The Impact of the One Big Beautiful Bill Act on Small Businesses

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, by President Donald Trump, represents a significant overhaul of the U.S. tax code, building on elements of the 2017 Tax Cuts and Jobs Act (TCJA) while introducing new provisions. Often referred to as the "big beautiful bill," it aims to stimulate economic growth through pro-business tax reforms, with a particular focus on small businesses, which form the backbone of the American economy.

By making certain deductions permanent, expanding expensing options, and offering targeted credits, the OBBBA gives small business owners more financial flexibility and certainty, lowers tax burdens, and provides incentives for investment and innovation. Below, we examine five key ways this legislation affects small businesses, using its provisions to highlight opportunities and challenges in the changing tax landscape.

Permanent Qualified Business Income Deduction

The OBBBA makes the 20% Qualified Business Income (QBI) deduction under Section 199A permanent, preventing its scheduled expiration at the end of 2025. Previously temporary under the TCJA, this deduction allows owners of pass-through entities—such as sole proprietorships, partnerships, and S corporations—to deduct up to 20% of their qualified income, effectively lowering their tax rate.

The bill enhances provisions by increasing phase-in income limits to $75,000 for single filers and $150,000 for joint filers for certain service trades. It also includes an inflation-adjusted minimum deduction of $400 for those with at least $1,000 in QBI. For small businesses, this leads to long-term tax savings, which can be reinvested into operations, hiring, or expansion. It helps create a level playing field with larger corporations, fostering stability during economic uncertainty, although phase-outs may still limit benefits for higher earners.

Expanded Bonus Depreciation and Section 179 Expensing

The legislation establishes permanent 100% bonus depreciation for eligible business equipment and property placed in service after January 19, 2025. This allows small businesses to deduct the full cost of qualifying assets in the year they are purchased, rather than spreading it out over time, with certain limitations. Additionally, the OBBBA permanently increases Section 179 expensing limits from $1 million to $2.5 million, and raises the phase-out threshold to $4 million, both adjusted for inflation after 2025.

These changes lower upfront tax liabilities, boosting cash flow for capital-heavy small businesses like manufacturers or retailers. By speeding up deductions, companies can invest more boldly in technology or equipment, driving growth, but they must navigate complex eligibility rules to maximize advantages.

Immediate Expensing of Research and Experimental Costs

The OBBBA allows immediate expensing of domestic research and experimental (R&E) costs under Section 174, starting with tax years after December 31, 2024. Reversing an earlier requirement to amortize these costs over five years, the provision is retroactive to 2022 for small businesses with average gross receipts of $31 million or less. This is a big help for innovative startups and tech-focused small businesses, as it reduces the tax burden of R&D activities and promotes investment in new products or processes.

For example, a small software company can immediately deduct development costs, freeing up money for more innovation. However, restrictions on foreign R&E and strict documentation rules could create administrative challenges.

Enhanced Paid Family Leave and Child Care Credits

The bill extends and makes permanent the tax credit for employer-provided paid family and medical leave (PFML), which was due to expire in 2025. Small businesses can now claim a credit for offering PFML, helping them attract and retain talent without bearing the full cost. Additionally, the OBBBA enhances the employer-provided child care credit under Section 45F, increasing the maximum from $150,000 to $500,000 (up to $600,000 for small firms with receipts under $31 million) and covering 40-50% of expenses.

These incentives address workforce challenges, enabling small businesses to compete with larger employers on benefits, though implementation may require additional administrative efforts.

Temporary Deductions Benefiting Service and Labor Sectors

Temporary deductions through 2028 for taxes on tips (up to $25,000), overtime pay (up to $12,500 for single filers / $25,000 for joint filers), and car loan interest (up to $10,000 for U.S.-assembled vehicles) indirectly support small businesses in service and labor-intensive industries. By increasing take-home pay for employees, these "no tax on" provisions can boost worker morale and help reduce turnover in sectors like hospitality and retail.

Small business owners may see indirect gains through a more motivated workforce and stimulated consumer spending, but phase-outs for higher earners (e.g., $150,000) limit broader applicability.

Bottom Line

In summary, the OBBBA provides small businesses with lasting tax relief, encouraging investment and competitiveness. While these changes bring significant benefits, owners should seek professional advice to handle complexities and stay compliant, setting them up for long-term success in a changing economy.