2025 Tax Changes: What Business Owners Need to Know

Title: 2025 Tax Changes: What Business Owners Need to Know

Thinking about how upcoming tax rules might affect your business can bring up questions and concerns. The new tax rules set for 2025 are already grabbing the attention of many business owners who want to understand what could change and how it might matter for them.

Let’s look at the main points about these tax updates, keeping the facts straightforward and easy to follow.

The Tax Cuts and Jobs Act Is Expiring

The Tax Cuts and Jobs Act (TCJA), passed in 2017, made some significant changes for business owners. However, much of this legislation expires at the end of 2025. This means many of the benefits and rules that business owners have become used to might go away or change as early as 2026.

Corporate Tax Rates Remain the Same (For Now)

For larger, C Corporation businesses, the federal income tax rate of 21% is not scheduled to change in 2025. This flat corporate rate, introduced by the TCJA, does not have a set expiration date like other parts of the rules.

Qualified Business Income (QBI) Deduction May End

Many small business owners, those operating as sole proprietors, LLCs, partnerships, or S corporations, have benefitted from the 20% deduction on qualified business income, known as the QBI deduction. Unless further action is taken, this deduction is set to end after 2025. This could increase taxable income for owners of pass-through businesses.

Changes in Individual Tax Rates

The current, lower individual income tax rates are set to go back up at the start of 2026. The top federal tax rate may rise to 39.6%, and the income brackets will adjust alongside it. Those who run their businesses as pass-through entities could see higher personal tax bills if this happens.

Other Deductions and Credits Are Also Affected

Several benefits that business owners may use are scheduled to change:

- The standard deduction will shrink to previous, lower amounts in 2026.

- Personal exemptions, which had been removed, are set to return.

- The child tax credit will decrease and may become less available to higher-income households.

- Changes to state and local tax (SALT) deduction limits and mortgage interest deductions will take place.

Bonus Depreciation Phaseout

Businesses that buy equipment have had the option to deduct up to 100% of the cost in the same year, thanks to bonus depreciation rules. This bonus depreciation is phasing down, reaching 40% in 2024 and 20% in 2025, before fully expiring by 2027.

Estate and Gift Exemptions Will Decrease

Another point for business owners to consider is estate planning. The federal estate and gift tax exemption, which doubled under the TCJA, is set to return to lower levels after 2025. This means more estates could be subject to tax unless the rule is extended or changed.

Looking Ahead

With many TCJA provisions expiring, business owners may want to stay informed and consider how these changes could touch their tax position. The approaching 2026 tax year may bring different rates, deductions, and rules. Staying aware of these timelines can help business owners understand and navigate what’s ahead.