immediately expense qualifying property without relying solely on bonus depreciation. The advantage of Section 179 expensing is that certain states do not allow bonus depreciation but generally states allow the expensing under Section 179.

Instead of spreading capital investment deductions over several years, the full tax deduction benefit can now be immediately realized. This can help to boost cash flow and leave your business with more capital to invest in growth.

2) Permanent QBI Deduction

The Act makes permanent the Qualified Business Income (QBI) deduction for owners of pass-through entity businesses. Examples of pass-through entities are sole proprietorships, limited liability companies, partnerships, disregarded entities, and S corporations. The deduction, which allows eligible taxpayers to deduct up to 20% of their qualified business income, serves as a significant benefit to business owners yet comes with limitations.

Some key limitations to be aware of are:

• There are specified service trades or businesses (SSTBs), such as law, accounting, financial services, health, and consulting, that are disallowed from taking the deduction or only eligible for a limited deduction if income exceeds a certain threshold.

  
  

• Deductions are generally also limited for joint and individual filers with taxable income greater than roughly $544,600 and $272,300, respectively, in 2026. The threshold amounts will be annually adjusted for inflation in future years.

3) Higher limits on interest deductions

The Act permanently raises the cap on how much business loan interest can be deducted beginning in the 2025 tax year. Previously, the deduction was generally limited to 30% of a business’s adjusted taxable income (ATI).  

While interest deductions are still limited to 30% of ATI, the calculation of ATI no longer takes depreciation, amortization, or depletion into account for purposes of interest deduction limits. In other words, ATI is now calculated based on EBITDA (adding back depreciation, amortization and depletion), increasing the interest deduction base. This is a particularly beneficial change for capital-intensive businesses with large depreciation or amortization deductions.

For owners utilizing debt to finance business growth or operations, the higher interest deduction limit makes borrowing more tax-efficient by reducing taxable income. This can be particularly helpful during periods of business expansion or inflation and high interest rates.

4) Higher SALT Deduction Cap with Pass-Through Entity Tax Workaround

The state and local tax deduction limitation (SALT cap) was temporarily increased from $10,000 to $40,000 for married taxpayers filing jointly. This higher SALT cap is in effect for tax years 2025 through 2029. While the cap is reduced for those with adjusted gross income (AGI) of $500,000 or more, the higher deduction limit will serve to benefit many taxpayers with a higher potential deduction relative to prior years.

For pass-through entity businesses, owners may be able to benefit even greater by making a pass-through entity tax (PTET) election in the state their business is domiciled. Doing so allows state and local taxes to be paid at the entity-level, which reduces taxable income for owners. Under this workaround, entity-level state and local tax deductions are not subject to the $40,000 SALT cap.

However, it is important to note the ability to make a PTET election in the state of Illinois is currently set to sunset at the end of 2025. Illinois is one of just a small number of states that has not yet enacted to extend the PTET election. Unless the state extends the legislation before the end of 2025, Illinois business owners may no longer be able to take advantage of the PTET election beyond the 2025 tax year.

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