Overview of the Key Small Business and Tax Provisions in the July 2025 Reconciliation Package

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act [reconciliation package]. The bill includes hundreds of provisions, including extended and expanded tax cuts, and deep cuts to Medicaid, food benefits and other social welfare programs. The bill is also projected to add more than $3 trillion to the national debt over the next decade. Over the course of the last week, Republicans made several last minute changes to the bill, including stripping out controversial provisions (such as a 10 year moratorium on state-level AI regulations and a sell-off of public lands in 11 western states). The package includes significant additional funding to the Department of Homeland Security for immigration enforcement, and to the Department of Defense.

Below is an analysis of the tax provisions included in the bill, with special attention to provisions that impact small business owners, including tax cuts, paid leave/childcare provisions, etc.

TCJA Tax Provisions:

One of the most significant sections of the reconciliation package covers the extension of the 2017 Tax Cuts and Jobs Act (TCJA), signed into law by President Trump. Below is a side-by-side comparison of the 2017 TCJA tax provisions and those that were included in the reconciliation package:

Existing Law	Reconciliation
Pass-Through Deduction: The TCJA created a 20% deduction for qualified income from pass-through businesses like sole proprietorships, partnerships, and S-corps. The benefit phases out for higher earners, especially in service industries, and was set to expire after 2025.	Pass-Through Deduction: Permanently extends the 20% deduction for pass-through business income from TCJA, currently scheduled to expire after 2025. This deduction is also referred to as 199A or the qualified business income (QBI) deduction. Starting in 2026, provides a minimum $400 deduction for taxpayers with at least $1,000 in qualified business income from actively running a trade or business, with both of those figures adjusted for inflation after 2026. Cost over 10 years: $737 billion
Depreciation allowance for qualified production property: The TCJA provided 100% bonus depreciation for machinery and equipment from calendar years 2018 through 2022, declining 20 percentage points each year from 2023 through 2027 until it reaches 0%.	Depreciation allowance for qualified production property: Permanently allows immediate expensing of 100 percent of the cost of qualified property acquired on or after Jan. 19, 2025 Cost over 10 years: $363 billion
Full Expensing for Domestic Research & Development Expenses: Businesses were required to amortize – or spread out – their deductions for R&D.	Full Expensing for Domestic Research & Development Expenses: Permanently allows immediate expensing beginning with the 2025 tax year. Allows retroactivity to the beginning of 2022 (not just the beginning of 2025) for small businesses that meet an average annual gross receipts threshold of $31 million or less. Cost over 10 years: $141 billion
Expand Business Interest Deductions Before the TCJA, both C-corporations and pass-through businesses could deduct 9% of income from qualified domestic production activities (Section 199). About 70% of the benefits went to C-corps, and 30% to pass-throughs. TCJA permanently repealed this deduction in 2018.	Expand Business Interest Deductions: Permanently restores a more generous interest deduction limit that was in place from 2018 through 2021 under TCJA, retroactive from January 1, 2025 onwards. The more generous interest deduction limit is based on earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than earnings before interest and taxes (EBIT). The EBIT standard went into effect in 2022. Cost over 10 years: $61 billion
Opportunity Zones (OZ): Investors can elect to temporarily defer tax on capital gains that are reinvested in a Qualified Opportunity Fund (QOF). The tax on the gain can be deferred until the earlier of the date on which the QOF investment is sold or exchanged, or Dec. 31, 2026. If the investor holds the investment in the QOF for at least ten years, the investor may be eligible for a permanent exclusion of any capital gain realized by the sale or exchange of the QOF investment.	Opportunity Zones (OZ): Establishes a new, permanent OZ program, with OZ designations every 10 years starting as early as Jan. 1, 2027. Tightens the requirement for OZ designations to be in low-income census tracts, with median family income not exceeding 70% of statewide median income (as opposed to 80% in current law). Requires realization of gains in the fifth year of any given 10-year OZ window. Provides a bonus “basis boost” for OZs in rural areas, at 30% of the investment instead of 10%. Cost over 10 years: $41 billion
Itemized Deductions: The TCJA suspended for 2018 through 2025 a large group of deductions lumped together in a category called "miscellaneous itemized deductions" that were deductible to the extent they exceeded 2% of a taxpayer's adjusted gross income.	Itemized Deductions: Makes permanent the termination of most miscellaneous itemized deductions and imposes a new limit on all itemized deductions Cost over 10 years: $24 billion
Exception to Limit of Deductions for Business Meals: TCJA generally eliminated the deduction for any expenses related to activities considered entertainment, amusement or recreation. However, under the law, taxpayers can continue to deduct 50% of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant.	Exception to Limit of Deductions for Business Meals: Preferential treatment for meals provided to crew members on a commercial vessel, certain fishing vessels or certain fish processing facilities. Under TCJA, businesses face new limits starting in 2026 for deducting business meals, including those provided on-site to employees.
Expensing for Small Businesses: Before the TCJA, the government capped business taxpayers’ Section 179 deduction at $500,000, with a phase-out beginning at $2 million. The TCJA raised the deduction limit to $1 million and the phase-out threshold to $2.5 million, including annual adjustments for inflation.	Expensing for Small Businesses: Increases the sec. 179 expensing allowance targeted at small businesses, from a maximum of $1.25 million in 2025 to a maximum of $2.5 million in 2025. Raises the threshold at which the allowance begins to phase out, from $3.13 million in sec. 179 property in 2025 to $4 million in sec. 179 property in 2025. Cost over 10 years: $25 billion
Standard Deduction: $15,000 single; $30,000 married filing jointly for 2025	Standard Deduction: Increase by $750 ($1,500 for couples) in 2025 and make permanent with inflation adjustments. $15,750 single; $31,500 married filing jointly for 2025 Cost over 10 years: $2,193 billion
Bonus Deductions for Older Adults: $1,600 for age 65 and older for 2025; $2,000 unmarried/not surviving spouse for 2025	Bonus Deductions for Older Adults: Make permanent the termination of personal exemptions (they were replaced by a larger standard deduction and child tax credit in the 2017 tax bill) and add an additional $6,000 deduction for seniors (65+) for tax years 2025-28 Those eligible would receive the full deduction if their adjusted gross income is up to $75k for a single filer and $150k for those married/filing jointly. For taxpayers above the thresholds, the deduction would phase out at a 6% rate. Savings over 10 years:* $1,807 billion
State and Local Tax Deductions (SALT): $10,000 limit through 2025	State and Local Tax Deductions (SALT): Cap itemized deductions for state and local taxes at $40,000 per household; increase annually; then revert to $10,000 in 2030. The current cap is set to expire next year, so any cap imposed would save the government money. Savings over 10 years: $946 billion
Child Tax Credit Max credit of $2,000 per child through 2025; refundable portion of $1,700 for 2025	Child Tax Credit: Permanently increase to $2,200 in 2026 and require a Social Security number from one parent. Taxpayers must earn at least $2,500 in annual income to qualify for the refundable portion ($1,700) of the tax credit. Cost over 10 years : $817 billion
Estate and Gift Tax Exemption: $13.99 million for single filers; $27.98 million for married filing jointly for 2025	Estate and Gift Exemption: Increases and permanently extends the estate and lifetime gift tax exemption: $15 million single; $30 million married filing jointly for 2026 *Cost over 10 years:* $212 billion
Charitable Deduction for Non-Itemizers The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed an above-the-line deduction for non-itemizers for individual contributions of up to $300 for charity. This policy was temporarily expanded in 2021 by increasing the above-the-line limit to $600 for married couples. It expired at the end of 2021.	Charitable Deduction for Non-Itemizers Creates a deduction for charitable contributions from 2026 onwards for those who do not itemize deductions, equal to $1,000 for single taxpayers and $2,000 for married couples. Cost over 10 years: $74 billion

