The centerpiece of the pro-small business tax changes is Section 199A, the 20% Small Business Deduction. Approximately 75% of NFIB members are organized as pass-throughs (S corporations, LLCs, sole proprietorships, or partnerships), not as C corporations.
Pass-through business owners – regardless of the type of business they own – can claim up to a 20% tax deduction on their share of the business’ income up to $182,100 for individual filers and $364,200 for those filing jointly in tax year 2023. For tax year 2024, business income up to $191,950 (individual) or $383,900 (joint) is eligible for the full 20% Small Business Deduction. For small business owners whose qualified business income exceeds these thresholds, the deduction may be subject to limitations. For certain service businesses, the deduction phases out over $50,000 (individual filers) and $100,000 (joint filers) of taxable income. If your business is not a specified services business, you can still benefit from the deduction if your business is employee intensive, or you make capital expenditures.
More than 81% of small business owners believe the 20% Small Business Deduction is important to the health of their business. However, without additional congressional action, this important small business provision is scheduled to expire after 2025 alongside other helpful tax benefits. Read more about the Small Business Deduction here.
During the 118th Congress, Congressman Smucker of Pennsylvania introduced H.R. 4721 and Senator Daines of Montana introduced S. 1706 to make the 20% small business deduction permanent.
See a sample of 2020 IRS Form 1040 including Small Business Deduction Line 13.
