The One, Big, Beautiful Bill included and extended important deductions that impact self-employed individuals and small business owners. From permanence of QBI deductions to higher caps on Section 179 and SALT, plus new deductions for tips and vehicle expenses, the law provides opportunities for tax savings. Careful tracking and planning will maximize potential tax benefits.

Deductions:

QBI 20% deduction on Net Income has been made permanent. (It was scheduled to expire on December 2025) Self-employed individuals and small businesses including S-Corps and Partnership will continue to benefit from this considerable deduction.

Sec 179 deduction limit has been doubled. It went from $1,250,000 to $2,500,000 through 2029, while the Bonus depreciation was extended to 100% through 2029. This means businesses can expense equipment and vehicle purchases in their entirety in the same year they were acquired, reducing the business net profit.

SALT, State and Local Taxes, deduction cap has been raised from $10K to 40K, which means individual taxpayers can now deduct their state income tax, property tax and sales taxes up to $40K through 2029. Important to remember- this deduction is taken at the individual level on form 1040, not on the business returns.

Tip Income Deduction: New tax savings opportunity!

Tip income can be deducted from your regular business income up to $25,000. “…for self-employed individuals, deduction may not exceed individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.” www.irs.gov

“This deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)” www.irs.gov

The “tip” is to keep good records and clearly separate regular business income from tip income, especially for some service industries like stylist, nail salon workers, food trucks/ stands. For example, a cosmetologist who charges $40 for a hair cut and receives $10 in tips, will have to separate the service income from the tip income and document it, to exclude it from their taxable income.

Auto Loan Interest and Mileage deduction: When to revisit your car record-keeping strategy?

The auto loan interest has been a valid deduction for businesses. The OBBB extended this deduction to individual taxpayers filing Form 1040.

To qualify, the loan must be incurred January 1st, 2025 or after and must be secured by a first lien on the vehicle; and the vehicle’s identification number (VIN) must be listed on the tax return.

For 2025 the mileage rate has been raised to $0.70c per mile. The IRS rules allow for standard mileage deduction or actual expenses. It is recommended that businesses analyze and plan the best type of deduction for their vehicle, as year to year changes to this election are not easily allowed and permission from IRS is needed. Careful planning and knowledge of business needs are key to making this election.

FSA & HSA Access Expanded

The contribution limit for FSAs has been expanded from $5,000 to $7,500 for single individuals and married couples filing jointly and to $3,750 for married individuals filing separately.

Regarding HSAs, starting January 1st, 2026, Bronze and Catastrophic ACA Plans will be included in the High-Deductible Health Plan (HDHP), allowing individuals enrolled in those plans to contribute to Health Savings Accounts (HSAs). This matters because before the OBBB law, Bronze and Catastrophic plans did not qualify as HDHPs for HSA purposes, even though they had high deductibles. The benefits of contributing to HAS accounts include pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

Takeaways

Big wins, but only if you document and report correctly.

Budget for SE tax and make quarterly estimated payments. (April 15, June 15, Sept 15, Jan 15)

Keep meticulous records of all business-related income and expenses.

Reach out to us before the end of the year to review your car expenses, tip logs, healthcare elections, retirement accounts, and any other significant change with your business.