The National Federation of Independent Business (NFIB) recently released state-specific reports outlining the economic benefits to small businesses and state economies now that Congress has preserved the federal 20% small business tax deduction.
The 20% Qualified Business Income (QBI) deduction, or small business deduction, had been scheduled to expire at the end of 2025. However, the One Big Beautiful Bill Act (OBBBA) signed last July made this deduction permanent and expanded qualifying thresholds starting in 2026. NFIB said the tax savings will enable businesses to grow operations and hire new workers.
There are 1.1 million small businesses in New Jersey employing 1.9 million people. NFIB estimates the preservation of the federal tax deduction will add $2.3 billion to New Jersey’s GDP each year over the next 10 years and add 38,000 new jobs each year in the same period.
The tax deduction allows eligible pass-through business entities (sole proprietorships, partnerships, LLCs, and S corps) that pay taxes via their owners’ personal tax returns to deduct up to 20% of qualified business income, offering significant long-term tax savings and certainty.
“This permanent tax relief means America’s small businesses can use more of their hard-earned money to support their business and employees instead of sending it to their state and federal government,” the NFB said on April 15. “It also provides certainty and levels the playing field for small businesses against their large corporate competitors.”
Other “wins” for small businesses under the new law include:
- Small Business Expensing. The Section 179 expensing cap for small businesses was doubled from $1.25 million to $2.5 million and indexed to increase annually. This allows businesses to deduct the full purchase price of qualifying equipment in the year acquired.
- The Bonus Depreciation Deduction. Section 168(k) was permanently restored to 100% for eligible assets. It allows an additional first-year deduction for qualified property in the year placed in service and to fully deduct property acquired and placed in service after January 2025. Before its passage, businesses had to depreciate assets and property over an extended time period.
- The Federal Estate Tax. Exemption levels were permanently increased to $15 million for individuals and $30 million for those filing jointly, with adjustments for inflation. Permanency puts small businesses in the position to maintain their business and property without having to sell or liquidate to pay the tax. Without Congressional action under OBBBA, the exemption would have been halved. A New Jersey pass-through business (or its owners) currently no longer pays a New Jersey estate tax (it was repealed in 2016 and took effect in 2018), but taxpayers can owe federal estate tax if the total estate exceeds federal thresholds.
