Tax Season 2025: Changes You Should Know About
It’s December, and you know what that means…it’s time to get ready for tax season.
A key step in our Master Exit Planning® process is to collaborate with the business owner’s accountant and estate planning attorney to create a strategy that mitigates taxes when selling or transferring a business.
Taking a proactive approach to tax planning and preparation is critical if you want to ensure you maximize the money you keep in your own pocket and out of the hands of the IRS.
What’s Changing for 2025
There are several important federal tax changes for 2025 from the One, Big, Beautiful Bill Act (OBBBA). Below is a summary of the most impactful items that business owners will be paying attention to:
IRC Section 199A: Extension and Expansion of the Qualified Business Income Deduction
The Qualified Business Income (QBI) deduction allows many pass-through businesses a 20% deduction of their business income on their individual returns. This deduction was originally enacted under the Tax Cuts and Jobs Act (TCJA) and was set to sunset this year.
OBBBA makes the deduction permanent and expands its availability by:
- Increasing the phase-in thresholds to $75,000 for single filers and $175,000 for joint filers (previously $50,000 and $100,000, respectively).
- Establishing a minimum deduction of $400 (adjusted for inflation) for taxpayers earning at least $1,000 of QBI from eligible businesses.
- Continuing to exclude certain high-income professional service providers—such as CPAs, physicians, architects, and consultants—above specified income limits.
IRC Section 1202: Increases to Capital Gains Exclusions for Qualified Small Business Stock (QSBS)
Qualified Small Business Stock refers to shares in a domestic C corporation with assets of less than $50 million upon stock issuance, where the shares are used in a qualified trade or business, including manufacturing, wholesalers, retailers, and technology companies.
Excluded businesses include service, finance, real estate, and hospitality – essentially non-qualified companies that rely on the skills of one or more employees.
Additionally, the stock must be acquired in exchange for money, property, or compensation for services and cannot be purchased from another shareholder. The stock must also be held for a specified period to qualify for a full capital gain exclusion.
OBBBA enhances the tax benefits of investing in small businesses by amending Section 1202:
- The capital gains exclusion increases from $10 million to $15 million for eligible sales.
- The corporate size cap for qualifying businesses increases from $50 million to $75 million for stock issued after July 4, 2025.
- A reduced holding period of three years (down from five) is introduced for partial exemption eligibility.
IRC Section 168(k): Permanent Reinstatement of 100% Bonus Depreciation for Qualified Property
One of the most significant changes under OBBBA is the permanent restoration of 100% bonus depreciation effective for qualified property (generally assets with a recovery period of less than 20 years under MACRS [Modified Accelerated Cost Recovery System]) that is placed in service after January 19, 2025. Businesses can now:
- Fully expense qualifying capital equipment and tangible property in the year it is placed in service.
- Benefit from increased Section 179 expensing limits: the deduction cap increases from $1 million to $2.5 million, with phaseouts beginning at $4 million.
- Claim full expensing on qualified production structures for film, television, and theatre that are placed in service before January 1, 2031.
Reinstatement of EBITDA-Based Interest Deduction
Reversing a key limitation from the TCJA, OBBBA reinstates the more favorable EBITDA-based cap on business interest deductions beginning in 2025.
By calculating the limitation based on earnings before interest, taxes, depreciation, and amortization, businesses—particularly those with high capital investments—will have increased capacity to deduct financing costs.
IRC Section 461(I): Excess Business Loss (EBL) Limitation Made Permanent
OBBBA permanently codifies the limitation on excess business losses. For 2025, non-corporate taxpayers may only deduct business losses up to the threshold of $313,000 (indexed for inflation). Losses exceeding that amount are treated as net operating losses in subsequent years.
Temporary Increase of the State and Local Taxes (SALT) Deduction Cap
The deduction cap on state and local taxes increases from $10,000 to $40,000 for tax years beginning 2025. It is indexed for inflation through 2029, before reverting to $10,000 in 2030.
The SALT deduction phases out above $500,000 of modified adjusted gross income (MAGI).
