Creating, running, and succeeding in your small business journey is difficult. That’s why small business owners deserve all of the help that they can get. However, one of the key small business support provisions of the last decade is set to expire at the end of 2025.
In combination with accounting company Ernst & Young, the NFIB (National Federation of Independent Business) released a macroeconomic analysis on September 20th, 2024, highlighting the potentially wide-reaching impact of the scheduled expiration of the federal 20% Small Business Tax Deduction on both small business owners and the economy as a whole.
The Small Business Tax Deduction, also known as Section 199A of the 2017 Tax Cuts and Jobs Act, has been an essential provision for small business owners ever since its introduction. It allows eligible taxpayers and small business owners to deduct up to 20% of their qualified business income, among other benefits.
In the macroeconimic analysis conducted by Ernst & Young and NFIB, they explored and expanded upon the potential impacts of both extending and letting the deduction expire, and what that would look like for small business owners and the economy as a whole on both sides.
As stated by NFIB in their article summarizing the report, "The analysis concluded that small businesses would flourish by making the deduction permanent, creating 1.2 million new jobs each year for the first ten years and 2.4 million annually every year thereafter. It would also result in a $750 billion GDP increase in the small business sector over the first ten years, and a $150 billion increase annually after that. Without an extension, those benefits to small businesses and the broader economy would be lost."
If the deduction is allowed to expire, not only would we miss out on the positive benefits just mentioned, but there would be negative ramifications for small business owners as well. As reported in the 2024 NFIB Tax Survey, "59% of small business owners reported that eliminating the 20% Small Business Deduction would have a negative impact on their business, with 61% reporting they would likely raise prices, 44% reporting they would postpone or cancel capital investments, and 36% reporting they would postpone or cancel hiring additional employees."
The 20% Small Business Tax Deduction plays a pivotal role in supporting the financial health of small businesses across the U.S. As the NFIB and Ernst & Young macroeconomic analysis shows, the potential expiration of this deduction at the end of 2025 could significantly impact small business owners, threatening their ability to grow, hire, and invest in their communities. On the other hand, a permanent extension of the deduction would provide much-needed certainty and relief, allowing small businesses to continue driving economic growth and innovation.
For small business owners, staying informed about tax policy changes is crucial to long-term planning. Whether the deduction is extended or allowed to expire, preparing now and seeking expert guidance can help ensure your business remains resilient in the years to come.
