One Big Beautiful Bill Act (OBBBA) Tax Changes: What Small Businesses Need to Know

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, addresses tax provisions affecting small businesses and individuals (Public Law 119-21). The law makes permanent many provisions scheduled to expire, introduces new benefits for capital investments and working individuals, and affects timing of business structure elections and capital purchases. The provisions below apply to 2026 tax years and beyond. provisions include a temporary expansion of the SALT deduction cap to $40,400 in 2026, permanent restoration of 100% bonus depreciation, increased Section 179 limits to $2.56 million, and new deductions for tips, overtime, auto loan interest, and enhanced standard deductions for seniors.

For capital-intensive small businesses, OBBBA changed three capital investment provisions: Section 179 expensing limits increased from $1.22 million (2024) to $2.5 million baseline ($2.56 million inflation-adjusted for 2026), with phaseout threshold rising to $4 million baseline ($4.09 million for 2026), bonus depreciation permanently restored to 100% for assets placed in service after January 19, 2025, and a new full expensing provision for 'qualified production property' (manufacturing facilities and related assets traditionally depreciated over 39 years). When combined, these provisions allow businesses to immediately deduct most capital equipment purchases rather than depreciating them over many years. For example, a manufacturing business purchasing $3 million in equipment can now fully expense it in 2026, generating a $3 million deduction that offsets other business income in that tax year. The SALT deduction cap increased to $40,400 (adjusted annually for inflation through 2029) increases the deductible amount for filers in high-tax states like California, New York, and New Jersey who pay state and local property, income, and sales taxes exceeding the prior $10,000 cap. However, the increased cap phases down by 30% of the amount exceeding $500,000 in modified AGI, with a floor of $10,000. Additionally, the QBI (Qualified Business Income) deduction, which allows business owners to deduct up to 20% of qualified business income, was made permanent, eliminating uncertainty about its expiration.

OBBBA also introduced individual tax provisions that affect household tax liability. Employees and self-employed individuals in customary-tipping occupations can deduct up to $25,000 in tip income (single) or $50,000 (married filing jointly, with each spouse limited to $25,000), provided MAGI doesn't exceed $150,000 (single) or $300,000 (joint). Workers can deduct overtime compensation up to $12,500 annually ($25,000 joint filing), phasing out above $150,000 MAGI. A new deduction for vehicle loan interest allows up to $10,000 in interest annually on loans for new U.S.-assembled vehicles weighing less than 14,000 pounds, phasing out above $100,000 MAGI. Individuals age 65 and older can claim an additional $6,000 deduction per qualifying taxpayer (indexed for inflation), separate from and stacked with the standard deduction increase. These provisions are temporary (through 2028) for worker income deductions. One planning consideration is timing relative to expiration dates—such as timing large auto purchases before the deduction expires—which may affect tax planning across multiple years.