Updated
July 04, 2025
Published
July 01, 2025
The One Big Beautiful Bill Act (OBBBA), which President Trump signed into law on July 4, will avert the largest automatic tax increase in American history at the end of this year, when many of the historic reforms from the 2017 Tax Cuts and Jobs Act (TCJA) were set to expire.
As we’ve written elsewhere, the bill will deliver permanent, pro-growth tax reforms designed to drive American innovation, boost investment, and benefit businesses, workers, and communities nationwide. In this article, we focus on five reforms that are especially relevant to American small businesses and highlight their potential benefits.
READ MORE: U.S. Chamber: One Big Beautiful Bill Is a Win for Economic Growth, Workers, and American Communities
Extension and Enhancement of Deduction for Qualified Business Income
In 2017, Congress permanently lowered the corporate income tax rate by 14 percentage points, from 35% to 21%, as part of the TCJA. To ensure that pass-through entities like sole proprietorships, partnerships, and S corporations—including the vast majority of American small businesses—would not be placed at a major disadvantage relative to C corporations, Congress also created a new 20% deduction for qualified business income (QBI).[1] Unlike the permanent rate reduction for C corporations, however, the QBI deduction is scheduled to expire at the end of this year.
The bill will permanently extend the 20% QBI deduction, ensuring the long-term competitiveness of America’s business tax rates on firms of all types and sizes. It would also make taxpayer-favorable changes to the phase-in of existing limitations, expanding eligibility for the deduction to more businesses. Finally, it would grant small business owners with a certain QBI level an enhanced baseline deduction by introducing a new, inflation-adjusted minimum deduction of $400. These critical reforms would give American small businesses the long-term tax certainty and stability they need to hire, invest, and grow.
Full Expensing of Domestic Research and Experimental Expenditures
For nearly 70 years, American businesses were able to immediately deduct 100% of their research and experimental (R&E) expenses, which generally include all costs incident to the development, testing, or improvement of products or services. Starting in January 2022, however, businesses have been required to amortize (deduct ratably) their R&E expenses over five years. As we’ve previously written, mandatory R&E amortization reduces economic growth and penalizes investments by businesses in research-intensive industries—with disproportionate effects on smaller manufacturing and technology companies.
The tax bill will address this counterproductive policy by permanently reinstating the deduction for domestic R&E expenses paid or incurred in 2025 and beyond. And in a critical nod to mandatory amortization’s disproportionate impacts on small businesses, the bill will generally permit business taxpayers with average annual gross receipts of $31 million or less to apply the change retroactively to 2022.
Retroactive application of this proposal would deliver game-changing relief to the many small business taxpayers that endured the adverse impacts of mandatory R&E amortization in recent years. The severity of those impacts on research-intensive small businesses has been particularly acute, with some forced to take out high-interest loans, raise their prices, and stop hiring just to survive and pay their taxes. We therefore commend tax writers for recognizing the importance of extending retroactive relief to small businesses and urge them to preserve this critical feature in the final legislation.
Increased Dollar Limitations for Expensing of Certain Depreciable Business Assets
Under current law, small business taxpayers may elect under section 179 of the Internal Revenue Code to deduct (or expense) up to $1 million of the cost of qualifying property, instead of recovering such costs through depreciation deductions. Section 179 expensing is intended to lower the cost of capital for tangible property used in a trade or business, allowing small businesses to invest in more equipment and employ more workers. It also eliminates depreciation recordkeeping requirements with respect to expensed property.
To increase both the value of these benefits to small businesses and the number of eligible taxpayers that may receive them, the bill will permanently increase both the amount allowed to be expensed under section 179 and the amount of the phase-out threshold. Specifically, the measure would increase the maximum amount a taxpayer may expense under section 179 from $1 million to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. The $2.5 million and $4 million amounts would be indexed for inflation for taxable years beginning after 2025. These pro-growth changes would have an immediate impact for many small businesses, and we urge Congress to enact them.
Expansion of Qualified Small Business Stock Gain Exclusion
The bill will also help to grow small businesses by enhancing the benefits of, and expanding eligibility for, the qualified small business stock (QSBS) gain exclusion in section 1202 of the Code. Under current law, section 1202 generally allows certain individuals and other noncorporate investors who hold QSBS in a qualifying C corporation for more than five years to exclude any gain realized on its sale.
The bill will permanently enhance the benefits of section 1202 by providing a tiered gain exclusion for QSBS acquired after the date of enactment. The measure would also expand eligibility for the exclusion by increasing both the per-issuer dollar cap from $10 million to $15 million and the corporate-level aggregate-asset ceiling from $50 million to $75 million, with both amounts indexed for inflation.
We renew our call on Congress to reassert its commitment to helping American entrepreneurs raise capital for the start-up and expansion of small businesses by retaining these proposed changes to section 1202 in the final legislation.
Enhancement of Employer-Provided Child Care Credit
Last but not least, we review the bill’s proposed enhancements to the employer-provided child care credit in section 45F of the Code, which is designed to incentivize businesses to invest in child care through building centers and operating or contracting childcare services. Section 45F currently provides businesses a nonrefundable tax credit of up to $150,000 per year on up to 25% of qualified child care expenses provided to employees.
The bill would permanently increase the employer-provided child care credit, create a separate credit amount for qualified small businesses, and index the maximum credit amounts for inflation. Specifically, the measure would increase the maximum credit from $150,000 to $500,000 and the percentage of qualified child care expenses covered from 25% to 40%. And it would further strengthen the credit for small businesses by increasing the maximum credit to $600,000 and the percent of qualified child care expenses covered to 50%.
An eligible small business for this purpose would be one that meets the gross receipts test of less than or equal to $25 million (inflation-adjusted) based on the preceding five-year period. For 2025, the small business gross receipts threshold is $31 million. The bill would also allow small businesses to pool their resources to provide child care to their employees and use third-party intermediaries to facilitate child care services on their behalf.
The Chamber commends tax writers for supporting employer-provided child care programs in this legislation. The proposed, long-sought enhancements would substantially increase the efficacy of section 45F as a tool to help American small businesses address persistent workforce challenges, allowing them to hire, invest, and grow.
Bottom Line: OBBBA Will Put American Small Businesses First
The Chamber strongly supports the bill’s approach to enhancing small business tax policies. From permanently extending the QBI deduction to allowing small businesses to retroactively deduct their R&E expenses, it is clear tax writers were listening to small business voices—and taking them to heart. We applaud Congress for enacting these permanent, pro-growth tax policies that will deliver meaningful benefits to America’s small businesses.
[1] The QBI deduction effectively operates as rate reduction for pass-through business entities, which make up over 95% of all U.S. businesses.
