Tax Law Changes for Business Owners: What Actually Happened (2021–2026)
Back in 2021, a number of significant tax proposals were under serious discussion in Congress — higher graduated corporate rates, a capital gains rate increase to 25%, new rules pulling irrevocable grantor trusts into the taxable estate, and a cap on Roth IRA balances for high-income savers. None of those proposals became law. Instead, the tax landscape for business owners was reshaped by a different piece of legislation: the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. OBBBA went in a largely different direction — extending and expanding several Tax Cuts and Jobs Act provisions rather than rolling them back. Here is what actually changed, and what it means for Illinois business owners.
What Did Not Happen
For business owners who spent 2021 bracing for these changes, it’s worth confirming directly: the C-corporation tax rate remains a flat 21% — the graduated rate structure proposed in 2021 was never enacted. Long-term capital gains rates were not increased to 25%; the existing rate structure was preserved and the underlying individual tax brackets were made permanent under OBBBA, removing the scheduled sunset that had been set for the end of 2025. The 2021 proposal to include irrevocable grantor trusts in the grantor’s taxable estate also did not move forward — grantor trust planning continues to operate under the rules that have applied for years.
The Qualified Business Income (QBI) Deduction Is Now Permanent
The Section 199A 20% deduction for qualified business income from pass-through entities — S-corporations, partnerships, LLCs, and sole proprietorships — was set to expire after 2025 under the original TCJA. OBBBA made the 20% deduction permanent and expanded it: the phase-out range for specified service trades or businesses (which includes many professional practices) increased from $50,000/$100,000 (single/joint) to $75,000/$150,000, allowing more business owners to qualify for the full deduction. OBBBA also introduced a new minimum QBI deduction of $400 (indexed for inflation) for taxpayers with at least $1,000 of qualified business income, beginning in 2026.
100% Bonus Depreciation Is Back — Permanently
Bonus depreciation under Section 168(k) had been phasing down since 2023 and was scheduled to disappear entirely by 2027. OBBBA permanently reinstated 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025 — meaning business owners can again immediately deduct the full cost of qualifying equipment, vehicles, and other depreciable property in the year of purchase, rather than spreading the deduction over several years. OBBBA also created a new 100% first-year deduction for “qualified production property” — generally, nonresidential real property used in manufacturing — placed in service after July 4, 2025 and before 2031.
Research & Development Expensing Restored
Since 2022, businesses had been required to capitalize and amortize domestic research and experimental (R&E) expenditures over five years, rather than deducting them immediately — a change that significantly increased taxable income for many R&D-intensive businesses. OBBBA restored the option to immediately expense domestic R&E costs for tax years beginning after December 31, 2024, with transition rules available for amounts capitalized during 2022–2024.
The SALT Deduction Cap Increased — Temporarily
The $10,000 cap on the federal deduction for state and local taxes (SALT), a frequent pain point for Illinois taxpayers given the state’s property and income tax burden, was raised to $40,000 for 2025, increasing by 1% annually through 2029 (reaching roughly $40,400 in 2026), before reverting to $10,000 in 2030. The increased cap phases down for taxpayers with modified adjusted gross income above $500,000. Business owners using pass-through entity tax (PTET) elections — which allow Illinois pass-through entities to pay state tax at the entity level and avoid the SALT cap on that portion entirely — should continue to evaluate that strategy alongside the new, higher individual cap.
Estate and Gift Tax Exemption: Permanently Increased
OBBBA also permanently increased the federal estate and gift tax exemption to $15 million per individual ($30 million per married couple), effective January 1, 2026, with inflation indexing beginning in 2027. For Illinois business owners, this is good news at the federal level — but it makes the Illinois estate tax, with its unchanged $4 million exemption, the more pressing planning issue for many family businesses. See our Illinois Estate Tax in 2026 guide for a full discussion.
What This Means for Your Business
The combined effect of permanent bonus depreciation, restored R&D expensing, and the expanded QBI deduction creates meaningful planning opportunities around the timing of equipment purchases, facility investments, and entity structure — particularly for businesses that deferred capital expenditures during the 2023-2025 phase-down period. At the same time, the permanence of these provisions (versus the year-to-year uncertainty of 2021-2025) makes longer-term planning — multi-year capital budgets, entity structure decisions, succession timelines — more reliable than it has been in years.