On May 22, 2025, the House passed One Big Beautiful Bill Act (H.R. 1) (referred to here as “the bill”), which is a reconciliation bill including legislation from 11 House Committees…including the Ways and Means Committee for taxation. The Senate now has to address the measure, with a target date for enactment by Congress set at July 4th. While the bill that passed the House may be changed in the Senate so that a final bill could look somewhat different than it does now, it’s not too early for small business owners to begin thinking about what opportunities from pending legislation they can use this year. The following won’t get into details (that will happen when there’s a final bill because of possible changes) but is designed to get you thinking about actions to take now.
Overview
Many of the tax breaks under the Tax Cuts and Jobs Act of 2017 are set to expire at the end of 2025. The bill would extend and make permanent many of these breaks, such as the current tax brackets for individuals. Others, such as tax deferral for investments in Opportunity Zones, would be extended for a limited time.
Equipment purchases
Do you need to replace old machinery and equipment. Do you need new items? Tax law changes, if enacted, could essentially reduce your out-of-pocket costs due to favorable tax changes.
- Bonus depreciation. The bill would set bonus depreciation at 100% for purchases placed in service after January 19, 2025. This means the cost of qualifying equipment is immediately deductible; claiming depreciation over a number of years won’t be required. The bill also introduces a special write-off for qualified production property used in agricultural or chemical production.
- First-year expensing. The bill would increase the dollar limits on the Section 179 deduction for property bought and placed in service after 2024.
Remember that both bonus depreciation and first-year expensing apply whether you finance the purchase in whole or in part. If you don’t have the cash on hand for a purchase, check with the vendor to see if financing is available.
R&D
Does your business engage in research and experimentation? Costs for R&D after 2024 would be expensed rather than deducted ratably over 5 years. The expensing option would be only for a limited number of years.
QBI deduction
Are you an owner of a pass-through entity? You may get a larger QBI deduction for 2025 and beyond. Instead of the 20% deduction that’s been in place since 2018 and was set to expire at the end of 2025, the bill would increase the deduction to 23% starting in 2026 and make it permanent. The bill would also make changes to some other rules for the QBI deduction. One change for 2025 would be excluding amounts related to the new tips deduction from QBI.
SALT cap
Do you pay a lot when it comes to your personal state and local taxes? This may include state income taxes on your business profits from a pass-through entity. The bill would increase the SALT cap from the current $10,000 to $40,000, starting in 2025. At the same time, it would eliminate the benefit of deductions for state-level pass-through entity taxes (PTETs) for partners and S corporation shareholders, effective for 2025 and beyond.
Changes related to tips and overtime
There are two measures to watch with respect to tips:
- Employer credit for taxes on tips. Employers in the food and beverage industry currently have a tax credit for Social Security taxes on tips. The bill would extend this break to employers in the beauty service industry (e.g., hair salons, barbershops, nail salons) beginning in 2025.
- No tax on tips. The deduction that employees could claim on their tips could be retroactive to January 1, 2025.
No tax on overtime. The deduction that employees could claim on overtime could also be retroactive to January 1, 2025.
What to do: While the no tax on tips and overtime are tax breaks claimed by employees on their personal returns, employers will have new reporting on W-2s. Employers may want to begin to update their recordkeeping for W-2 purposes so they’re ready for reporting in 2026. And employees may want to submit new W-4s to adjust their income withholding if these deductions apply to them. But there is no change for employers when it comes to income tax withholding and FICA taxes.
End to some green energy breaks
The bill would end tax credits for certain green energy actions. For example, the tax credit for buying a previously-owned EV or a commercial EV would apply only through 2025. Similarly, the alternative fuel refueling property credit (the credit applicable for installing a charging station) would also end after 2025. If you want to buy a used EV or a commercial EV or install a charging station, you might want to do it soon…before the end of this year. Note: The credit for a new EV would run only through 2026.
If you are a home builder, the credit for new energy efficient homes would also end this year. Projects underway before 2026 may squeak by.
What’s not in the bill?
The bill does not extend the work opportunity credit for hiring employees from certain targeted groups (e.g., long-term unemployed; ex-felons). It is set to expire at the end of 2025. If you’re hiring, keep this tax-saving benefit in mind. The credit applies for an eligible employee who begins work by December 31, 2025. Of course, this credit could be extended by the Senate and included in a final bill.
Currently, the cap on the deduction for startup costs for the first year is $5,000. Shopify found that the average amount of startup costs is $40,000. Previously proposed bills would have increased the limit to $20,000 (four times the current limit) to as high as $50,000, but none of the proposals were included in H.R. 1.
The bill does not lower the corporate tax rate for manufacturers, as had been proposed.
What to do now?
If the bill is enacted and these and other favorable tax breaks would lower your 2025 tax bill, you probably want to adjust your remaining estimated tax payments for 2025. Why overpay your taxes and have to wait for a refund when you file your return in 2026?
Final thought
Once the bill is enacted, details of specific measures will be covered in future blogs. Stay in touch with your CPA or other tax adviser to learn which changes apply to you and what to do to take advantage of them.
Additional information concerning tax law and small business can be found in this list of blogs.
