If you’re a partner in an S-corp, own a family LLC, or run a consultancy as a sole proprietor, the July 2025 bill directly affects how your business income is taxed.
These rule changes arrive at a critical stage for $5 million–$20 million companies. Margins are tightening, growth capital is expensive, and any federal relief you capture can be recycled into hiring, technology, or market expansion—so long as you understand where the law moves the needle for a pass-through entity. Many provisions sunset in 2029, which means the next four filing seasons represent a “use-it-or-lose-it” window for aggressive but compliant planning.
Key Provisions for Pass-Through Entities In The 2025 Tax Bill
1. Enhanced QBI Deduction
The Section 199A deduction got a boost, meaning you can deduct more of your qualified business income, now up to 25 percent in certain cases, depending on your income and industry.
Owner lens: The deduction still phases out once taxable income exceeds the new $450,000 threshold, so calibrating the W-2 salary you pay yourself versus K-1 distributions is more valuable than ever. A small adjustment in wages may extend the higher 25 percent deduction for another year or two.
Example:
An S-corp owner earning $250,000* could see their QBI deduction rise from $50,000 to $62,500, cutting federal taxes by thousands.
2. SALT Workaround Repealed
The prior workaround for deducting state taxes at the entity level has been eliminated.
Impact: Pass-throughs can no longer pay state taxes directly to benefit from full deductibility. Owners will need to consider quarterly estimated payments more carefully going forward.
Action item: Reevaluate cash-flow timing for your fourth-quarter state estimates and examine whether converting to a C-corp (or forming a multi-entity structure) makes sense under the new regime. For most $5 million–$20 million firms, the answer is still “no,” but a side-by-side projection removes guesswork.
3. R&D Expensing Is Back
All research and development costs are now fully deductible in the year incurred.
For You: Startups and engineering consultancies can now write off software development and prototyping expenses immediately, freeing up cash flow.
Growth play: Combine 100-percent expensing with the federal R&D credit to create a double benefit. The first is reducing taxable income, then offsetting any remaining liability dollar-for-dollar. This pairing can fund your next release cycle without diluting equity.
4. 100 Percent Bonus Depreciation Extended
Businesses can continue to write off the entire cost of equipment and property in the first year through 2027.
Use Case: A dental practice buying a $100,000 imaging system can deduct the full amount immediately instead of over seven years.
Capital-planning note: Don’t assume “buy now.” Compare the internal rate of return on paying cash versus financing. Even with a 100 percent write-off, an interest-only note might preserve liquidity for marketing or hiring while still delivering the same tax outcome.
5. Estate and Gift Tax Planning
The lifetime exemption is now $15 million per individual, opening room for advanced succession planning.
Proactive Strategy: Consider setting up or funding intentionally defective grantor trusts (IDGTs) or making tax-free gifts to heirs before the exemption sunsets in 2029.
Why owners should act: A $15 million exemption translates to $30 million per married couple, enough to remove the entire equity value of many $20 million companies from the estate tax base. Locking in valuations sooner rather than later protects growth multiples you haven’t realized yet.
Your Next Steps For Navigating The 2025 Tax Bill
This bill rewards business owners who invest, grow, and plan for legacy. Now is the time to revisit your tax entity structure, estate strategy, and capital-expenditure plans.
Next step for $5M–$20M firms: Schedule a mid-year review to model wage vs. distribution scenarios, map out R&D spending, and draft a succession timeline while lifetime exemptions are historically high. The window is open, smart owners will sprint through it.
Let’s map these changes to your P&L and long-term goals. Contact MOD Venturesfor a planning session.
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