4 Ways the TCJA Expiration Threatens Small Businesses
The looming expiration of key aspects of the Tax Cuts and Jobs Act puts American small businesses at risk.
You’ve seen countless headlines about how the TCJA cut the corporate tax rate, but the lower startup costs, simplified accounting rules, and lower labor costs for small businesses often get overlooked.
Eighty-five percent of small business owners report benefiting from the TCJA, and nearly half say it allowed their business to survive the Covid shutdown, inflation, and economic uncertainty. It’s no surprise that most also say uncertainty around the TCJA renewal is affecting their business plans.
Small businesses are the engine of America’s economy, creating most new jobs. When they succeed, America succeeds.
With that in mind, here are four key benefits that the TJCA had for small businesses:
1. Individual tax cuts are small business tax cuts
Most small businesses are sole proprietorships, meaning their income is taxed as part of the owner’s individual tax return. This structure means that any changes to individual tax rates directly impact the tax burden on these businesses. When the TCJA lowered individual tax rates, it provided immediate relief for sole proprietors, allowing them to reinvest savings back into their businesses.
For a one-person operation, that money can be reinvested in the business or put toward hiring more staff.
Once they grow beyond the one-person business model, small businesses also benefit from lower labor costs because less of their payroll is snatched up by the tax man.
2. Slashing the cost of starting and expanding small businesses
To build a business, you need to purchase equipment. The tax system shouldn’t punish small business owners for purchasing the assets they need to get going. Fortunately, investing in your business became much easier under the TCJA. Here’s how this law gave small businesses more breathing room to grow and thrive:
100% bonus depreciation: Before the TCJA, small businesses could only claim 50% of the cost of new equipment when they purchased it and could only claim the rest as it depreciated over time. Many small businesses can’t afford these upfront costs. The TCJA allowed small businesses to immediately deduct 100% of the taxes on equipment and other essential assets needed to start or grow their operations.
Raised deduction limit: The TCJA increased the amount small businesses can deduct for equipment and other essential assets from $500,000 to $1 million.
Broadened eligibility: The TCJA removed some arbitrary restrictions on which business investments you can write off in your taxes. Improvements to “nonresidential real property,” such as roofs, HVAC systems, and security systems, became eligible for tax write-offs.
3. Simpler accounting for smaller businesses
Taxes can feel like a full-time job — and for small businesses without the luxury of a big accounting team, every hour spent wrestling with tax rules is time lost serving customers. The TCJA made life simpler for businesses with gross receipts of $25 million or less by allowing them to use cash accounting instead of accrual accounting.
With cash accounting, you pay taxes based on money coming in and out of your accounts, not complex future receivables or payables. This commonsense adjustment freed up small business owners to focus on what really matters: growing their businesses.
4. A lower corporate tax rate inspires growth
While it’s true that most small businesses aren’t C corporations, the TCJA’s reduction of the corporate tax rate from 35% to 21% still matters.
Why? Because today’s small business could be tomorrow’s large corporation. Investors want to know that a small business has room to grow without hitting a wall of taxation.
Think about it from an investor’s perspective: If you know that once it decides to incorporate, a business will slow or even stop growing due to increased taxes, would that make you more or less likely to invest in that business?
Less investment in small businesses means less growth, fewer jobs, and a more sluggish economy.
This lower corporate rate gives small businesses more room to dream big. It shows that Washington is serious about fostering a business-friendly environment, which inspires confidence and attracts investment.
Why this matters now
The TCJA’s benefits for small businesses have been undeniable. But with expiration coming up at the end of 2025, many of those benefits could disappear if Congress doesn’t act to renew.
That means a return to higher taxes, fewer incentives to invest, and more burdensome accounting rules. At a time of inflation and supply chain issues, small businesses are already facing significant challenges. If they lose the TCJA on top of all that, it could be a death sentence for America’s job creators.
Congress needs to take action
Small businesses are the heart of America’s economy. Whether it’s your favorite coffee shop down the street or the tech startup revolutionizing its industry, small businesses power innovation, ignite production, and create jobs.
We have until the end of 2025 to convince Congress to act. Join us at ProtectProsperity.com to see how you can help spread the word. Small businesses can’t afford to lose the TCJA, and America can’t afford to lose its small businesses.