2025 Tax Changes for Small Business Owners: What to Know Now and How to Plan Ahead

Learn some of the most important 2025 tax changes for small business owners, including updates to Section 179, bonus depreciation, R&D expensing, and interest deductions. Understand how these changes may impact your tax return and planning strategies for 2025 and beyond.

By Kendall Maccagnan, CPA, CFP® and Financial Advisor in Tampa, Florida

Key Takeaways

1. Several 2025 tax law changes for small businesses increase immediate expensing opportunities, including higher Section 179 limits and the return of 100% bonus depreciation

2. R&D expenses may now be fully deductible again, with potential opportunities to amend prior year returns

3. Interest deduction rules have been modified to restore EBITDA based calculations, which may increase deductible interest for businesses carrying significant debt

4. Enhanced tax benefits for small business owners with pass-through entities, as planning opportunities may exist at both the individual and business level

Introduction

As the 2025 tax filing season approaches, several tax law changes could impact your 2025 tax return as a small business owner and many changes could influence multi year tax planning decisions. On July 4, 2025, Public Law 119–21 (commonly referred to as the "One Big Beautiful Bill Act" or OBBBA) was enacted extending key provisions from the Tax Cuts and Jobs Act (TCJA) while expanding benefits in areas such as immediate expensing, interest deductibility, and research and development costs.

Because many small businesses operate as pass-through entities, these changes may also interact with individual tax provisions, further influencing overall tax outcomes. Understanding how these updates apply can help provide clarity as business owners evaluate equipment purchases, financing decisions, and broader planning strategies in 2025 and beyond.

This article is part of a broader series breaking down tax law changes by taxpayer type and tax year. Additional changes impacting future tax years will be addressed in separate articles.

A Summary of Important Tax Changes for Small Business Owners

Brief Background

The Tax Cuts and Jobs Act (TCJA), enacted in 2017, introduced several key tax provisions for small business owners, many of which were scheduled to expire after 2025. In response, One Big Beautiful Bill or OBBBA (Public Law 119–21 ) was enacted on July 4, 2025, addresses much of that uncertainty by extending a number of these provisions while also modifying rules around expensing limits, interest deductions, and R&D deductibility.

This article focuses on some of the most relevant federal tax changes to small business owners not only for the 2025 tax year but extending into future planning years. Because many small businesses operate as pass-through entities, individual tax changes may also apply. Some of the most important changes for individuals for the 2025 tax year are covered in our companion article, 2025 Tax Changes for Individuals.

Key 2025 and Future Tax Changes for Small Businesses

QBI deduction

The OBBBA removed the scheduled expiration of the 20% Qualified Business Income (QBI) deduction, which had been set to sunset after 2025 under the TCJA. Under current law, this deduction has no automatic expiration date, though future legislation could modify these provisions. For pass-through business owners, this update removes a significant source of long term uncertainty. The OBBBA also introduced several enhancements to the QBI deduction beginning in 2026 which will be covered in a separate 2026 Tax Changes for Small Business Owners article.

Section 179 Deduction Changes in 2025 and Future: Increased Expensing Limits

OBBBA significantly increases the amount small business owners can expense under Section 179. Beginning in 2025, the maximum deduction increases from the TCJA pre inflation adjusted limit of $1 million to $2.5 million, while the phaseout threshold rises from $2.5 million to $4 million of qualifying property placed in service. Both amounts are indexed for inflation in future years. Because the deduction is reduced dollar for dollar above that threshold, it is fully phased out once qualifying purchases reach $6.5 million. This applies to property placed into service in taxable years starting on January 1, 2025.

Section 179 allows businesses to immediately deduct the cost of certain equipment, machinery, and other qualifying assets rather than depreciating those costs over time. These higher limits may provide additional flexibility for businesses making larger capital investments.

Full Expensing of Business Property Starting in 2025 (and Beyond): 100% Bonus Depreciation Explained

OBBBA permanently restores 100% bonus depreciation, allowing small business owners to immediately deduct the full cost of qualifying business property in the year it is placed in service. This applies to assets that generally have a recovery period of 20 years or less such as equipment, furniture, machinery, and certain improvements, rather than depreciating those costs over multiple years. Bonus depreciation is not subject to the same dollar limitations as Section 179 and can create a net operating loss that can be carried forward to use in future years.

