2025 Tax Law Changes That Affect Small Businesses

Tax laws are constantly evolving. Here are the key changes for 2025 that small business owners need to know.

Section 179 Deduction Increase

The Section 179 deduction limit has increased to $1,220,000 for 2025, with a phase-out threshold of $3,050,000.

What this means: You can immediately deduct the full cost of qualifying equipment and software purchases instead of depreciating them over time.

Bonus Depreciation Phase-Out

Bonus depreciation continues to phase out:

2024: 60%
2025: 40%
2026: 20%
2027: 0%

Action item: Consider major equipment purchases in 2025 to take advantage of remaining bonus depreciation.

Standard Mileage Rate

The IRS standard mileage rate for 2025:

Business use: 67 cents per mile (up from 67 cents)
Medical/moving: 21 cents per mile
Charitable: 14 cents per mile

Retirement Plan Contribution Limits

401(k) and 403(b):

Employee contribution: $23,500 (up from $23,000)
Catch-up (age 50+): $7,500
Total limit: $69,000

SEP IRA:

25% of compensation or $69,000, whichever is less

SIMPLE IRA:

$16,500 (up from $16,000)
Catch-up: $3,500

Qualified Business Income Deduction

The QBI deduction remains at 20% of qualified business income for pass-through entities, subject to income limitations.

Employee Retention Credit

The ERC program has officially ended, but businesses can still claim it retroactively for eligible periods during COVID-19.

Independent Contractor Classification

New Department of Labor rules make it harder to classify workers as independent contractors. Ensure your classifications are correct to avoid penalties.

State and Local Tax Deduction

The $10,000 SALT deduction cap remains in effect through 2025.

What You Should Do Now

Review your equipment needs before year-end
Maximize retirement contributions
Document all business mileage
Review worker classifications
Consult with a tax professional

SmartBooks Accounting stays current on all tax law changes. Schedule a consultation to optimize your tax strategy for 2025.