Managing Cash Flow During Inflationary Periods

Last year, many small business owners were anxiously watching the future of the Qualified Business Income (QBI) deduction — often called the “small business tax deduction.” The deduction was scheduled to expire after 2025 as part of the sunset provisions tied to the 2017 Tax Cuts and Jobs Act (TCJA), but Congress officially made the deduction permanent—which we covered over at the Financial Pantry.

For millions of small business owners, this provided much-needed long-term tax certainty and could significantly impact future financial planning. Now that we’re deep into 2026, we’re touching on new legislation just introduced in congress that makes the Small Business Tax Deduction even better: the Small Business Tax Cut Act.

What Is the Newly Introduced Small Business Tax Cut Act?

The “Small Business Tax Cut Act of 2026” (H.R. 8415) aims to expand one of the most important tax deductions available to entrepreneurs and pass-through businesses today. If passed, the bill would increase the current Qualified Business Income (QBI) deduction from 20 percent to 23 percent, potentially saving many small business owners thousands of dollars annually. For small businesses, the new legislation could mean even larger tax savings and more certainty for long-term planning.

What Is the QBI Deduction?

The Qualified Business Income deduction, often called the “small business deduction,” allows eligible owners of pass-through businesses to deduct a portion of their business income before federal taxes are calculated. Pass-through businesses include sole proprietorships, partnerships, S corporations, and many LLCs.

Under current law, qualifying businesses can deduct up to 20 percent of their qualified business income. The new Small Business Tax Cut Act would increase that deduction to 23 percent.

For example, if a business owner earns $150,000 in qualified business income, the current 20 percent deduction could reduce taxable income by $30,000. Under the proposed 23 percent deduction, that reduction would rise to $34,500—potentially generating meaningful tax savings depending on the owner’s tax bracket.

Why Was the Bill Introduced?

Supporters of the legislation argue that small businesses continue to face significant economic pressures, including inflation, higher borrowing costs, labor shortages, and increased operating expenses. Lawmakers behind the bill say expanding the deduction would let small businesses retain more capital for hiring, wage increases, equipment purchases, and expansion efforts.

Representative David Kustoff (R-TN), who introduced the bill in April 2026, described the legislation as a way to further strengthen Main Street businesses after Congress permanently preserved the deduction last year.

Organizations representing small businesses have also voiced strong support. The National Federation of Independent Business(NFIB) has argued that the deduction helps small business owners compete with large corporations, which already benefit from the permanent 21 percent corporate tax rate established under the TCJA.

Who Would Benefit Most?

The proposal would primarily benefit pass-through businesses, which make up the overwhelming majority of businesses in the United States. According to the Tax Foundation, pass-through entities now account for most U.S. business income and employ a significant share of the private-sector workforce.

Industries likely to benefit include:

• Independent contractors and freelancers
• Restaurants and retail stores
• Construction companies
• Real estate businesses
• Family-owned businesses
• Professional service firms operating below income phase-out thresholds

However, some limitations would still apply. Certain “specified service trades or businesses” (SSTBs) including law firms, consulting practices, financial advisory firms, and healthcare businesses may face income-based restrictions on claiming the deduction once earnings exceed IRS thresholds.

What Other Tax Changes Are Connected to the Proposal?

The Small Business Tax Cut Act is part of a broader effort to preserve and expand pro-business tax policies introduced in recent years. The 2025 OBBBA already made several major business tax provisions permanent or more favorable, including:

• Permanent 20 percent QBI deduction
• Restoration of 100 percent bonus depreciation
• Expanded Section 179 expensing limits
• Immediate expensing for research and development costs

The new bill specifically focuses on increasing the QBI deduction percentage from 20 percent to 23 percent. Tax analysts say that change could further reduce effective tax rates for millions of business owners.

What Happens Next?

At this stage, the Small Business Tax Cut Act remains a proposed bill and has not yet become law. However, analysts note that the proposal has gained significant attention among Republican lawmakers and small business advocacy groups, giving it a realistic path forward as part of future tax legislation packages.

For now, small business owners should continue planning around the permanent 20 percent deduction already in place while staying alert for possible updates if Congress advances the proposal.

As always, tax laws can change quickly, and every business situation is different. It’s best to consult qualified tax professionals before making major financial or tax-planning decisions.

For the latest updates on taxes, entrepreneurship, lending, and small business trends, keep following the Financial Pantry—your number-one resource for staying informed on the issues that matter most to small business owners.

For the latest updates on taxes, financing, entrepreneurship, and small business trends, be sure to keep reading The Financial Pantry. The blog is dedicated to helping small business owners stay informed, prepared, and ready for whatever changes come next.