The budget reconciliation bill passed the House on July 3 by two votes, and it packs a wide range of tax changes. While many of the headlines focus on large-scale social and economic impact, we aren’t going to weigh in on that but instead focus on how it can affect small and mid-sized business owners in Connecticut.
This legislation includes several significant changes that could reshape how businesses manage cash flow, plan for growth, and invest in the future. But it also contains provisions that affect individuals – owners, employees, and families – reminding us that business policy is never just about business.
What It Means for Your Business
- Enhanced Bonus Depreciation & Section 179 Expensing
Businesses can now fully write off the cost of equipment, technology, and other big purchases in the same year they buy them, rather than spreading the deduction out over time. The updated rules let you deduct up to $2.5 million, with some limits if your total purchases are more than $4 million. This is good news for companies investing in growth, as it can lower your taxable income and help your cash flow. - Higher Business Interest Deductions
Businesses will be able to deduct more of their interest expenses due to a change in how those limits are calculated. The cap on business interest deductions will once again be based on a broader measure of income, earnings before interest, taxes, depreciation, and amortization (EBITDA), which can be beneficial for those that carry debt or are financing growth. - Bigger Deductions for R&D
For businesses with gross receipts less than $31 million, the bill allows immediate deductions for qualified research and development (R&D) expenses instead of requiring amortization. This benefits innovation-focused businesses, especially in sectors like manufacturing, software, and biotech. - Expanded Tax Breaks for Qualified Small Business Stock (QSBS)
The bill temporarily restores the 75% and 100% exclusion levels for gains on the sale of Qualified Small Business Stock that were in place before 2022. If you’re a C corporation and meet certain criteria, including holding the stock for at least five years, you could exclude a significant portion of your gain from federal taxes when selling or exiting. This change could mean major savings for founders, investors, and business owners planning a future sale, succession, or liquidity event. The restored exclusions apply to stock acquired after Sept. 27, 2010, and held before Jan. 1, 2026. - SALT Deduction Limits Still Apply
The $10,000 cap on state and local tax (SALT) deductions remains unchanged and is now effectively permanent under the new bill. This continues to pose a challenge for many high-income individuals and owners of pass-through entities in high-tax states like Connecticut. For business owners, especially those structured as S corporations or partnerships, it’s important to revisit whether the entity-level SALT deduction workaround still provides a meaningful benefit. With the cap in place through 2035, proactive tax planning is essential to help reduce overall tax liability and avoid surprises at year-end.
And What It Means for You, Personally
As a business owner, you’re not just running the show, you’re living it along with your employees. That’s why the bill’s individual tax changes matter too. Here are some key highlights that could impact you, your employees, and those in your household:
- Expanded Child Tax Credit
The credit increases temporarily to up to $2,500 per qualifying child, with a higher refundable portion and more flexible phase-in rules. That’s extra breathing room for families with children. - New and Expanded Deductions for Everyday Expenses
- $6,000 standard deduction boost for taxpayers age 65 and up.
- Up to $10,000 in interest deduction for loans used to purchase U.S.-assembled electric vehicles.
- New deductions for tip income and overtime for employees earning less than approximately $150,000/year, which benefits workers in hospitality, personal services, and retail.
- Above-the-line deduction for union dues and work expenses, providing relief for some out-of-pocket job costs.
- No Federal Income Tax on Tips
Tip income will no longer be subject to federal income tax for qualifying service workers. This change could boost take-home pay for tipped employees in industries like hospitality, food service, and personal care. However, as of this writing, Connecticut continues to tax tip income, so business owners and employees still need to ensure accurate reporting and withholding at the state level. - Individual Tax Rates Stay Lower, For Now
The bill extends the lower individual income tax brackets originally enacted under the 2017 Tax Cuts and Jobs Act through 2028. That means the top rate remains at 37% instead of reverting to 39.6%, and the expanded lower brackets continue to apply. For business owners who pass income through to their personal returns, as well as employees, this extension offers continued savings and tax planning stability. However, without future legislative action, rates will rise in 2029, so it may be worth exploring strategies now to take advantage of the lower brackets while they last.
These provisions may not directly show up in your business ledger, but they affect your bottom line as an individual and influence how your employees experience their financial lives. Proactively understanding these changes can help you make better decisions around compensation, benefits, and long-term planning.
What Business Owners Should Do Now
- Consider accelerating capital purchases to make the most of bonus depreciation and Section 179 changes.
- Revisit your entity structure to ensure it still aligns with the new tax landscape.
- Compile and track R&D expenses to take full advantage of the new deduction rules.
- Evaluate QSBS status if you anticipate selling part or all of your business.
- Adjust your 2025 tax strategy now to account for changes in deduction limits, interest expense treatment, and more.
While this just scratches the surface of the nearly 1000-page bill, we wanted to quickly cover how it could impact the lives of small and mid-sized business owners and managers. Need help making sense of how this bill affects your business and your personal finances? We can help you navigate federal and state tax changes with clarity and confidence.