New (Non-TCJA) Tax Provisions:

The package also enacts a number of new tax provisions that will only last through the remainder of President Trump’s term, meaning they will expire in 2028 unless they are continued via Congressional action.

● No Tax on Overtime:

○ Adds a deduction for qualified overtime compensation from 2025-2028

○ There is a limit of $12,500 on the amount of the deduction ($25,000 for married couples)

○ The deduction applies to the extra compensation a taxpayer earns overtime, not their entire compensation during (if a taxpayer regularly makes $20 per hour and $30 during overtime, the deduction would only apply to the $10 per hour in extra compensation)

○ The deduction phases out at a 10% rate for single taxpayers making less than $150,000 and married couples making more than $300,000

○ Cost: $89 billion

● No Tax on Tips:

○ Adds a deduction for qualified tips from 2025-2028

○ Includes a $25,000 limit on the amount of the deduction, and the deduction is generally limited to occupations that the Treasury certifies “customarily and regularly” receives tips before 2025.

○ The deduction phases out at a 10% rate for single taxpayers making $150,000 and married couples making more than $300,000.

○ Cost: $31 billion

● No Tax on Car Loan Interest:

○ Creates a new deduction for certain auto loan interest from 2025-2028

○ The deduction is limited to $10,000 overall and phases out at about 20% for single payers making above $100,000 and married taxpayers making above $200,000

○ The deduction only applies to vehicles that are completed (i.e. assembled) in the US and only applies to new vehicles (not used vehicles)

○ Cost: $31 billion

● “Trump Accounts”:

○ Creates new savings accounts called “Trump Accounts”, only available to children under 18 in a given year, and the contribution limits are generally $5,000 per year, adjusted for inflation

○ Amounts from the Trump Accounts may not be distributed to beneficiaries until after they have turned 18

○ A pilot program provides $1,000 credit to Trump accounts for U.S. citizens born from 2025-2028

○ Cost: $15 billion

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Overview of the Key Small Business and Tax Provisions in the July 2025 Reconciliation Package

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