As we enter 2025, small businesses must navigate several tax changes that could impact their operations and financial planning. This article outlines key updates and provides actionable insights to help small business owners stay compliant and optimize their tax positions.

1. Inflation Adjustments to Tax Brackets and Deductions

The IRS has announced inflation adjustments for tax year 2025, affecting various tax provisions:

• Standard Deduction: For single taxpayers and married individuals filing separately, the standard deduction increases to $15,000, up $400 from 2024.

Action Item: Review withholding and estimated tax payments to align with the updated standard deduction and tax brackets.

2. Expiration of Tax Cuts and Jobs Act (TCJA) Provisions

Several provisions from the 2017 TCJA are set to expire at the end of 2025, which may affect small businesses:

• Section 199A Deduction: The 20% deduction for qualified business income is scheduled to expire, potentially increasing taxable income for pass-through entities.

Action Item: Consult with a tax professional to assess the impact of these expirations and explore strategies to mitigate potential tax increases.

3. Changes to Depreciation and Expensing Rules

The TCJA’s provision for 100% bonus depreciation is phasing out:

• Bonus Depreciation: The allowance decreases to 40% in 2025, reducing the immediate expensing benefit for capital investments.

Action Item: Plan capital expenditures accordingly and consider alternative depreciation methods to maximize tax benefits.

4. State-Level Tax Changes

Several states are implementing tax changes effective January 1, 2025, which may impact small businesses:

• State Tax Competitiveness: States are adjusting tax rates and policies to enhance their business environments.

Action Item: Stay informed about state-specific tax changes and adjust your business strategies to comply with new regulations.

5. IRS Enforcement and Compliance Initiatives

The IRS is enhancing efforts to ensure tax compliance:

• Increased Scrutiny: There is a focus on high-income earners and complex business structures, including partnerships.

Action Item: Maintain accurate and thorough records and consider consulting a tax advisor to ensure compliance with evolving IRS enforcement priorities.

Conclusion

Staying informed about these tax changes is crucial for small businesses to maintain compliance and optimize their tax positions in 2025. Regular consultation with tax professionals and proactive financial planning can help navigate this evolving landscape effectively. Consider contacting Capossela, Cohen, LLC for assistance in understanding the evolving tax landscape and thriving in 2025.