The provision generally applies to property acquired and placed into service after January 19, 2025, with an optional election to apply a reduced percentage in limited situations. For small business owners, this may create opportunities to better align equipment purchases and other capital expenditures with tax planning strategies by year, depending on overall income and business needs.

When to use Section 179 Vs Bonus Depreciation

When deciding between Section 179 and bonus depreciation, there are several important factors to evaluate including:

These are just a few considerations when evaluating Section 179 vs. bonus depreciation. In many cases, a combination of both strategies may provide the most effective tax outcome depending on the situation.

R&D Expensing: Full Deduction Restored for 2025 and Beyond

The One Big Beautiful Bill act introduces changes affecting businesses that invest in research, product development, or software. Under the new Section 174A, domestic R&D expenses may once again be fully deducted in the year they are paid or incurred rather than being amortized over five years as previously required.

Eligible businesses meeting the gross receipts test under section 448(c), may be eligible to amend previously filed returns and elect retroactive application of these rules back to January 1, 2022. Reviewing the IRS publication outlining the activities that qualify may provide additional context.

Interest Deduction Changes for Small Businesses in 2025 and Beyond

OBBBA permanently restores the EBITDA based calculation for business interest deductions. EBITDA can be defined as earnings before interest, taxes, depreciation, and amortization. The 2022 TCJA cliff quietly tightened interest deduction limits. This legislation undoes that, restoring the more business friendly EBITDA calculation allowing businesses to once again add back depreciation and amortization to adjusted taxable income.

From a planning perspective this could be an impactful change in interest deductions for businesses that carry significant debt.

Other Considerations for Small Businesses for the 2025 and Future Tax Years

1099-K Reporting Changes for Small Business Owners

The OBBBA retroactively restated the American Rescue Plan Act of 2021 which required payment platforms (such as PayPal, Venmo, or Etsy) to send a 1099-k to any payee that received more than $600 in total payments for sales of goods or services regardless of the number of transactions. OBBBA repeals this rule and reverts back to the old $20k and 200 transactions rule. This may be a relief for small business owners as it minimizes reporting headaches and administrative paperwork.

Updates for Small Business Owners with Pass-Through Business Entities

Many small business owners operate through pass-through entities such as sole proprietorships, partnerships, S corporations, or single member LLCs. For these business owners, individual tax changes can be just as impactful as business specific provisions because business income flows directly to the owner's personal return.

Several of the individual tax changes covered in our companion article, 2025 Tax Changes for Individuals, may be particularly relevant for small business owners filing through pass-through structures:

Reduced Tax Rates and Increased Standard Deduction — Because pass-through income is taxed at individual rates, the extension of reduced tax rates and the increased standard deduction may directly lower the tax burden on business income reported on a personal return.

Tip Income and Overtime Deductions — Small business owners in industries that rely on tipped employees such as restaurants, hospitality, and personal services should be aware of how these new deductions may affect employees' individual returns, as well as any reporting obligations at the business level.

SALT Deduction Increase to $40,000 — For business owners who itemize, the expanded SALT cap may provide additional deduction value.

Senior Deduction for Owners Age 65+ — Business owners who are 65+ and receiving pass-through income may be eligible for the new $6,000 senior deduction, subject to applicable income phaseout thresholds.

For a full breakdown of these provisions, including eligibility requirements and phaseout ranges, see our companion article: 2025 Tax Changes for Individuals.

What This Means for Small Business Owners 2025 and Beyond

• Expanded expensing rules may improve cash flow and timing of deductions

• Higher limits may allow for larger capital investments to be deducted upfront

• Changes to R&D and interest rules may increase available deductions

• Pass-through business owners may see additional planning opportunities at both the business and individual level

Amounts shown are subject to eligibility requirements and may vary based on individual circumstances. Tax provisions under Public Law 119-21 are subject to ongoing IRS guidance and regulatory updates. Readers should verify current IRS guidance before making tax decisions.

This content is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. It is not intended as a solicitation or offer to provide advisory services in any jurisdiction where Off The Bay Wealth, LLC is not properly registered or otherwise permitted to operate. Information presented is based on sources believed to be reliable; however, accuracy and completeness are not guaranteed. This material is not intended to be a comprehensive analysis of all topics discussed. Tax provisions are subject to ongoing IRS guidance and regulatory updates. Any financial decisions should be made in consideration of your individual circumstances, including your goals, risk tolerance, and time horizon. Investing involves risk, including the potential loss of principal.