State NFIB says 20% small business deduction is key to easing small business uncertainty

Small business owners are increasingly uncertain about economic conditions, according to the latest Small Business Optimism Index released by the National Federation of Independent Business.

The index fell 2.1 points in February to 100.7, marking its fourth consecutive month above the 51-year average of 98 but remaining 4.4 points below its recent peak in December.

The Uncertainty Index also rose four points to 104, the second-highest recorded reading.

Michael Iosua, NFIB’s state director for Hawaiʻi, linked much of this uncertainty to national tax policy.

“A large part of the economic uncertainty small business owners are feeling can be directly attributed to the lack of certainty concerning whether the 20% Small Business Deduction will expire at the end of the year,” Iosua said.

The deduction passed in 2017 but is scheduled to expire in 2025. 

The qualified business income (QBI) write-off is for self-employed individuals, independent contractors, farmers, some landlords and owners of pass-through entities, such as partnerships, LLCs and S corporations. Eligible individuals can deduct 20% of their QBI. They claim it on line 13 of their Form 1040 and attach Form 8995 or 8995-A to their returns.

Iosua said that locally, Hawaiʻi businesses have avoided potentially costly legislation this year.

“Closer to home, it pleases me to report that legislation harmful to small businesses, including unemployment benefits for striking workers, increased paid family leave costs and burdensome scheduling mandates, appear dead for the year. This will go a long way to alleviating some of the uncertainty small business owners are having.”

Highlights from latest optimism index

• Economic outlook worsens: The net percentage of small business owners expecting economic improvement dropped 10 points to -37% (seasonally adjusted).
• Expansion plans decline: Just 12% of business owners said now is a good time to expand, down five points, the largest monthly drop since April 2020.
• Inflation concerns persist: 16% of small business owners cited inflation as their biggest challenge, slightly lower than in January but still a major concern.
• Price hikes expected: A net 29% of small businesses plan to raise prices in the next three months, the highest level in 11 months.

NFIB’s Small Business Optimism Index is a key economic indicator used by the Federal Reserve, Congress and state legislatures to gauge small-business health. The Hawaiʻi NFIB chapter continues to monitor policies affecting local businesses.

For more updates, visit www.nfib.com or follow NFIB Hawaiʻi on X (@NFIB_HI).