The Business Owner Tax Advantage: Made Even Better by the OBBB
Owning a Small Business Is Still the Best Tax Deal in America.
The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, has made it even better by extending and enhancing many provisions from the 2017 Tax Cuts and Jobs Act (TCJA).
Whether it's a $10k side hustle or a $10MM business, the opportunities for tax savings and wealth creation are truly next level. Let's walk through how it works.
NEW WEBINAR RECORDING
Evan Baldridge and I cover the critical provisions of the One Big Beautiful Bill affecting small businesses, including the R&D tax credit recovery opportunity, QBI deduction extension, and SALT cap changes—with actionable steps you need to take before the July 4, 2026 deadline.
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The Widening Gap Between W-2 and Business Income
In 2017, the TCJA created a massive gap:
- Employees LOST their home office and miscellaneous deductions
- Business owners KEPT everything + got QBI (Qualified Business Income deduction)
The OBBB has now made this gap permanent and wider. If you're still W-2 only, you're playing the wrong game.
Here's What You're Missing
1. Business Expenses
Business income opens up opportunities that W-2 employees simply don't have: legitimate business expenses.
Direct costs are deductible, but many expenses already exist in your life. When you have business income, you get to buy before tax, not after.
Most employees have a home office they can't deduct. A car they use for work that isn't reimbursed.
Business owners can claim phone bills, home office space, business travel, education, and legal expenses that would be spent regardless.
With 100% bonus depreciation now permanent for short-lived assets, that $80k truck for your business? Write it all off in year one.
2. Employment Taxes
Total employment taxes are 15.3% (combining the employer and employee Social Security and Medicare taxes). You can save significantly by opening an S-Corporation and paying yourself a reasonable salary.
Taxpayers can bifurcate their employment income from ownership distributions and pay themselves a reasonable salary, often saving thousands in employment taxes.
Real numbers on employment tax savings (2025 estimates):
$400K business income:
- Sole prop: $34,884 in self-employment tax
- S-Corp with a $150K salary: $23,078 in payroll tax
- Annual net savings: $9,778 after deductibility adjustments
That's approximately $97,000 over 10 years. And that's before we even talk about income tax savings.
Wonder what an S-Corp election could save you? Try out our S-Corp Savings Calculator.
3. Benefits
Small business owners can provide benefits for themselves including medical and retirement plans. This becomes even more powerful when the business is solo.
A Solo 401(k) allows $70k+ in contributions for 2025). Stack that with the now permanent QBI deduction, and you're deferring massive amounts at lower tax rates.
4. Business Real Estate
Own your real estate in your business or alongside it in a separate entity.
Manufacturing facilities now receive substantial benefits: 100% expensing for qualifying structures. Manufacturing facilities are now 100% depreciable year one!
Example: Build a $10MM qualifying facility? Net cost after tax could be as low as $6.3MM after expensing benefits alone.
5. R&D Expensing
From 2022-2024, businesses had to capitalize R&D costs over 5 years. This was brutal for cash flow.
That's over now. 100% immediate deduction is back and made permanent.
Software development, product improvements, research is all deductible when spent. This is a game changer for tech companies.
6. QBI Deduction
The 20% pass-through deduction was set to expire in 2025. Now it's permanent.
Plus, the phase-in range for limitations has been widened to $100k single/$200k joint (up from $50k/$100k). The actual income thresholds where limitations begin remain ~192k for single filers and ~384k for married filing jointly.
What this means:
- Effective federal rate for many qualifying business owners: ~29.6%
- W-2 at same income level: 37%
7. QSBS: The Ultimate Exit
Qualified Small Business Stock (QSBS) allows you to build a C-Corporation and potentially pay $0 federal tax on gains when you sell after 5 years.
New OBBB improvements:
- Exclusion cap: 15MM (up from greater of $10MM or 10x basis–tax on excess)
- Asset limit: 75MM (up from $50MM)
- NEW: 50% exclusion at 3 years, 75% at 4 years
The best tax break in America just got better.
8. Other Opportunities:
- SALT cap raised to $40k through 2029 (huge for residents in high-tax states)
- Estate exemption $15MM made permanent, effective starting 2026 (2025 remains at ~$13.99MM inflation-adjusted)
- Manufacturing gets 100% expensing
Many provisions are locked in, which significantly reduces sunset anxiety. Other provisions remain temporary (e.g. SALT cap increase ends after 2029).
Stacking These Benefits
Example: $400K revenue consultant assuming a 35% tax bracket.
- S-Corp structure saves: ~$11k/year in employment taxes (cash savings)
- QBI deduction: ~$11k/year tax savings (20% deduction on $162K profit)
- Business expenses: ~$17k/year (on 50k of bonafide expenses)
- Retirement contributions: ~$24k/year tax savings (on $60k Solo 401k)
- Total: ~$60k/year in actual tax savings
This means an extra $600k in tax savings over a decade (before accounting for growth/investment returns and the $600k invested in retirement!)
Timing Matters
- Bonus depreciation: Live now
- R&D expensing: Retroactive to after December 31, 2021 (amend those returns!)
- QSBS $15MM cap: Only for stock issued after July 4, 2025
- QBI permanent: No more planning around sunset dates
- SALT cap increase: Temporary through 2029
Every day you wait costs money.
Biggest Mistakes I See Business Owners Make
- Waiting until "you're bigger" to optimize
- Preparing their own tax returns - Would you cut your own hair?
- No clear separation between personal/business expenses
- Missing important deadlines
- Not documenting major decisions
The stakes are now higher than ever.
Important Qualifications
This is only a brief overview of the bill. The rules are complex but greatly beneficial when properly applied. They can be dangerous when misapplied.
Seek qualified counsel when applying the principles and enjoy the savings.
Until next time,
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Mitchell Baldridge, CPA, CFP® |