Iowa’s nearly 290,000 small businesses stand to gain significantly from the permanent extension of the 20% Small Business Tax Deduction, according to a new report from the National Federation of Independent Business (NFIB).
The NFIB released the report outlining projected economic benefits for Iowa following President Donald Trump’s signing of legislation making the deduction permanent on July 4, 2025.
According to the report, Iowa is projected to add 12,000 jobs annually over the first decade the deduction is in place, with that figure doubling to 24,000 jobs per year after 2035. The state’s GDP is projected to grow by $562 million annually during the first 10 years, rising to $1.2 billion per year beyond 2035. Nationally, the deduction is projected to add $75 billion to U.S. GDP annually for the first 10 years and support 1.2 million new jobs each year during that period.
The deduction, first established in 2017, allows small businesses organized as pass-through entities to deduct up to 20% of their business income. Without Congressional action, it was set to expire at the end of 2025. Iowa has 289,962 small businesses employing 637,557 workers statewide, according to the U.S. Small Business Administration.
“Making the 20% Small Business Tax Deduction permanent is a landmark victory for Iowa’s Main Streets,” said NFIB Iowa State Director Logan Shine. “It effectively levels the playing field, allowing our small businesses to compete with big corporations that have long enjoyed lower tax rates. This ensures that Iowa’s economy remains strong, giving owners the confidence to hire new workers and grow.”
With the deduction now permanent, nine out of 10 small businesses in Iowa avoid a combined 43.4% tax rate — the sum of the federal top individual rate of 39.6% and Iowa’s top individual rate of 3.8%.
The legislation included several additional federal tax relief measures for small businesses. The Section 179 expensing cap was doubled from $1.25 million to $2.5 million and indexed to increase annually, allowing businesses to immediately deduct the full purchase price of qualifying equipment in the year it is acquired. The bonus depreciation deduction under Section 168(k) was permanently restored to 100% for eligible assets, allowing businesses to fully deduct qualifying property acquired and placed in service after January 2025 — reversing a prior system that required depreciating assets over an extended period.
The legislation also permanently raised the estate tax exemption to $15 million for individuals and $30 million for joint filers, with adjustments for inflation. Without Congressional action, the exemption would have been cut in half. The NFIB noted the change puts small business owners in a better position to pass on their businesses and property without having to sell or liquidate assets to cover the tax.
The economic projections cited in the report are drawn from a September 2024 Ernst & Young analysis of the macroeconomic impacts of permanently extending the Section 199A deduction.
