Working Families Tax Cuts Gives Small Businesses More Room to Grow

The Working Families Tax Cuts made a major pro-growth fix to the tax code by making it easier for businesses to deduct the cost of investment up front instead of dragging those deductions out over years. That matters most for small and family-owned businesses that need cash flow, certainty, and a tax code that rewards expansion instead of penalizing it. The law permanently restored full business expensing for investments purchased in 2025 and onward. It made small business expensing permanent. And it made factory buildings fully expensed purchases through 2028.

Why Full Expensing Matters

A business investment is a real cost. When the tax code forces that cost to be deducted slowly over time, inflation and delay reduce the value of the deduction. That raises the tax penalty on investment and makes it harder for businesses to buy equipment, upgrade technology, expand operations, and raise worker productivity. Full expensing fixes that problem by letting businesses recover their costs when they actually incur them, which lowers the cost of investment and improves incentives to grow. Tax Foundation’s analysis has found that permanent 100% bonus depreciation would raise long-run GDP by 0.6%, lift wages by 0.5%, and increase full-time equivalent employment by about 112,000 jobs. Its analysis of permanent domestic research and development expensing found a 0.1% long-run GDP gain and roughly 36,000 additional full-time equivalent jobs.

A Better Rule for Small and Family-Owned Businesses

The law also strengthened the alternate expensing option that many smaller firms rely on. The Section 179 maximum deduction increased from $1 million to $2.5 million and the phaseout threshold increased from $2.5 million to $4 million for taxable years beginning after 2024, with inflation indexing after 2025. That matters because Section 179 can be especially useful for smaller businesses and for firms operating in states that conform more closely to Section 179 than to bonus depreciation. In plain English, the new law gives smaller firms a larger, simpler path to deduct major investments right away.

Factory Expensing Rewards Real Production

One of the strongest provisions in the law is temporary full expensing for certain new production property. Before this change, factories and other qualifying production structures generally had to be deducted over 39 years. The new rule allows 100% expensing for certain non-residential real property used in qualified production activity in the United States if construction begins after January 19, 2025, and before January 1, 2029, and the property is placed in service before January 1, 2031. The goal is clear: strengthen U.S. industrial capacity, promote capital investment, modernize facilities, and support job creation.

That is a major improvement over the old system. Requiring businesses to wait nearly four decades to deduct the cost of a factory made little economic sense. A plant is not a luxury. It is a productive asset that helps create output, jobs, and higher wages. Letting firms recover that cost much sooner makes the tax code more neutral and gives manufacturers a stronger reason to build in the United States instead of somewhere else.

R&D Expensing Helps the Next Breakthrough Happen Here

The law also restored the ability to deduct domestic research expenses immediately. Under the prior rule, domestic research costs had to be amortized over five years, which weakened incentives to invest in innovation. That was the wrong policy for a country that should want more breakthrough ideas, more product development, and more domestic investment.

This change is especially important for startups, technology firms, manufacturers, and other businesses that take risks before they ever see a return. Research spending is often the seed corn of future growth. Penalizing it in the tax code was backwards. Immediate expensing moves policy in the right direction by treating innovation as something to encourage, not something to slow down with accounting rules that tie up capital. Tax Foundation’s modeling shows that permanent domestic research and development expensing would increase output, wages, and jobs over time, reinforcing the common-sense point that better tax treatment for innovation leads to more innovation.

CFE Takeaway

The Working Families Tax Cuts improved the tax treatment of investment in exactly the way a pro-growth tax code should. Permanent full expensing for equipment, stronger first-year expensing for smaller firms, temporary factory expensing, and restored research and development expensing all move the tax code away from punishing investment and toward rewarding growth.

For small and family-owned businesses, this means more cash flow, better incentives to expand, and a simpler path to invest in the future. For the broader economy, it means more capital formation, more innovation, stronger productivity, and higher wages. Washington should build on these reforms, not reverse them.