One Big Beautiful Bill for Small Businesses: QBI, Bonus Depreciation, and Section 179 (Part 4 of 5)
Small business owners now have several important federal tax planning opportunities under the One Big Beautiful Bill Act (OBBBA).
The law makes the 20% Qualified Business Income deduction permanent, restores 100% bonus depreciation, increases the Section 179 expense limit, allows immediate deductions for domestic research costs, returns the Section 163(j) interest calculation to an EBITDA-based method, and expands Qualified Small Business Stock benefits.
These changes do not all apply on the same date. Your business structure, income, assets, research activities, and investment plans will affect how the rules apply.
This article explains the main provisions in plain language for small business owners in Washington state.
The 20% QBI Deduction Is Permanent
The Qualified Business Income deduction, also called the Section 199A deduction, allows many owners of pass-through businesses to deduct up to 20% of qualified business income on their individual federal tax return.
The deduction may apply to income from businesses operated as:
- Sole proprietorships
- Partnerships
- S corporations
- Limited liability companies taxed as pass-through entities
The deduction generally does not apply to income earned by a C corporation.
Before OBBBA, the Section 199A deduction was scheduled to expire after 2025. OBBBA removes that expiration date and makes the deduction permanent at 20%.
Wider QBI Phase-In Ranges
Higher-income business owners may face limitations based on:
- Taxable income
- W-2 wages paid by the business
- The unadjusted basis of qualified business property
- Whether the business is a specified service trade or business
OBBBA increases the phase-in range for these limits:
- $75,000 for single filers and most other taxpayers
- $150,000 for married couples filing jointly
This gives some owners more room before the wage, property, or specified-service limitations are fully applied.
The income thresholds themselves are indexed for inflation. For 2026, commonly cited estimates place the beginning threshold near $200,000 for single filers and $400,000 for joint filers, although the exact calculation depends on filing status and final IRS guidance.
New $400 Minimum Deduction
OBBBA also creates a minimum QBI deduction of $400 for eligible taxpayers.
Generally, the taxpayer must have at least $1,000 of qualified business income from an active trade or business. The minimum applies beginning with tax years after December 31, 2025.
This means the new QBI minimum is generally relevant to 2026 tax returns, not the 2025 federal return.
What QBI Means for Your Business
The QBI deduction is not automatically equal to 20% of your total business profit. Several adjustments and limitations may apply.
For example, the deduction can be affected by:
- Reasonable compensation paid by an S corporation
- Guaranteed payments from a partnership
- Capital gains
- Investment income
- W-2 wages
- Business property
- The type of business
- Your total taxable income
Professional, medical, legal, consulting, and other specified service businesses may face additional limits at higher income levels.
Review your business income and compensation strategy before year-end. Accurate bookkeeping helps determine whether the deduction may be available and what limitations may apply.
For more help with business tax preparation, visit Statewide Tax Services’ business tax preparation page.
100% Bonus Depreciation Returns
OBBBA reinstates and makes permanent 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025.
This can allow a business to deduct the full cost of qualifying property in the year the property is placed in service instead of spreading the deduction over several years.
Potentially eligible property may include:
- Machinery and equipment
- Computers and technology
- Furniture
- Certain vehicles
- Qualified improvement property
- Other eligible business assets with the applicable recovery period
The property must be used for business, and business-use requirements still apply. Personal-use property does not qualify simply because it is purchased by a business.
Bonus depreciation can reduce taxable income significantly. It may also create or increase a business loss, depending on the facts. A large first-year deduction is not always the best choice if your business expects low income this year and higher income in future years.
Plan purchases based on business needs first. Then review the tax treatment before completing the purchase.
Section 179 Limit Increases to $2.5 Million
OBBBA increases the Section 179 expensing limit to $2.5 million.
Section 179 allows a business to elect to expense qualifying property in the year it is placed in service rather than depreciating it over time.
The phaseout begins when total qualifying property placed in service reaches $4 million.
Section 179 may be useful for businesses purchasing:
- Office equipment
- Vehicles
- Computers
- Machinery
- Furniture
- Certain improvements to business property
Unlike bonus depreciation, Section 179 is generally limited by taxable business income. The deduction cannot normally create or increase a business loss.
