The recently enacted One Big Beautiful Bill Act (OBBBA) introduces several permanent tax changes that directly affect taxpayers who claim itemized deductions. While some of these updates limit certain opportunities, others preserve valuable tax benefits. For small business owners, understanding these changes—and planning strategically—can make a meaningful difference in your after-tax income.
Permanent Repeal of Miscellaneous Itemized Deductions
Under the Tax Cuts and Jobs Act (TCJA), miscellaneous itemized deductions were temporarily suspended from 2018 through 2025. The OBBBA now makes that suspension permanent.
This means that deductions for unreimbursed employee business expenses, investment expenses, and other deductions previously subject to the 2% adjusted gross income (AGI) floor are no longer allowed.
For small business owners who operate as S corporations or C corporations, this change underscores the importance of proper expense reimbursement. Instead of paying work-related costs personally, have your business reimburse you for eligible expenses. When structured correctly, those costs become fully deductible business expenses at the corporate level—ensuring you don’t lose valuable tax deductions.
Itemized Deductions That Remain Available
Even with these changes, many critical itemized deductions remain on the table. You can still claim:
- Mortgage interest
- State and local taxes (SALT)
- Charitable contributions
- Medical expenses, including health insurance premiums
- Personal casualty and theft losses
These deductions continue to appear on Schedule A of Form 1040, subject to existing income-based limits. For small business owners, these remaining deductions can still add up to meaningful savings—especially when combined with other business-related tax planning opportunities.
New Limits for High-Income Taxpayers
Starting in 2026, high-income taxpayers—those in the 37% tax bracket—will face a new cap on the value of their itemized deductions. Under the OBBBA, the benefit of these deductions will be limited to no more than 35% of their value.
For example:
- If your taxable income barely crosses into the 37% bracket, you’ll experience a modest reduction in your deductions.
- If your income is significantly higher, your itemized deductions could be substantially reduced—or even eliminated entirely.
In short, the higher your income above the 37% threshold, the greater the reduction in your itemized deduction benefits.
Planning Strategies for Small Business Owners
To protect your tax savings and make the most of your itemized deductions, consider these smart planning strategies:
1. Use Corporate Reimbursements Wisely
Avoid losing deductions by setting up a proper reimbursement arrangement through your business. An accountable plan allows your corporation to deduct the expense while reimbursing you tax-free.
2. Monitor Your Taxable Income
Keep an eye on your income levels to avoid crossing into the 37% bracket unnecessarily. For 2025, that threshold begins at $626,350 for single filers and $751,600 for joint filers (adjusted annually for inflation). Strategic timing of income and deductions—such as accelerating expenses or deferring revenue—can help you stay below these limits.
3. Maximize Charitable and Medical Deductions
Charitable giving and qualified medical expenses remain deductible and can provide significant tax value. Small business owners who itemize should track these carefully throughout the year.
4. Coordinate Business and Personal Tax Planning
Since your business structure affects your personal tax situation, coordinate your business deductions with your personal itemized deductions. For example, contributions to retirement plans or health insurance premiums paid through your business can reduce taxable income, making your itemized deductions more valuable.
Next Steps
The OBBBA reshapes itemized deductions for the long term. While some deduction opportunities have disappeared, key tax breaks remain—and with careful planning, small business owners can still benefit significantly.
By structuring expenses correctly, managing your taxable income, and staying informed about deduction limits, you can continue to maximize your itemized deductions under the new rules. If you’d like expert guidance on optimizing your itemized deductions or navigating the OBBBA’s impact on your business taxes, contact TrueBlaze. Our team specializes in helping small business owners build tax-efficient strategies that support long-term financial success.
Sign Up For Our Newsletter
