Small Business Tax Law Changes 2025: What You Need to Know
The One, Big, Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces sweeping tax changes that will significantly impact small business taxpayers—some favorable, others not. Here’s a quick summary of the key provisions you need to know as you plan ahead.
100% First-Year Bonus Depreciation Restored
The OBBBA permanently restores 100% bonus depreciation for eligible assets acquired after January 19, 2025. This marks a major improvement over the previous 40% deduction, offering small businesses a powerful incentive to invest in equipment and property.
New Deduction for Qualified Production Property
Eligible nonresidential real property used in manufacturing—called qualified production property—also qualifies for 100% first-year depreciation. To qualify, construction must begin after January 19, 2025, and before 2029, and the property must be placed in service in the U.S. or its territories.
Section 179 Expensing Expanded
Beginning in 2025, the maximum amount small businesses can immediately expense under Section 179 increases to $2.5 million, with a phase-out threshold of $4 million. These figures will be adjusted annually for inflation starting in 2026.
R&E Expenditures Can Be Immediately Deducted
The law reverses recent amortization rules by allowing small businesses to fully deduct domestic research and experimental (R&E) expenses paid or incurred starting in 2025. Retroactive relief is also available for tax years beginning after 2021, with a special election for write-offs of unamortized amounts from 2022–2024.
More Generous Business Interest Deduction Rules
Beginning in 2025, depreciation, amortization, and depletion will once again be excluded when calculating adjusted taxable income (ATI) for purposes of the business interest expense limitation. This change generally increases the deductible amount.
Expanded Qualified Small Business Stock (QSBS) Exclusions
New holding period rules apply to QSBS issued after July 4, 2025:
- 50% exclusion for stock held at least 3 years
- 75% exclusion for 4 years
- 100% exclusion for 5 years
These expanded rules provide more flexibility for small business owners and investors.
Excess Business Loss Limitation Made Permanent
In a less favorable change, the OBBBA makes permanent the excess business loss limitation for noncorporate taxpayers. Previously set to expire after 2028, this limitation now remains in place indefinitely.
Employer Credit for Paid Family and Medical Leave (FML) Made Permanent
The FML credit—previously temporary—is now a permanent part of the tax code. Employers may continue claiming credits for qualifying wage payments and insurance premiums.
Employer-Provided Child Care Credit Enhanced
Starting in 2026, the credit increases from:
- 25% to 40% of qualified expenses (or 50% for eligible small businesses)
- $150,000 to $500,000 annual limit (or $600,000 for eligible small businesses)
These amounts will be indexed for inflation beginning in 2027.
Termination of Certain Clean-Energy Tax Incentives
Several energy-related tax credits will be phased out, including:
- Qualified commercial clean vehicle credit (after Sept. 30, 2025)
- Refueling property credit (after June 30, 2026)
- Energy-efficient commercial buildings deduction (construction after June 30, 2026)
- Energy-efficient home credit (homes sold/rented after June 30, 2026)
- Clean hydrogen production credit (after Dec. 31, 2027)
- Sustainable aviation fuel credit (after Sept. 30, 2025)
More to Come
As the IRS begins to issue guidance, we’ll continue to share updates to help you stay informed. If you have questions about how these small business tax law changes for 2025 may impact you, reach out to our team for personalized support.
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