A business may use Section 179, bonus depreciation, regular depreciation, or a combination of methods. The right choice depends on income, cash flow, business-use percentage, and future investment plans.
Domestic Research Costs Can Be Deducted
OBBBA changes the treatment of domestic research and experimental costs beginning with tax years after December 31, 2024.
Under the new Section 174A rules, eligible domestic research costs may generally be deducted in the year they are paid or incurred. This reverses the requirement that many domestic research costs be capitalized and amortized over five years.
Potentially affected activities may include:
- Product development
- Software development
- Engineering
- Testing
- Technical design
- Experimental processes
- Certain research performed by employees or contractors
Foreign research costs generally remain subject to 15-year amortization.
The law also provides transition options for previously capitalized domestic research costs from 2022 through 2024. Eligible smaller businesses may have additional options, including relief for taxpayers meeting the applicable gross receipts test.
Research costs require careful classification. Not every technology, design, or improvement expense qualifies. Keep records showing the project, business purpose, people involved, dates, and costs.
You can review the procedural rules in IRS Revenue Procedure 2025-28.
Section 163(j) Returns to an EBITDA-Based Calculation
Section 163(j) limits the amount of business interest expense that certain businesses may deduct.
OBBBA changes the calculation for tax years beginning after December 31, 2024. Depreciation, amortization, and depletion are again added back when calculating adjusted taxable income.
This creates an EBITDA-based calculation:
- Earnings before interest
- Taxes
- Depreciation
- Amortization
Because these deductions are added back, adjusted taxable income may be higher. That can increase the amount of business interest the company may deduct.
The general limitation remains based on business interest income, floor plan financing interest, and 30% of adjusted taxable income.
Many smaller businesses may qualify for an exception from Section 163(j) based on average annual gross receipts. The threshold is adjusted for inflation and is approximately $31 million for 2025. Businesses near or above the threshold should review the calculation carefully.
The IRS Section 163(j) guidance provides additional background.
QSBS Benefits Are Expanded
Qualified Small Business Stock, or QSBS, can provide a significant federal tax benefit to eligible investors and business owners.
The enhanced rules generally apply to qualifying stock issued after July 4, 2025.
Under the new graduated holding-period rules:
- Held for at least 3 years: 50% gain exclusion
- Held for at least 4 years: 75% gain exclusion
- Held for at least 5 years: 100% gain exclusion
The per-issuer exclusion limit increases to $15 million, subject to inflation adjustments. The alternative 10-times-basis limitation remains available when it produces a larger amount.
QSBS rules are highly specific. The business generally must be a qualifying C corporation, and requirements apply to the corporation’s assets, business activities, stock issuance, and ownership.
Existing QSBS issued before the effective date may continue to follow the prior rules. Do not assume that shares qualify simply because they were issued by a small company.
Review the requirements with a qualified tax professional and legal adviser before relying on a QSBS exclusion for a sale or investment decision. Grant Thornton’s QSBS summary provides an overview of the changes.
Washington State Considerations
These provisions primarily affect federal income taxes.
Washington does not impose a broad individual income tax, but Washington businesses may still have obligations involving:
- Business and Occupation (B&O) tax
- Sales tax
- Use tax
- Payroll-related taxes
- Local business taxes
- Federal income tax reporting
Federal deductions such as QBI, bonus depreciation, Section 179, and domestic research expensing do not automatically reduce Washington B&O tax. Washington’s tax treatment may differ from the federal rules.
Keep federal and state tax planning separate. Review your business activity, revenue classification, and filing obligations before making major equipment or accounting decisions.
Review Your 2025 and 2026 Plans
OBBBA creates several opportunities, but timing matters.
Before filing or making a major purchase, gather:
- Your current profit and loss statement
- Fixed-asset and equipment records
- W-2 wages and owner compensation information
- Research and development cost records
- Business interest expense
- Ownership and entity documents
- Any planned stock issuance or business sale information
Statewide Tax Services provides virtual accounting and bookkeeping services, business consulting, and tax preparation for individuals and businesses.
Schedule a consultation to review how these provisions may affect your business. You can book an appointment through the Statewide Tax Services calendar or contact the office directly.
This article provides general information and is not a substitute for advice based on your specific tax situation. Federal and Washington rules may change, and eligibility depends on the facts of your business.