SAS Tax & Business

How the New “Tip Protection Act” Impacts Small Businesses & Self-Employed Texans

Tip Protection Act and Self Employed

Tax-Free Tips, Bigger Deductions, and Less Paperwork—Here’s What Houston Entrepreneurs Need to Know

July 2025 brought a sweeping tax overhaul with the passage of the One Big, Beautiful Bill—a landmark federal reform that includes the Tip Protection Act and other major changes aimed at benefiting small business owners, gig workers, and self-employed professionals.

Whether you run a busy restaurant in Midtown, a beauty salon in the Heights, or a logistics LLC in Katy, this legislation affects how you pay taxes, structure your workforce, and plan for growth. SAS Tax & Business Solutions is here to help you make sense of it—and take full advantage.


What Is the Tip Protection Act?

The Tip Protection Act is a key section of the broader One Big, Beautiful Bill. It’s designed to:

  • Make tips and overtime income tax-free (up to set limits)
  • Permanently extend & expand the small business (pass-through) deduction
  • Roll back burdensome IRS reporting rules
  • Reintroduce full bonus depreciation and new deductions
  • Expand business-friendly credits for childcare, paid leave, and R&D

Let’s break down what this means for your Houston-area business—and how you can use these changes to boost cash flow, stay compliant, and grow confidently.


1. Federal Income Tax Is Now Waived on Tips & Overtime

✔️ What Changed:

Starting January 1, 2025, workers in tipped and overtime-eligible occupations can deduct:

  • Up to $25,000/year in tips
  • Up to $12,500/year in overtime wages
    (Or $25,000 for joint filers)

That means no federal income tax is withheld on this portion of income—putting more money directly into your employees’ pockets.

✅ Who Qualifies?

  • Waitstaff, bartenders, baristas
  • Rideshare & food delivery drivers
  • Salon professionals, valet attendants
  • Any occupation where tips are “customary and regular”

The IRS will publish a final list of qualifying occupations by October 2025.

🧾 Note: This applies only to income tax, not to payroll taxes. Employers and employees must still pay Social Security and Medicare (FICA) on tips/overtime.

💡 How It Helps Employers:

  • You can advertise “tax-free tips” as a hiring incentive
  • Employees take home more—without you increasing pay
  • Helps reduce turnover and staffing shortages in service industries

But be cautious: this isn’t a replacement for fair wages. Public sentiment around tipping is shifting, so use this strategically and ethically.

🔗 Related: Learn more about how our Start-Up Membership can help you stay compliant as a new employer.


2. Bigger and Permanent Pass-Through Tax Deductions

If you’re self-employed or operate an LLC, sole proprietorship, or S-Corp, the pass-through deduction (Section 199A) just got better:

  • Made permanent beyond 2025
  • Increased from 20% to 23% starting in 2026
  • Income thresholds for phase-out raised significantly

Example:

If your business earns $100,000 in qualified income, your deduction increases from $20,000 to $23,000—cutting your tax bill even further.

📈 This change benefits over 26 million small business owners nationwide—and thousands across Houston.

Want to maximize this? Our CFO Basic service is designed to help Texas entrepreneurs structure their income strategically for these kinds of savings.


3. Simpler 1099 Reporting for Gig Workers & Freelancers

If you’ve ever been swamped by IRS forms for small payments—this one’s for you.

The Fixes:

  • The $600 threshold for Form 1099-K (used by Venmo, PayPal, Etsy, Uber) is gone.
  • Now, only if you earn $20,000 AND have 200+ transactions will you receive a 1099-K.
  • The 1099-MISC/1099-NEC threshold rises to $2,000 in 2026, up from $600.

This Means:

  • No more tax forms for one-time payments under $2,000
  • Less paperwork for landlords, local vendors, and gig workers
  • Side hustlers selling on Facebook Marketplace or Etsy are spared unwanted forms

⚠️ Warning: Even if no form is issued, you must report income. If you earn more than $400 net as a sole proprietor, it’s still taxable. Let our Bookkeeping & Tax package keep you audit-ready.


