Small businesses are the backbone of the American economy. Yet, without congressional action, millions of small businesses — including law firms and other professional service providers — could soon face a significant tax increase.
The Tax Cuts and Jobs Act of 2017 created Section 199A to ensure that pass-through entities, such as partnerships, LLCs, and sole proprietorships, could remain competitive with larger corporations. The provision allows eligible small business owners to deduct up to 20% of their qualified business income.
However, the deduction unfairly phases out for certain “Specified Service Trades or Businesses,” including law firms, when owners exceed certain income thresholds. Without congressional intervention, the deduction will expire at the end of 2025.
ABA members will urge Congress to permanently renew and expand the Section 199A deduction so that all small businesses, including law firms, can compete on a level playing field. ABA advocates will stress that unequal tax treatment not only harms law firms but also reduces access to affordable legal services for the public.
Pass-through businesses account for 95% of all U.S. businesses and employ more than 63% of private-sector workers. The ABA will make the case that renewing Section 199A is about protecting jobs, economic growth, and community well-being.