On July 4, President Trump signed the One Big Beautiful Bill Act, a sweeping tax reform law that extends tax cuts, adjusts federal spending, and makes permanent some of the most significant provisions of the 2017 Tax Cuts and Jobs Act.
For small businesses, two outcomes of the final legislation are particularly important:
- The State and Local Tax (SALT) Deduction is Preserved
- The Qualified Business Income (QBI) Deduction is Made Permanent at 20%
Why These Changes Matter for Small Business Owners
Nearly 95% of U.S. businesses are organized as pass-through entities (LLCs, partnerships, S corporations, and sole proprietorships). These changes directly affect the kinds of businesses that drive our communities—family-owned restaurants, real estate investors, medical and dental practices, independent contractors, freelancers, and professional service firms—many of whom are structured as pass-through entities. These businesses rely on deductions like SALT and QBI to remain competitive and profitable.
Benefits of SALT Deduction are Here to Stay
The State and Local Tax (SALT) deduction allows business owners to deduct certain state and local taxes—like income or property taxes—against their federal taxable income. For many small businesses structured as pass-through entities (LLCs, S corporations, partnerships, sole proprietors), this deduction can significantly reduce overall tax liability.
Earlier drafts of the bill would have eliminated the SALT deduction for professional service firms, shifting tax liability to individual partners and owners—effectively subjecting them to the individual SALT cap. Studies projected this would raise taxes on small firms by up to $80 billion over ten years. Thanks to advocacy from the American Bar Association (ABA) and others, this proposal was removed.
QBI Deduction Made Permanent
The Qualified Business Income (QBI) deduction—sometimes called the “20% pass-through deduction”—allows owners of pass-through entities (like LLCs, partnerships, S corporations, and sole proprietorships) to deduct up to 20% of their qualified business income from their federal taxable income.
The 20% QBI deduction—originally set to expire in 2025—is now permanent. While the deduction still phases out at higher income levels for law firms and other specified service trades or businesses, the income thresholds have been modestly increased. This allows more owners to claim at least part of the deduction.
For many small business owners—including real estate investors, family-owned companies, medical practices, contractors, and professional service firms—this deduction provides meaningful tax savings each year.
What This Means for Small Business Owners
- Entity choice matters – Whether you operate as an LLC, S corp, partnership, or sole proprietorship, your structure affects how much of these tax benefits you can actually use. Now is the time to revisit whether your entity type still serves your financial goals.
- SALT deduction preserved – Small businesses can continue deducting state and local taxes at the entity level, avoiding a significant tax hike.
- Stability in planning – With the 20% QBI deduction here to stay, owners can confidently make longer-term decisions about reinvestment, retirement contributions, and succession planning.
- Relief for professional services – Law firms, medical practices, and other specified service businesses avoided what could have been a major increase in taxes.
- Phase-outs still apply – Professional service businesses benefit from modestly higher income thresholds, but there are still limits. Strategic income planning may help preserve more of the deduction.
- Opportunities for growth – Preserving these deductions keeps more money in business owners’ pockets, freeing up cash flow for hiring, expansion, or paying down debt.
Final Thought on Tax Benefits
Tax reform debates aren’t over, and future changes could still affect your bottom line. In fact, IRS data shows that in places like DC and Maryland, about 1 in 5 taxpayers claim the SALT deduction—with average deductions topping $8,000.
Now is a great time to review your business structure and tax strategy to be sure you’re getting the full benefit of what’s available.
👉 If you’re unsure how these changes affect your business, schedule a consultation with us today—we’ll help you make the most of your tax savings and protect your bottom line.