What the One Big Beautiful Bill Means for Small Business Owners: Key Tax Changes and What to Do Now
July 31, 2025
On July 4, 2025, Congress passed the sweeping One Big Beautiful Bill (OBBB), enacting a series of major changes to the federal tax code. While the bill spans a broad range of topics, several of its provisions are directly relevant to small business owners, especially those thinking about long-term growth, reinvestment, or succession planning.
At Lawvex, we’ve broken down the most important updates for our business clients and what steps you might want to take as a result.
✅ 1. 20% Pass-Through Deduction Made Permanent
One of the most valuable tax breaks for small business owners is now here to stay: the 20% qualified business income deduction, originally set to expire in 2026, is now permanent.
What is it?
Business owners can deduct up to 20% of their qualified business income (QBI) from their personal taxable income. This significantly reduces federal income taxes—without changing your business earnings.
Who qualifies?
To benefit, your business must be a pass-through entity, such as:
- Sole proprietorship
- Partnership or LLC taxed as a partnership
- S‑Corporation
Note: C‑Corporations do not qualify for this deduction. This is a key consideration when deciding how your company should be structured.
Example:
A self-employed marketing consultant operating an LLC reports $200,000 in QBI. With the 20% pass-through deduction, they can deduct $40,000—paying tax on only $160,000 of income.
What to do:
If your business is currently taxed as a C‑Corporation, now is the time to consult with a tax-savvy attorney or CPA to see whether electing S‑Corp status might reduce your overall tax burden.
🛠 2. 100% Bonus Depreciation Returns
If you’re planning to reinvest in your business through capital purchases, this change matters.
Under the OBBB, bonus depreciation is restored to 100% for eligible purchases placed in service after January 19, 2025.
What counts as “eligible equipment”?
- Business vehicles (typically over 6,000 lbs. GVWR)
- Machinery and industrial equipment
- Computers, office electronics, and servers
- Furniture, fixtures, and shelving
- Software purchased and used in your business
This allows you to deduct the entire cost of qualifying items in the year of purchase, instead of spreading deductions over several years.
📈 3. Big Expansion of Qualified Small Business Stock (QSBS) Benefits
This is one of the most impactful changes—especially for business owners planning to exit, sell, or transfer their business in the next few years.
What is QSBS?
Qualified Small Business Stock (QSBS), governed by IRC §1202, allows shareholders of certain U.S.-based C‑Corporations to sell stock with little or no capital gains tax, depending on how long they’ve held it.
New rules under OBBB:
- Asset cap raised: Businesses with up to $75 million in assets (up from $50M) now qualify
- Tax-free gain cap increased: From $10M to $15M or 10× investment, whichever is greater
- Shorter holding periods for exclusion:
- 3 years = 50% gain exclusion
- 4 years = 75%
- 5 years = 100%
Why it matters for succession planning:
This creates new flexibility for owners looking to transition or sell their business:
- You may not need to wait the full 5 years to sell and still receive favorable tax treatment
- Investors and key employees may be more motivated to accept equity
- Strategic buyers may view your business as more attractive due to tax-efficient exit options
If you own a C‑Corporation or are thinking of forming one, this is the time to consider structuring your stock and operations to take advantage of these rules.
📃 Other Noteworthy Changes for Small Business
1099‑MISC/NEC Filing Threshold Increased
The threshold for issuing a 1099 to contractors rises from $600 to $2,000 per year. This reduces compliance burdens and filing obligations, especially for businesses using freelance or gig labor.
Deductible Interest on U.S.-Assembled Vehicle Loans
Between 2025 and 2028, businesses may deduct up to $10,000/year in interest on loans for qualifying U.S.-assembled vehicles. This includes many trucks, vans, and service vehicles.
Tip & Overtime Employee Deductions
Employees who earn substantial tips or overtime can now deduct up to $25,000/year in income for federal tax purposes. While this directly benefits employees, businesses should ensure payroll systems accurately track tips and hours for reporting.
🧭 What Small Business Owners Should Do Now
| Action Item | Why It Matters |
| Review your business entity type | S‑Corp vs. C‑Corp affects access to the 20% deduction |
| Plan capital purchases | 100% bonus depreciation is back—save big on equipment |
| Explore QSBS eligibility | May enable a faster and more tax-efficient exit |
| Update 1099 tracking | Avoid over-reporting under the new threshold |
| Communicate payroll changes to staff | Ensure employees understand new tip/overtime deductions |
Let Lawvex Help You Move Forward with Confidence
The OBBB introduces significant opportunities—and some complexity. Whether you’re a solo founder or managing a team of 50+, Lawvex is here to help you:
- Evaluate your tax structure
- Align capital spending with legal and financial strategy
- Design a business succession plan that protects your legacy
Schedule a consultation with our business law team today to ensure you’re positioned to take full advantage of the changes.
Lawvex is a California-based law firm focused on helping small businesses succeed and transition with confidence. This post is for educational purposes only and does not constitute legal or tax advice.