4. Equipment? Vehicles? Deduct It All in Year One

Back by popular demand: 100% Bonus Depreciation

You Can Now Immediately Deduct:

  • Work vehicles (trucks, vans, etc.)
  • Office equipment
  • Machinery
  • Technology upgrades

This applies to purchases placed in service between Jan 2025 and Dec 2028.

Example: Buy a $50,000 delivery van? Deduct the full amount in 2025. No waiting 5 years to write it off.

SAS can help ensure your asset purchases are structured and reported correctly so you don’t miss these opportunities.


5. New Deduction for Car Loan Interest

If you’re self-employed and financing your personal vehicle, up to $10,000/year in interest on your auto loan is now deductible—starting 2025.

That’s a huge break for:

  • Couriers
  • Real estate agents
  • Mobile notaries
  • Tradespeople using personal vehicles for work

And yes, this can stack with mileage or bonus depreciation if structured properly.


6. Expanded Childcare and Paid Leave Credits

If you provide benefits to retain employees, you’ll love this.

Childcare Credit (For Employers):

  • Credit expanded to $500,000 (or $600,000 for small employers)
  • Pool with other local businesses to claim the credit
  • Covers a larger percentage of employer-sponsored childcare

Paid Family & Medical Leave:

  • Credit extended permanently
  • Workers now qualify after just 6 months of employment
  • Credit covers up to 25% of wages paid during leave

Want to attract and retain great staff? These credits make it affordable.


7. R&D Deduction Retroactively Restored

Previously, R&D costs had to be amortized over five years. Now:

  • You can deduct 100% of U.S.-based R&D expenses immediately
  • Retroactive to 2022, 2023, and 2024

Perfect for:

  • Tech startups
  • Product developers
  • Software companies

Have you been innovating? We’ll help you claim refunds for past R&D spend.


8. Estate Tax Relief for Family-Owned Businesses

To avoid “death tax” chaos, the law permanently raises the estate tax exemption to:

  • $15 million per person
  • $30 million for couples

This ensures your family business, farm, or rental property portfolio can transfer without liquidation or massive tax bills.

Planning to pass your business on? Let’s talk legacy planning.


🇨🇱 Why This Matters in Texas

Texas has no state income tax—but these federal-level changes mean even more to local businesses. You get:

  • Full benefit of federal deductions
  • Fewer compliance hurdles
  • Better margins to reinvest in growth

SAS Tax & Business Solutions works with Houston-area entrepreneurs every day to structure their operations for maximum benefit under current tax law.


✅ Bottom Line: More Savings, Less Stress, Bigger Opportunities

The Tip Protection Act and its companion provisions are a win for small business. But with great opportunity comes the need for smart strategy and reliable support.

From hospitality to logistics to consulting, these changes can:

  • Lower your tax bill
  • Boost employee retention
  • Eliminate compliance headaches
  • Help you plan with confidence

Don’t wait until tax season.
Let SAS Tax & Business Solutions help you plan ahead.

📞 Call us today at (832) 263-7308
📧 Or email [email protected]


FAQ

Q: Are all tips tax-free now?
A: No. Only voluntary tips received in occupations that the IRS deems “customarily tipped” are exempt—think waitstaff, delivery drivers, hairstylists. Service charges or tips in ineligible industries won’t qualify.

Q: Do I still have to pay payroll tax on tips and overtime?
A: Yes. FICA taxes (Social Security & Medicare) still apply. The exemption only covers federal income tax.

Q: What if I don’t receive a 1099 this year—do I still have to report income?
A: Absolutely. If you earn more than $400 net from self-employment, you’re required to report it—even if you don’t receive a form.

Q: How long does the 100% bonus depreciation last?
A: From 2025 to 2028. After that, it will phase down unless renewed.

Q: Can I combine the auto loan interest deduction with mileage or depreciation?
A: You can’t double-dip—but with the right strategy, you can choose the most beneficial method. Let us help you structure it.

Q: Can SAS help me claim the R&D deduction for past years?
A: Yes! We can review your 2022–2024 expenses and amend your return if necessary.


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