Small Business Tax Cut Act

Key Points

• This bill raises the qualified business income (QBI) deduction from 20% to 23%, giving pass-through business owners like sole proprietors, partners, and S-corporation shareholders a bigger tax break on the income they earn from their businesses.
• The bill creates a new tax benefit for dividends from Business Development Companies (BDCs) that lend to small and mid-size businesses. These "qualified BDC interest dividends" would now qualify for the same pass-through deduction that already applies to REIT dividends.
• The bill changes how the deduction is phased out for higher earners. Instead of the current phase-in structure, a new formula uses 75% of the amount by which taxable income exceeds the threshold, which could benefit some higher-income business owners.
• Inflation adjustments for the income thresholds are updated to use 2025 as the new base year instead of 2018, ensuring the thresholds stay in line with current price levels going forward.
• If enacted, these changes would take effect for tax years starting after December 31, 2026, meaning business owners would first see the impact on their 2027 income and the tax returns they file in early 2028.

Votes

No votes have been recorded for this legislation yet.