Key Takeaways

• The One Big Beautiful Bill Act (OBBBA) introduces major tax breaks for small businesses, including instant write-offs and new deductions.
• Businesses can now deduct 100% of qualified equipment, software, and R&D expenses, improving cash flow and reducing taxes.
• The Qualified Business Income (QBI) 20% tax deduction is now permanent, allowing small business owners to keep more profits.
• Estate and gift tax exemptions increase to $15 million per person, simplifying business succession planning.
• New deductions for tips and overtime income help employees and self-employed workers reduce taxable income.

President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law, and it’s packed with changes that could save your business serious money. Putting the politics aside, understanding these new rules is crucial as they could unlock some significant tax benefits for your business.

The Rocket Lawyer team took a neutral look at the details within the many hundreds of pages and boiled down some of the key highlights impacting small businesses:

1. Instant Write-Offs for Business Purchases (Bonus Depreciation & Section 179)

• Buy Equipment, Deduct it Now. If you’ve been eyeing new machinery, computers, or other equipment, now might be the right timeWith the OBBBA your business can deduct 100% of the cost of many assets; equipment (that lasts less than 20 years), some software, and certain film/TV productions As long as it is in the same year you buy and start using them. This is a huge jump from the old 40%.
• Retroactive Perk: This 100% write-off applies to assets bought on or after January 20, 2025, even though the law just passed. This means you might already qualify for bigger deductions on recent purchases, so be sure and review your year-to-date equipment purchase records.
• New vs. Used: For most of these write-offs (called “bonus depreciation”), you need to be the first one to use the item. However, there’s another option called Section 179, which also lets you deduct 100% of certain purchases up to $2.5 million for taxable years beginning after December 31, 2024. And for this, the item just needs to be new to your business, not necessarily brand new.
• Spending Limits: While generous, there are limits. If you spend over $4 million on Section 179 property, your maximum deduction starts to decrease.

What this means for you: If you’re planning to invest in your business, talk to your tax advisor. You could save thousands by strategically timing your purchases and using these deduction methods.

2. Easier Deductions for Research & Development (R&D)

• Immediate Write-Offs for Innovation: If your business invests in developing new products, software, or processes (R&D), you can now immediately deduct 100% of those costs incurred after 2024. This is big for businesses with high upfront R&D expenses, making it easier to significantly improve your cash flow.
• Catch-Up Opportunity: If your small business had R&D expenses in 2022, 2023, or 2024, you might be able to go back and deduct them all now, potentially leading to tax refunds for those past years.
• What Counts as R&D? This generally includes costs for developing software, but not things like land, equipment used in R&D (that’s covered by the 100% write-off above), or research done outside the U.S.

What this means for you: If you innovate in your business, you could see a significant boost to your bottom line, both now and for past years.

3. Permanent 20% Tax Deduction on Business Income (QBI Deduction)

• Keep More of Your Profits: The popular Qualified Business Income (QBI) deduction is now permanent. This allows sole proprietors, partners, and S corporation shareholders to deduct 20% of their business income.
• More Small Businesses Qualify: The OBBBA has made it easier for more higher-income small business owners to claim this deduction, expanding the income ranges for eligibility starting in 2026.
• Minimum Benefit: If you have at least $1,000 in active business income, you’re now guaranteed a minimum $400 deduction, which will increase with inflation each year.
• Exceptions: Keep in mind that certain “service businesses” (like health, law, accounting, etc., where the business relies heavily on the individual’s skills) still have income limits for claiming the full deduction.

What this means for you: This permanent deduction can put more money directly back into your pocket.

4. Easier Business Succession and Estate Planning

• Higher Gift & Estate Tax Exemptions: Planning to pass your business on? Starting January 1, 2026, the amount you can transfer without incurring federal estate or gift taxes permanently increases to $15 million per individual (or $30 million for married couples).

What this means for you: If you own a closely-held business, this change could make it much easier to transfer it to the next generation without a hefty tax bill.

5. No Tax on Tips

• Pay Less in Individual Taxes. Employees and the self-employed in jobs where tips are regularly received can deduct up to $25,000 annually through 2028. The IRS must recognize these jobs as tipped occupations.
• Exceptions: For self-employed individuals, the deduction can’t be more than their net income from the business that earned the tips. The deductions do not apply to individuals with a modified adjusted gross income over $150,000 for individual tax filers and $300,000 for joint filers.

What this means for you: If you work in a tipped job and report your tips, you may be able to lower your taxable income and reduce your taxes up to $25,000 annually.

6. No Tax on Overtime

• New Deductions on Overtime Pay. Individuals can deduct the extra pay earned from overtime.
• Who This Applies to. This deduction only applies to overtime pay reported on official tax forms. The limit is $12,500 for individuals and $25,000 for married couples jointly filing. The deduction does not apply if gross income is over $150,000 for individuals and $300,00 for joint filers.

What this means for you: You can deduct the extra pay you earn from overtime and lower your taxable income up to $12,500 annually.

FAQs

What is the One Big Beautiful Bill Act (OBBBA)?

The OBBBA is a new U.S. law signed by President Donald Trump that introduces several tax reforms aimed at helping small businesses reduce their taxable income and improve profitability.

How does the OBBBA affect business equipment purchases?

Businesses can now deduct 100% of the cost of qualifying equipment, software, and certain assets in the same year they are purchased and used, rather than depreciating them over time.

What changes were made to the Qualified Business Income (QBI) deduction?

The 20% QBI deduction has been made permanent, and income thresholds for eligibility have been expanded starting in 2026, allowing more small business owners to benefit.

How does the OBBBA impact tipped and overtime income?

Employees and self-employed workers can now deduct up to $25,000 in tips and up to $12,500 in overtime pay annually, lowering their overall taxable income.