How The New Small Business Tax Break Phases Out

If you own a small business, you're likely eligible for a special 20% deduction on your profits. But getting the full benefit is tricky. Not everyone can claim it and some business owners are subject to a phase-out of the 20% deduction based on income.

Most small businesses are pass-through entities - sole proprietorships, limited liability companies, partnerships, and S corporations. They pay no taxes themselves. Their profits move untaxed until they fall into their owners' hands. The problem is, tax rates on individuals are higher than they are for C corporations (which mainly are larger businesses): 21% rate for C corps and a top rate of 37% for individuals.

Business owners can take this personal deduction whether they itemize or not. But it won't last forever: This deduction is slated to end on Jan. 1, 2026.

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This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

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