If you own a small business in 2025, this is not a year to file on autopilot...

Congress has passed major legislation, often referred to as the One, Big, Beautiful Bill (OBBB), along with a broader 2025 tax package that reshapes how small businesses deduct equipment, plan for growth, and structure their income. These are not proposed changes, they are current law and already apply to the 2025 tax year.

In this post, we’ll break down the most important 2025 tax changes for small business owners, focusing on the big items that are now permanent or long-term, and what they mean for your bottom line.

1. 100% Bonus Depreciation Is Back and Now Permanent

One of the biggest wins for businesses in 2025 is the return of 100% bonus depreciation...and this time, it’s permanent.

Under prior law, bonus depreciation started phasing down from 100% in 2023 and was set to fully phase out by 2027. The One Big Beautiful Bill reverses that. For qualified property placed in service in 2025 and later years, businesses can once again deduct 100% of the cost in year one, and the law makes this treatment permanent going forward.

What this means for small businesses

• You can fully expense qualifying equipment, machinery, furniture, technology, and certain building components in the year you place them in service.
• This is especially valuable for construction, manufacturing, trades, transportation, and real estate investors using cost segregation.
• It gives you powerful flexibility for year-end tax planning. You can time big purchases to manage your taxable income.

2. Section 179 Deduction Limits Are Significantly Higher

On top of bonus depreciation, the 2025 tax law substantially boosts Section 179 expensing limits for small and mid-sized businesses.

Under the new law, the maximum Section 179 deduction for 2025 has been increased to roughly $2.5 million, with the phase-out threshold around $4 million of qualifying property placed in service.

(Exact amounts are indexed for inflation each year, but the key point is: the ceiling is now dramatically higher than the pre-OBBB limits.)

Why this matters

• Section 179 allows you to immediately expense qualifying business property (including many vehicles and equipment) rather than depreciating it over several years.
• While bonus depreciation is automatic (unless you opt out), Section 179 is elective and more targeted, which can help you fine-tune your deductions.
• The higher limits give small and mid-sized businesses more room to invest aggressively while still capturing full deductions in the year of purchase.

3. Pass-Through Business Rules and the QBI Deduction Are Modified, Not Repealed

The Qualified Business Income (QBI) deduction under §199A, one of the biggest tax breaks for owners of S corporations, partnerships, and sole proprietorships, was originally scheduled to expire after 2025. The new 2025 tax legislation keeps the deduction alive but modifies the rules.

Key features under the One Big Beautiful Bill and related 2025 tax changes:

• The 20% QBI deduction is now permanent, so it is no longer subject to sunset.
• The QBI deduction phase in range limitations are raised from $50k to $75k for single filers and from $100k to $150k for married filing join taxpayers
• The QBI deduction now has a $400 minimum deduction for any active business with qualified business income of at least $1,000. (These figures are going to be inflation adjusted starting after 2026)

Why this matters to small business owners

• If you’re an S Corp or LLC taxed as a pass-through, your effective federal rate on business income may shift depending on your income level, wages paid, and whether you’re in a specified service trade or business.
• Entity selection (LLC vs. S corp vs. C corp) matters more than ever for tax planning in 2025 and beyond.

4. SALT Deduction Cap Expanded—Big News for Owners in High-Tax States

The 2025 tax act locks in a permanent state and local tax (SALT) deduction cap, but temporarily raises the ceiling.

• For tax year 2025, many taxpayers can deduct up to $40,000 in state and local taxes, up from the old $10,000 cap, with the cap gradually adjusted before it eventually reverts.
• This interacts with pass-through income, QBI, and PTE (pass-through entity) tax elections, especially in states that adopted SALT workaround regimes.

For small business owners in high-tax states, this can reduce overall federal tax liability, especially if you have significant business income flowing through to your individual return.

5. New “No Tax on Tips” and Other Worker-Focused Deductions

The 2025 law also introduced several worker-focused deductions that directly affect many small businesses in hospitality, service, and tip-based industries:

• A new rule exempts up to $25,000 of qualifying tip income from federal income tax for eligible workers, often referred to as the “No Tax on Tips” deduction.
• The One Big Beautiful Bill also created or expanded deductions related to overtime compensation, certain car loan interest, and a new senior deduction, among others.

Why this matters to small businesses

• If you operate a restaurant, bar, salon, entertainment venue, or service-based business, your employees may heavily rely on tips and overtime.
• These new deductions affect employee take-home pay, may influence wage and staffing decisions, and require updated payroll and reporting systems, since employers must track and report qualifying compensation accurately.

6. R&D and Investment Incentives Strengthened

Earlier legislation (including the Tax Relief for American Families and Workers Act) began restoring more favorable treatment for research and development (R&D) expenses, and the 2025 tax package continues that trend by reinstating immediate expensing of many domestic R&D costs rather than forcing five-year amortization.

For small businesses in software, engineering, manufacturing, and tech, this:

• Improves cash flow,
• Encourages investment in innovation, and
• Opens the door to better coordination of R&D deductions and R&D credits.