The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, marks one of the most sweeping overhauls to the U.S. tax code in recent years. While the bill made headlines for extending individual tax cuts, it also introduced a range of provisions that directly affect business owners—especially those operating pass-through entities like LLCs and S-corporations.
If you’re a business owner, this legislation could significantly impact your deductions, depreciation strategy, and overall tax planning. Below are five of the most notable changes for businesses to come out of the OBBBA.
Change #1: State and local taxes (SALT) deduction increase
For taxpayers who choose to itemize deductions, there has been a longstanding opportunity to deduct state and local taxes (SALT) from federal tax returns. Prior to the 2017 Tax Cuts and Jobs Act (TCJA), there was no limit on how much a taxpayer could deduct for SALT. As part of the TCJA, however, a $10,000 cap was established, which became especially limiting for business owners with pass-through entities.
Certain business structures operate as “pass-through entities,” meaning the business’s tax liabilities are paid as part of the individual owner or shareholder’s personal tax. Examples of pass-through entities include partnerships, S corporations, and LLCs.
Starting in 2025, the OBBBA has raised the SALT deduction limit to $40,000.1
Notably, it left intact the widely-used workaround these businesses would employ to bypass the SALT deduction cap. Generally speaking, pass-through entities in eligible states can pay state taxes at the entity level—effectively bypassing the individual SALT cap altogether. Currently, 36 states offer these workarounds, though the specifics vary state-by-state.2
Here’s how it works: Instead of the business owner paying the tax personally, the business itself pays state income tax directly (called pass-through entity tax). Then, the owner gets a credit on their state tax return for that payment. This setup allows the business owner to fully deduct the state tax at the federal level—avoiding the previous $10,000 (now $40,000) cap.
The $40,000 SALT deduction cap is set to increase annually by 1% through 2029. It’s also important to note that the deduction does have an income limit. Those with a modified adjusted gross income of $500,000 or higher will be subject to a phase-out. The limit, however, will not drop below $10,000.1
Change #2: Qualified business income (QBI) deduction
The OBBBA has extended the qualified business income (QBI) deduction, also known as the Section 199A deduction. Originally introduced under the 2017 TCJA and scheduled to sunset after 2025, this provision allows eligible business owners of pass-through entities to deduct up to 20% of their QBI when calculating tax liability. Taxpayers with qualified real estate investment trust dividends and qualified publicly traded partnership income are also eligible for the 20% deduction.3
Along with locking in the QBI deduction indefinitely, the OBBBA also makes it more accessible to taxpayers who may not have previously qualified for the deduction. New income phase-in thresholds were increased to $75,000 for individuals and $150,000 for joint filers, up from $50,000 and $100,000, respectively.1
Starting next year, a new minimum $400 QBI deduction will be available for those who have participated in an active business and earned at least $1,000 of QBI from it. This addition is designed to benefit lower-revenue entrepreneurs, freelancers, and sole proprietors.
Change #3: Clean energy credits for businesses reversed
The OBBBA rolls back a number of clean energy tax incentives originally introduced in the 2022 Inflation Reduction Act. If you’re a business owner and considering investing in electric vehicles, alternative fuel stations, or energy-efficient building upgrades, the window to claim related tax benefits is narrowing fast.
Several credits are being phased out or eliminated entirely starting in 2025 as a result of the OBBBA.1 These include:
The Commercial Clean Vehicle Credit
Previously, businesses and nonprofits could qualify for a tax credit up to $7,500 for passenger-sized hybrid or electric vehicles and up to $40,000 for hybrid or electric school buses and semi-trucks. These vehicles had to meet the IRS’s standards for energy efficiency and be used for commercial purposes.4
The credit will no longer be available for vehicles purchased after September 30, 2025.1
The Alternative Fuel Refueling Property Credit
Businesses (and individuals) who installed qualifying recharging stations or clean-burning refueling property could previously qualify for this credit. The actual credit amount varied, but the maximum for businesses was capped at $100,000 per item or 6% the cost of the equipment or refueling property.5
This credit is set to expire after June 30, 2026.1
Section 179D
Business owners could receive tax deductions for installing qualifying energy-efficient property into commercial buildings. Qualifying expenses included:6
- Interior lighting
- Heating
- Ventilating
- Air conditioning (HVAC)
- Hot water (service water heating)
- Building envelope
Generally speaking, this deduction applied to new construction projects and building upgrades. The actual deduction amount depended on a dollar per square foot formula, which would increase based on how energy-efficient the improvements were.
This deduction will no longer be available for construction projects starting after June 30, 2026.1
Change #4: Accelerated bonus depreciation
The OBBBA makes 100% first-year bonus depreciation permanent for qualifying property placed into service after January 19, 2025.1 This is a significant change of course from the 2017 TCJA, which had set current first-year depreciation to 40% in 2025, 20% in 2026, and, eventually, 0% in 2027.
Businesses will now be able to immediately deduct the full cost of eligible new or used business assets, including machinery, equipment, computers, and other tangible property. Under previous rulings, they would have to spread deductions out over several years.
The OBBBA also broadens what property qualifies for bonus depreciation to include certain leasehold and retail improvements.
In addition, the Section 179 expensing limit is increased to $2.5 million, with a phase-out threshold of $4 million; both are indexed for inflation starting in 2025. This may give small and mid-sized businesses more incentive to invest in growth, since they won’t be required to defer the tax benefits.1
The OBBBA created a new 100% expense deduction for “qualified production property” placed into service between July 4, 2025, and January 1, 2031. This provision specifically targets nonresidential real estate property used in manufacturing, production, and refining activities.1
Change #5: Qualified small business stock (QSBS) gain exclusion
The OBBBA has implemented changes to qualified small business stock (QSBS), which may be applicable to startup founders, angel investors, and venture-backed companies.
Under the new law, the capital gain exclusions will now be based on how long the stock is held. If the stock is held for at least three years, 50% of the gain may be excluded from federal taxes. That exclusion increases to 75% if the stock is held for four years, and jumps to 100% after five years—encouraging longer-term investment in small businesses.
In addition to the holding period changes, the law also raises the cap on gain exclusions. Previously, the limit was $10 million (or ten times the taxpayer’s basis in the stock, whichever was greater). Under the new rules, that cap increases to $15 million, further expanding the potential benefit. The definition of what qualifies as a “small business” is also broadened, with the maximum allowable assets increasing from $50 million to $75 million.
These updates apply to QSBS shares issued after July 4, 2025.1
Business owners, it’s time to reassess your tax strategy
The One Big Beautiful Bill Act introduces some significant tax changes that can impact how business owners plan, invest in their business, and operate moving forward.
Whether you're managing a solo practice or running a large corporation, now is a good time to review your business’s tax strategy. By taking full advantage of these provisions, you could see some sizable savings in the coming years. Alternatively, certain cuts (like clean energy tax credits) may impact important decisions—including when and to what extent you make material changes to your business.
If you’re unsure how these updates affect your situation, you may want to speak to a financial advisor or tax professional. The OBBBA’s changes are wide reaching, and many of them are already in effect.
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