Business Owners: New Tax Bill - 4 Key Changes Explained

1. QBI Deduction Increase: Keeping More of Your Profits

The Qualified Business Income (QBI) deduction is one of the biggest tax breaks for small business owners. Under the 2017 law, eligible business owners could deduct 20% of their business income. The Trump tax changes 2025 increase this to 23%.

What This Means For You

This 3% increase means you can shield more of your business income from taxes. For example, if your business earns $100,000 in qualified income, you could previously deduct $20,000. Now, you can deduct $23,000 – saving you an extra $3,000 in taxable income.

2. 100% Bonus Depreciation: Write Off Equipment Immediately

Under the 2017 tax law, 100% bonus depreciation was being phased out. By 2025, businesses could only deduct 20% of equipment costs in the first year. The Trump tax changes 2025 restore the full 100% bonus depreciation permanently.

How It Works With Real Numbers

Imagine you own a landscaping business and buy a new commercial mower for $15,000. With 100% bonus depreciation, you can deduct the entire $15,000 on your 2025 tax return instead of spreading it over several years. If you're in the 22% tax bracket, this saves you $3,300 in taxes right away.

This change gives you an immediate tax benefit rather than waiting years to recover your investment costs. It's especially helpful if you need to purchase expensive equipment or vehicles for your business.

3. Business Interest Expense Changes: More Deductible Interest

The Trump tax changes 2025 also modify how businesses can deduct interest expenses. Previously, many businesses could only deduct interest expenses up to 30% of their adjusted taxable income (ATI), calculated as earnings before interest and taxes (EBIT).

The New Rules Explained Simply

The new law makes two important changes:

1. It increases the deduction limit from 30% to 50% of adjusted taxable income

2. It changes the calculation from EBIT to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

This means you can deduct more interest expenses, which is especially helpful if your business relies on loans or lines of credit.

"For businesses with significant debt, the interest expense changes could mean thousands in additional deductions, particularly for capital-intensive industries like manufacturing, real estate, and construction."

Example: Construction Company

A construction company with $1 million in adjusted taxable income (EBITDA) and $400,000 in interest expenses:

• Old rules: Could deduct only $300,000 (30% of $1 million)

• New rules: Can deduct the full $400,000 (under the 50% limit of $500,000)

• Benefit: Additional $100,000 in deductions, saving approximately $22,000 in taxes (at 22% tax rate)

4. R&D Expenditure Changes: Immediate Deductions Return

Research and Development (R&D) costs are crucial for many businesses. Since 2022, companies had to spread these costs over 5 years instead of deducting them immediately. The Trump tax changes 2025 restore the ability to deduct R&D expenses fully in the year they occur.

What Qualifies as R&D?

R&D expenses can include:

• Developing new products or improving existing ones

• Creating new processes or techniques

• Conducting scientific experiments

• Engineering activities

• Software development

• Wages for employees working on R&D projects

Example: Tech Startup

A software company spends $200,000 on developing a new app:

At a 24% tax rate, the immediate deduction provides a $38,400 tax savings in the first year (24% of the additional $160,000 deduction), improving cash flow significantly.

To learn more strategies for reducing your tax burden and maximizing your take-home pay, check out Taxation Intel