If you’re running a small business, 2025 brings major tax law updates that you can’t afford to miss. The changes affect deductions, reporting thresholds, depreciation, and more. This guide walks through the key shifts, what they mean for you, and how to plan ahead.
Key Small Business Tax Law Changes 2025
Expanded Section 179: Immediate Write-Offs for Equipment
Small and mid-sized businesses can now deduct up to $2.5 million immediately for qualifying equipment or property placed in service in 2025. That’s double the previous cap. The deduction phases out dollar-for-dollar once equipment purchases exceed $4 million and disappears at $6.5 million.
This change helps you recover costs quickly and improve cash flow. If you hit the cap, you can still use bonus depreciation to write off the rest.
Full Expensing for Production and R&D
The 2025 One Big Beautiful Bill Act allows businesses to fully expense domestic research and experimentation costs starting January 1, 2025. It also applies full expensing for qualified production property such as factories, machinery, and similar assets.
For small firms, this means big investments in R&D or production equipment can be immediately deducted instead of spread out over years.
Qualified Small Business Stock (QSBS) Gains: Bigger and Sooner
If you invested in or run a startup structured as a C-Corp, this is a major update. For QSBS acquired after July 4, 2025:
– Gains up to $15 million (or 10× basis) can be excluded from federal tax
– Shorter holding periods now trigger partial exclusions:
– 50% after three years
– 75% after four years
– 100% after five years
– The asset limit for eligible companies is now $75 million
This makes exits through sales or secondary markets more tax-efficient and smoother for founders and early investors.
No Tax on Tips (and Overtime) for Eligible Workers
Workers in traditionally tipped roles—or receiving voluntary tips—can deduct up to $25,000 in qualified tip income in 2025, with phaseouts for incomes above $150,000 (single) or $300,000 (joint). Only cash or charged tips count; digital or credit card tips do not qualify.
A similar rule applies to overtime: the portion above your regular rate—like the “half” in time-and-a-half pay—is deductible for 2025 through 2028.
Higher SALT Deduction Cap
Good news if you pay significant state and local taxes. The deduction cap rises from $10,000 to $40,000 through 2029, phasing down for incomes above $500,000 ($250,000 if married filing separately).
This is especially helpful for businesses in states with higher income or property taxes.
Form 1099 Reporting: Raised Thresholds
Starting in 2026, businesses must issue a 1099-K for $20,000 or more in payments across at least 200 transactions. The 1099-MISC and 1099-NEC threshold also increases from $600 to $2,000.
This means fewer small transactions will require tax reporting, reducing paperwork for many small businesses.
Permanent 20% QBI Deduction and Business Loss Limits
`The popular 20% Qualified Business Income (QBI) deduction remains permanent for pass-through entities. At the same time, the cap on excess business losses is locked in at $313,000 for single filers and $626,000 for joint filers—also made permanent.
Small Business Tax Updates 2025: At a Glance
| Area | What Changed | Why It Matters |
| Equipment Expensing (Sec 179) | Cap increased to $2.5M | Helps with cash flow and reinvestment |
| Production & R&D Deductions | Full expensing for qualifying assets | Deduct big costs in year of purchase |
| QSBS Capital Gains | Higher caps and quicker tax-free tiers | Encourages quicker exits with tax benefits |
| Tips & Overtime | Up to $25K deductions for eligible income (2025 only) | Reduces taxable income for applicable workers |
| SALT Limits | Up to $40K deductions through 2029 | Helps businesses in high-tax states |
| 1099 Reporting | Thresholds raised for K and NEC/MISC forms | Cuts down paperwork if payments are under new limits |
| QBI Deduction | Made permanent | Sustains tax benefit for pass-through income |
| Loss Limit Rules | Thresholds fixed per annum | Ensures NOL carryforwards remain available beyond current year |
What Business Owners Should Do Next
1. Plan capital purchases: Take advantage of the expanded Section 179 and bonus depreciation.
2. Invest in R&D and production: Accelerate projects that qualify under full expensing.
3. Track tips and overtime carefully: Set up processes to capture eligible deductions.
4. Prepare for 1099 changes: Update vendor tracking to meet the new $2,000 threshold in 2026.
5. Review QSBS opportunities: Plan ahead for exit timing and eligibility.
6. Factor in SALT cap relief: Use the temporary increase to manage overall tax liability.
Business Tax Compliance 2025: Why It Matters
The IRS has increased scrutiny on reporting accuracy, especially with 1099 filings and QBI claims. Missing updates can lead to penalties, audits, or lost deductions. Staying proactive with compliance saves money and reduces risk.
How Aced Accounting Helps You Navigate Tax Changes
At Aced Accounting, we make tax compliance and planning straightforward for small business owners:
– We track deductions that make a real difference—like Section 179, R&D, QSBS, and tip-based deductions.
– We stay current on federal and state thresholds, SALT limits, and reporting changes.
– We help you make smart timing decisions on purchases and investments to maximize tax savings.
– We focus on keeping you compliant so you avoid penalties while taking advantage of every available incentive.
If you’d like to talk about how these small business tax law changes in 2025 affect your business, reach out to our team. We’ll help you navigate the updates and keep your tax strategy working in your favor.
FAQs on Small Business Tax Law Changes 2025
Do these changes apply to all small businesses?
Not every change applies universally. For example, QSBS updates only apply to C-Corp stockholders, while Section 179 and R&D expensing apply more broadly. Always review which provisions are relevant to your structure.
How do the new 1099 thresholds affect contractors and freelancers?
If you pay an independent contractor less than $2,000 in a year starting in 2026, you won’t need to file a 1099-NEC. This reduces paperwork but contractors must still report income on their own returns.
Does the higher SALT cap benefit everyone?
The increased $40,000 cap is most valuable to small business owners in high-tax states such as California, New York, and New Jersey. If you live in a state with low income and property taxes, you may not see a large benefit.
What’s the benefit of the permanent QBI deduction?
Pass-through entities like partnerships, LLCs, and sole proprietorships can continue deducting up to 20% of qualified business income. This deduction was originally set to expire but is now permanent, offering long-term tax relief.
Should I adjust payroll systems for the tip and overtime deduction?
Yes. If you operate in hospitality or food service, accurate tracking of tips and overtime is critical for your staff to claim these deductions. Good payroll software or professional accounting support can help streamline this.
