2025 Tax Reform: What Business Owners and Founders Need to Know Now

With the S&P 500 and Nasdaq hovering near record highs – and the One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025 – the tax landscape for business owners and founders has shifted in meaningful ways. These changes introduce powerful new opportunities for growth, capital raising, and strategic planning.

Major QSBS Enhancements: Unlocking New Value

The benefits of Qualified Small Business Stock (QSBS) have expanded significantly, making it a more compelling tool for both founders and investors.

Shorter Holding Periods for Tax Exclusion

• 3 years: 50% gain exclusion
  
• 4 years: 75% gain exclusion
  
• 5+ years: 100% gain exclusion
  (Under prior law, a five-year minimum was required for any exclusion.)
  

Higher Gain Exclusion Cap

• The per-issuer cap increases from $10 million to $15 million for stock issued after July 4, 2025, with future inflation adjustments.
  

Broader Company Eligibility

• The maximum asset threshold for a company to qualify as a Qualified Small Business rises from $50 million to $75 million, indexed for inflation. This change allows more high-growth companies – particularly in technology and life sciences – to access QSBS benefits and attract investment.
  

Faster Liquidity for Investors

• Investors may now realize partial tax-free gains after only three years, encouraging more early-stage investment and creating greater flexibility for exit strategies.
  

Why It Matters

• Founders & Startups: Easier access to capital and enhanced rewards for early backers.
  
• Investors: Significant tax-free gains available sooner and on larger investments.
  
• Broader Market: More capital flowing into small businesses, supporting innovation, job creation, and economic growth.
  

QBI Deduction Reform: More Relief for Pass-Through Businesses

The Qualified Business Income (QBI) deduction has been strengthened to provide lasting and more accessible relief for pass-through entities, including S corporations, partnerships, and certain LLCs.

• Deduction Made Permanent: The 20% QBI deduction is now indefinite, with a potential increase to 23% beginning in 2026.
  
• Higher Phase-In Thresholds: Wage and capital limitation thresholds rise to $375,000 for joint filers and $187,500 for single filers, indexed for inflation.
  
• Minimum Deduction: A new $400 minimum deduction applies for those with at least $1,000 in active QBI.
  
• Expanded Entity Definition: Partnerships, S corporations, LLCs not electing corporate status, and joint ventures now receive equal treatment under the rules.
  
• Enhanced Reporting: Stricter reporting requirements for ownership percentages and QBI calculations increase transparency.
  

Note: Tax professionals caution that certain QBI scenarios may increase Alternative Minimum Tax (AMT) exposure, making forward-looking tax projections critical this year.

Expanded SALT Deduction Cap

For 2025 through 2029, the State and Local Tax (SALT) deduction cap increases from $10,000 to $40,000 for joint filers ($20,000 for married filing separately), with annual inflation adjustments. The cap reverts to $10,000 after 2029.

• Phaseout for High Earners: Begins at $500,000 MAGI for joint filers ($250,000 for married filing separately), but never drops below $10,000.
  
• Eligible Taxes: State and local income, sales, and property taxes qualify.
  
• No Double Counting: The same tax cannot be deducted under multiple categories.
  

Strategic Questions for Business Owners and Founders

• How will the new QSBS rules shape your exit planning or investment approach?
  
• Could the expanded asset threshold or higher exclusion cap influence your next capital raise?
  
• Are you maximizing the QBI deduction under your current business structure?
  
• What role will the expanded SALT cap play in your tax strategy?
  

Planning Your Next Move

The 2025 tax reforms offer both immediate benefits and long-term strategic advantages for business owners and founders – but capturing these opportunities requires proactive planning. 

Whether you are preparing for an exit, seeking growth capital, or fine-tuning your tax strategy, the right approach can help you retain more of your earnings and position your business for continued success.